**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-K**

 

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**(Mark One)**

| **ý** | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                   |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
|       |       | **For the fiscal year ended December 31,  2005**                                                                                                                                                                                 |
|       |       | ** **                                                                                                                                                                                                                            |
| **or**     |
|       |       |                                                                                                                                                                                                                                  |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                               |
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
|       |       | **For the transition period  from                                to** |

 

**CommissionFile Number:  001-32495**

 

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**NEW SKIESSATELLITES HOLDINGS LTD.**

(Exactname of Registrant as specified in its charter)

 

| **Bermuda**                                                     | ** ** | **98-0439657**                           |
|-----------------------------------------------------------------|------------|------------------------------------------|
| (State or other  jurisdiction of Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |

 

**Canon’sCourt, 22 Victoria Street, Hamilton HM12, Bermuda**

(Address, including zipcode, of Registrant’s Principal Executive Offices)

 

**(441)295-1443**

(Registrant’s telephonenumber, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

| **Title of each class**   | ** ** | **Name of each exchange on which registered** |
|------------------------------------------|------------|-----------------------------------------------------------------------------|
| Common Stock, par value  $0.01 per share |       | New York Stock Exchange                                                     |

 

Securities registered pursuant to Section 12(g) of theAct:  **None**

 

Indicate by check mark if the registrant is awell-known seasoned issuer. o

 

Indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. o

 

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

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 ofthis chapter) is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. o

 

Indicate by check mark whether the registrantis an accelerated filed (as defined in Rule 12b-2 of the Act).  o Yes  ý No

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Act).  o Yes  ý No

 

The aggregate market value of the voting andnon-voting common equity held by non-affiliates of the registrant as of June 30,2005, the last business day of the registrant’s most recently completed secondfiscal quarter, based upon the closing price of its common stock on such dateon the New York Stock Exchange, was $640.9 million.

 

As of March 15, 2006, 32,491,235 ordinary shares of our commonstock were outstanding.

 

 

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**NEW SKIESSATELLITES HOLDINGS LTD**

 

**TABLE OFCONTENTS**

 
| **INTRODUCTION**                                      | iv                                                                                                                    |
|-------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
| ** **                                            |                                                                                                                  |
| **SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS** | iv                                                                                                                    |
| ** **                                            |                                                                                                                  |
| **PART I**                                       | 1                                                                                                                     |
| ** **                                            |                                                                                                                  |
| *ITEM 1.*                                             | *DESCRIPTION OF BUSINESS*                                                                                             | 1 |
| *ITEM 1A.*                                            | *RISK FACTORS*                                                                                                        | 20 |
| *ITEM 2.*                                             | *PROPERTIES*                                                                                                          | 37 |
| *ITEM 3.*                                             | *LEGAL  PROCEEDINGS*                                                                                                  | 37 |
| *ITEM 4.*                                             | *SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS*                                                                | 37 |
| * *                                              | * *                                                                                                              |   |
| **PART II**                                      | ** **                                                                                                            | 37 |
| ** **                                            | ** **                                                                                                            |   |
| *ITEM 5.*                                             | *MARKET  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER  PURCHASES OF EQUITY SECURITIES* | 37 |
| *ITEM 6.*                                             | *SELECTED  FINANCIAL DATA*                                                                                            | 39 |
| *ITEM 7.*                                             | *MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*                         | 41 |
| *ITEM 7A.*                                            | *QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*                                                         | 57 |
| *ITEM 8.*                                             | *FINANCIAL STATEMENTS AND SUPPLEMENTARY  DATA*                                                                        | 58 |
| *ITEM 9.*                                             | *CHANGES IN AND DISAGREEMENTS WITH  ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*                               | 82 |
| *ITEM 9A.*                                            | *CONTROLS AND PROCEDURES*                                                                                             | 82 |
| *ITEM 9B.*                                            | *OTHER INFORMATION*                                                                                                   | 82 |
| * *                                              | * *                                                                                                              |   |
| **PART III**                                     | ** **                                                                                                            | 83 |
| ** **                                            | ** **                                                                                                            |   |
| *ITEM 10.*                                            | *DIRECTORS AND EXECUTIVE OFFICERS OF THE  REGISTRANT*                                                                 | 83 |
| *ITEM 11.*                                            | *EXECUTIVE COMPENSATION*                                                                                              | 86 |
| *ITEM 12.*                                            | *SECURITY OWNERSHIP OF CERTAIN BENEFICIAL  OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*                     | 91 |

 

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| *ITEM 13.*             | *CERTAIN RELATIONSHIPS AND RELATED  TRANSACTIONS* | *92*       |
|------------------------|---------------------------------------------------|------------|
| *ITEM 14.*             | *PRINCIPAL ACCOUNTING FEES AND SERVICES*          | *93*       |
| * *               | * *                                          | * *   |
| **PART IV**       | ** **                                        | **94**     |
| ** **             | ** **                                        | ** ** |
| *ITEM 15.*             | *EXHIBITS, FINANCIAL STATEMENT SCHEDULES*         | *94*       |
| ** **             | ** **                                        | ** ** |
| **SIGNATURES**         | **94**                                            |
| ** **             | ** **                                        |
| **EXHIBIT INDEX** | **95**                                            |

 

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**INTRODUCTION**

 

In this annual report, all references to “NewSkies,” “the Company,” “we,” “us,” “our” and “ours” refer to New SkiesSatellites Holdings Ltd. and its subsidiaries, unless the context otherwiserequires or it is otherwise indicated.

 

# **SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS**

# ** **

Certain statements in this annual report arenot historical facts and are “forward-looking statements” within the meaning ofthe U.S. federal securities laws. The Private Securities Litigation Reform Actof 1995 provides a “safe harbor” for certain forward-looking statements as longas such information is identified as forward-looking and is accompanied bymeaningful cautionary statements identifying important factors that could causeactual results to differ materially from those projected in the information. Weintend that forward-looking statements contained in this report be covered bythe safe harbors created under the U.S. federal securities laws. Words such as “believes,”“expects,” “estimates,” “may,” “intends,” “will,” “should” or “anticipates” andsimilar expressions or their negatives identify forward-looking statements.

 

Forward-looking statements, such as thestatements regarding SES Global S.A.’s agreement to acquire us, our ability todevelop and expand our business, our ability to manage costs, our ability toexploit and respond to technological innovation, the effects of laws andregulations (including tax laws and regulations) and legal and regulatorychanges, the opportunities for strategic business combinations and the effectsof consolidation in our industry on us and our competitors, our anticipatedfuture revenues, our anticipated capital spending (including for futuresatellite procurements), our anticipated financial resources, our expectationsabout the future operational performance of our satellites (including theirprojected operational lives), the expected strength of and growth prospects forour existing customers and the markets that we serve, and other statementscontained in this report regarding matters that are not historical facts,involve predictions. Statements of that sort involve known and unknown risks,uncertainties and other factors that may cause our actual results,performance or achievements or industry results to be materially different fromany future results, performance or achievements expressed or implied by anystatements of that sort. These risks and uncertainties include, among otherthings:

 

•                  the time withinwhich we expect SES Global S.A.’s acquisition of us to close and the conditionsthat must be satisfied in order for this acquisition to close;

 

•                  the level and typeof demand for our services and for the products and services provided by ourcustomers to third parties, including the extent to which changes in demand andour competitive position as well as the creditworthiness of our customers may resultin changes to our contractual backlog for future services and in pricingpressure and overcapacity in the markets in which we compete;

 

•                  problems withrespect to the construction, launch or in-orbit performance of our existing andfuture satellites, including possible future losses on satellites that are notfully covered by insurance, or with the performance of our ground-basedfacilities, including with the performance of our Satellite Operations Center;

 

•                  our ability toattract sufficient funding to meet our future capital and debt-repaymentrequirements;

 

•                  competition and ourcompetitiveness vis-à-vis other providers of satellite and ground-basedservices;

 

•                  the pace and effectsof industry consolidation;

 

•                  the continued availabilityof insurance on commercially reasonable terms, and the effects of any insuranceexclusions;

 

•                  changing technology;

 

•                  changes in ourbusiness strategy or development plans;

 

•                  our ability toattract and retain qualified personnel;

 

•                  worldwide economic,geopolitical and business conditions and risks associated with doing businesson a global basis;

 

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•                  control by certaininvestment funds affiliated with The Blackstone Group; and

 

•                  legal, regulatory,and tax developments, including changes in domestic and internationalgovernmental regulation.

 

We caution you that the foregoing list ofimportant factors is not exclusive. These risks and uncertainties could causeactual results to vary materially from future results indicated, expressed orimplied in any forward-looking statements. In addition, in light of these risksand uncertainties, the matters referred to in the forward-looking statements may notin fact occur. We undertake no obligation to update or revise publicly anyforward-looking statement as a result of new information, future events orotherwise, except as otherwise required by law.

 

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# **PART I**

# ** **

## **ITEM 1. DESCRIPTIONOF BUSINESS**

##  

### **Our Formation**

###  

On November 2, 2004, New SkiesInvestments S.a.r.l., through its wholly owned subsidiaries, New Skies HoldingB.V. and New Skies Satellites B.V., purchased substantially all of the assetsand liabilities of New Skies Satellites N.V., including the shares of itssubsidiaries (the “Acquisition”), for an aggregate purchase price of $982.8million, including direct acquisition costs. New Skies Investments S.a.r.l. wasowned by certain investment funds affiliated with The Blackstone Group (the “investmentfunds”), along with management. At the closing of the Acquisition, theinvestment funds (along with management) directly and indirectly owned 100% ofNew Skies Investments S.a.r.l., New Skies Holding B.V., an intermediate holdingcompany, and New Skies Satellites B.V., our principal operating company. See “—Item7—Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Our Formation, Our IPO and Subsequent Transactions.”

 

New Skies Satellites Holdings Ltd. (“Holdings”)was formed on January 14, 2005 under the laws of Bermuda. In May 2005,immediately prior to Holdings’ initial public offering (the “NSS IPO”), theCompany performed an internal restructuring (the “Restructuring”). See “—Item7—Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Our Formation, Our IPO and Subsequent Transactions.”  As a result of the Restructuring, theinvestment funds (along with management) became direct owners of Holdings andNew Skies Investments S.a.r.l., New Skies Holding B.V. and New Skies SatellitesB.V. became indirect wholly-owned subsidiaries of Holdings.

 

In May, 2005, Holdings completed the sale of11.9 million newly issued ordinary shares, equivalent to approximately 37% ofthe total currently issued and outstanding ordinary shares, in an initialpublic offering. The sale of an additional 1.8 million shares, consisting ofshares issued to cover over-allotments, was completed on May 27, 2005. Holdingscommenced trading on the New York Stock Exchange on May 10, 2005. Holdingsis a holding company and has no direct operations. Its principal asset is itsequity interest in New Skies Satellites B.V.

 

On November 8, 2005, the Company soldone of its wholly-owned subsidiaries, New Skies Networks Pty Limited, toMultiemedia Ltd. for cash consideration of $10.0 million. Concurrent with thesale, the Company also entered into certain agreements to ensure that theservices previously provided to, and received from, New Skies Networks PtyLimited continue to be received and from which the Company will generatecontinued cash flows. See “Item 1—Description of Business—Network OperationsFacilities.”

 

### **Our Acquisition by SES Global**

###  

On December 14, 2005, SES Global S.A. (“SESGlobal”) and we announced that we had entered into a binding agreement pursuantto which SES Global will acquire 100% of us by way of a merger under Bermudalaw (an amalgamation) (the “SES Transaction”). SES Global will acquire us forUS$22.52 per share in cash. Immediately prior to closing and before consideringtransaction and other costs associated with the SES Transaction, our subsidiaryNew Skies Satellites B.V. expects to have approximately US$415.0 million of netindebtedness under its credit facility, senior floating rate notes and seniorsubordinated notes. As of the closing, SES Global will re-finance New SkiesSatellites B.V.’s existing bank debt and New Skies Satellites B.V. will ceaseto have any obligations under its credit facility. As of the closing, no changewill be made to New Skies Satellites B.V.’s senior floating rate notes andsenior subordinated notes.

 

As part of the transaction agreement weentered into with SES Global, we agreed to terminate our quarterly dividendprogram after the declaration and payment of our 2005 fourth quarter dividend. Wedeclared a quarterly cash dividend of $0.463125 per share in respect of thefourth quarter of 2005 on December 19, 2005. For more information aboutour dividend policy see “—Item 5—Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities—Dividends.”

 

On January 18, 2006, we distributed toall shareholders of record as of January 13, 2006 a definitive proxystatement notifying shareholders of a special meeting of shareholders to beheld on February 10, 2006 during which shareholders were asked to considerand vote upon a proposal to approve and adopt (i) the transactionagreement and plan of amalgamation, dated as of December 14, 2005, betweenus, SES Global and SES Holdings (Bermuda) Limited, a wholly-owned subsidiary ofSES Global, (ii) the amalgamation agreement, dated as of December 14,2005, between us and SES Holdings (Bermuda) Limited and (iii) theamalgamation of New Skies and SES Holdings

 

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(Bermuda) Limited on the terms and conditionsset forth in the transaction agreement and the amalgamation agreement. Copiesof the transaction agreement and the amalgamation agreement were made availableto shareholders as appendices to the proxy statement. On February 10,2006, we held the special meeting and our shareholders voted to approve the SESTransaction. The investment funds, who owned 55.3% of our issued andoutstanding shares as of the record date for the special meeting and who hadentered into a voting agreement with SES Global whereby they had agreed to votein favor of the SES Transaction unless the transaction agreement had beenterminated, voted in favor of the SES Transaction.

 

We are working to complete the amalgamationin the near future. In addition to the approval and adoption of the transactiondocuments by our shareholders, we must also obtain various regulatory approvalsand satisfy other conditions to the amalgamation. See “Item 1—Description ofBusiness—Government Regulation—Regulatory Approvals and Notifications.”  These conditions and the circumstances underwhich the transaction agreement may be terminated are discussed in thedefinitive proxy statement filed with the Securities and Exchange Commission (“SEC”)on January 18, 2006. If the conditions to the amalgamation are satisfiedor waived (to the extent permitted by applicable law), we expect the SESTransaction will close in the second quarter of 2006, although the timing ofthe closing depends upon the receipt of necessary approvals and could occurearlier or later.

 

The consummation of the amalgamation willresult in:

 

•                  The conversion ofeach of our common shares issued and outstanding immediately prior to theeffective time of the amalgamation into the right to receive US$22.52 per sharein cash, without interest and subject to applicable withholding taxes, otherthan our common shares:

 

•                  Held by dissentingshareholders who exercise their appraisal rights under the laws of Bermuda;

 

•                  Held by SES Global,SES Holdings (Bermuda) Limited or any subsidiaries of SES Global; or

 

•                  Held by any of oursubsidiaries;

 

•                  All outstandingoptions being cashed-out for an amount equal to the excess of $22.52 over theexercise price per common share subject to the option for each share subject tosuch option; and

 

•                  Our existence as aseparate company ceasing and the amalgamated company becoming a wholly-ownedsubsidiary of SES Global.

 

 Uponcompletion of the amalgamation, SES Global plans to remove our common sharesfrom listing on the New York Stock Exchange, and our common shares will nolonger be publicly traded.

 

### **Our Business**

###  

We are a satellite communications companywith global operations and service coverage. We operate a network of five FixedSatellite Service (“FSS”) satellites located at different orbital positionsabove the earth. Our customers can access one or more of our satellites fromalmost any point around the world using either our global network of ground-basedfacilities, which includes our U.S. mediaport and our partner teleports, ortheir own ground-based facilities. At December 31, 2005, we had theyoungest global fleet in the FSS industry, based on the average number of yearsthe satellites in each of the global fleets had been in service. We haveconsistently maintained one of the highest transponder availability rates inthe FSS industry. For the twelve months ended December 31, 2005, ouravailability rate was 99.9999%, based on the total number of hours thetransponders in our fleet were available to provide service as compared to thetotal number of transponder-hours during the year.

 

At the time of our creation in 1998, weinherited five in-orbit satellites as well as related customer contracts andone satellite that was then under construction. Two of the satellites that weinherited were nearing the end of their operational lives. In addition, shortlyafter our creation we terminated the contract for the satellite that was thenunder construction due to substantial delays in the satellite’s delivery. As aresult of these factors, in 1999 we launched a capital investment program torenew and augment our satellite fleet. We procured and launched two newsatellites, NSS-6 and NSS-7, retired the two satellites that reached the end oftheir operational lives, and procured an additional satellite, NSS-8, which iscurrently under construction. Together, we anticipate that these satelliteswill provide us with the ability to maintain our operations at each of ourexisting orbital locations without the need for any additional satelliteprocurements (including for replacement satellites) until approximately 2010.We also acquired certain ground-based facilities and were assigned rights touse additional orbital positions. Our investment in our new satellites totalledin excess of $450 million in the period from 2000 to 2005, inclusive. Ourtechnically

 

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advanced satellite fleet has substantialcapacity focused on high growth markets, including India, Africa, the MiddleEast and Asia. NSS-6 and NSS-7 are among the most powerful and flexiblesatellites in the FSS industry and enable us to provide highly reliable, highquality services to our customers. In addition, should demand patterns shiftover time, these satellites’ designs make it possible for us to reallocatecapacity within regions to the markets with the greatest demand.

 

With the launches of NSS-6 and NSS-7 in 2002and the subsequent decommissioning of NSS-513 and NSS-K, we expanded our totaltransponder capacity available for sale by approximately 67%. Following thesuccessful launch of NSS-8, which the manufacturer projects will occur duringthe fourth quarter of 2006, we will further expand our available capacity by28%. We believe that this incremental transponder capacity will enable us togenerate additional revenues without significantly increasing our operatingcosts (before depreciation), thereby improving our operating income and margin.The launches of the two satellites, NSS-6 and NSS-7, and the anticipated launchof NSS-8, represent the completion of our committed satellite procurementprogram initiated in 1999.

 

Throughout our seven-year history, we havedemonstrated our ability to achieve strong organic revenue growth increasingrevenues over this time by $123.8 million or 106%, from $116.7 million in 1998to $240.5 million in 2005. For the year ended December 31, 2005, wegenerated revenues of $240.5 million. At December 31, 2005, we had acontractual backlog for future services of $502 million, which we recognizeas revenue when we actually perform the services.

 

### **Our Customers and Services**

###  

We primarily earn our revenues by providingcapacity for satellite communications and ground-based services to ourcustomers for contracted periods varying from less than one year to15 years. Our base of over 200 customers includes establishedtelecommunications carriers, leading broadcasting and video companies,governmental entities and fast-growing smaller companies from around the globe.

 

At December 31, 2005, we providedservice under contract to 267 customers worldwide. For the year ended December 31,2005, our ten largest customers represented approximately 43% of our totalrevenues. For the same period, revenues from our largest customer, Intelsat andits affiliates (including the COMSAT group which it acquired in 2004), were$42.7 million, or 18% of our total revenues.

 

For the years ended December 31, 2003,2004 and 2005, we derived our revenues in the following geographic regionsbased on the billing addresses of our customers, shown in percentages:

 
| ** **                    | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| **Region**                    | ** ** | **2003**                         | ** ** | **2004** | ** ** | **2005** | ** ** |
|                          |       |                             |       |   |   |   |   |
| North America                 |       | 36                               | %          | 35 | % | 41 | % |
| Europe                        |       | 22                               |       | 21 |   | 20 |   |
| India, Middle East and Africa |       | 21                               |       | 22 |   | 20 |   |
| Latin America                 |       | 13                               |       | 13 |   | 10 |   |
| Asia Pacific                  |       | 8                                |       | 9 |   | 9 |   |
| Total                         |       | 100                              | %          | 100 | % | 100 | % |

 

Our customers use the services we provide fora variety of applications, including data services, such as corporate andgovernmental data networks; video services, including cable and broadcasttelevision distribution and contribution services and direct-to-home (“DTH”)services; Internet-related services; and voice services. For the year ended December 31,2005, we estimate that 51% of our revenues were generated from data services,30% from video services, 14% from Internet-related services and 5% fromvoice trunking services. This categorization reflects our best estimate ofsatellite utilization based on information provided by our customers, typicallyat the commencement of their respective services, as customers ordinarily arenot required to inform or update us about the ultimate use of the capacitywe provide to them. Of our $502 million backlog at December 31, 2005,we similarly estimate that data services represented 41%, video servicesrepresented 47%, Internet-related services represented 7% and voice trunkingservices represented 5%. As of December 31, 2005, the average remainingduration of our backlog, based on a weighted average of backlog outstanding,was approximately five years. On a simple average

 

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basis, representing the remaining duration ofour contracts divided by the number of contracts, the average remainingduration of our contracts was approximately two years.

 

***Data services***

 

Our satellites are used to createhigh-bandwidth private data networks for governments and businesses around theworld. Many of these networks use relatively small antennas known as VSATs(very small aperture terminals) to connect geographically dispersed sites intoa dedicated, interconnected communications network. Using such a network,individual locations can quickly, reliably and securely send and receiveinformation directly to and from a central location. Our powerful satellitesare well-suited for serving the growing demands of these networks, as higherpower levels can improve the quality of a customer’s service and can make itpossible to transmit larger amounts of information and/or use smaller and lessexpensive ground station antennas.

 

Over the past several years, data serviceshave contributed a significant and growing portion of our revenues, increasingfrom 27% of total revenues in 2002 to 51% in 2005. Based upon input from ourcustomers and market information, we believe this increase reflects, in largepart, growing demand by governmental entities, including in particular the U.S.government, for commercial data services. We estimate that we derivedapproximately one-third of our 2005 revenues from services to customers wherethe ultimate end user was a governmental entity. This reflects our bestestimate, as we do not typically sell services directly to a number ofgovernmental entities that use large amounts of commercial communicationssatellite capacity, including the U.S. government, and our customers generallyare not required to inform us about the ultimate end user of the capacitywe provide to them.

 

#### ***Video services***

####  

We currently broadcast more than400 channels of entertainment and news programming to cable networks,broadcast affiliates and consumers’ homes around the world. From DTHtransmissions in India and West Africa to full-time contribution feeds forbroadcasters in Europe and the Middle East, we have the technologicalresources, global reach and commercial experience to enable our customers to delivertheir programming to markets anywhere in the world. Our end users range fromtop media and entertainment companies to leading broadcasters and newsagencies. Our video services can be grouped into two types:

 

•                  *Video distribution*—We are a leading providerof satellite capacity for the distribution of international, regional andnational television and cable programming to markets around the world,including Latin America, India and Africa. Our satellites can be used totransmit video signals to ground-based cable and broadcasting systems anddirectly to the homes of multi-channel video subscribers. Three of oursatellites carry attractive programming neighborhoods, making their capacitydesirable to other entities transmitting similar content. Our NSS-806 satellitehas one of the leading video neighborhoods in Latin America, carrying over110 channels of video programming for distribution to approximately13.5 million subscribers across the region. Our NSS-7 satellite offers astrong African video neighborhood carrying leading French-language channels,news channels, sports music and entertainment channels and a dedicated Arablanguage package. Our NSS-6 satellite supports DTH video services platforms forDoordashan, India’s national broadcaster, and Zee Television in India.

 

•                  *Video contribution*—Broadcasters and newsprogrammers who require a reliable transmission link use our satellites totransmit regular television contribution feeds as well as special events, suchas the Olympics and fast-breaking news stories, back to their video productionfacilities. Depending upon their needs, broadcasters and news programmers canobtain our services on a full-time or an occasional use basis. We providefull-time contribution services to large customers around the world, includingmajor broadcasters and carriers.

 

#### ***Internet-related services***

####  

We offer telecommunications companies,service providers, network integrators, Internet service providers and otherresellers high-speed connections directly to the Internet backbone. OurInternet-related service offerings, which we have branded IPsys®, includeone-way and two-way satellite-based links between an Internet service provider’spoints of presence or a customer’s premises and the global Internet backbone,bypassing shared ground networks and the associated congestion points—as wellas any terrestrial connectivity gaps—to deliver Internet content to even themost remote locations at high speeds. IPsys® served over 100 customers inapproximately 45 countries as of December 31, 2005. Our IPsys® offeringincludes several distinct services:

 

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•                  *IPsys® Premier*—Designed for entitiesseeking to augment existing network bandwidth to boost overall robustness and/or to extend point of presence networks to remote areas;

 

•                  *IPsys® Direct*—Provides Internet backboneaccess to customers needing reliable, high-speed and easily scalable addedbandwidth; and

 

•                  *IPsys® Burst*—Best suited for rapidlygrowing entities who serve a developing subscriber base and wish to scale uptheir operations in response to changing user-demands.

 

We also periodically introduce new servicesto reflect trends in the Internet-related services market. For example, in 2004we introduced two new two-way satellite broadband services, IPsys® Broadbandand IPsys® Bandwidth on Demand. These services make it possible fortelecommunications companies, service providers, network integrators, Internetservice providers and other resellers to establish high-quality, cost-effectivebroadband networks by allowing providers to use shared two-way “hubs,”spreading the costs of these hubs across a larger base of users, and byallocating bandwidth on an “as needed” basis to different users.

 

#### ***Voice services***

####  

We also provide satellite capacity for voiceapplications. Historically, we provided most of our voice services to majorpost, telephone and telegraph administrations, or PTTs. More recently, we havebegun to market voice services to governmental users and to newly-authorized mobiletelephone, local and long distance service providers in countries undergoingtelephony deregulation or where there is a lack of ground-based infrastructureto support voice services.

 

### **Sales and Marketing**

###  

We have significantly broadened and expandedour customer base since our creation in order to increase revenue opportunitieswhile reducing the risks associated with selling to a limited number ofcustomers. In addition to providing services to large telecommunicationscompanies, we now also provide transponder capacity and other services directlyto other broadcasters, Internet service providers, some governmental entitiesand commercial resellers, such as network system integrators, ground stationsor capacity brokers, as well as to some of the larger customers further downthe distribution chain.

 

Our sales and marketing personnel are dividedinto five regions: (1) North America; (2) Latin America; (3) Europe;(4) Asia Pacific; and (5) India, the Middle East and Africa. As of December 31,2005, we had approximately 67 employees who sold, marketed and provided directsales support for our services worldwide.

 

We manage our sales, marketing and billingactivities from our main operating company in The Hague. We also haveestablished regional sales or liaison offices in North America (Washington,D.C.), South America (Sao Paulo), Asia (Singapore and Hong Kong), India (NewDelhi) and Australia (Sydney).

 

### **Contracts**

###  

As of December 31, 2005, we hadapproximately 550 active contracts with our customers. Our contracts generallyare denominated in U.S. dollars; generally are non-preemptible andnon-cancellable during the term (or allow customers to cancel their commitmentsonly under certain limited conditions such as upon a government directive orupon the payment of a significant early termination or cancellation feespayable to us); and otherwise contain terms that are generally consistent withindustry practice. Although the contracts can be terminated in the event ofcertain capacity malfunctions, we generally have a cure period to remedy themalfunction or provide alternate capacity.

 

### **Backlog**

###  

We provide customers with satellitetransponder capacity for contract periods varying from less than one year to15 years. At December 31, 2005, we had a contractual backlog forfuture services of $502 million, with data services representing 41%,video services representing 47%, Internet-related services representing 7% and voice trunking servicesrepresenting 5%.This categorization reflects our best estimate of satelliteutilization based on information provided by our customers, typically at thecommencement of their respective services, as customers are ordinarily notrequired to inform or update us about the ultimate use of the capacity weprovide to them. Of our $502 million backlog as of December 31, 2005,approximately $175 million related to services to be delivered in 2006,$103 million in 2007, $68 million in 2008, $48 million in 2009,$37 million in 2010 and $71 million in 2011 and thereafter. Additionally,of our $502 million backlog, which we do not recognize as revenue until weactually

 

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perform the services, approximately$468 million, or 93%, related to obligations provided undernon-cancellable agreements. The remaining backlog relates to preemptiblecapacity contracts that have cancellation options, subject to the payment ofearly termination fees by the customers. We cannot rule out thepossibility we could face contract terminations arising in the normal course ofbusiness or as a result of other market forces or government directives.

 

As of December 31, 2005, the averageremaining duration of our backlog, based on a weighted average of backlogoutstanding, was approximately five years. On a simple average basis,representing the remaining duration of our contracts divided by the number ofcontracts, our average remaining duration of our contracts was approximatelytwo years.

 

**Our Satellites**

 

We currently operate and provide commercialservice through a network of five communications satellites positioned in fixed(i.e., station-kept) geosynchronous orbits (NSS-5, NSS-6, NSS-7, NSS-703 andNSS-806). We have one additional satellite, NSS-8, currently under construction.We have received an authorization from the Dutch government to use certainfrequencies at one additional orbital location for a future satellite, as wellas certain other rights relating to orbital locations and frequencies.

 

During 2005, we operated one of the mostreliable satellite fleets in the industry, with a 99.9999% fleet-wide satelliteavailability rate. Our fleet-wide availability rate reflects the percent oftime the transponders in our fleet that were configured to provide service wereactually available to provide service. To determine this rate, we firstcalculate the percent of total transponder-hours during which we experienced anoutage during a period—*i.e.*, thenumber of hours the transponders in our fleet that were configured to provideservice were unavailable due to an outage, divided by the total number oftransponders in our fleet multiplied by the number of hours during the period.Our fleet-wide availability rate is 100% minus the percent of transponder-hoursduring which we experienced an outage.

 

Our satellites are located approximately22,236 miles (35,786 kilometers) above the earth. We operate all of oursatellites in station-kept mode, which means that they maintain theirgeosynchronous position over the equator within tightly controlled limits (plusor minus 0.05°). Because of this control, most earth antennas within a satellite’sbeam can communicate continuously with the satellite without having to track itin orbit.

 

Our newest satellites, NSS-6 and NSS-7, aswell as our NSS-8 satellite, which is currently under construction, aredesigned to carry additional and more powerful transponders than the satellitesthat we inherited from our predecessor at the time of our creation, although toa limited extent our ability to use additional power and frequencies may beconstrained by technical and regulatory factors including, for example, thoseagreed to in relevant coordination agreements. They are also designed toprovide better connectivity and to allow for more operational flexibility thanour inherited satellites.

 

#### ***In-orbit satellites***

####  

*NSS-5.*NSS-5 was launched in 1997 and currently operates from the 183° East Longitude orbital positionover the Pacific Ocean region.

 

NSS-5 provides service via 5536-MHz-equivalent C-band transponders and 12 36-MHz-equivalent Ku-bandtransponders. It is our principal connectivity satellite for the Pacific Oceanregion and provides coverage of certain areas in North America, Asia andAustralia. NSS-5 is one of the few satellites that can connect North Americawith all major destinations in the Pacific Rim. Access to the satellite fromthe West Coast of the United States, Canada and Mexico can be achieved atC-band frequencies on global, hemispheric or zone beams. The satellite has twosteerable Ku-band spot beams, one of which currently is over New Zealand, andthe second of which is currently over Australia. The western zone beam of NSS-5covers major destinations such as China, Hong Kong and Singapore. Hemisphericcoverage extends from the north of China to Australia and New Zealand.

 

One of two duplicate power subsystem units onNSS-5—a low-voltage bus converter—stopped operating in 1998. The manufacturerof the satellite has informed us that the duplicate unit that is currently notoperational has a high probability of automatically restarting if the unit thatis currently operating fails. If this did not occur, the satellite mightprematurely cease to operate, although we believe that there is only a low riskthat the currently operating unit will fail and that the other unit will notrestart.

 

NSS-5 is a Lockheed Martin Series 7000satellite. Three other LM Series 7000 satellites have suffered on-orbitpower subsystem failures that resulted in the immediate total losses of thesatellites in question. Prior to the

 

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third and latest failure, LockheedMartin had identified the failure mechanism and rootcauses for two failures and, due to design differences between these satellites and our satellites,had believed that it was unlikely that our satellites would experience thesefailure modes. Following the failure of the third satellite in January 2005,Lockheed Martin conducted an additional investigation in which it concludedthat this failure was not likely to have been caused by a specific workmanshipor hardware element, but most likely was caused by a high current event in thebattery circuitry triggered by an electrostatic discharge that propagated tocause the failure of the satellite’s high voltage power system. In light ofthis failure, Lockheed Martin believes that there is insufficient informationto determine the exact relationship between the three failures and the failuremodes for each. Based upon information provided by Lockheed Martin, weunderstand that other LM Series 7000 satellites,including two satellites owned by us (NSS-5 and NSS-806), face a risk ofsuffering a failure similar to the third on-orbit failure, although the risk toany individual satellite is low. We do not currently believe that any changes to our operatingprocedures or satellite deployment plans are required to mitigate the risk.

 

As a result of the third on-orbit failure,our insurers have excluded from insurance coverage any losses arising frompower losses and/or failures on our NSS-5 or NSS-806 satellites if they are dueto a defect or defects identical to the defect(s) that caused one of the threeprevious on-orbit failures. We have the burden of proving that the exclusiondoes not apply in the event of a failure.

 

*NSS-6.*NSS-6 was launched in December 2002 and currently operates fromthe 95°East Longitude orbital position over the Asia-Pacific region.

 

NSS-6 is equipped with 60 36-MHz-equivalentKu-band transponders. NSS-6’s six high power Ku-band beams provide coverage ofthe Indian subcontinent, China, the Middle East, Eastern Europe, the CentralAsian republics, Southern Africa, Australia, Southeast Asia and Northeast Asia.Additionally, NSS-6 has 12 uplink spot beams in the Ka-band, ten of which canbe operated simultaneously, fixed on the strategic markets of Hong Kong,Shanghai, Beijing/Tianjin, Wuhan, Taiwan, Seoul, Tokyo/Osaka, Mumbai,Bangalore/Chennai, Delhi, Sydney and Melbourne. Each of the Ka-band uplinks canbe used in lieu of one Ku-band uplink.

 

The design of NSS-6 permits extensivetransponder switching among beams, allowing us to reassign capacity amonggeographic regions in response to market demand. Moreover, NSS-6 has a broadcoverage area and a high degree of intra-satellite interconnectivity, whichwill make it possible, depending on the relevant transmission, for a customerto uplink a signal from one region and downlink that signal to multiple regionsusing a different transponder for each downlink region.

 

NSS-6 is designed to serve a wide range ofcustomers, including broadcasters, telecommunications carriers, DTH serviceproviders, Internet service providers, corporations and other enterprisecustomers. Its versatile Ku-band and Ka-beams can also be interconnected (“cross-strapped”),offering enhanced connectivity throughout its service area.

 

Certain components on NSS-6 have failed,which will prevent us from receiving certain battery telemetry. This will makeit more operationally difficult to recondition the satellite’s batteries laterin its life, should this procedure be necessary. NSS-6’s manufacturer hasinformed us that, in its opinion, we will never need to recondition NSS-6’sbatteries and has provided an alternative procedure that has been validatedin-orbit.

 

In addition, NSS-6 has experiencedintermittent operation on certain solar array circuits, resulting in areduction of available power. NSS-6 is expected to maintain sufficient power tosupport all of its capacity through its end-of-life. There is some risk thatadditional circuits, which have exhibited intermittent behavior in the past, may becomenon-operational in the future. If this occurs, there may be a reduction inthe amount of capacity on NSS-6 that is effectively available for lease.

 

NSS-6 is a Lockheed Martin A2100 satellite.In April 2005, another Lockheed Martin A2100 satellite suffered a solararray anomaly that resulted in the loss of approximately 50% of the spacecraft’savailable power. Lockheed Martin investigated the root cause of the anomaly andconcluded that this failure (as well as another earlier, similar failure) wascaused by deficiencies in certain hardware that is not present on NSS-6. As aresult, Lockheed Martin has informed us that it does not consider NSS-6 to beat risk of suffering a similar anomaly.

 

*NSS-7.*NSS-7 was launched in April 2002 and operates from the 338° East Longitude orbital locationover the Atlantic Ocean region.

 

NSS-7 has 49 36-MHz-equivalent C-band and 4836-MHz-equivalent Ku-band transponders. It offers the ability to transmit orreceive a large number of C-band and Ku-band signals simultaneously, with ahigh level of

 

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interconnectivity between different beamcoverages on a transponder-by-transponder basis. NSS-7 is specificallydesigned, by means of on-board switching, to facilitate asymmetric trafficbetween coverage areas. Its capabilities, including in particular its higherpower, will allow many customers to use smaller antennas.

 

NSS-7 supports a variety of services,including video distribution and contribution, Internet-related services,private telecommunications networks used by businesses and fixed services suchas telephone and data transmission. In addition, capacity can be flexiblyassigned to 11 high-powered coverage beams, blanketing the Americas, Europe,the Middle East and Africa.

 

Certain components on NSS-7 have failed,which will prevent us from receiving certain battery telemetry. This will makeit more operationally difficult to recondition the satellite’s batteries laterin its life, should this procedure be necessary. NSS-7’s manufacturer hasinformed us that, in its opinion, we will never need to recondition NSS-7’sbatteries and has provided an alternative procedure that has been validatedin-orbit.

 

NSS-7 is a Lockheed Martin A2100 satellite.In April 2005, another Lockheed Martin A2100 satellite suffered a solararray anomaly that resulted in the loss of approximately 50% of the spacecraft’savailable power. Lockheed Martin investigated the root cause of the anomaly andconcluded that this failure (as well as another earlier, similar failure) wascaused by deficiencies in certain hardware that is not present on NSS-7. As aresult, Lockheed Martin has informed us that it does not consider NSS-7 to beat risk of suffering a similar anomaly.

 

*NSS-703.*NSS-703 was launched in 1994 and currently operates from the 57° East Longitude orbital locationover the Indian Ocean Region.

 

NSS-703 provides a wide range of services, asthe television and telecommunications needs of the multiple regions it servesare diverse. Television broadcasters, post, telephone and telegraph authoritiesand communications service providers are the primary users of this satellite.NSS-703 is used for telephone services in Asia Minor, cable televisiondistribution in India and for television distribution and contributionthroughout the Asia Pacific region.

 

NSS-703 provides service via 3836-MHz-equivalent C-band transponders and 20 36-MHz-equivalent Ku-bandtransponders. Its C-band hemispheric beams cover two major regions:  Africa, and the triangle from the Middle Eastto Japan to Australia. Within the latter region, NSS-703 offers complete Indiaand China coverage. These hemispheric beams are supported by four zone beams,which are optimized to provide service to sub-regions of northeast Asia,Southeast Asia and Australia, southern Africa and from northern and westernAfrica to the Mediterranean Sea. We have currently deployed the satellite’sthree fully steerable Ku-band spot beams to service Europe and the Middle East,central Asia and India. We are planning to replace NSS-703 with NSS-8 followingthe successful launch of NSS-8, which the manufacturer currently projects willoccur in the fourth quarter of 2006. Following replacement of NSS-703 by NSS-8,we are currently planning to re-deploy NSS-703 to another orbital location. See“Item 1—Description of Business—Planned Satellites.”

 

NSS-703 is a Space Systems/LORAL FS 1300satellite. In December 2004, another FS 1300 series satellite with asimilar (although not identical) design to NSS-703 suffered an in-orbit powersubsystem anomaly. NSS-703’s design differs from the satellite that sufferedthe anomaly and there have been no reported failures or significant anomaliesof satellites that use the NSS-703 design. For these reasons, and based uponinformation provided to date by the manufacturer, we do not believe that theanomaly on the other FS 1300 satellite indicates a risk of an anomaly onNSS-703.

 

*NSS-806.*NSS-806 was launched in 1998 and currently operates from the 319.5° East Longitude orbital locationover the Atlantic Ocean region.

 

NSS-806 provides C-band and Ku-band coverageof the Americas and Europe. It transmits a neighborhood of over 110 cabletelevision channels to Latin America, including video channels from Argentina,Brazil, Venezuela, Colombia, Peru, Bolivia and the United States, as well asother regional services and international channels. The high quality of NSS-806’svideo neighborhood makes it attractive to video programmers within LatinAmerica, who seek to distribute Spanish language programming within the region,as well as to video programmers outside of Latin America, who seek to reachviewers in Latin America. According to a 2004 study by a Latin Americanindependent consultant, NSS-806 delivers programming to an estimated13.5 million homes across Latin America and the Caribbean.

 

NSS-806 has 36 36-MHz-equivalent C-bandtransponders and six 36-MHz-equivalent Ku-band transponders. It contains asingle high-powered beam that provides simultaneous coverage of the Spanish-and Portuguese-speaking regions of both the Americas and Europe. In addition toproviding coverage of the Latin

 

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American markets, it reaches the IberianPeninsula, the Canary Islands, Western Europe and much of Eastern Europe via ahigh-power hemispheric beam. This facilitates the distribution of programmingfrom both Latin American content providers and North American and Europeancontent providers to Latin American cable networks. The satellite also featuresa Ku-band spot beam covering Mercosur (i.e., Argentina, Brazil, Paraguay,Uruguay and Chile) with high-powered coverage over urban areas. This capacityis well suited for use by corporate network communications. The high power ofNSS-806’s signals helps to ensure that its signals can be delivered to smallantennas.

 

NSS-806 is a Lockheed Martin Series 7000satellite. Three other LM Series 7000 satellites have suffered on-orbitpower subsystem failures that resulted in the immediate total losses of thesatellites in question. Prior to the third and latest failure, LockheedMartin had identified the failure mechanism and rootcauses for two failures and, due to design differences between these satellites and our satellites,had believed that it was unlikely that our satellites would experience thesefailure modes. Following the failure of the third satellite in January 2005,Lockheed Martin conducted an additional investigation in which it concludedthat this failure was not likely to have been caused by a specific workmanshipor hardware element, but most likely was caused by a high current event in thebattery circuitry triggered by an electrostatic discharge that propagated tocause the failure of the satellite’s high voltage power system. In light ofthis failure, Lockheed Martin believes that there is insufficient informationto determine the exact relationship between the three failures and the failuremodes for each. Based upon information provided by Lockheed Martin, we understandthat other LM Series 7000 satellites, includingtwo satellites owned by us (NSS-5 and NSS-806), face a risk of suffering afailure similar to the third on-orbit failure, although the risk to anyindividual satellite is low. We do not currently believe that any changes to our operatingprocedures or satellite deployment plans are required to mitigate the risk.

 

As a result of the third on-orbit failure,our insurers have excluded from insurance coverage any losses arising frompower losses and/or failures on our NSS-5 or NSS-806 satellites if they are dueto a defect or defects identical to the defect(s) that caused one of the threeprevious on-orbit failures. We have the burden of proving that the exclusiondoes not apply in the event of a failure.

 

#### ***Planned satellites***

####  

We have one satellite, NSS-8, currently underconstruction. NSS-8 is being built by Boeing Satellite Systems International, Inc.Following its successful launch, which the manufacturer projects will occurduring the fourth quarter of 2006, we will deploy NSS-8 to the 57° East Longitude orbital slot asa replacement satellite for our NSS-703 satellite. By doing so, we will provideexpansion capacity at our established orbital location in the Indian Oceanregion and satisfy our near-term satellite replacement requirements. Weanticipate that NSS-8 will enter commercial service approximately three monthsafter a successful launch.

 

NSS-8 will carry 56 36-MHz-equivalent C-bandand 36 36-MHz-equivalent high-power Ku-band transponders, making it one of thelargest and highest power satellites with coverage of Europe, the Middle East,India, Africa and Asia. As part of our contract with Boeing, they arerequired to deliver the spacecraft to us in orbit. Currently, the contractcalls for the manufacturer to use a Sea Launch Zenit vehicle to launch thesatellite. The last fifteen Sea Launch flights were successful—i.e., theydelivered the payload to the specified target orbit with very high accuracy andwith all performance and interface parameters within specifications.

 

We believe NSS-8 will contribute to ourlong-term growth by placing our newest, largest and most powerful satellite atan established orbital location in the Indian Ocean region. We believe thatthis, in turn, will place us in a strong position to meet the current andfuture needs of our many customers throughout India, Africa, the Middle Eastand Asia as well as capitalize on the region’s strong projected growth and willallow us to relocate one of our existing satellites to a new orbital location.

 

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#### ***Overview of satellite fleet***

####  

The table below summarizes selected datarelating to our five operational satellites and the NSS-8 satellite, which iscurrently under construction:

 

 
| **Satellite**                                                     | ** ** | **NSS-806**          | ** ** | **NSS-7**                              | ** ** | **NSS-703**                           | ** ** | **NSS-6**                     | ** ** | **NSS-5**                       | ** ** | **NSS-8 (under********construction)**    |
|-------------------------------------------------------------------|------------|----------------------|------------|----------------------------------------|------------|---------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|-----------------------------------------------|
|                                                              |       |                 |       |                                   |       |                                  |       |                          |       |                            |       |                                          |
| Number  of transponders(1)                                        |       |                 |       |                                   |       |                                  |       |                          |       |                            |       |                                          |
| • C-band                                                     |       | 36                   |       | 49                                     |       | 42(2)                                 |       | 0                             |       | 61(2)                           |       | 56                                            |
| • Ku-band                                                    |       | 6                    |       | 48                                     |       | 24(2)                                 |       | 60(3)                         |       | 12                              |       | 36                                            |
| • Ka-band                                                    |       | 0                    |       | 0                                      |       | 0                                     |       | 12(3)                         |       | 0                               |       | 0                                             |
| Maximum  signal strength at receiving antenna (decibel-watts)(4): |       |                 |       |                                   |       |                                  |       |                          |       |                            |       |                                          |
| • C-band                                                     |       | 36 to 37.2           |       | 38 to 40                               |       | 26 to 36                              |       | N/A                           |       | 29 to 36                        |       | 38 to 43                                      |
| • Ku-band                                                    |       | 42 to 49             |       | 46 to 49                               |       | 44.5 to 47                            |       | 44 to 52                      |       | 44 to 47                        |       | 48 to 52                                      |
| Power  output (kilowatts)(5)                                      |       |                 |       |                                   |       |                                  |       |                          |       |                            |       |                                          |
| • At  beginning of life                                      |       | 7.1                  |       | 12.7                                   |       | 4.9                                   |       | 13.6                          |       | 6.2                             |       | 16.0 (est.)                                   |
| • At end  of orbital design life                             |       | 5.4                  |       | 10.7                                   |       | 4.0                                   |       | 12.0                          |       | 4.8                             |       | 13.8 (est.)                                   |
| Satellite  manufacturer                                           |       | Lockheed  Martin     |       | Lockheed  Martin                       |       | Space  Systems/ LORAL                 |       | Lockheed  Martin              |       | Lockheed  Martin                |       | Boeing  Satellite Systems                     |
| Launch  date                                                      |       | February 1998   |       | April 2002                        |       | October 1994                     |       | December 2002            |       | September 1997             |       | Fourth  Quarter 2006 (est.)                   |
| Orbital  design life, end(6)                                      |       | March 2008      |       | April 2014                        |       | August 2005                      |       | February 2015            |       | September 2007             |       | 12 years  after delivery in orbit             |
| Anticipated  commercially operable end of life(7)                 |       | Second  quarter 2016 |       | Third  quarter 2015                    |       | Second  quarter 2009                  |       | Second  quarter 2019          |       | Second  quarter 2015            |       | 16 years  after delivery in orbit (est.)      |
| Orbital  position                                                 |       | 319.5° East     |       | 338° East                         |       | 57° East                         |       | 95° East                 |       | 183° East                  |       | 57° East (planned)                       |
| Geographic  coverage                                              |       |                 |       |                                   |       |                                  |       |                          |       |                            |       |                                          |
| • C-band                                                     |       | Europe,  Americas    |       | Europe,  Africa, Americas, Middle East |       | Europe,  Asia, Australia, Africa      |       | N/A                           |       | Asia,  Australia, North America |       | Africa,  Asia, Australia, Europe, Middle East |
| • Ku-band                                                    |       | Argentina,  Brazil   |       | Europe,  Africa, Americas, Middle East |       | Europe,  Central Asia, Middle East(8) |       | Asia,  Australia, Middle East |       | New Zealand,  Australia(8)      |       | Europe Asia,  Australia, Africa, Middle East  |

 

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| (1)    | Satellite transponders receive signals from uplink ground stations, then  convert, amplify and transmit the signals to downlink ground stations. This  table states the transponder capacity of our satellites in terms of the  number of 36 MHz equivalents of capacity they can handle. Actual transponders  range in size. For example, there are 36 MHz, 54 MHz, 72 MHz and 112 MHz  transponders.                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (2)    | For  technical reasons, we sometimes configure a satellite so that certain  transponders are not operational. For example, in order to optimize NSS-5’s  overall performance we are operating it in a manner that effectively reduces  the number of operational C-band transponders to 55 and we are operating  NSS-703 in a manner that effectively reduces the number of operational C-band  transponders to 38 and Ku-band transponders to 20. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (3)    | NSS-6  has 60 transponders, all of which operate in the Ku-band for downlink (i.e.,  satellite-to-customer) transmissions and can operate in the Ku-band for  uplink (i.e., customer-to-satellite) transmissions. The satellite also  contains 12 Ka-band uplink transponders, up to 10 of which can be activated  at any given time. If activated, a Ka-band uplink operates in lieu of one  Ku-band uplink.                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (4)    | Measures  the transmission power of a transponder based on the strength of the signal  received by a ground station antenna in decibel-watts. Holding all other  things equal, higher power levels improve the quality of a customer’s service  and can make it possible to transmit larger amounts of information and/or use  smaller and less expensive ground station antennas.                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (5)    | Power  available, as required under the terms of the satellite construction  contract.                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (6)    | The  manufacturer determines a satellite’s in-orbit design life. The manufacturer  contractually commits that the satellite will be able to maintain its  contractually specified performance throughout this period. NSS-703 reached  the end of its orbital design life during 2005, although we anticipate that  it will continue to be commercially operable in station-kept mode until  mid-2009.                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (7)    | We  estimate anticipated commercially operable life (or maneuver life) based on a  number of factors, and we update these estimates periodically based on each  satellite’s actual in-orbit performance. The most important factor is the  length of time during which a satellite’s on-board propellant is projected to  permit maneuvers to keep the satellite in geosynchronous orbit.                                                     |

 

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|   | Under  appropriate circumstances, we would also consider other factors, including  remaining on-board redundant systems and expected performance of satellite  components.                                                                                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                    |
| (8)    | The Ku-band capacity on NSS-703  and NSS-5 is provided over steerable zone beams. The table above shows the  geographic areas currently covered by these beams. In the future, it is  possible that we may re-point these beams to serve different geographic  areas within the satellite’s general geographic coverage area. |

 

We do not currently operate any of oursatellites as back-up or spare capacity. We have, however, entered into a contractualarrangement under which we may be able to procure back-up capacity fromanother satellite operator, on agreed terms, if we suffer a satellite failure.In addition, the launch of NSS-8 will give us additional flexibility tore-deploy our satellite fleet to restore service to our customers in the eventof a satellite failure.

 

#### ***Additional future satellites***

####  

We anticipate that we may launchadditional satellites in the future, both to replace our existing satellites asthey near their end of life and, depending upon market conditions, to expandour scale and scope by expanding the size of our in-orbit fleet.

 

We regularly study the demand for satelliteservices in various regions and for different applications in order to keepabreast of opportunities. While we are committed to a strategy of maximizingcash flow, we intend to invest capital to replace our existing satellite fleetand may enter into procurement contracts for new satellites if we canestablish a sound business case for an expansion of our fleet. There are afinite number of orbital slots available to FSS operators, and most of theseslots are either already in use or have been filed for under the relevantinternational processes. Our ability to access new orbital locations and launchnew satellites is subject to various governmental approvals, coordinationissues and other regulatory risks. See “Item 1—Description of Business—Government Regulation.”

 

We may also choose to enter intoarrangements with other satellite providers to use existing orbital andsatellite resources at a single orbital location to expand the respectivecommercial service offerings of both operators. We believe such arrangements may makeproductive use of our orbital locations without making additional capitalexpenditures or incurring significant incremental expenses. Such arrangementsare subject to applicable law and regulation, which may limit their scopeor application.

 

### **Satellite Operations and Related Facilities**

###  

We perform tracking, telemetry andcontrol (“TT&C”) functions for all of our satellites from our primarySatellite Operations Center located in The Hague.

 

TT&C functions involve: (1) trackingand controlling our satellites to maintain their designated geostationaryorbital position and to identify and avoid any potential close proximity toother in-orbit objects; (2) receiving information about the operationalstatus of our satellites via the transmission of data; and (3) relayingoperating instructions to our satellites, including regular maintenance activitiesand, in the event of component faults, diagnostic tests and initiation ofredundant subsystems.

 

Our satellite operations center is supportedby additional sites around the globe that we own or lease, and which allow usto communicate with our satellites. Each of our satellites can communicate withat least two of these remote TT&C facilities to ensure that flight commandinstructions and return performance data can be sent reliably between thesatellite operations center and the satellite on a redundant basis.

 

In addition, we perform all of ourpayload management and carrier monitoring services with respect to all of oursatellites from our own payload operations center located in The Hague. Thesefunctions include: (1) monitoring the appropriate frequencies and powersettings for each signal being transmitted by the satellite in order topreclude interference with other customers or third parties; (2) monitoringthe quality of signals being transmitted by the satellite; and (3) verifyingthat the customer traffic on our satellites is being transmitted in accordancewith contractual obligations and our operating procedures. Most of the dataprovided to our payload operations center regarding the traffic carried overour satellites is collected by a network of carrier service monitoring sitesthat we own or lease worldwide, which measure the usage of the transponders andquality of service on our satellites.

 

Our TT&C and payload management andcarrier monitoring functions are supported by an auxiliary satellite operationscenter and auxiliary payload operations center located at a separate facilityin Belgium. These centers are fully redundant, routinely tested and operate ona stand-by basis to provide an immediately usable

 

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emergency back-up to our primary operationscenters at our headquarters.

 

### **Network Operations Facilities**

###  

We currently own and operate a ground-basedfacility, or “mediaport,” in the United States. Located near Washington, D.C.,this facility provides uplink and downlink services to our NSS-7 and NSS-806satellites. We also have installed equipment at this mediaport and leased fiberoptic cable capacity that enables us to transmit signals between oursatellites, on the one hand, and the U.S. Internet backbone, the publictelephone network, private telecommunications networks and video “drop off”locations used by businesses, on the other hand.

 

Previously, we owned two teleports inAustralia, in Perth and Adelaide, through our subsidiary, New Skies SatellitesNetworks Pty Ltd. We used these teleports to provide a variety of satellitenetworking, video and Internet-related services over NSS-5 and NSS-6 and overthird-party satellites to business and government users. On November 8,2005, we finalized the sale of New Skies Networks Pty Ltd. to Multiemedia Ltd.for cash consideration of $10.0 million.

 

We also enter into agreements with thirdparties to provide the teleport facilities and services that we require inlocations around the globe where we do not have our own terrestrial facilities.As with our teleports, these facilities can provide our customers with a rangeof video, voice, data and IP services. We currently have agreements withteleports in Los Angeles, the State of Washington, London, Hong Kong, Israel,Singapore and Cyprus, as well as an agreement with Multiemedia Ltd. regardingthe Perth and Adelaide teleports. We regularly evaluate opportunities to enterinto agreements with teleport operators in strategic locations with facilitiesthat can access our satellites and facilitate our customers’ use of ourservices.

 

To support IPsys® and our other bundledservices, we have installed at our Washington Mediaport and at one or morethird-party teleports high-bandwidth digital video broadcast platforms, as wellas equipment that permits the provision of video-based bundled services such asthe compressed multi-carrier-per-channel transmission of video networks. Weoperate 15 such platform facilities to serve customers in Asia, Africa,Latin America, the Middle East and the Indian Sub-continent.

 

### **Satellite Operations Risk Management**

###  

Historically, we have mitigated the risk ofloss of or damage to our satellites by obtaining launch insurance policies,which cover claims arising from events that take place during launch andsubsequent in-orbit testing and for a specified period of time followinglaunch, and in-orbit insurance policies, which cover claims that relate toevents that take place after the expiration of the relevant launch insurancepolicy.

 

We currently maintain in-orbit insurancepolicies for each of our in-orbit satellites, which cover claims that relate toevents that take place after the expiration of the relevant launch insurancepolicy. This coverage includes the failure of a satellite to continueperforming in accordance with design specifications. Our in-orbit policiesinclude customary commercial satellite insurance exclusions and/or deductiblesand material change limitations, including exclusions on coverage for damagearising from acts of war, lasers, and other similar potential risks andexclusions for certain health-related problems affecting our satellites thatwere known at the time the policy was written. Most of the exclusions in ourexisting policies affect individual units and systems whose loss in the eventof a future anomaly we do not believe would materially affect our revenues orgeneral financial condition. The low voltage bus converter on NSS-5, as well asthe power subsystems on NSS-5 and NSS-806, are presently subject to anexclusion. See “ Item 1—Description of Business —Our Satellites—In-orbitsatellites—NSS-5” and “ Item 1—Description of Business —Our Satellites—In-orbitsatellites—NSS-806.”

 

We currently maintain in-orbit insurance withrespect to our satellites in an amount approximately equal to the unamortizedconstruction, launch and insurance costs for each of them. We do not insureunamortized performance incentives as these only fall due to the extent thatthe satellite continues to operate successfully. The amount of in-orbitinsurance in force with respect to each of our satellites will generallydecrease over time, typically based on its declining book value. Typically,in-orbit insurance is renewed annually.

 

As is common in the industry, we have notinsured against business interruption, lost revenues or delay of revenues inthe event of a total or partial loss of the communications capacity or life ofa satellite. In insuring against partial losses, we have not insured againstall possible partial failures but, rather, only against partial failures thatwe anticipate would meaningfully affect the revenue-producing capability of thesatellite in question.

 

Going forward, we intend to employappropriate strategies for mitigating our risk from a total or partial

 

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satellite failure. We will continue toperiodically reassess our insurance strategy, and it is possible that in lightof rising insurance rates, the scope of insurance exclusions, the limitationsof insurance coverages and other factors we may decide to employ otherstrategies for mitigating our risk from a total or partial satellite failurewhere we believe those other strategies provide equivalent coverage on a morecost effective basis, provide better coverage (e.g., by helping to protect ourfuture revenues in the event of a satellite failure) or for other businessreasons. These arrangements may include, for example, traditionalinsurance, in-orbit sparing, re-launch guarantees and other contractualarrangements. Because our NSS-8 payments will depend on such satellite’ssuccessful launch and in-orbit performance, we do not intend to procuretraditional third-party launch or in-orbit insurance for NSS-8, and ouragreement with Boeing restricts our ability to procure traditional third-partyinsurance for NSS-8 in certain circumstances.

 

### **Employees**

###  

At December 31, 2005, we had 193employees. The number of employees employed by us decreased during 2005 in part dueto our sale of New Skies Networks Pty Ltd. See “Item 1—Description of Business—Network Operations Facilities.”  Webelieve that our relations with our employees are good.

 

### **Property**

###  

We established our global headquarters in TheHague in 1998. We own our headquarters buildings, which house our satelliteoperations center, payload operations center, operating and engineering staffand our sales, marketing and other administrative personnel.

 

We currently own and operate a teleport inBristow, Virginia (the Washington Mediaport). Prior to our sale of New SkiesNetworks Pty Ltd., we also owned and operated teleports in Perth, WesternAustralia and Adelaide, South Australia.

 

We lease office space, either directly orthrough a local operating subsidiary, for regional sales or liaison offices inNorth America (Washington, D.C.), South America (Sao Paulo), Asia (Singapore),India (New Delhi) and Australia (Sydney).

 

See also “ Item 1—Description ofBusiness—Satellite Operations and Related Facilities” and “ Item 1—Descriptionof Business—Network Operations Facilities.”

 

### **Legal Proceedings**

###  

We are often engaged in proceedings beforenational telecommunications regulatory authorities. See “ Item 1—Description ofBusiness—Government Regulation.” In addition, we also may become involved fromtime to time in other legal proceedings arising in the normal course of ourbusiness. We are not currently engaged in any material pending legalproceedings, other than ordinary routine litigation incidental to our business.

 

### **Environmental Matters**

###  

We are subject to various laws andregulations relating to the protection of the environment and human health andsafety (including those governing the management, storage and disposal ofhazardous materials). Some of our operations require continuous power supply,and, as a result, current and past operations at our teleport and othertechnical facilities include fuel storage and batteries for back-up generators.As an owner or operator of property and in connection with current andhistorical operations at some of our sites, we could incur significant costs,including cleanup costs, fines, sanctions and third-party claims, as a resultof violations of or liabilities under environmental laws and regulations.

 

### **Competition**

###  

We are one of four global satellite operators.We compete against other global, regional and national satellite operators and,to a lesser extent, with suppliers of ground-based communications capacity. Webelieve that we combine the technical and financial strength of an experiencedoperator with the agility and resourcefulness of an entrepreneurial company toprovide commercially attractive, high quality services to our customers.

 

The other three global FSS satelliteoperators are Intelsat, Ltd., PanAmSat and SES Global (through its affiliates).On December 14, 2005, SES Global and we announced that we had entered intoa binding agreement pursuant to which SES Global will acquire 100% of us by wayof a merger under Bermuda law. See “Item 1—Description of Business—OurAcquisition by SES Global.”  In August 2005,Intelsat, Ltd. and PanAmSat announced that they had signed a definitive mergeragreement. See “Item 1—Description of Business—Competition—Satellite Operators.”

 

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In addition to the global operators, wecompete with a number of nationally or regionally focused satellite operatorsin each region of the world, such as Eutelsat in Europe, some of which arelarger than we currently are. Several of our many competitors whose operationsare principally regional may expand their operations through acquisitionsand alliances in an effort to become global operators or may be acquiredby another regional or global operator.

 

All of the other global satellite operators,as well as Eutelsat, are substantially larger than we are in terms of both thenumber of satellites they have in orbit as well as in terms of their revenues.Due to their larger sizes, these operators are able to take advantage ofgreater economies of scale, may be more attractive to customers, and can(depending on the specific satellite and orbital location in question) havegreater flexibility to restore service to their customers in the event of apartial or total satellite failure. In addition, their larger sizes can enablethem to devote more resources, both human and financial, to sales, operations,product development, and strategic alliances and acquisitions.

 

Some of the other satellite operators againstwhich we compete are owned by a governmental entity or have a privileged statuswithin their home market. See “Item 1—Description of Business—GovernmentRegulation.”

 

Providers of ground-based services, inparticular fiber optic cable operators, may provide an alternative tosatellite capacity, principally on point-to-point long-distance routes,especially transoceanic routes. The growth in this capacity, particularlyacross the Atlantic and Pacific Oceans, and the reduction in prices of thiscapacity have led some services between major city hubs, including most voiceand data traffic and some video traffic, to migrate from satellite to fiberoptic capacity. However, satellites are expected to remain competitive forsignals that need to be transmitted beyond the main termination points of thefiber optic cables. Satellite capacity is also competitive in parts of theworld where providing fiber optic cable capacity is not yet cost-effective.Satellites also remain the medium of choice for broadcast and multicast orpoint-to-multipoint applications.

 

#### ***Satellite operators***

####  

We compete primarily against two other globalFSS operators—Intelsat, Ltd. and PanAmSat—one regional operator, Eutelsat,and, to a limited extent, regional affiliates of SES Global.

 

*Intelsat, Ltd.*Intelsat, Ltd. is the successor of INTELSAT. Until 2002,INTELSAT was an intergovernmental organization, owned by governments, nationalpost, telephone and telegraph carriers and quasi-governmental entities. Formuch of its history, INTELSAT had a monopoly on the transmission of allsatellite-based telephone traffic over many international routes. As a resultof INTELSAT’s history, Intelsat, Ltd.’s business today includes a large amountof traditional telephone and other carrier-based services. In August 2004,Intelsat, Ltd. and Zeus Holdings, a company formed by a consortium of privateinvestment funds advised by Apax Partners, Apollo Management, Madison Dearbornand Permira, entered into an agreement to acquire Intelsat, Ltd. Thistransaction closed in January 2005. In August 2005, Intelsat Ltd.announced that it and PanAmSat had signed a definitive merger agreement underwhich it will acquire PanAmSat for $25.00 per share in cash, or $3.2 billion. PanAmSat’sshareholders approved the merger in October 2005. The transaction isconditioned upon customary closing conditions and clearances from relevantregulatory agencies, including the appropriate U.S. government antitrustauthorities and the Federal Communications Commission. In the fourth quarter of2005, Intelsat stated that it expects to complete the merger in the second orthird quarter of 2006. Intelsat, Ltd. operates 28 satellites. If theIntelsat-PanAmSat transaction closes, the combined entity will operate 53satellites.

 

*PanAmSat.*PanAmSat began in the 1980s by focusing on video services in LatinAmerica, and in 1997 merged with a U.S. domestic carrier, Hughes Galaxy. In April andMay 2004, affiliates of Kohlberg Kravis Roberts & Co. L.P., TheCarlyle Group and Providence Equity Partners, Inc. agreed to enter into a series oftransactions to acquire PanAmSat. These transactions were concluded in August 2004.In August 2005, Intelsat Ltd. announced that it and PanAmSat had signed adefinitive merger agreement, as discussed in the previous paragraph. PanAmSatcurrently has a fleet of 25 satellites in orbit. Its core markets are the Northand South American video broadcasting markets, with approximately half of itssatellites focused on this region, and it has also built a strong presence inthe Asian and African video broadcasting markets.

 

*Eutelsat.*Eutelsat S.A. is the privatized entity of a former intergovernmentalsatellite operator. Eutelsat operates 19 satellites of its own and anotherthree through joint ventures and partnerships. Eutelsat’s core business is theprovision of video distribution services to the European market, although inrecent years it has been expanding its operations to include new markets.

 

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*SES Global.*SES Global, a Luxembourg company, wholly owns two market-leadingsatellite operators, SES Astra in Europe and SES Americom in the United States.SES Global also holds strategic participations in AsiaSat in Asia, Star One inLatin America, and SES Sirius in Europe. Americom Government Services, asubsidiary of SES Americom, provides network solutions and bandwidth to theU.S. government and its contractors. The company operates a fleet of 39satellites, including 30 satellites of its own and another 9 through its jointventures and partnerships. On the whole, the coverage areas of our respectivefleets do not overlap. For example, we do not compete against SES Global’s coreDTH consumer video services in Europe (provided through its subsidiary SESAstra) or in its cable distribution business in the United States (provided byits subsidiary SES Americom). On December 14, 2005, SES Global and weannounced that we had entered into a binding agreement pursuant to which SESGlobal will acquire 100% of us by way of a merger under Bermuda law. See “Item1—Description of Business—Our Acquisition by SES Global.”

 

*Regional anddomestic providers.*We competeagainst a number of additional entities, which operate regional satellitesystems. These entities include, among others:

 

•                  Arabsat in theMiddle East;

 

•                  Europe*Star, whichis owned by PanAmSat, in Europe, Africa, the Middle East and on trans-Atlanticroutes;

 

•                  Indian SatelliteResearch Organization (ISRO) in India;

 

•                  Measat, AsiaSat,APT Satellite and Shin Satellite in Asia;

 

•                  RSCC and Gazkom inCIS/Central Asia; and

 

•                  SatMex and, to alimited extent, the SES Global affiliates Star One and Nahuelsat in LatinAmerica.

 

These entities are active in regions in whichwe provide facilities and services. A number of other countries have domesticsatellite systems that we also compete against to some extent, although most ofour business is international in scope.

 

#### ***Proposed satellite systems***

####  

Other companies and government entities haveannounced plans to operate regional or transoceanic satellite systems. Theinternational satellite communications industry, however, imposes significantbarriers to entry. The construction and launch of a satellite comparable to ournewest satellites usually takes approximately two or more years and costsapproximately $250 million to $300 million. In addition, there are alimited number of orbital positions and frequencies that can be coordinated foruse through the International Telecommunication Union (the “ITU”). Theoperation of an international satellite communications system also requiresapprovals from national telecommunications authorities. While the trend aroundthe world has been to liberalize these regulatory requirements, at presentobtaining the necessary authorizations involves significant time, expense andexpertise. In addition, in certain countries (including India, Russia,Kazakhstan, Thailand and Venezuela), the government has granted, enforces orplans to enforce as a practical matter a preference for the existing or, in thecase of Kazakhstan and Venezuela, planned national satellite operators. See “Item1—Description of Business—Government Regulation.”

 

#### ***Resellers***

####  

We also compete against service providersthat offer business communications and other satellite-based services resellingsatellite capacity provided by other operators. Certain service providers alsouse leased satellite capacity to provide limited services to broadcasters,primarily for ad hoc applications. We also compete in some ways with localpost, telephone and telegraph agencies that provide local connection servicesover the “last mile” between transmissions from major service providers to enduser customers.

 

#### ***Fiber optic cables***

####  

The primary use of high-capacity ground-basednetworks, including in particular fiber optic cables, is carrying high-volumecommunications traffic from point to point. Satellite companies generally areable to address this market only in regions where fiber optic cables or otherhigh-bandwidth ground-based networks have not been deployed. Based on currenttrends, we expect transcontinental fiber optic cables will carry audio andvideo signals, IP and other data traffic. Fiber optic cables are not yet,however, sufficiently available in many parts of the world for

 

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point-to-multipoint broadcast applications.Fiber optic cables are not readily usable for the transmission of *ad hoc* events occurring at locations thatare remote from a fiber optic connection. Those sorts of events require the useof short-term satellite capacity and transportable uplink ground stations.

 

### **Government Regulation**

###  

The international communications environmentis highly regulated. As an operator of a private international satellite systembased in The Netherlands, we are subject to three basic types of regulation.

 

First, we are subject to the regulatoryauthority of the government of The Netherlands, from which we receive therights to use the orbital locations and radio frequencies used by oursatellites.

 

Second, we are subject to the nationalcommunications authorities of the countries in which we operate. In order toprovide services to, from or within a country, we must comply with that country’s“market access” rules. This has required us, in some instances, to obtaingovernmental permissions to provide transponder capacity and other services to customersin those countries. We believe we have benefited from the pro-competitivetrends informing national regulatory policies. Under the Agreement on BasicTelecommunications Services, for example, a number of countries that aremembers of the World Trade Organization committed to open their markets tosatellite operators established in other member countries. Certain othercountries, however, continue to have laws and regulations that may impedeor prohibit foreign service providers from entering their markets. These lawsand regulations may affect our ability to use frequencies and to providesatellite capacity and some or all satellite-based services in specificregions, or to particular types of customers in a given jurisdiction. Inaddition, the laws, regulations, policies and practices of some countries,including in some high-growth markets such as India, Kazakhstan and Nigeria andother countries, such as, Russia, Thailand and Venezuela, may make itharder for us to compete against an existing or, in the case of Venezuela andNigeria, planned domestic or regional satellite system from that country bymaking our ability to provide services in that country subject, in certaincases, to governmental approvals and to a preference (or potential preference,in the case of planned systems) for the country’s national satellite operator.In India, a national operator, ISRO, currently operates a satellite system thatcompetes with our system; in Kazakhstan, a national operator, KazSat, plans tolaunch a satellite in 2006; and in Nigeria, a national operator plans to launcha satellite in 2007. Competition from ISRO and Indian government policies havemade it more difficult for us to sell certain services, especially Ku-bandservices in India, and to renew services we currently are providing, and weexpect that this trend will continue. In Kazakhstan, we anticipate that it willbe more difficult to sell certain services, especially Ku-band services, and torenew services we are currently providing, and that we may faceterminations of existing services as a result of a governmental directivestating that certain services must be moved to the KazSat satellite followingits launch. Kazakhstan and Russia are not members of the World TradeOrganization (WTO) and thus do not have any enforceable market accesscommitments. We will need to continue devoting time and resources to our marketaccess efforts, and will have to continue to comply with laws and regulations,including amended laws and regulations, in the countries in which we provideservice.

 

Finally, we are subject to regulationspromulgated by the ITU. There are a limited number of orbital locations inspace from which one can operate the type of satellites that we operate. Rightsto make use of these orbital locations and the frequencies over whichcommercial satellites transmit are regulated by the ITU.

 

Our team of regulatory professionalsprioritizes its continuing efforts by the magnitude of business opportunitiesin each market. Our fleet provides services in the majority of the world’smarkets, and we believe that we have obtained all necessary authorizations,permits and licenses for the conduct of our business as a whole.

 

#### ***Regulation in The Netherlands***

####  

The Ministry of Economic Affairs, Directorate-Generalfor Energy and Telecom (“DGET”) is the governmental body in The Netherlandswith primary authority over satellite carriers. The primary source ofregulation with respect to telecommunications services providers is theTelecommunications Act. This act requires operators to have a license to usefrequencies within the territory of The Netherlands. We are not required underDutch law to have a license for the use of frequencies in space, such as theoperation of our satellites at the specific orbital locations and upon thefrequencies assigned to us, although we have obtained an authorization from theDutch government allowing us to use such locations and frequencies. We are notrequired to have a license in The Netherlands to operate a telecommunications networkor services, although registration is required with the Dutch independenttelecommunications regulatory agency. The Netherlands government is consideringdeveloping a new law regarding space launching and operations activities tocomply with its international treaty obligations and establishing a formallicensing regime for our launch and operations functions. Under the currentdraft of the law,

 

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which has not yet been finalized or enacted,our space launching and operations activities would become subject to amandatory license that would require us to obtain and maintain third partyliability insurance, with the Netherlands state as a named insured, in anamount to be determined by the Minister for Economic Affairs.

 

The government of The Netherlands hasregistered our satellites with the ITU. Accordingly, the government of TheNetherlands remains responsible internationally for resolving any allegationsthat our satellites are causing harmful interference to other registeredwireless systems. Thus, although Dutch law presently provides no specificframework for satellite licenses, we work closely with DGET to ensure that wecomply with ITU regulations and any other obligations resulting from internationaltelecommunications agreements or treaties to which The Netherlands is asignatory.

 

#### ***Other national telecommunications authorities***

####  

#### ***Regulation in theUnited States***

####  

*Regulation ofsatellite use.*The FederalCommunications Commission (“FCC”) is the governmental agency in the UnitedStates with primary authority over all satellite operators that want to accessthat market. In the case of non-U.S. licensed satellite operators, such asourselves, the FCC does not generally grant any licenses directly to thesatellite operator. Instead, the FCC regulates the ability of ground stationsin the United States to communicate with the satellites operated by thenon-U.S. company. The FCC also maintains a list of non-U.S. licensed satelliteswith which U.S.-licensed earth stations are authorized to communicate (the “PermittedSpace Station List”). In March 2001, the FCC granted our request for fullauthority to serve customers in the U.S. market. The FCC also added our NSS-513(now retired), NSS-5 and NSS-806 satellites to the Permitted Space Station Listwith conditions. The conditions applicable to these satellites prohibit us fromproviding DTH services in the United States, grant us certain technical waiversand require us to take certain actions to prohibit harmful interference toother satellite operators. In May 2002, the FCC granted our request toserve customers in the U.S. market using our NSS-7 satellite and also addedthis satellite to the Permitted Space Station List with conditions. Theconditions applicable to this satellite prohibit us from providing DTH servicesin the United States, grant us certain technical waivers and require us tomaintain compliance with coordination agreements. In connection with ourAcquisition by the investment funds, the FCC substituted New Skies SatellitesB.V. for New Skies Satellites N.V. on the Permitted Space Station List.Pursuant to the rules of the FCC, immediately following the consummationof the NSS IPO, we filed an application with the FCC notifying the agency of thechanges in ownership of our Permitted Space Station List satellites resultingfrom the Restructuring and the issue and sale of the common stock offered inthe NSS IPO. The FCC subsequently determined that these changes did not warrantan adverse revision in the Permitted Space Station List status of oursatellites. As a non-U.S. company active in the U.S. communications market, ourFCC authorizations and licenses are subject to certain commitments made toagencies of the U.S. executive branch and incorporated in our FCCauthorizations and licenses. Before the control of our FCC licenses andauthorizations may be transferred to SES Global, the FCC must review andapprove the transaction with SES Global. On January 6, 2006, we filed thenecessary applications with the FCC. See “Item 1—Description ofBusiness—Government Regulation—Regulatory Approvals and Notifications inAssociation with the Restructuring and the SES Transaction”.

 

*Regulation of earthstations.*The FCC is also thegovernmental agency in the United States with primary authority over theoperation of earth stations in the United States. We hold six non-commoncarrier earth station licenses associated with our ground-facilities in theUnited States. On January 6, 2006, we filed an application with the FCCseeking its consent to transfer control of our U.S. subsidiary holding theearth station licenses to SES Global.

 

*Export licenserequirements.*U.S. export laws governthe export and re-export of U.S. origin products in the possession of U.S. and non-U.S.persons. U.S. companies and companies located in the United States must complywith U.S. export control laws in connection with their provision to us ofcertain products, data, software, documentation and services relating to oursatellites and satellite-related terrestrial facilities. Since we are anon-U.S. company, the exporter must obtain from the United States governmentcertain export licenses and other approvals, including new or amended licenseswith respect to each new satellite we may procure in the future from U.S.entities, and both we and the exporter must comply with the export laws andwith the terms of all such licenses and other approvals.

 

U.S. companies and companies located in theUnited States must comply with U.S. export control laws in connection with anyinformation, products, or materials that they provide to us relating tosatellites, associated

 

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equipment and data and with the provision ofrelated services. If these entities cannot or do not obtain the necessaryexport or re-export authorizations from the United States government, we mustobtain such authorizations ourselves. It is possible that, in the future, theyand we may not be able to obtain and maintain the necessaryauthorizations, or existing authorizations could be revoked.

 

If our manufacturers and we cannot obtain andmaintain the necessary authorizations, this failure could adversely affect ourability to:

 

•                  procure new U.S.-manufacturedsatellites;

 

•                  control our existingsatellites;

 

•                  acquire launchservices;

 

•                  obtain insurance andpursue our rights under insurance policies; or

 

•                  conduct oursatellite-related operations.

 

We must obtain certain U.S. governmentauthorization pursuant to International Traffic in Arms Regulations (“ITAR”) inorder to consummate the SES Transaction. See “Item 1—Description ofBusiness—Government Regulation—Regulatory Approvals and Notifications inAssociation with the Restructuring and the SES Transaction.”  On January 12 and January 27, 2006,we filed with the U.S. Department of State the notifications and applicationsthat are required for the closing of the SES Transaction. We anticipate that weand our U.S. suppliers will file certain additional notices and requestsrelating to implementation of the SES Transaction following the closing.

 

We must comply with Dutch and E.U. embargolaws. In addition, some of our subsidiaries, employees and services are subjectto the embargo laws of other jurisdictions, including the United States. This may adverselyaffect our ability to provide satellite-based services to entities in countriessubject to an embargo.

 

In addition, if we do not properly manage ourinternal compliance processes and were to violate U.S. export laws, the termsof an export authorization, or embargo laws, the violation could make it moredifficult, or even impossible, to maintain or obtain licenses and could resultin civil or criminal penalties.

 

#### ***Regulation by other governmental authorities***

####  

In many of the other countries that oursatellites can serve, we are subject to national communications and/orbroadcasting laws. While these laws vary from country to country and aresubject to periodic revision, national telecommunications regulatoryauthorities outside of the Americas generally have not required us to obtainlicenses or regulatory authorizations in order to provide transponder capacityto authorized entities.

 

Many countries have liberalized theirnational communications market and allow authorized communications providers toown their own transmission facilities and purchase satellite capacity withoutrestriction. In these environments, we may provide services through one ormany authorized carriers or to customers further down the distribution chain.

 

Other countries, however, have maintainedstrict monopoly regimes or have regulated the provision of services withintheir borders. In some cases, we must establish a local legal entity orrepresentative through which to do business, and/or obtain specialized governmentallicenses, concessions or permits. In other countries, we must operate pursuantto a bilateral or multilateral agreement permitting such operations. In othercountries, some or all customers may be required to access our servicesthrough one or a small number of designated entities, which in some cases aregovernment-owned. In order to provide services in these environments, we may needto negotiate an operating agreement with the designated entity(ies) thatdescribes the types of services offered by each party, the contractual termsfor service and each party’s rates. Depending on the national regulatoryrequirements, these operating agreements may require that customers obtainall services, including both ground-based services and our satellite transmissionservices, through the monopoly authority alone at a pre-arranged markup, or may allowcustomers to own and operate their own ground-based facilities but require themto purchase our satellite transmission services through the designated entity ata rate reflecting the pre-arranged markup.

 

Some countries are considering imposing feeson entities that use radio spectrum for wireless services, including satelliteservices. These fees could be imposed on either us or on our users. Dependingon the size of the fees and the extent to which they are imposed equitably onall competing services, such fees could affect our

 

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profitability and, potentially, ourcompetitive position *vis-à-vis*other services.

 

Notwithstanding the wide variety ofregulatory regimes existing in the countries where we currently provideservice, we believe that we comply in all material respects with applicablelaws and regulations governing the conduct of our business as a whole.

 

#### ***International Telecommunication Union***

####  

The ITU is responsible for overseeing the useby different countries of the limited number of orbital locations and radiospectrum available for use by commercial communications satellites. The ITU’s rules setforth the processes that governments must follow to gain rights to use orbitallocations and the obligations and restrictions that govern such use. These rules include,for example, a “first in time, first in right” system for allocating mostorbital locations and time limits for placing orbital locations into use.

 

In accordance with the ITU’s rules, the Dutchgovernment has rights to use certain orbital locations and frequencies. TheDutch government has authorized us to use certain frequencies at one orbital locationin addition to those used by our current satellites, and has granted us certainother rights relating to additional orbital locations and frequencies. Underthe ITU’s rules, we must begin using these orbital locations and frequencieswithin a fixed period of time, or we will lose our priority rights and thelocation and frequencies likely would become available for use by anothersatellite operator. For several orbital locations at which we had first-priorityrights, the deadline for placing the orbital locations into use was December 2005.We entered into agreements with respect to the majority of these slots, asdiscussed below.

 

The ITU’s rules also govern the processused by satellite operators to coordinate their operations with other nearby satellites,so as to avoid harmful interference. Under current international practice,satellite systems are entitled to protection from harmful radio frequencyinterference from other satellite systems and other transmitters in the samefrequency band only if the authorizing nation of the operator registers theorbital location, frequency and use of the satellite system on the ITU’s MasterInternational Frequency Register. Nations are required to register theirproposed use of orbital positions with the Radiocommunications Bureau of theITU. This ensures that there is an orderly process to accommodate each country’sorbital position needs. After a nation has advised the RadiocommunicationsBureau that it desires to use a given frequency at a given orbital position,other nations notify that nation of any use or intended use that would conflictwith the original proposal. These nations are then obligated to negotiate witheach other in an effort to coordinate the proposed uses and resolveinterference concerns. If the countries resolve all issues, the membergovernments are formally notified and the frequency use is registered.Following that notification, the registered satellite networks are entitledunder international law to interference protection from subsequent ornonconforming uses. A nation is not entitled to invoke the protections in theITU’s rules against harmful interference if that nation decided to operatea satellite at the relevant orbital location without completing thecoordination process.

 

Under the ITU’s rules, a country that placesa satellite or any ground station into operation without completingcoordination and notification:

 

•                  would have torespond to complaints related to interference;

 

•                  would not beentitled to seek the assistance of the Radiocommunications Bureau in resolvingcomplaints relating to interference;

 

•                  would be vulnerableto interference from other systems; and

 

•                  might have to alterthe operating parameters of its satellite if the ITU found that the satellitecaused harmful interference to other users already entered on the InternationalFrequency Registry.

 

The Radio Regulations Board, however, has noeffective mechanism to resolve disputes regarding coordination or to enforceits rules regarding the use of frequencies and orbital locations.

 

Because only nations have full standing asITU members, we must rely on the government of The Netherlands to represent ourinterests there, including filing and coordinating our orbital positions withthe ITU and with the national administrations of other countries, obtaining neworbital positions, and resolving disputes related to the ITU’s rules andprocedures.

 

In 2004 and 2005, we entered intocoordination agreements with respect to three of our unused orbital locations. InJuly 2005, we reached an agreement with affiliates of SES Global underwhich we agreed not to bring a

 

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fixed satellite service satellite into use atour 125o west longitude orbital location in order to ensure that SESGlobal will be able to operate its own satellite at this orbital locationwithout interference. In return, SES Global made a one-time payment to us of$9.5 million in August of 2005. In March 2005, we reached anagreement with affiliates of SES Global under which we agreed not to bring asatellite into use at our 105o west longitude orbital location inorder to ensure that SES Global will be able to operate a satellite at its 105owest longitude orbital location without interference. In return, SES Globalmade a one-time payment to us of $10.0 million. Both parties alsocommitted to negotiate resolution of long-standing issues regarding satelliteoperations in the Atlantic Ocean region. In 2004, we reached an agreement withIntelsat LLC resolving certain longstanding frequency coordination matters inconnection with which we received a one-time payment of $32.0 million.

 

#### ***Regulatory Approvals and Notifications inAssociation with the Restructuring and the SES Transaction***

####  

In order to effectuate the Restructuring, itwas necessary to obtain approvals from or provide notification to certainregulatory entities. We obtained all material approvals prior to theconsummation of the NSS IPO and, following the NSS IPO, from the FCC.

 

The completion of the SES Transaction dependson the following regulatory approvals:

 

•                  Receipt of all FCCapprovals required in connection with the SES Transaction;

 

•                  Receipt of thedetermination not to take action (or expiration of the applicable period forreview) by the Committee on Foreign Investment in the United States (CFIUS)pursuant to a filing under Section 721 of the Defense Production Act of1950;

 

•                  The expiration ortermination of all waiting periods applicable to the consummation of the SESTransaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, asamended;

 

•                  Completion of allrequisite filings and receipt of any necessary consents from the U.S.Department of State pursuant to the International Traffic in Arms Regulationsin connection with the SES Transaction; and

 

•                  Receipt of allapprovals required by regulatory bodies in Germany in connection with the SESTransaction.

 

No objections to the SES Transaction werereceived at the FCC during the public consultation period, which ended February 21,2006. Accordingly, we expect the FCC to act positively on our applications. Weand SES filed with CFIUS on February 24, 2006 in relation to the SESTransaction. CFIUS will make a decision by March 27, 2006 whether thereare U.S. national security interests sufficient to warrant further review. On February 3,2006, we and SES were granted early termination of the applicable waitingperiod required under the parties’ Hart-Scott-Rodino filings; the review by theU.S. Department of Justice is now completed and the parties are free to closethe SES Transaction without any further clearance by that agency. We have filedall necessary requests relating to the closing with the U.S. Department ofState and are awaiting final action by the Department. On February 8, 2006we received a notice of non-objection to the SES Transaction from the GermanFederal Cartel Office. We anticipate that the SES Transaction will close in thesecond quarter of 2006, although the timing of the closing depends upon thereceipt of necessary approvals and could occur earlier or later.

 

## **ITEM1A. RISK FACTORS**

##  

An investment in our common stock involvesrisks. You should carefully consider the risks described below, together withthe other information in this annual report, before you make a decision topurchase or sell our common stock.

 

##### **Risks Relatingto the SES Transaction**

#####  

###### ***Our pending acquisition by SES Global may bedelayed or may not occur at all, which could negatively affect the marketprice of our common stock and our ongoing operations.***

######  

The completion of our pending acquisition bySES Global is dependent on, among other things, receipt of regulatoryapprovals, the timing of which cannot be predicted with precision and which may notbe received at all, as well as the continued truth and correctness as of theclosing date of certain representations and warranties that we made in thetransaction agreement, our compliance with certain covenants and agreementsthat we made in the transaction agreement, and there not having occurred aTotal Loss (as defined in the transaction agreement) of any

 

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of our satellites. Delays in the timing ofthe acquisition could significantly impact our operating performance, retentionof key employees, maintenance of an effective system of internal controls overfinancial reporting, and competiveness. Furthermore, if regulatory approval ofthe amalgamation is not obtained or if other conditions to the closing are notsatisfied, we may not be able to close the SES Transaction. This couldadversely affect the market price of our shares, adversely affect customerconfidence or our competitive position, and have an adverse impact on ourfinancial position, results of operations, funding and other liquidityresources and retention of key employees. See “Item 1—Description ofBusiness—Our Acquisition by SES Global” for a description of our pendingacquisition by SES Global.

 

###### ***As part of our agreement with SESGlobal, we agreed to terminate our quarterly dividend program effective January 1,2006. Even if the SES Transaction is not consummated, you may not receiveany dividends. The reduction or elimination of dividends could negativelyaffect the market price of our common stock.***

######  

At the time of the NSS IPO, our board of directorsadopted a dividend policy, effective upon the closing of the NSS IPO, whichreflected an intention to distribute a substantial portion of the cashgenerated by our business in excess of operating expenses and working capitalrequirements, interest and principal payments on our indebtedness and capitalexpenditures as regular quarterly dividends to our shareholders. In thetransaction agreement that we entered into with SES Global, we agreed toterminate our quarterly dividend program effective January 1, 2006. Consistentwith the terms of the transaction agreement, on December 19, 2005 wedeclared a regular quarterly cash dividend of $0.463125 per share in respect ofthe fourth quarter of fiscal year 2005.

 

Even if the transaction agreement between SESGlobal and us were to be terminated, we may not elect to resume payingquarterly dividends. Dividend payments are within the absolute discretion ofour board of directors and will depend on, among other things, our results ofoperations, working capital requirements, capital expenditure requirements,financial condition, contractual restrictions, business opportunities,anticipated cash needs, provisions of applicable law and other factors that ourboard of directors may deem relevant. In addition, we are a holdingcompany and conduct all of our operations through our subsidiaries. As aresult, we rely on dividends and other payments or distributions from New SkiesSatellites B.V. and our other subsidiaries to pay dividends on our common stockand our other obligations, if any. New Skies Satellites B.V. is subject tocertain restrictions on payment of dividends under the senior secured creditfacilities and the indentures governing the notes that, if triggered, may impairour ability to pay dividends. Restrictions under the laws of The Netherlands,Bermuda, Luxembourg and Ireland may also limit the ability of oursubsidiaries to make dividend or other payments to us and, consequently, ourability to make dividend payments.

 

If the SES Transaction does not close and wedo not resume paying dividends, the market price of our common stock wouldlikely be lower than it was prior to the announcement of the SES Transaction. Ifwe were to resume paying dividends, our payment of dividends could adverselyaffect our ability to finance any material expansion of our business or to fundour operations.

 

##### **Risks Relatingto Our Indebtedness**

#####  

###### ***Our operating subsidiary, New SkiesSatellites B.V., has a substantial amount of indebtedness. If the SESTransaction is not consummated, this indebtedness may adversely affect ourcash flow and our ability to operate our business, support any future dividendpolicy, comply with our subsidiary’s debt covenants and repay our subsidiary’sindebtedness.***

######  

As of December 31, 2005, New Skies SatellitesB.V. had outstanding indebtedness of $438.6 million and availability of$125 million (excluding standby letters of credit of $2.0 million) underits revolving credit facility. If the SES Transaction is not consummated and weremain an independent entity, the substantial indebtedness of New SkiesSatellites B.V. could have important consequences to you. For example, itcould:

 

•                  make it moredifficult for us to satisfy our obligations with respect to the indebtedness ofNew Skies Satellites B.V., and any failure to comply with the obligations ofany of the debt instruments of New Skies Satellites B.V., including financialand other restrictive covenants, could result in an event of default under theindentures governing the notes and the agreements governing such otherindebtedness, which could lead to, among other things, cross default andacceleration of our indebtedness;

 

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•                  require New SkiesSatellites B.V. to dedicate a substantial portion of its cash flow to payprincipal and interest on its debt, which will reduce the funds available forworking capital, capital expenditures, acquisitions and other general corporatepurposes;

 

•                  limit ourflexibility in planning for and reacting to changes in our business and in theindustry in which we operate;

 

•                  make us morevulnerable to adverse changes in general economic, industry and competitiveconditions and adverse changes in government regulation;

 

•                  limit our ability toborrow additional amounts for working capital, capital expenditures,acquisitions, debt service requirements, execution of our growth strategy orother purposes; and

 

•                  place us at adisadvantage compared to our competitors who have less debt.

 

Any of the above listed factors could materiallyand adversely affect our business and results of operations. Furthermore, theinterest expense of New Skies Satellites B.V. could increase if interest ratesincrease because the entire amount of debt under the senior floating rate notesand the senior secured credit facilities bears interest at floating rates.Based on the outstanding floating rate indebtedness as of December 31,2005, a 1% increase in the average interest rate would increase future interestexpense by approximately $3.1 million per year. If New Skies SatellitesB.V. does not have sufficient earnings to service its debt, it may berequired to refinance all or part of its existing debt, sell assets,borrow more money or sell securities, which it may not be able to do.

 

If the SES Transaction is not consummated andwe remain an independent entity, we will be able to incur significantadditional indebtedness in the future. Although the indentures governing thenotes and the credit agreement governing the senior secured credit facilitiescontain restrictions on the incurrence of additional indebtedness, theserestrictions are subject to a number of important qualifications and exceptionsand the indebtedness incurred in compliance with these restrictions could besubstantial. If new debt is added to our anticipated debt levels, the relatedrisks that we now face, including those described above, could intensify.

 

###### ***If the SES Transaction is not consummated, wewill require a significant amount of cash to service New Skies Satellites B.V.’sindebtedness. Our ability to generate cash depends on many factors beyond ourcontrol, and any failure to meet our subsidiary’s debt service obligationscould harm our business, financial condition and results of operations.***

######  

At December 31, 2005, our subsidiary’spayment obligations with respect to its indebtedness (excluding satelliteperformance incentives) consisted of approximately $438.6 million ofprincipal payments. For the year ended December 31, 2005, our subsidiarymade approximately $39.9 million of cash interest payments.

 

If the SES Transaction does not close and weremain an independent entity, our subsidiary’s ability to pay interest on andprincipal of the notes and to satisfy its other debt obligations principallywill depend upon our future operating performance. As a result, prevailingeconomic conditions and financial, business and other factors, many of whichare beyond our control, will affect our ability to make these payments. If NewSkies Satellites B.V. does not generate sufficient cash flow provided byoperating activities to satisfy its debt service obligations, it may haveto undertake alternative financing plans, such as refinancing or restructuringits indebtedness, selling assets, reducing or delaying capital investments orseeking to raise additional capital. Its ability to restructure or refinancesuch debt will depend on the capital markets and our financial condition atsuch time. Any refinancing of our subsidiary’s debt could be at higher interestrates and may require us to comply with more onerous covenants, whichcould further restrict our business operations. In addition, the terms ofexisting or future debt instruments, including the senior secured creditfacilities and the indentures governing the notes, may restrict us fromadopting some of these alternatives. Furthermore, the investment funds do nothave any obligation to provide us with debt or equity financing in the future.Our subsidiary’s inability to generate sufficient cash flow to satisfy its debtservice obligations, or to refinance its obligations on commercially reasonableterms, would have an adverse effect, which could be material, on our business,financial position, results of operations and cash flows, as well as on oursubsidiary’s ability to satisfy its obligations in respect of the notes and thesenior secured credit facilities.

 

###### ***If the SES Transaction does not close, theterms of the senior secured credit facilities and the indentures governing thenotes may restrict our current and future operations, particularly ourability to respond to changes in our business or to take certain actions.***

######  

The senior secured credit facilities and theindentures governing the notes contain, and any future

 

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indebtedness would likely contain, a numberof restrictive covenants that impose significant operating and financialrestrictions on us, including restrictions that may limit our ability toengage in acts that may be in our best long-term interests. The seniorsecured credit facilities include financial covenants, including requirementsthat New Skies Satellites B.V.:

 

•                  maintain a minimum interest coverage ratio; and

 

•                  not exceed a maximumtotal leverage ratio.

 

In addition, the senior secured creditfacilities limit the ability of New Skies Satellites B.V. to make capitalexpenditures and require that New Skies Satellites B.V. use proceeds of certainasset sales that are not invested in our business to repay indebtedness underthe senior secured credit facilities.

 

The senior secured credit facilities alsoinclude covenants restricting, among other things, the ability of New SkiesSatellites B.V. to:

 

•                  incur liens;

 

•                  incur additionaldebt (including guarantees);

 

•                  pay dividends, ormake redemptions and repurchases, with respect to capital stock;

 

•                  prepay, or makeredemptions and repurchases, of subordinated debt;

 

•                  make loans andinvestments;

 

•                  reduce its insurancecoverage;

 

•                  engage in mergers,consolidations, acquisitions, disposition of assets and sale/leasebacktransactions;

 

•                  change the businessconducted by it; and

 

•                  amend the terms ofsubordinated debt.

 

 The indentures relating to the notescontain numerous covenants including, among other things, restrictions on theability of New Skies Satellites B.V. to:

 

•                  incur additionaldebt or issue preferred stock;

 

•                  pay dividends ormake distributions on capital stock or repurchase capital stock;

 

•                  make certaininvestments;

 

•                  create liens onassets to secure debt;

 

•                  enter intotransactions with affiliates;

 

•                  merge or consolidatewith another company; and

 

•                  transfer and sellassets.

 

If the SES Transaction is not consummated andwe remain an independent entity, the operating and financial restrictions andcovenants in any future financing agreements may adversely affect ourability to finance future operations or capital needs or engage in otherbusiness activities. A breach of any of the restrictive covenants in the seniorsecured credit facilities could result in a default under the senior securedcredit facilities. If any such default occurs, the lenders under the seniorsecured credit facilities may elect to declare all outstanding borrowings,together with accrued interest and other fees, to be immediately due andpayable, enforce their security interest or require us to apply all of ouravailable cash to repay these borrowings, any of which would result in an eventof default under the notes. The lenders will also have the right in thesecircumstances to terminate any commitments they have to provide furtherborrowings. If our subsidiary is unable to repay outstanding borrowings whendue, the lenders under the senior secured credit facilities will have the rightto proceed against the collateral granted to them to secure the debt owed tothem. If the debt under the senior secured credit facilities were to beaccelerated, our subsidiary’s assets may not be sufficient to repay suchdebt in full or to repay the notes and our subsidiary’s other debt.

 

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##### **Risks Relating to Our Business**

 

###### ***Wemay experience satellite equipment failures that impair the commercialperformance of our satellites, which could adversely affect our business,financial condition, profitability and capital requirements and, in the case ofa total loss of a satellite, could cause the SES Transaction not to close.***

 

During and after their launch, satellites aresubject to in-orbit equipment failures, malfunctions, and other kinds ofproblems, which we refer to collectively as “anomalies.” Satellite anomaliesinclude, for example, circuit failures, transponder failures, solar arrayfailures, battery cell and other power system failures, satellite controlsystem failures and propulsion system failures. Generally speaking, satellitesinclude certain back-up (or redundant) components that can be placed intoservice if the primary component suffers an anomaly. In certain cases, however,a redundant component may not be available, in which case the anomaly coulddegrade commercial performance, reduce transmission capacity, shorten thecommercial life of the affected satellite(s), or otherwise limit a satellite’srevenue generating ability.

 

We anticipate that NSS-5, NSS-6, NSS-7,NSS-703, NSS-806 and, assuming a successful launch, NSS-8, will have commerciallives in excess of 12 years from their respective launch dates. It ispossible, however, that their commercial lives will be shorter thananticipated. A number of factors will affect the commercial lives of oursatellites, including:

 

•      theamount of propellant used in maintaining the satellite’s orbital position orrelocating the satellite to a new orbital position (and, for newly-launchedsatellites, the amount of propellant used during orbit raising followinglaunch);

 

•      thedurability and quality of their construction;

 

•      theperformance of their components; and

 

•      operationalconsiderations, including operational failures.

 

Various anomalies have affected theperformance of individual units or systems on our satellites or have reduced oreliminated the number of spare or redundant components or systems. In somecases, this has reduced the satellite’s power or available capacity. In others,the anomaly has affected our operations or created a condition that may affectour operations in the future. In one case, the anomaly has affected apotentially critical component, one of two duplicate power subsystem units(called a low voltage bus converter) on NSS-5. In addition to anomaliessuffered by our satellites, some satellites that are similar to our satelliteshave suffered serious anomalies. See “Item 1—Description of Business – OurSatellites.”  The NSS-5 low voltage busconverter anomaly and the failures suffered by certain satellites that aresimilar to our NSS-5 and NSS-806 satellites have led, and other anomalies inthe future may lead, our insurers to place material limitations or exclusionsin the applicable insurance policy or policies.

 

Like many other satellites, it is likely thatour satellites will suffer additional anomalies in the future. Some of theseanomalies may affect transponders or other key components, or units that arecritical to the satellite’s continued operation. In these cases, we may not beable to reconfigure the affected component or unit to allow for its continuedoperation, or to restore normal operations by using redundant components orunits on the satellite. Where service cannot be restored, the failure couldcause the satellite to have less capacity available for sale, to suffer aperformance degradation, or to cease operating prematurely, either in whole orin part. We do not currently operate any of our satellites as back-up or sparecapacity for our other satellites.

 

Our satellites may suffer from otherproblems, such as a loss of propellant, greater than anticipated use ofpropellant during launch, or malfunctions that could reduce their commerciallives. Acts of war, magnetic, electrostatic or solar storms, space debris ormicrometeoroids could also damage our satellites.

 

Any full or partial failure of one of oursatellites could cause our revenues and backlog to decline and adversely affectour ability to market our capacity and generate future revenues. In addition,an anomaly that has a serious adverse effect on a satellite’s overallperformance or anticipated future commercial life could require us to reducethe satellite’s book value and could cause us to have to expedite our plannedreplacement program. This, in turn, likely would adversely affect ourprofitability, our financing needs, and our ability to use available funds forother purposes, including our ability to pay dividends. Anomalies may alsocause insurers to include additional exclusions in our insurance policies whenthey come up for renewal. See “Item 1A–Risk Factors—Risks Relating to Our Business—Insuranceexpenses may increase, or insurance may become unavailable, or we may decide toemploy other strategies for mitigating the risk of a satellite failure.”   Finally, a total loss of a satellite couldcause

 

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the SES Transaction not to close. See “Item1A—Risk Factors— Risks Relating to Our Business—Our pending acquisition by SESGlobal may be delayed or may not occur at all.”

 

###### ***Asignificant launch delay or launch failure could affect our ability to satisfydemand for our services and to generate and grow future revenues, which wouldadversely affect our business, financial condition and results of operations.***

 

The launch of any future satellite may nottake place as scheduled. Delays in launching satellites are common and canresult from construction delays, the unavailability of the launch vehicle whenconstruction has been completed and other factors. We also may experiencedelays in achieving operational service after launch.

 

We currently have one satellite, NSS-8, underconstruction. NSS-8 is being built by Boeing Satellite SystemsInternational, Inc., or Boeing. Boeing currently projects that NSS-8 willbe launched in the fourth quarter of 2006 and will be available to enter commercialservice approximately 90 days following launch. All of the available launchslots prior to the scheduled NSS-8 launch on the launch vehicle to be used forNSS-8 have been booked. As a result, there is no margin in the launch provider’sschedule that could absorb any delays that may occur, and a material delay inany of the earlier launches could result in a delay of NSS-8’s launch.

 

We intend to use NSS-8 to replace our NSS-703satellite. NSS-703, which we anticipate will continue in commercial operation untilapproximately 2009, will then be relocated to a different orbital location.NSS-8 and NSS-703 are not technically identical and we anticipate that theprocess of transitioning traffic from NSS-703 to NSS-8 will take severalmonths. During the transition and during the relocation of NSS-703 followingthe transition, we will begin to incur depreciation charges on NSS-8 but willnot yet be able to exploit fully the capacity on the two satellites, which mayaffect our revenues and profitability. In addition, NSS-703 is an oldersatellite than others serving the region, and it therefore has less poweravailable than several of our competitors’ satellites. NSS-8 will have greatercapacity than NSS-703, as well as other technical characteristics that, webelieve, will make it more attractive to customers than NSS-703. As a result,existing and future delays in NSS-8’s launch or any event that causes NSS-8 notto be placed into service (whether due to a significant further construction orlaunch delay, a launch failure or any other reason), may make it more difficultfor us to compete in the geographic region that NSS-703 currently serves.Similarly, such events would delay or prevent us from expanding our operationsby placing NSS-703 into service in another orbital location. As a result, suchevents could adversely affect our anticipated revenues, cause us to lose marketshare and make it more difficult to maintain our backlog.

 

Satellites are subject to launch failure. Theoverall historical loss rate for all launches of commercial satellites in fixedorbits is estimated to be approximately 10%. Launch failure rates varyaccording to the launch vehicle used. The historical loss rate for some launchvehicles may be higher than 10%, but is lower for the type of launch vehicleswe have used and plan to use for NSS-8. We expect to use a 6,000-kilogrampayload variant of the Sea Launch Zenit-3SL vehicle to launch NSS-8.

 

 IfNSS-8 were to suffer a launch failure, we would not be required to pay forNSS-8 but likely would have to begin making significant capital expenditures toprocure a replacement satellite. In addition, we likely would face asignificant delay if we were to construct and launch a replacement satellite.Typically, the construction and launch of a satellite takes at least two, andsometimes more than three, years to complete.

 

An NSS-8 launch failure likely would have theconsequences described above for a launch delay, until such time as we eitherprocure and launch a new satellite or re-deploy one of our existing satellitesto replace NSS-703. In the event of an NSS-8 launch failure, or if for anyother reason NSS-8 is not placed into commercial service, we likely will have alimited amount of time in which to procure and place into service a replacementfor NSS-703 before that satellite reaches the end of its life. It is possiblethat we will be unable to procure a replacement satellite with technicalcharacteristics comparable to NSS-8 (including the amount of availablecapacity, power and remaining anticipated life).

 

###### ***Wemay experience a failure of ground operations infrastructure that impairs thecommercial performance of our satellites or the services delivered over oursatellites, which could lead to lost revenues and other adverse consequences.***

 

We operate a primary satellite operationscenter at our headquarters in The Hague. In addition, we maintain a back-upsatellite operations center in Redu, Belgium. Signals from our satelliteoperations center are transmitted to our satellites through our own teleportfacilities and through teleports owned by third parties. We may experience afailure in necessary equipment in our satellite operations center, in ourback-up facility, or in the communication

 

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links between these facilities and remoteteleport facilities. We may also experience operational errors. A failure orerror affecting our tracking, telemetry and control operations might cause usto be unable to communicate with one or more satellites or cause us to transmitan incorrect instruction to the affected satellite(s). This could lead to atemporary or permanent degradation in satellite performance or to the loss ofone or more of our satellites. Depending on the nature and extent of the problem,it could cause our revenues and backlog to decline and could adversely affectour ability to market our capacity and generate future revenues, ourprofitability, our financing needs, and our ability to use available funds forother purposes, or have the other consequences of a partial or total loss of asatellite described above. See “Item 1A—Risk Factors—Risks Relating to OurBusiness—We may experience satellite equipment failures that impair thecommercial performance of our satellites, which could adversely affect ourbusiness, financial condition, profitability and capital requirements and, inthe case of a total loss of a satellite, could cause the SES Transaction not toclose.”

 

We also provide communications servicesthrough our own teleport facilities and through teleports owned by thirdparties. We may experience a failure in necessary equipment in one of ourteleports or in a third-party teleport. A failure of necessary ground-basedcommunications equipment could lead to a loss of revenues from customers whowere not provided with the proper transmission services, which could adverselyaffect our revenues.

 

###### ***Wemay become subject to unanticipated tax liabilities that may have a materialadverse effect on our results of operations.***

 

Although Holdings is based in Bermuda, NewSkies Satellites B.V., our main operating company, is based in The Netherlandsand most of our customers are located in other countries, including the UnitedStates and India. We believe that we have complied in all material respectswith our obligations to pay tax in these other countries. However, our positionis subject to review and possible challenge by the taxing authorities of thesejurisdictions. In this regard, the government of India has characterizedpayments made by Indian-based customers and certain payments made bynon-resident customers in India as “royalty payments” and has assessed taxes onthese payments. We are disputing this assessment. We believe it is probablethat a loss has been incurred and have recorded an accrual totalling$7.6 million as of December 31, 2005, representing management’s bestestimate of the amount of the withholding tax obligations. As part ofthis on-going process a further hearing is scheduled for the second quarter of2006, following which we will be better able to assess the amount of taxes,interest and any other penalties that may ultimately fall due.

 

We may also become subject to additional taxliabilities as a result of possible changes in tax law (which could in certaincircumstances have retroactive effect). For example, on September 16, 2005, theIRS and Treasury reissued proposed regulations on determining the source ofincome from certain space and ocean activities and certain communicationsactivities, and withdrew proposed regulations issued in January 2001. If theregulations are adopted in the form now proposed, and if our income isdetermined to be derived from an office or fixed place of business in theUnited States, we may become subject to U.S. tax on a substantial portion ofour income that is currently not subject to taxation. It is possible that wemay not be eligible for a full or partial relief from such taxation under theUnited States/The Netherlands income tax treaty or otherwise.

 

If our current tax positions weresuccessfully challenged by the applicable taxing authorities, or if there werechanges in tax law or in the manner in which we conduct our activities, wecould become subject to material unanticipated tax liabilities.

 

Holdings has obtained an assurance from theMinister of Finance of Bermuda under the Exempted Undertakings Tax ProtectionAct 1966 of Bermuda that, in the event that any legislation is enacted inBermuda imposing any tax computed on profits, income or any capital asset, gainor appreciation or any tax in the nature of estate duty or inheritance tax,such tax shall not, until March 28, 2016, be applicable to it or to any ofits operations or to its shares, debentures or other obligations except insofaras such tax applies to persons ordinarily resident in Bermuda or to any taxespayable by it in respect of real property or leasehold interests in Bermudaheld by it. However, we may become subject to Bermuda tax after that date.

 

We may also take the position that we areable to deduct, under applicable Dutch tax law, interest that accrues or ispaid on shareholder loans. The decision as to whether to take the position thatthis interest expense is deductible will be made at the time that we file ourinitial Dutch tax return, which will be based on whether or not our Dutchsubsidiaries can satisfy, among other things, the Dutch “thin capitalization”rules. It is possible that we may not report this interest expense asdeductible on our initial Dutch tax return or on subsequently filed taxreturns. If we were to take the position that interest on the shareholder loansis deductible under applicable Dutch tax law,

 

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the tax authorities may successfullychallenge or impose penalties or other sanctions on our reporting position onthe basis that we do not satisfy the Dutch “thin capitalization” tax rules orother applicable requirements.

 

To the extent that our Dutch subsidiariesmake “upstream” loans, they will be subject to taxation on interest on theseloans as it accrues or is paid. We have considered strategies that may mitigateor eliminate any such tax cost, but these strategies may not be available or wemay not choose to pursue them.

 

Immediately following the consummation of theNSS IPO, our Irish subsidiaries held and made interest-free intercompany “upstream”loans. Further, our Irish subsidiaries may, in the future, make additionalintercompany “upstream” loans on an interest-free basis. Currently, applicableIrish law does not prohibit interest-free, intercompany loans, and does notimpute interest income that would create taxable income in Ireland. If Irishtax authorities were to successfully challenge our tax position in this regard,or if there were changes in tax law, we could become subject to additionalunanticipated tax liabilities.

 

Our Luxembourg subsidiaries will take theposition that they are able to deduct, under applicable Luxembourg tax law,interest that accrues or is paid on the intercompany preferred equitysecurities and convertible preferred equity securities. We expect to receivefrom the Luxembourg corporate tax authorities a confirmation requestconfirming, among other things, the deductibility of interest on theseintercompany instruments.

 

Special and adverse U.S. tax rules may applyto the U.S. shareholders with respect to any gain realized on the dispositionof ordinary shares and certain excess distributions by the Company, should theCompany for any taxable year be treated as a passive foreign investment company(“PFIC”). The adverse tax consequences include taxation at ordinary-incomerates and payment of an interest charge on tax, which is deemed to have beendeferred with respect to such gain or excess distributions. Such unfavorableconsequences of PFIC rules can be avoided by (1) making a qualified electingfund election, subject to compliance with certain reporting requirements by theCompany; and (2) electing to mark the PFIC stock to market at the close of eachtaxable year.

 

###### ***Ourinsurance will not protect us against all satellite-related losses. As aresult, certain satellite-related losses could have a material adverse affecton our financial condition and results of operations.***

 

In the event of a total or partial failure ofa satellite, our current in-orbit insurance policies will reimburse us for theportion of the net book value of the satellite lost as a result of the failure,unless the cause of the failure is subject to a policy exclusion. The insurancewill not protect us, however, against business interruption, lost revenues ordelay of revenues. Our insurance policies define what constitutes a partialfailure. In addition, we do not insure the net book value of performanceincentives as these are payable only to the extent that the satellite operates inaccordance with contracted technical specifications.

 

Typically, we do not insure against allpossible partial failures but, rather, only against partial failures that weanticipate would meaningfully affect the revenue-producing capability of thesatellite in question.

 

Our existing in-orbit insurance policiesinclude, and any future policies that we obtain can be expected to include,specified exclusions, deductibles and material change limitations. Typically,these insurance policies exclude coverage for damage arising from acts of war,lasers, and other similar potential risks for which exclusions are customary inthe industry at the time the policy is written. In addition, they typicallyexclude coverage for heath-related problems affecting our satellites or, incertain cases, affecting other satellites that are similar to our satellites,which are known at the time the policy is written. Most of the exclusions inour existing policies affect individual units and systems whose loss in theevent of a future anomaly would not meaningfully reduce the totalrevenue-generating capacity of our satellites. In a few cases, however, ourpolicies contain more significant exclusions, which include the low voltage busconverter on NSS-5 (a potentially critical component whose loss could cause atotal satellite failure), the rate measuring assembly on NSS-5 and NSS-806, andcertain failure modes with respect to the power subsystems on NSS-5 andNSS-806. See “Item 1—Description of Business—Our Satellites—NSS-5” and “Item1—Description of Business—Our Satellites—NSS-806.”  An uninsured total loss of a satellite would,and an uninsured partial loss of a satellite could, require additional,unplanned capital expenditures, or an acceleration of planned capitalexpenditures and could limit our ability to pay dividends.

 

Currently, insurers are generally writingin-orbit insurance policies for one-year terms. As a result, we must re-insureour satellites each year, and any developments in the insurance market or withour satellite fleet, such as increased rates or more comprehensive exclusions,likely will affect us more rapidly than if longer-term policies were available.All of our in-orbit satellites are insured.

 

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###### ***Insuranceexpenses may increase, or insurance may become unavailable, or we may decide toemploy other strategies for mitigating the risk of a satellite failure. Increasesin insurance expenses could reduce our profitability. The unavailability ofinsurance, an increase in the scope of insurance exclusions or limitations, ora decision by us to employ alternative strategies could cause us to face anincreased risk of suffering an uninsured satellite-related loss, which couldadversely affect our financial condition and results of operations.***

###### *** ***

We currently insure each of our in-orbitsatellites under an in-orbit insurance policy, and historically we have insuredeach of our satellites during launch and for a specified period followinglaunch under a launch insurance policy. In-orbit insurance generally costsbetween 2% and 3% of the net book value of the insured satellite each year.Launch insurance currently costs approximately 15% to 25% of the insured amount.Insurance rates may vary depending on market conditions, the safety record ofthe launch vehicle and the performance record of similar satellites built bythe same manufacturer.

 

Insurance costs have increased substantiallyin recent years and could increase further for any number of reasons. Inparticular, the cost of in-orbit insurance may increase based on the failure ordegradation of one of our in-orbit satellites, the failure of another satelliteof a similar series owned by another operator, or satellite failures ingeneral.

 

If rates were to rise substantially, ouroperating costs would increase. In addition, developments in the insurancemarket, including increasing costs, the scope of insurance exclusions andlimitations on the nature of the losses for which we can obtain insurance, aswell as other business reasons, may cause us to conclude that it does not makebusiness sense to obtain third-party insurance and may cause us to decide topursue other strategies for mitigating the risk of a satellite failure. It isalso possible that insurance could become unavailable, either generally or fora specific launch vehicle, satellite series, or a particular satellite, or thatnew insurance could be subject to broader exclusions on coverage. Because ourNSS-8 payments will depend on such satellite’s successful in-orbit performance,we do not intend to procure traditional third-party insurance for NSS-8. Inaddition, our contract with Boeing for the NSS-8 satellite restricts ourability to procure traditional third-party insurance for NSS-8 in certaincircumstances.

 

###### ***Theloss of customers, particularly our large customers, may reduce our futurerevenues and backlog. We may lose customers due to competition, consolidation,regulatory developments, business developments affecting our customers or theircustomers, or for other reasons.***

 

The top 10 purchasers of our servicesaccounted for, in the aggregate, approximately 43% of our total revenues of$240.5 million for the year ended December 31, 2005. For the year endedDecember 31, 2005 revenues from our largest customers, Intelsat and itsaffiliates (including the COMSAT group, which Intelsat acquired in 2004 andwhich prior to Intelsat’s acquisition had been our largest customer), were$42.7 million, or 18% of our revenues. If we fail to maintain ourrelationships with our major customers, if we lose them and fail to replacethem with other similar customers, or if we experience reduced demand from ourmajor customers, it could result in a significant reduction in ourprofitability through the loss of revenues, the requirement to recordadditional costs to the extent that amounts due from these customers areconsidered uncollectable and, potentially, a reduction in backlog. Moregenerally, our customers may fail to renew or may cancel their contracts withus, which could negatively affect future revenues, profitability and backlog. Attimes some of our customers may not honor their contractual commitments, whichmay cause us to incur costs to enforce the contracts and/or result in areduction in our revenues and backlog.

 

Generally, we provide services togovernmental users through third parties. We estimate that we derivedapproximately one-third of our revenues for the year ended December 31,2005 from customers where the ultimate end user of the service was a governmentalentity. If we are not able to continue to secure government business due toincreasing competition, changes in governments’ procurement policies andprocesses, or for other reasons, it may reduce our revenues. For a discussionof certain trends in the government services market, see “Item 7—Management’sDiscussion and Analysis of Financial Condition and Results ofOperations—Revenue Drivers—Demand.”

 

In many cases, we sell our services throughthird party resellers and service providers. Due to consolidation in thesatellite industry, some of these resellers and service providers may beacquired by other companies, including by our competitors. This could adverselyaffect our ability to continue to sell services to these customers and to theend users whom they serve.

 

Since our creation, we have expanded ourcustomer base to include certain smaller entities, including newer

 

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entrants in the telecommunicationsmarketplace and customers in emerging markets. These types of customersgenerally pose a heightened credit risk, which could adversely affect theamount of write-offs of receivables and contractual defaults that weexperience.

 

Regulatory restrictions and the launch of newsatellites, including government owned or sponsored satellites, may also affectour ability to retain our current customers and attract new customers. See “Item 1A—Risk Factors—Risks Relating to Regulation.”

 

###### ***Compliancewith the Sarbanes-Oxley Act is likely to increase our operating expenses. If wefail to comply with the Sarbanes-Oxley Act, our business could be materiallyadversely affected.***

 

The Sarbanes-Oxley Act of 2002, as well asrules subsequently implemented by the Securities and Exchange Commission, theNew York Stock Exchange and other relevant bodies have required, and willrequire, changes to some of our corporate governance practices. These changesinclude developing financial and disclosure processes that satisfySection 404 of the Sarbanes-Oxley Act. We expect that these new rules andregulations will increase our legal and financial compliance costs and willmake some activities more difficult, time consuming and costly. We also expectthat these new rules and regulations could make it more difficult and moreexpensive for us to obtain director and officer liability insurance. These newrules and regulations could also make it more difficult for us to attract andretain qualified members of our board of directors, particularly to serve onour audit committee, and to attract and retain qualified executive officers. Ifwe are unable to comply with the Sarbanes-Oxley Act and related rules andregulations, our business could be materially adversely affected.

 

###### ***Theinvestment funds control us and may have conflicts of interest with us or youin the future, which could adversely affect our ability to engage inacquisitions, mergers and other strategic activities.***

 

As of December 31, 2005, the investment fundsbeneficially owned approximately 55% of our common stock and representatives ofthe investment funds occupied four of the eight seats on our board ofdirectors. As a result, the investment funds have control over our decisions toenter into any corporate transaction and have the ability to prevent anytransaction that requires the approval of our board of directors or the equityholders regardless of whether or not other members of our board of directors orequity holders believe that any such transactions are in their own bestinterests. As discussed above, the investment funds entered into a votingagreement with SES Global whereby they agreed to vote in favor of the SESTransaction and, at the special meeting of shareholders, did vote in favor ofthe SES Transaction.

 

If the SES Transaction does not close, theinvestment funds may continue to have control over us. The investment funds arein the business of making investments in companies and may from time to timeacquire and hold interests in businesses that compete directly or indirectlywith us. The investment funds may also pursue acquisition opportunities thatmay be complementary to our business, and as a result, those acquisitionopportunities may not be available to us. So long as the investment fundscontinue to hold a majority of our outstanding common stock, the investmentfunds will be entitled to nominate a majority of our board of directors, andwill have the ability to effectively control the vote in any election ofdirectors.

 

###### ***Weare a “controlled company” within the meaning of the New York Stock Exchangerules and qualify for, and rely on, exemptions from certain corporategovernance requirements. As a result, we employ governance practices thatdiffer from those employed by companies that do not rely on exemptions fromcertain New York Stock Exchange rules.***

 

Because the investment funds control amajority of our outstanding common stock, we are a “controlled company” withinthe meaning of the New York Stock Exchange corporate governance standards.Under the New York Stock Exchange rules, a company of which more than 50% ofthe voting power is held by another company is a “controlled company” and mayelect not to comply with certain New York Stock Exchange corporate governancerequirements, including (1) the requirement that a majority of the boardof directors consist of independent directors, (2) the requirement for anominating/corporate governance committee that is composed entirely ofindependent directors with a written charter addressing the committee’s purposeand responsibilities, (3) the requirement for a compensation committeethat is composed entirely of independent directors with a written charteraddressing the committee’s purpose and responsibilities and (4) therequirement for an annual performance evaluation of the nominating andcorporate governance and compensation committees. We utilize these exemptionsand, as a result, do not have a majority of independent directors and ournominating and corporate governance and compensation committees do not consistentirely of independent directors. Accordingly, you do not have the sameprotections afforded to shareholders of companies that are subject to all ofthe New York Stock Exchange corporate governance

 

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requirements.

 

###### ***Ifthe SES Transaction does not close, we may not have access to sufficientcapital to maintain our satellite fleet or to pursue future growthopportunities.***

 

If the SES Transaction does not close and wechoose to launch new or replacement satellites, it is possible that we may nothave, or be able to obtain, the financing required to fund such procurements,including, among other factors, as a result of our substantial indebtedness.

 

In addition, if the SES Transaction does notclose and we subsequently choose to engage in any major business combination orsimilar strategic transaction, we may require significant external financing inconnection with such a transaction. Depending on market conditions, investorperceptions of us, our substantial indebtedness and other factors, we may notbe able to obtain capital on acceptable terms, in acceptable amounts, or atappropriate times to implement any such transaction.

 

###### ***Theloss of key employees could impede our ability to implement our business plan,which could adversely affect our financial performance and long- term growth.***

 

 We rely on a number of key employees.Many of these key employees have been recruited away from their home countriesto work in The Netherlands or in our other international offices and may intendto return to their home countries in the future. Our key employees have highlyspecialized skills and extensive experience in their respective fields, andtheir individual contributions to our operations may be difficult to replacedue to the scarcity of candidates of comparable calibre and experience.Accordingly, the loss of some or all of these employees could adversely affectour ability to manage our operations and to execute our long-term businessstrategy.

 

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##### **Risks Related To Our Common Stock**

 

###### ***Futuresales of our shares could depress the market price of our common stock.***

 

If the SES Transaction does not close, themarket price of our common stock could decline as a result of sales of a largenumber of shares of common stock in the market or the perception that suchsales could occur. These sales, or the possibility that these sales may occur,also might make it more difficult for us to sell equity securities in thefuture at a time and at a price that we deem appropriate.

 

###### ***Themarket price of our common stock may be volatile, which could cause the valueof your investment to decline.***

 

Securities markets worldwide experiencesignificant price and volume fluctuations. This market volatility, as well asgeneral economic, market or potential conditions, could reduce the market priceof our common stock in spite of our operating performance. In addition, ouroperating results could be below the expectations of securities analysts andinvestors, or circumstances could arise which affect the closing of the SESTransaction or investors’ or analysts’ perceptions regarding the probabilitythat the SES Transaction will close in a timely manner. The market price of ourcommon stock could decrease significantly in response to any such developments.

 

###### ***Weare incorporated in Bermuda, and a significant portion of our assets arelocated outside the United States. As a result, it may not be possible forshareholders to enforce civil liability provisions of the U.S. federal or statesecurities laws.***

 

We are organized under the laws of Bermuda,and a significant portion of our assets are located outside the United States.It may not be possible to enforce court judgments obtained in the United Statesagainst us in Bermuda, or in countries other than the United States where wehave assets, based on the civil liability provisions of the federal or statesecurities laws of the United States. In addition, there is some doubt as towhether the courts of Bermuda and other countries would recognize or enforcejudgments of U.S. courts obtained against us or our directors or officers basedon the civil liabilities provisions of the federal or state securities laws ofthe United States or would hear actions against us or those persons based onthose laws. We have been advised by our legal advisors in Bermuda that theUnited States and Bermuda do not currently have a treaty providing for thereciprocal recognition and enforcement of judgments in civil and commercialmatters. Therefore, a final judgment for the payment of money rendered by anyfederal or state court in the United States based on civil liability, whetheror not based solely on U.S. federal or state securities laws, would notautomatically be enforceable in Bermuda. Similarly, those judgments may not beenforceable in countries other than the United States where we have assets.

 

###### ***Provisionsin our bye-laws and Bermuda law may discourage takeovers, which could affectthe rights of holders of our common stock.***

 

Our board of directors has the authority toissue up to 250,000,000 shares of preferred stock without any further vote oraction by the shareholders, in accordance with the provisions of our bye-laws.Since the preferred stock could be issued with liquidation, dividend and otherrights superior to those of the common stock, the rights of the holders ofcommon stock will be subject to, and may be adversely affected by, the rightsof the holders of any such preferred stock. The issuance of preferred stockcould have the effect of making it more difficult for a third party to acquirea majority of our outstanding voting stock. Further, the provisions of ouramended and restated bye-laws, including the ability of shareholders to removedirectors only for cause, and of Bermuda law, could have the effect of delayingor preventing a change in control of us. In addition, a change of control ofour company may be delayed or deterred as a result of our having restrictionson business combinations with interested shareholders and three classes ofdirectors.

 

###### ***Bermudalaw differs from the laws in effect in the United States and may afford lessprotection to shareholders.***

 

Our shareholders may have more difficultyprotecting their interests than would shareholders of a corporationincorporated in a jurisdiction of the United States. As a Bermuda company, weare governed by the Companies Act 1981. The Companies Act differs in somematerial respects from laws generally applicable to U.S. corporations andshareholders, including the provisions relating to interested directors,mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits andindemnification of directors.

 

Under Bermuda law, the duties of directorsand officers of a company are generally owed to the company only. Shareholdersof Bermuda companies generally do not have rights to take action againstdirectors or officers of the company, and may only do so in limitedcircumstances. Officers of a Bermuda company must, in exercising their

 

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powers and performing their duties, acthonestly and in good faith with a view to the best interests of the company andmust exercise the care and skill that a reasonably prudent person wouldexercise in comparable circumstances. Directors have a duty not to put themselvesin a position in which their duties to the company and their personal interestsmay conflict and also are under a duty to disclose any personal interest in anycontract or arrangement with the company or any of its subsidiaries. If adirector or officer of a Bermuda company is found to have breached his dutiesto that company, he may be held personally liable to the company in respect ofthat breach of duty. A director may be liable jointly and severally with otherdirectors if it is shown that the director knowingly engaged in fraud ordishonesty. In cases not involving fraud or dishonesty, the liability of thedirector will be determined by the Bermuda courts on the basis of theirestimation of the percentage of responsibility of the director for the matterin question, in light of the nature of the conduct of the director and theextent of the causal relationship between his conduct and the loss suffered.

 

In addition, our amended and restatedbye-laws contain a broad waiver by our shareholders of any claim or right ofaction, both individually and on our behalf, against any of our officers ordirectors. The waiver applies to any action taken by an officer or director, orthe failure of an officer or director to take any action, in the performance ofhis or her duties, except with respect to any matter involving any fraud ordishonesty on the part of the officer or director. This waiver limits the rightof shareholders to assert claims against our officers and directors unless theact or failure to act involves fraud or dishonesty.

 

##### **Risks Relating to Our Industry**

 

###### ***Overcapacityand competition in the satellite industry and among terrestrial competitors mayadversely affect our ability to sell our services, exert downward pressure onprices, or both.***

 

While we believe that capacity on differentsatellites or satellite systems can be distinguished from other satellitecapacity in some respects, the provision of satellite-based capacity andservices is subject to downward price pressure when the supply of this capacityexceeds demand.

 

The supply of satellite capacity hasincreased and may continue to increase for a number of reasons, including:

 

•      thelaunch of new satellites with higher power levels, enhanced connectivity,on-board switching or greater frequency re-use, each of which can lead toincreased capacity and lower per-transponder costs; and

 

•      theimplementation of new transmission technologies, such as improved signalcompression, which can reduce the transponder capacity required to transmit agiven amount of information.

 

In addition, while satellite communicationsservices and ground-based communications services are not perfect substitutes,we compete in certain markets and for certain services with providers ofground-based services.

 

Where fiber optic networks or otherground-based high-capacity systems are available and capable of supporting aparticular type of transmission with comparable service parameters (for exampleease of installation, coverage, speed and quality of signal), that capacity isless expensive than satellite capacity. Further expansions in the reach ofterrestrial-based networks may induce our customers to shift theirtransmissions to non-satellite capacity or make it more difficult for us toobtain new customers, thereby adversely affecting our current and futurerevenues.

 

Similarly, over-capacity and competition inthe satellite industry may make it more difficult for us to sell our servicesand to maintain our prices for the capacity that we do sell. This, in turn, couldadversely affect our revenues and profitability and our ability to increase ourrevenues and profitability over time. See “ Item 7—Management’s Discussion andAnalysis of Financial Condition and Results of Operations—ManagementOverview—Revenue Drivers” and “ Item 7—Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Management Overview—Effects ofRevenue Drivers on New Skies.”

 

###### ***Demandfor satellite services, including bundled services, may not develop in themanner we anticipate, which could adversely affect our financial condition andresults of operations.***

 

Demand for satellite-based transmissionservices may not grow, or may even shrink, either generally or in particulargeographic markets, for particular types of services, or during particular timeperiods. A lack of demand could adversely affect our ability to sell ourservices and to develop and successfully market new services, could

 

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exert downward pressure on prices, or both.This, in turn, could adversely affect our revenues and profitability and ourability to increase our revenues and profitability over time.

 

In addition, demand patterns typically shiftover time. For example, in recent years there has been a trend towardshorter-duration contracts, particularly for certain types of services (such asInternet-related services and government services). Shorter-duration contractsmake it more difficult to maintain and increase our contractual backlog of futureservice commitments and may make it more difficult to maintain and increase ourrevenues over time.

 

###### ***Someof our competitors have greater resources than we do, which may make thembetter able to compete in terms of pricing, service offerings, marketing, namerecognition, product development or otherwise, which could adversely affect ourbusiness, financial condition, and results of operations.***

 

The satellite services industry is highlycompetitive. We compete with a number of established service providers,including global and regional satellite service providers, resellers ofsatellite capacity, and other service providers. Some of our competitors havelong-standing customer relationships; enjoy close ties with regulatoryauthorities or more favorable regulatory treatment; and/or have the ability tosubsidize competitive services with revenues from services they provide as adominant or monopoly carrier. Many of them are substantially larger than we areand have financial resources, marketing and product development capabilitiesand name recognition that are substantially greater than ours. As a result,they may have a competitive advantage over us.

 

###### ***Changesin technology could make our business obsolete, which could adversely affectour business, financial condition and results of operations.***

 

Continuing technological changes in thetelecommunications industry could undermine our competitive position or makeour satellite system obsolete, either generally or for particular types ofservices. Particular technological developments that could adversely affect usinclude the deployment by our competitors of new satellites with greater power,greater flexibility, greater efficiency or greater capabilities, as well ascontinuing improvements in ground-based wired and wireless technologies.

 

###### ***Weface business risks arising from the content of some transmissions over oursatellites, which could affect our ability to obtain and maintain necessaryregulatory authorizations and, consequently, adversely affect our business,financial condition, results of operations and customer relationships.***

 

We provide satellite capacity to thirdparties, who use the capacity to transmit communications signals or provide thecapacity to other entities who use it to transmit communications signals. We donot decide what content is transmitted over our satellites, although we havecontractual rights to prohibit certain types of content.

 

To date, on a limited number of occasions, agovernmental body or other entity has objected to some of the content carriedover our satellites, such as “adult services” video channels or certaincontroversial politicized content. In addition, we understand that governmentalbodies in the past have contacted certain other satellite operators objectingto content that they believe contains messages that advocate or glorifyterrorism. We do not know whether this practice will continue and, if so,whether it will expand. It is possible that, in the future, some governmentsmay include content-based restrictions in our market access authorizations, mayrequire us to terminate a service based on its content or may seek to imposecivil or criminal penalties on us based on the content of transmissions carriedover our satellites.

 

Issues arising from the content of transmissionsover our satellites could affect our future revenues, backlog, costs, or ourrelationship with certain governments or customers.

 

###### ***Weface tax, contractual, payment and other risks in operating our businessglobally, each of which could adversely affect our business, financialcondition and results of operations.***

 

We face certain risks as a result of theglobal nature of our business. Certain countries may impose withholding taxeson us or on our customers or deem us to have a permanent establishment in theircountry. These taxes may make our services more expensive for customers orimpose an unanticipated tax burden upon us. In addition, such tax burdens maynot be imposed equally on our competitors and may not be alleviated or subjectto appeal under existing tax treaties. In particular, the government of Indiahas characterized payments made by Indian-based customers and certain paymentsmade by non-resident customers in India as “royalty payments” and has assessedtaxes on these payments. In accordance with applicable procedures for handlingdisputed tax assessments,

 

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we have informed the Indian authorities thatwe disagree with the assessment and applied to defer payment pending ouradministrative appeal of the assessment. While our initial appeal has beenrecently rejected, we have further appealed this matter. We may also need tomake payments for interest or penalties that may be assessed in the interim..The next hearing is scheduled for April 2006. We anticipate that this appealprocess will be lengthy.

 

In addition to tax risks, we may also facedifficulties in enforcing our contracts in certain countries. Finally, whileour contracts generally are denominated in U.S. dollars, and therefore are notsensitive to our customer’s local currency exchange fluctuations, in somecountries economic conditions and currency transfer restrictions may make itdifficult for some of our customers to meet their payment obligations or tomake payments in U.S. dollars.

 

###### ***Wemay not be able to take advantage of, or may be made less competitive as aresult of, industry consolidation.***

 

The satellite sector is undergoing a renewedwave of consolidation, with the announced merger of Intelsat and PanAmSat andour announced merger with SES Global. If the SES Transaction is notconsummated, we may pursue acquisitions, joint ventures or other strategictransactions on an opportunistic basis. Our principal focus is likely to be onthe acquisition of, or strategic combination with, another satellite operatoras and when suitable opportunities arise. Under appropriate circumstances, wealso would consider acquiring rights to use additional orbital locations orfrequencies, additional individual in-orbit satellites, transponders onexisting in-orbit satellites, or other established facilities and componentsnecessary for the provision of bundled services. However, we may not find or beable to take advantage of any suitable opportunities. If we do pursueacquisitions, joint ventures or other strategic transactions, we may face costsand risks arising from any transaction, including in integrating a new businessinto our business or in managing a joint venture. These may include legal,organizational, financial and other costs and risks.

 

In addition, industry consolidation,including the PanAmSat-Intelsat merger, could adversely affect us by increasingthe scale or scope of our competitors and thereby making it more difficult forus to compete.

 

##### **Risks Relating to Regulation**

 

###### ***Ourrights to use the orbital locations from which our satellites operate aresubject to regulation at the national and international levels and could bemodified, restricted or terminated by national or international regulatorybodies, which could adversely affect our business, financial condition, andresults of operations.***

 

There are a limited number of orbitallocations in space from which one can operate the type of satellites that weoperate. Rights to make use of these orbital locations, and the frequenciesover which commercial satellites transmit, are regulated by the ITU. For thefrequencies that we use, most of the remaining orbital locations are eitheralready in use or other countries have obtained the rights to use thoselocations. In addition, the ITU periodically reviews its rules and we cannotguarantee that the ITU will not change its rules in the future in a way thatcould limit or preclude our use of some or all of our existing or futureorbital locations or frequencies. See “Item 1—Description ofBusiness—Government Regulation—International Telecommunication Union.”

 

The government of The Netherlands hasauthorized us to make use of the orbital locations and frequencies that we usefor our existing satellites, as well as certain frequencies at one additionalorbital location. However, it may modify or revoke this authorization, orsubject us to new regulatory requirements. A modification or revocation couldlimit or preclude our use of some or all of our in-use or presently unoccupiedorbital locations or some or all of the frequencies we currently use at theseorbital locations, or affect our ability to launch replacement satellites asand when needed. Any loss of our rights to use one or more of our existingorbital locations, or any limitation that made it commercially infeasible tocontinue operations at the orbital location(s) in question, would adverselyaffect our revenues and profitability and the value of our business. Theimposition of new regulatory requirements could increase our costs and, as aresult, adversely affect our profitability.

 

With respect to the primary frequencies usedby commercial geostationary satellites, the ITU rules grant rights to memberstates (which are the national governments party to the ITU treaty) on a “first-in-time,first-in-right” basis and set forth a process for protecting earlier-registeredsatellite systems from interference from later-registered satellite systems. Inorder to comply with these rules, we must coordinate the operation of oursatellites, including any replacement satellite that has performancecharacteristics that are different from or exceed those of the satellite itreplaces, with other satellites. The coordination process may require us tomodify our proposed coverage areas, or satellite design or transmission plans,in order to eliminate or minimize interference with other satellites orground-based facilities. Those modifications may mean that our use of aparticular orbital position is restricted, possibly to the extent that it maynot be commercially desirable to place a new satellite in that location. Incertain

 

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countries, a failure to resolve coordinationissues is used by regulators as a justification to limit or condition marketaccess by foreign satellite operators. In addition, while the ITU’s rulesoblige later-in-time systems to coordinate their operations with us, we cannotguarantee that other operators will conduct their operations so as to avoidtransmitting any signals that would cause harmful interference to the signalsthat we, or our customers, transmit.

 

###### ***Weare subject to regulatory and licensing requirements in each of the countriesin which we provide services, and our business is sensitive to regulatorychanges in those countries. Regulatory changes could adversely affect ourability to provide services in certain markets and our business, financialcondition and results of operations.***

 

The satellite business is heavily regulated.In particular, we are subject to and need to comply with the laws andregulations of the European Union, The Netherlands, the United States and thenational and local governments of other countries to, from, or within which weprovide services. In addition, while many countries permit competition, somecountries continue to have laws and regulations that may impede or prohibitforeign service providers from entering their markets. These laws andregulations affect our ability to use frequencies and to provide satellitecapacity and some or all satellite-based services in specific regions, or toparticular types of customers in a given jurisdiction. In addition, the laws,regulations, policies and practices of some countries, including in somehigh-growth markets such as India and Kazakhstan, make or in the future maymake it harder for us to compete against a domestic or regional satellitesystem from that country, and other countries with domestic satellite systemsmay adopt restrictive laws, regulations and practices in the future.

 

Obtaining and maintaining the requiredregulatory approvals involves significant time and expense. Our inability toobtain and maintain particular approvals may delay or prevent our ability tooffer some or all of our services and adversely affect our revenues.

 

Generally, once we have received a regulatoryauthorization, we need an additional authorization only if we introduce newservices or place a new or replacement satellite into operation. However,countries may adopt new laws, policies or regulations, or change theirinterpretation of existing laws, policies or regulations, and these changescould occur at any time. Such changes may make it more difficult for us toobtain, maintain, or renew authorizations, cause our existing authorizations tobe cancelled, require us to incur additional costs, or otherwise adverselyaffect our operations, revenues and profitability. Under our authorization toprovide services in one of the countries from which we derive a materialportion of our revenues, the government has reserved for itself the right tocancel our market access in the future. If our market access to this countrywere cancelled, it would adversely affect our revenues, backlog andprofitability. In addition, our ability to provide services in India, Kazakhstanand Russia are subject, in certain cases, to governmental approvals granted toour customers and to a preference (in each case) for the country’s nationalsatellite operator, ISRO (in the case of India), KazSat (in the case ofKazakhstan) and RSCC (in the case of Russia). ISRO and RSCC operate existingsatellite systems, and in the fourth quarter of 2005 ISRO expanded its systemwith the launch of an additional satellite. KazSat intends to launch its firstsatellite in mid 2006. These satellites compete with our satellites and as theyare placed into service it has become, and we anticipate it will continue tobe, more difficult for us to sell certain services, especially Ku-bandservices, in India and Kazakhstan and to renew services we currently are providing.In addition, we may face terminations of existing services from our customersin Kazakhstan as a result of a governmental directive stating that certainservices must be moved to the KazSat satellite following its launch. Kazakhstanand Russia are not members of the World Trade Organization (WTO) and thus donot have any enforceable market access commitments.

 

###### ***Exportcontrol and embargo laws may preclude us from obtaining necessary satellites,parts or data or providing certain services in the future. Restrictions on ourability to obtain necessary satellites, parts or data, or in providing certainservices, could adversely affect our ability to operate our satellites, acquireand launch new satellites, and obtain and pursue our rights under insurancepolicies.***

 

U.S. companies and companies located in theUnited States must comply with U.S. export control laws in connection with anyinformation, products, or materials that they provide to us relating tosatellites, associated equipment and data and with the provision of relatedservices. If these entities cannot or do not obtain the necessary export orre-export authorizations from the United States government, we must obtain suchauthorizations ourselves. It is possible that, in the future, they and we maynot be able to obtain and maintain the necessary authorizations, or existingauthorizations could be revoked.

 

If our manufacturers and we cannot obtain andmaintain the necessary authorizations, this failure could adversely affect ourability to:

 

•      procurenew U.S.-manufactured satellites;

 

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•      controlour existing satellites;

 

•      acquirelaunch services;

 

•      obtaininsurance and pursue our rights under insurance policies; or

 

•      conductour satellite-related operations.

 

We must comply with Dutch and E.U. embargolaws. In addition, some of our subsidiaries, employees and services are subjectto the embargo laws of other jurisdictions, including the United States. Thismay adversely affect our ability to provide satellite-based services toentities in countries subject to an embargo.

 

In addition, if we do not properly manage ourinternal compliance processes and were to violate U.S. export laws, the termsof an export authorization, or embargo laws, the violation could make it moredifficult, or even impossible, to maintain or obtain licenses and could resultin civil or criminal penalties.

 

**Available Information**

 

 We aresubject to the informational requirements of the Securities Exchange Act of1934 and, in accordance therewith, file reports and other information with theSEC. Such reports and other information can be inspected and copied at thePublic Reference Room of the SEC located at 100 F Street, N.E., Washington,D.C. 20549. Copies of such material can be obtained from the Public ReferenceRoom of the SEC at prescribed rates. You may obtain information on theoperation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.Such material may also be accessed electronically by means of the SEC’s homepage on the Internet at http://www.sec.gov.

 

 You mayalso obtain a free copy of our annual reports on Form 10-K, quarterly reportson Form 10-Q and current reports on Form 8-K and amendments to those reports onthe day of filing with the SEC through our website on the Internet at http://www.newskies.com

 

 You canalso access the Company’s corporate governance guidelines, code ofethics and charters for each of our board committees through our Internetsite, http://www.newskies.com, by clicking on the “Corporate Governance” linkunder the heading “Investor Relations.”  We will post any amendments tothe Code of Ethics, and any waivers that are required to be disclosed by therules of either the SEC or the New York Stock Exchange, Inc. (“NYSE”), on ourInternet site. The information on the Company’s Internet site is notincorporated by reference into this report. You can request a copy of our codeof ethics and any other corporate governance documents and periodic reports atno cost by contacting Investor Relations at investor_relations@newskies.com.

 

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| **ITEM 2.** | **PROPERTIES** |
|-------------|----------------|

 

We own our headquarters buildings, whichhouse our satellite operations center, payload operations center, operating andengineering staff and our sales, marketing and other administrative personnel. Wealso own and operate a teleport in Bristow, Virginia (the Washington Mediaport).Prior to our sale of New Skies Networks Pty Ltd., which was consummated onNovember 8, 2005, we also owned and operated teleports in Perth, WesternAustralia and Adelaide, South Australia. We lease office space, either directlyor through a local operating subsidiary, for regional sales or liaison officesin North America (Washington, D.C.), South America (Sao Paulo), Asia(Singapore) and Australia (Sydney). See “Item 1—Description ofBusiness—Property,” “ Item 1—Description of Business—Satellite Operations andRelated Facilities” and “ Item 1—Description of Business—Network OperationsFacilities.”

 
| **ITEM 3.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

From time to time we are involved in legalproceedings arising in the ordinary course of our business. We do not believethere is any litigation that will have a material adverse effect on our resultsof operations or financial condition. We are not currently engaged in anymaterial pending legal proceedings, other than ordinary routine litigationincidental to our business.

 
| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS** |
|-------------|----------------------------------------------------------|

 

None.

 

# **PART II**

 
| **ITEM 5.** | **MARKET FOR REGISTRANT’S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.** |
|-------------|-------------------------------------------------------------------------------------------------------------------------|

 

### **Market Information**

 

Our common shares are traded on the New YorkStock Exchange (“NYSE”) under the symbol NSE. Our shares commenced trading onMay 10, 2005. The table below sets forth the high and low closing prices forour common stock as reported on the NYSE for each quarterly period since ourshares commenced trading:

 

Fiscal Year Ended December 31, 2005:

 
| ** **                  | ** ** | **Price Range of Common Stock** | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| **Quarterly period ended:** | ** ** | **High**                        | ** ** | **Low** | ** ** |
| June 30,  2005              |       | $                               | 19.95      |   | $ | 16.58 |   |
| September  30, 2005         |       | 24.16                           |       | 19.61 |   |
| December 31,  2005          |       | 23.90                           |       | 20.11 |   |
|                             |            |                                 |            |  |  |  |  |

### **Shareholders**

 

There were 111 registered holders of ourshares as of December 31, 2005. Additionally, we believe there wereapproximately 1,800 beneficial holders of common stock whose shares were heldin the name of brokerage firms or other financial institutions. We are notprovided with the number or identities of all of the shareholders, but we haveestimated the number of such shareholders from the number of shareholderdocuments requested by these brokerage firms for distribution to theircustomers.

 

### **Dividends**

 

At the time of the NSS IPO, our board ofdirectors adopted a dividend policy which reflected an intention to distributea substantial portion of the cash generated by our business in excess ofoperating expenses and working capital requirements, interest and capitalexpenditures as regularly quarterly dividends to our shareholders. In June2005, we declared a partial quarterly cash dividend of $0.252146 per share (fora total dividend payment of approximately $8.1 million) for the second quarterof 2005, which was paid to shareholders of record as of June 30, 2005. InSeptember 2005, we declared a quarterly cash dividend of $0.463125 per share(for a total dividend payment of approximately $15.0 million) for the thirdquarter of 2005, which was paid in October 2005 to

 

37

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shareholders of record as of September 30,2005. In December 2005, we declared a quarterly cash dividend of $0.463125 pershare (for a total dividend payment of approximately $15.0 million) for thefourth quarter of 2005, which was paid in January 2006 to shareholders ofrecord as of December 31, 2005.

 

As part of our agreement with SES Global, weagreed to terminate our quarterly dividend program after the declaration andpayment of our 2005 fourth quarter dividend.

 

### **Recent Sales of Unregistered Securities**

 

None.

 

### **Use of Proceeds from Registered Securities**

 

None.

 

### **Repurchases**

 

None.

 

38

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## **ITEM6.        SELECTED FINANCIAL DATA.**

 

The selected consolidatedhistorical financial data as of December 31, 2004 and 2005, the year endedDecember 31, 2003, for the period January 1, 2004 to November 1, 2004, theperiod November 2, 2004 to December 31, 2004 and the year ended December 31,2005 have been derived from our audited consolidated historical financialstatements included elsewhere in this document.

 

Holdings, which is a Bermudaholding company, completed the NSS IPO on May 13, 2005. Immediately prior tothe NSS IPO, we undertook an internal restructuring pursuant to whichpre-existing shareholders indirectly contributed 100 percent of the equity,preferred equity certificates and convertible preferred equity certificates ofNew Skies Investments S.a.r.l. to Holdings. As Holdings is a recently formedcompany which did not have any assets, liabilities or results of operationsprior to the restructuring, the balance sheet at December 31, 2004 representsthat of New Skies Investments S.a.r.l. and the results for the year endedDecember 31, 2005 represent the combination of the results of New SkiesInvestments S.a.r.l and its subsidiaries for the period up to and including thedate of the restructuring and those of Holdings and its subsidiaries for theperiods thereafter (the “Successor”).

 

On November 2, 2004, NewSkies Investments S.a.r.l, through its wholly owned subsidiaries, New SkiesHolding B.V. and New Skies Satellites B.V., completed the Acquisition of NewSkies Satellites N.V. Prior to the Acquisition, New Skies Investments S.a.r.ldid not have any assets, liabilities or results of operations. Accordingly, theresults prior to November 1, 2004 represent the results of New Skies SatellitesN.V. and its subsidiaries (the “Predecessor”). Accordingly, the selectedconsolidated historical financial data as of December 31, 2001 and 2002 and forthe years ended December 31, 2001 and 2002 have been derived from the auditedconsolidated historical financial statements of New Skies Satellites N.V. whichare not included elsewhere in this annual report on Form 10-K.

 

The selected consolidatedhistorical financial data set forth below should be read in conjunction with,and are qualified by reference to, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” and our audited consolidatedfinancial statements and related notes included elsewhere in this document.

 
| ** **                                                                                   | ** ** | **Predecessor**                           | ** ** | ** **                                            | **Successor** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------------------|---------------|------------|
| ** **                                                                                   | ** ** | **Year  Ended December 31,**         | ** ** | **Period  January 1, 2004  to November 1,** | ** **    | ** ** | **Period  November 2, 2004  to December 31,** | ** ** | **Year  Ended  December 31,** | ** ** |
| ** **                                                                                   | ** ** | **2001**                                  | ** ** | **2002**                                              | ** **    | **2003**   | ** ** | **2004** | ** ** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                                   | ** ** | **(In  millions, except per share data)** | ** ** |
| **Statement  of Operations Data:**                                                           |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| Revenues                                                                                     |       | $                                         | 209.0      |                                                  | $             | 200.5      |   | $ | 214.9 |   | $ | 175.4 |   |   | $ | 35.3 |   | $ | 240.5 |   |
| Operating  expenses:                                                                         |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| Cost  of operations                                                                          |       | 51.5                                      |       | 50.7                                                  |          | 53.2       |   | 45.4 |   |   | 10.9 |   | 44.6 |   |
| Selling,  general and administrative                                                         |       | 38.7                                      |       | 39.5                                                  |          | 42.1       |   | 35.8 |   |   | 17.8 |   | 58.7 |   |
| Transaction  related expenses                                                                |       | —                                    |       | —                                                |          | —     |   | 26.4 |   |   | — |   | 2.9 |   |
| Monitoring  agreement fees                                                                   |       | —                                    |       | —                                                |          | —     |   | — |   |   | 0.2 |   | 6.9 |   |
| Depreciation  and amortization                                                               |       | 75.4                                      |       | 80.6                                                  |          | 99.9       |   | 86.4 |   |   | 16.0 |   | 95.1 |   |
| Total  operating expenses                                                                    |       | 165.6                                     |       | 170.8                                                 |          | 195.2      |   | 194.0 |   |   | 44.9 |   | 208.3 |   |
| Gain  arising on frequency coordination(1)                                                   |       | —                                    |       | —                                                |          | —     |   | 32.0 |   |   | — |   | 19.5 |   |
| Gain  arising on sale of subsidiary(2)                                                       |       | —                                    |       | —                                                |          | —     |   | — |   |   | — |   | 7.0 |   |
| Operating  income (loss)                                                                     |       | 43.4                                      |       | 29.7                                                  |          | 19.7       |   | 13.4 |   |   | (9.6 | ) | 58.7 |   |
| Interest  expense (income) and other, net                                                    |       | (9.0                                      | )          | 0.5                                                   |          | 1.2        |   | 1.4 |   |   | 9.8 |   | 61.9 |   |
| Income  (loss) before income tax expense (benefit)                                           |       | 52.4                                      |       | 29.2                                                  |          | 18.5       |   | 12.0 |   |   | (19.4 | ) | (3.2 | ) |
| Income  tax expense (benefit)                                                                |       | 19.3                                      |       | 10.5                                                  |          | 6.7        |   | 4.3 |   |   | (5.4 | ) | (1.8 | ) |
| Income  (loss) before cumulative effect of change in accounting principle                    |       | 33.1                                      |       | 18.7                                                  |          | 11.8       |   | 7.7 |   |   | (14.0 | ) | (1.4 | ) |
| Cumulative  effect of change in accounting principle, relating to goodwill, net of  taxes(3) |       | —                                    |       | (23.4                                                 | )             | —     |   | — |   |   | — |   | — |   |
| Net  income (loss)                                                                           |       | $                                         | 33.1       |                                                  | $             | (4.7       | ) | $ | 11.8 |   | $ | 7.7 |   |   | $ | (14.0 | ) | $ | (1.4 | ) |

 

39

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| ** **                                           | ** ** | **Predecessor**                           | ** ** | ** **                                            | **Successor** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------------------|---------------|------------|
| ** **                                           | ** ** | **Year  Ended December 31,**         | ** ** | **Period  January 1, 2004  to November 1,** | ** **    | ** ** | **Period  November 2, 2004  to December 31,** | ** ** | **Year  Ended  December 31,** | ** ** |
| ** **                                           | ** ** | **2001**                                  | ** ** | **2002**                                              | ** **    | **2003**   | ** ** | **2004** | ** ** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | **(In  millions, except per share data)** | ** ** |
| **Net  Income (Loss) Per Share Data(4):**            |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| Basic  and diluted net income (loss) per share:      |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| Net  income (loss) per share                         |       | 0.25                                      |       | (0.04                                                 | )             | 0.10       |   | 0.06 |   |   | (322.61 | ) | (0.05 | ) |
| Weighted  average shares–basic (in thousands)   |       | 130,569                                   |       | 130,342                                               |          | 119,499    |   | 118,099 |   |   | 43 |   | 27,349 |   |
| Weighted  average shares–diluted (in thousands) |       | 130,710                                   |       | 130,342                                               |          | 120,678    |   | 119,850 |   |   | 43 |   | 27,349 |   |
|                                                 |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| **Statement  of Cash Flow Data:**                    |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| Net  cash provided by operating activities           |       | $                                         | 130.7      |                                                  | $             | 113.0      |   | $ | 109.8 |   | $ | 111.2 |   |   | $ | 30.0 |   | $ | 124.2 |   |
| Net  cash provided by (used in) investing activities |       | (222.7                                    | )          | (231.4                                                | )             | (43.5      | ) | (7.7 | ) |   | (866.1 | ) | 140.3 |   |
| Net  cash provided by (used in) financing activities |       | (2.5                                      | )          | (11.7                                                 | )             | (51.9      | ) | (6.4 | ) |   | 873.7 |   | (286.3 | ) |
|                                                 |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| **Balance  Sheet Data (end of period):**             |       |                                      |       |                                                  |          |       |   |   |   |   |   |   |   |   |
| Cash  and cash equivalents                           |       | $                                         | 138.3      |                                                  | $             | 8.3        |   | $ | 23.3 |   | n/a |   |   | $ | 38.0 |   | $ | 16.2 |   |
| Total  current assets                                |       | 189.4                                     |       | 58.5                                                  |          | 79.9       |   | n/a |   |   | 84.9 |   | 51.5 |   |
| Communications,  plant and other property            |       | 886.2                                     |       | 1,058.1                                               |          | 1,026.6    |   | n/a |   |   | 895.9 |   | 608.4 |   |
| Total  assets                                        |       | 1,109.8                                   |       | 1,128.0                                               |          | 1,115.8    |   | n/a |   |   | 1,030.3 |   | 752.8 |   |
| Long-term  debt(5)                                   |       | —                                    |       | 10.0                                                  |          | —     |   | n/a |   |   | 909.3 |   | 438.6 |   |
| Total  liabilities                                   |       | 72.6                                      |       | 109.0                                                 |          | 114.0      |   | n/a |   |   | 1,042.1 |   | 575.6 |   |
| Total  shareholders’ equity (deficit)           |       | 1,037.2                                   |       | 1,019.0                                               |          | 1,001.8    |   | n/a |   |   | (11.8 | ) | 177.2 |   |
|                                                      |            |                                           |            |                                                       |               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

| (1)    |   | Relates to a one-time payment from Intelsat LLC of $32.0 million in  2004 and one-time payments from affiliates of SES Global of $19.5 million in  2005 following the successful resolution of certain longstanding frequency  coordination matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (2)    |   | Relates to a gain on sale of a wholly-owned subsidiary, New Skies  Networks Pty Ltd. on November 8, 2005 for cash consideration of $10.0  million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (3)    |   | As of January 1, 2002, we adopted SFAS No. 142. This standard  discontinues goodwill amortization from the consolidated statement of  operations and requires an evaluation of goodwill for impairment upon  adoption of this standard, as well as subsequent evaluations on an annual  basis, and more frequently if circumstances indicate a possible impairment.  Upon adoption of SFAS No. 142, we performed a transitional impairment test on  the goodwill resulting from the purchase of New Skies Networks Pty Ltd. in  March 2000. As a result of this impairment test, we recorded an impairment  charge of $23.4 million, which is classified as a cumulative effect of a  change in accounting principle. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (4)    |   | Net income (loss) per share is calculated by dividing net income  (loss) by the weighted average shares outstanding. The computation of diluted  net income (loss) per share is similar to basic net income (loss) per share,  except that it assumes the potentially dilutive securities were converted to  shares as of the beginning of the period.                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (5)    |   | Total debt is calculated as the sum of long-term and short-term  third-party debt (including borrowings under the senior secured credit  facilities, the notes and the preferred equity securities subject to  mandatory redemption). Total debt does not include short-term and long-term  satellite performance incentives, which liabilities are contingent and were  $36.9 million and $34.7 million at December 31, 2004 and 2005, respectively.                                                                                                                                                                                                                                                                 |

 

40

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| **ITEM 7.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS.** |
|-------------|--------------------------------------------------------------------------------------------------|

 

*The following discussion andanalysis of our financial condition and results of operations should be read inconjunction with our consolidated financial statements and related notesincluded elsewhere in this annual report. Actual results could differmaterially from those discussed below. This discussion contains forward-lookingstatements. Please see “Special Note Regarding Forward- Looking Statements” and“Risk Factors” for a discussion of certain of the uncertainties, risks andassumptions associated with these statements.*

 

*References made to the “Company,”“New Skies,” “we” or “our” shall mean New Skies Satellites N.V. and itssubsidiaries for the period up to and including November 1, 2004, NewSkies Investments S.a.r.l. and its subsidiaries up to the date of theRestructuring, and Holdings and its subsidiaries thereafter.*

 

### **Management Overview**

 

We are a global satellite communicationscompany that owns and operates five in-orbit satellites and has one additionalsatellite under construction. We provide satellite-based transponder capacityfor the transmission of data services, video services, Internet-relatedservices and voice services. We also offer ground-based services in conjunctionwith our satellite capacity in order to provide our customers with end-to-endcommunications services for certain applications.

 

Overall, the business climate for the yearended December 31, 2005, while continuing to improve somewhat, on balanceremained challenging. Although new business and renewal pricing increased over2004 levels, overall pricing remained at approximately $1.2 million per 36MHz-equivalent transponder throughout 2005. Consequently, the growth in ourfill rate from 55% at December 31, 2004 to 64% at December 31, 2005 was theprimary reason for the 14% revenue growth over this period.

 

### **Our Formation, Our IPO, and SubsequentTransactions**

 

On November 2, 2004, New SkiesInvestments S.a.r.l., through its wholly owned subsidiaries, New Skies HoldingB.V. and New Skies Satellites B.V., completed the Acquisition of New SkiesSatellites N.V. In connection with the Acquisition, the investment funds contributed$153.0 million in preferred equity certificates, $8.5 million in the form ofconvertible preferred equity certificates and $1.5 million of equity to NewSkies Investments S.a.r.l. New Skies Investments S.a.r.l. subsequently loaned$153.0 million and contributed $10.0 million of equity to New Skies Holding B.V.New Skies Holding B.V. then loaned $153.0 million and contributed $10.0 millionof equity to New Skies Satellites B.V. In addition, New Skies Satellites B.V.entered into senior secured credit facilities, consisting of a $460.0 millionterm loan facility and a $75.0 million revolving credit facility, issued $160.0million aggregate principal amount of senior floating rate notes due 2011, andissued $125.0 million aggregate principal amount of 91/8%senior subordinated notes due 2012, to fund the Acquisition. At the closing ofthe Acquisition, the investment funds (along with management) directly andindirectly owned 100% of New Skies Investments S.a.r.l., New Skies Holding B.V.and New Skies Satellites B.V.

 

Prior to the Acquisition, New SkiesInvestments S.a.r.l. had not commenced operations. Accordingly, the results forany period ending prior to November 2, 2004 represent the results of New SkiesSatellites N.V. and its subsidiaries (the “Predecessor”).

 

Holdings was formed on January 14, 2005 underthe laws of Bermuda. In May 2005, immediately prior to the NSS IPO, weperformed an internal Restructuring pursuant to which pre-existing shareholderscontributed 100 percent of the equity, preferred equity certificates andconvertible preferred equity certificates of New Skies Investments S.a.r.l. toHoldings. As a result of the Restructuring, the existing shareholders of NewSkies Investments S.a.r.l. became direct owners of Holdings and New Skies InvestmentsS.a.r.l., New Skies Holding B.V. and New Skies Satellites B.V. became indirectwholly-owned subsidiaries of Holdings.

 

Prior to the Restructuring, Holdings had notcommenced operations. Accordingly, the results for the period ended December31, 2005 represent the combination of the results of New Skies InvestmentsS.a.r.l. and its subsidiaries for the period up to and including the date ofthe Restructuring and those of Holdings and its subsidiaries for the periodsthereafter (collectively, the “Successor”).

 

On May 13, 2005, Holdings completed the NSSIPO of approximately 37% of the shares of its common stock.

 

On December 14, 2005, SES Global and weannounced that we had entered into a binding agreement

 

41

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pursuant to which SES Global will acquire100% of us by way of a merger under Bermuda law (an amalgamation) for US$22.52per share in cash. On February 10, 2005 we held a special meeting ofshareholders at which our shareholders approved the SES Transaction. Weanticipate that the SES Transaction will close in the second quarter of 2006,although the timing of the closing will depend on the timing of receipt ofnecessary regulatory approvals and could occur later. See “Item 1—Descriptionof Business—Our Acquisition by SES Global.”

 

### **Revenues**

 

We earn revenues by providing transpondercapacity, or a combination of transponder capacity and terrestrial facilitiesand services, to customers around the globe to allow them to transmit andreceive signals using our satellites.

 

We provide transponder capacity on both afixed term and occasional use basis. For the years ended December 31, 2003,2004 and 2005, we derived our revenues from the following geographic regions(based on the billing addresses of our customers):

 
| ** **                    | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------|------------|-----------------------------|------------|
| **Region**                    | ** ** | **2003**                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| North America                 |       | 36                          | %          | 35 | % | 41 | % |
| Europe                        |       | 22                          |       | 21 |   | 20 |   |
| India, Middle East and Africa |       | 21                          |       | 22 |   | 20 |   |
| Latin America                 |       | 13                          |       | 13 |   | 10 |   |
| Asia Pacific                  |       | 8                           |       | 9 |   | 9 |   |
| Total                         |       | 100                         | %          | 100 | % | 100 | % |

 

Generally, the region within which a customerpurchases services provides a reasonable indication of the location where theservices are used. However, some of our customers may purchase capacity toprovide services outside of their home region and, as a result, thisdistribution may not reflect actual traffic flow on our satellites. Based onour analysis of market trends, we believe that we will continue to experiencegeographic diversity of our revenues going forward.

 

The table below presents our estimate, basedon information provided by our customers typically at the commencement of theirrespective services, of the percentage of our revenues for the years endedDecember 31, 2003, 2004 and 2005 that were attributable to each of the fourbroad categories of content for which our customers used our services: datatransmissions for government and corporate communications networks andinternational carriers; video transmissions for broadcasting, cable, and otherentertainment media; the transmission of Internet content for Internet serviceproviders and others; and voice trunking services for telephone and othersimilar types of companies.

 
| ** **                  | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------|------------|-----------------------------|------------|
| **Services**                | ** ** | **2003**                    | ** ** | **2004** | ** ** | **2005** | ** ** |
| Data services               |       | 43                          | %          | 42 | % | 51 | % |
| Video services              |       | 37                          |       | 35 |   | 30 |   |
| IP services                 |       | 20                          |       | 18 |   | 14 |   |
| Voice trunking services (1) |       | N/A                         |       | 5 |   | 5 |   |
| Total                       |       | 100                         | %          | 100 | % | 100 | % |

 

----

(1) For 2003, voice trunking services are not reported separately and areincluded with data services.

 

As the table above shows, our revenuescontinue to be generated from these four broad categories. Data servicescontinue to represent our largest source of revenues, followed by videoservices. Internet access services and other Internet-related services togetherwith voice trunking services accounted for the remainder of our revenues.

 

Over the past several years, data serviceshave contributed a significant and growing portion of our revenues, increasingfrom 42% of total revenues in 2004 to 51% in 2005. Based upon input provided byour customers and market information, we believe this increase reflects, inlarge part, growing demand for commercial data services by governmentalentities. Information from customers’ traffic patterns and market data indicatethat

 

42

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this continued to be true during 2005, andwas in part—but not exclusively—a result of additional services provided toIntelsat on our NSS-5 satellite following the failure of their IS-804 satellitein the first quarter of 2005. Based on an analysis of information provided byour customers typically at the commencement of their respective services, weestimate that during the year ended December 31, 2005, we derived approximatelyone-third of our revenues from services to customers where the ultimate enduser was a governmental entity.

 

Demand from government users and from newproviders of data services has helped to counter-balance the general trendtoward the use of fiber optic networks for certain services, such as point-to-pointdata services. In 2005, we saw continued growth in demand for our data servicesoverall.

 

Our video business remained stable overall interms of revenues and continued to expand during 2005 especially in theAsia-Pacific region, based on the number of video channels transmitted on oursatellites. Overall, the number of video channels transmitted on our satellitesincreased by approximately 11% during 2005, from 419 on December 31, 2004 to466 on December 31, 2005, although it declined to 431 channels in early 2006due to the termination of two African DTH service platforms formerly carried onour of our satellites. In the Asia-Pacific region, the number of video channelstransmitted on our satellites increased by approximately 29%, from 130 onDecember 31, 2004 to 168 on December 31, 2005. We believe that all of the videochannels carried on our satellites on December 31, 2005 were digital, whichmeans that we do not face the risk of declining transponder demand from ourcurrent customers due to the industry-wide transition from analog signals(which take more satellite capacity to transmit television channels) to digitalsignals (which take less satellite capacity to transmit television channels).

 

### **Revenue Drivers**

 

The primary drivers of our revenues are (1)the supply of capacity capable of providing customers’ desired communicationslinks, (2) the overall level of demand for that capacity and (3) the pricesthat we are able to charge for our capacity, which is a function of supply anddemand.

 

#### ***Supply***

 

The supply of suitable capacity is driven bya number of factors, including the availability of (1) the orbitallocations and radio frequencies used by commercial satellites, (2) unusedsatellite capacity in orbit, (3) the launch of new satellites, (4) theretirement of existing satellites, either after a failure or at the end oftheir lives, and (5) the suitability of fiber optic networks and otherground-based services to provide a substitute for satellite capacity.

 

Generally, both we and our competitors buildand launch new satellites to replace existing satellites and to provide newgeographic or frequency coverage. Over the last five years, the industry hasdeployed more satellite capacity than required by its customers, and, as aconsequence, the average utilization of satellites decreased. When we launchsatellites, we try to mitigate the risk of under-utilization by selling thecapacity of a new satellite to customers before it is launched and by procuringnew satellites only when we have a sound business case to do so. We also try todesign our new satellites with better performance characteristics and greaterflexibility than our competitors’ satellites, including the technical abilityto allocate available capacity to different markets in a dynamic manner asdemand patterns shift over time. In addition, to the extent possible, weendeavor to focus our new capacity on regions and communications routes withhigh demand.

 

We also try to enhance the attractiveness ofour satellites in other ways, such as through the creation of a “neighborhood”or “antenna community.”  For severaltypes of services transmitted via satellite, including for example videodistribution, occasional use video services, and business news services, if asatellite carries content that is in high demand, then an increasing number ofground-based receiving antennas will be dedicated to that particular satelliteto receive the popular signals. If many installed antennas are capable ofreceiving signals from the satellite, then the satellite has created a “neighborhood”or “antenna community” that is desirable to other entities transmitting similarcontent, because a large number of their potential customers already haveantennas dedicated to that satellite. Accordingly, the remaining availablecapacity on the satellite that can serve the neighborhood or antenna communitybecomes more desirable to the satellite operator’s customers and prospectivecustomers.

 

Over the past few years, commercial satelliteoperators have tended to slow or halt their expansion plans in the face oflower utilization in many regional and trans-regional markets. However, becausesatellites take roughly three years to procure, build and launch, newsatellites are still being launched, including into regions with sufficient or excesssupply. In addition, regional and national satellite operators may continue tolaunch new satellites, which may compete with our satellites, and may notchange their plans in response to economic conditions. In general, analystspredict that worldwide asset utilization troughed in 2005 and will increasethereafter due to three factors:

 

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(1) a reduction in the launch of newcapacity, (2) operators’ decisions not to replace satellites, or toreplace them with satellites with less capacity, as they reach the end of theirlives, and (3) steadily increasing unit demand. The introduction of newcapacity, particularly in light of current relatively low industry assetutilization, could continue to place downward pressure on pricing and/or resultin a slower uptake on the capacity we are offering.

 

Consolidation within the satellite industrymay also affect supply. In particular, on August 29, 2005, Intelsat Ltd.announced that it and PanAmSat Holding Corporation had signed a definitivemerger agreement. Intelsat and PanAmSat are two of our largest competitors,with 28 and 25 in-orbit satellites, respectively. The net effect of the mergerof these two companies, if concluded, is difficult to determine. On the onehand, the combined entity will potentially be able to compete more effectivelyin light of its significantly larger scale. At the same time, the combinationof these two entities may help to rationalize further the supply of satellitecapacity and, consequently, help to reduce the oversupply of capacity and theresulting risk of downward pricing pressure for satellite services.

 

In certain regional and trans-regionalmarkets, ground-based networks, particularly fiber optic networks, provide amore cost-effective alternative for certain types of applications, such as “point-to-point”transmissions, than satellite capacity. Capacity on these ground-based networksand capacity on a satellite system, however, are not perfect substitutes. Forexample, a wired ground-based network can only transmit a signal along theroute that it physically travels, which we call “point-to-point” connectivity.A satellite network has the advantage of being able to connect multiple pointswith a single transmission because satellites, in essence, “blanket” an entirecoverage area with their signal, which we call “point-to-multipoint” or “broadcast”coverage.

 

We try to avoid competing with ground-basedservices by focusing on services (particularly “point-to-multipoint” or broadcastservices) where satellites have a competitive advantage and in regions wheresuch ground-based services are often not available. In addition, we seek toprovide services to customers who desire a combination of ground-based andsatellite services, for back-up or other reasons.

 

#### ***Demand***

 

Demand is primarily driven by economic andregulatory conditions, both generally and within a particular geographic areaor product/service market. Economic growth leads to increases in televisionaudience sizes, higher disposable incomes and greater advertising expenditures.These, in turn, lead to greater demand for video programming and acorresponding increase in demand for satellite capacity to transmit thatprogramming. Similarly, increased personal computer use may increase demand forInternet access and other Internet-related services provided by local Internetservice providers, which then need to purchase more capacity to transmit theirdata. Demand for other applications, such as private communications networks usedby businesses, is also driven by general economic conditions.

 

Another key driver of demand for capacity iseffective market access to new and existing markets. Over time, many regulatorsare easing the restrictions that historically had denied or limited the abilityof non-domestic satellite operators to provide services in a market (althoughregulators in some markets, such as India, Kazakhstan and Russia are not, asdiscussed elsewhere in this annual report). In addition, many regulators arealso liberalizing their non-satellite communications markets, for example byallowing new fixed or mobile telephone companies or Internet service providersto compete, by deregulating price controls that affect these services or byallowing companies to provide new types of services, such as DTH television. Ascommunications markets are liberalized, competition generally increases, withtwo consequences. First, the new competitors desire capacity upon which toestablish their new networks and provide their services. Second, competitiontends to place downward pressure on end-user prices; as prices decline, alarger number of customers in the newly liberalized markets are able to affordcommunications services. Declining retail prices and increased competition,moreover, may encourage consumers to demand improved access to, and a broaderselection of, telecommunications and video services. Governments may alsoaffect demand in other ways, for example by requiring service providers toincorporate new technologies (such as high-definition television, whichrequires more satellite capacity to transmit than traditional television) intotheir service offerings. In addition, both governments and industry can promotethe development of technological standards, which allow for the mass productionof content and equipment and, thereby, promote the broader availability of suchcontent and equipment at lower prices.

 

Demand also can be driven by events of ashorter-term nature, such as major sporting events (for example, the Olympicsor World Cup) or events of a newsworthy nature such as the conflict in theMiddle East.

 

Overall demand for video services iscontinuing to grow, particularly in parts of the Middle East, Africa,

 

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and on the Indian subcontinent. These areasgenerally are underserved with video content relative to developed videomarkets, such as those in Europe, North America and Latin America. Our abilityto capture this demand will depend on the customers’ technical requirements,whether one of our satellites covers the geographic service region, therelative attractiveness of our pricing, and other competitive considerations.In some markets, including India, Kazakhstan and Russia, regulatoryrestrictions on market access by foreign satellite operators may also affectour ability to maintain or capture video demand. Moreover, there are a limitednumber of opportunities to secure business from providers of DTH services,since generally any market can sustain only one or two such services and eachservice tends to be carried in its entirety over a single satellite system.Demand for satellite capacity to transmit video signals will also increase asnew high-definition television services are introduced, since it takes a greateramount of satellite capacity to transmit a high-definition television servicethan a traditional television service.

 

Overall demand for data services is alsocontinuing to grow, fuelled in particular by demand from government users. Accordingto a 2005 study by industry analysts, government users are believed to havespent over $798 million on satellite services in 2005, up from approximately$710 million in 2004 and $650 million in 2003. The U.S. government isestimated to account for approximately three-fourths of this spending. Thisstudy projects that the government services market will continue to expand inthe coming years, with the U.S. government and non-U.S. government marketsegments growing at compounded annual growth rates of 13% and 9%, respectively,over the 2005-2010 period. Governmental customers and the resellers that servethem, moreover, generally are attractive customers for other reasons, includingtheir creditworthiness and the recurring nature of their business. During 2004and 2005, we have seen increased competition in the government services market,changes in the ownership or business strategy of our customers who providesatellite services to government users, and developments that may lead tochanges in the procurement processes used by governments or the prices they arewilling to pay for these services. In particular, in 2004, our largestcustomer, COMSAT General Corporation, a reseller of satellite services to theU.S. government, was purchased by Intelsat. Notwithstanding Intelsat purchaseof COMSAT General Corporation, we believe that we remain an attractive serviceprovider to the U.S. government and will continue to be able to competesuccessfully in the government services market. In addition, in connection withIntelsat’s purchase of COMSAT General Corporation and in order to preserve thediversity of suppliers to the U.S. government, we entered into an agreementwith Intelsat under which we agreed to continue to provide, and Intelsat agreedto continue to procure from us, satellite capacity for services to COMSATGeneral Corporation for certain U.S. government-related contracts using oursatellites. The agreement is for a two-year term, beginning on the date of theclosing of the Intelsat purchase in October 2004, and covers all renewalsof contracts pursuant to which we supplied COMSAT General Corporation withcapacity as of the date of the closing. Also, the U.S. Department of Defensehas undertaken an effort to revise its approach for procuring commercialsatellite capacity. This effort could result in downward pricing pressure overtime for U.S. government services, the imposition of new security measuresrelating to command, control and other operations of commercial communicationssatellite operators carrying certain U.S. government traffic, or a preferencefor operators complying with more stringent security measures. If we are unableto implement appropriate security measures, over time we may be unable tosecure certain types of U.S. Department of Defense business and may be at acompetitive disadvantage in securing such business.

 

#### ***Pricing***

 

Various market forces, which can differ byregion, affect pricing of transponder capacity. We sell our available capacityat prevailing market prices, which vary with the connectivity and neighborhood,the amount of capacity required, the type of service, the technicalcharacteristics of the capacity we are offering, the duration of the serviceunder contract and the supply of comparable capacity. In general, we pricecontracts of shorter duration and for less capacity on a higher cost-per-unitbasis than contracts of longer duration and for more capacity. Pricingdetermines the extent to which increasing unit demand translates into revenuegrowth.

 

### **Effects of Revenue Drivers on New Skies**

 

Our results during 2005 reflected ourcontinued additional sales of our available capacity. We believe that our newsatellites are commercially attractive, given their relatively high powerlevels (higher power levels can improve the quality of a customer’s service andcan make it possible to transmit larger amounts of information and/or usesmaller sized ground antennas), attractive geographic coverage, and flexibilitythat allow us to allocate and reallocate capacity over time to areas in whichdemand exists.

 

For new contracts, including renewals,entered into in 2005, our average rate per transponder per year (expressed in36 MHz units) was $1.4 million, as compared to $1.2 million in 2004,which reflected a return to

 

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pricing levels last experienced in 2003.

 

We have procured one additional satellite,NSS-8, which the manufacturer currently projects will be launched in the fourthquarter of 2006 and will enter commercial service approximately 90 days after asuccessful launch. Once NSS-8 enters commercial service, it will grow our totaltransponder capacity for sale by 28%, which we believe will allow us toincrease our revenues.

 

The average duration of the new agreements wesigned in 2005 was approximately two years, in line with the overall averageduration of all of our customer agreements. Average contract durationstypically vary by service type. Among the market segments that we serve, videoand some data and voice customers tend to enter into multi-year contracts,while many data and voice customers, and most Internet-related servicescustomers, tend to prefer shorter-term contracts. Prior to 1999, the majorityof our contracts were for video transmission and generally had an average durationof five years. Since 1999, we have increased the number of contracts for thetransmission of data services, including government services, and Internet-relatedcontent. Government users in particular typically sign only one-yearagreements. We therefore have seen a decline in average contract duration asrevenues from our data services, including government services, have grown as apercentage of our total revenues.

 

We currently provide transponder capacity onboth fixed-term and occasional use bases. We recognize revenue on a straight-linebasis over the period during which satellite services are provided.

 

We continue to market and sell multi-yearcontracts in order to provide greater stability and certainty regarding ourrevenues going forward. In particular, such sales allow us to maintain a levelof future contractual service commitments, or backlog, that enables us to entereach year with a significant portion of that year’s revenues already secured.For example, at December 31, 2005, we had a contractual backlog for futureservices of $502 million, of which $175 million is contracted forreceipt in the year ending December 31, 2006. See “—Backlog.”

 

### **Expenses**

 

Our ongoing operating expenses include ourcost of operations, selling, general and administrative expenses anddepreciation. Our cost of operations includes costs associated with:

 

•      tracking,telemetry, control and payload management operations for our satellites (whichinvolve monitoring spacecraft signals; sending routine commands to controlspacecraft operations; performing regular ranging measurements on eachsatellite and resolving spacecraft orbits; performing periodic maneuvers andother spacecraft operations; responding to anomalies as and when they arise;and monitoring the signals transmitted over our satellites for quality,troubleshooting and other purposes);

 

•      fiberoptic and teleport services associated with the provision of bundled services;

 

•      in-orbitinsurance for our satellites; and

 

•      thecosts associated with our own operations and engineering infrastructure.

 

Selling, general and administrative expensesinclude costs associated with:

 

•      oursales and marketing and administrative staff;

 

•      travel,office and occupancy costs; and

 

•      otherrelated expenses.

 

Depreciation includes the costs associatedwith the depreciation of communication, plant and other property, principallyour satellites. Depreciation is our single largest expense. Because wedepreciate our satellites on a straight-line basis over their anticipated usefullives, depreciation expense is generally constant from year to year unless welaunch a satellite or a satellite reaches the end of its depreciable life.Depreciation of a satellite starts when it enters commercial service, whichbegins upon successful completion of in-orbit testing. NSS-6 entered commercialservice in February 2003. Consequently, depreciation expense increased$2.5 million in 2004 primarily as a result of the full-year effect ofNSS-6 depreciation. In addition, as a consequence of the Acquisition and theallocation of the purchase price paid to underlying assets acquired andliabilities assumed, we have assigned fair values to all of our assetsincluding our satellites. This resulted in a reduction to the carrying value ofour satellites, and hence our depreciation expense in 2005 and going forwardhas also been reduced.

 

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We are also constructing one additionalsatellite, NSS-8, which the manufacturer currently projects will be launched inthe fourth quarter of 2006 and will enter commercial service approximately 90days following a successful launch. This new satellite will further increasedepreciation charges assuming it is successfully launched and placed intocommercial service. If and when we add new satellites to our fleet, we willalso incur additional costs for any launch insurance and in-orbit insurancethat we procure.

 

In-orbit insurance represents the cost toinsure the net book value, excluding unamortized performance incentives, of oursatellites. While we continue to periodically review our insurance coveragearrangements, including the possibility of self-insuring certain of our risks,to date we have elected to insure the entire net book value of our satellites,with the exception of performance incentives, as these are payable only to theextent that the satellite continues to operate successfully. While in recentyears the trend has been for insurance premiums to rise, the annual reductionin insurable values as a consequence of the lower net book values of oursatellites has caused overall premiums charged to remain constant, or evendecrease, year-on-year. Our in-orbit insurance costs do rise, however, when anew satellite is launched and enters the in-orbit insurance program (other thanNSS-8, whose net book value will be insured through a third-party contractualarrangement rather than through traditional insurance, although we may stillchoose to purchase supplemental insurance if we deem the contractualarrangement’s coverage to be less comprehensive than our existing policies).

 

We fully monitor and operate all of oursatellites using our own tracking, telemetry and control facilities.

 

We believe that we have achieved a criticalmass with respect to our operations and staff, with the result that we do notanticipate significant increases in our operating expenses in the near term,except for the impact of any adverse change in the insurance markets onpremiums paid for in-orbit insurance for our existing fleet, and additionalthird-party costs we incur to provide incremental bundled services to ourcustomers. We consider the balance of our operations and sales infrastructurecost to represent a largely fixed cost.

 

While the ongoing business remainssubstantially unchanged, the Acquisition of New Skies Satellites N.V., aspreviously discussed, resulted in (1) additional debt being incurred,which has caused our interest expense to become correspondingly higher,(2) depreciation decreasing as a consequence of purchase accountingadjustments reducing the net book value of our long-lived assets to fair valueand (3) an annual monitoring fee being incurred, the total amount of whichwas accelerated in connection with the NSS IPO. These first two of these threeitems will have a consequential impact on the level of expenditures we incur onan ongoing basis.

 

### **Backlog**

 

We provide customers with satellitetransponder capacity for contract periods varying from less than one year to15 years. At December 31, 2005, we had a contractual backlog for futureservices of $502 million, with data/voice and video services representing41% and 47% of this total, respectively, based on information provided by ourcustomers typically at the commencement of their services, 5% representing voicetrunking services and the balance relating to Internet-related services. Of our$502 million of backlog as of December 31, 2005, approximately$175 million related to services to be delivered in 2006,$103 million in 2007, $68 million in 2008, $48 million in 2009, $37in 2010 and $71 million in 2011 and thereafter. In addition, during 2005,we continued to experience a general downward trend in backlog due to shortercontract durations, which is consistent with recent trends in the industry.

 

Of our $502 million backlog, which we donot recognize as revenue until we actually perform the services, approximately$468 million, or 93%, related to obligations provided undernon-cancellable agreements. The remaining backlog relates to preemptiblecapacity contracts which we inherited from INTELSAT that have cancellationoptions, subject to the payment of a cancellation fee equal to 25% of theremaining amounts due under the contract by the customers. We cannot rule outthe possibility we could face contract terminations arising in the normalcourse of business or as a result of other market forces or governmentdirectives.

 

As of December 31, 2005, the averageremaining duration of our backlog, based on a weighted average of backlogoutstanding, was approximately five years. On a simple average basis,representing the remaining duration of our contracts divided by the number ofcontracts, our average remaining duration of our contracts was approximatelytwo years.

 

### **Critical Accounting Policies**

 

Our significant accounting policies aredescribed fully in Note 3 to our consolidated financial statementsincluded elsewhere in this annual report. We consider a number of accountingpolicies to be critical to the

 

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understanding of our results of operations. Theseaccounting policies relate to revenue recognition, our communications, plantand other property, impairment of long-lived assets, income taxes, goodwill andsatellite performance incentives. Our preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesrequires us to make estimates and assumptions that affect the reported amountof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements, and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

 

#### ***Revenue Recognition***

 

Revenue results from utilization charges thatare recognized as revenue on a straight-line basis over the period during whichthe satellite services are provided. This revenue is recognized provided thatcollection of the related receivable is reasonably assured. We make estimatesregarding the probability of collection based upon an evaluation of thecustomer’s creditworthiness, the customer’s payment history and otherconditions or circumstances that may affect the likelihood of payment. When wehave determined that the collection of payments for satellite utilization is notreasonably assured at the time the service is provided, we defer recognition ofthe revenue until such time that collection is believed to be reasonablyassured or the payment is received. We also maintain an allowance for doubtfulaccounts for customers’ receivables where the collection of these receivablesis uncertain. If our estimate of the probability of collection is not accurate,we may experience an increase in our bad debt expense. As we expand ourcustomer base to include certain smaller entities, including newer entrants inthe telecommunications marketplace and customers in emerging markets, thechange in the mix of our customer base could result in larger write-offs ofreceivables or an increase in contractual defaults than we have experiencedhistorically.

 

We receive payments for satellite utilizationcharges from some customers in advance of our providing services. Amountsreceived from customers pursuant to satellite capacity prepayment options arerecorded in our consolidated financial statements as deferred revenue. Thesedeferred amounts are recognized as revenue on a straight-line basis over theperiod during which the satellite services are provided.

 

#### ***Communications, Plant and Other Property***

 

Communications, plant and other property arecarried at cost and consist primarily of the costs of satellite constructionand launch, including capitalized performance incentive payments, insurancepremiums related to satellite launches and in-orbit testing, capitalizedinterest and costs directly associated with monitoring and support of satelliteconstruction. Satellite construction and launch services costs are capitalizedto reflect progress toward completion, which typically coincides with contractmilestone payment schedules. Insurance premiums related to satellite launchesare capitalized and amortized over the lives of the related satellites.Insurance policies procured for in-orbit operations are expensed as incurred. Satelliteperformance incentives payable in future periods are dependent on the continuedsatisfactory performance of the satellites in service.

 

Communications, plant and other property aredepreciated on a straight-line basis over their estimated useful lives. Thedepreciable lives of our satellites range from 12.5 years to 14 years.We make estimates of the useful lives of our satellites for depreciationpurposes based upon an analysis of each satellite’s performance, including itsorbital design life and its estimated orbital maneuver life. The orbital designlife of a satellite is the length of time that the satellite’s hardware isrequired under the contract with the manufacturer to remain operational undernormal operating conditions. In contrast, a satellite’s orbital maneuver lifeis the length of time we project we will be able to continue to operate asatellite based on its remaining fuel level, fuel consumption rate and otherrelevant factors.

 

#### ***Impairment of Long-Lived Assets andAmortizable Intangible Assets***

 

Our long-lived assets, which are comprisedprimarily of our in-service satellite fleet, are tested for recoverabilitywhenever events or changes in circumstances indicate that their carrying valuemay not be recoverable. Impairment can arise from complete failure or partialfailure of the satellites as well as a change in expected cash flows. Suchimpairment tests are based on a comparison of estimated undiscounted futurecash flows to the recorded value of the asset. If impairment is indicated, theasset value will be written down to fair value.

 

#### ***Income Taxes***

####  

We account for income taxes under theprovisions of SFAS No. 109, *Accountingfor Income Taxes*. Under

 

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this method, deferred tax assets andliabilities are recognized for the future tax consequences of temporarydifferences between the carrying amounts and tax bases of assets andliabilities and net operating loss carry-forwards using enacted rates.Valuation allowances are provided against assets that are not likely to berealized.

 

#### ***Goodwill and Other Intangible Assets***

 

The excess of the purchase price over thefair market value of net assets acquired is recorded as goodwill and is testedfor impairment at least on an annual basis. Similarly, other intangible assetscomprising of tradenames and in-use orbital slots are also evaluated forpossible impairment on an annual basis, or more frequently if circumstancesindicate a possible impairment.

 

#### ***Satellite Performance Incentives***

 

Our cost of satellite construction includesan element of deferred consideration to satellite manufacturers referred to as “satelliteperformance incentives.” We are contractually obligated to make these payments,historically representing up to 8% of the cost of our existing satellites and100% with respect to the NSS-8 satellite currently under construction, over theminimum, contractually obligated, orbital design lives of the satellites,provided the satellites continue to operate in accordance with contractualspecifications. We capitalize the present value of these payments as part ofthe cost of constructing these satellites and record a corresponding liabilityto the satellite manufacturers. This obligation is then reduced as thesatellite performance incentive payments are made.

 

### **Results of Operations**

 

The table below shows, for the periodsindicated, certain items in the consolidated statements of operations, as apercentage of revenues.

 
|   | **Statement of  Operations Data as a Percentage of Revenues** |
|--------|---------------------------------------------------------------|

 
| ** **                             | ** ** | **Predecessor**                              | ** ** | ** **                                                                | **Successor** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------|---------------|------------|
| ** **                             | ** ** | **Year Ended  December 31,  2003** | ** ** | **Period  January 1, 2004  to November 1, 2004** | ** **    | ** ** | **Period  November 2, 2004 to  December 31, 2004** | ** ** | **Year Ended  December 31,  2005** | ** ** |
| Revenues                               |       | 100                                          | %          | 100                                                                       | %             |       | 100 | % | 100 | % |
| Operating expenses:                    |       |                                         |       |                                                                      |          |       |   |   |   |   |
| Cost of operations                     |       | 25                                           |       | 26                                                                        |          |       | 31 |   | 19 |   |
| Selling, general and administrative    |       | 20                                           |       | 21                                                                        |          |       | 50 |   | 24 |   |
| Transaction related expenses           |       | —                                       |       | 15                                                                        |          |       | — |   | 1 |   |
| Monitoring agreement fees              |       | —                                       |       | —                                                                    |          |       | 1 |   | 3 |   |
| Depreciation and amortization          |       | 46                                           |       | 49                                                                        |          |       | 45 |   | 40 |   |
| Total operating expenses               |       | 91                                           |       | 111                                                                       |          |       | 127 |   | 87 |   |
| Gain arising on frequency coordination |       | —                                       |       | 18                                                                        |          |       | — |   | 8 |   |
| Gain arising on sale of subsidiary     |       | —                                       |       | —                                                                    |          |       | — |   | 3 |   |
| Operating income (loss)                |       | 9                                            |       | 7                                                                         |          |       | (27 | ) | 24 |   |
| Interest expense, net                  |       | 1                                            |       | 1                                                                         |          |       | 28 |   | 26 |   |
| Income tax expense (benefit)           |       | 3                                            |       | 2                                                                         |          |       | (15 | ) | (1 | ) |
| Net income (loss)                      |       | 5                                            |       | 4                                                                         |          |       | (40 | ) | (1 | ) |

 

### ***Year Ended****December31**, 2005 compared to the**Year**Ended**December 31**, 2004*

 

*Revenues.*Our revenues for the year ended December 31, 2005 were $240.5million, an increase of $29.8 million, or 14%, as compared to $210.7 millionfor the same period in 2004. Our revenue growth during the year ended December31, 2005 was primarily due to an increase in the overall satellite fleet fillrate to 64% as of December 31, 2005 compared to 55% as of December 31, 2004.This growth in fill rate was principally driven by increased demand for videoand enterprise services in Central and South Asia, the Middle East and Africa,from restoration services provided to Intelsat on NSS-5 commencing in the firstquarter of 2005, following the failure of one of Intelsat’s satellites, andfrom continued growth in government services across the fleet. Our increase inrevenues was also partly due to the net impact of certain one-time events,mainly arising from occasional-use television services that were generated fromvarious newsworthy world events that occurred in 2005.

 

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Our average rate for new agreements,including renewals, entered into during 2005 was $1.4 million per annum per 36MHz equivalent transponder, an increase of 17% from 2004 of $1.2 million,reflecting an improvement in overall market conditions over the prior year.

 

*Cost of operations.*Our cost of operations for the year ended December 31, 2005decreased by $11.7 million, or 21%, to $44.6 million from $56.3 million for thesame period in 2004. The decrease in our cost of operations resulted fromreductions in third party teleport and satellite capacity procurements as wellas overall reductions in other operating expenditures offset, in part, by anincrease in stock-based compensation expense.

 

*Selling, general andadministrative.*For the year endedDecember 31, 2005, our selling, general and administrative expenses increased$5.1 million, or 10%, to $58.7 million from $53.6 million in the same period in2004. The increase primarily resulted from the stock-based compensation expenseof $18.1 million for the year ended December 31, 2005, compared to $1.6 millionin the same period in 2004, partially offset by reductions in one-timeexpenditures that were incurred in 2004 in relation to the termination of acustomer contract and subsequent write-off of $7.8 million of thethen-outstanding accounts receivable balance and $2.8 million relating to staffreductions made in 2004. The staff reductions made in 2004 also contributed toa reduction in the level of our expenditures in 2005.

 

*Depreciation and amortization*. Depreciation and amortization expense decreased by $7.3 million,or 7%, to $95.1 million for the year ended December 31, 2005 from $102.4million for the same period in 2004. The net decrease was primarily due to thefair value adjustments reducing our fixed asset base in connection with theAcquisition.

 

*Transaction related expenses.*We incurred $2.9 million in transaction-related expenses during theyear ended December 31, 2005. New Skies Satellites N.V. incurred $26.4 millionof transaction-related expenses for the year ended December 31, 2004. The 2005expenses relate to financial advisory fees and expenses, legal costs andaccounting fees incurred in connection with the SES Transaction. See Note 15 tothe consolidated financial statements. The 2004 expenses related to the sametypes of expense incurred in connection sale of substantially all the assetsand liabilities of New Skies Satellites N.V. to New Skies Satellites B.V. onNovember 2, 2004.

 

*Monitoring agreement fees.*In connection with the Acquisition, Blackstone Management PartnersIV L.L.C. entered into a transaction fee and monitoring agreement with NewSkies Satellites B.V. relating to certain monitoring, advisory and consultingservices for a period of ten years ending November 2, 2014. In connectionwith the NSS IPO, Blackstone Management Partners IV L.L.C. terminated thisagreement. As contemplated by this agreement, New Skies Satellites B.V. paid,in the second quarter of 2005, a termination fee to Blackstone ManagementPartners IV L.L.C. of $6.1 million. In addition, New Skies Satellites B.V. alsopaid $0.8 million for these services in 2005 during the period prior to theagreement being terminated. For the year ended December 31, 2004, these coststotalled $0.2 million.

 

*Gain arising on frequencycoordination.*In the first quarter of2005, we received a one-time payment of $10.0 million from affiliates of SESGlobal and in the third quarter of 2005 we received a further one-time paymentof $9.5 million from affiliates of SES Global, in each case following thesuccessful resolution of certain frequency coordination matters. These paymentspositively affected our operating income for the year ended December 31, 2005.Similarly, in the second quarter of 2004, we received a one-time payment of$32.0 million from Intelsat LLC following the successful resolution of certainfrequency coordination matters. This payment also positively affected ouroperating income for the year ended December 31, 2004.

 

*Gain arising on sale of asubsidiary.*OnNovember 8, 2005, New Skies Satellites B.V. sold its wholly-owned subsidiary,New Skies Networks Pty Limited, to Multiemedia Ltd for cash consideration of$10.0 million, recognizing a gain on sale of $7.0 million. Concurrent with thesale, New Skies Satellites B.V. also entered into a five year Teleport ServicesOrdering agreement and a five year Space Segment Capacity agreement to ensurethat the services that were previously provided to and received from New SkiesNetworks Pty Limited continue to be received, and from which New SkiesSatellites B.V. will continue to generate direct cash flows. Accordingly, theresults of New Skies Networks Pty Limited for the period through November 8, 2005are shown as generated from continuing operations.

 

*Interest expense, net.*Interest expense, net was $61.9 million for the year ended December31, 2005 compared to $11.2 million in the same period in 2004. The net increasewas due to the full-year affect of the new debt used to finance the Acquisitionand the impact of accelerating the amortization of deferred financing fees as aconsequence of the prepayment of $306.4 million of the term loan facility in2005.

 

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*Income tax benefit.*Our income tax benefit for the year ended December 31, 2005 was $1.8million compared with $1.1 million for the year ended December 31, 2004. Oureffective income tax benefit rate for the year ended December 31, 2005 increasedto 56% as compared to 15% in the same period in 2004. The increase in oureffective tax rate was primarily due to certain non-taxable one-time gains in2005.

 

### ***Year EndedDecember 31, 2004 (Combined) Compared to Year Ended December 31, 2003***

 

*Revenues.*Our total combined revenues for the year ended December 31,2004 were $210.7 million, a decrease of $4.2 million, or 2%, ascompared to $214.9 million for 2003. The slight fall in revenues over 2003reflected price compression resulting from difficult market conditions as wellas competitive market pricing given to customers to enter into multi-transponderagreements. The average rate per transponder for contracts entered into in 2004declined to $1.2 million from $1.4 million in the previous year.

 

The decline in the average price pertransponder was partially offset by an increase in the overall satellite fleetfill rate, defined as the number of our revenue-generating transponders(expressed in 36 MHz units) divided by our fleet-wide station-kept transpondercapacity available for service (expressed in 36 MHz units). The fleet fill ratewas 55% at December 31, 2004 as compared to 48% at December 31, 2003.

 

*Cost of operations.*Our cost of operations for 2004 increased by $3.1 million, or6%, to $56.3 million from $53.2 million for 2003. The increase in ourcost of operations primarily resulted from an increase in in-orbit insurancepremiums of $2.9 million, which was attributable to the addition of NSS-6 andNSS-7 to the insurable asset base.

 

*Selling, general andadministrative.*For 2004, ourselling, general and administrative expenses increased $11.5 million, or28%, to $53.6 million from $42.1 million for 2003. Selling, generaland administrative expenses for 2004 included a $7.8 million chargerelating to the termination of a customer contract and subsequent write-off ofthe associated accounts receivable balance for non-performance and$2.8 million relating to staff reductions.

 

*Transaction related expenses.*Transaction expenses directly incurred by New Skies Satellites N.V.in connection with the Acquisition were $26.4 million and were comprisedprimarily of $9.7 million related to financial advisory fees and expenses,$8.9 million related to legal and accounting fees and other third partyservices and $7.8 million related to the settlement of outstanding stockoptions and other bonuses.

 

*Depreciation.*Combined depreciation expense increased by $2.5 million, or 3%,to $102.4 million for 2004 from $99.9 million for 2003. The netincrease was due to the commencement of service of NSS-6 in February 2003and other equipment placed into service, offset in part by the decrease of$1.2 million resulting from the $40.8 million revaluation oflong-term assets in connection with the Acquisition.

 

*Gain arising on frequencycoordination.*In 2004, we received aone-time payment of $32.0 million from Intelsat LLC following thesuccessful resolution of certain longstanding frequency coordination matters.

 

*Interest expense, net.*Interest expense for 2004 increased by $10.0 million to$11.2 million compared to $1.2 million for 2003. This increase wasprimarily due to the incurrence of new indebtedness used in the financing ofthe Acquisition.

 

*Income tax expense.*Our combined income tax benefit for 2004 was $1.0 million, adecrease of $7.7 million, as compared to income tax expense of$6.7 million for the prior year. The fluctuation in 2004 was due to thevariance in our pre-tax income.

 

Our annual effective income tax rate wasreduced in 2004 as compared to 2003. The decrease in the effective tax rate wasprimarily due to the pre-tax loss incurred in the period from November 2,2004 to December 31, 2004 for which we recorded a deferred tax asset forthe net operating loss carryforward that arose during this period. Further, thedecrease in the effective tax rate is also partly due to a future corporateincome tax rate reduction in The Netherlands that was enacted in the fourthquarter of 2004. Future changes in the effective tax rate will be subject toseveral factors, including enacted tax laws, tax planning strategies andbusiness profitability.

 

### **Liquidity and Capital Resources**

 

Prior to the Acquisition, our principalsources of liquidity were cash flow provided by operating activities andamounts available under the Predecessor’s unsecured revolving credit facility.

 

In connection with the Acquisition, New SkiesSatellites B.V. entered into senior secured credit facilities, consisting of a$460.0 million term loan facility and a $75.0 million revolving creditfacility, and issued $160.0

 

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million aggregate principal amount of seniorfloating rate notes and $125.0 million aggregate principal amount of seniorsubordinated fixed rate notes. In addition, the investment funds contributed toNew Skies Investments S.a.r.l. aggregate proceeds of $153.0 million in the formof 4,371,428 preferred equity certificates and $8.5 million in the form of242,857 convertible preferred equity certificates.

 

In February 2005, New Skies Satellites B.V.entered into an amended agreement for NSS-8, which (among other things) amendedthe satellite’s contractual delivery deadline and payment terms. Under theterms of the amended agreement, the manufacturer refunded to us allconstruction payments that had been made to date, including $30.0 million thatis being held in escrow and will be applied to the purchase price of thesatellite. The entire purchase price of NSS-8 will be paid as satelliteperformance incentives, subject to satisfactory performance of the satelliteduring its contractual design life, and we have provided (and will continue toprovide) commercially reasonable security to the manufacturer with respect tounpaid incentives.

 

Also in February 2005, New Skies InvestmentsS.a.r.l. issued and indirectly sold 125,608 preferred equity certificates and6,972 convertible preferred equity certificates to New Skies (Cayman) Ltd.,which is owned by the six members of New Skies Satellites B.V.’s executivemanagement committee, for $4.6 million.

 

During 2005, using the proceeds of the NSS-8satellite construction payment refund and cash-on-hand, New Skies SatellitesB.V. repaid $88.8 million of borrowings under the term loan facility and werepaid $88.0 million of the preferred equity certificates. See Note 2 to theconsolidated financial statements.

 

In addition, we used the proceeds of the NSSIPO, together with cash-on-hand, to fund the prepayment by New Skies SatellitesB.V. of $142.6 million of outstanding borrowings under its term loan facility,to fund the payment of a $70.8 million dividend to the existing, pre-NSS IPOshareholders, including management, and to fund the payment of a terminationfee of $6.1 million to Blackstone Management Partners IV L.L.C. in connectionwith the termination of a transaction and monitoring fee agreement that NewSkies Satellites B.V. had entered into at the time of the Acquisition. See Note2 to the consolidated financial statements.

 

Also during 2005, we used cash-on-hand tofund the prepayment by New Skies Satellites B.V. of a further $75.0 million ofborrowings under its term loan facility.

 

In connection with the NSS IPO and effectiveupon its consummation, and as a result of the prepayments that had been made todate, New Skies Satellites B.V. amended its senior secured credit facilitiesto, among other things:

 

•      increasethe amount of permitted dividends (see Note 2 to the consolidated financialstatements);

 

•      eliminatethe requirement that we repay the term loans under the senior secured creditfacilities with excess cash flow;

 

•      reducethe maximum required total leverage ratio covenant;

 

•      lowerthe applicable margins for the term loan facility;

 

•      permitthe payment of the management fee to Blackstone Management Partners IV L.L.C.in connection with the termination of the transaction and monitoring feeagreement;

 

•      conformthe change of control definition to the change of control definition in theindentures governing the notes; and

 

•      increasethe revolving credit facility from $75.0 million to $125.0 million.

 

In July 2005, New Skies Satellites B.V.concluded exchange offers pursuant to which it exchanged all previouslyoutstanding senior floating rate notes for senior floating rate notes that hadbeen registered under the Securities Act of 1933 and exchanged all previouslyoutstanding senior subordinated notes for senior subordinated notes that hadbeen registered under the Securities Act of 1933. New Skies Satellites B.V.conducted the exchange offers in order to satisfy certain of its obligationsunder the registration rights agreements entered into in connection with theplacement of the outstanding notes. The terms of the exchange notes that wereissued in the exchange offers are substantially identical to the terms of thepreviously outstanding notes, except that the exchange notes are freelytradeable. We did not receive any cash proceeds from the issuance of theexchange notes in the exchange offers.

 

As of December 31, 2005, we had $438.6million outstanding in aggregate senior indebtedness, with an

 

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additional $125.0 million of availableborrowings under our revolving credit facility (excluding $2.0 million ofoutstanding letters of credit, which reduce the amount available under therevolving credit facility). The $438.6 million of senior indebtedness wascomprised of $153.6 million outstanding under our secured credit facility,$160.0 million outstanding under our senior floating rate notes and $125.0million outstanding under our senior subordinated fixed rate notes.

 

During 2006, we anticipate that our liquidityrequirements will result primarily from our subsidiary’s debt servicerequirements as well as the need to fund working capital requirements, althoughour liquidity requirements may increase if the SES Transaction does not close. Otherthan payments relating to the NSS-8 satellite, which is currently underconstruction, we do not anticipate that we will need to make significantadditional capital investments until approximately 2010, when we will need tobegin procuring replacement satellites, unless we suffer a satellite failure oran NSS-8 launch failure, which could require us to begin making these capitalexpenditures earlier. We anticipate that our 2006 capital expenditures will bebetween $5.0 and $10.0 million.

 

Based upon our current level of operations,we believe that our cash from operating activities, together with availableborrowings under our revolving credit facility, will be adequate to meet ouranticipated requirements for the foreseeable future. As our business generallyis not seasonal, we have had little need for short-term borrowings to financenormal operations.

 

If we do not generate sufficient cash flowprovided by operating activities to satisfy our debt service obligations, wemay have to undertake alternative financing plans, such as refinancing orrestructuring our indebtedness, selling assets, reducing or delaying capitalinvestments or seeking to raise additional capital. Our ability to restructureor refinance our debt will depend on the capital markets and our financialcondition at such time. Any refinancing of our debt could be at higher interestrates and may require us to comply with more onerous covenants, which couldfurther restrict our business operations. In addition, the terms of existing orfuture debt instruments, including the senior secured credit facilities and theindentures governing the notes, may restrict us from adopting some of thesealternatives. Furthermore, the investment funds do not have any obligation toprovide us with debt or equity financing in the future. Our inability togenerate sufficient cash flow to satisfy our debt service obligations, or torefinance our obligations on commercially reasonable terms, would have anadverse effect, which could be material, on our business, financial position,results of operations and cash flows, as well as on our ability to satisfy ourobligations in respect of the notes and the senior secured credit facilities.

 

### **Covenant Compliance**

 

New Skies Satellites B.V.’s senior securedcredit facilities and indentures require it to maintain certain financialcovenants and also subject it to certain restrictive covenants. As of December31, 2005, it was in material compliance with all of such covenants.

 

### **Dividend Policy**

 

At the time of the NSS IPO, our board ofdirectors adopted a dividend policy which reflected an intention to distributea substantial portion of the cash generated by our business in excess ofoperating expenses and working capital requirements, interest and capitalexpenditures as regular quarterly dividends to our shareholders. In connectionwith the NSS IPO, New Skies Satellites B.V. amended its senior secured creditfacilities to, among other things, permit greater flexibility to pay dividendsto shareholders. Since the NSS IPO, the company has declared $38.1 million ofdividends. As part of our agreement with SES Global, we agreed to terminate ourquarterly dividend program after the declaration and payment of our 2005 fourthquarter dividend of $0.463125 per share that was declared on December 19, 2005.See “Item 5—Market for Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities—Dividends” and Note 2 to consolidatedfinancial statements.

 

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### **Sources and Uses of Cash**

 
| ** **                                           | ** ** | **Predecessor**                              | ** ** | ** **                                                                | **Successor** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------|---------------|------------|
| **(in millions of US Dollars)**  | ** ** | **Year Ended  December 31,  2003** | ** ** | **Period  January 1, 2004  to November 1, 2004** | ** **    | ** ** | **Period  November 2, 2004 to  December 31, 2004** | ** ** | **Year Ended  December 31,  2005** | ** ** |
| Net cash provided by operating activities            |       | $                                            | 109.8      |                                                                      | $             | 111.2      |   |   | $ | 30.0 |   | $ | 124.2 |   |
| Net cash provided by (used in) investing  activities |       | (43.5                                        | )          | (7.7                                                                      | )             |       | (866.1 | ) | 140.3 |   |
| Net cash provided by (used in) financing  activities |       | (51.9                                        | )          | (6.4                                                                      | )             |       | 873.7 |   | (286.3 | ) |
|                                                      |            |                                              |            |                                                                           |               |            |  |  |  |  |  |  |  |  |

 

Net cash provided by operating activities forthe year ended December 31, 2005 totalled $124.2 million compared to $141.2million for the same period in 2004. We had cash and cash equivalents ofapproximately $16.2 million as of December 31, 2005, and net trade receivablesof $29.1 million, of which $21.3 million, or approximately 73%, were current orless than 30 days overdue.

 

Net cash provided by (used in) investingactivities during the year ended December 31, 2005 was funded using cash flowfrom operating activities. If we exclude the $168.0 million of satelliteprocurement milestone payments refunded to us in the first quarter of 2005, ofwhich $30.0 million of cash was placed in escrow as part of the amended NSS-8agreement, and $9.0 million, net, relating to the disposal of one of oursubsidiaries during the year, net cash used in investing activities totalled$6.7 million for the year ended December 31, 2005.

 

Net cash provided by (used in) financingactivities included $306.4 million of repayments made against the seniorlong-term debt in the year ended December 31, 2005 from operating cash flows,the NSS-8 refund referred to above and the net proceeds of the NSS IPO.

 

### **Contractual Obligations**

 

The following table summarizes ourcontractual obligations, including related estimated interest payments based onactual applicable rates for fixed rate obligations and forward interest ratesfor the relevant period for variable rate obligations, and commercialcommitments as of December 31, 2005:

 
| ** **                                          | ** ** | **Payments due by period** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|
| **(in millions of US Dollars)** | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5** | ** ** |
|                                                |       |                                      |       |   |   |   |   |   |   |   |   |
| Long-term debt:                                     |       |                                      |       |   |   |   |   |   |   |   |   |
| Term loan facility(1)                               |       | $                                         | 210.0      |   | $ | 10.4 |   | $ | 21.1 |   | $ | 21.4 |   | $ | 157.1 |   |
| Senior floating rate notes(1)                       |       | 252.9                                     |       | 15.7 |   | 31.7 |   | 32.0 |   | 173.5 |   |
| Senior subordinated notes(1)                        |       | 202.9                                     |       | 11.4 |   | 22.8 |   | 22.8 |   | 145.9 |   |
| Operating leases                                    |       | 2.5                                       |       | 0.6 |   | 1.5 |   | 0.4 |   | — |   |
| Unconditional purchase obligations(2)               |       | 19.4                                      |       | 9.5 |   | 5.4 |   | 1.8 |   | 2.7 |   |
| Conditional payment obligations(3)                  |       | 44.2                                      |       | 6.6 |   | 12.2 |   | 10.0 |   | 15.4 |   |
| Contingent conditional payment  obligations(4)      |       | 389.1                                     |       | 8.0 |   | 57.6 |   | 28.1 |   | 295.4 |   |
| Total                                               |       | $                                         | 1,121.0    |   | $ | 62.2 |   | $ | 152.3 |   | $ | 116.5 |   | $ | 790.0 |   |

 

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(1)   The senior secured credit facilities consistof a $460.0 million senior secured term loan facility that matures inMay 2011 and a $125.0 million senior secured revolving credit facilitythat matures in November 2010. Borrowings under the facilities bearinterest at an adjustable rate based on LIBOR for the associated period ofdraw-down plus an applicable margin. At December 31, 2005, a one-monthdraw-down under the facilities would bear interest at 6.4% per annum. In addition, acommitment fee of 0.375% is paid on the unused revolving credit amount.

 

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The outstanding senior floating rate notes bear interest at a rate perannum, reset semi-annually, equal to LIBOR plus 51/8%. AtDecember 31, 2005, these notes accrued interest at a rate of approximately 9.6%per annum.

 

The outstanding senior subordinated notes bear interest at a rate of 91/8%.

 

(2)   Unconditional purchase obligations reflectagreements for the procurement of fiber, satellite capacity and teleportservices.

 

(3)   Conditional payment obligations reflect thein-orbit performance incentives of our in-orbit satellite fleet and are paidover the lifetime of the respective satellite.

 

(4)   Contingent conditional payment obligationsreflect the in-orbit incentives of our NSS-8 satellite, currently underconstruction. The payment obligation is contingently payable on thesatisfactory performance of the spacecraft and is paid over its lifetime.

 

### **Market Risks**

 

We are exposed to market risks relating tointerest rate changes from time to time. We manage our exposure to interestrate risk through internally established policies and procedures. To the extentthat we intend to maintain significant borrowings under floating rate notes orcredit facilities, we will evaluate the appropriateness of using various hedginginstruments. Our policy does not allow speculation in derivative instrumentsfor profit or execution of derivative instrument contracts for which there areno underlying exposures. We do not use financial instruments for trading,hedging, or for speculative purposes and are not a party to any derivativecontracts.

 

We utilize both fixed rate and variable ratedebt. For fixed-rate debt, changes in interest rates generally affect the fairmarket value of the debt instrument, but not our cash flows or net income.Conversely, for variable-rate debt, changes in interest rates generally do notimpact the fair market value of the debt instruments but do affect our cashflows and net income.

 

For our fixed rate public debt, the currentmarket price, coupon and maturity are used to determine the yield for eachpublic debt instrument as of the end of the period. The yield is then adjustedby a factor of 10% and this revised yield is then compared to the originalyield to determine the potential negative fair value change as a result of thehypothetical change in interest rates.

 

For our variable rate debt, the effect oncash flows and net income is calculated as a result of the potential effect ofa hypothetical 10% adverse fluctuation in interest rates from the rate ineffect as of December 31, 2005. The current LIBOR plus applicable marginas of the end of the period is applied to the applicable principal outstandingat the end of the period to determine interest expense based on period-endrates and principal balances. This calculation is then performed afterincreasing the LIBOR plus applicable margin by a factor of 10%. The differencebetween the two period interest expenses calculated represents the reduction incash flows as a result of the potential effect of a hypothetical 10% adversefluctuation in interest rates. This amount is then tax effected based on oureffective tax rate to yield the reduction in net income as a result of thepotential effect of a hypothetical 10% adverse fluctuation in interest rates.

 

The only potential limitations of therespective models are in the assumptions utilized in the models such as thehypothetical adverse fluctuation rate and the discount rate. We believe thatthese models and the assumptions utilized are reasonable and sufficient toyield proper market risk disclosure.

 

As of December 31, 2005, long-term debtconsisted of fixed-rate borrowings of $125.0 million, $160.0 millionof floating rate debt and a $153.6 million floating rate term loanfacility. The potential effect of a hypothetical 10% adverse fluctuation ininterest rates for one year on our fixed rate borrowings outstanding atDecember 31, 2005 would be a reduction in fair value of approximately$1.0 million. The potential effect of a hypothetical 10% adverse fluctuationin interest rates for one year on $160.0 million of floating rate debt and$153.6 million of floating rate term loan facility at December 31,2005 would be a reduction in cash flows of approximately $1.5 million and$1.0 million, respectively, and a reduction in net income of approximately$1.1 million and $0.7 million, respectively.

 

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### **Off-Balance Sheet Arrangements**

 

We do not have any off-balance sheetarrangements as defined under SEC rules.

 

### **Stock Compensation**

 

In conjunctionwith the NSS IPO, the underwriters’ decision to exercise their overallotmentoption and the dividend distributions that were subsequently made by us throughDecember 31, 2005, we granted a total of 2,109,456 options to New SkiesSatellites B.V.’s employees to acquire shares of our common stock during 2005pursuant to the Company’s Stock Incentive Plan. The aggregate stock-basedcompensation associated with these awards is approximately $26.8 million,reflecting the estimated fair value of the options at the date of grant. Thisnon-cash stock-based compensation is being recognized as an operating expenseover the vesting period of the options. Certain of the options will vest basedon continued employment over the next four years and the remaining options willvest upon the achievement of performance goals over the next four to sevenyears or imputed returns realized on sales of our shares by the investmentfunds. All outstanding options will vest upon the closing of the SES Transaction.

 

Certain of theoptions granted in conjunction with the NSS IPO and the underwriters’ decisionto exercise their overallotment option vested upon issuance and wereimmediately exercised, allowing New Skies Satellites B.V.’s employees to acquire108,763 shares of our common stock. Also as a consequence of the underwriters’decision to exercise their overallotment option, optionholders received a bonusof approximately $4.3 million from cash on hand. A further 208,816 shares ofour common stock were issued during 2005 to satisfy additional optionexercises.

 

All optionsmust be exercised or forfeited upon vesting. No options were exercisable atDecember 31, 2005. At December 31, 2005, all options had exercise prices ofapproximately $2.92 and weighted average remaining contractual lives ofapproximately three years. Upon the payment of dividends by us, the fair valueof the options is adjusted to take into account the fact that the optionholderwill not receive the benefit of that dividend. We recognized $20.5 million ofstock-based compensation expense for the year ended December 31, 2005 under theStock Incentive Plan, $12.4 million of which was non-cash in nature.

 

Additionally,in accordance with the net exercise provision of the Stock Incentive Plan, $3.8million of cash payments related to taxation were made on behalf of employeesfrom their realized, stock option gains. We did not recognize any additionalcost in respect of this arrangement.

 

The stock-based compensation costs notedabove increased our operating expenses for the year ended December 31, 2005 by$18.7 million compared to 2004. Additionally, the recognition of the deferredstock-based compensation over the applicable vesting periods will result inadditional expense being recorded in the future respective periods, therebyreducing our earnings in those periods.

 

### **Taxation**

 

New Skies Satellites B.V.has yet to conclude its discussions with the Dutch tax authorities regardingthe final tax obligation of its Predecessor, New Skies Satellites N.V. Suchobligation was a liability assumed by New Skies Satellites B.V. in connectionwith the Acquisition, and accordingly, New Skies Satellites B.V. recorded aprovision for income tax of $20.0 million at the date of Acquisition. New SkiesSatellites B.V. believes that this adequately covers the liability assumed withrespect to the Predecessor’s tax liability.

 

Certain countries withinwhich New Skies Satellites B.V. operates have sought to impose withholdingtaxes or income taxes on payments from customers in those countries,notwithstanding the existence of tax treaties that New Skies Satellites B.V.believes do not permit the imposition of such taxes. In particular, theGovernment of India has characterized payments made by Indian-based customersand certain payments made by non-resident customers in India as “royaltypayments”. The Government of India has assessed taxes on these payments for theperiod April 1999 to March 2002 and may in the future assess taxes on thesepayments for subsequent periods. New Skies Satellites B.V. has appealed theassessment in accordance with applicable procedures for handling disputed taxassessments. However, New Skies Satellites B.V. believes it is probable that aloss has been incurred and has recorded an accrual totalling $7.6 million as ofDecember 31, 2005, representing management’s best estimate of the amount of thewithholding tax obligations that have accrued through December 31, 2005. Aspart of this on-going process a further hearing is scheduled for the secondquarter of 2006, after which we will be better able to assess the amount oftaxes, interest and any other penalties that may ultimately fall due.

 

### **Currency and Exchange Rates**

 

All of our major capital expenditures andsubstantially all of our revenues and the majority of our operating

 

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expenses are denominated in U.S. dollars.Accordingly, we have adopted the U.S. dollar as our functional currency.Transactions in other currencies are translated into U.S. dollars using therates that were in effect at the transaction date. Since all of our majorinflows and outflows are denominated in U.S. dollars, we are not exposed tosignificant foreign currency exchange risk.

 

### **Recently Issued But Not Yet AdoptedAccounting Standards**

 

On April 15, 2005, the SECannounced the adoption of a new rule that amends the compliance dates for SFASNo. 123R “Share-Based Payment”. Under SFAS No. 123R, registrantswould have been required to implement the standard as of the beginning of thefirst interim or annual period that begins after June 15, 2005. The SEC’snew rule requires companies to implement SFAS No. 123R at the beginning oftheir first fiscal year beginning on or after June 15, 2005, instead ofthe first reporting period that begins after June 15, 2005. This meansthat our financial statements must comply with SFAS No. 123R beginningwith the interim financial statements for the first quarter of 2006. The SEC’snew rule does not change the accounting required by SFAS No. 123R; itchanges only the dates for compliance with the standard. The adoption of SFASNo. 123R will not have a material impact on our consolidated financialstatements.

 

In December 2004, theFinancial Accounting Standards Board issued SFAS No. 153, *Exchanges of Nonmonetary Assets-an amendment of APB OpinionNo. 29, Accounting for Nonmonetary Transactions (APB 29).*SFASNo. 153 is based on the principle that nonmonetary asset exchanges should berecorded and measured at fair value of the assets exchanged, with certainexceptions. This standard requires exchanges of productive assets to beaccounted for at fair value, rather than at carryover basis, unless(1) neither the asset received nor the asset surrendered has a fair valuethat is determinable within reasonable limits or (2) the transactions lackcommercial substance (as defined). SFAS No. 153 is effective for nonmonetaryasset exchanges occurring in fiscal periods beginning after June 15, 2005and is not expected to have a material impact on our consolidated financialstatements.

 

In May 2005, the Financial Accounting Standards Board issued SFAS No.154, *Accounting Changes and Error Corrections,*which replaces Accounting Principles Board Opinion No. 20, *Accounting Changes*, and SFAS No. 3, *Reporting Accounting Changes in Interim FinancialStatements*. This statement applies to all voluntary changes inaccounting principle and changes resulting from the adoption of a newaccounting pronouncement that do not specify transition requirements. SFAS No.154 requires retrospective application to prior periods’ financial statementsfor changes in accounting principle unless it is impracticable to determineeither the period-specific effects or the cumulative effect of the change. SFASNo. 154 also requires that retrospective application of a change in accountingprinciple be limited to the direct effects of the change. Indirect effects of achange in accounting principle should be recognized in the period of theaccounting change. SFAS No. 154 is effective for accounting changes andcorrections of errors made in fiscal years beginning after December 15, 2005with early implementation permitted for accounting changes and corrections oferrors made in fiscal years beginning after the date this statement was issued.SFAS No. 154 is effective for us as of January 1, 2006 and is not expected tohave a material impact on our consolidated financial statements.

 

## **ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK.**

 

For a discussion of the market risksaffecting us, see “Item 7—Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Market Risk”.

 

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## **ITEM8.        FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

 

**INDEX TO CONSOLIDATED FINANCIALSTATEMENTS**

 
| **New Skies Satellites Holdings  Ltd. Consolidated Financial Statements and Report of Independent Registered  Public Accounting Firm** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                             | ** ** |
| Predecessor – for the year ended December  31, 2003 and the period from January 1, 2004 to November 1, 2004                       |       |
|                                                                                                                                   |       |
| Successor – for the period from November 2,  2004 to December 31, 2004 and the year ended December 31, 2005                       |       |
|                                                                                                                                   |       |
| Report of Independent Registered Public Accounting Firm                                                                                | 59         |
|                                                                                                                                   |       |
| Consolidated Balance Sheets                                                                                                            | 60         |
|                                                                                                                                   |       |
| Consolidated Statements of Operations                                                                                                  | 61         |
|                                                                                                                                   |       |
| Consolidated Statements of Shareholders’ Equity (Deficit)                                                                         | 62         |
|                                                                                                                                   |       |
| Consolidated Statements of Cash Flows                                                                                                  | 63         |
|                                                                                                                                   |       |
| Notes to the Consolidated Financial Statements                                                                                         | 64         |

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and Shareholders    of New Skies Satellites Holdings Ltd.: 

 

We have audited the consolidated balancesheets of New Skies Satellites Holdings Ltd. and subsidiaries and itspredecessor (the “Company”) as of December 31, 2004 and 2005, and therelated consolidated statements of operations, shareholders’ equity (deficit),and cash flows for the year ended December 31, 2003, the period from January 1,2004 to November 1, 2004, the period from November 2, 2004 toDecember 31, 2004 and the year ended December 31, 2005. These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits. 

 

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting.  An audit includes consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion. 

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofNew Skies Satellites Holdings Ltd. and subsidiaries and its predecessor as ofDecember 31, 2004 and 2005, and the results of their operations and theircash flows for the year ended December 31, 2003, the period fromJanuary 1, 2004 to November 1, 2004, the period from November 2,2004 to December 31, 2004 and the year ended December 31, 2005 inconformity with accounting principles generally accepted in the United Statesof America. 

 
| Deloitte Accountants B.V.  |
|----------------------------|
|                       |
|                       |
| /s/ A. Sandler             |   |
| Amsterdam, The Netherlands |
| February 9, 2006           |

 

59

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**New Skies Satellites Holdings Ltd. and subsidiaries**

** **

### **Consolidated BalanceSheets(In thousands of U.S. dollars, except share data)**

 
| ** **                                                                                                                       | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                       | ** ** | **2004**              | ** ** | **2005** | ** ** |
| **Assets**                                                                                                                       |       |                  |       |   |   |
| **Current assets**                                                                                                               |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                        |       | $                     | 37,974     |   | $ | 16,156 |   |
| Trade receivables (net of  allowance for doubtful accounts of $7,262 and $6,527 as of December 31, 2004  and 2005, respectively) |       | 36,371                |       | 29,053 |   |
| Prepaid expenses and other  assets                                                                                               |       | 10,591                |       | 6,300 |   |
| **Total current assets**                                                                                                         |       | 84,936                |       | 51,509 |   |
|                                                                                                                             |       |                  |       |   |   |
| Communications, plant and  other property, net (Note 4)                                                                          |       | 895,906               |       | 608,370 |   |
| Goodwill and other intangible  assets, net (Note 5)                                                                              |       | —                |       | 28,213 |   |
| Deferred tax assets (Note 7)                                                                                                     |       | 17,362                |       | 17,231 |   |
| Debt issuance costs, net                                                                                                         |       | 32,109                |       | 17,473 |   |
| Restricted cash (Note 4)                                                                                                         |       | —                |       | 30,000 |   |
| **TOTAL ASSETS**                                                                                                                 |       | $                     | 1,030,313  |   | $ | 752,796 |   |
|                                                                                                                             |       |                  |       |   |   |
| **Liabilities and Shareholders’  Equity (Deficit)**                                                                         |       |                  |       |   |   |
|                                                                                                                             |       |                  |       |   |   |
| **Current liabilities**                                                                                                          |       |                  |       |   |   |
| Accounts payable and accrued  liabilities                                                                                        |       | $                     | 28,381     |   | $ | 18,393 |   |
| Accrued interest                                                                                                                 |       | 4,880                 |       | 6,594 |   |
| Dividends payable                                                                                                                |       | —                |       | 15,048 |   |
| Income taxes payable                                                                                                             |       | 20,480                |       | 20,153 |   |
| Deferred tax liabilities (Note  7)                                                                                               |       | 10,848                |       | 5,964 |   |
| Deferred revenues and other  liabilities                                                                                         |       | 21,031                |       | 24,618 |   |
| Satellite performance  incentives                                                                                                |       | 6,332                 |       | 5,625 |   |
| **Total current liabilities**                                                                                                    |       | 91,952                |       | 96,395 |   |
|                                                                                                                             |       |                  |       |   |   |
| Deferred revenues and other  liabilities                                                                                         |       | 10,224                |       | 11,534 |   |
| Satellite performance  incentives                                                                                                |       | 30,597                |       | 29,097 |   |
| Long-term debt (Note 8)                                                                                                          |       | 745,000               |       | 438,560 |   |
| Preferred equity securities  subject to mandatory redemption (Note 9)                                                            |       | 164,327               |       | — |   |
| **Total liabilities**                                                                                                            |       | 1,042,100             |       | 575,586 |   |
|                                                                                                                             |       |                  |       |   |   |
| **Shareholders’ Equity  (Deficit)**                                                                                         |       |                  |       |   |   |
| Ordinary Shares (57,142 shares  authorized, par value $35.00; 43,312 shares issued as of December 31, 2004)                      |       | 1,516                 |       | — |   |
| Preferred shares (250,000,000  shares authorized, par value $0.01; none issued)                                                  |       | —                |       | — |   |
| Ordinary shares (500,000,000  shares authorized, par value $0.01; 32,491,235 shares issued as of December  31, 2005)             |       | —                |       | 325 |   |
| Additional paid-in capital                                                                                                       |       | —                |       | 301,309 |   |
| Accumulated deficit                                                                                                              |       | (13,973               | )          | (124,306 | ) |
| Accumulated other  comprehensive income (loss)                                                                                   |       | 670                   |       | (118 | ) |
| **Total Shareholders’ Equity  (Deficit)**                                                                                   |       | (11,787               | )          | 177,210 |   |
| **TOTAL LIABILITIES AND  SHAREHOLDERS’ EQUITY (DEFICIT)**                                                                   |       | $                     | 1,030,313  |   | $ | 752,796 |   |

 

*See notes to consolidated financialstatements.*

 

60

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### **New Skies SatellitesHoldings Ltd. and subsidiaries**

 

### **ConsolidatedStatements of Operations**

 

### **(In thousands ofU.S. dollars, except per share amounts)**

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **Predecessor**                          | ** ** | ** **                                                 | **Successor** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------------|---------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **Year Ended  December  31,  2003** | ** ** | **Period  January 1 to  November 1,  2004** | ** **    | ** ** | **Period  November 2 to  December 31,  2004** | ** ** | **Year Ended  December  31,  2005** | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                                     |       |                                                       |          |       |   |   |   |   |
| **Revenues**                                                                                                                                                                                                                                                                                                                                                                                                               |       |                                     |       |                                                       |          |       |   |   |   |   |
| (Including services to  shareholders totaling $104,722 and $70,646 for 2003 and the period January 1  to November 1, 2004, respectively - see Note 10)                                                                                                                                                                                                                                                                     |       | $                                        | 214,900    |                                                       | $             | 175,382    |   |   | $ | 35,295 |   | $ | 240,488 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| **Operating Expenses:**                                                                                                                                                                                                                                                                                                                                                                                                    |       |                                     |       |                                                       |          |       |   |   |   |   |
| Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                              |       | 99,899                                   |       | 86,426                                                     |          |       | 16,022 |   | 95,128 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| Cost of operations  Exclusive of depreciation shown separately above of $97,491, $83,999, $15,685  and $93,061 for the year ended December 31, 2003, the period January 1 to  November 1, November 2 to December 31, 2004 and the year ended December 31,  2005, respectively (Including services from shareholders totaling $4,323 and  $4,662 for 2003 and the period from January 1 to November 1, 2004,  respectively) |       | 52,963                                   |       | 45,161                                                     |          |       | 10,906 |   | 42,238 |   |
| - Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                 |       | 256                                      |       | 216                                                        |          |       | — |   | 2,340 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| Selling, general and  administrative                                                                                                                                                                                                                                                                                                                                                                                       |       | 40,147                                   |       | 34,274                                                     |          |       | 17,685 |   | 40,530 |   |
| - Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                 |       | 1,916                                    |       | 1,612                                                      |          |       | — |   | 18,145 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| Transaction related expenses  (Note 2)                                                                                                                                                                                                                                                                                                                                                                                     |       | —                                   |       | 26,367                                                     |          |       | — |   | 2,932 |   |
| Monitoring agreement fees  (Note 2)                                                                                                                                                                                                                                                                                                                                                                                        |       | —                                   |       | —                                                     |          |       | 247 |   | 6,938 |   |
| **Total Operating Expenses**                                                                                                                                                                                                                                                                                                                                                                                               |       | 195,181                                  |       | 194,056                                                    |          |       | 44,860 |   | 208,251 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| Gain arising on frequency  coordination (Note 11)                                                                                                                                                                                                                                                                                                                                                                          |       | —                                   |       | 32,000                                                     |          |       | — |   | 19,500 |   |
| Gain arising on sale of  subsidiary (Note 11)                                                                                                                                                                                                                                                                                                                                                                              |       | —                                   |       | —                                                     |          |       | — |   | 7,011 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| **Operating Income (Loss)**                                                                                                                                                                                                                                                                                                                                                                                                |       | 19,719                                   |       | 13,326                                                     |          |       | (9,565 | ) | 58,748 |   |
| Interest expense, net                                                                                                                                                                                                                                                                                                                                                                                                      |       | 1,227                                    |       | 1,373                                                      |          |       | 9,777 |   | 61,943 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| **Income (Loss) Before Income  Tax Expense (Benefit)**                                                                                                                                                                                                                                                                                                                                                                     |       | 18,492                                   |       | 11,953                                                     |          |       | (19,342 | ) | (3,195 | ) |
| Income tax expense (benefit)  (Note 7)                                                                                                                                                                                                                                                                                                                                                                                     |       | 6,657                                    |       | 4,297                                                      |          |       | (5,369 | ) | (1,778 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| **Net Income (Loss)**                                                                                                                                                                                                                                                                                                                                                                                                      |       | $                                        | 11,835     |                                                       | $             | 7,656      |   |   | $ | (13,973 | ) | $ | (1,417 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                                     |       |                                                       |          |       |   |   |   |   |
| **Basic and Diluted Earnings  (Loss) Per Share**                                                                                                                                                                                                                                                                                                                                                                           |       | $                                        | 0.10       |                                                       | $             | 0.06       |   |   | $ | (322.61 | ) | $ | (0.05 | ) |

 

*See notes to consolidated financial statements.*

 

61

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**New Skies Satellites Holdings Ltd. and subsidiaries**

**Consolidated Statements of Shareholders’ Equity (Deficiency)**

**For the year ended December 31, 2003, the periods ended November 1,2004 and December 31, 2004 and the year ended December 31, 2005**

**(In thousands of U.S. dollars, except share data)**

 
| ** **                                                 | ** ** | **Number of  Ordinary Shares** | ** ** | **Ordinary  Shares** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained Earnings  (Accumulated  Deficit)** | ** ** | **Unearned  Compensation** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Treasury Stock  (at Cost)** | ** ** | **Total  Shareholders’  Equity (Deficit)** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------|------------|----------------------|------------|----------------------------------|------------|----------------------------------------------------|------------|----------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|
| *** ***                                               |       | **(in thousands)**                       |       |                 |       |                             |       |                                               |       |                       |       |                                                      |       |                                    |       |                                                 |       |
| ***Predecessor***                                          |       |                                     |       |                 |       |                             |       |                                               |       |                       |       |                                                      |       |                                    |       |                                                 |       |
| Balance, January 1, 2003                                   |       | 130,570                                  |       | $                    | 6,026      |                             | $          | 977,506                                            |       | $                          | 56,019     |                                                      | $          | (685                                    | )          | $                                                    | (492       | ) | $ | (19,341 | ) | $ | 1,019,033 |   |
| Stock options exercised (Note 12)                          |       | 51                                       |       | 3                    |       | 356                              |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 359                                                  |       |
| Stock option forfeiture                                    |       | —                                   |       | —               |       | (125                             | )          | —                                             |       | 125                        |       | —                                                    |       | —                                  |       | —                                               |       |
| Non-cash Stock compensation                                |       | —                                   |       | —               |       | 1,791                            |       | —                                             |       | 381                        |       | —                                                    |       | —                                  |       | 2,172                                                |       |
| Treasury stock:                                            |       |                                     |       |                 |       |                             |       |                                               |       |                       |       |                                                      |       |                                    |       |                                                 |       |
| Acquisition                                                |       | —                                   |       | —               |       | —                           |       | —                                             |       | —                     |       | —                                                    |       | (34,676                                 | )          | (34,676                                              | )          |
| Reissuance for share-based incentive plans                 |       | —                                   |       | —               |       | (399                             | )          | —                                             |       | —                     |       | —                                                    |       | 399                                     |       | —                                               |       |
| Retirement                                                 |       | (12,952                                  | )          | (598                 | )          | (53,020                          | )          | —                                             |       | —                     |       | —                                                    |       | 53,618                                  |       | —                                               |       |
| Cumulative translation adjustment                          |       | —                                   |       | —               |       | —                           |       | —                                             |       | —                     |       | 3,067                                                     |       | —                                  |       | 3,067                                                |       |
| Net income                                                 |       | —                                   |       | —               |       | —                           |       | 11,835                                             |       | —                     |       | —                                                    |       | —                                  |       | 11,835                                               |       |
| Balance, December 31, 2003                                 |       | 117,669                                  |       | 5,431                |       | 926,109                          |       | 67,854                                             |       | (179                       | )          | 2,575                                                     |       | —                                  |       | 1,001,790                                            |       |
| Stock options exercised (Note 12)                          |       | 794                                      |       | 49                   |       | 3,090                            |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 3,139                                                |       |
| Non-cash Stock compensation                                |       | —                                   |       | —               |       | 5,716                            |       | —                                             |       | 179                        |       | —                                                    |       | —                                  |       | 5,895                                                |       |
| Tax benefit from exercises of share based incentive awards |       | —                                   |       | —               |       | 2,218                            |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 2,218                                                |       |
| Cumulative translation adjustment                          |       | —                                   |       | —               |       | —                           |       | —                                             |       | —                     |       | 877                                                       |       | —                                  |       | 877                                                  |       |
| Dividend                                                   |       | —                                   |       | —               |       | —                           |       | (4,721                                             | )          | —                     |       | —                                                    |       | —                                  |       | (4,721                                               | )          |
| Net income                                                 |       | —                                   |       | —               |       | —                           |       | 7,656                                              |       | —                     |       | —                                                    |       | —                                  |       | 7,656                                                |       |
| **Balance, November 1, 2004**                              |       | 118,463                                  |       | 5,480                |       | 937,133                          |       | 70,789                                             |       | —                     |       | 3,452                                                     |       | —                                  |       | 1,016,854                                            |       |
| ***Successor***                                            |       |                                     |       |                 |       |                             |       |                                               |       |                       |       |                                                      |       |                                    |       |                                                 |       |
| Balance November 2, 2004                                   |       | 1                                        |       | 16                   |       | —                           |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 16                                                   |       |
| Issuance of ordinary shares                                |       | 42                                       |       | 1,500                |       | —                           |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 1,500                                                |       |
| Net loss                                                   |       | —                                   |       | —               |       | —                           |       | (13,973                                            | )          | —                     |       | —                                                    |       | —                                  |       | (13,973                                              | )          |
| Cumulative translation adjustment                          |       | —                                   |       | —               |       | —                           |       | —                                             |       | —                     |       | 670                                                       |       | —                                  |       | 670                                                  |       |
| Balance, December 31, 2004                                 |       | 43                                       |       | 1,516                |       | —                           |       | (13,973                                            | )          | —                     |       | 670                                                       |       | —                                  |       | (11,787                                              | )          |
| Stock dividend prior to Initial Public Offering            |       | 18,489                                   |       | 185                  |       | (185                             | )          | —                                             |       | —                     |       | —                                                    |       | —                                  |       | —                                               |       |
| Shareholder contribution upon internal restructuring       |       | (43                                      | )          | (1,516               | )          | 86,943                           |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 85,425                                               |       |
| Ordinary shares issued                                     |       | 13,684                                   |       | 137                  |       | 202,176                          |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 202,313                                              |       |
| Stock options exercised                                    |       | 318                                      |       | 3                    |       | (3                               | )          | —                                             |       | —                     |       | —                                                    |       | —                                  |       | —                                               |       |
| Dividends prior to Initial Public Offering                 |       | —                                   |       | —               |       | —                           |       | (70,768                                            | )          | —                     |       | —                                                    |       | —                                  |       | (70,768                                              | )          |
| Dividends subsequent to Initial Public Offering            |       | —                                   |       | —               |       | —                           |       | (38,148                                            | )          | —                     |       | —                                                    |       | —                                  |       | (38,148                                              | )          |
| Non-cash Stock compensation                                |       | —                                   |       | —               |       | 12,378                           |       | —                                             |       | —                     |       | —                                                    |       | —                                  |       | 12,378                                               |       |
| Net loss                                                   |       | —                                   |       | —               |       | —                           |       | (1,417                                             | )          | —                     |       | —                                                    |       | —                                  |       | (1,417                                               | )          |
| Cumulative translation adjustment                          |       | —                                   |       | —               |       | —                           |       | —                                             |       | —                     |       | (788                                                      | )          | —                                  |       | (788                                                 | )          |
| **Balance, December 31, 2005**                             |       | 32,491                                   |       | $                    | 325        |                             | $          | 301,309                                            |       | $                          | (124,306   | )                                                         | $          | —                                  |       | $                                                    | (118       | ) | $ | — |   | $ | 177,210 |   |
| ** **                                                 |       |                                     |       |                 |       |                             |       |                                               |       |                       |       |                                                      |       |                                    |       |                                                 |       |

 

*Seenotes to consolidated financial statements.*

 

62

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**New Skies Satellites Holdings Ltd. and subsidiaries**

 

**Consolidated Statements of Cash Flows**

(Inthousands of U.S. dollars)

 
| ** **                                                                                           | ** ** | **Predecessor**                              | ** ** | ** **                                                 | **Successor** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------|---------------|------------|
| ** **                                                                                           | ** ** | **Year Ended  December 31,  2003** | ** ** | **Period  January 1 to  November 1,  2004** | ** **    | ** ** | **Period  November 2 to  December 31,  2004** | ** ** | **Year Ended  December 31,  2005** | ** ** |
| Cash flows from operating  activities:                                                               |       |                                         |       |                                                       |          |       |   |   |   |   |
| Net income (loss)                                                                                    |       | $                                            | 11,835     |                                                       | $             | 7,656      |   |   | $ | (13,973 | ) | $ | (1,417 | ) |
|                                                                                                 |       |                                         |       |                                                       |          |       |   |   |   |   |
| Adjustments for non-cash  items:                                                                     |       |                                         |       |                                                       |          |       |   |   |   |   |
| Depreciation and amortization                                                                        |       | 99,899                                       |       | 86,426                                                     |          |       | 16,022 |   | 95,128 |   |
| Deferred taxes                                                                                       |       | 939                                          |       | 1,698                                                      |          |       | (5,607 | ) | (3,515 | ) |
| Stock compensation expense                                                                           |       | 2,172                                        |       | 5,895                                                      |          |       | — |   | 12,378 |   |
| Amortization of debt issuance  costs                                                                 |       | 627                                          |       | 321                                                        |          |       | 851 |   | 15,010 |   |
| Gain arising from sale of  subsidiary                                                                |       | —                                       |       | —                                                     |          |       | — |   | (7,011 | ) |
| Non-cash interest on preferred  equity securities                                                    |       | —                                       |       | —                                                     |          |       | 2,827 |   | 4,417 |   |
| Changes in operating assets  and liabilities, net of effects of acquisitions and disposals:          |       |                                         |       |                                                       |          |       |   |   |   |   |
| Trade receivables                                                                                    |       | (2,593                                       | )          | (2,546                                                     | )             |       | 8,036 |   | 6,840 |   |
| Prepaid expenses and other  assets                                                                   |       | (2,981                                       | )          | 3,810                                                      |          |       | (3,881 | ) | 4,045 |   |
| Accounts payable and accrued  liabilities                                                            |       | (1,414                                       | )          | 6,480                                                      |          |       | 5,838 |   | (7,960 | ) |
| Accrued interest                                                                                     |       | —                                       |       | —                                                     |          |       | 4,880 |   | 1,714 |   |
| Income taxes payable                                                                                 |       | 3,019                                        |       | 1,036                                                      |          |       | 226 |   | (937 | ) |
| Other liabilities                                                                                    |       | (1,669                                       | )          | 395                                                        |          |       | 14,803 |   | 5,494 |   |
| **Net Cash Provided by  Operating Activities**                                                       |       | 109,834                                      |       | 111,171                                                    |          |       | 30,022 |   | 124,186 |   |
|                                                                                                 |       |                                         |       |                                                       |          |       |   |   |   |   |
| Cash flows from investing  activities:                                                               |       |                                         |       |                                                       |          |       |   |   |   |   |
| Payments for communication,  plant and other property                                                |       | (43,492                                      | )          | (7,690                                                     | )             |       | (4,393 | ) | (6,671 | ) |
| Acquisition of business, net  of cash acquired                                                       |       | —                                       |       | —                                                     |          |       | (861,741 | ) | — |   |
| Sale of subsidiary, net of  cash                                                                     |       | —                                       |       | —                                                     |          |       | — |   | 8,997 |   |
| Reimbursement of NSS-8 construction  costs                                                           |       | —                                       |       | —                                                     |          |       | — |   | 168,000 |   |
| Increase in restricted cash                                                                          |       | —                                       |       | —                                                     |          |       | — |   | (30,000 | ) |
| **Net Cash Provided by (Used  in) Investing Activities**                                             |       | (43,492                                      | )          | (7,690                                                     | )             |       | (866,134 | ) | 140,326 |   |
|                                                                                                 |       |                                         |       |                                                       |          |       |   |   |   |   |
| Cash flows from financing  activities:                                                               |       |                                         |       |                                                       |          |       |   |   |   |   |
| Stock options exercised                                                                              |       | 359                                          |       | 3,139                                                      |          |       | — |   | — |   |
| Repayment of short-term  borrowings                                                                  |       | (10,000                                      | )          | —                                                     |          |       | — |   | — |   |
| Treasury stock acquired                                                                              |       | (34,676                                      | )          | —                                                     |          |       | — |   | — |   |
| Satellite performance  incentives and other                                                          |       | (7,586                                       | )          | (4,780                                                     | )             |       | (1,384 | ) | (5,006 | ) |
| Dividend                                                                                             |       | —                                       |       | (4,721                                                     | )             |       | — |   | (93,868 | ) |
| Proceeds from initial public  offering, net of expenses                                              |       | —                                       |       | —                                                     |          |       | — |   | 202,313 |   |
| Proceeds from long-term  borrowings                                                                  |       | —                                       |       | —                                                     |          |       | 745,000 |   | — |   |
| Repayments of long-term  borrowings                                                                  |       | —                                       |       | —                                                     |          |       | — |   | (306,440 | ) |
| Proceeds from preferred equity  securities subject to mandatory redemption issued to a related party |       | —                                       |       | —                                                     |          |       | 161,500 |   | 4,683 |   |
| Repayment of preferred equity  securities subject to mandatory redemption issued to a related party  |       | —                                       |       | —                                                     |          |       | — |   | (88,000 | ) |
| Debt issuance costs                                                                                  |       | —                                       |       | —                                                     |          |       | (32,959 | ) | — |   |
| Shareholder contribution                                                                             |       | —                                       |       | —                                                     |          |       | 1,500 |   | — |   |
| **Net Cash (Used in) Provided  by Financing Activities**                                             |       | (51,903                                      | )          | (6,362                                                     | )             |       | 873,657 |   | (286,318 | ) |
| **Effect of exchange rate  differences**                                                             |       | 485                                          |       | 642                                                        |          |       | 413 |   | (12 | ) |
| **Net change in cash and cash  equivalents**                                                         |       | 14,924                                       |       | 97,761                                                     |          |       | 37,958 |   | (21,818 | ) |
| **Cash and cash equivalents,  beginning of period**                                                  |       | 8,329                                        |       | 23,253                                                     |          |       | 16 |   | 37,974 |   |
| **Cash and cash equivalents,  end of period**                                                        |       | $                                            | 23,253     |                                                       | $             | 121,014    |   |   | $ | 37,974 |   | $ | 16,156 |   |

### ** **

### ***See notes to consolidatedfinancial statements.***

### ** **

No cash payments for interest (net of amounts capitalized) were madeduring the year ended December 31, 2003 and during the periodJanuary 1, 2004 to November 1, 2004. Cash payments for interest (netof amounts capitalized) were $3.0 million and $39.9 million for the periodfrom November 2, 2004 to December 31, 2004 and the year endedDecember 31, 2005, respectively. Income taxes paid amounted to$2.7 million, $1.6 million, $0.2 million and $2.8 million forthe year ended December 31, 2003, the period from January 1, 2004 toNovember 1, 2004, the period from November 2, 2004 toDecember 31, 2004, and the year ended December 31, 2005, respectively.

 

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**New Skies Satellites Holdings Ltd. and Subsidiaries**

 

**Notes toConsolidated Financial Statements**

 

**1.     Basis of Presentation**

 

New Skies Satellites Holdings Ltd. (“Holdings”)was formed on January 14, 2005 under the laws of Bermuda. The company iscontrolled by investment funds affiliated with The Blackstone Group (the “investmentfunds”).

 

Holdings completed its Initial PublicOffering on May 13, 2005 (the “NSS IPO”). Immediately prior to the NSS IPO, theCompany undertook an internal restructuring pursuant to which pre-existingshareholders indirectly contributed 100 percent of the equity, preferred equitycertificates and convertible preferred equity certificates of New SkiesInvestments S.a.r.l. to Holdings. As Holdings did not commence operations priorto the restructuring, the balance sheet at December 31, 2004 represents that ofNew Skies Investments S.a.r.l. and the results for the year ended December 31,2005 represent the combination of the results of New Skies Investments S.a.r.land its subsidiaries for the period up to and including the date of the restructuringand those of Holdings and its subsidiaries for the periods thereafter (the “Successor”).

 

On November 2, 2004, New Skies InvestmentsS.a.r.l, through its wholly owned subsidiaries, New Skies Holding B.V. and NewSkies Satellites B.V., purchased substantially all of the assets andliabilities of New Skies Satellites N.V. (the “Acquisition”). Prior to thistransaction, New Skies Investments S.a.r.l did not commence operations.Accordingly, the results for the period January 1, 2004 to November 1, 2004represent the results of New Skies Satellites N.V. and its subsidiaries (the “Predecessor”).

 

References made to the “Company” or “NewSkies” shall mean New Skies Satellites N.V. and its subsidiaries for the periodup to and including November 1, 2004, New Skies Investments S.a.r.l. and itssubsidiaries for the period up to and including the date of the internalrestructuring discussed below, and Holdings and its subsidiaries for periodsthereafter.

 

**2.     Description of the Business**

** **

*Acquisition of New SkiesSatellites N.V.*

 

New Skies Satellites B.V. purchasedsubstantially all of the assets and liabilities of New Skies Satellites N.V. onNovember 2, 2004. On November 2, 2004, New Skies Satellites N.V. ceasedoperations following the sale of substantially all of its assets andliabilities to New Skies Satellites B.V. Following the Acquisition, New SkiesSatellites B.V. and subsidiaries continued substantially the same business asNew Skies Satellites N.V.

 

New Skies Satellites B.V. acquired the assetsand liabilities of New Skies Satellites N.V. for cash consideration of $958.0million and incurred direct acquisition costs of $24.8 million, for a totalpurchase price of $982.8 million. Direct acquisition costs comprised $12.3million related to legal and accounting fees, $9.1 million related to financialadvisory fees and out-of-pocket expenses and $3.4 million paid to BlackstoneManagement Partners IV L.L.C. under the terms of the Transaction Fee andMonitoring Agreement, as discussed further below, and for reimbursement ofout-of-pocket expenses.  New SkiesSatellites N.V. incurred $26.4 million of expenses associated with the sale ofits assets and liabilities to New Skies Satellites B.V., comprising primarilyof $9.7 million related to third party financing advisory fees and expenses,$8.9 million related primarily to legal and accounting fees and other thirdparty services and $7.8 million related to the settlement of outstanding stockoptions as further discussed in Note 12 and other bonuses. Such costs wereexpensed as incurred and classified in the consolidated statements ofoperations as “Transaction related expenses.” None of these fees or expenseswas paid to the investment funds.

 

In connection with the Acquisition, theinvestment funds contributed $153.0 million to the Company in the form ofpreferred equity certificates and $8.5 million in the form of convertiblepreferred equity certificates (see Note 9). In addition, New Skies SatellitesB.V. entered into senior secured credit facilities, consisting of a $460.0million term loan facility and a $75.0 million revolving credit facility,issued $160.0 million aggregate principal amount of Floating Rate Notes due2011 and issued $125.0 million aggregate principal amount of 91/8% Senior Subordinated Notes due 2012 to fund the Acquisition (seeNote 8).

 

The following table provides a breakdown ofthe fair values assigned to the assets acquired and liabilities assumed at thedate of acquisition (in thousands of U.S. dollars):

 

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| Cash and cash equivalents                |   | $       | 121,014 |   |
|------------------------------------------|--------|---------|---------|--------|
| Trade receivables                        |   | 44,406  |    |
| Prepaid expenses and other assets        |   | 5,849   |    |
| Communications, plant and other property |   | 881,067 |    |
| Intangible assets                        |   | 28,505  |    |
| Deferred tax assets                      |   | 1,680   |    |
| Accounts payable and accrued liabilities |   | (23,985 | )       |
| Income taxes payable                     |   | (20,182 | )       |
| Deferred revenues and other liabilities  |   | (14,861 | )       |
| Satellite performance incentives         |   | (40,738 | )       |
| Total                                    |   | $       | 982,755 |   |

 

During 2005, New Skies Satellites B.V.finalized the allocation of the purchase price to the assets and liabilitiesassumed, taking into account the results of an independent valuation study. NewSkies Satellites B.V. allocated the purchase price on a preliminary basis basedon its management’s best estimate of the fair values of the assets acquired andliabilities assumed at the date of acquisition.  Cash and cashequivalents, trade receivables, prepaid expenses and other assets, accountspayable and accrued liabilities and deferred revenues and other liabilitieswere stated at historical carrying values. Given the short-term nature of theseassets and liabilities it was determined that these historical carrying valuesapproximated fair value. Communications, plant and other property, satelliteperformance incentives and income taxes payable were recorded at estimated fairvalue based on evaluations performed by New Skies Satellites B.V. as of thedate of Acquisition.

 

Based on the findings of the independentvaluation study, the preliminary purchase price allocation was adjusted, in thethird quarter of 2005, primarily to reflect the recognition of certainintangible assets.  As a result, the fair value of communications, plantand other property was reduced by $28.5 million and the following items wereseparately recorded as part of long-lived assets:  intangible assets relating to in-use orbitalslots in the amount of $19.9 million, trade names in the amount of $3.8 millionand goodwill in the amount of $4.8 million.  New Skies SatellitesB.V. determined that intangible assets associated with in-use orbital slotshave indefinite lives and the intangible asset associated with New SkiesSatellites B.V.’s trade name has a determinable life of 15 years.  See Note 5.

 

The unaudited consolidated results ofoperations on a pro forma basis as though New Skies Satellites N.V. had beenacquired as of the beginning of each year presented are as follows: 

 
| ** **                                                       | ** ** | **Year ended  December 31,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(in millions except per share data)** | ** ** | **2003**                               | ** ** | **2004** | ** ** |
| ** **                                                       | ** ** | **(unaudited)**                        | ** ** | **(unaudited)** | ** ** |
| Revenues                                                         |       | $                                      | 214.9      |   | $ | 210.7 |   |
| Net Loss                                                         |       | (26.0                                  | )          | (34.3 | ) |
| Basic and diluted loss per  share                                |       | (1.41                                  | )          | (1.86 | ) |
|                                                                  |            |                                        |            |  |  |  |  |

 

The pro forma net loss includes certainadjustments, such as reduced depreciation expense as a result of fair valueadjustments to “Communications, plant and other property” and increasedinterest expense on debt incurred to finance the Acquisition. The pro formafinancial information is presented for informational purposes only and is notnecessarily indicative of the results of future operations that would have beenachieved had the Acquisition taken place at the beginning of each year.

 

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*Prepayment of Credit Facilityand Shareholder Loans; Amendment of Credit Facilities*

 

In the first quarter 2005, New SkiesSatellites B.V. entered into an amended agreement for the construction of theNSS-8 satellite, pursuant to which the manufacturer refunded all constructionpayments that had been made to date. In February 2005, New Skies SatellitesB.V. used this refund, along with cash-on-hand, to pay down $88.8 million underthe term loan facility and to make an $88.5 million distribution to its directparent and sole shareholder, New Skies Holding B.V., resulting in acorresponding net reduction in amounts owed under the shareholder loansoutstanding.

 

In connection with the NSS IPO, New SkiesSatellites B.V.’s senior secured credit agreement was amended to increase thelevel of permitted dividends and to make various other changes. The amendedcredit facilities allowed for the payment of dividends by New Skies SatellitesB.V. and New Skies Holding B.V. of up to $65 million for 2005 and annualdividends thereafter in an amount equal to 105% of the amount permitted to bepaid in the immediately preceding fiscal year. Such dividends will be permittedonly so long as no events of default exist under the credit agreement andprovided that New Skies Satellites B.V.’s debt to Adjusted EBITDA ratio (asdefined in the credit agreement) is below certain thresholds at the time ofpayment. The amount of dividends available will also be reduced by certainshareholder and other payments made. This amendment became effective upon theconsummation of the NSS IPO on May 13, 2005 (as further discussed below).Pursuant to the amendment to the senior secured credit agreement, the amountsallowed for additional dividends increased (i) from $95.0 million to $100.0million (to allow for the distribution paid in connection with the amendedNSS-8 agreement, as discussed above) and (ii) from $10.0 million to $20.0million, increasing to $30.0 million if the Company’s Total Leverage Ratio isequal to or less than 5.0x.

 

In connection with the NSS IPO, New SkiesSatellites B.V. also amended the terms of its shareholder loans to provide forthe option to make payments of principal and interest in cash or in-kind inorder to accommodate the payment of dividends to the Company, which allowed theCompany to pay dividends to its shareholders following the NSS IPO.

 

*Initial Public Offering*

 

On May 13, 2005, Holdings completed the saleof 11.9 million newly issued ordinary shares, equivalent to approximately 37%of the total issued and outstanding ordinary shares, in an initial publicoffering. Holdings also sold an additional 1.8 million shares on May 27, 2005pursuant to the underwriters’ overallotment option. Holdings’ principal assetis its equity interest in New Skies Satellites B.V.

 

Holdings provided New Skies Satellites B.V.with $137.3 million of the NSS IPO net proceeds by way of an indirectshareholder loan. New Skies Satellites B.V. used $131.2 million of these funds,together with $11.4 million of cash-on-hand, to repay $142.6 million of theterm loan facility and the remaining $6.1 million of these funds to pay a feeto Blackstone Management Partners IV L.L.C. in connection with the terminationof the transaction and monitoring fee agreement.

 

During the second quarter of 2005, Holdingsused $43.2 million of the net proceeds from the NSS IPO and $27.5 million fromthe net proceeds of the exercise of the underwriters’ overallotment option topay a dividend to the existing, pre-NSS IPO shareholders, including management.

 

Prior to the consummation of the NSS IPO, theCompany completed an internal restructuring pursuant to which the investmentfunds and management contributed 100% of the equity, preferred equitycertificates and convertible preferred equity certificates of New SkiesInvestments S.a.r.l. to the Company. Due to this restructuring, the investmentfunds and management became owners of 100% of the equity of the Company. As aresult, New Skies Investments S.a.r.l., New Skies Holding B.V. and New SkiesSatellites B.V. became indirect wholly-owned subsidiaries of the Company.

 

In connection with the NSS IPO, the Companygranted options to some of New Skies Satellites B.V.’s employees, including itssenior executives, to purchase shares of its common stock. See Note 12.

 

*Dividend Policy*

 

In connection with the NSS IPO, the board ofdirectors of the Company adopted a dividend policy which reflected an intentionto distribute a substantial portion of the cash generated by its business inexcess of operating expenses and working capital requirements, interest andcapital expenditures as regular quarterly dividends to its shareholders.

 

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Subsequent to the IPO and through December31, 2005, the Company declared quarterly cash dividends totalling $38.1million.   As part of its agreement withSES Global, the Company agreed to terminate its dividend program after the declarationand payment of its 2005 fourth quarter dividend, which was declared on December19, 2005 and paid in January 2006.

 

*Offer to Exchange SeniorFloating Rate Notes and Senior Subordinated Notes*

 

In July of 2005, New Skies Satellites B.V.concluded an offer to exchange $160,000,000 principal amount of its SeniorFloating Rate Notes due 2011 registered under the Securities Act of 1933 forany and all of its previously outstanding $160,000,000 Senior Floating RateNotes due 2011 and to exchange $125,000,000 principal amount of its 91/8%Senior Subordinated Notes due 2012 registered under theSecurities Act of 1933 for any and all of its previously outstanding$125,000,000 91/8%Senior Subordinated Notes due 2012. All previouslyoutstanding notes were tendered in the exchange offers. New Skies SatellitesB.V. conducted the exchange offers in order to satisfy certain of itsobligations under the registration rights agreements entered into in connectionwith the placement of the outstanding notes. The terms of the exchange notesissued in the exchange offers are substantially identical to the outstandingnotes, except that the exchange notes are freely tradeable. New SkiesSatellites B.V. did not receive any cash proceeds from the issuance of theexchange notes in the exchange offers.

 

*Transaction Fee and Monitoring Agreement*

 

In connection with the Acquisition,Blackstone Management Partners IV L.L.C. entered into a transaction fee andmonitoring agreement with New Skies Satellites B.V. relating to certain monitoring,advisory and consulting services under the monitoring agreement for a period of10 years ending November 2, 2014. In addition, New Skies Satellites B.V. paid atransaction and advisory fee to Blackstone Management Partners IV L.L.C. in anaggregate amount of $9.0 million upon the completion of the Acquisition. Thispayment was allocated between direct acquisition costs and debt issuance costs.

 

Under the monitoring agreement, New SkiesSatellites B.V. agreed to pay Blackstone Management Partners IV L.L.C. anaggregate annual monitoring fee equivalent to the greater of $1.5 million or 1%of EBITDA (as adjusted to eliminate the impact of certain non-cash and otheritems), and to reimburse Blackstone Management Partners IV L.L.C. for theirout-of-pocket expenses. Under the terms of the monitoring agreement, in theevent of an initial public offering, Blackstone Management Partners IV L.L.C.had the right to elect to receive, in lieu of annual payments under themonitoring agreement, a single lump sum cash payment equal to the net presentvalue of all of the then unpaid current and future monitoring fees payableunder the agreement. The discount rate used for the prepayment election wouldbe the yield on US Government bonds, at the time of the election, having amaturity closest to November 2, 2014. The transaction fee and monitoringagreement would then terminate. Similarly, if the equity participation ofBlackstone Management Partners IV L.L.C. in New Skies Satellites B.V. fellbelow 5% the agreement would also terminate. Monitoring fees are included inselling, general and administrative expenses. 

 

For the two-month period ended December 31,2004, New Skies Satellites B.V. incurred a monitoring fee of $0.2 million andreimbursed Blackstone Management Partners IV L.L.C. for out-of-pocket expensesassociated with the Acquisition of $4.8 million. The out-of-pocket expenseswere allocated between direct acquisition costs and debt issuance costs. Inconnection with the NSS IPO in May 2005, Blackstone Management Partners IVL.L.C. terminated the transaction and monitoring fee agreement. As contemplatedby such agreement, New Skies Satellites B.V. paid Blackstone ManagementPartners IV L.L.C. a termination fee of $6.1 million from the proceeds of theIPO.  For the year ended December 31,2005, New Skies Satellites B.V. incurred $0.8 million of monitoring fees inaddition to the $6.1 million termination fee mentioned above.

 

**3.     Summary of Significant Accounting Policies**

** **

The accompanying consolidated financial statementshave been prepared following accounting principles generally accepted in theUnited States of America (“U.S. GAAP”). Amounts are reported in thousands ofU.S. dollars, unless indicated otherwise. Certain amounts reported inpreviously issued financial statements have been reclassified to conform to thecurrent financial statement classification. The following are the significantaccounting policies used by the Company: 

 

***Principles of Consolidation***—The consolidated financial statements include the accounts of theCompany and its wholly owned domestic and foreign subsidiaries. All significantintercompany balances and transactions have

 

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been eliminated in consolidation. 

 

***Functional Currency***—Substantially all of the Company’s revenues, capital expendituresand the majority of operating expenses are denominated in U.S. dollars.Accordingly, the U.S. dollar has been adopted as the functional currency.Transactions in other currencies are translated into the functional currencyusing rates that are in effect at the transaction date. 

 

***Foreign Currency Translation***—The Company’s reporting currency is the U.S. dollar. Assets andliabilities of foreign subsidiaries with a functional currency other than the U.S.dollar are translated into U.S. dollars at exchange rates prevailing at thebalance sheet date. Revenues and costs relating to the operations of suchsubsidiaries are translated at average exchange rates during the period.Resulting translation adjustments are directly recorded in shareholders’ equityas a component of accumulated other comprehensive income (loss). 

 

***Use of Estimates***—The preparation of financial statements requires management to makeestimates and assumptions that affect: (1) the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and (2) the reported amounts of expensesduring the reporting period. Actual results could differ from those estimates. 

 

***Revenue Recognition***—Revenues result from utilization charges arising from the provisionof satellite and ground-based services. Revenues are recognized on astraight-line basis over the period during which the services are provided.Deferred revenues represent the unearned balances remaining from amountsreceived from customers pursuant to prepayment options as set out intransponder service agreements. These amounts are recorded as revenues on astraight-line basis over the period during which these prepaid satelliteservices are provided. 

 

***Cash and Cash Equivalents***—The Company considers temporary investments with originalmaturities of three months or less when purchased to be cash equivalents. 

 

***Debt Issuance Costs***—Debt issuance costs represent costs incurred by the Company tosecure debt financing. These costs are amortized to interest expense on astraight-line basis over the life of the related indebtedness. Approximately$33.0 million of costs incurred with the issuance of the Senior SecuredCredit Facilities, Senior Floating Rate Notes and Senior Subordinated Notes inNovember 2004 were capitalized and are being amortized over periods of six toeight years, on a straight-line basis. In the event the Company exercises its rights to prepay any portion ofits credit facilities or notes outstanding, all unamortized costs associatedwith the retired debt obligation will be immediately charged to interestexpense.

 

***Communications, Plant and OtherProperty***—Communications, plantand other property are carried at historical cost and consist primarily of thecosts of satellite construction and launch, including capitalized performancepayments, insurance premiums related to satellite launches and in-orbittesting, capitalized interest, and costs directly associated with monitoringand support of spacecraft construction. The Company considers a new satelliteas being substantially complete and ready for its intended use when it isplaced into commercial service. Commercial service commences upon thesuccessful completion of in-orbit testing. Insurance premiums associated with in-orbit operations are expensed asincurred.

 

Upon commencement of commercial operation,communications, plant and other property are depreciated on a straight-linebasis over the following estimated useful lives (see Note 4): 

 

| ** **                       | ** ** | **Years** | ** ** |
|----------------------------------|------------|-----------|------------|
| Satellite and Launch costs       |       | 12.5-14   |       |
| Communication support and  other |       | 3-7       |       |
| Buildings                        |       | 30        |       |

 

The Company estimates the useful lives of thesatellites based on a number of factors, and reviews these life expectancyestimates periodically taking into consideration each satellite’s actualin-orbit performance. The two most important factors are the length of timeduring which a satellite’s on-board propellant is projected to permit maneuversto keep the satellite in geosynchronous orbit and the expected performance ofsatellite components. Reductions in the estimated useful lives of thesatellites would result in additional depreciation expense in future periods. 

 

Communication support and other equipmentprimarily relates to the Company’s teleport and tracking, telemetry, commandand control (“TTC&M”) infrastructure. 

 

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Interest expense in the accompanyingconsolidated statements of operations is net of capitalized interest of$1.9 million, $1.2 million, $2.0 million and $1.8 million forthe year ended December 31, 2003, the period from January 1, 2004 toNovember 1, 2004, the period from November 2, 2004 toDecember 31, 2004 and the year ended December 31, 2005, respectively.

 

***Goodwill and Other IntangibleAssets***—In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 142, *Goodwill and Other Intangible Assets*, theCompany performs an evaluation of its goodwill and other intangible assets forpossible impairment on an annual basis, and more frequently if circumstancesindicate a possible impairment. This impairment test is comprised of two steps.The initial step is designed to identify potential goodwill impairment bycomparing an estimate of the fair value of the applicable reporting unit to itscarrying value, including goodwill. If the carrying value exceeds fair value, asecond step is performed, which compares the implied fair value of theapplicable reporting unit’s goodwill with the carrying amount of that goodwill,to measure the amount of goodwill impairment, if any. 

 

***Unsuccessful Launches andSatellite Failures***—In the eventof an unsuccessful launch or total in-orbit satellite failure, all unamortizedcosts that are not recoverable under launch or in-orbit insurance are recordedas an operating expense. 

 

***Impairment of Long-lived Assets***—In accordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*, the Company’slong-lived assets, which are comprised primarily of its in-service satellitefleet, are tested for recoverability whenever events or changes incircumstances indicate that its carrying value may not be recoverable.Impairment can arise from complete failure or partial failure of the satellitesas well as a change in expected cash flows. Such impairment tests are based ona comparison of estimated undiscounted future cash flows to the recorded valueof the asset. If impairment is indicated, the asset value will be written downto fair value based upon discounted cash flows, using an appropriate discountrate. 

 

***Satellite PerformanceIncentives***—The Company hascertain contracts with its satellite manufacturers that require the Company tomake incentive payments over the orbital design life of the satellites. TheCompany records the present value of such payments as a liability andcapitalizes these costs in the cost of the satellite. 

 

***Income Taxes***—The Company accounts for income taxes under the provisions of SFASNo. 109, *Accounting for Income Taxes*.Under this method, deferred tax assets and liabilities are recognized for thefuture tax consequences of temporary differences between the carrying amountsand tax bases of assets and liabilities. Valuation allowances are providedagainst assets if it is more likely than not that they will not be realized. 

 

***Net Earnings (Loss) Per Share***— Basic net earnings (loss) per share is computed by dividing netincome (loss) by the weighted average ordinary shares outstanding. For thepurpose of calculating the weighted average shares outstanding for the yearended December 31, 2005, the effects of the internal restructuring completedimmediately prior to the NSS IPO are deemed to have occurred at the beginningof the year, and reflect 18.5 million shares.

 

A summary of the weighted average number ofshares and incremental shares used in the calculation of earnings (loss) pershare follows:

 
| ** **                                    | ** ** | **Predecessor**                       | ** ** | ** **                                           | **Successor** | ** ** |
|-----------------------------------------------|------------|---------------------------------------|------------|------------------------------------------------------|---------------|------------|
| ** **                                    | ** ** | **Year ended  December 31** | ** ** | **Period  January 1 to  November 1,** | ** **    | ** ** | **Period  November 2 to  December 31,** | ** ** | **Year ended  December 31** | ** ** |
| **(in thousands)**                       | ** ** | **2003**                              | ** ** | **2004**                                             | ** **    | ** ** | **2004** | ** ** | **2005** | ** ** |
| Basic weighted average shares  outstanding    |       | 119,499                               |       | 118,099                                              |          |       | 43 |   | 27,349 |   |
| Incremental shares                            |       | 1,179                                 |       | 1,751                                                |          |       | — |   | — |   |
|                                          |       |                                  |       |                                                 |          |       |   |   |   |   |
| Adjusted weighted average  shares outstanding |       | 120,678                               |       | 119,850                                              |          |       | 43 |   | 27,349 |   |

 

The difference in the weighted average numberof shares outstanding and the adjusted weighted average number of sharesoutstanding resulted in no difference between basic and diluted earnings pershare amounts in any period.

 

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Diluted earnings (loss) per share reflectsthe potential dilution that could occur if potentially dilutive securities,such as stock options, convertible securities and contracts that may be settledin cash or stock, were converted to shares as of the beginning of the period,if dilutive. For the purpose of calculating diluted loss per share in theperiod from November 2, 2004 to December 31, 2004, the preferred equitycertificates and convertible preferred equity certificates subject to mandatoryredemption (see Note 8) have been excluded from the calculation of adjustedweighted average shares outstanding as their inclusion would have had ananti-dilutive effect on basic loss per share. Similarly, for the purpose ofcalculating diluted loss per share for the year ended December 31, 2005,approximately 1.3 million potentially dilutive shares relating to outstandingstock options have been excluded from the calculation of adjusted weightedaverage shares outstanding as their inclusion would also have had ananti-dilutive effect due to the net loss in that period.

 

***Stock Compensation***—In accordance with SFAS No. 123, *Accountingfor Stock-Based Compensation*, the Company records stock-basedcompensation under the fair value based method of accounting which requires thecost of stock based awards to be expensed over the respective stock optionvesting period based on the fair value of the stock option at the date ofgrant.  The weighted average fair valueof stock options granted during the year ended December 31, 2003 and 2005was $1.97 and $12.73, respectively. No options were granted during 2004. 

 

The Company estimated the fair value of stockoptions granted using the Black Scholes option-pricing model with the following,weighted-average assumptions: 

 
| ** **          | ** ** | **Predecessor**                             | ** ** | **Successor** | ** ** |
|---------------------|------------|---------------------------------------------|------------|---------------|------------|
| ** **          | ** ** | **Years ended December 31,** | ** ** |
| ** **          | ** ** | **2003**                                    | ** ** | **2005**      | ** ** |
|                |       |                                        |       |          |       |
| Expected life       |       | 5 years                                     |       | 3 years       |       |
| Interest rate       |       | 3.0                                         | %          | 4.3           | %          |
| Volatility          |       | 40                                          | %          | 40            | %          |
| Assumed forfeitures |       | 10                                          | %          | 9             | %          |

 

***Fair Value of FinancialInstruments***—The Company’sfinancial instruments consist of accounts receivable, accounts payable, andsatellite performance incentives. The current carrying amounts of suchinstruments are considered reasonable estimates of the fair market value ofthese instruments due to the short maturity of these items or as a result ofthe current market interest rates accruing on these instruments. Long-term debtbears interest at rates that approximate the current market interest rates forsimilar instruments and, as a result, carrying value approximates fair valuefor such instruments. 

 

***Comprehensive Income***— 

 

**Predecessor**—Comprehensive income includes net income and translationadjustments that were recognized directly in equity. Translation adjustments of$3.1 million and $0.9 million for the year ended December 31,2003, and the period from January 1, 2004 to November 1, 2004,respectively, were incurred and, consequently, comprehensive income in theseperiods is equal to $14.9 million and $8.5 million, respectively. 

 

**Successor**—Translation adjustments of $0.7 million and $(0.8) millionwere recorded for the period November 2, 2004 to December 31, 2004and the year ended December 31, 2005 and consequently comprehensive loss inthese periods is equal to $13.0 million and $2.2 million, respectively. 

 

***Recently Issued But Not Yet AdoptedAccounting Standards***

 

On April 15, 2005, the SECannounced the adoption of a new rule that amends the compliance dates for SFASNo. 123R “Share-Based Payment”. Under SFAS No. 123R, registrantswould have been required to implement the standard as of the beginning of thefirst interim or annual period that begins after June 15, 2005. The SEC’snew rule requires companies to implement SFAS No. 123R at the beginning oftheir first fiscal year beginning on or after June 15, 2005, instead ofthe first reporting period that begins after June 15, 2005. This meansthat our financial statements must comply with SFAS No. 123R beginningwith the interim financial statements for the first quarter of 2006. The SEC’snew rule does not change the accounting required by SFAS No. 123R; itchanges only the dates for compliance with the standard. The adoption of SFASNo. 123R will not have a material impact on our consolidated financialstatements. 

 

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In December 2004, the Financial AccountingStandards Board issued SFAS No. 153, *Exchangesof Nonmonetary Assets-an amendment of APB Opinion No. 29, Accounting forNonmonetary Transactions (APB 29).*SFAS No. 153 is based on theprinciple that nonmonetary asset exchanges should be recorded and measured atfair value of the assets exchanged, with certain exceptions. This standardrequires exchanges of productive assets to be accounted for at fair value, ratherthan at carryover basis, unless (1) neither the asset received nor theasset surrendered has a fair value that is determinable within reasonablelimits or (2) the transactions lack commercial substance (as defined).This statement is effective for nonmonetary asset exchanges occurring in fiscalperiods beginning after June 15, 2005 and is not expected to have amaterial impact on the Company’s consolidated financial statements.

 

In May 2005, the Financial AccountingStandards Board issued SFAS No. 154, *AccountingChanges and Error Corrections,*which replaces Accounting PrinciplesBoard Opinion No. 20, *Accounting Changes*,and SFAS No. 3, *Reporting Accounting Changesin Interim Financial Statements*. This statement applies to allvoluntary changes in accounting principle and changes resulting from theadoption of a new accounting pronouncement that do not specify transitionrequirements. SFAS No. 154 requires retrospective application to prior periods’financial statements for changes in accounting principle unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. SFAS No. 154 also requires that retrospective applicationof a change in accounting principle be limited to the direct effects of the change.Indirect effects of a change in accounting principle should be recognized inthe period of the accounting change. SFAS No. 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December15, 2005 with early implementation permitted for accounting changes andcorrections of errors made in fiscal years beginning after the date thisstatement was issued. SFAS No. 154 is effective for the Company as of January1, 2006 and is not expected to have a material impact on the Company’sconsolidated financial statements.

 

**4.     Communications, Plant and Other Property**

** **

Communications, plant and other propertyconsisted of the following (in thousands of U.S. dollars):

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Satellite and launch costs       |       | $                     | 684,348    |   | $ | 647,238 |   |
| Construction-in-progress         |       | 171,684               |       | 15,501 |   |
| Communication support and  other |       | 35,883                |       | 36,193 |   |
| Buildings                        |       | 20,013                |       | 18,224 |   |
|                             |       | 911,928               |       | 717,156 |   |
| Less: accumulated depreciation   |       | 16,022                |       | 108,786 |   |
| Total                            |       | $                     | 895,906    |   | $ | 608,370 |   |

 

In January 2005, New Skies Satellites B.V.entered into an amended agreement for the NSS-8 satellite, which (amongst otherthings) amended the satellite’s contractual delivery deadline and the paymentterms. Under the prior agreement, NSS-8 was scheduled to enter commercialservice in the first quarter of 2005. The manufacturer projects that NSS-8 willbe launched in the fourth quarter of 2006 and will enter commercial serviceapproximately 90 days after launch. In consideration for the agreement toincrease the purchase price and to amend the delivery deadline, themanufacturer agreed to refund all construction payments made to date, amountingto $168.0 million. The entire purchase price, including $30.0 million that hasbeen placed in escrow, will be paid as satellite performance incentives,subject to satisfactory performance of the satellite during its contractualdesign life, and New Skies Satellites B.V. will provide commercially reasonablesecurity to the manufacturer with respect to unpaid incentives.

 

At December 31, 2005 Communications, plantand other property also reflects the impact of the sale of a wholly-ownedsubsidiary, New Skies Networks Pty Limited, during 2005.  See Note 11.

 

Construction-in-progress relates to the NSS-8satellite under construction and related launch services. 

 

Upon acceptance of a spacecraft from asatellite manufacturer, the net present value of performance incentive paymentsis recorded as a part of the historical cost of the satellite. 

 

71

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**5.     Intangible Assets**

 

Pursuant to the acquisition of the assets andliabilities of New Skies Satellites N.V on November 2, 2004, New SkiesSatellites B.V. acquired certain intangible assets.  In the third quarter of 2005, New SkiesSatellites B.V. adjusted its preliminary purchase price allocation to reflectthe recognition of these intangible assets in accordance with New SkiesSatellites B.V.’s finalization of the purchase price allocation exercise. SeeNote 2.

 

Intangible assets, other than goodwill andin-use orbital slots listed separately below, that are subject to amortizationrelate to trade names acquired which have finite lives of 15 years.  The carrying values (in thousands of U.S.dollars) of trade names acquired are:

 
| ** **                 | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Trade names                |       | $                     | —     |   | $ | 3,751 |   |
| Less: amortization expense |       | —                |       | (292 | ) |
|                       |       |                  |       |   |   |
| Total                      |       | $                     | —     |   | $ | 3,459 |   |

 

In addition, New Skies Satellites B.V. hascertain intangible assets other than goodwill with indefinite lives.  While these assets will not be subject toamortization, they will be tested for impairment annually or when a change incircumstances occurs.  These intangibleassets also arose upon the acquisition of New Skies Satellites N.V. andcomprise (in thousands of U.S. dollars):

 
| ** **         | ** ** | **December 31,** | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2004**              | ** ** | **2005** | ** ** |
| In-use orbit slots |       | $                     | —     |   | $ | 19,913 |   |
| Goodwill           |       | —                |       | 4,841 |   |
|               |       |                  |       |   |   |
| Total              |       | $                     | —     |   | $ | 24,754 |   |

 

**6.     Contractual Commitments**

** **

In further development and operation of theCompany’s global commercial communications satellite system, significantadditional expenditures are anticipated. At December 31, 2005, New Skies Satellites B.V. had a contract for theconstruction, development and launch of the NSS-8 satellite with future committedpayments on this program. Such commitments (“satellite incentives”) totalled$389.1 million at December 31, 2005, including interest that will be accruedthereon, that are scheduled to fall due over the anticipated operating life ofthis satellite, to the extent that the satellite operates successfullythroughout its contractual design life. 

 

New Skies Satellites B.V. has recorded aliability of $5.4 million at December 31, 2005 representing the present value,at a weighted average discount rate of approximately 8%, for incentive paymentson the NSS-5, NSS-703 and NSS-806 satellites. Incentive payments of $2.5million, $1.8 million, $0.9 million, $0.5 million and $0.4 million are due forthe years ending 2006, 2007, 2008, 2009 and 2010, respectively. 

 

Additionally, New Skies Satellites B.V. hasrecorded a liability of $29.4 million at December 31, 2005 representingincentive payments, before interest, on the NSS-6 and NSS-7 satellitesrequiring payments of $3.5 million in each of the years ending December 31,2010 and $13.9 million thereafter. A variable interest charge equivalent toLIBOR plus 1% on the outstanding principal will also be incurred on thesepayments.

 

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Other commitments as of December 31, 2005, primarily relating tooperating leases for telecommunication infrastructure and office facilities,are as follows (in thousands of U.S. dollars): 

 

| **Successor**       | ** ** | ** ** | ** ** |
|---------------------|------------|------------|------------|
| 2006                |       | $          | 10,120     |   |
| 2007                |       | 2,840      |       |
| 2008                |       | 2,215      |       |
| 2009                |       | 1,933      |       |
| 2010                |       | 1,288      |       |
| 2011 and thereafter |       | 3,562      |       |
| Total commitments   |       | $          | 21,958     |   |

 

Rental expenses under operating leases were: 

 

**Predecessor**—$1.2 million and $0.7 million for the year endedDecember 31, 2003 and the period from January 1, 2004 toNovember 1, 2004, respectively. 

 

**Successor**—$0.1 million and $0.7 million for the period fromNovember 1, 2004 to December 31, 2004 and the year ended December 31,2005, respectively. 

 

**7.     Income Taxes**

** **

New Skies Satellites B.V. has yet to concludeits discussions with the Dutch tax authorities regarding the final taxobligation of its Predecessor, New Skies Satellites N.V. Such obligation was aliability assumed by New Skies Satellites B.V. in connection with theAcquisition, and accordingly, New Skies Satellites B.V. recorded a provisionfor income tax of $20.0 million at the date of Acquisition. New SkiesSatellites B.V. believes that this adequately covers the liability assumed withrespect to the Predecessor’s tax liability.

 

Certain countries within which New SkiesSatellites B.V. operates have sought to impose withholding taxes or incometaxes on payments from customers in those countries, notwithstanding theexistence of tax treaties that New Skies Satellites B.V. believes do not permitthe imposition of such taxes. In particular, the Government of India hascharacterized payments made by Indian-based customers and certain payments madeby non-resident customers in India as “royalty payments”. The Government ofIndia has assessed taxes on these payments for the period April 1999 to March2002 and may in the future assess taxes on these payments for subsequentperiods. New Skies Satellites B.V. has appealed the assessment in accordancewith applicable procedures for handling disputed tax assessments. However, NewSkies Satellites B.V. believes it is probable that a loss has been incurred andhas recorded an accrual totalling $7.6 million as of December 31, 2005,representing management’s best estimate of the amount of the withholding taxobligations that have accrued through December 31, 2005. As part of thison-going process a further hearing is scheduled for the second quarter of 2006,after which we will be better able to assess the amount of taxes, interest andany other penalties that may ultimately fall due.

 

The Company’s provision for income taxesconsists of the following (in thousands of U.S. dollars):

 
| ** **                 | ** ** | **Predecessor**                       | ** ** | ** **                                  | **Successor** | ** ** |
|----------------------------|------------|---------------------------------------|------------|---------------------------------------------|---------------|------------|
| ** **                 | ** ** | **Year ended  December 31** | ** ** | **January 1  to November 1** | ** **    | ** ** | **November 2 to  December 31** | ** ** | **Year Ended  December 31** | ** ** |
| ** **                 | ** ** | **2003**                              | ** ** | **2004**                                    | ** **    | ** ** | **2004** | ** ** | **2005** | ** ** |
|                       |       |                                  |       |                                        |          |       |   |   |   |   |
| Current Domestic           |       | $                                     | 4,062      |                                        | $             | 789        |   |   | $ | — |   | $ | — |   |
| Current Foreign            |       | 1,656                                 |       | 1,809                                       |          |       | 238 |   | 1,737 |   |
| Deferred Domestic          |       | 643                                   |       | 1,624                                       |          |       | 391 |   | — |   |
| Deferred Foreign           |       | 296                                   |       | 75                                          |          |       | (5,998 | ) | (3,515 | ) |
|                       |       |                                  |       |                                        |          |       |   |   |   |   |
| Total income tax provision |       | $                                     | 6,657      |                                        | $             | 4,297      |   |   | $ | (5,369 | ) | $ | (1,778 | ) |

 

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The reconciliation of income taxes betweenthe Dutch corporate income tax rate and the Company’s effective tax rate asshown in the Consolidated Statements of Operations is as follows:

 
| ** **                                                                                                  | ** ** | **Predecessor**                       | ** ** | ** **                                  | **Successor** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|---------------|------------|
| ** **                                                                                                  | ** ** | **Year ended  December 31** | ** ** | **January 1 to  November 1** | ** **    | ** ** | **November 2 to  December 31** | ** ** | **Year Ended  December 31** | ** ** |
| ** **                                                                                                  | ** ** | **2003**                              | ** ** | **2004**                                    | ** **    | ** ** | **2004** | ** ** | **2005** | ** ** |
| Dutch corporate income tax  rate                                                                            |       | 34.5                                  | %          | 34.5                                        | %             |       | 34.5 | % | 31.5 | % |
| Items affecting the corporate  income tax rate                                                              |       |                                  |       |                                        |          |       |   |   |   |   |
| Gain on sale of subsidiary,  not subject to taxation                                                        |       | —                                |       | —                                      |          |       | — |   | 63.9 |   |
| Amortization of intangible  assets, including goodwill                                                      |       | —                                |       | —                                      |          |       | — |   | (6.2 | ) |
| Transaction and other  expenses, not subject to taxation                                                    |       | —                                |       | —                                      |          |       | — |   | (30.2 | ) |
| Other non-deductible items                                                                                  |       | 1.5                                   |       | 1.5                                         |          |       | (2.2 | ) | (1.0 | ) |
| Effect of enacted decrease in  future Dutch corporate income tax rate on realization of deferred tax assets |       | —                                |       | —                                      |          |       | (4.5 | ) | (2.4 | ) |
| Effective tax rate                                                                                          |       | 36.0                                  | %          | 36.0                                        | %             |       | 27.8 | % | 55.6 | % |

 

**Successor—**Deferred income tax assets of $17.4 million and $17.2 millionas of December 31, 2004 and 2005, respectively, primarily arise from netoperating loss carry forwards. The tax laws applicable to the subsidiary thatincurred these losses permit such losses to be carried forward for an indefiniteperiod of time. The Company believes that the results of future operations willgenerate sufficient taxable income that it is more likely than not that thesedeferred tax assets will be realized. As such, a valuation allowance has notbeen recorded. 

 

In addition, the tax impact of debt issuancecosts incurred in November 2004 and the difference in the tax and bookbasis of communications, plant and other property has also resulted in certaindeferred income tax liabilities totalling $9.8 million and $1.0 million, and$5.2 million and $0.8 million as of December 31, 2004 and 2005, respectively. 

 

Income taxes payable of $20.5 millionand $20.2 million at December 31, 2004 and 2005 primarily representsamounts due for corporation tax of New Skies Satellites N.V. This obligationwas assumed by the Company as a consequence of the Acquisition and the Companyhas guaranteed to the Dutch Tax Authorities that it will meet this obligation,once due. 

 

**8.     FinancingArrangements**

 

Senior long-term debt consisted of the following(in thousands of U.S. dollars): 

 
| ** **                               | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| ** **                               | ** ** | **2004**              | ** ** | **2005** | ** ** |
| Senior Secured Credit Facilities         |       | $                     | 460,000    |   | $ | 153,560 |   |
| Senior Floating Rate Notes due 2011      |       | 160,000               |       | 160,000 |   |
| 91/8% Senior Subordinated Notes due 2012 |       | 125,000               |       | 125,000 |   |
|                                     |       |                  |       |   |   |
| Total long-term debt                     |       | $                     | 745,000    |   | $ | 438,560 |   |

 

In addition, New Skies Satellites B.V. had$75.0 million and $125.0 million available under its revolving credit facilityagainst which $2.3 million and $2.0 million of standby letters of credit hadbeen drawn as of December 31, 2004 and 2005, respectively.

 

***Senior SecuredCredit Facilities****–*Concurrent with theconsummation of the Acquisition, New Skies Satellites B.V. entered into seniorsecured credit facilities consisting of a $460.0 million senior secured termloan

 

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facility that matures in May 2011 and a $75.0million senior secured revolving credit facility that matures in November 2010.During 2005, New Skies Satellites B.V. prepaid $306.4 million of the term loanborrowings and entered into an amendment to the credit facilities that, amongother things, increased the revolving credit facility to $125.0 million. SeeNote 2. Borrowings under the facilities bear interest at an adjustable ratebased on LIBOR for the associated period of draw-down plus an applicablemargin. The facilities are subject to customary covenant requirements andrestrictions, including a maximum leverage ratio and a minimum interestcoverage ratio. At maturity any outstanding borrowings on the facilities mustbe repaid in full. 

* *

At December 31, 2005, a one-month draw-downunder the senior secured credit facilities would bear interest at 6.4% perannum. In addition, a commitment fee of 0.375% is paid on the unused revolvingcredit amount. At December 31, 2005 there was $153.6 million outstanding on thesenior secured term loan facility and no amounts outstanding under the seniorsecured revolving credit facility other than the standby letters of creditsmentioned above.

 

***Senior Floating RateNotes due 2011****–*In connection with theAcquisition, New Skies Satellites B.V. issued $160.0 million aggregateprincipal amount of Senior Floating Rate Notes due 2011. The notes bearinterest at a rate per annum, reset semi-annually, equal to LIBOR plus 5 1/8%.The notes rank equal in right of payment to all existing and future seniorindebtedness; rank senior in right of payment to all the Company’s existing andfuture senior subordinated indebtedness and subordinated indebtedness and ranksubordinated in right of payment to the Company’s secured indebtedness. Earlyredemption is permitted without penalty on or after November 1, 2006.Redemption prior to this date is subject to a reducing premium of a maximum of2% of the principal amount. The notes are subject to customary covenantrequirements and restrictions. On July 9, 2005, New Skies Satellites B.V.concluded an exchange offer pursuant to which all outstanding Senior FloatingRate Notes**due 2011 wereexchanged for Senior Floating Rate Notes due 2011 that have been registeredunder the Securities Act of 1933. See Note 2. At December 31, 2005, the $160.0million of outstanding notes bore an interest rate of approximately 9.6% perannum.

* *

***9***1/8***% Senior Subordinated Notes due 2012****–*In connectionwith the Acquisition, New Skies Satellites B.V. issued $125.0 million aggregateprincipal amount of 9 1/8% SeniorSubordinated Notes due 2012. The notes rank junior in right of payment to allexisting and future senior indebtedness; rank equal in right of payment to allthe Company’s existing and future senior subordinated indebtedness and ranksubordinated in right of payment to the Company’s secured indebtedness. Earlyredemption is permitted without penalty on or after November 1, 2007.Redemption prior to this date is subject to a reducing premium of a maximum of4.6% of the principal amount. The notes are subject to customary covenantrequirements and restrictions. On July 9, 2005, New Skies Satellites B.V.concluded an exchange offer pursuant to which all outstanding SeniorSubordinated Notes due 2012 were exchanged for Senior Subordinated Notes due2012 that been registered under the Securities Act of 1933. See Note 2. AtDecember 31, 2005, all $125.0 million of issued notes were outstanding.

 

**9.    ****Preferred Equity SecuritiesSubject to Mandatory Redemption**

 

**Successor**—On November 2, 2004, the investment funds affiliated with TheBlackstone Group contributed to New Skies Investments S.a.r.l. aggregateproceeds of $153.0 million in the form of 4,371,428 preferred equitycertificates and $8.5 million in the form of 242,857 convertible preferredequity certificates. The preferred equity certificates rank behind the rightsof all other creditors of New Skies Investments S.a.r.l. The yield accrues onthe certificates at a rate of 11.25% per annum and the carrying amount as ofDecember 31, 2004 was $155.8 million. The preferred equity certificates may beredeemed voluntarily and settled with cash, property or shares at an aggregatepar value equal to the carrying value at time of the redemption. The par valuealong with the accrued but unpaid yield on the certificates compounds at a rateof 11.25% per year. Accrued interest and principal are payable at voluntaryredemption, mandatory redemption or upon liquidation of the Company. Thepreferred equity certificates have no maturity date and are mandatorilyredeemable in 2053. The convertible preferred equity certificates rank behindthe rights of all other creditors of New Skies Investments S.a.r.l. The yieldaccrues on the certificates at a rate of 3.25% per annum and the carryingamount as of December 31, 2004 was $8.5 million. Upon a conversion event, asdefined in the Terms and Conditions of Convertible Preferred EquityCertificates, the convertible preferred equity certificates are convertibleinto an equivalent number of ordinary shares of the Company with a par value of$35. Alternatively, instead of delivering conversion shares, the Company mayrepurchase any or all of the convertible preferred equity certificates at aprice equal to the market value, on a fully diluted basis, of the conversionshares into which the convertible preferred equity certificates would have been

 

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convertible, subject to certain conditions.The convertible preferred equity certificates may be redeemed voluntarily andsettled with cash, property or shares at an aggregate par value equal to thecarrying value at time of the redemption. The par value along with the accruedbut unpaid yield on the certificates compounds at a rate of 3.25% per year.Accrued interest and principal are payable at voluntary redemption, mandatoryredemption or upon liquidation of the Company. The convertible preferred equitycertificates have no maturity date and are mandatorily redeemable in 2053.

 

On February 25, 2005, New Skies InvestmentsS.a.r.l. issued and indirectly sold 125,608 preferred equity certificates and6,972 convertible preferred equity certificates to New Skies (Cayman) Ltd.,which is owned by the six members of New Skies Satellites B.V.’s executivemanagement committee, for $4.7 million. In addition, following the receipt ofthe NSS-8 milestone refund, $88.0 million of the preferred equity certificateswere also repaid in the first quarter of 2005. See Note 2.

 

Immediately prior to the NSS IPO, the Companyundertook an internal restructuring pursuant to which pre-existing shareholderscontributed 100 percent of the equity, preferred equity certificates andconvertible preferred equity certificates, including all interest accruedthereon, of New Skies Investments S.a.r.l. to the Company. The amountcontributed totalled $86.9 million and is shown as an addition to AdditionalPaid-in Capital of the Company.

 

**10.  Significant Customers**

** **

**Predecessor**—Certain shareholders were the principal customers of the Company.These shareholders, who owned in the aggregate 27% of the Company’s shares atNovember 1, 2004, accounted for approximately 49% and 40% of totalrevenues for the year ended December 31, 2003 and for the period fromJanuary 1, 2004 to November 1, 2004, respectively.  

 

During the period from January1, 2004 to November 1, 2004, the Company had one customer representing morethan 10% of revenues. The revenues from this customer, who was also a shareholder,represented 15% and 13% of total revenues for the year ended December 31, 2003and the period from January 1, 2004 to November 1, 2004, respectively. Thiscustomer was purchased by Intelsat LLC (“Intelsat”), a direct competitor of theCompany, in 2004. In connection with Intelsat’s purchase of this customer andin order to preserve the diversity of suppliers to the U.S. government, theCompany entered into an agreement with Intelsat under which the Company agreedto continue to provide, and Intelsat agreed to continue to procure from theCompany, satellite capacity for services to this customer for certain U.S.government-related contracts using New Skies’ satellites. The agreement was fora two-year term, beginning on the date of the closing of the purchase byIntelsat in October 2004, and covers all renewals of contracts pursuant towhich the Company supplied this customer with capacity as of the date of theclosing. The Company has no other unusual credit risks or concentrations.

 

**Successor**—The Company has one customer therevenue from whom represented 13% and 18% of revenues for the period November2, 2004 to December 31, 2004 and the year ended December 31, 2005,respectively. In addition, in November 2004, New Skies Satellites B.V.terminated certain agreements with another significant customer fornon-performance. As a consequence, all then outstanding amounts were providedfor in full resulting in an incremental selling, general and administrativeexpense of $7.8 million. Revenues generated from this customer totalled $6.7million for the period from January 1, 2004 to November 1, 2004. No revenueswere generated in the period from November 2, 2004 to December 31, 2004 or in2005. The Company has no other unusual credit risks or concentrations.

 

**11.  OtherOperating Income**

** **

**Predecessor—**

** **

***Gain arising on frequencycoordination***

** **

 In2004, the Company resolved with Intelsat LLC a number of longstanding frequencycoordination matters.  Under the terms ofthe agreement, the Company agreed not to bring certain frequencies into use at120.8 degrees west longitude, in consideration for a one-time cash paymentof $32.0 million. 

 

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**Successor—**

** **

***Gain arising on frequencycoordination***

** **

In March, 2005, New Skies Satellites B.V.reached an agreement with SES Global and affiliates (“SES”) relating to certainorbital slot coordination matters. Under the terms of the agreement, New SkiesSatellites B.V. agreed not to bring a satellite into use at New SkiesSatellites B.V.’s 105.0 degrees west longitude orbital location in order toensure that SES will be able to operate its satellite without interference. Inreturn, SES made a one-time payment of $10.0 million. 

 

In July 2005, New Skies Satellites B.V.reached a further agreement with SES relating to certain other orbital slotcoordination matters. Under its terms, New Skies Satellites B.V. agreed not tobring a fixed satellite service satellite into use at its 125.0 degrees westlongitude location in order to ensure that SES will be able to operate its ownsatellite at this location without interference. In return, SES made a totalpayment of $9.5 million.

 

***Gain arising on sale ofsubsidiary***

** **

On November 8, 2005 New Skies Satellites B.V.sold its wholly-owned subsidiary, New Skies Networks Pty Limited, toMultiemedia for cash consideration of $10.0 million, and recognized a gain onsale of $7.0 million. Concurrent with the sale, New Skies Satellites B.V. alsoentered into a five year Teleport Services Ordering agreement and a five yearSpace Segment Capacity agreement to ensure that the services that werepreviously provided to and received from New Skies Networks Pty Limitedcontinue to be received, and from which New Skies Satellites B.V. will continueto generate significant direct cash flows. Accordingly, the results of NewSkies Networks Pty Limited for the period through November 8, 2005 are shown asgenerated from continuing operations.

 

**12.  Retirementand Incentive Plans**

** **

***Defined Contribution PensionPlans***

*** ***

**Predecessor**– The Company had defined contribution plansfor substantially all Company employees. The Company matched a portion of theemployee contribution. Total compensation expense related to the definedcontribution plans approximated $1.1 million for both the year endedDecember 31, 2003 and for the period from January 1, 2004 toNovember 1, 2004, respectively. 

 

**Successor** – New Skies Satellites B.V. has assumed thedefined contribution plans referred to above. Total compensation expenserelated to the defined contribution plans approximated $0.2 million and $1.1million for the period from November 2, 2004 to December 31, 2004 andthe year ended December 31, 2005, respectively. 

 

***PredecessorStock-based Compensation***

*** ***

***Stock Option Plans*** – The Supervisory Board of Directors adopted the 1999 Stock OptionPlan as amended (“Stock Plan”) effective January 1, 1999.  The Supervisory Board could either administerthe Stock Plan itself or through a committee of the Supervisory Board or couldappoint a foundation to administer the plan. At no time could the number of options issued under the Stock Planexceed 10% of the issued common stock of the Company unless the SupervisoryBoard amended the Stock Plan. All grants under the plan, including option grantsand incentive stock plan grants, were subject to an aggregate limitation, whichwas increased in 2002 to a total of 13,057,024 ordinary shares reflecting 10% of the issued ordinary shares as of the date of theamendment.  As ofNovember 1, 2004, as a consequence of the transaction that resulted in the saleof substantially all of the assets and liabilities of the Company, the StockPlan was terminated.  All unvestedoptions immediately vested as a consequence.

 

The terms of the Stock Option Plan for theSupervisory Board (“Directors Plan”) were similar to those of the 1999 StockOption Plan.  The options had a term often years and vested ratably in three equal, annual instalments.  At the annual meeting of shareholders in 2003the shareholders approved grants to members of the Supervisory Board of optionsto acquire 63,433 shares. 

 

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The following table presents a summary of theCompany’s share option activity and related information for the year endedDecember 31, 2003 and the period from January 1 to November 1, 2004:

 
| ** **                        | ** ** | ** **      | ** ** | **Weighted**            | ** ** |
|-----------------------------------|------------|-----------------|------------|-------------------------|------------|
| ** **                        | ** ** | **Options**     | ** ** | **Average**             | ** ** |
| ** **                        | ** ** | **Outstanding** | ** ** | **Exercise Price** | ** ** |
| Outstanding, January 1, 2003      |       | 6,910,629       |       | $                       | 7.35       |   |
|                              |       |            |       |                    |       |
| Granted                           |       | 742,848         |       | 4.99                    |       |
| Exercised                         |       | (71,332         | )          | 4.96                    |       |
| Forfeited                         |       | (1,094,532      | )          | 7.99                    |       |
| Outstanding, December 31, 2003    |       | 6,487,613       |       | 6.98                    |       |
|                              |       |            |       |                    |       |
| Granted                           |       | —          |       | —                  |       |
| Exercised                         |       | (4,646,637      | )          | 6.01                    |       |
| Forfeited                         |       | (1,840,976      | )          | 9.50                    |       |
| **Outstanding, November 1, 2004** |       | —          |       | $                       | —     |   |

 

As a consequence of the termination of theplan on November 1, 2004 as referred to above, no options remainedoutstanding at that date. 

 

The Company recognized $0.3 million and$1.1 million of compensation expense for the year ended December 31,2003 and the period from January 1, 2004 to November 1, 2004, respectivelyunder the Stock Option plans. The charge for the period from January 1,2004 to November 1, 2004 also includes the impact of accelerating thevesting of all unvested options. This additional compensation expense of$0.8 million was included in “Transaction related expenses” associatedwith the Acquisition. 

 

***IncentiveStock Plan—***In 2003 and 2004, themembers of the Management Board and certain other employees received rights toacquire an aggregate of 653,765 and 359,212 ordinary shares, respectively.These rights were similar to restricted stock grants and entitled (andrequired) the individual to purchase the shares specified in the grant at aprice per share equal to the nominal value (€0.05). The purchase of sharesunder each grant was to be settled in three equal instalments within30 days of the designated settlement dates, which generally are the first,second and third anniversary of the date of grant. The grants were governed bya plan administered by the Supervisory Board. At the date of grant, theweighted average fair value of awards made in 2003 and 2004 were $4.80 and$6.88 per share, respectively. 

 

Under the plan the size of a grant to aneligible recipient was determined at the discretion of the plan administrator.All grants under the plan along with grants under the stock option plans, weresubject to the aggregate limitation of 13,057,024 ordinary shares previouslydescribed. Grants could be extinguished if the individual recipient ceased tobe an employee of the Company. As of November 1, 2004, consistent with theStock Plans, and as a direct consequence of the Acquisition that resulted inthe sale of substantially all of the assets and liabilities of the Company, theIncentive Stock Plan was terminated. All unvested options immediately vested asa consequence. 

 

In 2003 and 2004, the shareholders alsoapproved grants to the members of the Supervisory Board of rights to acquire anaggregate of 25,373 and 26,249 ordinary shares, respectively, with similarentitlements and obligations as rights granted to the Management Board andother employees described above. At the date of grant, the weighted averagefair value of these awards was $6.03 and $7.03 per share, respectively. Thesegrants also became fully vested as a consequence of the change-in-control thatoccurred on November 1, 2004. 

 

The Company recognized $1.9 million and$4.8 million of compensation expense for the year ended December 31,2003, and the period from January 1, 2004 to November 1, 2004,respectively under the Incentive Stock Plan. The charge for the period fromJanuary 1, 2004 to November 1, 2004 also includes the impact ofaccelerating the vesting of all unvested options. This additional compensationexpense of $3.3 million was included in “Transaction related expenses”associated with the Acquisition. 

 

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***SuccessorStock-based Compensation***

 

On February 25, 2005, New Skies InvestmentsS.a.r.l. issued and indirectly sold 1,245 shares of common stock, 125,608preferred equity certificates and 6,972 convertible preferred equitycertificates to New Skies (Cayman) Ltd., which is owned by the six members ofthe Company’s executive management committee, for approximately $4.7 million,or $35 per share. Although consistent with the price the investment fundsaffiliated with The Blackstone Group had paid for their investment in New SkiesInvestments S.a.r.l., the fair value of the common stock, preferred equitycertificates and convertible preferred equity certificates as determined byusing commonly applied valuation methodologies, including discounted cash-flowtechniques and analyzing comparable quoted companies and recent transactions inthe fixed satellite services sector, was $3.5 million higher than the pricepaid for them. As a consequence, the Company recorded a stock-basedcompensation charge of $3.5 million in 2005 in relation to this purchase.

 

In conjunction with the NSS IPO, theunderwriters’ decision to exercise their overallotment option and the dividenddistributions that were subsequently made by the Company through December 31,2005, the Company granted a total of 2,109,456 options to its employees toacquire shares of the Company’s common stock during 2005 pursuant to theCompany’s Stock Incentive Plan. The aggregate stock-based compensationassociated with these awards is approximately $26.8 million, reflecting theestimated fair value of the options at the date of grant. This non-cashstock-based compensation is being recognized as an operating expense over thevesting period of the options. Certain of the options will vest based solely oncontinued employment over the next four years and the remaining options willvest upon the achievement of performance goals over the next four to sevenyears or imputed returns realized on sales of the Company’s shares by theinvestment funds. 

 

Certain of the options granted in conjunctionwith the NSS IPO and the underwriters’ decision to exercise their overallotmentoption vested upon issuance and were immediately exercised, allowing New SkiesSatellites B.V.’s employees to acquire 108,763 shares of the Company’s commonstock.  Also as a consequence of theunderwriters’ decision to exercise their overallotment option, optionholdersreceived a bonus of approximately $4.3 million from cash on hand. A further208,816 shares of the Company’s common stock were issued during 2005 to satisfyadditional option exercises. 

 

The following table presents a summary of theCompany’s share option activity and related information for the period fromNovember 2, 2004 to December 31, 2005:

 
| ** **                                     | ** ** | ** **      | ** ** | **Weighted**            | ** ** |
|------------------------------------------------|------------|-----------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **Options**     | ** ** | **Average**             | ** ** |
| ** **                                     | ** ** | **Outstanding** | ** ** | **Exercise Price** | ** ** |
| Outstanding, November 2 and  December 31, 2004 |       | —          |       | $                       | —     |   |
|                                           |       |            |       |                    |       |
| Granted                                        |       | 2,109,456       |       | 3.30                    |       |
| Exercised                                      |       | (641,063        | )          | 4.39                    |       |
| Forfeited                                      |       | (1,328          | )          | 3.02                    |       |
| **Outstanding, December 31,  2005**            |       | 1,467,065       |       | $                       | 2.92       |   |

 

All options must be exercised or forfeitedupon vesting. No options were exercisable at December 31, 2005. At December 31,2005, all options had exercise prices of approximately $2.92 and weightedaverage remaining contractual lives of approximately three years. Upon thepayment of dividends by the Company, options are adjusted to take into accountthe fact that the optionholder will not receive the benefit of that dividend.The Company recognized $20.5 million of stock-based compensation expense forthe year ended December 31, 2005, under the Stock Incentive Plan, $12.4 millionof which was non-cash in nature.

 

Additionally, in accordance with the netexercise provision contained within the Stock Incentive Plan, $3.8 million ofcash payments related to taxation were made on behalf of employees from theirrealized, stock option gains. The Company did not incur any cost in respect ofthis arrangement. 

 

All currently outstanding options will be cashed-out upon closing ofthe SES Transaction. See Note 15.

 

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**13.  Business Segments and Geographic Information**

** **

The Company monitors its operations as asingle enterprise and therefore believes that it has one operating segment,which is telecommunication satellite services.

 

The geographic source of revenues for telecommunication services, basedon the billing addresses of customers, is as follows (in thousands of U.S.dollars): 

 
| ** **                    | ** ** | **Predecessor**                        | ** ** | ** **                                               | **Successor** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|----------------------------------------------------------|---------------|------------|
| ** **                    | ** ** | **Year ended  December 31,** | ** ** | **Period  January 1 –  November 1,** | ** **    | ** ** | **Period  November 2 –  December 31,** | ** ** | **Year ended  December 31,** | ** ** |
| ** **                    | ** ** | **2003**                               | ** ** | **2004**                                                 | ** **    | ** ** | **2004** | ** ** | **2005** | ** ** |
|                          |       |                                   |       |                                                     |          |       |   |   |   |   |
| North America                 |       | $                                      | 76,426     |                                                     | $             | 61,980     |   |   | $ | 12,409 |   | $ | 97,814 |   |
| Europe                        |       | 47,910                                 |       | 35,647                                                   |          |       | 8,432 |   | 49,123 |   |
| India, Middle East and Africa |       | 45,282                                 |       | 39,037                                                   |          |       | 7,460 |   | 47,479 |   |
| Latin America                 |       | 27,929                                 |       | 23,166                                                   |          |       | 4,148 |   | 25,414 |   |
| Asia Pacific                  |       | 17,353                                 |       | 15,552                                                   |          |       | 2,846 |   | 20,658 |   |
| **Total**                     |       | $                                      | 214,900    |                                                     | $             | 175,382    |   |   | $ | 35,295 |   | $ | 240,488 |   |

 

The Company’s satellites that represent over90 percent of communications, plant and other property are ingeosynchronous orbit and consequently are not attributable to any geographiclocation. Of the remaining assets, the majority are located in North Americaand Europe. 

 

**14.  Restrictions on Ability to Pay Dividends**

** **

The ability of New Skies Satellites B.V. andother subsidiaries to pay dividends or make other payments or distributions toshareholders will depend on New Skies Satellites B.V.’s operating results andmay be restricted by, amongst other things, laws of The Netherlands, thecovenants contained in the senior secured credit facilities and the indenturesgoverning the notes, and the covenants of any future outstanding indebtednessthe Company or its subsidiaries incur. The ability of New Skies InvestmentsS.a.r.l. to pay dividends or make other payments or distributions to itsshareholders may be restricted by the laws of Luxembourg.

 

As of December 31, 2005, the Company’s seniorsecured credit agreement allowed the Company to pay dividends up to $100.0million from cash on hand and an additional $20.0 million, increasing to $30.0million if the Total Leverage Ratio is equal to or less than 5.0x.

 

As of December 31, 2005, the restricted netassets of the consolidated subsidiaries were negative. As a result, no netassets were available to be distributed to Holdings.

 

**15.  SES Global S.A. Acquisition**

** **

On December 14, 2005, SES Global S.A. enteredinto a binding agreement pursuant to which it will acquire 100% of the Companyby way of a merger under Bermuda law (an amalgamation) for $22.52 per share incash. The transaction is conditional upon shareholder approval, customaryclosing conditions, and clearances from relevant regulatory agencies, includingthe U.S. Federal Communications Commission. If the transaction closes as isanticipated, certain fees totalling $10.5 million will accrue to the Company’sfinancial advisor, Goldman, Sachs & Co. In addition, all outstanding stock options will immediately vest and beexercised.  These options will becancelled upon exercise in exchange for a payment equal to the differencebetween $22.52 per share and the exercise price.  This will have the effect of accelerating therecognition of any stock-based compensation expense associated with theseoptions that was previously being recognized as an operating expense over theremaining vesting periods of the options. Further, if the transaction is not concluded, the Company will incur, incertain circumstances including the intention to enter into an alternative,superior agreement, a termination fee of $26.0 million plus up to

 

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an additional $2.5 million of expensesincurred by SES Global S.A.

 

**Schedule of Unaudited Quarterly Financial Data**

 

Unaudited summarizedfinancial data by quarter for the years ended December 31, 2005 and 2004 ispresented in the table below. 

 
| ** **              | ** ** | **March 31(1)**                                              | ** ** | **June 30(2)** | ** ** | **September 30(3)** | ** ** | **December 31(4)** | ** ** |
|-------------------------|------------|-------------------------------------------------------------------|------------|---------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **              | ** ** | **(in millions, except per share data)** | ** ** |
| **2005**                | ** ** | ** **                                                        | ** ** |
| Sales                   |       | $                                                                 | 58.2       |                | $          | 59.7                     |       | $                       | 61.2       |   | $ | 61.4 |   |
| Operating income (loss) |       | 19.4                                                              |       | (1.4                | )          | 20.9                     |       | 19.9                    |       |
| Net income (loss)       |       | 0.4                                                               |       | (13.2               | )          | 6.1                      |       | 5.3                     |       |
| Basic EPS               |       | 0.02                                                              |       | (0.42               | )          | 0.19                     |       | 0.16                    |       |
| Diluted EPS             |       | 0.02                                                              |       | (0.42               | )          | 0.18                     |       | 0.16                    |       |
| **2004**                |       |                                                              |       |                |       |                     |       |                    |       |
| Sales                   |       | $                                                                 | 51.9       |                | $          | 51.3                     |       | $                       | 53.8       |   | $ | 53.8 |   |
| Operating income        |       | 0.5                                                               |       | 30.7                |       | 3.6                      |       | (31.1                   | )          |
| Net income              |       | 0.1                                                               |       | 19.5                |       | 2.2                      |       | (28.1                   | )          |
| Basic EPS               |       | 0.00                                                              |       | 0.17                |       | 0.02                     |       | N/A                     |       |
| Diluted EPS             |       | 0.00                                                              |       | 0.16                |       | 0.02                     |       | N/A                     |       |

 

----

## **(1)   Net income (loss) includes a $10.0 milliongain arising from frequency coordination in the first quarter 2005**

## ** **

## **(2)   Net income (loss) includes a $6.6 milliontermination fee paid to Blackstone Management Partners IV L.L.C following thecancellation of a monitoring, advisory and consulting arrangement as aconsequence of the NSS IPO in the second quarter 2005 and a $32.0 million gainarising from frequency coordination in the second quarter 2004**

## ** **

## **(3)   Net income (loss) includes a $9.5 milliongain arising from frequency coordination in the third quarter 2005**

## ** **

## **(4)   Net income (loss) includes a $7.0 milliongain arising from the sale of a subsidiary in the fourth quarter 2005 and $22.7million of transaction expenses associated with the sale of New SkiesSatellites N.V. to New Skies Satellites B.V., a $7.6 million expense associatedwith the termination of a customer contract and subsequent write-off of thethen-outstanding accounts receivable balance and $2.8 million relating to staffreductions made in the fourth quarter 2004.**

 

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## **ITEM9.**        CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None

 

## **ITEM9A.     CONTROLS AND PROCEDURES.**

 

We maintain disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in our report under the Securities Exchange Act of 1934, as amended(the “Exchange Act”), is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’srules and forms, and that such information is accumulated and communicatedto our management, including our President and Vice President, as appropriate,to allow timely decisions regarding required disclosures. Any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives. Ourmanagement, with the participation of our President and Vice President, hasevaluated the effectiveness of the design and operation of our disclosure controlsand procedures as of December 31, 2005. Based upon that evaluation and subjectto the foregoing, our President and Vice President concluded that the designand operation of our disclosure controls and procedures provided reasonableassurance that the disclosure controls and procedures are effective toaccomplish their objectives.

 

In addition, there was no change in ourinternal control over financial reporting that occurred during the year endedDecember 31, 2005 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

## **ITEM9B.     OTHER INFORMATION.**

##  

None.

 

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# **PARTIII**

 

## **ITEM 10.**                 DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT.

##  

#### ***Identification of Directors***

####  

Our board of directors currently consists ofeight directors, including two independent directors, Dr. Ganguly and Mr. Schneider.The term for three of our directors ends on the date of the Annual Meeting in2006, the term for three additional directors’ ends on the date of the AnnualMeeting in 2007, and the term for two additional directors ends on the date ofthe Annual Meeting in 2008. Each director will continue in office until asuccessor has been elected. If the SES Transaction does not close on or beforethe date of the Company’s Annual General Meeting of Shareholders (the “AnnualMeeting”), three directors will be elected at the Annual Meeting to serve termsof three years expiring on the date of the Annual Meeting in 2009. In addition,if the SES Transaction does not close on or before the one year anniversary ofthe NSS IPO, the Company will appoint one additional director, with a termexpiring on the date of the Annual Meeting in 2008.

 

Set forth below are the names, ages as of March 15,2006 and current positions of the Company’s current directors:

 
| **Name**           | ** ** | **Age** | ** ** | **Position**                                           |
|--------------------|------------|---------|------------|--------------------------------------------------------|
| Andrew M. Browne   |       | 50      |       | Chief  Financial Officer, Vice  President and Director |
| Ashok Ganguly      |       | 69      |       | Director                                               |
| Daniel S. Goldberg |       | 40      |       | Chief  Executive Officer,  President and Director      |
| Lawrence H. Guffey |       | 37      |       | Director                                               |
| Walid Kamhawi      |       | 33      |       | Director                                               |
| Scott Schneider    |       | 47      |       | Director                                               |
| David M. Tolley    |       | 38      |       | Director                                               |
| Peter F. Wallace   |       | 31      |       | Director                                               |

 

*Directorswith Terms Ending in 2006*

 

***AshokGanguly*** hasbeen a member of our board of directors since May 2005. Dr. Ganguly,a citizen of India, served as a Supervisory Director of New Skies SatellitesN.V. from 2002 through 2004. He currently serves as the Chairman of ICICI OneSource Ltd. and as a director of the Central Board of the Reserve Bank ofIndia, Hemogenomics Pvt Ltd., Mahindra & Mahindra, MicrosoftCorporation (India) Pvt Ltd, WIPRO LTD, ICICI Knowledge Park, Tata AIG LifeInsurance Co Ltd. and ABP Pvt Ltd. Dr. Ganguly’s principal professionalcareer spanned 35 years with Unilever, which culminated with his service as amember of the Board of Directors of Unilever N.V. from 1990 through 1997 withresponsibility for worldwide research and technology. During his career, Dr. Gangulyhas served several public bodies including as a member of the Science AdvisoryCouncil to the Prime Minister of India (1985 to 1989) and the UK Advisory Boardof Research Councils. His honors include, among others, the Indian award ofPadma Bhushan and being named an Honorary Professor by the Chinese Academy ofScience, Shanghai. In 1997, the University of Illinois, College of Food andNutrition, selected Dr. Ganguly as their “Outstanding Alumnus.”  He is also the recipient of the InternationalAlumni Award for Exceptional Achievement for the academic year 2003-2004 fromthe University of Illinois. More recently, Dr. Ganguly has been appointedas a member of India’s Prime Minister’s Council for Trade and Industry as wellas India’s Foreign Investment Commission.

 

***WalidKamhawi*******has been amember of our board of directors since January 2005. Mr. Kamhawi is aPrincipal at The Blackstone Group in the firm’s Private Equity group based inLondon. Mr. Kamhawi initially joined Blackstone’s Mergers &Acquisitions Group in 1996 and worked on numerous transactions for many of thefirm’s advisory clients. Since joining the Principal Group in 2000, Mr. Kamhawihas focused on European media and communications-related and other industrialinvestments. Mr. Kamhawi sits on the Boards of SULO AG, Kabek, BW andCineUK. Mr. Kamhawi received a BA in Computer Science and Economics fromDartmouth College.

 

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***PeterF. Wallace***hasbeen a member of our board of directors since January 2005. Mr. Wallaceis a Principal at The Blackstone Group in the firm’s Private Equity group.Since joining Blackstone in 1997, Mr. Wallace has been involved inBlackstone’s investments in CommNet Cellular, Centennial Communications,American Axle & Manufacturing, Allied Waste, Sirius Satellite Radioand Volume Services America. Mr. Wallace serves on the Board of Directorsof Centerplate (formerly Volume Services America).

 

*Directors WithTerms Ending in 2007*

 

***AndrewM. Browne***hasserved as the Chief Financial Officer of New Skies Satellites B.V. and its predecessor,New Skies Satellites N.V., since October 1998 and a member of the Company’sboard of directors since its formation in January 2005. Mr. Browne isa managing director and a member of the executive management committee of NewSkies Satellites B.V. Prior to joining us, he served as Vice President, ChiefFinancial Officer of INTELSAT. From 1985 to 1995, Mr. Browne worked forAdvanced Micro Devices, Inc. in several financial and business capacitiesand, on leaving, was Director of Worldwide Finance, Sales and MarketingOperations.

 

***ScottSchneider***has been a member of our board of directors since August 2005. Mr. Schneideris a member of the Board of Directors of Citizens Communications. He waspreviously Vice Chairman, President and Chief Operating Officer of Citizensfrom 2002 to 2004 and has held various executive positions at Citizens since2000. Prior to joining Citizens, Mr. Schneider was Chief Financial Officerand a member of the Board of Directors of Century Communications, where heworked from 1982 to 1999. Mr. Schneider also served as Chief FinancialOfficer, Senior Vice President and Treasurer and a member of the Board ofDirectors of Centennial from 1991 to 1999.

 

***DavidM. Tolley***has been a member of our board of directors since January 2005. Mr. Tolleyis a Senior Managing Director at The Blackstone Group in the firm’s PrivateEquity group. Since joining Blackstone in 2000, Mr. Tolley has beeninvolved in Blackstone’s investments in Centennial Communications, FreedomCommunications, Montecito Broadcast Group, New Skies Satellites and SiriusSatellite Radio. He focuses on investments in the media and communicationssectors. Before joining Blackstone, Mr. Tolley was a Vice President atMorgan Stanley & Co. Mr. Tolley holds a BA from the University ofMichigan and an MBA from Columbia Business School. He serves as a Director ofFreedom Communications and Montecito Broadcast Group.

 

*Directors WithTerms Ending in 2008*

 

***DanielS. Goldberg***has been President and a member of the Company’s board of directors since itsformation in January 2005. Mr. Goldberg has served as the ChiefExecutive Officer of New Skies Satellites B.V. and its predecessor, New SkiesSatellites N.V., since January 2002. Mr. Goldberg is a managingdirector and a member of the executive management committee of New SkiesSatellites B.V. Prior to becoming New Skies’ CEO, he had served as its ChiefOperating Officer since February 2000 and, prior to that time, had servedas its General Counsel since October 1998. Prior to joining New Skies, Mr. Goldbergworked at PanAmSat as the Associate General Counsel and Vice President ofGovernment and Regulatory Affairs during 1998. From 1993 to 1997, Mr. Goldbergwas an associate at Goldberg, Godles, Weiner & Wright, a law firm inWashington, D.C.

 

***LawrenceH. Guffey***has been a member of our board of directors since January 2005. Mr. Guffeyis a Senior Managing Director at The Blackstone Group in the firm’s PrivateEquity group. Mr. Guffey, who joined Blackstone in 1991, is based inLondon where his principal role is overseeing Blackstone’s media andcommunications investment activities across Europe. Mr. Guffey has ledBlackstone’s efforts in virtually all media and communications-relatedinvestments and has day-to-day responsibility for management of BlackstoneCommunications Advisors. Mr. Guffey graduated *magna cum laude* from Rice University, where he was electedPhi Beta Kappa. He currently serves as a Director of Axtel, CineUK andFiberNet.

 

#### ***Identification of Executive Officers***

####  

Set forth below are the names, ages as of March 15,2006 and current positions of the current executive officers of the Company andof its principal operating subsidiary, New Skies Satellites B.V. Certaininformation regarding Mr. Goldberg and Mr. Browne is set forth under “Identificationof Directors,” above.

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                   |
|---------------------|------------|---------|------------|----------------------------------------------------------------|
| Daniel S. Goldberg  |       | 40      |       | Chief  Executive Officer,  President and Director              |
| Andrew M. Browne    |       | 50      |       | Chief  Financial Officer,  Vice President and Director         |
| Thai E. Rubin       |       | 39      |       | Secretary  and General Counsel                                 |
| Stephen J. Stott    |       | 59      |       | Chief  Technical Officer                                       |
| Michael C. Schwartz |       | 41      |       | Senior  Vice President of Marketing  and Corporate Development |
| Scott J. Sprague    |       | 50      |       | Senior  Vice President of Global Sales                         |

 

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***ThaiE. Rubin***became the Company’s secretary upon its formation in January 2005. He alsoserves as the General Counsel of New Skies Satellites B.V., a post he has heldsince August 2003. Mr. Rubin joined the Company at its inception in1998 as Associate General Counsel, with responsibility for commercial contractsrelated to satellite and launch procurements, strategic transactions andcustomer contracts, and later served as Deputy General Counsel. Before joiningour company, he was senior legal counsel at PanAmSat and previously worked asan assistant engineer at PanAmSat’s then-primary outside engineering firm. Mr. Rubinearned his bachelor of science degree from the University of Wisconsin, Madisonand a juris doctor from Howard University School of Law.

 

***StephenJ. Stott*** hasserved as the Company’s Chief Technical Officer since March 1999. Prior tojoining the Company, he worked at INTELSAT from 1985 to 1999, most recently asDirector of Satellite Systems Engineering from 1996 to 1999.

 

***MichaelC. Schwartz***joined the Company as Senior Vice President of Marketing and CorporateDevelopment in September 2003. Mr. Schwartz came to the Company fromTerabeam Corporation, where he was Chief Development and Financial Officer,responsible for business corporate development as well as financial operations.Prior to Terabeam, he was a co-founder and president of an Internetinfrastructure company, which was sold in December 2000. He also held twosenior positions at AT&T Wireless Services, most recently as Vice Presidentof Acquisitions and Development. Mr. Schwartz graduated magna cum laudefrom Harvard University in physics in 1986 and magna cum laude, also fromHarvard, in law in 1991.

 

***ScottJ. Sprague***joined the Company as Senior Vice President of Global Sales in June 2002. Mr. Spraguejoined the Company from KPNQwest, where he was Vice President of EnterpriseSales. Prior to KPNQwest, he was Vice President of Channel Management forInfonet Service Corporation, where he provided leadership to a European-basedchannel management team focused on generating global networking revenuesthrough distributors, affiliates, direct sales and alternate channels. Mr. Sprague,in his more than 20 years at AT&T, also held a range of senior salespositions, including General Manager of Technical Sales in the providerservices division. Mr. Sprague graduated from Illinois State Universitywith a bachelor’s degree in business and from Western International Universitywith a master’s degree in international business.

 

#### ***Identification of Audit Committee Members andAudit Committee Financial Expert***

####  

The Company audit committee consists of Mr. Browne,Dr. Ganguly and Mr. Schneider. Dr. Ganguly and Mr. Schneiderare “independent” directors for purposes of the NYSE listing standards. Mr. Browneis not “independent” for purposes of the NYSE listing standards. Mr. Browneis our audit committee “financial expert” as such term is defined in Item 401(h) ofRegulation S-K.

 

#### ***Code of Ethics***

####  

The Company has adopted a Code of Ethics thatapplies to our principal executive officer, principal financial officer,controller, and persons performing similar functions. A copy of this Code ofEthics is available on the Company’s website at www.newskies.com. The Companyintends to post any amendment to, or waiver from, a provision of the Code ofEthics as required by the SEC’s rules by posting such information on itsweb site.

 

***Section 16(a) Beneficial Ownership Reporting Compliance***

 

Section 16 of the Exchange Act requiresthe Company’s directors and officers, and persons who own more than 10% of aregistered class of the Company’s equity securities, to file initialreports of ownership and reports of changes in ownership with the Securitiesand Exchange Commission. Such persons are required by SEC regulations to furnishthe Company with copies of all Section 16 (a) forms they file.

 

Based solely on the review of the copies ofsuch forms furnished to the Company and written

 

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representations from theexecutive officers and directors of the Company, the Company believes that withthe exception of the following late filing incidents all Section 16(a) filingrequirements were met during fiscal 2005:

 

•                                Each of the executive officers was late infiling a Form 4 following the Company’s June 30, 2005 and September 30,2005 dividend payments, at which times a portion of the securities underlyingexisting stock option grants became automatically vested in accordance with theterms of such grants. These filings were made on November 4, 2005 and January 4,2006, respectively for each of the executive officers.

 

•                                Mr. Scott Schneider did not file a Form 3upon his election to the board of directors. Mr. Schneider has never ownedany shares in the Company.

 

## **ITEM 11.**                 EXECUTIVECOMPENSATION.

##  

We have establishedcompensation plans for the Chief Executive Officer of New Skies Satellites B.V.and each of its four other most highly compensated executive officers whoserved in such capacities at December 31, 2005 (referred to collectivelyas the “named executive officers”) that link compensation with the performanceof the Company. We periodically review our compensation programs to ensure thatthey are competitive.

 

***Compensation CommitteeReport on Executive Compensation***

 

The compensation committeehas the responsibility for reviewing and approving changes to the executivecompensation program of New Skies Satellites B.V., our main operatingsubsidiary. The compensation committee also approves allcompensation payments to the Chief Executive Officer (CEO), Chief FinancialOfficer (CFO) and Chief Technical Officer (CTO) of New Skies Satellites B.V.,including base salary adjustments, annual incentives, and long-term incentiveawards. The compensation committee discharges other responsibilities pertainingto New Skies Satellites B.V. such as company-wide salary adjustments andoverall compensation and benefit policies and plans.

 

For the fiscal year ended December 31,2005 the compensation committee’s activity focused on the key elements of thetotal direct compensation program for executive officers including the annualincentive payment levels for the executive management team relating to 2005performance. The compensation committee receives input from the Company’s auditcommittee and New Skies Satellites B.V.’s management. The committee also hasthe authority to retain independent compensation consultants if the committeedeems it appropriate.

 

***Compensation Philosophy***

 

The Company’s strategy isto establish executive compensation programs that retain, recruit and motivatea qualified executive management team that is needed to achieve long-termprofitability of the Company and enhance shareholder value. The primarycomponents of the Company’s executive compensation programs are base salary,annual bonus awards, and stock incentive awards.

 

***Base Salary***

 

Base compensation isdetermined by the compensation committee based upon its philosophy thatexecutive management base salaries should be generally competitive in themarketplace. The compensation committee will continue to evaluate the basesalaries of the CEO, CFO and CTO on a regular basis to ensure that marketplacecompetitiveness is maintained, taking into account each executive’s performanceand contributions to the Company, job experience and retention value.

 

***Annual Incentive Plan***

 

The Company’sannual incentive plan is structured so that a pool of money is generated if theCompany achieves specified performance levels, or “targets”, as approvedannually by the board. The plan is to be “self-funded” in that annualincreases in productivity are intended to offset the annual cost of the plan.

 

The plan’sstructure contains the following features:

 

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•                           Overall corporate financial performance attarget generates an incentive pool associated with the plan;

•                           Overall financial performance above targetgenerates additional incentive pool funding to increase the pool by up to 50%;

•                           Overall financial performance below targetgenerates less money in the incentive pool - a diminishing amount to athreshold below which no funding is allocated; and,

•                           If financial performance is less than 80% oftarget, no incentive payments will be made (including the portion establishedfor personal objectives).

 

*Annual Incentive Plan Funding*

 

Each year,the board establishes a target pre-tax earnings level to be achieved, andbudgets an incentive pool sufficient in size to meet the aggregate pay-outlevels established for on target performance of the participants, at target.

 

The incentivepool is increased or decreased, beyond that targeted, as applicable, on a prorata basis for corporate performance above or below target. Specifically, theincentive pool may be increased by up to 50% of the budgeted pool when netincome exceeds 25% of target (no additional incentive funding will be added tothe pool with higher corporate performance) and may be decreased 40% whennet income is 80% of target. The incentive pool will not be funded when overallfinancial performance is less than 80% of the established target.

 

The following table illustrates thedetails for plan funding:

 
| %Target |   | 80 | % | 85 | % | 90 | % | 95 | % | 100 | % | 105 | % | 110 | % | 115 | % | 120 | % | 125 | % |
|---------|--------|----|---|----|---|----|---|----|---|-----|---|-----|---|-----|---|-----|---|-----|---|-----|---|
| %Pool   |   | 60 | % | 70 | % | 80 | % | 90 | % | 100 | % | 110 | % | 120 | % | 130 | % | 140 | % | 150 | % |

 

The formulafor calculating the %Pool when it does not fall on one of the steps above is:

 

Y = 1 –[(1 – X) x 2]

 

Where Y= % Pool and X = % Target

 

For example,if New Skies’ financial performance was 108% of target then the calculationwould be as follows:

 

Y = 1 –[(1 – X) x 2]

Y = 1 –[(1 – 1.08) x 2]

= 116%

 

***2005 Incentive Payments***

 

For the fiscal year ended December 31, 2005 theCompany awarded annual incentive payments to the CEO and the other four namedexecutive officers as shown in the bonus column of the Summary CompensationTable. All other eligible employees were paid under the same annual incentiveprogram.

 

***Stock Incentive Plan***

 

The Company established its stock incentive plan in May 2005.The purpose of the plan is to aid the Company and its affiliates in recruitingand retaining employees, directors or consultants of outstanding ability and tomotivate such employees, directors or consultants to exert their best effortson behalf of the Company and its affiliates by providing incentives. TheCompany expects that it will benefit from the added interest which suchemployees, directors or consultants will have in the welfare of the Company asa result of their proprietary interest in the Company’s success.

 

***Compensation of the ChiefExecutive Officer***

 

Mr. Goldberg’s base salary is $575,000. A reviewof competitive market data conducted in 2005 supports the competitiveness ofthis base salary.

 

87

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For the fiscal year ended December 31, 2005, Mr. Goldberg’smaximum annual incentive opportunity was 150% of his base salary, or $862,500. Mr. Goldbergwas awarded a target bonus payout of 150% of base salary or $862,500 under theplan. Mr. Goldberg’s incentive payments were based upon the Companyachieving 125% of its pre-tax earnings target.

 

David M. Tolley, Chairman

 

Daniel S. Goldberg

 

Lawrence H. Guffey

 

#### ***Summary Compensation Table***

####  

The following table provides summary informationconcerning compensation paid or accrued by us to or on behalf of our ChiefExecutive Officer and each of our four other most highly compensated executiveofficers who served in such capacities at December 31, 2005 (referred tocollectively as the “named executive officers”), for the fiscal year ended December 31,2005 and 2004.
| ** **                                                            | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **        | ** ** | ** **                                   | ** ** | **Long-Term Compensation**      | ** ** | ** **                                   | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------|------------|--------------------|------------|-------------------|------------|----------------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                            | ** ** | **Annual Compensation** | ** ** | **Awards**         | ** ** | **Payouts**       | ** ** | ** **                                   | ** ** |
| **Name and Principal  Position**                            | ** ** | **Year**                     | ** ** | **Salary(1)  ($)** | ** ** | **Bonus(1)  ($)** | ** ** | **Other Annual  Compensation  (2) ($)** | ** ** | **Restricted  Stock  Award(s)  ($)** | ** ** | **Securities  Underlying  Options/SARs (#)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compensation (3)  ($)** | ** ** |
| Daniel S. Goldberg  (Chief Executive Officer,                         |       | 2005                         |       | 575,000            |       | 862,500           |       | 1,691,690                                    |       | —                               |       | 791,822                                      |       | — |   | 1,583,600 |   |
| President and Director)                                               |       | 2004                         |       | 520,000            |       | 208,000           |       | 53,034                                       |       | —                               |       | —                                       |       | — |   | 814,363 |   |
| Andrew M. Browne  (Chief Financial Officer,                           |       | 2005                         |       | 460,020            |       | 345,015           |       | 703,598                                      |       | —                               |       | 310,308                                      |       | — |   | 620,600 |   |
| Vice President and Director)                                          |       | 2004                         |       | 460,020            |       | 115,005           |       | 54,190                                       |       | —                               |       | —                                       |       | — |   | 379,520 |   |
| Stephen J. Stott                                                      |       | 2005                         |       | 358,904            |       | 269,178           |       | 437,729                                      |       | —                               |       | 176,556                                      |       | — |   | 353,100 |   |
| (Chief Technical Officer)                                             |       | 2004                         |       | 358,904            |       | 89,726            |       | 56,060                                       |       | —                               |       | —                                       |       | — |   | 198,390 |   |
| Michael C. Schwartz (Senior Vice President of Marketing and Corporate |       | 2005                         |       | 315,000            |       | 236,250           |       | 378,991                                      |       | —                               |       | 164,784                                      |       | — |   | 329,560 |   |
| Development)                                                          |       | 2004                         |       | 277,279            |       | 110,912           |       | 28,312                                       |       | —                               |       | —                                       |       | — |   | 250,262 |   |
| Thai E. Rubin (Secretary)                                             |       | 2005                         |       | 265,000            |       | 198,750           |       | 337,700                                      |       | —                               |       | 145,524                                      |       | — |   | 291,040 |   |
|                                                                  |       | 2004                         |       | 240,000            |       | 96,000            |       | 35,962                                       |       | —                               |       | —                                       |       | — |   | 185,091 |   |

 

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(1)          At the employee’selection, salary and bonus may be paid in Euro in accordance with apredetermined exchange rate

 

(2)          In 2005, OtherAnnual Compensation also contains the respective implied compensationassociated with the indirect purchase of 1,245 shares of common stock, 125,608preferred equity certificates and 6,972 convertible preferred equitycertificates of New Skies Investments S.a.r.l. by the six members of New SkiesSatellites B.V.’s executive management committee (EMC, for approximately $4.7million, or $35 per share in February 2005. Although consistent with theprice the investment funds affiliated with The Blackstone Group had paid fortheir investment in New Skies Investments S.a.r.l., the fair value of thecommon stock, preferred equity certificates and convertible preferred equitycertificates as determined by using commonly applied valuation methodologies,including discounted cash-flow techniques and analyzing comparable quotedcompanies and recent transactions in the fixed satellite services sector, was$3.5 million higher than the price paid for them. As a consequence, thisimplicit gain forms part of EMC compensation in 2005.)

 

(3)          In 2005, OtherCompensation relates to a bonus paid to optionholders as a consequence of theunderwriters’ decision to exercise their overallotment option following the NSSIPO in May 2005. In 2004, this relates to non-recurring equity paymentsand bonuses paid following the change-in-control.

####  

#### ***Option/SAR Grants***

####  

The following table shows the options to purchasecommon stock granted in fiscal year 2005 to the named executive officers.

 

88

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| ** **                      | ** ** | **Individual Grants**                                                 | ** ** |
|---------------------------------|------------|----------------------------------------------------------------------------|------------|
| **Name**                        | ** ** | **Number of  Securities  Underlying  Options/SARs  Granted (#)** | ** ** | **% of Total  Options/SARs  Granted to  Employees in  Fiscal Year** | ** ** | **Exercise  or Base  Price  ($/Share)** | ** ** | **Market Price  on Date of  Grant  ($/Share)** | ** ** | **Expiration  Date** | ** ** | **Grant  Date  Value  ($)** | ** ** |
| Daniel S. Goldberg              |       | 79,776                                                                     |       | 4 | % | 7.68569 |   | 19.38 |   | May 10, 2015 |   | 932,554 |   |
| (Chief Executive Officer,       |       | 27,594                                                                     |       | 1 | % | 3.37055 |   | 16.50 |   | May 10, 2015 |   | 362,294 |   |
| President and Director)         |       | 4,287                                                                      |       | 0 | % | 3.09298 |   | 16.50 |   | May 10, 2015 |   | 53,937 |   |
|                            |       | 7,425                                                                      |       | 0 | % | 3.05370 |   | 16.50 |   | May 10, 2015 |   | 93,421 |   |
|                            |       | 129,395                                                                    |       | 6 | % | 2.98651 |   | 16.50 |   | May 10, 2015 |   | 1,647,663 |   |
|                            |       | 543,345                                                                    |       | 26 | % | 2.92298 |   | 16.50 |   | May 10, 2015 |   | 6,896,571 |   |
|                            |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Andrew M. Browne                |       | 31,264                                                                     |       | 1 | % | 7.68569 |   | 19.38 |   | May 10, 2015 |   | 365,465 |   |
| (Chief Financial Officer, Vice  |       | 10,814                                                                     |       | 1 | % | 3.37055 |   | 16.50 |   | May 10, 2015 |   | 141,982 |   |
| President and Director)         |       | 1,680                                                                      |       | 0 | % | 3.09298 |   | 16.50 |   | May 10, 2015 |   | 21,138 |   |
|                            |       | 2,910                                                                      |       | 0 | % | 3.05370 |   | 16.50 |   | May 10, 2015 |   | 36,611 |   |
|                            |       | 50,709                                                                     |       | 2 | % | 2.98651 |   | 16.50 |   | May 10, 2015 |   | 645,705 |   |
|                            |       | 212,931                                                                    |       | 10 | % | 2.92298 |   | 16.50 |   | May 10, 2015 |   | 2,702,691 |   |
|                            |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Stephen J. Stott                |       | 17,788                                                                     |       | 1 | % | 7.68569 |   | 19.38 |   | May 10, 2015 |   | 207,936 |   |
| (Chief Technical Officer)       |       | 6,153                                                                      |       | 0 | % | 3.37055 |   | 16.50 |   | May 10, 2015 |   | 80,786 |   |
|                            |       | 956                                                                        |       | 0 | % | 3.09298 |   | 16.50 |   | May 10, 2015 |   | 12,027 |   |
|                            |       | 1,656                                                                      |       | 0 | % | 3.05370 |   | 16.50 |   | May 10, 2015 |   | 20,830 |   |
|                            |       | 28,852                                                                     |       | 1 | % | 2.98651 |   | 16.50 |   | May 10, 2015 |   | 367,386 |   |
|                            |       | 121,151                                                                    |       | 6 | % | 2.92298 |   | 16.50 |   | May 10, 2015 |   | 1,537,746 |   |
|                            |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Michael C. Schwartz             |       | 16,602                                                                     |       | 1 | % | 7.68569 |   | 19.38 |   | May 10, 2015 |   | 194,072 |   |
| (Senior Vice President of       |       | 5,743                                                                      |       | 0 | % | 3.37055 |   | 16.50 |   | May 10, 2015 |   | 75,402 |   |
| Marketing and Corporate         |       | 892                                                                        |       | 0 | % | 3.09298 |   | 16.50 |   | May 10, 2015 |   | 11,225 |   |
| Development)                    |       | 1,545                                                                      |       | 0 | % | 3.05370 |   | 16.50 |   | May 10, 2015 |   | 19,442 |   |
|                            |       | 26,928                                                                     |       | 1 | % | 2.98651 |   | 16.50 |   | May 10, 2015 |   | 342,894 |   |
|                            |       | 113,074                                                                    |       | 5 | % | 2.92298 |   | 16.50 |   | May 10, 2015 |   | 1,435,226 |   |
|                            |       |                                                                       |       |   |   |   |   |   |   |   |   |   |   |
| Thai E. Rubin                   |       | 14,661                                                                     |       | 1 | % | 7.68569 |   | 19.38 |   | May 10, 2015 |   | 171,382 |   |
| (General Counsel and Secretary) |       | 5,071                                                                      |       | 0 | % | 3.37055 |   | 16.50 |   | May 10, 2015 |   | 66,579 |   |
|                            |       | 788                                                                        |       | 0 | % | 3.09298 |   | 16.50 |   | May 10, 2015 |   | 9,913 |   |
|                            |       | 1,365                                                                      |       | 0 | % | 3.05370 |   | 16.50 |   | May 10, 2015 |   | 17,170 |   |
|                            |       | 23,781                                                                     |       | 1 | % | 2.98651 |   | 16.50 |   | May 10, 2015 |   | 302,824 |   |
|                            |       | 99,858                                                                     |       | 5 | % | 2.92298 |   | 16.50 |   | May 10, 2015 |   | 1,267,478 |   |

 

#### ***Aggregated Option/SAR Exercises in 2005 and Fiscal Year-EndOption/SAR Value Table***

####  

The following table provides information on options topurchase our common stock that were exercised during the twelve month periodended December 31, 2005 by our named executive officers, the total numberof non-exercisable options to purchase our common stock owned by our named executiveofficers at December 31, 2005, and the aggregate dollar value of suchoptions that were in-the-money at December 31, 2005. No options wereexercisable at December 31, 2005.

 
| **Name**                                                                            | ** ** | **Shares Acquired   on Exercise (#)** | ** ** | **Value Realized  ($)** | ** ** | **Number of Securities  Underlying Unexercised  Options/SARs at  December 31, 2005 (#)  (Unexercisable)** | ** ** | **Value of Unexercised   In-the-Money  Options/SARs at  December 31, 2005 ($)  (Unexercisable)** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|
| Daniel S. Goldberg (Chief  Executive Officer, President and Director)               |       | 248,477                                                   |       | 3,992,047                    |       | 543,345                                                                                                                                      |       | 10,240,436                                                                                                                          |       |
| Andrew M. Browne (Chief  Financial Officer, Vice President and Director)            |       | 97,377                                                    |       | 1,564,456                    |       | 212,931                                                                                                                                      |       | 4,013,116                                                                                                                           |       |
| Stephen J. Stott  (Chief Technical Officer)                                    |       | 55,405                                                    |       | 890,126                      |       | 121,151                                                                                                                                      |       | 2,283,336                                                                                                                           |       |
| Michael C. Schwartz (Senior  Vice President of Marketing and Corporate Development) |       | 51,710                                                    |       | 830,787                      |       | 113,074                                                                                                                                      |       | 2,131,108                                                                                                                           |       |
| Thai E. Rubin (General Counsel  and Secretary)                                      |       | 45,666                                                    |       | 733,680                      |       | 99,858                                                                                                                                       |       | 1,882,026                                                                                                                           |       |

 

89

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#### ***Compensation of Directors***

####  

We pay our independentdirectors, Dr. Ganguly and Mr. Schneider, an annual cash retainer of$35,000 and a fee of $1,250 for each board meeting and each committee meetingattended. We do not pay any compensation to any of our non-independentdirectors for serving as a director or as a member or chair of a committee ofthe board of directors.

 

**Employment Contracts andTermination of Employment and Change-in-Control Arrangements**

 

Prior to the NSS IPO, weentered into employment agreements with the members of our executive managementcommittee, which includes each of the five named executive officers. Theseemployment agreements provide for various benefits to the named executiveofficers upon a termination of employment, including in connection with achange in control (such as the SES Transaction). On October 10, 2005, weentered into amendments to these employment agreements to provide additionalbenefits to the named executive officers upon a change of control transactionin order to create an additional incentive to complete a transaction that wouldbe beneficial to the Company’s shareholders. On December 14, 2005, wefurther amended these employment agreements at the request of SES Global as acondition to SES Global’s willingness to enter into the SES Transaction. Underthese most-recent amendments, each executive officer agreed to waive or deferspecified severance and termination rights or benefits under his employmentagreement, contingent upon the occurrence of the SES Transaction.

 

Under the employment agreements, as amended, in theevent that the named executive officers are terminated by New Skies SatellitesB.V. without “Cause” (as defined below) or they resign for “Good Reason” (asdefined below), the executives will be entitled to:

 

(i) a lump sumseverance payment (calculated as described below),

(ii) any base salary,outstanding business expenses or other amounts due but not paid,

(iii) any earned butunpaid bonus in respect of a prior year,

(iv) a pro rataportion of an amount equal to the prior year’s bonus for the year in which histermination of employment occurs,

(v) reimbursement foroutplacement services in an amount up to $25,000, and

(vi) continuedmedical and dental benefits under our benefit plans for two years followingtermination of employment (and, in the case of Mr. Goldberg, two and ahalf years following termination of employment), reduced to the extent thatequivalent coverage and benefits (determined on a coverage-by-coverage andbenefit-by-benefit basis) are provided under the plans, programs orarrangements of a subsequent employer.

 

The employment agreementsfor Messrs. Goldberg and Browne also provide that, after the firstanniversary of the SES Transaction, Messrs. Goldberg and Browne will beeligible to resign for any reason and still receive these benefits.

 

The lump sum severancepayable to Mr. Goldberg upon such a termination is equal to two andone-half times the sum of (1) his base salary in effect on the date oftermination plus (2) the greater of (x) the target annual bonus for theyear in which the termination occurs and (y) the bonus payable to him duringthe last completed year. The lump sum severance payable to the other executiveofficers upon such a termination is equal to two times the sum of (1) hisbase salary in effect on the date of termination and (2) the greater bonusfor the last two completed years.

 

Under the employmentagreements, “Good Reason” generally includes (i) a reduction by theCompany in the executive’s base salary; (ii) any failure by the Company topay any amounts due to the executive within 90 days; (iii) any materialdiminution of the level of responsibility or authority of the executive,including the executive’s reporting duties; (iv) any adverse change inexecutive’s title or position; and (v) the Company requiring the executiveto be based at any office or location that is more than 50 kilometers from ourcorporate headquarters in The Hague, The Netherlands (and, in the case of Mr. Goldberg,that is not in Paris, France). With respect to Mr. Goldberg only, “GoodReason” also includes his removal from Holdings’ board of directors. Under theamendments to the employment agreements entered in connection with the SESTransaction, each of the named executive officers

 

90

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(other than Messrs. Goldberg and Browne) hasagreed that changes in his level of responsibility, authority, reporting dutiesand title as a result of the SES Transaction will not alone give him the rightto terminate his employment for “Good Reason” and receive the severance andtermination benefits described above. Each of Messrs. Goldberg and Brownehas also agreed that he will not have any right to terminate his employment for“Good Reason” solely on account of any changes in his level of responsibility,authority, reporting duties and title as a result of the SES Transaction, untilone year following the effective time of the SES Transaction. After thisone-year period, as described above, Messrs. Goldberg and Browne will beeligible to resign for any reason and still receive the severance andtermination benefits described above. Each named executive officer’s agreementto waive or defer these rights is conditioned on the occurrence of the SESTransaction and the following additional requirements: that executive (otherthan Mr. Goldberg) continuing to report to Mr. Goldberg and Mr. Goldbergcontinuing to report directly to the board of directors or chief executiveofficer of SES Global; the size and scope of New Skies Satellites B.V.’soperations not being materially diminished; that executive having the samelevel of responsibility and authority (but consistent with SES Global’soperating subsidiaries SES Americom and SES Astra); and that executive’sretention of his current title.

 

Under the employmentagreements, “Cause” generally includes (i) a willful and materialviolation by the executive of key sections of the employment agreement that isnot cured within 30 days of receipt of written notice of such violation; (ii) thewillful failure by the executive to substantially perform the dutiesreasonably assigned to him within the scope of the executive’s duties andauthority (other than as a result of physical or mental illness or injury) thatis not cured within 30 days of receipt of written notice of such failure; (iii) theexecutive’s willful misconduct, willful waste of corporate assets or grossnegligence that substantially and materially injures the Company and itsaffiliates; or (iv) the indictment of the executive for a felony or otherserious crime involving moral turpitude.

 

Under the employmentagreements, if any amounts or benefits received by the named executive officersunder the employment agreements or otherwise are subject to the excise taximposed under Section 4999 of the Internal Revenue Code, an additionalpayment generally will be made to restore the executive to the after-taxposition that he or she would have been in if the excise tax had not beenimposed. The tax gross-up payments for each of the named executive officersother than Mr. Goldberg are capped at $1 million each, but each of thesenamed executive officers agreed to waive tax gross-up protection for paymentsand/or benefits to which he would be entitled as a result of the amalgamation. Mr. Goldberg’semployment agreement did not contain a cap, but he agreed to limit his taxgross-up payments to approximately $3.8 million in connection with theamalgamation.

 

In addition, under theterms of the Stock Incentive Plan, all currently outstanding options will becashed-out upon closing of the SES Transaction for an amount equal to theexcess, if any, of $22.52 over the exercise price per common share subject tothe option for each share subject to such option and, under the terms of the SESTransaction, all of the Company’s shares (including shares owned by the namedexecutive officers) will be converted into the right to receive US$22.52 pershare in cash.

 
| **ITEM 12.** | ** ** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND  RELATED STOCKHOLDER MATTERS.** |
|--------------|------------|------------------------------------------------------------------------------------------------------|

##  

#### ***SecurityOwnership of Certain Beneficial Ownersand Management***

####  

The following table sets forth information asto our common shares beneficially owned as of March 15, 2006 by (i) eachof our directors, (ii) our chief executive officer and the other fourexecutive officers named below and (iii) all of our directors andexecutive officers as a group and each person or entity, including any “group”as that term is used in Section 13(d)(3) of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), who was know to us to be thebeneficial owner of 5% or more of the outstanding common shares:

 

91

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| ** **                                                         | ** ** | **Beneficial Ownership of  Common Stock** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Number**                                               | ** ** | **Percentage** | ** ** |
| **Name and Address of Beneficial Owner**                           |       |                                                     |       |   |   |
| Investment funds affiliated with The Blackstone Group(1)           |       | 17,973,088                                               |       | 55.3 | % |
| Peter G. Peterson(1)                                               |       | 17,973,088                                               |       | 55.3 | % |
| Stephen A. Schwarzman(1)                                           |       | 17,973,088                                               |       | 55.3 | % |
| SES Global(2)                                                      |       | 17,973,088                                               |       | 55.3 | % |
| Daniel S. Goldberg(3)                                              |       | 361,026                                                  |       | 1.1 | % |
| Andrew M. Browne(3)                                                |       | 141,485                                                  |       |   | * |
| Thai E. Rubin(3)                                                   |       | 66,354                                                   |       |   | * |
| Michael C. Schwartz(3)                                             |       | 75,136                                                   |       |   | * |
| Scott J. Sprague(3)                                                |       | 56,108                                                   |       |   | * |
| Stephen J. Stott(3)                                                |       | 80,504                                                   |       |   | * |
| Lawrence H. Guffey(4)                                              |       | 17,973,088                                               |       | 55.3 | % |
| David M. Tolley(4)                                                 |       | 17,973,088                                               |       | 55.3 | % |
| Peter F. Wallace(4)                                                |       | 17,973,088                                               |       | 55.3 | % |
| Walid Kamhawi(4)                                                   |       | 17,973,088                                               |       | 55.3 | % |
| Ashok Ganguly(3)                                                   |       | —                                                   |       | — |   |
| Scott Schneider(3)                                                 |       | —                                                   |       | — |   |
| All directors and named executive officers as a group (12 persons) |       | 780,613                                                  |       | 2.4 | % |

 

----

(1)                        Includescommon shares of New Skies owned by the investment funds. Blackstone ManagementAssociates (Cayman) IV L.P. (“BMA”) is the general partner of each ofBlackstone Capital Partners (Cayman) IV L.P., Blackstone Family InvestmentPartnership (Cayman) IV-A L.P. and Blackstone Capital Partners (Cayman) IV-AL.P., and Blackstone Communications Management Associates (Cayman) L.P. (“BCMA”)is the general partner of each of Blackstone NSS Communications Partners(Cayman) L.P. and Blackstone Family Communications Partnership (Cayman) L.P.BMA and BCMA respectively have voting and investment power over the membershipinterests held or controlled by the investment funds. Messrs. Peter G.Peterson and Stephen A. Schwarzman are the founding members of BMA and BCMA andas such may be deemed to share beneficial ownership of the membershipinterests held or controlled by the investment funds. Each of BMA, BCMA and Messrs. Petersonand Schwarzman disclaims beneficial ownership of such membership interests. Theaddress of BMA, BCMA and each of the investment funds is c/o The BlackstoneGroup, 345 Park Avenue, New York, New York 10154.

 

(2)                        Basedsolely on a Schedule 13D filed on December 22, 2005 with theSecurities and Exchange Commission by SES Global and SES Holdings (Bermuda) Limited.SES Global and SES Holdings (Bermuda) Limited may be deemed to havebeneficial ownership as a result of sharing voting power with respect to17,973,088 of our common shares as a result of a voting agreement entered intobetween SES Global, SES Holdings (Bermuda) Limited and the investment funds inconnection with the SES Transaction as described in the proxy statement dated January 17,2006 and distributed to shareholders on or about January 18, 2006 inconnection with the special general meeting of shareholders, under the section “Summaryof Certain Terms of Voting Agreement.” SES Global and SES Holdings (Bermuda)Limited have disclaimed beneficial ownership of these shares. The address forSES Global is L-6815 Chateau de Betzdorf, Luxembourg.

 

(3)                        Theaddress for each of Messrs. Goldberg, Browne, Rubin, Schwartz, Sprague,Stott, Ganguly and Schneider is c/o New Skies Satellites, Rooseveltplantsoen 4,2517 KR The Hague, The Netherlands.

 

(4)                        Theaddress for each of Messrs. Guffey, Tolley, Wallace and Kamhawi is c/o TheBlackstone Group, 345 Park Avenue, New York, New York 10154. Messrs. Guffey,Tolley, Wallace and Kamhawi disclaim beneficial ownership of the sharesbeneficially owned or controlled by the investment funds or by theiraffiliates.

 

## **ITEM 13.**                CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.

##  

In connection with the Acquisition,Blackstone Management Partners IV L.L.C., an affiliate of The Blackstone Group,entered into a transaction and monitoring fee agreement with us relating tocertain monitoring, advisory and consulting services that Blackstone ManagementPartners IV L.L.C. was to provide. These services included, without limitation,(i) advice in designing financing structures; (ii) advice regardingrelationships with our lenders and bankers; (iii) advice regarding thestructure and timing of public offerings of our debt and equity securities; (iv) adviceregarding strategic investments, joint ventures, acquisitions and dispositions;and (v) such other advice directly related or ancillary to the aboveadvisory services as may be reasonably requested by us or deemedappropriate by Blackstone Management Partners IV L.L.C. in its sole discretion.Pursuant to this agreement we paid a transaction

 

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and advisory fee to BlackstoneManagement Partners IV L.L.C. in an aggregate amount of approximately$9.0 million upon the completion of the Transactions. In addition, weagreed to pay to Blackstone Management Partners IV L.L.C. an aggregate annual monitoringfee of the greater of $1.5 million or 1% of Adjusted EBITDA (as definedunder the indentures governing the notes), and to reimburse BlackstoneManagement Partners IV L.L.C. for its out-of-pocket expenses. We paid themonitoring fee for 2004 shortly after the closing of the Transactions. Weagreed to indemnify Blackstone Management Partners IV L.L.C., its affiliatesand its respective partners (both general and limited), members (both managingand otherwise), officers, directors, employees, agents and representatives fromand against any and all losses, claims, damages and liabilities, including inconnection with seeking indemnification, whether joint or several, related to,arising out of or in connection with the services contemplated by this agreement,or the engagement of Blackstone Management Partners IV L.L.C. pursuant to, andthe performance by Blackstone Management Partners IV L.L.C. of the servicescontemplated by this agreement.

 

In connection with the NSS IPO,Blackstone Management Partners IV L.L.C. terminated the transaction andmonitoring fee agreement. As contemplated by the transaction and monitoring feeagreement, we paid Blackstone Management Partners IV L.L.C. a termination feeof $6.1 million from the proceeds of the NSS IPO.

 

## **ITEM 14.**                PRINCIPALACCOUNTING FEES AND SERVICES.

##  

***Fees Paid to the Independent Auditor***

 

The following table provides the fees for professionalservices rendered by our auditor, Deloitte Accountants B.V. for 2004 and 2005.

 
| ** **             | ** ** | **2004**  | ** ** | **2005**  | ** ** |
|------------------------|------------|-----------|------------|-----------|------------|
| Audit fees             |       | $         | 256,575    |      | $          | 379,725 |   |
| Audit-related fees (1) |       | 1,184,408 |       | 1,742,856 |       |
| Tax fees (2)           |       | 37,320    |       | 41,085    |       |
| Total fees (3)         |       | $         | 1,478,303  |      | $          | 2,163,666 |   |

 

----

(1) Audit-related fees for 2004 consistedprincipally of fees for work performed in relation to the acquisition of NewSkies Satellites N.V. by New Skies Satellites B.V. and in 2005 for the reviewsof New Skies Satellites Holdings Ltd Registration Statement and New SkiesSatellites B.V. Public Exchange Offering.

 

(2) Tax fees for 2004 and 2005 consistedprincipally of fees for tax advisory services.

 

(3) Deloitte Accountants B.V. full time,permanent employees performed all of the professional services described inthis chart.

 

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# **PART IV**

 

## **ITEM15.      EXHIBITS, FINANCIAL STATEMENTSCHEDULES.**

 

**(a)****     FinancialStatements and Exhibits:**

 

1.**     FinancialStatements. **Thefollowing consolidated financial statements of the registrant and itssubsidiaries are included in Part II Item 8.

 

2.     **FinancialStatement Schedule**.

 

The consolidated financial statements andsupplemental data are contained in Part II Item 8.  All schedules other than those as set forthabove are omitted because of the absence of the conditions under which they arerequired or because the required information is included in the consolidatedfinancial statements or related notes in Part II Item 8.

 

**(b)**     **Exhibits**.  See Exhibit Index located at the end of thisForm 10-K.

 

# **SIGNATURES**

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis Annual Report on Form 10-K to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
|   | New Skies Satellites  Holdings Ltd. |
|--------|-------------------------------------|
|   |                                |
|   | /S/ DANIEL S. GOLDBERG              |   |
|   |                                |
|   |                                |
|   | Daniel S. Goldberg                  |
|   | President and Director              |
|   | Dated:   March 30, 2006   |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this Annual Report on Form 10-K has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 

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| **Signature**          | ** ** | **Title**           | ** **                                 | **Date** | ** **      |
|------------------------|------------|---------------------|--------------------------------------------|----------|-----------------|
| /s/ DANIEL S. GOLDBERG |       |                | President  and Director (Principal         |     | March 30,  2006 |   |
| Daniel S. Goldberg     |       | Executive  Officer) |                                       |     |            |
| /s/ ANDREW M. BROWNE   |       |                | Vice President  and Director (Principal    |     | March 30,  2006 |   |
| Andrew M. Browne       |       | Financial  Officer) |                                       |     |            |
| /S/ ADRIEN M. BULL     |       |                | Controller  (Principal Accounting Officer) |     | March 30,  2006 |   |
| Adrien M. Bull         |       |                |                                       |     |            |
| /S/ LAWRENCE H. GUFFEY |       |                | Director                                   |     | March 30,  2006 |   |
| Lawrence H. Guffey     |       |                |                                       |     |            |
| /S/ WALID  KAMHAWI     |       |                | Director                                   |     | March 30,  2006 |   |
| Walid Kamhawi          |       |                |                                       |     |            |
| /S/ DAVID M. TOLLEY    |       |                | Director                                   |     | March 30,  2006 |   |
| David M.  Tolley       |       |                |                                       |     |            |
| /S/ PETER F. WALLACE   |       |                | Director                                   |     | March 30,  2006 |   |
| Peter F. Wallace       |       |                |                                       |     |            |
| /S/ ASHOK GANGULY      |       |                | Director                                   |     | March 30,  2006 |   |
| Ashok Ganguly          |       |                |                                       |     |            |
| /S/ SCOTT  SCHNEIDER   |       |                | Director                                   |     | March 30,  2006 |   |
| Scott Schneider        |       |                |                                       |     |            |
|                        |            |                     |                                            |          |                 |  |  |  |  |  |  |

 

# **EXHIBIT INDEX**

 

 

**EXHIBIT INDEX**

** **
| ***Exhibit  Number*** | *** *** | ***Description***                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----------------------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1 (1)               |         | Acquisition Agreement among Neptune One  Holdings Ltd., Munaro Holdings B.V. and New Skies Satellites N.V., dated  June 5, 2004                                                                                                                                                                                                                                                                                                                          |
| 2.2 (10)              |         | Transaction Agreement and Plan of  Amalgamation between SES Global S.A., SES Holdings (Bermuda) Limited and New  Skies Satellites Holdings Ltd., dates as of December 14, 2005                                                                                                                                                                                                                                                                                |
| 2.3 (10)              |         | Amalgamation Agreement dated 14 December  2005 between SES Holdings (Bermuda) Limited and New Skies Satellites Holdings  Ltd.                                                                                                                                                                                                                                                                                                                                 |
| 2.4 (10)              |         | Voting Agreement dated 14 December 2005  between Blackstone Capital Partners (Cayman) IV L.P., Blackstone Family  Investment Partnership (Cayman) IV-A L.P., Blackstone Capital Partners  (Cayman) IV-A L.P., Blackstone NSS Communications Partners (Cayman) L.P.,  Blackstone Family Communications Partnership (Cayman) L.P., SES Global S.A.  and SES Holdings (Bermuda) Limited                                                                          |
| 3.1 (5)               |         | Certificate of Incorporation and Memorandum  of Association of New Skies Satellites Holdings Ltd.                                                                                                                                                                                                                                                                                                                                                             |
| 3.2 (7)               |         | Amended and Restated Bye-Laws of New Skies  Satellites Holdings Ltd.                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1 (5)               |         | Form of Specimen Certificate of New  Skies Satellites Holdings Ltd. common stock                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1 (2)              |         | Credit Agreement, dated November 2,  2004, among New Skies Holding B.V., New Skies Satellites B.V., certain other  subsidiaries, the lenders party thereto from time to time, Deutsche Bank AG,  New York Branch, as Administrative Agent and as Collateral Agent for the  Lenders, ABN Amro Bank N.V., as Syndication Agent and Deutsche Bank  Securities Inc. and ABN Amro Incorporated, as Joint Lead Arrangers and  Joint Book Running Managers |
| 10.2 (2)              |         | Parent Guarantee and U.S. Pledge Agreement,  dated November 2, 2004, between New Skies Satellites B.V. and Deutsche  Bank AG, New York Branch                                                                                                                                                                                                                                                                                                            |
| 10.3 (2)              |         | Holdings Guarantee, dated November 2,  2004, between New Skies Holding B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                                                                        |
| 10.4 (3)              |         | Equitable Charge of Shares, dated  November 2, 2004, between New Skies Satellites B.V. and Deutsche Bank  AG, New York Branch                                                                                                                                                                                                                                                                                                                            |

 

95

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| 10.5 (2)              |   | Subordinated Intercompany Loan Agreement,  dated November 2, 2004, between New Skies Satellites B.V. and New Skies  Holding B.V.                                                                                                                                   |
|-----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.6 (2)              |   | Subordinated Intercompany Loan Agreement,  dated November 2, 2004, between New Skies Holding B.V. and New Skies  Investments S.à.r.l.                                                                                                                         |
| 10.7 (2)              |   | Agreement of Undisclosed Pledge of Third  Party Accounts Receivable, dated November 2, 2004, between New Skies  Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                              |
| 10.8 (2)              |   | Agreement of Disclosed Pledge of  Subordinated Intercompany Loan Receivables, dated November 2, 2004,  between New Skies Holding B.V. and Deutsche Bank AG, New York Branch                                                                                        |
| 10.9 (2)              |   | Agreement of Disclosed Pledge of Bank  Accounts, dated November 2, 2004, between New Skies Satellites B.V. and  Deutsche Bank AG, New York Branch                                                                                                                  |
| 10.10 (2)             |   | Agreement of Non-Possessory Pledge of  Assets, dated November 2, 2004, between New Skies Satellites B.V. and  Deutsche Bank AG, New York Branch                                                                                                                    |
| 10.11 (2)             |   | Agreement of Disclosed Pledge of Insurance  Receivables, Subordinated Intercompany Loan Agreement, dated November 2,  2004, between New Skies Satellites B.V. and Deutsche Bank AG                                                                                 |
| 10.12 (2)             |   | Agreement of Pledge of Intellectual  Property Rights, dated November 2, 2004, between New Skies Satellites  B.V. and Deutsche Bank AG, New York Branch                                                                                                             |
| 10.13 (2)             |   | Agreement and Deed of Mortgage and Pledge,  dated November 2, 2004, between New Skies Satellites B.V. and Deutsche  Bank AG, New York Branch                                                                                                                       |
| 10.14 (2)             |   | Agreement and Deed of Pledge of Shares in  New Skies Satellites MAR B.V., dated November 2, 2004, between New Skies  Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                         |
| 10.15 (2)             |   | Agreement and Deed of Pledge of Shares in  Morharras B.V., dated November 2, 2004, between New Skies Satellites  B.V. and Deutsche Bank AG, New York Branch                                                                                                        |
| 10.16 (2)             |   | Agreement of Disclosed Pledge of  Intercompany Accounts Receivable, dated November 2, 2004, between New  Skies Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                               |
| 10.17 (2)             |   | Agreement and Deed of Pledge of Shares in  New Skies Satellites B.V., dated November 2, 2004, between New Skies  Holding B.V. and Deutsche Bank AG, New York Branch                                                                                                |
| 10.18 (3)             |   | Transaction and Monitoring Fee Agreement,  dated November 2, 2004, between New Skies Satellites B.V. and Blackstone  Management Partners IV L.L.C.                                                                                                                 |
| 10.19 (3)             |   | Indenture, dated November 2, 2004,  between New Skies Satellites B.V. and U.S. Bank National Association (Senior  Floating Rate Notes)                                                                                                                             |
| 10.20 (3)             |   | Indenture, dated November 2, 2004,  between New Skies Satellites B.V. and U.S. Bank National Association (Senior  Subordinated Notes)                                                                                                                              |
| 10.23 (7)             |   | Registration Rights Agreement for New Skies  Satellites Holdings Ltd.                                                                                                                                                                                                   |
| 10.24 (7)             |   | New Skies Satellites 2005 Stock Incentive  Plan                                                                                                                                                                                                                         |
|                  |   |                                                                                                                                                                                                                                                                    |
| 10.25 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Daniel S. Goldberg                                                                                                                                 |
| 10.26 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Andrew M. Browne                                                                                                                                   |
| 10.27 (11)            |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and Thai E.  Rubin                                                                                                                                           |
| 10.28 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Michael C. Schwartz                                                                                                                                |
| 10.29 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Stephen J. Stott                                                                                                                                   |
| 10.30 (3)             |   | Agreement, dated April 29, 2004,  between New Skies Satellites N.V. and Intelsat LLC                                                                                                                                                                               |
| 10.31 (3)             |   | Agreement, dated March 2, 2005,  between New Skies Satellites B.V. and SES Global Satellite Leasing Limited                                                                                                                                                        |
| 10.32 (11)            |   | Satellite and In-orbit Insurance Policy  No. 11SAA54212                                                                                                                                                                                                            |
| 10.33 (11)            |   | Satellite and In-orbit Insurance Policy  No. SAT05214                                                                                                                                                                                                              |
| 10.34 (6) † |   | Term Sheet, dated February 17, 2005,  between New Skies Satellites B.V. and Intelsat Global Sales &  Marketing Ltd.                                                                                                                                  |
| 10.35 (6) † |   | Composite Compiled Satellite Contract,  dated February 22, 2005, between New Skies Satellites B.V. and Boeing  Satellites Systems International, Inc. for NSS-8 Spacecraft and  Associated Equipment and Services, Contract No. NSS-20-03-01, as amended |
| 10.36 (5)             |   | First Amendment to Credit Agreement, dated  February 22, 2005, among New Skies Holding B.V.,                                                                                                                                                                       |
|                       |        |                                                                                                                                                                                                                                                                         |  |

 

96

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|       |   | New Skies Satellites B.V., the lenders  party to the Credit Agreement named therein, Deutsche Bank AG, New York  Branch, as Administrative Agent and as Collateral Agent and ABN Amro Bank  N.V., as Syndication Agent   |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.37 (5)  |   | First Amendment to Agreement of  Non-Possessory Pledge of Assets, dated February 22, 2005, between New  Skies Satellites B.V., as Pledgor, and Deutsche Bank AG, New York Branch, as  Pledgee                       |
| 10.38 (5)  |   | First Amendment to Agreement of Disclosed  Pledge of Bank Accounts, dated February 22, 2005, between New Skies  Satellites B.V., as Pledgor, and Deutsche Bank AG, New York Branch, as  Pledgee                     |
| 10.39 (5)  |   | First Amendment to Agreement of Undisclosed  Pledge of Third Party Accounts Receivable, dated February 22, 2005,  between New Skies Satellites B.V., as Pledgor, and Deutsche Bank AG, New York  Branch, as Pledgee |
| 10.40 (9)  |   | Share Purchase Agreement, dated as of  August 24, 2005, by and among New Skies Networks Pty Ltd., New Skies  Networks Australia Pty Ltd., New Skies Satellites B.V., NSN Holdings Pty Ltd.  and Multiemedia Limited |
| 10.41 (11) |   | Agreement, dated July 11, 2005, between New  Skies Satellites B.V. and SES Global Satellite Leasing Limited                                                                                                              |
|       |   | Rate of Earnings to Fixed Charges                                                                                                                                                                                        |
| 10.42      |   | Amendment to Employment Agreement, dated  December 14, 2005, between New Skies Satellites B.V. and  Daniel S. Goldberg                                                                                                   |
| 10.43      |   | Amendment to Employment Agreement, dated  December 14, 2005, between New Skies Satellites B.V. and  Andrew M. Browne                                                                                                     |
| 10.44      |   | Amendment to Employment Agreement, dated  December 14, 2005, between New Skies Satellites B.V. and  Thai E. Rubin                                                                                                        |
| 10.45      |   | Amendment to Employment Agreement, dated  December 14, 2005, between New Skies Satellites B.V. and  Michael C. Schwartz                                                                                                  |
| 10.46      |   | Amendment to Employment Agreement, dated  December 14, 2005, between New Skies Satellites B.V. and  Stephen J. Stott                                                                                                     |
| 12.1       |   | Ratio of Earnings to Fixed Charges                                                                                                                                                                                       |
| 21.1       |   | Subsidiaries of the Registrant                                                                                                                                                                                           |
| 23.1       |   | Consent of Deloitte Accountants B.V.                                                                                                                                                                                     |
| 31.1       |   | Certification of President pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities  Exchange Act of 1934, as amended                                                                        |
| 31.2       |   | Certification of Vice President pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities  Exchange Act of 1934, as amended                                                                   |
| 32.1 +     |   | Certification of President pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                          |
| 32.2 +     |   | Certification of Vice President pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                     |

 

----

(1)           Incorporated by referenceto the Registration Statement on Form 20-F of New Skies Satellites N.V.(File No. 001-15130) filed on June 30, 2004.

 

(2)           Incorporated by referenceto the Registration Statement on Form S-1 of New Skies SatellitesHoldings Ltd. (File No.333-122322) filed on January 27, 2005.

 

(3)           Incorporated by referenceto Amendment No. 1 to the Registration Statement on Form S-1 of NewSkies Satellites Holdings Ltd. (File No. 333-122322) filed onMarch 9, 2005.

 

(4)           Incorporated by referenceto Amendment No. 2 to the Registration Statement on Form S-1 of NewSkies Satellites Holdings Ltd. (File No. 333-122322) filed onMarch 28, 2005.

 

(5)           Incorporated by referenceto Amendment No. 3 to the Registration Statement on Form S-1 of NewSkies Satellites Holdings Ltd. (File No. 333-122322) filed onApril 25, 2005.

 

(6)           Incorporated by reference toAmendment No. 4 to the Registration Statement on Form S-1 of NewSkies Satellites Holdings Ltd. (File No. 333-122322) filed on May 6,2005.

 

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(7)           Incorporated by referenceto the Current Report on Form 8-K of New Skies Satellites Holdings Ltd.(File No. 001-32495) filed on May 17, 2005.

 

(8)           Incorporated by referenceto the Current Report on Form 8-K of New Skies Satellites Holdings Ltd.(File No. 001-32495) filed on October 13, 2005.

 

(9)           Incorporated by referenceto the Current Report on Form 8-K of New Skies Satellites Holdings Ltd.(File No. 001-32495) filed on November 14, 2005.

 

(10)         Incorporated by reference to the ProxyStatement of New Skies Satellites Holdings Ltd. filed on January 18, 2006.

 

(11)         Incorporated by reference to the AnnualReport on Form 10-K of New Skies Satellites B.V. (File No. 333-123420) filed onMarch 30, 2006.

 

†              Confidential treatmenthas been granted for portions of this document.

 

+              Pursuant to Commission Release No. 33-8212, this certificationwill be treated as “accompanying” this Annual Report on Form 10-K and not “filed”as part of such report for purposes of Section 18 of the Exchange Act, orotherwise subject to the liability of Section 18 of the Exchange Act andthis certification will not be deemed to be incorporated by reference into anyfiling under the Securities Act of 1933, as amended, or the Exchange Act,except to the extent that the registrant specifically incorporates it byreference.

 

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