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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 Commission File No. 333-8880 Satélites Mexicanos, S.A. de C.V, Blvd. M. Avila Camacho No. 40, 23rd floor
Col. Lomas de Chapultepec
11000 Mexico, D.F.
Mexico
(52) 55-5201-0800 Jurisdiction of incorporation: Mexico
Securities for which there is a reporting obligation pursuant to Section 15 (d) of the Act:
10.125% Series B Senior Notes due 2004 The number of outstanding shares of capital stock as of December 31, 2004 was:
2,550 Class I Series A Shares
2,598,450 Class II Series A Shares
2,450 Class I Series B Shares
2,496,550 Class II Series B Shares
4,900,000 Class II Series N Shares
606,730 Class I Series C Shares The registrant has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing
requirements for the past 90 days. The registrant has elected to follow Financial Statement Item 18.




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TABLE OF CONTENTS PagePART IItem 3.
    
    Key Information
    
    
    1Item 4.
    
    Information on the Company
    
    
    12Item 5.
    
    Operating and Financial Review and Prospects
    
    
    38Item 6.
    
    Directors, Senior Management and Employees
    
    
    52Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    54Item 8.
    
    Financial Information
    
    
    58Item 9.
    
    Markets
    
    
    60Item 10.
    
    Additional Information
    
    
    60Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    63PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    65Item 14.
    
    Material Modifications to the Rights of Security Holders
    
    
    65Item 15.
    
    Controls and Procedures
    
    
    65Item 16.
    
    A)  Disclosure of Audit Committee Financial Expert
    
    
    65B)  Code of Ethics
    
    
    65C)  Principle Accountant Fees and Services
    
    
    66C)  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    66PART IIIItem 18.
    
    Financial Statements
    
    
    F-1Item 19.
    
    Exhibits
    
    
    23EX-12.1: CERTIFICATIONEX-12.2: CERTIFICATIONEX-13.1: CERTIFICATIONEX-13.2: CERTIFICATION
  All other items have been omitted because they are not applicable or are not required. i




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PART I 
 Item 3.Key Information SELECTED FINANCIAL DATA The following table presents selected financial information for Satélites Mexicanos, S.A. de
C.V. (we, us or the Company or Satmex) for the five years in the period ended December 31,
2004. The information was derived from our audited financial statements. The audited financial
statements were prepared in accordance with accounting principles generally accepted in the U.S.
The following information should be read in conjunction with, and is qualified in its entirety by
reference to, Risk Factors, Operating and Financial Review and Prospects and to our financial
statements, and the related notes thereto, included elsewhere herein. Years Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Amount in millions of U.S. dollars)Statement of Operations Data:Revenue(l)
    
    $
    71.7
    
    
    $
    78.8
    
    
    $
    85.0
    
    
    $
    128.0
    
    
    $
    136.4Operating income (loss)(1)
    
    
    (5.4
    )
    
    
    (7.6
    )
    
    
    (1.4
    )
    
    
    35.1
    
    
    
    34.3Income (loss) before income taxes
and extraordinary loss(1)
    
    
    (58.9
    )
    
    
    (43.5
    )
    
    
    (28.8
    )
    
    
    (4.3
    )
    
    
    (72.2
    )Deferred income tax benefit
(expense)(1)
    
    
    (10.5
    )
    
    
    (35.7
    )
    
    
    8.8
    
    
    
    (1.1
    )
    
    
    (17.0
    )Net income (loss)(1)
    
    
    (69.4
    )
    
    
    (79.2
    )
    
    
    (19.9
    )
    
    
    (3.1
    )
    
    
    55.2Net income (loss) applicable to
common stockholders(1)
    
    
    (70.9
    )
    
    
    (80.7
    )
    
    
    (21.4
    )
    
    
    (4.6
    )
    
    
    53.7Other Data:Depreciation and amortization
    
    $
    48.1
    
    
    $
    48.4
    
    
    $
    47.4
    
    
    $
    47.3
    
    
    $
    56.7Capital expenditures
    
    
    1.4
    
    
    
    37.9
    
    
    
    123.2
    
    
    
    95.7
    
    
    
    6.7Balance Sheet Data (at end of period):Total assets
    
    $
    951.0
    
    
    $
    975.5
    
    
    $
    1,004.8
    
    
    $
    1,089.3
    
    
    $
    1,123.6Current maturities of long term debt
    
    
    523.4
    
    
    
    523.6
    
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.0Long-term debt
    
    
    
    
    
    
    
    
    
    
    523.4
    
    
    
    542.4
    
    
    
    571.0Stockholders equity(1)
    
    
    220.1
    
    
    
    289.5
    
    
    
    368.7
    
    
    
    388.6
    
    
    
    391.7
 
 (1)
    
    In August 2000, our Solidaridad 1 satellite ceased operating and was considered irretrievably
lost. The loss was caused by the failure of the back-up control processor on board the
satellite. Solidaridad 1 was insured for $250 million. At the date of the loss, Solidaridad
1 had a net book value of approximately $109.6 million. After deducting prepaid insurance of
$1.6 million, unpaid insurance premiums of $12.5 million, on-going monitoring costs and the
excess of the estimated cost over revenue for the then-committed transponder capacity to be
provided to customers of $23.2 million, the net gain on the in-orbit failure of Solidaridad 1
was approximately $103.1 million. In 2001, we reduced the liability for the cost over revenue
for the committed transponder capacity to be provided to customers by $7.3 million. In 2002,
we received $3.3 million from the satellite manufacturer under the Solidaridad 1 performance
guarantee and we reduced the liability for the cost over revenue for the committed transponder
capacity to be provided to customers by $5.1 million. In 2003, Satmex canceled the balance of
the reserve for monitoring costs of $3.3 million. These transactions were recorded as
additional gain on the in-orbit failure of Solidaridad 1 in the applicable periods.




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EXCHANGE RATES The following table presents the period-end, average, low and high Noon Buying Rate for the
purchase and sale of U.S. dollars, each expressed in Mexican pesos per dollar. The exchange rate
translations presented should not be construed as representations that the peso amounts actually
represent such dollar amounts or could be converted into dollars at the rate indicated. Exchange Rate(1)Year Ended December 31,
    Period End
    
    Average (2)
    
    Low
    
    High2000
    
    
    9.62
    
    9.47
    
    9.18
    
    10.092001
    
    
    9.14
    
    9.34
    
    8.95
    
    9.972002
    
    
    10.31
    
    9.66
    
    9.00
    
    10.362003
    
    
    11.24
    
    10.79
    
    10.11
    
    11.402004
    
    
    11.26
    
    11.29
    
    10.82
    
    11.632005 
    January
    
    11.30
    
    
    
    11.15
    
    11.40February
    
    11.10
    
    
    
    11.05
    
    11.26March
    
    11.29
    
    
    
    10.98
    
    11.32April
    
    11.12
    
    
    
    11.04
    
    11.23May
    
    10.90
    
    
    
    10.90
    
    11.12June
    
    
    
    
    
    (3)
    
    (3)
 
 (1)
    
    Source: Federal Reserve Bank and Banco de México.(2)
    
    Average of month-end rates.(3)
    
    The Noon Buying Rate for the purchase and sale of U.S. dollars, expressed in Mexican pesos per
dollar, was 10.76 on June 29, 2005 . CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This annual report on Form 20-F contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. In addition, from time to time, we or our representatives have made or
may make forward-looking statements, orally or in writing. They can be identified by the use of
forward-looking words such as believes, expects, plans, may, will, should, or
anticipate or their negatives or other variations of these words or other comparable words, or by
discussion of strategy that involves risks and uncertainties. These forward-looking statements may
be included in, but are not limited to, various filings made by us with the Securities and Exchange
Commission, press releases or oral statements made by or with the approval of one of our authorized
executive officers. Forward-looking statements are only predictions. Actual events or results
could differ materially from those projected or suggested in any forward-looking statement as a
result of a wide variety of factors and conditions, including, but not limited to, the factors
summarized below. We undertake no obligation to update any forward-looking statement. Factors Relating to Satmex We have filed a voluntary concurso mercantil in Mexico, and we cannot assure you of its outcome. On June 30, 2004, our outstanding senior secured floating rate notes due June 2004 (the
Floating Rate Notes) came due and we did not make the required principal payment of $203.4
million. On November 1, 2004, our outstanding 10.125% senior notes due November 2004 (the Fixed
Rate Notes) came due and we did not make the required principal payment of $320.0 million. Also,
we did not make the August 1, 2003, February 1, 2004, and August 1, 2004 interest on the Fixed Rate
Notes or the interest due on maturity on the Fixed Rate Notes. The aggregate amount of interest
payment due on the Fixed Rate Notes at maturity was $56.7 million. We did not make the interest
payments on the Fixed Rate Notes nor the required principal payments under both indentures due to
cash 2




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shortfalls from our operating activities. In an effort to restructure, among other things,
these defaulted obligations, on June 29, 2005 we filed a voluntary petition for concurso mercantil
in a District Court in Mexico City. A concurso mercantilis a Mexican reorganization proceeding and is based on the Ley de
Concursos Mercantiles(the LCM) of Mexico, enacted in May 2000. A concurso mercantilis
comprised of two separate and successive stages: conciliation and liquidation (quiebra). The
objective of the conciliation stage is to preserve the business of the debtor through the
negotiation and execution of an agreement between the debtor and its creditors. Such agreement, as
confirmed by the court, would have the effect of ending the concurso mercantil. Absent protracted
litigation, the conciliation stage may last up to 185 days from the date of the last publication of
the courts order. This initial 185-day term may be extended for up to two 90-day periods, subject
to certain conditions including the approval of specific portions of the debtors indebtedness. If
the debtor does not reach an agreement with its creditors within such period of time or, if prior
to its expiration, the mediator (conciliador) determines that the debtor and its creditors are
unwilling to reach an agreement or that such agreement is impossible, the conciliation stage is
terminated and the debtor is put into liquidation (quiebra). The purpose of liquidation (quiebra)
is to sell the business and/or assets of the debtor to pay its creditors with the proceeds realized
from such sale. Both proceedings may take significantly more time and be significantly less
predictable than a reorganization case under U.S. laws. It is unclear whether holders of the Fixed
Rate Notes or the Floating Rate Notes would be subject to greater risks under the LCM than under
the U.S. Bankruptcy Code. Once the District Court confirms our petition and issues an order declaring our concurso
mercantil, all of our creditors, including the holders of our Fixed Rate Notes and Floating Rate
Notes, would have to file a proof of claim in Spanish against our estate in such court. The
courts order will officially commence the conciliation stage and will have, among others, the
effect of suspending any foreclosure or attachment proceedings against our assets, and an
obligation to suspend our payment of any debt existing at that time, such as principal and interest
to the holders of the Fixed Rate Notes and Floating Rate Notes. Since our debt obligations under
the Fixed Rate Notes are unsecured, upon declaration of our concurso mercantilthe principal amount
of that debt will be converted into pesos at the exchange rate determined by Mexicos central bank
(Banco de México) prevailing on the date of declaration, and the resulting amount will be further
converted into inflation indexed units (Unidades de Inversión, or UDIs) at the conversion rate
prevailing at that time, and will cease to accrue interest. Principal on the Floating Rate Notes,
as secured debt, will remain in dollars and will continue to bear interest at the ordinary rate of
interest provided in the indenture. Being a regulated entity because of the orbital concessions granted to us by the Mexican
government, under the LCM the Secretaría de Comunicaciones y Transportes(the Ministry of
Communications and Transportation or the SCT) will have certain rights in our concurso mercantil,
including the right to propose to the court the appointment, removal or substitution of the
conciliadorand to supervise his/her actions. The SCT would also have the right to propose to the
court the appointment of a person to substitute those in charge of the management of our current
business affairs if, in the SCTs opinion, such removal is necessary to assure the continuity and
safety of the services we provide. Finally, the SCT would have the right to disapprove any
agreement between us and our creditors. As of June 30, 2005, the District Court of Mexico City has not confirmed our petition and
declared the commencement of our concurso mercantil. Once the court issues an order declaring our
concurso mercantiland we enter into the conciliation stage, we cannot assure that we will reach an
agreement with our creditors within the statutory time period. Furthermore, we cannot predict the
duration of the concurso mercantilproceeding nor its outcome. If the proceeding becomes
adversarial and/or protracted, our ability to operate or manage our business, to retain employees,
to renew contracts or create new client relationships, to continue to collect payments for our
services or to obtain market-based funding or financing could be materially adversely affected. The
holders of the Fixed Rate Notes may receive little or no meaningful recovery in the concurso
mercantilproceeding if a restructuring of our debt is not approved within the conciliation period. Since the LCM has been recently enacted and its provisions have not been fully tested in
court, we cannot predict whether the actual implementation of the structural and procedural rules
described above will be consistent with our interpretation of the statute. 3




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An involuntary Chapter 11 bankruptcy case has been filed against us in the U.S., the outcome of
which we cannot predict. On May 25, 2005, certain holders our Fixed Rate Notes and the Floating Rate Notes (the
Petitioning Creditors) filed an involuntary petition (the Involuntary Petition) commencing a
Chapter 11 case under the Bankruptcy Code against us in the U.S. Bankruptcy Court for the Southern
District of New York (the Bankruptcy Court). On June 14, 2005, the Bankruptcy Court approved a
stipulation between us and the Petitioning Creditors extending our time to respond to the
Involuntary Petition to allow the parties time to attempt to negotiate a consensual restructuring.
Rather than consenting to the Involuntary Petition and the Bankruptcy Courts entry of an order for
relief, if a consensual restructuring cannot be negotiated that the parties agree will be
implemented in a U.S. Chapter 11 case, we intend to seek dismissal of the Involuntary Petition on
various grounds, including, but not limited to, lack of the Bankruptcy Courts jurisdiction over us
and the pendency of the voluntary Mexican concurso mercantil.Ultimately, however, we are unable
to predict if the Bankruptcy Court will enter an order for relief making us a U.S. debtor in a
Chapter 11 case or the outcome of the bankruptcy case. Furthermore, we are unable to predict the
impact of the bankruptcy case on us or the concurso mercantilproceedings and vice versa. See Item
8  Legal Proceedings for additional information. If a financial reorganization is not consummated, we face a substantial risk of liquidation. Our financial statements have been prepared under the assumption that we will continue as a
going concern. However, we believe, and our independent auditors have stated in their most recent
report, that due to our liquidity crisis, among other factors, there is substantial doubt about our
ability to continue as a going concern. Our financial statements do not include any adjustments
that might result from the outcome of that uncertainty. If we are not successful in consummating a
financial restructuring in the conciliation stage of a concurso mercantil, we might lose the
orbital concessions granted to us by the Mexican government or be otherwise unable to continue our
operations and may be required to liquidate our entire operations. If we are required to liquidate
our operations, the holders of our Fixed Rate Notes will likely incur a significant loss and the
overall recovery on our Fixed Rate Notes will very likely be materially less than what creditors
would receive if a financial restructuring in the conciliation stage of our concurso mercantilwere
consummated. See Regulation  Ley de Concursos Mercantilesof Mexico for additional
information. Holders of the Fixed Rate Notes may find it difficult to realize any meaningful recovery on our
indebtedness and there may be significant adverse consequences for the Floating Rate Notes as
well. Upon the Mexican courts decision to declare the concurso mercantil, which is still pending as
of the date of this annual report, our unsecured debt obligations will be converted into pesos at
the exchange rate prevailing on the day our company is declared in concurso mercantiland from
pesos into inflation indexed units (Unidades de Inversión), or UDIs, at the conversion rate
prevailing at that time, and will cease to accrue interest. We cannot assure the holders of the
Fixed Rate Notes that they will receive any meaningful recovery in our concurso mercantil
proceeding if a restructuring of our debt is not approved within the conciliation stage. We cannot
assure holders of the Fixed Rate Notes that they would be able to collect payment on the Fixed Rate
Notes in dollars, or at all, if we became subject to a Mexican liquidation (quiebra). In addition,
we cannot assure holders of the Floating Rate Notes that they would be able to collect all the
payments owed on the Floating Rate Notes in dollars if we became subject to liquidation (quiebra). Furthermore, if reorganization proceedings are not successful in Mexico or the U.S. and we are
forced to liquidate, since the holders of the Floating Rate Notes have the benefit of a mortgage of
virtually all of our assets, the holders of our Fixed Rate Notes will likely receive little or no
payments in satisfaction of their unsecured claims. Servicios has defaulted in the payment of certain debt owed to the Mexican government and, as a
result, the Mexican government has the right to gain control of us. On December 29, 2004, the debt obligation of our parent company, Servicios Corporativos
Satelitales S.A. de C.V. (Servicios), to the Mexican government (the Menoscabo) of
approximately $125.1 million plus accrued interest of approximately $63 million came due and
Servicios did not make payment of such amounts. This debt 4




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obligation is secured by the equity of Firmamento Mexicano, S. de R.L. de C.V. (Firmamento
the parent company of Servicios) held by Loral Satmex Ltd. and Principia S.A. de C.V. As a result
of the payment defaults under the Menoscabo, the Mexican government could initiate proceedings
against Servicios, which may include foreclosure on the Firmamento equity and possibly transfer of
that equity. We do not know what actions the Mexican government may take to exercise its remedies
pursuant to the Menoscabo. The Mexican government may participate as an interested purchaser of
those holdings and, if awarded the sale, it would gain direct control of Firmamento and indirect
control of us. If the Mexican government gains control of us, we cannot assure you that it would
assume any of our debt, including the Fixed Rate Notes or the Floating Rate Notes. Also, in that
scenario, we would be controlled and managed by the Mexican government. We may not be able to meet our revised planned schedule for launching or commencing operations
of Satmex 6. Further extensive delays in the launch or commencement of operations of Satmex 6
could affect our ability to generate revenue in the short term. We originally planned to launch a new satellite, Satmex 6, in the first quarter of 2003.
However, as a result of our current inability to pay remaining launch-related costs of up to $50
million, we do not expect to be able to launch Satmex 6 before early 2006. We may experience
additional delays that may result in our further postponing the launch of Satmex 6. Satellite
launches may be delayed for several reasons, including delays in the availability of launch
vehicles or the periodic unavailability of optimum launch dates. In addition, if we are unable to
reach agreement with our debt holders on our financial restructuring, the launch of Satmex 6 may be
delayed further. As part of our restructuring, we are actively exploring with our financial advisors how to
finance the remaining amounts required to launch Satmex 6. We do not expect to be able to obtain
financing, unless we can obtain it in the concurso mercantilin connection with a successful
restructuring of our indebtedness. We cannot assure you we will be able to obtain this financing.
The launch of Satmex 6 is critical to our ability to increase cash flows and improve our financial
position. Any further significant delay in the commencement of service of Satmex 6 would further
delay the revenue anticipated to be generated by the satellite. It could also cause us to lose
some customers that have indicated interest in Satmex 6. As part of a global settlement agreement with Loral dated June 14, 2005, Space Systems/Loral,
Inc. (SS/L) has renewed its commitment to provide additional work on Satmex 6 that may be
necessary for the preparation, insurance certification, launch and in-orbit testing of Satmex 6.
Before this agreement is effective, we must provide a third party fairness opinion to SS/L, Loral
Space and Communications Ltd., Loral SpaceCom, Loral Skynet and Loral Skynet Network Services
(LSNS) (together, the Loral Entities) and the settlement must be approved by the bankruptcy
court with jurisdiction over Lorals bankruptcy. We cannot assure you that the court will approve
the settlement. Furthermore, once our concurso mercantilis declared, we cannot assure you that
the conciliadorwill accept or reject our performance under the settlement agreement or that the
court, the conciliadoror any of our creditors will not seek to declare such settlement agreement
ineffective on various legal grounds. See Item 7  Major Shareholders  Loral Space &
Communications Ltd. for additional information. We may experience a launch failure or other satellite damage or destruction during launch, which
could result in a total or partial loss of Satmex 6. Satmex 6 could also fail to achieve its
designated orbital location after launch. If we are successful in funding the launch of Satmex 6, we may experience launch failure with
respect to Satmex 6 that could result in the partial or total loss of the satellite. Satellite
manufacture and launch involve complex processes and technology, and we rely on contractors for
both the manufacture and the launch of our satellites. Even if launched into orbit, a satellite
may fail to enter into its designated orbital location or we may use more fuel than planned to
place a satellite into its orbital location and, as a result, reduce the orbital maneuver life of
the satellite. In December 2002, Arianespace, the French company that will be launching Satmex 6, experienced
a failure of its Ariane 5 ECA rocket minutes after blast off. The rocket crashed into the Atlantic
Ocean and its payload was irretrievably lost. In February 2005, the initial qualifying flight of
the Ariane 5 ECA was successfully completed. Satmex continues to hold discussions with Arianespace
regarding the launch of Satmex 6 on an Ariane 5 5




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ECA launch vehicle. Satmex is also exploring the possibility of launching Satmex 6 on a Sea
Launch launch vehicle under an existing sharing arrangement between Arianespace and Sea Launch.
Whichever launch vehicle is selected, we cannot assure you that there will not be a failure of the
launch vehicle upon the launch of Satmex 6. If a loss were to occur, our ability to increase our
revenues and cash flows in the short to medium term would be materially adversely affected. Even if our restructuring of the Floating Rate Notes and Fixed Rate Notes in the concurso
mercantil is successful, our ability to obtain additional financing in the future may be
limited. In the future, we may require additional financing in order to service our indebtedness, fund
our operations and/or invest in the growth of our business. As a result of the negative perception
associated with our payment defaults on the Fixed Rate Notes and the Floating Rate Notes, the
filing of the Involuntary Petition and the filing of the concurso mercantil, we may not have access
to financing on terms acceptable to us, if at all. Our ability to satisfy our obligations will
depend upon our future performance, which will be subject to prevailing economic conditions in
Mexico, the state of the global telecommunications industry and financial, business, regulatory and
other factors. Many of these factors are beyond our control. Technological advances may require us to make significant expenditures to maintain and improve
the competitiveness of our service offerings for which our ability to compete is limited by our
lack of funds. The satellite industry is subject to continuous, rapid and significant changes in technology
and introduction of new products and services. We cannot predict the effect of technological
changes on our business. New services and technological advances may offer additional
opportunities for other service providers to compete with us on the basis of cost, quality or
functionality. Responding to such changes may require us to devote substantial capital to the
development, procurement or implementation of new technologies, and may depend upon the final cost
of technology and our ability to obtain additional financing. We currently do not have sufficient
funds and even if we are able to restructure successfully the Fixed Rate Notes and the Floating
Rate Notes, we may not have sufficient funds or it may not be practical or cost-effective for us to
replace or upgrade our technologies in response to competitors actions. We cannot assure you as
to the nature and extent of the impact on us of technological change. Our in-orbit satellites remain vulnerable to failure. Random failure of satellite components may result in damage to or loss of a satellite before
the end of its expected useful life. In-orbit failure may result from various causes including:  
    component failure;
    loss of power or fuel;
    inability to control positioning of the satellite;
    solar and other astronomical events; and
    space debris. Repair of satellites in space is not feasible. Many factors affect the useful lives of
satellites. These factors include:  
    station-keeping fuel consumption to maintain a satellites position in orbit;
    the quality of manufacture;
    gradual degradation of solar panels or other components; and
    the durability of components. On August 29, 2000, our Solidaridad 1 satellite ceased operating and was considered
irretrievably lost. The loss was caused by the failure of the back-up control processor on board
the satellite. Solidaridad 1, which was built by Boeing Space Systems (formerly Hughes Space and
Communications), and commenced service in January 1994, 6




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experienced a failure of its primary control processor in April 1999, and the satellite had
been operating on its back-up processor since that time. At December 31, 2004, our Solidaridad 2 and Satmex 5 satellites had remaining estimated useful
lives of 4.4 and 9 years, respectively. Solidaridad 2 was manufactured by Boeing Space Systems
(formerly Hughes Space and Communications), and is similar in design to Solidaridad 1 and to other
satellites built by the same manufacturer that have experienced in-orbit component failures,
including failures of on-board satellite control processors, even though Solidaridad 2 has not
experienced any such failures. Satmex 5 was launched in 1998 with a primary and a secondary Xenon Ion Propulsion System
(XIPS), each designed to perform station-keeping activities that maintain the satellites
position in orbit during its design life. To provide further back-up, Satmex 5 has an independent
chemical propulsion system that provides station-keeping operations to maintain its position in
orbit. Should both the primary and secondary XIPS fail, we currently estimate that the back-up
chemical propulsion system of Satmex 5 would provide up to 3.7 years of station-keeping capability
to maintain its position in orbit. During standard station-keeping procedures to maintain Satmex 5s position in orbit, on
November 17, 2003, the secondary XIPS, which was then the system in operation, failed to operate
satisfactorily. The primary XIPS was started on December 1, 2003 as an alternate to the secondary
XIPS, and it initially failed to operate satisfactorily. Our engineers and the manufacturer,
Boeing Satellite Systems, working together, returned the primary XIPS to an acceptable level of
operation. On October 13, 2004, Satmex 5 suffered a pointing anomaly, which caused a temporary
interruption on some of the satellites service. The main on-board computer was switched to the
back-up computer and services were restored on the same day. On October 15, 2004, the main
on-board computer was switched on for testing purposes; after verifying its proper operation, it
was switched off again. Since February 23, 2005, the satellite has been operating in an adequate
and stable manner on its primary system; however, we cannot assure you that Satmex 5 or Solidaridad
2 will continue to operate satisfactorily and that there will not be a significant system failure
that will result in a partial or total loss of either satellite. In February 2004, we returned to the secondary XIPS as the operating propulsion system on
Satmex 5. During May 2005 the performance of the secondary XIPS was below manufacturing
specifications. On the recommendation of the manufacturer, Satmex 5 has since been operated using
the primary XIPS. The use of the primary XIPS to effect satellite maneuvers generates contaminants
on the solar arrays and requires supplemental bipropellant consumption. We continue to conduct
maneuving testing of the secondary XIPS, but to date, substantially all maneuvering tests have
failed. If both of these systems were to fail, we could lose operation of Satmex 5 within 3.7
years and our business would be materially and adversely harmed. We may not be able to obtain acceptable insurance coverage for our satellites at commercially
reasonable rates, if at all. While we have obtained in-orbit insurance for Solidaridad 2 and Satmex 5, a satellite failure
may result in a decrease in our profits, which loss would not be insured. We cannot assure you
that we will be able to renew our existing insurance at the end of their terms, or that if renewal
is available, it would be on terms acceptable to us. The original insurance policy covering Satmex 5 expired on December 5, 2003. In December 2003
and again in December 2004, we renewed our in-orbit insurance for the Satmex 5 satellite and such
insurance was bound for $75 million. Our new policy excludes coverage for the XIPS and any related
systems as well as anomalies with the same telemetry signature as the anomaly that occurred on
October 12, 2004 and the transponder that was similarly affected in October 2004. Because XIPS on
other satellites have also experienced anomalies, the XIPS exclusion has become a typical feature
in insurance policies for satellites with this same propulsion system. Except as otherwise
provided above, the new policy is effective as of December 5, 2004 for a one-year period and is
based on prevailing market terms and conditions. Furthermore, the current policy requires that 75%
of the satellites capacity must be impaired before a total loss can be declared. 7




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In November 2004 we again renewed the in-orbit insurance for Solidaridad 2 for a 372-day
period on substantially similar terms to the previous one-year policy. The current policy for
Solidaridad 2 is bound for $35 million and does not insure against an in-orbit failure due to the
loss of the satellites control processors, the same component that caused the loss of Solidaridad
1 and other Boeing 601 satellites. Further, the current policy requires that 75% of the
satellites capacity must be impaired before a total loss can be declared. Any uninsured loss of Satmex 5 or Solidaridad 2 would have a material adverse effect on our
results of operations and financial condition. A small number of customers account for a large portion of our revenues, and the loss of one or
more of these significant customers would adversely affect our revenues. A large portion of our revenues are derived from a small number of customers. Thirty-eight of
our customers account for approximately 80% of our current revenue base, and our top 10 customers
represented approximately 57% of our revenues during 2004. Our largest customer is Hughes Network
Systems, which, until recently, was a wholly owned subsidiary of The DIRECTV Group Inc. (DIRECTV
Group). DIRECTV Group sold a half interest in Hughes Network Systems to SkyTerra Communications,
Inc., an affiliate of Apollo Management, L.P., in April 2005. Revenue from Hughes Network Systems
represented 28%, 23% and 15% of our service revenue for the years ended December 31, 2004, 2003 and
2002, respectively. We expect that Hughes Network Systems will continue to expand its capacity
requirements and represent a greater portion of our service revenue upon in-orbit service of Satmex
6. Revenue from the Mexican government represented 8%, 7% and 8% of service revenue for the years
ended December 31, 2004, 2003 and 2002, respectively. Early in 2004, one of our top ten customers,
Verestar, Inc. (Verestar) filed for relief under Chapter 11 of the U.S. Bankruptcy Code and
rejected their satellite service contract with us and is therefore no longer using our service.
Verestar represented approximately 8% of our 2003 revenue. Some of the companies that belong to
Grupo Azteca have notified us of an early termination of their contracts. Grupo Azteca represented
approximately 4% of our 2004 revenue. If other significant customers cancel their contracts with
us or fail to renew their contracts, it would adversely affect our revenues while only marginally
lowering our expenses. Between 2000 and 2004, many of our customers in the telecommunications industry suffered
financial difficulties, which resulted in significant cancellations and non-renewals of
contracts with our customers. There may be future downturns in the telecommunications industry
that result in similar terminations and non-renewals. As of December 31, 2004, customers representing approximately 64% of our revenues were in the
telecommunications industry. The telecommunications industry has been suffering economically in
recent years, and has generally seen a decrease in that industrys ability to fund its own growth
and development. As a result, during 2002, 2003 and 2004, we experienced significant contract
terminations and were unable to renew contracts with a large number of our customers upon
expiration. As of December 31, 2004, approximately 26% of our revenues were derived from customers
in the telecommunications industry under contracts with a remaining term greater than 5 years. If
these contracts are cancelled prior to their expiration, our revenues would decline and we would be
adversely affected. We operate in a highly competitive environment. The Mexican government has liberalized its regulatory environment to allow non-Mexican
satellite companies to provide satellite services in Mexico. On August 10, 2001, the Mexican
government granted licenses to provide satellite service in Mexico to PanAmSat Corporation
(PanAmSat), SES GLOBAL S.A. (SES Global), Grupo Televisa, S.A. (Televisa) and Enlaces
Integra, S. de R.L. de C.V. (Enlaces Integra). PanAmSat registered 11 satellites and SES Global
registered seven satellites to provide satellite service in Mexico. On June 16, 2003, the Mexican
government granted licenses to New Skies Satellites N.V. (New Skies) to provide satellite
services in Mexico using three satellites. On July 21, 2004, Nahuelsat, S.A. (Nahuelsat) was
granted a license to operate a Ku-band satellite. On August 17, 2004, Grupo Hispasat, S.A.
(Hispasat) was granted a license to operate 3 Ku-band satellites. It is expected that Intelsat,
Ltd. (Intelsat) will be granted a license to operate 17 satellites in Mexico on 2005. While we
continue to be the leading provider of domestic fixed satellite services in 8




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Mexico, our Mexican market share has been reduced by these new competitors. Future additional
reduction in market share may have a corresponding adverse effect on our revenue. For the year
ended December 31, 2004, approximately 46% of our revenues were from satellite services provided in
Mexico. We also face competition from companies in our markets in the U.S. and Latin America.
PanAmSat has a fleet of 25 satellites, including 14 that serve the Latin American market.
Intelsat, a former international consortium, has 28 satellites, including 11 that cover Latin
America. New Skies has a fleet of six satellites including three that serve Latin America. In
November 2000, Telesat Canada (Telesat) successfully launched the Anik F1 satellite, which serves
all of the Americas. In 2004 Anik F2 was successfully launched by Telesat and its coverage
includes Canada, the U.S. and Mexico. It is expected that in the second half of 2005 Anik F1R will
be launched. SES Global has a fleet of 39 satellites, of which 19 serve Latin America. We cannot
assure you that we will be able to compete successfully with our competitors. Moreover, as our
competitors launch new satellites with coverage over the regions that we serve, price reductions
may result. This in turn could hurt our revenue and further impact our ability to service our debt
obligations. We also face competition from land-based telecommunications services. For example, in the
past we have experienced a number of contract cancellations or nonrenewals by customers that
switched to fiber optic service providers. These fiber optic service providers can generally
provide services at a lower cost for point-to-point applications. There are conflicting interests between us and our shareholders. One of our shareholders, Loral, owns and has interests in other companies that are in
businesses similar to ours, which could give rise to a conflict of interest. In particular, Loral
Skynet do Brasil owns a satellite, the footprints of which we expect to overlap with Satmex 6. If
Skynet do Brasil does not collaborate with us, Skynet do Brasil might compete directly with us for
customers. Disagreements between Loral and Principia could result in deadlock. Because of the membership agreement existing between Loral and Principia, if they are unable
to reach an agreement in certain matters, including the restructuring of our Fixed Rate Notes and
Floating Rate Notes or the issuance of any new debt, which is currently necessary to launch Satmex
6, it could lead to a deadlock, which would hurt us. To resolve this deadlock, Loral or Principia
may seek to sell its interests or, alternatively, buy the interests of the other. This could in
turn result in a change of control. Additionally, certain of our debt holders would be entitled to
require us to buy back their debt, including in some cases at a purchase price equal to 101% of the
principal amount. You probably will not be able to effect service of process in the U.S. upon our officers or our
Mexican directors. We are a Mexican company and most of our directors and all of our officers reside in Mexico,
and nearly all of our assets are located outside the U.S. As a result, it is highly likely that
you will not be able to effect service of process on our Mexican directors or our officers in the
U.S., and you will probably need to effect service of process on them in Mexico. Additionally, it
may be difficult to enforce any actions against us, our Mexican directors or our officers outside
of Mexico. The ability to enforce liabilities based solely on U.S. federal securities laws
against such persons is questionable in Mexico, whether in original actions or in actions to
enforce judgments of U.S. courts. Factors Relating to Regulatory Environment Our business is regulated, causing uncertainty and additional costs. Our business is regulated by the Mexican government. The services we provide outside of
Mexico and in other countries in Latin America and the U.S. subject us to regulations in those
countries. For example, we need to obtain landing rights in the countries where we seek to
operate. Regulatory authorities in the various jurisdictions in 9




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which we operate can modify, withdraw or impose charges or conditions upon the licenses that
we need, and so increase our cost of doing business. For example, the orbital concessions granted
to us by the Mexican government require that we reserve approximately 7% of our satellite capacity
for use by the Mexican government free of charge. Moreover, our concessions are subject to
government regulations, which may make modifications to or impose limitations on our operations.
If the Mexican government determines that we are a dominant carrier in our segment, it could impose
informational, service and pricing requirements on us, which would hurt our results of operations
and financial condition. The regulatory process also requires that we negotiate with third parties operating or
intending to operate satellites at or near orbital locations where we place our satellites so that
the frequencies of the satellites do not interfere with each other. Because we cannot guarantee
the results of negotiations with third parties, frequency coordination is an additional source of
uncertainty. Relocation of our satellite Solidaridad 2 may be necessary to maximize the benefits
of this new coordination agreement. In the future, there can be no assurance that negotiations of
new coordination agreements between the governments of Mexico and other governments and the
affected satellite operators will be successful. The inability to conclude a satisfactory
agreement may negatively impact our ability to provide expanded services in the U.S. and could
adversely affect our business. Our government concessions may be revoked under certain circumstances. The Mexican government has granted to us four concessions, three relating to our use of the
orbital slots occupied by our satellites (the Orbital Concessions) and the fourth relating to our
use of the satellite control centers and the related land and buildings on which they are located
(the Property Concession). The orbital concessions have an initial twenty-year term, expiring in
October 2017, and are renewable after that time, subject to certain conditions, for an additional
twenty-year term. The property concession has a forty-year term. However, these concessions are
subject to termination prior to the expiration of their terms upon the occurrence of certain
events, including our liquidation (quiebra). The Orbital Concessions will terminate if:  
    the term of any such Orbital Concession expires;
    we resign our rights under any such Orbital Concession;
    the Mexican government through the Secretaría de Comunicaciones y Transportes
(the Ministry of Communications and Transportation or the SCT), expropriates any of
the Orbital Concessions;
    we are liquidated or become subject to liquidation (quiebra); or
    the SCT revokes any of the Orbital Concessions. The Communications Law provides that the SCT may revoke any of the Orbital Concessions upon
the occurrence of certain events, including:  
    failure by us to exercise our rights under any of the Orbital Concessions for a
period greater than 180 days from the date the Orbital Concessions were granted;
    unjustified interruption of the services that may be provided under the Orbital
Concessions;
    our undertaking any action or refraining from taking any action that affects
the rights of other licensees or concessionaires;
    failure by us to satisfy the terms or conditions set forth in the Orbital
Concessions;
    unjustified failure by us to interconnect other concessionaires or licensees
that have the right to provide telecommunications services;
    change of our nationality; and 10




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
    assignment or transfer of rights granted under the Orbital Concessions in
contravention of the terms of the Communications Law. In the cases of the fourth, fifth and sixth bullet points above, the SCT may immediately revoke any
of the Orbital Concessions. In the cases of the first, second and third bullet points above, the
SCT may only revoke any of the Orbital Concessions if it has imposed sanctions on us for the
relevant breach on at least three separate occasions. In the event any of the Orbital Concessions
is revoked by the SCT, no compensation shall be paid to us. The SCT also has the right to terminate any of the Orbital Concessions pursuant to a procedure
known as rescate(Rescate). As of the date of any such Rescate, assets used in connection with
the use of the Orbital Concessions would be subject to the ownership and operation by the Mexican
government. The SCT may also temporarily seize the Orbital Concessions in the event of natural disaster,
war, substantial breach of the public peace and order, or imminent danger to national security,
internal peace or the Mexican economy. In the past, the Mexican government has used this power to
ensure continued service during labor disputes. Mexican law requires that the Mexican government
pay compensation to us if it effects a temporary seizure (Requisa), except in the case of a
temporary seizure due to war. In respect of Requisa, the basis for any compensation to a
concessionaire is specified by decree by the Mexican government and is subject to judicial review
in the event of dispute. (See Item 4  Concession Termination for additional detail). As of June 30, 2005, the District Court of Mexico City has not confirmed our petition nor
declared the commencement of our concurso mercantil. Once the court issues an order declaring the
commencement of our concurso mercantiland we enter into the conciliation stage, we cannot assure
you that we will reach an agreement with our creditors within the statutory time period or that,
prior to the expiration of such time period, the conciliadorwill not determine that we or our
creditors are unwilling to reach an agreement or that such agreement is impossible, in which case
the conciliation stage would terminate and we would be put into liquidation (quiebra). If we are
put into liquidation (quiebra), it is unclear whether our Orbital Concessions will remain in effect
due to the nature of the concurso mercantilor if they will be terminated immediately by operation
of law. However, we do not believe that our Orbital Concessions will terminate during the
conciliation stage of the concurso mercantilor as a result of our concurso mercantilfiling We are subject to different corporate disclosure requirements than U.S. companies. Investors may not be able to obtain as much publicly available information about foreign
issuers of securities traded in the U.S. as is regularly published by or about U.S. issuers of
publicly traded securities. Therefore, potential investors may not be able to as easily ascertain
the risks of our company as they would if we were a U.S. company. Factors Relating to Mexico Downturns in the Mexican economy adversely affect us. For the year ended December 31, 2004, approximately 46% of our service revenue was from
billings to Mexican customers. As a result, our operations, results and financial condition are
dependent upon the level of economic activity in Mexico. Adverse economic conditions in Mexico,
such as those experienced beginning in December 1994 or economic developments in or affecting
Mexico, could generally hurt the Mexican economy, thereby adversely affecting our revenues, while
simultaneously increasing our nominal peso-denominated costs and expenses. In the year 2004, the
Mexican gross domestic product grew at a rate of 4.4%. Currency devaluations may impair our ability to service our debt. Changes in the value of the peso relative to the dollar could adversely affect our financial
condition and results of operations. We bill our customers in dollars, but certain customers may
pay us in pesos at the prevailing exchange rate on the date of payment. At the same time, all of
our debt obligations are denominated and paid in dollars. 11




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The value of the peso sharply declined in the 1990s compared to the dollar. The devaluation
of the peso in the 1990s increased the peso equivalent of Mexican companies obligations under
dollar-denominated borrowings and adversely affected companies operations and financial position.
Future devaluations of the peso relative to the U.S. dollar could adversely affect some of our
customers ability to pay U.S. dollar-denominated obligations. Exchange controls may impair our ability to obtain dollars to make dollar-denominated payments. The Mexican economy has suffered current account balance of payment deficits and shortages in
foreign exchange reserves in the past. The Mexican government may restrict the ability of Mexican
or foreign persons or entities to convert pesos into dollars or other currencies. The Mexican
government has instituted restrictive exchange control policies in the past. The imposition of
such a policy in the future may impair our ability to obtain imported goods and to meet our
obligations requiring payments in foreign currency, including our Fixed Rate Notes and our Floating
Rate Notes. Political developments in Mexico may adversely affect us. The Mexican government has exercised, and continues to exercise, significant influence over
the Mexican economy. Mexican governmental action concerning the economy and state-owned
enterprises could have a significant impact on us, Mexican private sector entities in general, and
on market conditions, prices and returns on Mexican securities, including our financial
obligations. Although the government of Mexico has pursued policies of economic liberalization and
deregulation in the past decade, a significant change in those policies may hurt business and
economic conditions in Mexico in general and our business in particular. For example, in past
years Mexico has experienced considerable political, social and economic instability, which
resulted in economic recessions and significant volatility in exchange rates, reduced availability
of credit, high inflation and high interest rates. Since 1995, the government has implemented a
series of economic reform measures designed, among other things, to stabilize the peso and reduce
inflation. Although the peso/U.S. dollar exchange rate has since remained relatively stable and
inflation has recently been reduced, such stability may not continue. We do not have and do not
intend to obtain political risk insurance. Payment of judgments against us would be in pesos. In the event that proceedings are brought against us and result in a judgment against us in
Mexico, we would not be required to discharge those obligations in a currency other than Mexican
currency. Under the Ley Monetaria de los Estados Unidos Mexicanos, an obligation in a currency
other than Mexican currency, payable in Mexico, may be satisfied in Mexican currency at the rate of
exchange in effect on the date on which payment is made. Such rate is currently determined and
published by the Banco de Méxicoevery business and banking day. Although we are contractually
required to make payments of all amounts owed under our Fixed Rate Notes and our Floating Rate
Notes in U.S. dollars, we are legally entitled to pay in pesos if payment on those obligations is
sought in Mexico (through the enforcement of a non-Mexican judgment or otherwise). In the event
that we make payment in pesos, holders may experience a U.S. dollar shortfall when converting the
pesos to U.S. dollars. Upon the Mexican courts decision to declare the concurso mercantil, which is still pending as
of the date of this annual report, our unsecured debt obligations will be converted into pesos at
the exchange rate prevailing on the day our company is declared in concurso mercantiland from
pesos into inflation indexed units (Unidades de Inversión), or UDIs, at the conversion rate
prevailing at that time, and will cease to accrue interest. 
 Item 4.Information on the Company General Description Our current legal and commercial name is Satélites Mexicanos, S.A. de C.V. We were
incorporated in Mexico in 1997 as a Sociedad Anónima de Capital Variable. Our principal executive
offices are located at Blvd. Manuel Ávila Camacho No. 40, 23rd floor, Colonia Lomas de Chapultepec,
11000, México, DF, México. Our telephone number is (52) 55-5201-0800. Our authorized
representative in the U.S. is Puglisi & Associates, located 12




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at 850 Library Avenue, Suite 204, Newark, Delaware 19715, U.S., telephone number (302)
738-6680 and fax number (302) 738-7210. We operate in a highly regulated market and the principal legislation under which we operate
is the Federal Telecommunications Law of Mexico, Ley Federal de Telecomunicaciones(the
Communications Law). Mexico began its involvement in the satellite industry in 1968 when it became an Intelsat
signatory and broadcast the Olympics via satellite from Mexico City. From that time until October
15, 1997, we were operated by the Mexican government as part of the operations of
Telecomunicaciones de México, an agency of the Mexican government. On November 17, 1997, Loral and Principia, through Firmamento and Servicios, a wholly-owned
subsidiary of Firmamento, acquired 75% of our issued and outstanding stock from the government of
Mexico for an amount in pesos equivalent to approximately $647 million. The remaining 25% of our
capital stock was retained at that time by the Mexican government. Loral owns 65% of Firmamentos
economic interests and Principia owns 35%. Loral holds 49% and Principia holds 51% of Firmamentos
voting interests. As of December 31, 2004, Servicios holds 70.71% of our outstanding capital
stock, Loral holds 4.46%, Principia holds 1.26% and the Mexican government holds 23.57%. When we were privatized, the Mexican government granted us four concessions. Three orbital
concessions which allow us to operate our satellites in Mexicos orbital positions 109.2° W.L.,
113.0° W.L. and 116.8° W.L. (the Orbital Concessions). The fourth concession allows us to base
our ground station equipment within the telecommunications facility that belongs to the Mexican
government (the Property Concession). Among the assets we acquired from the Mexican government
upon our privatization were two satellites in commercial operation, Solidaridad 1 and Solidaridad
2, which were launched in 1993 and 1994, respectively, and Morelos II, which had been launched in
1985 and was not available for commercial use. At that time, a new satellite, later named Satmex
5, was in construction. Satmex 5, which was launched in December 1998, had higher power levels and
a broader footprint than Solidaridad 1 or Solidaridad 2. Using Satmex 5, we were able to offer
satellite service in most of the Americas, excluding the eastern portion of Brazil. On June 30, 2004, our Floating Rate Notes came due and we did not make the required principal
payment of $203.4 million. On November 1, 2004, our Fixed Rate Notes came due and we did not make
the required principal payment of $320.0 million. Also, we did not make the August 1, 2003,
February 1, 2004, and August 1, 2004 interest payments on the Fixed Rate Notes or the interest due
on maturity of the Fixed Rate Notes. The aggregate amount of interest payment due was $56.7
million. We did not make the interest payments on the Fixed Rate Notes nor the required principal
payments under both indentures due to cash shortfalls from our operating activities. In an effort
to restructure, among other things, these defaulted obligations, on June 29, 2005 we filed a
voluntary concurso mercantil in the District Court in Mexico City. As of June 30, 2005, the
District Court of Mexico City has not confirmed our petition and declared the commencement of our
concurso mercantil. On May 25, 2005, the Petitioning Creditors of our Fixed Rate Notes and the
Floating Rate Notes filed a petition commencing an involuntary Chapter 11 bankruptcy case against
us in the U.S. Bankruptcy Court of the Southern District of New York seeking a financial
reorganization. On June 14, 2005, the Bankruptcy Court approved a stipulation between us and the
Petitioning Creditors extending our time to respond to the Involuntary Petition, which may be
extended further to allow the parties time to attempt to negotiate a consensual restructuring.
Rather than consenting to the Involuntary Petition and the Bankruptcy Courts entry of an order for
relief, if a consensual restructuring cannot be negotiated that the parties agree will be
implemented in a U.S. Chapter 11 case, we intend to seek dismissal of the Involuntary Petition on
various grounds, including, but not limited to, lack of the Bankruptcy Courts jurisdiction over us
and the pendency of the voluntary Mexican concurso mercantil. In August 2000, our Solidaridad 1 satellite ceased operations and was considered
irretrievably lost. The loss was caused by the failure of the back-up control processor on board
the satellite. The satellite was insured and we received a net insurance payment of $235.3
million, which was used to service debt and to invest in the manufacture, launch and insurance of a
new satellite, Satmex 6. Satmex 6 is designed to provide broader coverage and higher power levels
than any satellite in our fleet. 13




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We currently own and operate two satellites, Solidaridad 2 and Satmex 5, in geostationary
orbit at 113.0o W.L. and 116.8o W.L., respectively, and expect to launch a third satellite, Satmex
6, not before early 2006. In total, we have 96 36-MHz transponder-equivalents operating in the C-
and Ku-bands with an aggregate footprint covering substantially all of the continental U.S., the
Caribbean and all of Latin America, other than certain regions in Brazil. In October 2003, the Satmex 6 satellite was completed and delivered to its launch site in
Kourou, French Guiana. It is currently being maintained in protective storage at the launch site.
In order to launch the Satmex 6 satellite, we must make the payment of the launch insurance premium
and other launch related payments estimated to be up to $50 million. We believe we are currently the leading provider of fixed satellite services in Mexico and
following the launch of Satmex 6 intend to expand our services to become one of the leading
providers of fixed satellite services throughout Latin America. We provide transponder capacity to
customers for distribution of network and cable television programming, direct-to-home television
service, on-site transmission of live news reports, sporting events and other video feeds. We also
provide satellite transmission capacity to telecommunications service providers for public
telephone networks in Mexico and elsewhere and to corporate customers for their private business
networks with data, voice and video applications. We are also marketing the use of satellite
transmission capacity for new applications, such as Internet via satellite. We have landing rights to provide broadcasting and telecommunications transmission capacity in
Mexico, the U.S., Canada and 43 other nations and territories in Latin America. Our broadcasting
customers include Televisa and Productora y Comercializadora de Televisión, S.A. de C.V. (PCTV)
and our telecommunications services customers include Teléfonos de México, S.A. de C.V. (Telmex)
and Petróleos Mexicanos (Pemex). Our data and Internet customers include Hughes Network Systems
(HNS). Our Satellites We own and operate two geostationary communications satellites, Solidaridad 2 and Satmex 5.
Satmex 6, the high-powered replacement of Solidaridad 1, is not expected to be launched before
early 2006. Our currently operating satellites have a total capacity of 3,456 MHz (96 36MHz transponder
equivalents), consisting of 1,728 MHz of C-band (48 36MHz transponder equivalents) and 1,728 MHz of
Ku-band (48 36MHz transponder equivalents) capacity. Upon the replacement of Solidaridad 1 with
Satmex 6, the Satmex system is expected to have total capacity of 5,616 MHz (156 36MHz transponder
equivalents), consisting of 3,024MHz of C-band (84 36MHz transponder equivalents) and 2,592 MHz of
Ku-band capacity (72 36MHz transponder equivalents). The footprints of our satellites are designed to encompass the region extending from Argentina
to the northern U.S. Satmex 5 Satmex 5 was launched in December 1998 and occupies the 116.8° W.L. orbital position. Satmex
5, a BS 601 HP, has 24 36MHz C-band and 24 36MHz Ku-band transponders. As of December 31, 2004,
the satellite had an estimated operational life of 9 years and is currently operating in a
satisfactory condition. Satmex 5 has approximately ten times the power (as measured in total watts) of the satellite
it replaced and has a footprint extending from substantially all of the 48 contiguous U.S. to
Argentina. Major Latin American countries that are covered by the Satmex 5 footprint include
Mexico, Argentina, Venezuela, Chile and Colombia. Major U.S. cities include Los Angeles, Miami,
New York, Houston, Dallas, Chicago, San Francisco and Washington, D.C. Satmex 5 was launched with a primary and a secondary XIPS, each designed to perform
station-keeping activities that maintain the satellites position in orbit during its design life.
To provide further back-up, Satmex 5 has an independent chemical propulsion system that provides
station-keeping operations to maintain its position in 14




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orbit. Should both the primary and secondary XIPS fail, we currently estimate that the
back-up chemical propulsion system of Satmex 5 would provide up to 3.7 years of station-keeping
capability to maintain its position in orbit. During standard station-keeping procedures to maintain the satellites position in orbit on
November 17, 2003, the secondary XIPS, which was then the system in operation, failed to operate
satisfactorily. The primary XIPS was started on December 1, 2003 as an alternate to the secondary
XIPS, and it initially failed to operate satisfactorily. Our engineers and the manufacturer,
Boeing Satellite Systems, working together, returned the primary XIPS to an acceptable level of
operation. In connection with the events surrounding Satmex 5s XIPS, we sent our insurers notices of
occurrence on November 24, 2003, December 3, 2003 and December 10, 2003. These notices are
conditions to the filing of any formal proof of loss under the terms of the expired Satmex 5
insurance policy. On June 7, 2004, the 180 day claim period to file a proof of loss expired and,
based on a review of technical and operational considerations regarding Satmex 5 and the terms of
in-orbit insurance coverage for the satellite, we concluded that the conditions necessary to
establish a partial claim did not exist. In February 2004, we returned to the secondary XIPS as the operating propulsion system on
Satmex 5. During May 2005 the performance of the secondary XIPS was below manufacturing
specifications. On the recommendation of the manufacturer, Satmex 5 has since been operating using
the primary XIPS. The use of the primary XIPS to effect satellite maneuvers generates contaminants
on the solar arrays and requires supplemental bipropellant consumption. We continue to conduct
maneuving testing of the secondary XIPS, but to date, substantially all maneuvering tests have
failed. If both of these systems were to fail, we could lose operation of Satmex 5 within 3.7
years and our business would be materially and adversely harmed. On October 13, 2004, Satmex 5 suffered a pointing anomaly, which caused a temporary
interruption on some of the satellites service. The main on-board computer was switched to the
back-up computer and services were restored on the same day. On October 15, 2004, the main
on-board computer was switched on for testing purposes; after verifying its proper operation, it
was switched off again. Since February 23, 2005, the satellite has been operating in an adequate
and stable manner on its primary system. Solidaridad 2 Solidaridad 2 was launched on October 7, 1994 and occupies the 113.0° W.L. orbital position.
As of December 31, 2004, the satellite had an estimated operational life of 4.4 years and is
currently operating in a satisfactory condition. A BS 601 model, the satellite has 12 36MHz
transponders and 6 72MHz transponders in C-band (24 36MHz transponder equivalents) and 16 54MHz
transponders in Ku-band (24 36MHz transponder equivalents). Upon the successful placement in orbit
of Satmex 6, we expect to migrate Solidaridad 2 to another orbital position. Major Latin American countries covered by the Solidaridad 2 footprint include Mexico,
Argentina, Venezuela, Chile, Colombia, Guatemala, Belize and Cuba. Major U.S. cities covered
include Los Angeles, San Antonio, Houston, Dallas and San Francisco. In addition, major U.S.
cities that can be covered by Solidaridad 2 spot beams include Miami and New York. Satmex 6 Satmex 6, the replacement satellite of Solidaridad 1, was manufactured by SS/L and is not
expected to be launched before early 2006 into 113.0o W.L. Satmex 6, an FS 1300 X model, has a
total of 60 36MHz transponders, 36 in C-band and 24 in Ku-band. Upon initiating operations, Satmex
6s operating life is expected to be 15 years. Satmex 6 is designed to provide broader coverage and higher power levels than any other
satellite in our fleet. It will be roughly 300% more powerful than Solidaridad 1 and roughly 50%
more powerful than Satmex 5. It will have hemispherical coverage in both C- and Ku-bands. From
Canada to Argentina, Satmex 6 will cover all the 48 contiguous U.S. states and Hawaii, the
Caribbean, all of Latin America and most of Brazil. 15




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In October 2003, the Satmex 6 satellite was completed and delivered to the Arianespace launch
facilities in Kourou, French Guiana. It is currently being maintained in protective storage at the
launch site. Due to the protracted storage period, additional testing on the satellite will be
required. We continue to hold discussions with Arianespace regarding the launch of Satmex 6 on an
Ariane 5 ECA launch vehicle. Satmex is also exploring the possibility of launching Satmex 6 on a
Sea Launch launch vehicle under an existing sharing arrangement between Arianespace and Sea Launch.
In order to launch the Satmex 6 satellite, we must make the payment of the launch insurance
premium and other launch related payments estimated to be up to $50 million. Our 113o W.L. orbital slot concession was modified to permit the operation of Satmex 6 and, on
August 24, 2004, the ITU published the corresponding technical and operating perameters. Capital Investments Substantially all of our capital expenditures are denominated in U.S. dollars. During 2004,
Satmex invested $1.4 million in systems and other infrastructure; however, Satmex received $5.0
million in the form of a return of a deposit on an insurance policy related to Satmex 6. Capital
expenditures were $37.9 million for 2003 and $123.2 million for 2002. Expenditures in 2003 and
2002 for the construction of Satmex 6 were $36.3 million and $119.8 million, of which $6.6 million
and $108.0 million were funded through the use of restricted and segregated cash, in 2003 and 2002,
respectively. In addition, we paid $2.0 million during 2004 related to storage and maintenance
requirements while Satmex 6 awaits launch. We expect capital expenditures for 2005 to be up to $50
million assuming a first quarter 2006 launch of Satmex 6. Following the launch of Satmex 6, we
expect a sharp drop in capital expenditures. We have not made any significant capital expenditures
in 2005, although we expect to spend up to $1.0 million in connection with modifying and moving of
office space. Canadian Coordination In May of 2000, the governments of Mexico and Canada signed a coordination agreement
specifying the operational parameters for Mexican and Canadian satellites in the C- and Ku- radio
frequency bands in the geostationary orbit between the 107.3° W.L. and 118.7° W.L. orbital
positions. The purpose of the coordination agreement was to establish a standard of reference for
acceptable adjacent satellite radio frequency spectrum interference and to ensure the efficient
operation of satellite networks licensed by both Mexico and Canada. As a result, satellites
licensed by either nation are able to serve both their domestic markets and at the same time
provide competitive services to the markets of Mexico, the U.S. and South and Central America
without interference. In September of 2003, we and the government of Mexico favorably concluded a
new revision of the coordination agreement with the government of Canada to include the radio
frequency characteristics of Satmex 6. In February 2005, the U.S., acting through the Federal
Communications Commission, approved the trilateral agreement, which is subject to notification by
the International Telecommunication Union (the ITU), in order to effect the exchange of orbital
positions. As part of these coordination discussions, the governments of Mexico and Canada also
agreed to a new coordination agreement to reduce potential satellite signal interference and ensure
that existing and future satellite networks licensed by either nation have sufficient room to
expand their respective services to the markets of Mexico, the U.S. and South and Central America. Other Coordination Agreements In March 2005, we successfully concluded coordination agreements with SES-Americom and
Echostar. Landing Rights We have secured landing rights to provide a variety of satellite-based communications services
in 46 countries in the Western Hemisphere, including the U.S., Mexico and Canada. We are in the
process of updating our landing rights agreements to include Satmex 6. In December 2004, Industry
Canada added Solidaridad 2 and Satmex 5 to the list of foreign satellites approved to provide fixed
satellite services in Canada. In 2005, the Canadian Radio-television and Telecommunications
Commission (CRTC) granted Satmex a license to provide basic international telecommunications
services in Canada. 16




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Satellite Control Centers and Property Concession Once a satellite is placed in its orbital location, specialized earth stations monitor its
ability to function, control and positioning through the end of its in-orbit lifetime. Under the
terms of our concessions, we currently operate our satellites through two satellite control
centers. The first is located at Iztapalapa, Federal District, Mexico and the second is located at
Hermosillo, Sonora, Mexico. These centers, aggregating 31,500 square meters, are designed to
monitor user frequencies and to ensure that the satellites are operating within established
parameters and are correctly positioned to generate the anticipated footprint. The primary control center is composed of a building that houses:  
    the telemetry, tracking and control (TT&C) systems;
    an equipment maintenance area;
    a communications signal monitoring area;
    a dynamic simulator, which allows for the simulation of spacecraft dynamics and
control maneuvers; and
    antennae for the control, monitoring and in-orbit testing of satellites. The primary control center forms part of a building complex that also houses equipment owned
and used for the Mexican governments teleport and mobile service systems. While we are the only
occupant of the building that houses the satellite control center, we are required to share the
sites water facilities with the rest of the complex. In order to control and operate Satmex 6, we have installed new state-of-the-art technology
hardware and software in both control centers. As of December 31, 2004, that investment was
approximately $3.8 million dollars. We own the equipment within the control centers and the Mexican government owns the land and
buildings that house these centers. The Property Concession granted to us by the Mexican
government allows us to use the land and buildings. Under the terms of the concessions, we pay to
the government an annual fee of 7.5% of the value of the property on which our satellite control
centers are located. The value of the property was originally determined in the Property
Concession and the amount has been increased annually consistent with changes in the Consumer Price
Index (Indice Nacional de Precios al Consumidor). Pursuant to our current regulations, a new
appraisal of the value of the property must be performed every five years. The appraisal is
performed by the Ministry of Internal Control (Secretaría de la Función Pública), which is an
entity of the Mexican government, or an entity of such ministry. The appraisal must consider the
value of the property as it was originally delivered to us, without taking into account any
improvements to the property after such delivery. For the years ended December 31, 2004, 2003, and
2002, the rent expense under this agreement was $382,000, $407,000 and $321,000, respectively. Properties We do not own any real property. As part of the Property Concession, we were granted the
right to use the buildings and areas in which the satellite control centers are located, together
with certain other related properties. We lease office space under a non-cancelable operating
lease that expired in May 2005 and has been renewed for three months more. The monthly rent,
including maintenance, is approximately $106,000. Rent and maintenance expense under this lease
was $1.0 million, $1.3 million and $1.4 million for the years ended December 31, 2004, 2003 and
2002, respectively. We will be moving to new corporate offices in 2005 and estimate the annual
rent at $240,000, with an initial capital investment of up to $1.0 million. We believe our
facilities are adequate for our present needs. 17




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Insurance Upon launch of Satmex 5 in 1998, we purchased a five-year policy providing for $250 million of
insurance for Satmex 5. This insurance policy expired on December 5, 2003. In December 2004, we
again renewed our in-orbit insurance for the Satmex 5 satellite for $75 million in coverage for a
one-year term. The new policy excludes coverage for the XIPS and any related systems, as well as
anomalies featuring the same telemetry signature as the anomaly that occurred in October, 2004.
Because XIPS on other satellites have also experienced anomalies, the XIPS exclusion has become a
typical feature in insurance policies for satellites with this same propulsion system. The
insurance coverage on Satmex 5 provides that if 75% or more of satellite capability is lost, then a
constructive total loss is deemed to have occurred, and the full amount of insurance would become
due and payable. In the event of a constructive or total satellite loss, the insurance policy
provides for a payment to us of up to the insured amount, less any unpaid premiums. Except as
otherwise provided above, the new policy is effective as of December 5, 2004 for a one-year period
and is based on prevailing market terms and conditions. An uninsured loss of Satmex 5 would have a
material adverse effect on our financial condition and results of operations. We currently have insurance for Solidaridad 2 under terms reflecting current market
conditions. In November 2004 we again renewed the in-orbit insurance for Solidaridad 2 for a
372-day period on substantially similar terms to the previous one-year policy. The total insurance
coverage for Solidaridad 2 is bound for $35 million until December 5, 2005. The current policy
for Solidaridad 2 does not insure against an in-orbit failure due to the loss of the satellites
spacecraft control processors (SCP), the same component that caused the loss of Solidaridad 1 and
other Boeing 601 satellites. Currently, the primary SCP on Solidaridad 2 is operating normally,
and we expect that the secondary SCP would allow for uninterrupted service from the satellite in
the event of a primary SCP failure. However, a failure of the primary and secondary SCPs would
result in a complete and uninsured loss of Solidaridad 2. The insurance coverage on Solidaridad 2
provides that if 75% or more of satellite capability is lost, then a constructive total loss is
deemed to have occurred, and the full amount of insurance would become due and payable. In the
event of a constructive or total satellite loss, the insurance policy provides for a payment to us
of up to the insured amount, less any unpaid premiums. Furthermore, the insurance policies on Satmex 5 and Solidaridad 2 include customary exclusions
such as:  
    military or similar actions;
    anti-satellite devices;
    governmental actions;
    nuclear reaction or radiation contamination;
    willful or intentional acts of us or our contractors;
    loss of income, indirect and consequential damages; and
    third-party claims against us. Prior to launch, we intend to insure Satmex 6 against failure during launch and up to its
first year in orbit. The control centers are covered by insurance policies against risk to the buildings and their
contents, including the antennae and equipment. To date, no significant claim has been made
against the insurance policies covering the control centers or the insurance policies covering
Solidaridad 2 and Satmex 5. Business Strategy The primary focus of management has been to launch Satmex 6 and complete our financial
restructuring. We are actively exploring with our financial advisors alternative means of
financing the remaining amount required to launch our new satellite, Satmex 6, which is critical to
increasing our cash flows and improving our financial position. The sources of financing in
support of the launch of Satmex 6 may require that it be provided to us as part of the concurso
mercantilcommenced by us. 18




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On June 29, 2005, we filed a concurso mercantil; however, the Mexican court has not yet placed
us in concurso mercantil. It is the goal of our management to successfully resolve the concurso
mercantilin its conciliation stage and restructure the Fixed Rate Notes and Floating Rate Notes as
quickly as possible while maintaining our customer relationships and maximizing the outcome for all
of our stakeholders. We have been negotiating with the Petitioning Creditors regarding a possible restructuring of
the Fixed Rate Notes and the Floating Rate Notes, but have not, as of the date of this annual
report, reached any agreement with them regarding the restructuring of our obligations. As of May
25, 2005, the Petitioning Creditors held more than 66?% of the outstanding principal amount of each
of the Fixed Rate Notes and the Floating Rate Notes. On May 25, 2005, the Petitioning Creditors filed a petition commencing an involuntary Chapter
11 bankruptcy case against us in the U.S. Bankruptcy Court of the Southern District of New York
seeking a financial reorganization. On June 14, 2005, the Bankruptcy Court approved a stipulation
between us and the Petitioning Creditors extending our time to respond to the Involuntary Petition,
which may be extended further to allow the parties time to attempt to negotiate a consensual
restructuring. Rather than consenting to the Involuntary Petition and the Bankruptcy Courts entry
of an order for relief, if a consensual restructuring cannot be negotiated that the parties agree
will be implemented in a U.S. Chapter 11 case, we intend to seek dismissal of the Involuntary
Petition on various grounds, including, but not limited to, lack of the Bankruptcy Courts
jurisdiction over us and the pendency of the voluntary Mexican concurso mercantil.We are hopeful
that we and all of the stakeholders can reach agreement on the terms of a consensual restructuring
that can be implemented in the near term. During the conciliation stage of our concurso mercantil, while we complete the restructuring
of our debt, we intend to operate normally. We do not expect any disruption of our customers
business. We have increased the frequency of communication with our customers in order to assure
them of our commitment to the quality of our services. The focus of our business strategy is to increase our customer base throughout our coverage
area and to increase the number of services provided to each customer by:  
    enhancing our regional presence;
    strengthening our position in sectors that benefit from fixed satellite services advantages;
    growing with our current customer base and offering value-added solutions;
    downstream integration of value added services and program distribution; and
    further developing our presence in the video (cable and satellite-TV) industry
across the U.S. and Latin America. Enhance Our Regional Presence Due to our extensive coverage, technical characteristics designed for our target markets and
culturally-attuned customer support, we are one of the leading regional satellite operators in the
Americas. Our fleet has a footprint that reaches the majority of North and South America and has
superior design coverage over our domestic market, Mexico. However, the failure of our satellite
Solidaridad 1 on August 29, 2000 reduced our sellable capacity significantly. We are working to
launch a new satellite, Satmex 6, to replace Solidaridad 1 and increase our capacity. Satmex 6 is a key element of our growth strategy as it is designed to provide satellite
services across the Americas. Its footprint will allow us to improve our presence in North America
as well as in key segments of Latin America. The design of Satmex 6 creates an opportunity for our
customers to expand their businesses by providing high performance levels in markets where
telecommunications infrastructure is limited. Most of Latin America qualifies as a target market
because fiber optic cables only reach major cities and the coastlines. We expect that both Satmex
5 and Satmex 6 can generate incremental growth from these markets. 19




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Our contracts are long term, which creates a base to ensure revenues for the coming years. We
continue to seek long term contracts and have recently extended the contracts of our most important
customers in Mexico, at attractive rates, despite intense competition. As a result of our long
term contracts and the continuing need for satellite service, our business is not seasonal. One contract, worth approximately 1.5% of our total yearly billing, can be terminated if,
after filing our concurso mercantil, we experience an interruption of our services. We do not
anticipate any interruption of our services upon the filing or during the conciliation stage of our
concurso mercantil. In order to provide full regional services, we have expanded our landing rights throughout the
Americas. Landing rights are licenses that allow us to operate in a country. We currently have
landing rights to operate in 46 countries in the Western Hemisphere. We expect that the current
liberalization of regulations in certain countries and islands of the region will allow us to
expand our landing rights and negotiate more favorable terms for the existing ones. (See
Regulation for more information on our concessions and landing rights). Strengthen Our Position in Sectors That Benefit from Fixed Satellite Services Advantages As part of our strategy, we are strengthening our competitive position in areas where
satellite service is the best solution to serve our customer needs. These are typically video
distribution, broadband applications and other point to multi-point services. We do not expect to
grow in voice transmission services, where terrestrial infrastructure has an economic advantage,
except for rural telephony, which is only available via satellite in areas where terrestrial
infrastructure is not available. Broadband satellite networks are especially attractive in regions where terrestrial
infrastructure is inadequate or non-existent. These markets include developing countries as well
as rural and underserved areas of developed countries. Our fleet is designed to provide these
services throughout the Americas. Applications of broadband service involve point to multipoint solutions such as Internet
direct-to-home, corporate very small aperture terminal (VSAT) networks, and solutions for
government objectives, among others. To increase our participation in the broadband market, we are
exploring strategic alliances, joint ventures and revenue sharing initiatives with technology
providers, teleports and resellers in order to offer turn-key solutions to our customers. Distance learning is an attractive opportunity as it provides an interactive data, audio and
video uplink to and from the remote distance learning site and the central location. This is
attractive in many areas of Mexico and Latin America that do not have access to universities or
other facilities with communication infrastructure. Video distribution is a natural application for satellite capacity as it is point to
multi-point. While satellite direct-to-home television systems are common, cable operators also
use satellites to downlink their signals. In recent years, digital compression technology has
reduced the need for satellite capacity by compressing signals to operate within a smaller
bandwidth. However, other developments have offset this impact. Services such as High Definition
Television (HDTV) require more bandwidth than regular television. By offering local channels
(local-to-local), subscription television (cable and satellite direct-to-home) will generate
greater demand for satellite services. Rising demand for national and foreign channels also has
begun to stimulate demand for satellite capacity. Grow with Our Current Customer Base and Offer Value-Added Solutions We intend to increase capacity utilization levels with both current and new customers by
promoting mutual business growth and by reacting to emerging market trends that may enhance our
customers businesses. We regularly develop tailor-made marketing solutions that match our current
available capacity characteristics with our customers needs. In this process, we have begun to
offer bundled services that include satellite capacity, equipment and maintenance for video, data
and broadband customers such as state-owned TV stations, corporate users and telecommunication
service carriers. 20




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To maintain the satisfaction of our current customers, we have implemented a customer
retention strategy based on customer support and commercial flexibility. This customer-oriented
strategy strengthens our relationship with current customers, reduces cancellation risk and
promotes the expansion of their business on our satellites. It is the goal of our management to successfully resolve the concurso mercantilin its
conciliation stage and restructure the Fixed Rate Notes and Floating Rate Notes as quickly as
possible while maintaining our customer relationships and maximizing the outcome for all of our
stakeholders. Services The satellite capacity we provide is not differentiated by the use to which it is dedicated.
The price of our satellite transmission capacity is the same regardless of the service it provides
and our customers often use our satellite capacity for various telecommunications services. We
present below several of the uses of our satellite transmission capacity. We provide satellite transmission capacity which can be used by broadcasting customers for
network and cable television programming, direct-to-home television service and transmission of
live news reports, sporting events and other video feeds from the scene of the event. In addition,
we provide satellite transmission capacity to telecommunications service customers that can be used
for public telephone networks in Mexico and elsewhere and corporate customers for their private
business networks with data, voice and corporate video applications. We also provide satellite
connectivity to the Internet backbone for Internet Service Providers. We offer our customers
part-time service, varied power and footprint service, grades of service protection and value-added
services. Broadcasting Transmission Services Satellite capacity is utilized for broadcasting transmission services by various national and
international networks for point-to-point and point-to-multi-point distribution of television
programs, video signals and other services, including distance learning, business television,
special events and live reports. Customers include private and state-owned broadcasting networks,
cable television programmers and direct-to-home operators. Broadcasting customers use satellite capacity to transmit coverage of live scheduled special
events, such as the World Cup, to programmers on an ad hoc basis. We also provide broadcasting
transmission services to relay live news coverage, short duration video feeds and syndicated
programming for broadcasters on a scheduled or ad hoc basis. Broadcasting customers also use satellite capacity for backhaul operations, such as
transporting programming from a broadcasters foreign news bureau to a broadcast center for
simultaneous or later transmission. Our service in this area is focused on the transportation of
program material and syndicated programming for broadcasters on a scheduled basis. Telecommunications Transmission Services We provide satellite capacity for domestic and international telecommunications transmission
services to public and private telecommunications networks. These networks belong to companies
across the spectrum in financial, industrial and commercial operations, as well as government and
education, transportation and tourism, and media companies. Companies may lease channels, circuits
or fractions of a transponder, allowing these transponders to be shared among several users. We provide satellite capacity to carriers that use the capacity as part of their
communications network on a national or international basis. Our services include the provision of
satellite capacity to carriers that provide public and private networks for data, voice and
corporate video communications. Network users utilize satellites rather than ground-based
transmission media because satellite systems provide customers cost savings for large,
geographically dispersed networks, greater independence from telephone companies, predictability of
costs over a long period, flexibility in changing or adding remote locations to a network,
integrated network management and control of all remote locations and increased network
availability and lower transmission error rates. 21




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Many businesses and organizations currently use satellite communications networks for certain
of their communications needs. For example, retail chains use satellite business communications
networks for rapid credit card authorization and inventory control. Banks use satellite networks
to connect automatic teller machines to processing computers. News agencies use satellite networks
to distribute information continuously to numerous locations, and paging operators use satellite
networks to distribute paging information from a central switch to multiple remote transmitters for
retransmission to pagers. We provide satellite capacity to domestic and regional communications centers in Latin
America. The provision of satellite capacity to carriers involves relatively low marketing and
operating costs and promotes the use of satellite networks for business communications in Latin
America. The Mexican government currently represents one of the largest users of communications
facilities in Mexico. We offer transponder capacity for end-to-end satellite services for two types of private
business communications networks: international digital services networks and VSAT networks.
International digital services networks consist of rooftop antennas and are used by customers that
have relatively steady flows of information to and/or from all of the points in the network.
Because of their large transmission requirements, international digital services networks require
dedicated, permanent communications links to each point. Very small aperture terminals networks
differ from international digital services networks in that very small aperture terminals networks
consist of very small rooftop antennas and are utilized by customers that need to send short bursts
of data over the network for relatively short periods of time. Through the use of very small
aperture terminals technology and sophisticated software, these networks can be served with a
relatively small amount of satellite capacity. Internet Service Providers We provide satellite capacity to deliver high-speed satellite-based Internet connectivity,
offering a variety of configurations, throughout most of North America and Latin America. Our
fleet provides an efficient means by which ISPs, service integrators, infrastructure enablers,
universities, governments and other corporations may utilize Internet-related applications. The
benefits of satellite transmission include avoiding the congestion typically associated with
land-based networks, faster network deployment and configuration, high data throughput, ubiquitous
coverage, low cost and highly reliable service. We believe that these benefits, together with
Latin Americas lack of infrastructure, geographic dispersion and low population density indicate
that demand for Internet connectivity via satellite, in both the consumer and corporate markets,
will have strong growth in the future. Digital Distribution Platform for Latin-American Programming We have initiated a new business unit called Alterna TV, previously known as Satmex Maximo, in
order to expand our position in the broadcast segment of the Latin American video industry.
Alterna TV brings together Latin American programmers who have not developed U.S. distribution for
their programming with cable and satellite TV-operators in the U.S. who need to offer a more
comprehensive and authentic product to their growing Hispanic audiences. Beginning in March 2003, we have secured exclusive distribution rights in the U.S. for
Spanish-language programming with eight carefully selected Latin American channels. Because this
programming originates in Latin America, we believe that it is more authentic and thus desirable to
Hispanics emigrating from the region and currently living in the U.S. Alterna TV offers these Latin
American programmers the sales and marketing activities necessary to promote their channels
throughout the U.S. to cable and satellite TV companies as well as the technical platform necessary
to distribute the signals across the U.S. Thus, we provide the commercial and technical means to
distribute this programming cost-effectively in the U.S. We transmit the programming via satellite from the regional programmer to our teleport
partner, Crawford Communications, Inc. (Crawford Communications) which provides signal
origination services including signal multiplexing, conditional access, signal quality monitoring
according with industry standards. These operators can choose to receive any of these channels
(cherry picking). DirecTV began broadcasting two Alterna TV channels in April, 2004 as part of
its Hispanic package; additional channels were launched in October and December, 2004. Comcast
launched 2 channels in September, 2004 and today distributes 4 channels in over 100 cable headends. 22




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Via Alterna TV, we provide programmers from across Latin America with a fully integrated
solution to distribute their programming in the U.S., which allows them to take advantage of the
growing opportunities in the U.S. Hispanic market with both cable and satellite operators. Alterna
TVs choice of channels is geared to satisfy the preference for regionally-developed,
Spanish-language programming among Hispanic audiences living in the U.S. Cable and satellite
TV-operators can easily incorporate this regional programming into their current programming
offering. (FLOW CHART) Customers We have a broad customer base that includes private and state-owned broadcasting networks,
cable television programmers, direct-to-home operators, and public and private telecommunications
networks belonging to financial, industrial and commercial, government, transportation and tourism,
educational and press-related companies. A large portion of our revenues are derived from a small
number of customers. Approximately thirty-eight of our customers account for approximately 80% of
our current revenue base, and our top 10 customers represented approximately 57% of our revenues
during 2004. Our largest customer is Hughes Network Systems, which is owned by The DIRECTV Group
and SkyTerra Communications, Inc. Revenue from Hughes Network Systems represented 28%, 23%, and
15% of service revenue for the years ended December 31, 2004, 2003 and 2002, respectively. We
expect that Hughes Network Systems will continue to expand its capacity requirements and represent
a greater portion of our service revenue in 2005. Revenue from the Mexican government represented
8%, 7%, and 8% of service revenue for the years ended December 31, 2004, 2003, and 2002
respectively. Early in 2004, one of our top ten customers, Verestar, Inc. (Verestar) filed for
relief under Chapter 11 of the U.S. Bankruptcy Code and rejected their satellite service contract
with us and therefore is no longer using our services. Verestar represented approximately 8% of
our 2003 revenue. Some of the companies that belong to Grupo Azteca, have notified us of an early
termination of their contracts. Their contract with us requires that Grupo Azteca pay us an early
termination penalty. Grupo Azteca represented approximately 4% of our 2004 revenue. One contract,
worth approximately 1.5% of our total yearly billing, can be terminated if, after filing our
concurso mercantil, we experience an interruption of our services. We do not anticipate any
interruption of our services upon the filing or during the conciliation stage of our concurso
mercantil. If other significant customers cancel their contracts with us or fail to renew their
contracts, it would adversely affect our revenues while only marginally lowering our expenses. During 2003 and 2004, we experienced significant terminations and were unable to renew
contracts with certain customers upon expiration. We expect that with the successful launch of
Satmex 6, these customers and other new customers will subscribe for service with us. Cancellation
or non-renewal of service contracts of our large customers would have an adverse effect of our
results of operations. Approximately 46%, 42% and 49% of our service revenue for the years ended December 31, 2004,
2003 and 2002, respectively, were generated from customers in Mexico and 47%, 52% and 44% of our
service revenue for those years were generated from customers in the U.S. 23




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2004
    
    
    2003
    
    
    2002(In thousands)Mexico
    
    $
    32,712
    
    
    $
    33,449
    
    
    $
    41,630U.S
    
    
    33,569
    
    
    
    40,740
    
    
    
    37,619Other
    
    
    5,424
    
    
    
    4,634
    
    
    
    5,762Total
    
    $
    71,705
    
    
    $
    78,823
    
    
    
    85,011
 Enlaces Integra In 2000, Principia and Loral founded Enlaces Integra, a telecommunications service integrator
that provides tailor made solutions of high speed data communications to private and public
networks, value-added service providers and audio/video service providers. In January 2000,
Enlaces Integra was granted a concession to install, operate and exploit a public
telecommunications network. Additionally, Enlaces Integra received a value-added license that
allows it to develop Broadband Internet access and a wide range of multimedia services. On August
10, 2001, Enlaces Integra was granted a concession to provide fixed satellite services in Mexico
through satellite operators other than Satmex. Sales and Marketing Sales Force Our sales force is divided by geographic markets. The majority of our sales force is fluent
in at least two of Spanish, English and Portuguese, enabling them to communicate comfortably with
individuals in domestic and foreign companies. We have been increasing our sales force in order to
initiate our Satmex 6 pre-selling and sales campaign. International Sales Our satellites have broad international footprints and landing rights. Markets in the Western
Hemisphere as a whole are similar for the major broadcasting and telecommunications transmission
segments. We have expanded our sales outside of Mexico through our direct sales force and our
network of agents, distributors and value-added resellers in the Latin American region. Pricing Our existing prices are comparable to those of other satellite operators, such as Intelsat,
SES Global, New Skies and PanAmSat. Prior to our privatization in 1997, a rigid pricing structure had been required by Mexican law
and impeded the customization of service. Under the Federal Telecommunications Law passed in 1995,
we are allowed to establish rates and terms and conditions for services. Prices must be filed with
COFETEL prior to their taking effect, but price changes do not require prior governmental approval.
However, regulators may specify maximum prices, minimum service quality and certain informational
requirements for a dominant service provider. We are not deemed to be a dominant service provider
at this point in time. Contracts The terms of our current contracts with customers range from one year to end-of-life of the
satellite on which capacity is provided. Substantially all of our customers contracts are
non-cancelable or carry a substantial cancellation penalty. Almost all of our customers have lease contracts that are denominated in U.S. dollars and
require payment during each month for which satellite services are provided. Any late payment is
generally subject to an interest charge. Our domestic customers may pay the Mexican peso
equivalent of the U.S. dollar lease amount calculated on the basis of the spot exchange rate at the
time of payment. We set our prices to customers in U.S. dollars and operate in a manner intended
to minimize the effect of fluctuations in exchange rates. Nonetheless, fluctuations of 24




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the exchange rate and other developments related to currencies could adversely affect our
customers demand for our services and their ability to pay for them. Competition Technological advances in satellite systems and deregulation in the worldwide satellite market
have led to the globalization of the satellite industry and an increasingly competitive framework
both for domestic and international services. We face competition from other satellite companies
as well as telecommunications companies that offer competing services via satellites or terrestrial
facilities, many of which are in a stronger financial position than we are. We also face competition from companies in our markets in the U.S. and Latin America.
PanAmSat has a fleet of 25 satellites, including 14 that serve the Latin American market.
Intelsat, a former international consortium, has 28 satellites, including 11 that cover Latin
America. New Skies has a fleet of six satellites including three that serve Latin America. In
November 2000, Telesat successfully launched the Anik F1 satellite, which serves all of the
Americas. In 2004 Anik F2 was successfully launched by Telesat and its coverage includes Canada,
U.S. and Mexico. SES Global has a fleet of 39 satellites, of which 19 serve Latin America. We
cannot assure you that we will be able to compete successfully with our competitors. Moreover, as
our competitors launch new satellites with coverage over the regions that we serve, price
reductions may result. This in turn could hurt our revenue and further impact our ability to
service our debt obligations. The U.S. Open-Market Reorganization for the Betterment of International Telecommunications Act
(ORBIT) requires that Intelsat conduct an initial public offering (IPO) of securities no later
than July 30, 2005. A further extension of the IPO requirement to December 30, 2005 is possible at
the discretion of the U.S. Federal Communications Commission (the FCC). In late May 2004,
Intelsat announced its decision to withdraw a planned IPO and instead explore strategic transaction
alternatives. Consummation of a strategic transation or an IPO could allow Intelsat to raise
capital to expand satellite coverage. Several new satellites compete in our current and proposed coverage areas and others are in
the manufacture or planning stages. These new satellites (other than replacement satellites not
significantly larger than the ones they replace) have increased the capacity available for the
provision of services that compete with our services. After a satellite has been successfully
delivered in orbit, the variable cost of transmitting additional data via the satellite is minimal.
Accordingly, due to a slower growth in demand, this new capacity has resulted in price reductions.
Further price reductions in transponder leases would have a material adverse effect on our revenue
and our ability to service our indebtedness. As land-based telecommunications services expand, demand for our services may be reduced. For
example, in the past we have experienced a number of contract cancellations or non-renewals by
customers who switched to fiber optic service providers. These fiber optic service providers can
generally provide services at a lower cost and further build-out of this infrastructure could hurt
our revenue. Domestic Market We believe we are the main provider of fixed satellite services in Mexico, which for the year
ended December 31, 2004, accounted for approximately 46% of our total revenues. Mexican laws
currently allow competition in providing domestic fixed satellite services by any duly licensed
Mexican satellite operator and by foreign licensed satellite operators in the provision of
international fixed satellite services, direct-to-home fixed satellite services and broadcast
satellite services. The Mexican government has liberalized its regulatory environment to allow non-Mexican
satellite companies to provide satellite services in Mexico. On August 10, 2001, the Mexican
government granted licenses to provide satellite service in Mexico to Mexican affiliates of
PanAmSat and SES Global, as well as Televisa and Enlaces Integra (an affiliate of Satmex).
PanAmSat registered eleven satellites and SES Global registered seven satellites to provide
satellite service in Mexico. On June 16, 2003, New Skies was granted a license to provide services
with 3 satellites. On July 21, 2004, Nahuelsat was granted a license to operate a Ku-band
satellite. On 25




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August 17, 2004, Hispasat was granted with a license to operate 3 Ku-band satellites. It is
expected that Intelsat will be granted a license to operate 17 satellites in Mexico in 2005. While
we have historically been the leading provider of domestic fixed satellite services in Mexico, our
Mexican market share may be reduced in the future by these new competitors. This would in turn
have a corresponding adverse effect on our revenue. Our competition for the provision of satellite capacity for transmissions into Mexico, whether
originating in Mexico or abroad, also comes from telecommunications companies with fiber optic
networks. Fiber optic lines have expanded significantly in recent years, and lend themselves to
inter-city high volume transmissions, particularly point to point services. They are limited,
however, in their ability to compete with satellites to link a high number of low volume points
scattered across a wide or remote area. For television and radio services, the costs associated
with reaching subscribers is much higher with fiber optic networks than it is with satellite
transmissions. Our satellites were designed and built to cover the Mexican domestic market and therefore have
broad footprints and high power levels for coverage of Mexico. We believe that our orbital slots
have superior positioning in relation to the majority of our competitors that have access to the
Mexican market. In addition, the Fixed Satellite Services Protocol between the U.S. and Mexico
permits us to currently land international signals in the U.S. market and provide domestic services
in the U.S. upon obtaining all necessary licenses and authorizations from the FCC. We believe that we have several advantages over foreign and international satellites with
regard to power, capacity, price and ability to offer superior customer service, which should allow
us to maintain our leadership position in domestic services. Central and South American Markets We face competition in Central and South America from several satellite operators. These
include PanAmSat, Intelsat, SES Americom, New Skies, Hispasat, Star One S.A. (Star One), owned by
Empresa Brasileira de Telecomunicações S.A. (Embratel) and SES Global, and Nahuelsat. Partly in
response to the development of satellite services in the U.S., the greater capacity of new
satellites and the development of the region, satellite operators have begun expanding into the
Central and South American markets. The FCC has approved the provision of non-US service of
companies such as PanAmSat and SES Global from orbital positions originally intended solely for the
U.S. These satellite operators have concentrated on distributing television programming to cable
systems as well as direct to home. Latin America will probably continue to rely on satellite
communications more extensively than other regions because most of the regions countries have low
population densities and low telecommunications equipment densities, heavy forest cover,
mountainous terrain and desert areas. With the upcoming launch of Satmex 6, we believe that we will improve our presence in the
Latin American market. U.S. Market The U.S. commercial satellite market is currently dominated by three major competitors:
Intelsat using the satellites it acquired from Loral Skynet, PanAmSat and SES Global, through its
SES Americom division. Currently, the majority of the capacity on U.S. satellites is used for
broadcasting transmission services, another significant portion is used for telecommunications
transmission services, and the remaining capacity is currently available or used for part-time
services. This relatively low percentage for telecommunications transmission services can
partially be explained by the high demand for multi-channel pay television, which reaches more than
90% of all U.S. homes, and by the fiber optic telephony network and the widespread use of wireless
systems. The Fixed Satellite Services Protocol between the U.S. and Mexico allows Mexican satellites to
offer international and domestic services in the U.S., subject to obtaining all necessary FCC
regulatory approvals, and allows U.S. satellites to offer international fixed satellite services,
direct-to-home fixed satellite services and broadcast satellite services and certain domestic fixed
satellite services. Satellites licensed by the U.S. were authorized to provide domestic fixed
satellite services in Mexico beginning in January 1999. Satellites licensed by 26




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Mexico were authorized to provide domestic fixed satellite services in the U.S. beginning on
January 1, 1998. This allows our customers to target the Hispanic population in the U.S. We
believe that this protocol and the expected launch of Satmex 6, not before early 2006, will improve
our presence in North America. The footprint of Satmex 6 was designed, in part, to provide
satellite services in the U.S. market. Canadian Market In December 2004, Industry Canada added Solidaridad 2 and Satmex 5 to the list of foreign
satellites approved to provide fixed satellite services in Canada. In 2005, the Canadian
Radio-television and Telecommunications Commission (CRTC) granted Satmex a license to provide
basic international telecommunications services in Canada. REGULATION Ley de Concursos Mercantiles of Mexico On May 13, 2000, the LCM replaced the Law of Bankruptcy and Suspension of Payments (Ley de
Quiebras y Suspensión de Pagos), which had been in effect since 1943, as Mexicos reorganization
regime. To date, the LCM remains largely untested, thus the manner in which it will be interpreted
by Mexican courts and the impact it will have on the rights of debtors and creditors is uncertain. Under the LCM, a debtor that fails to satisfy its debt obligations may be found insolvent and
potentially subject to a concurso mercantilproceeding under the LCM. A concurso mercantil
petition may be filed voluntarily by the debtor itself if one or more of the following conditions
are met, or involuntarily filed by any of its creditors or the attorney general (ministerio
público) if both of the following conditions are met:  
    the debtors past due obligations of more than thirty days represent 35% or more of all
of the debtors payment obligations as of the date of filing the petition for concurso; and
    the debtors liquid assets, short-term securities, deposits and accounts receivable are
insufficient to pay at least 80% of the debtors payment obligations as of the date of
filing the petition. The determination of the debtors solvency or insolvency is made by a Mexican court based
largely upon a report issued by an examiner (visitador) appointed by the Mexican Federal Institute
of Commercial Reorganization Specialists (Instituto Federal de Especialistas de Concursos
Mercantilesor IFECOM), once the petition for concurso mercantilis filed. If the report of the visitadorconfirms that one or both of the conditions for concurso
mercantilare met, the court issues an order declaring the concurso mercantilof the debtor. Such
order would include the following, among others:  
    a statement confirming the beginning of the conciliation stage, unless the debtor has
voluntarily requested its liquidation (quiebra);
    an order to the IFECOM to designate a conciliador;
    an order to the debtor to suspend the payment of any debt obligations as of the date of
the court order, other than those obligations that are necessary for the debtor to continue
its ordinary operations;
    an order to suspend any attachment or foreclosure procedures against the debtors
assets, other than certain foreclosure procedures arising from labor related claims; and
    and an order to the conciliatorto commence the creditor recognition process. As part of the conciliation stage of the concurso mercantil,the court would be required to
issue a resolution of acknowledgement and seniority of debts, pursuant to which creditors would be
categorized in any of four categories: (i) singularly privileged creditors (applicable only in the
case of individual debtors), (ii) secured creditors (creditors with in remguarantees, pledges and
mortgages), (iii) creditors with special privilege, and (iv) unsecured creditors. 27




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Once the court confirms the petition and issues an order declaring the debtor in concurso
mercantil, creditor claims will be treated as follows:  
    principal and interest of unsecured peso-denominated debt will cease to accrue interest
and will be converted into UDIs at the conversion rate prevailing at that time as published
by the Banco de México;
    principal and interest unsecured foreign currency (non-peso) denominated debt will cease
to accrue interest and will be converted into pesos at the exchange rate prevailing on the
date the court declares the concurso mercantil, and such amount will then be converted into
UDIs at the conversion rate prevailing at that time as published by Banco de México; and
    principal and interest of secured foreign (non-peso) denominated debt will remain in
such currency and will continue to bear interest at the ordinary rate of interest. The concurso mercantilprocess is comprised of two separate and successive stages:
conciliation and liquidation (quiebra). The objective of the conciliation stage is to preserve the
business of the debtor through the negotiation and execution of a restructuring agreement between
the debtor and its creditors. Absent protracted litigation, the conciliation stage may last up to
185 days from the date of the last publication of the courts order declaring the concurso
mercantil.This initial 185-day term may be extended for up to two 90-day periods, subject to
certain conditions, including the approval of specific portions of the debtors indebtedness. During the conciliation stage of the concurso mercantil, the debtor generally continues with
the management of its business under the supervision and oversight of the conciliador, subject to
certain restrictions. If the conciliadordetermines that such continuation is contrary to the
interest of the debtors estate, it can request the court to remove the debtor from the management
of its business and, if conceded, the conciliadorwould assume such authority. In addition to the supervision and oversight of the debtors business, the conciliadorhas,
among other powers, the authority to opine as to the resolution of executory contracts, to
authorize new loans, and to create or substitute guarantees as well as the sale of assets not used
in the debtors ordinary course of business. However, the principal objective of the conciliador
is to arrange for the debtor and its creditors to negotiate and reach a restructuring agreement
pursuant to the LCM. In order for a restructuring agreement to become effective under the LCM, it
must be executed by both the debtor and its recognized creditors holding more than 50% of (i) the
total amount represented by the common creditors, plus (ii) the total amount represented by the
secured creditors and creditors having a special privilege under Mexican law. Pursuant to the LCM,
any such restructuring agreement is required to treat all unsecured creditors not signing the
agreement at least equal to the most favored unsecured creditors representing at least 30% of such
class. A restructuring agreement may be vetoed by a simple majority of individual common creditors
or by any number of such creditors provided that they represent at least 50% of the total amount
held by said class of creditors. Secured creditors may or may not choose to execute the restructuring agreement. Those who
decide not to execute the restructuring agreement can commence or continue the foreclosure of their
collateral, unless the restructuring agreement provides for the payment of their debt or the value
of their collateral. In the latter case, any difference between the amount of secured debt and the
value of the collateral will be deemed common debt and will be subject to the rules mentioned in
the preceding paragraph. Once an agreement has been reached and executed between the debtor and a sufficient number of
its recognized creditors, the conciliadormust submit a copy of the agreement to the court for
approval. If the agreement is not vetoed by the common creditors and the court confirms that the
agreement is in the public interest, the court then proceeds to issue an order approving the
agreement, thereby terminating the concurso mercantil. If the debtor does not reach an agreement with its creditors within the 185-day period or any
of its 90-day extensions, or if prior to the expiration of any of such terms the conciliador
determines that the debtor and its creditors are unwilling or unable to reach an agreement, the
debtor is put into liquidation (quiebra). The purpose of liquidation (quiebra) is to sell the
business and/or assets of the debtor to pay its creditors. The order of the court declaring the
liquidation (quiebra) of the debtor would include the following: 28




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
    the suspension of the debtors management authority of its business; and
    an order to the IFECOM to designate a receiver (síndico), which may or may not be the
person originally appointed as conciliador; During liquidation (quiebra) the management of the debtors business and assets is entrusted
to the receiver, who must take all necessary measures to ensure the safety and preservation of such
assets. Sale of the debtors assets generally must be made through public auction and the receiver
must procure the greatest possible return for such sale, including the possibility to sell the
debtors assets as a single operating unit to preserve the business as a going concern. Payment to
acknowledged creditors with the proceeds from the sale of the debtors business or/assets is made
pursuant to their priority, in accordance with the rules set forth in the LCM. In our case, because we are a regulated entity on account of the orbital concessions we hold
from the Mexican government, the SCT would have certain rights in our concurso mercantil,
including:  
    the right to propose to the court all matters relating to the appointment, removal
and/or substitution of the conciliadorand the receiver, and to supervise his or her
actions, including the right to propose a specific remuneration regime for the conciliador
and the receiver that may be different from the rules set forth in the LCM;
    the right to propose to the court the appointment of a supervisor to manage the our
business affairs if, in the SCTs opinion, such removal is necessary to assure the
continuity and safety of the services we provide; and
    the right to disapprove any restructuring agreement between us and our creditors. The concurso mercantildoes not affect the validity of contracts, including executory
contracts, validly entered into by the debtor, who must continue to perform its obligations
thereunder unless the conciliadoropposes such performance in the interest of the debtors estate.
The LCM provides rules for performance by the debtor and its counterparties under specific types of
contracts. Since the LCM has been recently enacted and its provisions have not been fully tested in
court, we cannot predict whether the actual implementation of the structural and procedural rules
described above will be consistent with our interpretation of the statute. Regulatory Framework The Federal Telecommunications Law of Mexico (the Communications Law), which provides the
overall legal framework for the regulation of satellite services in Mexico, became generally
effective on June 7, 1995. Under the Telecommunications Law, a provider of satellite services,
such as us, must operate under a concession granted by the Secretaría de Comunicaciones y
Transportes(the Ministry of Communications and Transportation or the SCT), pursuant to an
auction process. Such a concession may only be granted to a Mexican corporation and may not be
transferred or assigned without the approval of the SCT. Foreign investors are permitted by law to
hold up to 49% of the stock of such a corporation. In addition, our operations are mainly subject to the Ley General de Bienes Nacionales(the
General Law on National Assets), which regulates all assets that fall within the public domain and
the terms for the Rescate of our concessions, the Ley General del Equilibrio Ecológico y Protección
al Ambiente(the General Law on Ecology and Protection of the Environment or the Environment Law)
and other environmental laws, the Ley Federal de Competencia Económica(the Federal Economic
Competition Law), the Ley de Vías Generales de Comunicación(the Law of General Means of
Communication) and other international treaties, laws, rules, regulations and decrees. Under the Telecommunications Law, the SCT is, among other things, responsible for issuing
concessions and permits related to telecommunications and for formulating policies in the
telecommunications area and otherwise taking all other actions on behalf of the Mexican government
in connection with telecommunications. COFETEL is the telecommunications authority responsible for
most day-to-day regulation of satellite communications in Mexico. The Mexican Telecommunications
Commissions duties include, among other things: 29




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
    issuing administrative regulations relating to telecommunications;
    recommending amendments to existing laws and rules;
    making recommendations to the SCT on applications for the grant, modification, renewal,
transfer and revocation of concessions and permits;
    administering the radio frequency spectrum;
    promoting and overseeing interconnection of equipment and public telecommunications networks;
    registering tariffs for telecommunications services and establishing specific
obligations relating to tariffs, quality of service and provision of information by
carriers with substantial market power; and
    ensuring that carriers comply with the obligations set forth in concessions and
permits. Satellite control centers must be established within Mexico for satellites authorized to use
Mexican orbital slots. The Communications Law allows satellites licensed to Mexican orbital
positions to serve other countries subject to the terms and conditions of treaties with Mexico and
subject to the laws of the foreign country. The SCT may grant concessions at any time to foreign
satellite systems to serve Mexico subject to applicable treaties and Mexican law. On August 10,
2001, the Mexican government granted licenses to provide satellite service in Mexico to PanAmSat,
SES Global, Televisa and Enlaces Integra. PanAmSat registered 11 satellites and SES Global
registered seven satellites to provide satellite service in Mexico. On June 16, 2003, New Skies
was granted the same type of concession. On July 21, 2004 Nahuelsat was granted with a license to
operate 1 Ku-band satellite. On August 17, 2004 Hispasat was granted with a license to operate 3
Ku-band satellites. It is expected that Intelsat will be granted to operate 17 satellites in
Mexico on 2005. The rules promulgated pursuant to the Communications Law require licensees of satellites
intending to provide telecommunications services through one or more transmitting earth stations of
their own to obtain a separate license to construct and operate a public telecommunications
network. Where the satellite operator intends to provide services other than public
telecommunications services through its own earth stations, it must obtain a permit from the SCT.
Where a satellite operator intends to provide services other than the lease of capacity by
obtaining a separate license or permit, it may provide such services only through an affiliate or
subsidiary. The Concessions The Mexican government has awarded us the following concessions:  
    the right to occupy each of three orbital positions (one concession per orbital
slot) and exploit their respective C- and Ku- frequency bands, and    the right to use the buildings and areas in which the control centers are
located (the Property Concession). The Orbital Concessions may be granted as collateral to any party other than a foreign government
or state. The Orbital Concessions include the right to exploit the 113.0o W.L., 116.8o W.L. and 109.2o
W.L. orbital slots. As part of the Orbital Concessions, we may establish rates and terms for
transponder leasing, which must be registered in order to become effective. However, if the SCT
determines that we have substantial power in the Mexican market, the Mexican Telecommunications
Commission may determine tariffs and specify conditions relating to service quality and information
requirements. Additionally, we are prohibited from establishing cross subsidies and using
discriminatory practices. As part of the three Orbital Concessions, we are required to allocate 181 MHz C-band and 181
MHz Ku-band capacity to the Mexican government, free of charge, for national security and certain
public purposes. In addition, we were required to operate two L-band transponders, one on each of
the Solidaridad satellites, which were owned by the Mexican government. After the failure of
Solidaridad 1, the capacity provided to the government was 130 MHz C-band and 105 MHz Ku-band and
one L-band transponder on Solidaridad 2. Upon the commencement 30




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of commercial service of Satmex 6, we will be able to allocate the required C-band and Ku-band
capacity to the Mexican government. However, Satmex 6 will not have any L-band transponders. Under the Orbital Concessions, we are required to, among others:  
    carry out research and development in Mexico,    maintain the control centers within Mexico and preferentially staff them with
Mexican nationals, and    maintain satellite service continuously and efficiently. As security for the performance by us of our obligations under each Orbital Concession, we were
required to post and must maintain during the term thereof, a surety bond in the amount of 10
million pesos payable to the Federal Treasury of Mexico with respect to each Orbital Concession.
This amount is adjusted each year to reflect the inflation rate in Mexico. At December 31, 2004,
the adjusted amount was approximately $1.6 million per Orbital Concession. Under the terms of the
surety bond, we have paid to the surety bond issurer a premium of $25,000 per Orbital Concession.
We have pledged and deposited $2.7 million as collateral to these surety bonds. The collateral
will be returned to us upon the completion of our financial restructuring. The surety has agreed
to pay to the Federal Treasury of Mexico, in the event we breach the terms of the Orbital
Concessions, a sum of $4.8 million in total. The Orbital Concessions were published in the Official Gazette on December 30, 1997. The Orbital Concessions have twenty-year terms expiring on October 22, 2017 and may, subject
to certain conditions, be extended for an additional twenty-year term, without the payment of any
additional consideration to the Mexican government. Except in limited circumstances, we must notify the SCT prior to issuing and selling any of
the shares that represent 10% or more of our outstanding capital stock, and must identify the
potential purchaser. Within 30 days of receipt of such notification the SCT may object to the
sale. We may only proceed with the proposed sale if no objection is raised by the SCT. We are currently in compliance with all the terms and conditions of our Orbital Concessions
and at no time in the past have we not been in compliance with such terms and conditions. The Property Concession includes two plots of land, and buildings and fixtures built thereon.
The Property Concession includes the right to use only the property for the purposes of exploiting
the orbital slots and frequency assignments. Additionally, we may not rent or otherwise sublease
the property without the prior permission of the SCT. Under the Property Concession, we are
required to:      pay an annual fee in an amount equal to 7.5% of the assessed property value and
    maintain the premises in good condition. The value of the property was originally determined in the Property Concession and it has
suffered annual increments consistent with changes in the Consumer Price Index (Indice Nacional de
Precios al Consumidor). Pursuant to our current regulations, a new appraisal of the value of the
property must be performed every five years. The appraisal is performed by the Ministry of
Internal Control (Secretaría de la Función Pública), which is an entity of the Mexican government,
or an entity of such ministry. The appraisal must consider the value of the property as it was
originally delivered to us, without taking into account any works performed on the property after
such delivery. The duration of the Property Concession is 40 years or for the length of the Orbital
Concessions. The Property Concession duration may be extended at the discretion of the SCT. As a result of the 2003 revision of the Mexican, Canadian and U.S. trilateral agreement, an
update of the 109.2o W.L. orbital slot concession is required. As part of the agreement, the
114.9o W.L. orbital slot was assigned 31




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to Mexico instead of 109.2o W.L.. The Mexican government is still in the process of revising this
orbital slot assignment with the cooperation of the other parties to the trilateral agreement.
Such a process is not novel, and the Mexican government modified the 113o W.L. orbital concession
to allow the operation of Satmex 6. Concession Termination We do not believe that our Orbital Concession will be terminated during the conciliation stage of
the concurso mercantilas a result of our concurso mercantilfiling. The Orbital Concessions will terminate if:  
    the term of any such Orbital Concession expires;
    we resign our rights under any such Orbital Concession;
    the Mexican government through the SCT, expropriates any of the Orbital Concessions;
    we are liquidated or become subject to a Mexican liquidation (quiebra); or
    the SCT revokes any of the Orbital Concessions. Our assets and rights under the Orbital Concessions may also be temporarily seized by the SCT, as
described below. The Communications Law provides that the SCT may revoke any of the Orbital Concessions upon
the occurrence of certain events, including:  
    failure by us to exercise our rights under any of the Orbital Concessions for a
period greater than 180 days from the date the Orbital Concessions were granted;
    unjustified interruption of the services that may be provided under the Orbital
Concessions;
    our undertaking any action or refraining from taking any action that affects
the rights of other licensees or concessionaires;
    failure by us to satisfy the terms or conditions set forth in the Orbital
Concessions;
    unjustified failure by us to interconnect other concessionaires or licensees
that have the right to provide telecommunications services;
    change of our nationality, and
    assignment or transfer of rights granted under the Orbital Concessions in
contravention of the terms of the Communications Law. In the cases of the first, fifth, sixth and seventh bullet points above, the SCT may immediately
revoke any of the Orbital Concessions. In the cases of the second, third and fourth bullet points
above, the SCT may only revoke any of the Orbital Concessions if it has imposed sanctions on us for
the relevant breach on at least three separate occasions. In the event any of the Orbital
Concessions is revoked by the SCT, no compensation shall be paid to us. The SCT also has the right to terminate any of the Orbital Concessions and the Property
Concession pursuant to Rescate. As of the date of any such Rescate procedure, assets used in
connection with the exploitation of the Orbital Concessions and the Property Concession would be
subject to the ownership and management of the Mexican government. The SCT may also temporarily seize the Orbital Concessions in the event of natural disaster,
war, substantial breach of the public peace and order, or imminent danger to national security,
internal peace or the Mexican economy. In the past, the Mexican government has used this power to
ensure continued service during labor disputes. Mexican law requires that the Mexican government
pay compensation to us if it effects a Requisa, except in the case of a temporary seizure due to
war. In respect of a Requisa, the basis for any compensation to a concessionaire is specified by
decree of the Mexican government and is subject to judicial review in the event of 32




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dispute. With respect to a Requisa, the Communications Law provides that the Mexican
government will indemnify the affected concessionaire in an amount equal to damages and losses
reflecting their real value; in the event of a dispute regarding such matters, losses shall be
determined by appraisers mutually appointed by the parties and damages shall be determined on the
basis of the average net income generated by the concessionaire in the year prior to the Requisa. The Property Concession will terminate if:  
    the Property Concession term expires;
    we resign our rights to the Property Concession;
    the Orbital Concessions are terminated;
    the purpose for which the Property Concession is granted no longer exists;
    the Mexican government expropriates the Property Concession for reasons of public interest; or
    the Property Concession is revoked. The Mexican government may revoke the Property Concession for various reasons, including without
limitation, the following:  
    failure to use the Property Concession for the purpose for which it was granted;
    failure to comply with the terms of the Property Concession;
    activities, without prior permission of the SCT, which interfere with satellite operations; and
    under terms and conditions generally applicable to property concessions of this
type under applicable Mexican law. At the end of the concession term, the orbital positions and control center land and buildings
will revert to the state. Under the Telecommunications Law, upon termination of the Orbital
Concessions the Mexican government has a preemptive right to acquire our facilities, equipment and
other assets used by us to provide services under our concessions. Alternatively, the Mexican
government may elect to lease these assets for up to five years at fair market rates as determined
by expert appraisers appointed by the SCT and ourselves. In the event of a discrepancy between
appraisals, a third expert appraiser must be jointly appointed by the Mexican government and us.
If we do not appoint an expert appraiser, or if such appraiser fails to determine a price, the
determination of the appraiser appointed by the Mexican government will be conclusive. As of June 30, 2005, the District Court of Mexico City has not confirmed our petition nor
declared the commencement of our concurso mercantil. Once the court issues an order declaring the
commencement of our concurso mercantiland we enter into the conciliation stage, we cannot assure
you that we will reach an agreement with our creditors within the statutory time period or that,
prior to the expiration of such time period, the conciliadorwill not determine that we or our
creditors are unwilling to reach an agreement or that such agreement is impossible, in which case
the conciliation stage would terminate and we would be put into liquidation (quiebra). If we are
put into liquidation (quiebra), it is unclear whether our Orbital Concessions will remain in effect
due to the nature of the concurso mercantilor if they will be terminated immediately by operation
of law. However, we do not believe that our Orbital Concessions will terminate during the
conciliation stage of the concurso mercantilor as a result of our concurso mercantilfiling. Treaties and International Accords Reciprocity Agreement Between the U.S. and Mexico In April 1996, Mexico and the U.S. (the Parties) signed an agreement (the Reciprocity
Agreement) concerning the transmission and reception of signals from satellites for the provision
of satellite services to users in Mexico and the U.S. The main aspects of this agreement are: 33




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
    Mexican satellites are permitted to provide satellite service to, from and
within the U.S. (in conformance with applicable U.S. law),
    U.S. satellites are permitted to provide satellite service to, from and within
Mexico (in conformance with applicable Mexican law),
    the conditions for the transmission and reception of satellite signals will be
as agreed to in protocols to the agreement,
    the entities operating commercial satellites and earth stations may be
structured with either public or private participation (in conformity with both Mexican
and U.S. law),
    neither Mexico nor the U.S. shall require a satellite licensed by the other
government to obtain an additional license for the operation of the satellite in order
to provide the satellite services described in the protocols to the Reciprocity
Agreement,
    licenses for earth stations and satellite services must comply with national
laws and regulations,
    applicable foreign ownership restrictions on satellite service providers and
earth station licenses continue to apply, and
    both Mexico and the U.S. retain the right to take actions that either
government considers necessary for the protection of our essential security interests. The Reciprocity Agreement may be amended by agreement of the Parties. Additional protocols or
protocol amendments may be concluded by written agreement of the Parties. The Reciprocity
Agreement may be terminated by mutual agreement of the Parties, or by either Party by written
notice of termination to the other Party through diplomatic channels. Such notice of termination
will enter into effect six months after receipt of the notice. Direct-to-Home Protocol In November 1996, Mexico and the U.S. signed a protocol (the DTH Protocol) to the
Reciprocity Agreement concerning the transmission and reception of signals from satellites for the
provision of direct-to-home satellite services. Direct-to-home satellite services are defined to
include direct-to-home fixed satellite service and broadcasting satellite service, which include
one-way, encrypted video or video/audio radiocommunication signals transmitted by satellite for
direct reception by subscribers who pay a periodic fee, distribution of video/audio to cable
television head-ends and multipoint distribution service (MDS) or wireless cable facilities. The
DTH Protocol addressed only a limited number of radiocommunication frequencies. The U.S. and
Mexico have each agreed to permit satellites licensed by the other government to provide
direct-to-home fixed satellite services and broadcasting satellite services to, from, and within
the other countrys territory. Entities seeking to transmit or receive direct-to-home fixed
satellite services or broadcasting satellite services signals via a satellite licensed by the other
administration (e.g., through an earth station in the non-licensing jurisdiction) must still comply
with the non-licensing jurisdictions other applicable laws (e.g., the earth station licensing
process). Both Mexico and the U.S. reserve the right to refuse to accept signals originating from
third countries. In addition, both countries agree to permit direct-to-home fixed satellite
service and broadcasting satellite service signals to be delivered directly to subscribers without
requiring that they be retransmitted over an intermediary satellite system. Mexico and the U.S.
agree not to impose significant restrictions on the amount or origin of advertising and program
content. The DTH Protocol does not apply to the transmission of any audio-only direct-to-home
fixed satellite service and broadcasting satellite service signals that do not contain solely
music. Service to cable television head-ends is permitted under the DTH Protocol as of November 8,
1997. The DTH Protocol may be amended by written agreement of the Parties. The DTH Protocol may be
terminated by agreement of the Parties, or by either Party by written notice of termination to the
other Party. Such notice of termination shall enter into effect six months after receipt of the
notice. The DTH Protocol will remain in force until it is terminated in such manner or replaced by
a new protocol. Upon termination of the DTH Protocol, a Party may, at its discretion, terminate
any license that has been issued pursuant to the DTH Protocol. In addition to the general
provisions for termination, the DTH Protocol may be terminated upon sixty days written notice if a
Party determines that the other Party has failed to conform to the principles of the DTH Protocol. 34




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Fixed Satellite Services Protocol In October 1997, Mexico and the U.S. signed another protocol (the FSS Protocol) to the
Reciprocity Agreement, with respect to the transmission and reception of signals from satellites
for the provision of international and domestic fixed satellite services. The definition of fixed
satellite services includes, but is not limited to, signals carrying video or video/audio
distributed to cable television head-end and multipoint distribution service (restricted microwave
television service) facilities and excludes the direct-to-home fixed satellite services and
broadcasting satellite services governed by the DTH Protocol. Like the DTH Protocol, the FSS
Protocol addresses only a limited number of radiocommunication frequencies. Subject to the terms
of the FSS Protocol, the U.S. and Mexico have agreed to permit satellites licensed by the other to
provide domestic and international fixed satellite services to, from, and within the other
countrys territory. Satellites licensed by either Mexico or the U.S. may be authorized to provide
international service beginning October 16, 1997. Satellites licensed by the U.S. were authorized
to provide domestic fixed satellite services in Mexico beginning in January 1999. Satellites
licensed by Mexico were authorized to provide domestic fixed satellite services in the U.S.
beginning on January 1, 1998. The FSS Protocol also states that a satellite licensed by either
Mexico or the U.S. to provide direct-to-home fixed satellite services or broadcasting satellite
services shall be permitted to provide video or video-audio distribution to cable television
head-end and multipoint distribution service (restricted microwave television services) facilities
beginning November 8, 1997. Entities seeking to transmit or receive fixed satellite service
signals via a satellite licensed by the other Party (e.g., through an earth station in the
non-licensing jurisdiction) must still comply with the non-licensing jurisdictions other
applicable laws (e.g., the earth station licensing process). Unlike the DTH Protocol, the FSS
Protocol permits communications to or from third countries. However, similar to the DTH Protocol,
under the FSS Protocol, both countries agree to permit fixed satellite service signals to be
delivered directly to fixed-earth stations without requiring that they be retransmitted over an
intermediary satellite system. The FSS Protocol may be amended by written agreement of the Parties. The FSS Protocol may be
terminated by agreement of the Parties, or by either Party by written notice of termination to the
other Party. Such notice of termination shall enter into effect six months after receipt of the
notice. Upon termination of the FSS Protocol, a Party may, at its discretion, terminate any
license that has been issued pursuant to the FSS Protocol. The FSS Protocol will remain in force
until it is terminated in such manner or replaced by a new protocol. Reciprocity Agreement Between Canada and Mexico In April 1999, Mexico and Canada signed an agreement similar to the agreement between Mexico
and the U.S. In January, 2001, the FSS Protocol between Canada and Mexico was signed. In December 2004, Industry Canada added Solidaridad 2 and Satmex 5 to the list of foreign
satellites approved to provide fixed satellite services in Canada. In 2005, the CRTC granted
Satmex a license to provide basic international telecommunications services in Canada. Argentine Agreement In November of 1997, the governments of Mexico and the Argentine Republic entered into a
bilateral agreement to afford reciprocal treatment for satellite service providers licensed under
the laws of each party. The agreement provides that satellite service providers licensed in Mexico
may transmit certain direct-to-home fixed satellite services, broadcasting satellite services and
other fixed satellite service signals to satellite customers in Argentina, and vice versa. The
agreement, using the radiocommunication rules of the ITU as a base, sets forth the terms and
conditions for the technical coordination of each partys satellite systems. The parties further
agreed to cooperate in assuring compliance with each partys applicable laws and regulations.
Mexican satellite providers operating in Argentina would remain subject to applicable Argentine
law, and vice versa. The parties agreed to apply their respective laws in a transparent and
non-discriminatory fashion. An agreement was entered into in June 2000, and the mutual exchange of
diplomatic notes has taken place. The direct-to-home fixed satellite services agreement between
Mexico and the Argentine Republic was signed on July, 2002. 35




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ANDESAT Agreement On October 24, 1997, Mexico and the member countries of the Andean Community of Nations (the
Andean Community) which include Bolivia, Colombia, Ecuador, Peru and Venezuela, entered into a
five-year agreement regarding coordination between the Mexican satellite system and the Simón
Bolívar Andean satellite system, which was amended on March 1, 1999 (the ANDESAT Agreement). Under the ANDESAT Agreement, we agreed to provide the Andean Community satellite capacity
until January 2003 at certain preferred rates. The Andean Community had the right to use, at no
charge, one and one quarter transponders. Under the ANDESAT Agreement, we agreed to pay to the
Andesat Community an annual fee of $850,000, in four quarterly payments, correspondent to the
downlink signals in the Andean region. On October 17, 2001, we reduced the capacity provision not
charged to one transponder and agreed to pay $212,500 as a settlement payment for the ANDESAT
Agreement obligations. In January 2003, the ANDESAT Agreement expired and we now operate directly in Bolivia,
Colombia, Ecuador, Peru and Venezuela. The General Agreement on Trade in Services Under the auspices of the World Trade Organization (the WTO), the Negotiating Group for
Basic Telecommunications concluded negotiations that resulted in receipt of commitments from 69
governments. The commitments cover basic telecommunications services including telephony, packet
and circuit data transmission, fax, private leased, circuit, cellular telephony, individual
localization telex and telegraph services. These services can be offered through a variety of
available medium, such as cable, wireless, radio or satellite. The agreement itself imposes an
obligation to afford most-favored-nation treatment to all other members unless an exemption is
filed. Mexico did not file an exemption. Mexico has adopted the regulatory reference paper which established parameters relating to
competition, interconnection, universal service, public availability, criteria for awarding
licenses, autonomy of the regulatory entity and assignment and exploitation of available resources.
Mexico has established the following service parameters:  
    telex and telegraph services are not included;
    cross-border traffic must be routed through a company licensed by the SCT;
    license fees are imposed;
    licenses will only be awarded to Mexican companies, in which foreign
participation is limited to 49%, except in cellular, where foreign participation may be
higher; and
    there is no limit to foreign investment in companies that offer services to
third parties. Government and Supra-Governmental Regulation FCC Regulation of Satellite Services and Foreign Ownership of FCC Licenses The U.S. satellite and telecommunications industries are highly regulated. In addition to the
international accords and protocols discussed above, the FCC regulates satellite providers
operating in the U.S. as well as the provision of satellite services, generally. The FCC currently
regulates access to the U.S. market by non-U.S. licensed satellite systems. In the Second Domestic International Satellite Consolidation rulemaking (DISCO II), the FCC
adopted a framework under which it will consider requests for the use of non-U.S. licensed
satellites to provide services in the U.S. The FCC will examine all requests to determine whether
grant of authority is consistent with the public interest, convenience and necessity. In doing so,
the FCC will consider factors such as the effect on competition in the U.S. market, spectrum
availability, eligibility requirements (such as foreign ownership, legal, technical and 36




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financial qualifications), operating requirements and national security, law enforcement,
foreign policy and trade concerns, as appropriate. Depending on the nature of the services offered
in the U.S., these foreign-licensed satellites may be subject to a variety of regulatory
requirements. Petitions to reconsider certain aspects of the DISCO II order have been filed with
the FCC. In determining the effect on competition, the order in DISCO II establishes a presumption that
competition will be promoted, and, therefore, that no effective competitive opportunities (ECO)
test is required, in evaluating whether to permit satellites licensed by WTO member countries to
provide services covered by the U.S. schedule of commitments under the World Trade Organization
Agreement on Basic Telecommunications (the WTO Basic Telecom Agreement). Except that if Comsat
Corporation seeks to provide domestic services, it will be required to make an appropriate waiver
of immunity from suit and demonstrate that the service will enhance competition in the U.S. market.
For requests to serve the U.S. market by satellite operators from non-WTO member countries, the
FCC will examine the effective competitive opportunities in the foreign markets for U.S. satellite
operators to determine if the non-U.S. satellite satisfies the competition component of the public
interest analysis. The FCC will also apply the ECO tests to requests to serve the U.S. market with services not
covered by the WTO Agreement such as direct-to-home fixed satellite services, direct broadcast
satellite services, and digital audio radio services. The U.S. schedule of commitments under the
WTO Basic Telecom Agreement excludes direct-to-home fixed satellite services, direct broadcast
satellite service and digital audio radio service, and the U.S. has taken a most-favored-nation and
national treatment exception for these services. Thus, for those services the FCC will continue to
apply the ECO test to entities including WTO member countries seeking to provide these services.
The FCC, however, has created an exception to this general rule where the U.S. has entered into
bilateral agreements with the other country regarding specific services, as the U.S. has done with
Mexico. The FCC will review earth station applications to access a satellite licensed in a country
with which the U.S. has a bilateral agreement based on a presumption that entry will promote
competition. The application will be subject to other public interest requirements and must comply
with FCC technical and service rules. Once operational, a non-U.S. licensed satellite system serving the U.S. will be subject to the
same ongoing requirements that apply to U.S.-licensed satellites. For instance, the FCC rules
prohibit an international satellite provider from entering into exclusionary arrangements with
other countries for satellite capacity for a particular service. The DISCO II process provides
that in order for non-U.S. satellite operators to bring before the FCC their requests to serve the
U.S. they may  
    participate in a U.S. space station processing round, or
    have a U.S. earth station operator apply for authority to communicate with the non-U.S. satellite or
    apply to be listed on the Permitted Space Station List of non-U.S. licensed
satellites that any U.S.-authorized earth station with an ALSAT designation may
communicate with, subject to any condition the FCC may impose. The FCC does not require space stations licensed by another country or administration to
obtain separate and duplicative U.S. space station licenses, but the FCC does require compliance
with the same technical requirements it imposes on U.S. satellites. The FCC also places certain restrictions on the ownership by non-U.S. citizens and
corporations of FCC licenses. The Communications Act of 1934, as amended (the Communications
Act), provides that certain radio licenses, including earth station licenses, cannot be granted to
or held by any foreign government or the representative thereof. In addition, under Section 310(b)
of the Communications Act, a non-U.S. citizen or a corporation organized under the laws of any
foreign government may not hold or vote more than 20% of the equity of a common carrier, broadcast
or aeronautical licensee directly. However, under Section 310(b) (4), the FCC does permit non-U.S.
citizens or foreign corporations to own or vote 25% of the equity of a U.S. corporation which, in
turn, owns all or part of the equity of a common carrier, broadcast or aeronautical licensee (i.e.,
a holding company) unless such ownership would be contrary to the public interest. The FCC has the
discretion to permit such persons and corporations to exceed the 25% benchmark applicable to such
indirect ownership interests. 37




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The FCC had applied an ECO test as part of its public interest analysis for allowing non-U.S.
citizens or foreign corporations to exceed the 25% benchmark under Section 310(b) (4) for indirect
interest in common carrier, broadcast and aeronautical radio licensees. Recently the FCC
eliminated the ECO test for common carrier, broadcast and aeronautical licensees or applications
with indirect foreign ownership from WTO member countries. Instead, the FCC adopted a rebuttable
presumption that applications by investors from WTO member countries to exceed the 25% foreign
ownership benchmark under Section 310(b)(4) will promote competition. The FCC will, however,
consider other public interest factors such as national security, law enforcement, foreign policy
and trade concerns, if raised by the Executive Branch of the U.S. government. Licensees must seek
FCC approval before they accept indirect foreign ownership that would put them over the 25%
benchmark. The FCC may deny applications that pose a very high risk to competition that cannot be
addressed by conditions that it may impose on the license. Petitions to reconsider certain aspects
of the FCC order adopting the regime described above have been filed with the FCC. On December 14, 1999, we requested that the FCC include our satellites in the U.S. Permitted
Space Station List. This request was approved by the FCC on October 30, 2000, and our satellites,
Solidaridad 2 and Satmex 5, are now on the list. We are currently in the process of requesting the
necessary license for the Satmex 6 satellite, which we expect to be completed by the end of this
year. Role of the International Telecommunication Union Registration of orbital slots and international frequency coordination is accomplished under
the aegis of the ITU, an international body in which most of the nations of the world are
represented as member states. Representation at the ITU for coordination purposes is limited to
national governmental agencies; private companies are not entitled to participate in their own
right in coordination activities. All ITU filings are made through ITU member states. Therefore, companies must work within the
constraints set by the administration representing their interests and factors such as national
interests and foreign relations concerns often affect positions that an administration is willing
to take on behalf of commercial entities. Nations are required by treaty to give notice of their proposed use of satellite orbital slots
and frequencies with the Radiocommunication Bureau (Bureau) of the ITU. After notification by
the Bureau of the orbital slot request, other nations are afforded the opportunity to apprise the
Bureau of any conflicts with their present or planned satellite systems. When a conflict or
potential conflict is noted, nations are obligated to negotiate in an effort to coordinate the
proposed uses and resolve any interference concerns. The ITU, however, has no power to resolve
disputes formally. The process is ultimately subject to enforcement by national regulatory authorities acting
pursuant to international treaty obligations. The ITU has limited power to enforce or police its
rules; it relies on the goodwill and cooperation of the individual members. ITU rules grant coordination priority with respect to most frequency assignments at most
orbital locations on a first to file, first in right basis, even though a filing entails no
enforceable commitment to manufacture or launch a satellite within any particular period of time.
When coordination consultations have been successfully completed, the Bureau is notified of that
fact by the sponsoring administration. Subsequently, the satellite registrations are listed in the
Bureaus Master International Frequency Register (MIFR), which contains, for instance, the
assigned frequency, the date of its registration, and technical details. Once this information is
registered, the assignment is entitled to international recognition and protection against harmful
interference for the life of the satellite while it is in operation. The SCT and other Mexican governmental agencies are responsible for filing and coordinating
requests by Mexican companies to coordinate orbital slots and frequency assignments with the Bureau
and for resolving interference concerns. Use of the orbital slots remains subject to the
continuing oversight of the SCT and to a variety of regulations generally applicable to all
satellite and radio licensees, including the international radio regulations. 38




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Status of Our Satellites The Mexican government notified the ITU on October 4, 1994 that coordination for Solidaridad 1
had been completed and notified the ITU on April 25, 1995 that coordination for Solidaridad 2 had
been completed. On October 19th, 2000, ITU added to Space Master Register Solidaridad 1 and
Solidaridad 2 frequencies. The Satmex 5 request for coordination was published by the ITU on June 24, 1997. We have
favorably concluded coordination discussions with the government of Canada regarding Satmex 5 and
are able to provide service in Canada. On April 21st, 2004, ITU accepted Satmex 5 satellite in
Notification Process, a previous status to be added into Space Master Register. In May of 2000, the governments of Mexico and Canada signed a coordination agreement
specifying the operational parameters for Mexican and Canadian satellites in the C- and Ku- radio
frequency bands in the geostationary orbit between the 107.3o W.L. and 118.7o W.L. orbital
positions. The purpose of the coordination agreement was to establish a standard of reference for
acceptable adjacent satellite radio frequency spectrum interference and to ensure the efficient
operation of satellite networks licensed by Mexico and Canada. As a result, satellites licensed by
either nation are able to serve both their domestic markets and at the same time provide
competitive services to the markets of Mexico, the U.S. and South and Central America on a
non-interference basis. On September of 2003, we and the Government of Mexico favorably concluded coordination
discussions with the government of Canada relating to the contemplated radio frequency
characteristics of Satmex 6. Arrangements, which are subject to notification by the ITU, include
an exchange of orbital positions. As part of these coordination discussions, the governments of
Mexico and Canada also agreed to a new coordination agreement to reduce potential instances of
satellite signal interference and ensure that existing and future satellite networks licensed by
either nation have sufficient room to expand their respective services to the markets of Mexico,
the U.S. and South and Central America. In September 2003, the technical operational parameters of
the new agreement were modified upon ITUs request for coordination. ITU has already published our
new technical operational parameters in 113.0o W.L. on August 24, 2004. On February 19, 2005 U.S.
concurred with this new agreement. Coordination process with other administrations is still in
progress. In December 2004, Industry Canada added Solidaridad 2 and Satmex 5 to the list of foreign
satellites approved to provide fixed satellite services in Canada. In 2005, the CRTC granted
Satmex a license to provide basic international telecommunications services in Canada. 
 Item 5.Operating and Financial Review and Prospects Except for the historical information contained herein, the matters discussed in the following
Operating and Financial Review and Prospects of the Company are not historical facts, but are
forward-looking statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. In addition, we or our representatives have made and may continue to make
forward-looking statements, orally or in writing, in other contexts, such as in reports filed with
the SEC, press releases or statements made with the approval of an authorized executive officer of
ours. These forward-looking statements can be identified by the use of forward-looking terminology
such as believes, expects, plans, may, will, would, could, should, anticipates,
estimates, project, intend, or outlook or the negative of these words or other variations
of these words or other comparable words, or by discussion of strategy that involves risks and
uncertainties. These forward-looking statements are only predictions, and actual events or results
may differ materially as a result of a wide variety of factors and conditions, many of which are
beyond our control. Some of these factors and conditions include: partial or total failure of our
in-orbit satellites; our reliance on certain customers; the concentration of our operations in
Mexico; competition in our industry; and our high level of indebtedness and weak financial
position. In addition, we operate in an industry sector where securities values may be volatile
and may be influenced by economic and other factors beyond our control. We undertake no obligation
to update any forward-looking statement. 39




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Overview We hold concessions from the government of Mexico to operate satellites in three orbital
positions. We own and operate two geostationary communications satellites, Solidaridad 2 and
Satmex 5, in two of those positions. We plan to launch a third satellite, Satmex 6, but not before
early 2006. We operate in the fixed satellite services segment and are the leading provider of
such services in Mexico and are expanding our services to become a leading provider of such
services throughout the Americas. We are also marketing the use of satellite transmission capacity
for new broadband applications, such as connectivity to the Internet backbone via satellite. We
have landing rights to provide broadcasting and telecommunications transmission capacity in Mexico,
the U.S., Canada and 43 other nations and territories in the Latin American region. On November 17, 1997, Loral and Principia acquired 75% of our issued and outstanding stock
from the government of Mexico for an amount in pesos equivalent to approximately $647 million
through Firmamento. The remaining 25% of our common stock was retained by the Mexican government.
Loral currently owns 65% of Firmamento and Principia currently owns 35%. Loral currently holds 49%
and Principia currently holds 51% of Firmamentos voting interests. On March 30, 1999, we issued 606,730 shares of preferred stock to Loral and Principia for a
total purchase price of approximately $31.9 million. The preferred stock has limited voting rights
and pays a cumulative dividend in our common stock. The preferred stock can be exchanged at our
option into our common stock, at a ratio of one share of preferred stock for 2.0008 shares of
common stock if the exchange occurs before February 2, 2005, and at a ratio of one share of
preferred stock for 4.0016 shares of common stock on and after February 2, 2005. As of December
31, 2004, Servicios Corporativos Satelitales, S.A. de C.V., a wholly owned subsidiary of
Firmamento, holds 70.71% of our outstanding capital stock, Loral holds 4.46%, Principia holds 1.26%
and the Mexican government holds 23.57%. Financial Restructuring On June 30, 2004, our outstanding senior secured floating rate notes due June 2004 (the
Floating Rate Notes) came due and we did not make the required principal payment of $203.4
million. On November 1, 2004, our outstanding 10.125% senior notes due November 2004 (the Fixed
Rate Notes) came due and we did not make the required principal payment of $320.0 million. Also,
we did not make the August 1, 2003, February 1, 2004, and August 1, 2004 interest on the Fixed Rate
Notes or the interest due on maturity on the Fixed Rate Notes. The aggregate amount of interest
payment due on the Fixed Rate Notes at maturity was $56.7 million. We did not make the interest
payments on the Fixed Rate Notes nor the required principal payments under both indentures due to
cash shortfalls from our operating activities. In an effort to restructure, among other things,
these defaulted obligations, on June 29, 2005 we filed a voluntary petition for concurso mercantil
in a District Court in Mexico City. As of June 30, 2005, the District Court of Mexico City has not
confirmed our petition and declared the commencement of our concurso mercantil. A concurso mercantilis a Mexican reorganization proceeding and is based on the Ley de
Concursos Mercantiles(the LCM) of Mexico, enacted in May 2000. A concurso mercantilis
comprised of two separate and successive stages: conciliation and liquidation (quiebra). The
objective of the conciliation stage is to preserve the business of the debtor through the
negotiation and execution of an agreement between the debtor and its creditors. Such agreement, as
confirmed by the court, would have the effect of ending the concurso mercantil. Absent protracted
litigation, the conciliation stage may last up to 185 days from the date of the last publication of
the courts order. This initial 185-day term may be extended for up to two 90-day periods, subject
to certain conditions including the approval of specific portions of the debtors indebtedness. If
the debtor does not reach an agreement with its creditors within such period of time or, if prior
to its expiration, the mediator (conciliador) determines that the debtor and its creditors are
unwilling to reach an agreement or that such agreement is impossible, the conciliation stage is
terminated and the debtor is put into liquidation (quiebra). The purpose of liquidation (quiebra)
is to sell the business and/or assets of the debtor to pay its creditors with the proceeds realized
from such sale. Both proceedings may take significantly more time and be significantly less
predictable than a reorganization case under U.S. laws. It is unclear whether holders of the Fixed
Rate Notes or the Floating Rate Notes would be subject to greater risks under the LCM than under
the U.S. Bankruptcy Code. 40




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On May 25, 2005, the Petitioning Creditors filed the Involuntary Petition commencing a Chapter
11 case under the Bankruptcy Code against us in the Bankruptcy Court. On June 14, 2005, the
Bankruptcy Court approved a stipulation between us and the Petitioning Creditors extending our time
to respond to the Involuntary Petition, which may be extended further to allow the parties time to
attempt to negotiate a consensual restructuring. Rather than consenting to the Involuntary
Petition and the Bankruptcy Courts entry of an order for relief, if a consensual restructuring
cannot be negotiated that the parties agree will be implemented in a U.S. Chapter 11 case, we
intend to seek dismissal of the Involuntary Petition on various grounds, including, but not limited
to, lack of the Bankruptcy Courts jurisdiction over us and the pendency of the voluntary Mexican
concurso mercantil.Ultimately, however, we are unable to predict if the Bankruptcy Court will
enter an order for relief making us a U.S. debtor in a Chapter 11 case or the outcome of the
bankruptcy case. Furthermore, we are unable to predict the impact of the bankruptcy case on us or
the concurso mercantilproceedings and vice versa. On December 30, 2004, the debt obligation of our parent company, Servicios of approximately
$125.1 million plus accrued interest of approximately $63 million came due and Servicios did not
make payment of such amounts. This debt obligation is secured by the equity of Firmamento held by
Loral Satmex Ltd. and Principia S.A. de C.V. As a result of the payment defaults under the
Menoscabo, the Mexican government could initiate proceedings against Servicios, which may include
foreclosure on the Firmamento equity and possibly transfer of that equity. We do not know what
actions the Mexican government may take to exercise its remedies pursuant to the Menoscabo. The
Mexican government may participate as an interested purchaser of those holdings and, if awarded the
sale, it would gain direct control of Firmamento and indirect control of us. If the Mexican
government gains control of us, we cannot assure you that it would assume any of our debt,
including the Fixed Rate Notes or the Floating Rate Notes. Also, in that scenario, we would be
controlled and managed by the Mexican government. As part of our restructuring, we are actively exploring with our financial advisors how to
finance the remaining funds required to launch Satmex 6, which we do not expect to be able to
obtain, unless we can obtain it in the concurso mercantil, in connection with a successful
restructuring of our indebtedness. We cannot assure you we will be able to obtain this financing.
The launch of Satmex 6 is critical to our ability to increase cash flows and improve our financial
position. Any significant delay in the commencement of service of Satmex 6 would delay the revenue
anticipated to be generated by the satellite. It could also cause us to lose some customers that
have indicated interest in Satmex 6. Recent Trends in the Satellite Industry Early in 2001, the telecommunications sector began to suffer a sharp downturn. Supply
increased as a result of a build-out of fiber optics capacity around the world. At the same time,
demand was reduced via compression technology that allows more efficient utilization of
telecommunications capacity. Also in 2001, the Internet sector, one of the primary growth drivers
for satellite services, also suffered a downturn from which it has not yet recovered. The
worldwide business climate began to slow down and Latin America, because of its more volatile
economies, has suffered to a greater extent. This industry downturn affected both satellite operators and their customer base. As of 1999,
voice customers began to switch to fiber optic cable, where available. Using new technology, some
existing customers have been able to compress data to a greater extent, requiring less satellite
capacity to send their signals. With the decline of the Internet sector, many businesses that were
users of satellite capacity failed and the pick-up of broadband/data services has been slower than
expected. In summary, many anticipated projects have been postponed, some customers have been
forced to cancel their satellite service contracts, and the development of new business has been
slower than expected. From December 2003 to December 2004, our backlog decreased by $87 million,
from $252 million to $165 million. At the same time, satellites themselves have been increasing in size, capacity, power levels
and the surface of the earth to which their signals can reach. The use of compressed data has
increased capacity of satellites to offer more data. The result has been lower utilization rates
across the fixed satellite services industry. During this period, in part because Latin America is recognized as a market with long-term
growth potential, competition has increased in our market. On August 10, 2001, the Mexican
government granted licenses 41




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to provide satellite service in Mexico to Mexican affiliates of PanAmSat and SES Global, as
well as Televisa and Enlaces Integra (an affiliate of Satmex). PanAmSat registered 11 satellites
and SES Global registered seven satellites to provide satellite service in Mexico. Given the lower
marginal cost to provide satellite service once a satellite is in place, prices of fixed satellite
services have fallen over the last two years. Due, however, to lower pricing as well as early economic recovery, we are beginning to see new
demand for fixed satellite services. Technological advances, such as high definition television,
are stimulating demand for satellite service because this high definition television requires more
bandwidth than regular television. In addition, the requirement that subscription television
(cable and satellite direct to home) offer local channels (local-into-local) will entail
significantly greater demand for satellite services. Rising demand for national and foreign
channels has also begun to stimulate demand for satellite capacity. Satellite Operations In August 2000, our Solidaridad 1 satellite ceased operating and was considered irretrievably
lost. The loss was caused by the failure of the back-up control processor on board the satellite.
Solidaridad 1, which was built by Hughes Space and Communications and commenced service in January
1994, experienced a failure of its primary control processor in April 1999, and the satellite had
been operating on its back-up processor since that time. Solidaridad 1 was insured for $250
million. At the date of the loss, Solidaridad 1 had a net book value of approximately $109.6
million. After deducting prepaid insurance of $1.6 million, the unpaid insurance premiums of $12.5
million and on-going monitoring costs and the excess of the estimated cost over revenue for the
currently committed transponder capacity to be provided to customers of $23.2 million, the net gain
on the in-orbit failure of Solidaridad 1 was approximately $103.1 million. In January 2001, we
received insurance proceeds of approximately $235.3 million, net of the unpaid insurance premiums
and related value added tax. We used the net insurance proceeds towards the manufacture, launch
and insurance of a replacement satellite and have contracted with SS/L to build the replacement
satellite, known as Satmex 6. We also used a portion of the net insurance proceeds for debt
service. Satmex 6 is currently scheduled to be launched not before early 2006, and is designed to
provide broader coverage and higher power levels than any other satellite currently in our fleet.
In 2001, we reduced the liability for the cost over revenue for the committed transponder capacity
to be provided to customers by $7.3 million. In 2002, we received $3.3 million from the satellite
manufacturer under the Solidaridad 1 performance guarantee and we reduced the liability for the
cost over revenue for the committed transponder capacity to be provided to customers by $5.1
million. In 2003, we canceled a portion of the reserve for monitoring for $3.3 million. These
transactions were recorded as additional gain on the in-orbit failure of Solidaridad 1 in the
applicable periods. At December 31, 2004, our Solidaridad 2 and Satmex 5 satellites had remaining estimated useful
lives of 4.4 and 9 years, respectively. Solidaridad 2 was manufactured by Boeing Space Systems
(formerly Hughes Space and Communications), and is similar in design to Solidaridad 1 and to other
satellites built by the same manufacturer that have experienced in-orbit component failures,
including failures of on-board satellite control processors, even though Solidaridad 2 has not
experienced any such failures. Satmex 5 was launched in 1998 with a primary and a secondary XIPS, each designed to perform
station-keeping activities that maintain the satellites position in orbit during its design life.
To provide further backup, Satmex 5 has an independent chemical propulsion system that provides
station-keeping operations to maintain its position in orbit. Should both the primary and
secondary XIPS fail, we currently estimate that the back-up chemical propulsion system of Satmex 5
would provide up to 3.7 years of station-keeping capability to maintain its position in orbit. During standard station-keeping procedures to maintain the satellites position in orbit on
November 17, 2003, the secondary XIPS, which was then the system in operation, failed to operate
satisfactorily. The primary XIPS was started on December 1, 2003 as an alternate to the secondary
XIPS, and it initially failed to operate satisfactorily. Our engineers and the manufacturer,
Boeing Satellite Systems, working together, returned the primary XIPS to an acceptable level of
operation. 42




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In connection with the events surrounding Satmex 5s XIPS, we sent our insurers notices of
occurrence on November 24, 2003, December 3, 2003 and December 10, 2003. These notices are
conditions to the filing of any formal proof of loss under the terms of the expired Satmex 5
insurance policy. On June 7, 2004, the 180 day claim period to file a proof of loss expired and,
based on a review of technical and operational considerations regarding Satmex 5 and the terms of
in-orbit insurance coverage for the satellite, we concluded that the conditions necessary to
establish a partial claim did not exist. In February 2004, we returned to the secondary XIPS as the operating propulsion system on
Satmex 5. During May 2005 the performance of the secondary XIPS was below manufacturing
specifications. On the recommendation of the manufacturer, Satmex 5 has since been operating using
the primary XIPS. The use of the primary XIPS to effect satellite maneuvers generates contaminants
on the solar arrays and requires supplemental bipropellant consumption. We continue to conduct
maneuving testing of the secondary XIPS, but to date, substantially all maneuvering tests have
failed. If both of these systems were to fail, we could lose operation of Satmex 5 within 3.7
years and our business would be materially and adversely harmed. On October 13, 2004, Satmex 5 suffered a pointing anomaly, which caused a temporary
interruption on some of the satellites service. The main on-board computer was switched to the
back-up computer and services were restored on the same day. On October 15, 2004, the main
on-board computer was switched on for testing purposes; after verifying its proper operation, it
was switched off again. Since February 23, 2005, the satellite has been operating in an adequate
and stable manner on its primary system. At December 31, 2004, our Solidaridad 2 was operating normally and had a remaining estimated
useful life of 4.4 years. Since 2000, the satellite operations area, as well as traffic management and customer support,
has been ISO9001 certified. Results of Operations for the Year Ended December 31, 2004 Compared to December 31, 2003 Revenue Service revenue for 2004 was $71.7 million, as compared to $78.8 million for 2003. The
decrease is due to lower utilization of Solidaridad 2 and Satmex 5 caused by net contract
cancellations of $3.2 million and net non-renewals of $3.9 million. Operating Expenses Operating expenses decreased to $77.2 million in 2004, from $86.4 million in 2003, as
described below. Satellite operations. Satellite operations costs, which consist primarily of satellite
insurance and the personnel costs related to the operation of the satellites, were $13.9 million
for 2004, as compared to $13.1 million in 2003. The increase is primarily due to the cost of
warehousing of Satmex 6 of $2.0 million which was partially offset by a decrease in the cost of
satellite insurance in the amount of $1.4 million. Selling and administrative expenses. Selling and administrative expenses, which consist
primarily of salaries, operating expenses, professional fees, which includes certain legal fees,
auditing, and business relationships, and allowance for doubtful accounts were $14.6 million in
2004 as compared to $23.8 million in 2003. The significant decrease is primarily due to a decrease
of $2.2 million in salaries and commissions, of $1.5 million in various professional fees, $2.8
million related to the cancellation of allowances for doubtful accounts, and recovery of $2.6
million as a result of the invoice of certain expenses to Enlaces, an affiliated company. License and management fees. Loral and Principia are responsible for the management of our
operations. Loral and Principia receive a management fee, based on a sliding scale, up to a
maximum of 3.75% of our quarterly gross revenue, as defined. For the year ended December 31, 2004
and 2003, no management fees were earned. Loral has licensed certain intellectual property to us
for an annual fee of 1.5% of our gross revenue. For 2004 and 43




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2003, the fee was $0.5 million and $1.1 million, respectively, of which $15,000 was offset in
2003 against accrued expenses. The license fee decreased in 2004 due to our lower revenue. Depreciation and amortization. Depreciation expense was $35.2 million in 2004 and $35.5
million in 2003. Amortization expense relating to the concessions was $12.9 million in each year. Operating Loss Operating loss was $5.5 million in 2004 and $7.6 million in 2003. Satellite transmission has
no variable cost associated with the service. Thus any reduction in revenue is translated into an
increase in operating loss. Accordingly, in 2004, our satellite operating expenses were not
directly affected by the reduction in revenue. Our revenue decreased by $7.1 million and this
reduction is directly responsible for the $2.1 million decrease in our operating loss. Interest Income Interest income for 2004 was $3.6 million as compared to $0.3 million for 2003. The increase
is primarily due to an increase in our available cash for investment as a consequence of a
reduction of expenses. Interest Cost Total interest cost, including $7.8 million of legal and advisory fees related to the
restructuring, was $57.0 million in 2004 compared to $58.3 million, including $18.6 million of
capitalized interest related to the construction of Satmex 6 and $9.5 million of legal and advisory
fees related to restructuring, for 2003. Net of the legal and advisory fees related to the
restructuring, our interest costs were about equal in both years. The average balance outstanding
on our Floating Rate Notes was $203.4 million in 2004 compared to $204.0 million in 2003 while the
balance on our Fixed Rate Notes was $320 million in both years. The weighted average interest rate
applied to our Floating Rate Notes was 6.7% in 2004 compared to 5.7% in 2003. We did not pay any
interest on our fixed rate notes in 2004; however we accrued those interest payments and accounted
for them as Interest Costs. Net Foreign Exchange Loss / Gain We recorded a net foreign exchange loss of $97,000 in 2004 as compared to a foreign exchange
gain of $264,000 in 2003. Foreign exchange gains and losses are calculated based on outstanding
balances of Mexican Peso denominated assets and liabilities relative to the prevailing US
dollar/Mexican Peso exchange rate. We do not engage in currency hedging operations. Deferred Income Tax Expense/Benefit On December 1st 2004, the Mexican government enacted a new income tax law with the following
principal modifications:  a)
    
    Reduces the statutory income tax rate as follows : 30% for 2005, 29% for 2006 and 28 % for
2007.  b)
    
    Allows to deduct liabilities with banks and foreigners in order to calculate the Tax on
Assets basis. For the deferred income tax determination at December 31st, 2004, Satmex applied the different
income tax rates applicable according to the estimated date of reversion. For the year ended December 31, 2004, we recorded a deferred income tax expense of $10.5
million on a loss before income taxes of $58.9 million, while for 2003 we recorded a deferred
income tax expense of $35.8 million on a loss of $43.4 million, yielding an effective rate of
82.2%. The change from 2003 to 2004 relates primarily to an additional provision recorded in 2003
to increase the valuation allowance, and the tax effect of inflation and currency remeasurement. 44




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Net operating losses may be carried forward for 10 years and any asset tax paid is available
as a credit against the income tax liability for a ten-year period. At December 31, 2004 we had
tax loss carryforwards of approximately $374 million, which expire from 2008 to 2014. Preferred Stock Dividend Requirement Our preferred stock pays dividends in our common stock. Our preferred stock dividend of $1.5
million in 2004 and 2003 is based on the value assigned to the 606,730 shares of preferred stock
issued in March 1999. Net Loss Applicable to Common Stockholders Due to the factors discussed above, the net loss applicable to common stockholders loss was
$70.9 million in 2004 and $80.7 million in 2003. Results of Operations for the Year Ended December 31, 2003 Compared to December 31, 2002 Revenue Service revenue for 2003 was $78.8 million, as compared to $85.0 million for 2002. The
decrease is due to lower utilization of Solidaridad 2 and Satmex 5 caused by net contract
cancellations of $2.7 million and net non-renewals of $3.5 million. Operating Expenses Operating expenses decreased to $86.4 million in 2003, from $86.5 million in 2002, as
described below. Satellite operations. Satellite operations costs, which consist primarily of satellite
insurance and the personnel costs related to the operation of the satellites, were $13.1 million
for 2003, as compared to $17.1 million in 2002. The decrease is primarily due to a lower cost for
replacement capacity on other satellites for customers previously using capacity on Solidaridad 1,
representing $3.4 million. Selling and administrative expenses. Selling and administrative expenses, which consist
primarily of salaries, operating expenses, professional fees, which includes certain legal fees,
auditing, and business relationships, and bad debt provision, were $23.8 million in 2003 as
compared to $20.8 million in 2002. The increase is primarily due to an increase of $1.9 million of
various professional fees and an increase of $1.1 million of provision for uncollectible accounts
receivable. License and management fees. Loral and Principia are responsible for the management of our
operations. Loral and Principia receive a management fee, based on a sliding scale, up to a
maximum of 3.75% of our quarterly gross revenue, as defined. For the year ended December 31, 2003
and 2002, no management fees were earned. Loral has licensed certain intellectual property to us
for an annual fee of 1.5% of our gross revenue. For 2003 and 2002, the fee was $1.1 million and
$1.2 million, respectively, of which $15,000 and $65,000, respectively, was offset against accrued
expenses. The license fee decreased in 2003 due to our lower revenue. Depreciation and amortization. Depreciation expense was $35.5 million in 2003 and $34.5
million in 2002. Amortization expense relating to the concessions was $12.9 million in each year. Operating Loss Operating loss was $7.6 million in 2003 and $1.4 million in 2002. Satellite transmission has
no variable cost associated with the service. Thus any reduction in revenue is translated into an
increase in operating loss. In 2003, our satellite operating expenses were not directly affected
by the reduction in revenue. Our revenue decreased by $6.2 million and this reduction is directly
responsible for the $6.2 million increase in our operating loss. 45




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Interest Income Interest income for 2003 was $0.3 million as compared to $2.0 million for 2002. The decrease
is primarily due to our usage of all the restricted and segregated cash available for investment. Interest Cost Total interest cost, including $18.6 million of capitalized interest related to the
construction of Satmex 6 and $9.5 million of legal and advisory fees related to the restructuring,
was $58.3 million in 2003 compared to $52.0 million, including $14.2 million of capitalized
interest related to the construction of Satmex 6, for 2002. Net of the legal and advisory fees
related to the restructuring, our interest cost decreased in 2003 as a result of reduced debt
outstanding and lower prevailing interest rates. The average balance outstanding on our Floating
Rate Notes was $204.0 million in 2003 compared to $222.7 million in 2002 while the balance on our
Fixed Rate Notes was $320 million in both years. The weighted average interest rate applied to our
Floating Rate Notes was 5.7% in 2003 compared to 6.3% in 2002. We did not make our August 1, 2003
interest payment on the Fixed Rate Notes; however, we accrued the interest payment and accounted
for it as an interest expense. Net Foreign Exchange Gain We recorded a net foreign exchange gain of $264,000 in 2003 as compared to a foreign exchange
gain of $93,000 in 2002. Foreign exchange gains and losses are calculated based on outstanding
balances of Mexican Peso denominated assets and liabilities relative to the prevailing US
dollar/Mexican Peso exchange rate. We do not engage in currency hedging operations. Deferred Income Tax Expense/Benefit On January 1, 2002, the Mexican government enacted a new income tax law that reduces the 35%
statutory income tax rate by 1% per year beginning January 1, 2003 through January 1, 2005. We
recorded a deferred income tax benefit of $1.8 million in the first quarter of 2002 for the effect
of this change on deferred tax assets and liabilities. For the year ended December 31, 2003, we recorded a deferred income tax expense of $35.8
million on a loss before income taxes of $43.4 million, while for 2002 we recorded a benefit of
$8.8 million on a loss of $28.8 million, yielding an effective rate of 30.7%. The change from 2002
to 2003 relates primarily to an additional provision recorded in 2003 to increase the valuation
allowance, and the tax effect of inflation and currency remeasurement. Net operating losses may be carried forward for 10 years and any asset tax paid is available
as a credit against the income tax liability for a ten-year period. At December 31, 2003 we had
tax loss carryforwards of approximately $332 million, which expire from 2008 to 2013. During 2003
we used tax credits available against the asset tax. Preferred Stock Dividend Requirement Our preferred stock pays dividends in our common stock. Our preferred stock dividend of $1.5
million in 2003 and 2002 is based on the value assigned to the 606,730 shares of preferred stock
issued in March 1999. Net Loss Applicable to Common Stockholders The net loss applicable to common stockholders loss was $80.7 million in 2003 and $21.4
million in 2002. The greater loss was primarily due to deferred tax expense, higher net interest
expense, and a decrease in revenues. 46




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Inflation and Foreign Exchange Fluctuations During 2004, 2003 and 2002, the annual rates of inflation in Mexico, as measured by changes in
the National Consumer Price Index (Índice Nacional de Precios al Consumidor)as provided by the
Banco de México, were 5.2%, 3.9% and 5.7% respectively. Our major expenditures, including capital
expenses and satellite insurance, are not affected by high levels of inflation, because they are
denominated in dollars. Our customer contracts are also denominated in dollars. However, high
inflation rates would affect peso denominated expenses such as payroll and rent and could result in
an increase in uncollectible accounts receivable and customer lease cancellations. To the extent
that the pesos devaluation against the U.S. dollar is less than the inflation rate in Mexico, we
will be adversely affected by the effect of inflation in Mexico with respect to our peso
denominated expenses. We do not use foreign currency hedges. Capital Expenditures Substantially all of our capital expenditures are denominated in U.S. dollars. During 2004,
Satmex invested $1.4 million in systems and other infrastructure; however, Satmex received $5.0
million in the form of a return of a deposit on an insurance policy related to Satmex 6. Capital
expenditures were $37.9 million for 2003 and $123.2 million for 2002. Expenditures in 2003 and
2002 for the construction of Satmex 6 were $36.3 million and $119.8 million, of which $6.6 million
and $108.0 million were funded through the use of restricted and segregated cash, in 2003 and 2002,
respectively. In addition, we paid $2.0 million during 2004 related to storage and maintenance
requirements while Satmex 6 awaits launch. We expect capital expenditures for 2005 to be up to $50
million assuming a first quarter 2006 launch of Satmex 6. Following the launch of Satmex 6, we
expect a sharp drop in capital expenditures. We have not made any significant capital expenditures
in 2005, although we expect to spend up to $1.0 million in connection with modifying and moving of
office space. Liquidity and Capital Resources At December 31, 2004, we had total debt of $523.4 million. On June 30, 2004, our Floating Rate Notes came due and we did not make the required principal
payment of $203.4 million. On November 1, 2004, our Fixed Rate Notes came due and we did not make
the required principal payment of $320.0 million. Also, we did not make the August 1, 2003,
February 1, 2004, and August 1, 2004 interest payments on the Fixed Rate Notes or the interest due
on maturity of the Fixed Rate Notes. The aggregate amount of interest payment due was $56.7
million. We did not make the interest payments on the Fixed Rate Notes nor the required principal
payments under both indentures due to cash shortfalls from our operating activities. In an effort
to restructure, among other things, these defaulted obligations, on June 29, 2005 we filed a
voluntary concurso mercantilin the District Court in Mexico City. On December 29, 2004, the debt obligation of our parent company, Servicios, to the Menoscabo
of approximately $125.1 million plus accrued interest of approximately $63 million came due and
Servicios did not make payment of such amounts. This debt obligation is secured by the equity of
Firmamento held by Loral Satmex Ltd. and Principia S.A. de C.V. As a result of the payment
defaults under the Menoscabo, the Mexican government could initiate proceedings against Servicios,
which may include foreclosure on the Firmamento equity and possibly transfer of that equity. We do
not know what actions the Mexican government may take to exercise its remedies pursuant to the
Menoscabo. The Mexican government may participate as an interested purchaser of those holdings
and, if awarded the sale, it would gain direct control of Firmamento and indirect control of us.
If the Mexican government gains control of us, we cannot assure you that it would assume any of our
debt, including the Fixed Rate Notes or the Floating Rate Notes. Also, in that scenario, we would
be controlled and managed by the Mexican government. Our primary source of liquidity for working capital purposes is cash flow from operations. As
of December 31, 2004, we had $39.1 million in available cash and cash equivalents. Funds from the
satellite and debt escrow accounts had been fully used and, as of December 31, 2004, no remaining
balances existed. We believe that available cash may not be sufficient to fund the launch of the
Satmex 6 satellite in the next twelve months unless we obtain new financing. Further, if we do not
complete our financial restructuring, we do not expect cash flows to be 47




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sufficient to make the overdue interest and principal payments on our Fixed Rate Notes and our
Floating Rate Notes. We do not expect our shareholders to contribute any more equity to us. As part of our restructuring, we are actively exploring with our financial advisors how to
finance the remaining funds required to launch Satmex 6, which we do not expect to be able to
obtain, unless we can obtain it in the concurso mercantil, in connection with a successful
restructuring of our indebtedness. We cannot assure you we will be able to obtain this financing.
The launch of Satmex 6 is critical to our ability to increase cash flows and improve our financial
position. Any further delay in the commencement of service of Satmex 6 would delay the revenue
anticipated to be generated by the satellite. It could also cause us to lose some customers that
have indicated interest in Satmex 6. Cash Used and Provided Net cash provided by operating activities for the year ended December 31, 2004 of $22.6
million consisted primarily of an increase in interest payable of $34.5 million, which was offset
by $11.1 million of losses before non-cash items and other items amounting to $0.8 million. Net cash provided in investing activities for 2004 was $3.6 million. Capital expenditures for
2004 were $1.4 million. Substantially all capital expenditures are denominated in U.S. dollars. Cash used in financing activities for the year ended December 31, 2004 was $0.2 million and
reflects the repayment of $0.2 million of our floating rate notes. Our total cash balance as of June 15, 2005, was $49.5 million compared to $39.1 million on
December 31, 2004. Contractual Obligations and Other Commercial Commitments The following tables aggregate our contractual obligations and other commercial commitments as
of December 31, 2004 (in thousands). 48




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Payments Due by PeriodLess ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    4 - 5 Years
    
    
    After 5 YearsDebt and related interest
accrued as of December 31, 2004
    
    $
    588,274
    
    
    $
    588,274
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases (1)
    
    
    1,458
    
    
    
    834
    
    
    
    468
    
    
    
    156
    
    
    
    Unconditional purchase
obligations(2)(3)
    
    
    41,492
    
    
    
    1,050
    
    
    
    8,750
    
    
    
    500
    
    
    
    31,192Other long-term obligations(4)
    
    
    2,687
    
    
    
    207
    
    
    
    413
    
    
    
    413
    
    
    
    1,654Total contractual cash obligations
    
    $
    633,911
    
    
    $
    590,365
    
    
    $
    9,631
    
    
    $
    1,069
    
    
    $
    32,846Amount of Commitment Expiration Per PeriodTotal Amounts
    
    
    Less Than 1Other Commercial Commitments:
    
    Committed
    
    
    Year
    
    
    1  3 Years
    
    
    4  5 Years
    
    
    After 5 YearsMonitoring service
    
    $
    92
    
    
    $
    92
    
    
    
    
    
    
    
    
    
    
    
    Maintenance
    
    $
    10
    
    
    $
    10
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Represents future minimum payments under non-cancelable operating leases with initial or
remaining terms of one year or more.(2)
    
    Represents the commitments for the construction and launch of Satmex 6.(3)
    
    On June 14, 2005, we entered into a Settlement Agreement with the Loral Entities. Pursuant
to the terms of the Settlement Agreement, we and SS/L terminated our respective obligations
under the Satmex 6 SPA, we and Loral SpaceCom agreed to terminate the Management Agreement and
License Agreement, we agreed to deliver two 36 MHz Ku-band transponders and two 36 MHz C-band
transponders to LSCC from Satmex 6 upon its successful launch, and, provided we meet certain
conditions precedent specified in the new contract for the procurement of Satmex 6 between us
and SS/L, including the approval of the Settlement Agreement and the underlying transactions
with any court(s) and any other authorities with jurisdiction over our U.S. Chapter 11 case
and/or Mexican concurso mercantil, as applicable. SS/L renewed its commitment to provide
continued support for the launch of Satmex 6, among other things. However, this Settlement
Agreement must be approved by the bankruptcy court with jurisdiction over Lorals bankruptcy
to be effective. We cannot assure you the court will approve the Settlement Agreement. We
cannot assure you that any court(s) or other authorities with jurisdiction over our U.S.
Chapter 11 case and/or our Mexican concurso mercantil, as applicable, will approve the
Settlement Agreement. However, if the Settlement Agreement is approved as required, our
Unconditional Purchase Obligations as set forth in the table above will decrease to
$12,800,000 total, $300,000 payable in less than 1 year, $12,500,000 payable in 1-3 years and
$0 payable thereafter. In such case, total contractual cash obligations will change to
$605,219,000 total, $589,615,000 payable in less than 1 year, $13,381,000 payable in 1-3
years, $569,000 payable in 4-5 years, and $1,654 payable after 5 years. See Major
Shareholders and Related Party Transactions  Loral Settlement for additional information.
All defined terms in the above footnote are as defined in Major Shareholders and Related
Party Transactions  Loral Settlement on p. 55 of this Form 20-F.(4)
    
    Represents payments to the Mexican government under the Property Concession. Contingent Obligations As of December 31, 2004, we had a contingent obligation in the amount of $4.5 million
representing three surety bonds issued as a condition to maintain compliance with the concessions.
We have deposited with the surety bond issuer $2.7 million as collateral to these surety bonds.
The collateral will be returned to us upon the completion of our financial restructuring. 49




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The Fixed Rate Notes On February 2, 1998, we issued the Fixed Rate Notes in an aggregate principal amount of $320
million, which mature on November 1, 2004, all of which was outstanding on December 31, 2004. The
interest rate on the Fixed Rate Notes is 10.125%. We are required to make interest payments on the
Fixed Rate Notes semi-annually in cash in arrears on each February 1 and August 1 until maturity.
The Fixed Rate Notes are unsecured, unsubordinated obligations, rank pari passuin right of payment
with all of our existing and future unsubordinated obligations, and are senior in right of payment
to all of our future subordinated indebtedness. The Fixed Rate Notes indenture contains certain covenants that impose among others certain
limitations and restrictions on our ability to incur additional indebtedness, pay dividends or make
other distributions, make certain loans and investments, apply the proceeds of asset sales (and use
the proceeds thereof), create liens, enter into certain transactions with affiliates, merge,
consolidate or transfer substantially all of our assets and make investments in unrestricted
subsidiaries. The events of default under the Fixed Rate Notes indenture includes various events
of default customary for similar issues of notes, including among others the failure to pay
principal and interest when due, cross acceleration and certain events of bankruptcy, insolvency
and reorganization. On June 30, 2004, our Floating Rate Notes came due and we did not make the required principal
payment of $203.4 million. On November 1, 2004, our Fixed Rate Notes came due and we did not make
the required principal payment of $320.0 million. Also, we did not make the August 1, 2003,
February 1, 2004, and August 1, 2004 interest payments on the Fixed Rate Notes or the interest due
on maturity of the Fixed Rate Notes. The aggregate amount of interest payment due was $56.7
million. We did not make the interest payments on the Fixed Rate Notes nor the required principal
payments under both indentures due to cash shortfalls from our operating activities. In an effort
to restructure, among other things, these defaulted obligations, on June 29, 2005 we filed a
voluntary concurso mercantil in the District Court in Mexico City. Also, on May 25, 2005, the Petitioning Creditors filed a petition commencing an involuntary
Chapter 11 bankruptcy case against us in the U.S. Bankruptcy Court of the Southern District of New
York seeking a financial reorganization. See Financial Restructuring for additional
information. The Floating Rate Notes On March 4, 1998, we issued our Floating Rate Notes in an aggregate principal amount of $325
million, which on June 30, 2004, came due and we did not make the required principal payment of
$203.4 million. Certain other covenant defaults have occurred under the indentures governing the
Floating Rate Notes. We have continued to pay interest. The Floating Rate Notes rank senior in
right of payment to all of our subordinated debt and pari passuin right of payment to all of our
senior indebtedness, including the Fixed Rate Notes. They are secured by a lien on substantially
all of our assets and will be effectively senior to our unsecured indebtedness to the extent of the
value of the collateral securing the Floating Rate Notes. The Floating Rate Notes bear interest at
rates based either on LIBOR or the base rate specified in the Fixed Rate Notes indenture, at our
option, and are redeemable at our option. In addition, the Floating Rate Notes are guaranteed by
Firmamento and Servicios. In addition to containing similar covenants as the Fixed Rate Notes, the Floating Rate Notes
contain covenants that require maintenance of certain quarterly financial and operating ratio
levels and impose limits on our spending for capital expenditures. On June 30, 2004, our Floating Rate Notes came due and we did not make the required principal
payment of $203.4 million. On November 1, 2004, our Fixed Rate Notes came due and we did not make
the required principal payment of $320.0 million. Also, we did not make the August 1, 2003,
February 1, 2004, and August 1, 2004 interest payments on the Fixed Rate Notes or the interest due
on maturity of the Fixed Rate Notes. The aggregate amount of interest payment due was $56.7
million. We did not make the interest payments on the Fixed Rate Notes nor the required principal
payments under both indentures due to cash shortfalls from our operating activities. In an effort
to restructure, among other things, these defaulted obligations, on June 29, 2005 we filed a
voluntary concurso mercantil in the District Court in Mexico City. 50




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Also, on May 25, 2005, the Petitioning Creditors filed a petition commencing an involuntary
Chapter 11 bankruptcy case against us in the U.S. Bankruptcy Court of the Southern District of New
York seeking a financial reorganization. See Financial Restructuring for additional
information. Presentation of Financial Information Our financial statements are published in U.S. dollars and prepared in conformity with U.S.
generally accepted accounting principles, which we refer to as U.S. GAAP. We maintain our legal
books and records in Mexican pesos. Our functional currency is the U.S. dollar. Monetary assets
and liabilities denominated in pesos are translated into U.S. dollars using current exchange rates.
The effect of changes in exchange rates is recorded in the results of operations. Non-monetary
assets and liabilities originally denominated in pesos are translated into U.S. dollars using the
historical exchange rate at the date of the transaction. Capital stock is translated at historical
exchange rates. Sums presented in this prospectus may not add due to rounding. Critical Accounting Policies The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the financial statements. Actual results could differ from these estimates. Accounting
policies that are critical to understand in our financial statements and that require significant
judgment by management include the estimated useful lives of our satellites, the valuation of
long-lived assets, the valuation allowance related to deferred income tax assets, and the allowance
for doubtful accounts. The Useful Lives of Satellites Satellites are stated at historical cost. Depreciation expense is calculated using the
straight-line method over the estimated useful lives of the satellites. The estimated useful lives of our satellites as of the commencement of useful life, were: Solidaridad 2
    
    14.5 yearsSatmex 5.
    
    15 years
 Solidaridad 2 and Satmex 5 are being depreciated over their estimated useful lives commencing
on their in-orbit service dates of November 11, 1994 and January 22, 1999, respectively. The
estimated useful lives of the satellites were determined by engineering analyses performed on the
in-orbit service dates. Costs incurred in connection with the construction and successful deployment of our satellites
and related equipment are capitalized. Such costs include direct contract costs, allocated
indirect costs, launch costs, launch insurance, construction period interest and the estimated
value of satellite incentive payments. There was no capitalized interest related to Satmex 6 in
2004. Capitalized interest related to the construction of Satmex 6 was $18.6 million and $14.2
million for the years ended December 31, 2003 and 2002, respectively. All capitalized satellite
costs are amortized over the estimated useful life of the related satellite. The estimated useful
life of the satellites was determined by engineering analyses performed at the satellites
in-service date. Satellite lives are reevaluated periodically. Gains or losses from unsuccessful
launches and in-orbit failures of our satellites, net of insurance proceeds, are recorded in the
period a loss occurs. The Valuation of Long-Lived Assets The carrying value of our long-lived assets is reviewed for impairment whenever events or
changes in circumstances indicate that an asset may not be recoverable. Assets are determined to
be impaired when the estimated undiscounted cash flows expected to result from the use of the asset
are less than the carrying value of the asset. We measure impairment as the difference between the
carrying value and the fair value of the asset. We develop our analysis of undiscounted cash from
estimates and assumptions based upon the best evidence available 51




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including, but not limited to, our current pricing structure, internal operating budgets and
the expected utilization of our broadband capacity. The Valuation of Deferred Income Tax Assets We recognize deferred income tax assets and liabilities for the future consequences of
temporary differences between the financial statement carrying amounts of assets and liabilities
and their respective income tax bases, measured using enacted rates. The effects of changes in the
statutory rates are accounted for in the period that includes the enactment date. Deferred income
tax assets are also recognized for the estimated future effects of tax loss carryforwards and asset
tax credit carryforwards. Deferred income tax assets are reduced by a valuation allowance, based
upon the weight of available evidence, for any tax benefits where it is more likely than not (a
likelihood of more than 100%) the tax benefits will not be realized. We base our analysis on
projected taxable income which is developed on a basis consistent with out internal operating
budgets and projections. The Allowance for Doubtful Accounts We evaluate our allowance for doubtful receivables on a regular basis. Such analysis involves
a review of the payment and credit history of specific accounts. Where we determine an allowance
is required, such allowance is created in the period which we believe that collection of the
account has become doubtful. After an allowance is applied, the reversal of such allowance only
occurs in the period of payment or in the period where a change in circumstance has occured which
provides strong evidence to support the collectability of the receivable. Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB)issued Statement of
Financial Accounting Standards (SFAS)No. 123 (revised 2004), Share-Based Paymentsor SFAS
123R. This statement eliminates the option to apply the intrinsic value measurement provisions of
Accounting Principles Board (APB)Opinion No. 25, Accounting for Stock Issued to Employeesto
stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the
cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the awardthe requisite service period
(usually the vesting period). SFAS 123R applies to all awards granted after the required effective
date and to awards modified, repurchased, or cancelled after that date. SFAS 123R will be
effective for our fiscal year ending December 31, 2006. We have not yet quantified the effect of
the future adoption of SFAS 123R on a going forward basis. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  an
amendment of APB Opinion No. 29or SFAS 153, which amends APB Opinion No. 29, Accounting for
Nonmonetary Transactionsto eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring
in fiscal periods beginning after June 15, 2005. We do not anticipate that the adoption of this
statement will have a material effect on our financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that certain financial instruments be classified as
liabilities that were previously considered equity. The provisions of SFAS No. 150 are effective
for financial instruments entered into or modified after May 31, 2003, and for pre-existing
instruments, is effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have a material impact on its financial position,
results of operations or cash flows. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46). In December 2003, FIN 46
was replaced by FASB Interpretation No. 46 (revised
December 2003), 52




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Consolidation of Variable Interest Entities (FIN 46(R)).FIN 46(R) clarifies the
application of Accounting Research Bulletin No. 51, Financial Statements,to certain entities in
which equity investors do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN46(R) requires an enterprise to consolidate
a variable interest entity if that enterprise will absorb a majority of the entitys expected
losses, is entitled to receive a majority of the entitys expected residual returns or both. The
Company has applied the provisions of FIN 46 and FIN 46-R to all entities subject to these
provisions as of December 31, 2004. The Company does not currently have any variable interest in a
variable interest entity and therefore the adoption of the standard did not have effect on Satmexs
financial position, results of operations or cash flows. 
 Item 6.Directors, Senior Management and Employees Directors and Senior Management Name
    
    Position
    
    Age
    
    Period of ServiceSergio Miguel Autrey Maza(l)
    
    Chairman of the Board, Director and
Chief Executive Officer (2)
    
    
    53
    
    
    Since November 1997Bernard L. Schwartz(l).
    
    Director
    
    
    79
    
    
    Since November 1997Eric J. Zahler(l).
    
    Director
    
    
    54
    
    
    Since November 1997Francisco Alfredo Ramírez V.
    
    Director
    
    
    37
    
    
    Since September 2004Angel Mario Gutiérrez González.
    
    Director
    
    
    51
    
    
    Since September 2004Cynthia M. Pelini.
    
    Executive Vice President and Chief
Financial Officer
    
    
    50
    
    
    Since April 1998Juan Manuel Pinedo.
    
    Executive Vice President and Chief
Marketing Officer
    
    
    40
    
    
    Since April 1998
 
 (1)
    
    Member of the Executive Committee.(2)
    
    CEO Since February, 2005 Management of our business is vested in the Board of Directors. Our bylaws provide for the
Board of Directors to consist of an odd number of directors. Directors are elected by a majority
of the holders of the common shares, provided that holders of Class N shares have the right to
appoint a director and any holder or group of holders of at least 25% of the total shares of the
Company is entitled to name one director. Directors and alternate directors are elected or
ratified at each annual ordinary general meeting of shareholders and each serves until a successor
is elected and takes office. Loral and Principia have agreed that our Board of Directors will consist of a majority of
Directors appointed by Principia and the rest by Loral and that for so long as Principia designates
the majority of the directors of the Board of Directors, it shall nominate the chairman of the
Board of Directors and Loral shall have the right to nominate the secretary of the Board of
Directors. Loral and Principia have invited the Mexican government to designate one director to
the Board of Directors. Our bylaws provide that the members of the Board of Directors are appointed for terms of one
year and may be reelected. Pursuant to Mexican law, members of the Board of Directors continue in
their positions after the expiration of their terms if new members are not appointed. According to
our by-laws, common shareholders may appoint an odd number of members of the Board of Directors,
Series N shareholders may appoint one director and holders of 25% or more of the outstanding
shares, may also appoint one director. We have no contracts that provide for benefits to any
director upon termination of service. Our Board of Directors is chaired by Mr. Sergio Miguel Autrey Maza and currently consists of
five directors appointed by Principia and Loral. 53




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Our Chief Executive Officer (CEO), who was designated by the Board last February, is a
majority shareholder of Principia and thus an important participant in our equity. There is no
other arrangement with our employees or senior management regarding equity ownership or options in
us. Mr. Autrey is the CEO. The CEO reports to the Board of Directors. His duties include day to
day management of the company, strategic planning and relationship development. The CEO can be
removed by the Board of Directors. Mr. Autrey has been the Chairman of the Board and a director of Satmex since November 1997 and
is the Chairman of the Board of Principia and Globalstar de México, a satellite telephony service
provider owned by Principia and Loral. He is also a member of the board of Parábola, and Grupo
Editorial Notimusa, Mexican publishing companies; and Beta San Miguel, a sugar production company. Mr. Schwartz has been a director of Satmex since November 1997. Mr. Schwartz is Chairman of
the Board and CEO of Loral. Mr. Zahler has been a director of Satmex since November 1997. Mr. Zahler is the President and
Chief Operating Officer of Loral. Mr. Ramírez, has been a Director of Satmex since September, 2004 and is a member of the Board
of Grupo Aeroportuario del Pacífico, S.A. de C.V. and Grupo Aeroportuario de la Ciudad de México,
S.A. de C.V., as well as member of the Operative and Auditing Committees of those Corporations.
Mr. Ramírez is the designee of the Mexican government on our Board of Directors. Mr. Gutiérrez, has been a Director of Satmex since September, 2004 and is the controller of
Grupo Debir, the statutory auditor of Principia and is a member of the Board of Beta San Miguel and
Principia and member of the audit committee of Satmex. Ms. Pelini has been the Chief Financial Officer of Satmex since April 1998 and Executive Vice
President of Finance and Administration since December 2000. Prior to that, she was Vice President
of Investor Relations at Grupo lusacell, a Mexican cellular communications company, from 1996 to
1998. Ms. Pelini was Director of Banking Relations for Grupo Televisa from 1995 to 1996, Director
of Financial Planning, Capital Markets and Investor Relations for Grupo Dina, a Mexican
transportation manufacturer, from 1992 to 1995, and Corporate Treasurer of Corporación Industrial
SanLuis from 1989 to 1992. From 1976 through 1989, she worked in international banking assignments
for both The Chase Manhattan Bank and Bankers Trust Company. Mr. Pinedo has been the Executive Vice President and Chief Marketing Officer of Satmex since
December 2000. Mr. Pinedo joined Satmex in April 1998 and was the Executive Director of Business
Development until January 1999, when he was named Executive Director of Sales and Marketing. From
1992 to 1998, Mr. Pinedo was a senior consultant and engagement manager for McKinsey & Company.
From 1987 to 1992, Mr. Pinedo was an engagement manager for Andersen Consulting. Compensation For the year ended December 31, 2004, the aggregate compensation, including bonuses, of
management paid or accrued in that year for services in all capacities was approximately $5.8
million. As in previous years, during 2004, we did not make any payments to members of the Board
for attendance at Board or Executive Committee meetings and we did not provide any pension,
retirement or similar benefits for directors or executive offcers. Mr. Autrey has not received any
compensation to date in his role as CEO. The board of directors is currently evaluating a
compensation program for him. Currently, management has earned under existing long-term compensation plans $267,000 to be
paid next year; one condition for its payment is continued employment. No long-term incentives
were awarded in 2004. 54




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All employees are eligible for bonuses based on performance. The bonus plan provides for us
to pay bonuses based on achievement of financial targets established for the year. On June 24,
2005, we paid our eligible employees approximately $1.0 million in the aggregate as the 2003
performance bonus. We do not intend to pay a 2004 performance bonus. We are preparing guidelines
that could result in the payment of a 2005 performance bonus. Sales commissions for 2004 were paid
quarterly. As of the date of this annual report, the senior management, comprising our three
highest-ranking executives, has not received a salary increase since early 2001. Employees As of December 31, 2004, we had approximately 193 employees hired through affiliated service
companies. Of the 193 employees, 49 are members of the Television and Radio labor union. The
collective agreement provides for, among other things: union exclusivity, annual salary revision,
a maximum workweek of 40 hours, company maintained medical and life insurance, severance payment
including retirement of 14 days pay for each year worked in addition to statutory severance
benefits under Mexican labor laws, a statutory annual bonus equivalent to one months pay, and a
review of the collective contract every two years. Our employee relationships are subject to the
Federal Labor Laws (Ley Federal del Trabajo). We believe our relationship with the unionized
employees is satisfactory. One of our executives, until July, 2004, received his primary
compensation through a Mexican company, Vita Brevis, S.C., which he controlled. This was the sole
contractual arrangement between Vita Brevis, S.C. and us. Share Ownership As of December 31, 2004, the share ownership of Satmex is as follows: Shares
    
    
    PercentageServicios Corporativos
    
    
    7,500,000
    
    
    
    70.71Mexican government
    
    
    2,500,000
    
    
    
    23.57Loral
    
    
    473,449
    
    
    
    4.46Principia
    
    
    133,281
    
    
    
    1.2610,606,730
    
    
    
    100.00
 
 Item 7.Major Shareholders and Related Party Transactions Major Shareholders Prior to October 15, 1997, we were not operated as a stand-alone satellite capacity provider,
but were operated by the Mexican government as part of the operations of Telecomunicaciones de
Mexico, an agency of the Mexican government. In 1997, Loral and Principia formed a joint venture,
Firmamento, to effect the acquisition of Satmex from the Mexican government. Firmamento is owned
65% by Loral and 35% by Principia. Principia, however, holds 51% of Firmamentos voting interests,
while Loral holds the other 49%. On November 17, 1997, an indirect subsidiary of Firmamento
entered into a Stock Purchase Agreement with the Mexican government to acquire 75% of our
outstanding capital stock from the Mexican government for a purchase price of approximately $646.8
million. On November 17, 1997, the acquisition subsidiary paid approximately $194.0 million of the
purchase price and on December 29, 1997 paid the balance, plus interest. On December 29, 1997, the
acquisition subsidiary was merged into Satmex. 55




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In consideration of the debt incurred by us in connection with the acquisition, Servicios, a
wholly owned subsidiary of Firmamento, agreed to pay to the Mexican government approximately $125.1
million under the Menoscabo. The Menoscabo accrues deferred interest at the rate of 6.03% per
annum, compounds annually and matures in December 2004. Payment of the Menoscabo is currently
secured by Lorals and Principias interests in Firmamento. Servicios defaulted the payment of the
Menoscabo, and the Mexican government has the right to initiate foreclosure proceedings, which
would lead to the transfer of the holdings of Loral and Principia in Firmamento to a third party
purchaser. At the time of this filing, The Mexican government has not initiated foreclosure
proceedings. The Mexican government may participate as an interested purchaser of those holdings
and, if awarded the sale, it would gain direct control of Firmamento and indirect control of us.
If the Mexican government gains control of us, we cannot assure you that it would assume any of our
debt, including the existing notes. Also, in that scenario, we would be controlled and managed by
the Mexican government. As of December 31, 2004, Servicios held 70.71% of our outstanding capital stock, Loral holds
4.46%, Principia holds 1.26% and the Mexican government holds 23.57%. The Mexican government holds its 23.57% interest in us through Class N shares. The Class N
shares have limited voting rights and may vote only with respect to the following matters:
extension of our term, merger, conversion or anticipated dissolution, amendment to our corporate
purpose, change to our nationality or cancellation of our registration in the Securities Section of
the National Registry of Securities and Intermediaries or in any Mexican or foreign stock exchange
or in a special meeting of Class N shareholders regarding matters that would prejudice their
rights. Loral has the right to appoint a Chief Operating Officer of the company who would be
responsible for our day to day management and operations, subject to approval from Principia, which
approval cannot be unreasonably withheld. All other executive officers have been and will be
appointed by the mutual consent of Loral and Principia. We benefit from the strategic, marketing and operational capabilities of our two corporate
sponsors, Loral and Principia. Affiliates of the Sponsors have entered into a management services
agreement with us to provide us with marketing and strategic planning services. We also benefit from Principias extensive experience in the Mexican telecommunications
industry and its working relationship with many of our existing and potential customers. Loral Space & Communications Ltd. Loral Space & Communications Ltd., together with its subsidiaries, is a leading satellite
communications company. It owns and operates a fleet of telecommunications satellites, manages a
global network that integrates its satellites with terrestrial facilities and has the rights to
numerous well-positioned orbital slots. Managed by Loral Skynet, the fleet provides satellite
capacity and platforms broadcast, data network, Internet access, IP and systems integration needs.
SS/L is a leading designer and manufacturer of satellites and satellite systems for commercial and
government applications including satellite services, television broadcasting, direct-to-home (DTH)
television services, broadband communications, military communications, wireless telephony, digital
satellite radio, weather monitoring and air traffic management. On July 15, 2003, Loral and certain of its subsidiaries filed voluntary petitions for relief
under Chapter 11 of title 11 of the Bankruptcy Code in the Bankruptcy Court (Lead Case No. 03-41710
(RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD), collectively, the Chapter 11 Cases). The
Loral Chapter 11 debtors include, among others, Loral Space & Communications Corporation (LSCC),
Loral SpaceCom Corporation (Loral SpaceCom), Loral Satellite, Inc. (Loral Satellite), Space
Systems/Loral Inc. (SS/L) and Loral Orion, Inc. (Loral Orion). Loral continues to manage its
properties and operate its businesses as debtors in possession under the jurisdiction of the
Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code. 56




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Sale of Assets On March 17, 2004, LSCC, Loral SpaceCom Corporation and Loral Satellite, Inc. (collectively,
the Sellers) consummated the sale (the Sale) of the Sellers North American fleet of satellites
and related assets to certain affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd.
(collectively, Intelsat or the Purchasers). At closing, the Company received approximately
$1.0 billion, consisting of approximately $961 million for the North American satellites and
related assets, after adjustments, and $50 million for an advance on a new satellite to be built
for Intelsat by SS/L. The Sellers obligations with respect to the $50 million advance are secured
by the Telstar 14/Estrela do Sul-1 satellite and related assets, including insurance proceeds
relating to the satellite. The Sellers used a significant portion of the funds received to repay
all $967 million of its outstanding secured bank debt. In addition, after closing, the Sellers
received from the Purchasers approximately $16 million to reimburse a deposit made by the Sellers
for the launch of Telstar 8, and the Sellers expect to receive an additional $4 million as a
purchase price adjustment resulting from resolution of a regulatory issue relating to the purchased
assets. The Sale was completed after the Bankruptcy Court approved, on March 16, 2004, the final
amendment to the asset purchase agreement, dated July 15, 2003, between the Sellers and the
Purchasers. The North American satellites and related assets have been accounted for as a discontinued
operation, resulting in the reclassification of the Companys historical condensed consolidated
statements of operations and statements of cash flows to reflect these operations as discontinued
operations separately from continuing operations. Loral is Organized into Two Operating Businesses Satellite Services. Satellite services, managed by Loral Skynet, a division of Loral,
generates its revenues and cash from leasing satellite capacity and platforms to customers for
video and direct to home (DTH) broadcasting, high-speed data distribution, Internet access,
communications and networking services. Satellite Manufacturing. Satellite manufacturing, conducted by Lorals subsidiary SS/L,
generates its revenues and cash from designing and manufacturing satellites, space systems and
space system components for commercial and government applications including satellite services,
DTH broadcasting, broadband data distribution, wireless telephony, digital radio, military
communications, weather monitoring and air traffic management. Loral Settlement Agreement On June 14, 2005, LSCC, Loral SpaceCom, Loral Skynet, LSNS, SS/L and Satmex entered into an
agreement to be implemented through various amendments and agreements with respect to various
transactions involving the Company and the Loral Entities (the Settlement Agreement), including
but not limited to the contract for the procurement of Satmex 6 between SS/L and us (the Satmex 6
SPA), the management services agreement among Loral SpaceCom, Principia and us (the Management
Services Agreement), the license agreement between Loral SpaceCom and us (the License
Agreement), and various transponder agreements between Loral Skynet or LSNS and us. Pursuant to
the terms of the Settlement Agreement, SS/L and Satmex terminated their respective obligations
under the Satmex 6 SPA, including the right of SS/L to earn potential orbital incentive payments
and an end of life bonus and of Satmex to be paid potential warranty payments, and entered into a
new contract whereby SS/L renewed its commitment to provide its continued support for the launch of
Satmex 6. SS/Ls obligations under the Satmex 6 SDA, as specified therein, provied that we meet
certain conditions precedent, including, without limitation, that we obtain the approval of the
Settlement Agreement and the underlying transactions with any court(s) and other authorities with
jurisdiction over our U.S. Chapter 11 case and/or our Mexican concurso mercantil, as applicable,
and that we do not experience or allow a change of control in our ownership. Subject to the same
conditions precedent, SS/L agreed to perform certain additional work on Satmex 6 that is necessary
for the preparation, insurance certification, launch and in-orbit testing of Satmex 6 and agreed to
offset the amounts payable for such services against certain liquidated damages claims by us under
the Satmex 6 SPA. Also pursuant to the Settlement Agreement, we and Loral SpaceCom agreed to
terminate the Management Agreement and License Agreement. As part of the consideration for the
various benefits conferred by the Loral Entities to us under the terms of the Settlement Agreement,
we agreed to deliver two (2) 36 MHz Ku-band 57




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transponders and two (2) 36 MHz C-band transponders to LSCC from Satmex 6 upon its successful
launch. Before the Settlement Agreement is effective it must be approved by the bankruptcy court
with jurisdiction over Lorals bankruptcy. We cannot assure you the court will approve the
settlement. We cannot assure you that any court(s) or other authorities with jurisdiction over our
U.S. Chapter 11 case and/or our Mexican concurso mercantil, as applicable, will approve the
Settlement Agreement. Principia, S.A. de C.V. Principia is a Mexican telecommunications company which comprises the business interests of
some members of the Autrey family, including the Chairman of our Board and CEO, Sergio Miguel
Autrey, Banamex, S.A. and, until February 14, 2005, Lauro González. Related Party Transactions Pursuant to a management services agreement among us, Loral and Principia, we have agreed to
pay a quarterly management fee based on our quarterly gross revenue, as defined, as follows: with
respect to revenue of less than $25 million, no management fee will be payable; with respect to
revenue in excess of $25 million but less than $32 million, 10% of all revenue in excess of $25
million but less than $32 million; and with respect to revenue equal to or in excess of $32
million, 15% of all revenue in excess of $32 million; provided that the management fee will in no
event exceed 3.75% of our cumulative gross revenue. The management fee represents compensation
paid to Loral and Principia for management services rendered to us. For the years ended December
31, 2004 and 2003, no fees were paid. For the year ended December 31, 2002, the fee was $524,000. Loral has licensed certain intellectual property to us for an annual fee of 1.5% of our gross
revenue, as defined in the license agreement. For the year ended December 31, 1999, Loral and
Satmex reduced the license fee to 1.2%. until August 31, 2003 and to 1.0% as from September 1,
2003. In 2004, 2003 and 2002, we recorded a license fee expense of $533,000, $1.1 million and $1.2
million, respectively. In connection with our privatization, we are required to provide 181 MHz C-band and 181 MHz
Ku-band capacity to the Mexican government for national security and certain public purposes at no
charge. After the Solidaridad 1 failure the capacity provided to the government is 130 MHz C-band
and 105 MHz Ku-band. We also operate one L-band transponder on the Solidaridad 2 satellite which
is owned by the Mexican government. Under the property concession granted by the Mexican
government to us, we pay to the government an annual fee of 7.5% of the value of the property on
which our satellite control centers are located. The value of the property was originally
determined in the Property Concession and it has suffered annual increments consistent with changes
in the Consumer Price Index (Indice Nacional de Precios al Consumidor). Pursuant to our current
regulations, a new appraisal of the value of the property must be performed every five years. The
appraisal is performed by the Ministry of Internal Control (Secretaría de la Función Pública),
which is an entity of the Mexican government, or an entity of such ministry. The appraisal must
consider the value of the property as it was originally delivered to us, without taking into
account any works performed on the property after such delivery. On March 30, 1999, we issued 606,730 shares of preferred stock to Loral and Principia for a
total purchase price of approximately $31.9 million. The preferred stock has limited voting rights
and pays a cumulative dividend in our common stock. The preferred stock can be exchanged at our
option into our common stock, at an exchange ratio of 1 share of preferred stock for 2.0008 shares
of common stock, if the exchange occurs before February 2, 2005, and at an exchange ratio of 1
share of preferred stock for 4.0016 shares of common stock on and after February 2, 2005. In 1999, Loral Skynet entered into an end-of-life lease with us for three Ku-band transponders
on Satmex 5. For the year ended December 31, 1999, we accounted for this transaction as a
sales-type lease and, accordingly, recorded revenue of $25.5 million and an operating expense of
$14.2 million for the cost of the transponders. Loral Skynet pays us $5,000 per transponder per
quarter for tracking, telemetry and command services for the life of this agreement. Loral and
Principia have agreed to exclude these transactions from the calculation of the management fee and
the license fee. 58




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In 1999, Firmamento formed three wholly owned subsidiaries; Satmex Corporativo, S. de R.L. de
C.V., Satmex Administración, S. de R.L. de C.V. and Satmex Servicios Técnicos, S. de R.L. de C.V.
In June 1999, we transferred our management personnel to Satmex Corporativo and our administrative
personnel to Satmex Administración. In November 1999, we transferred our union personnel to Satmex
Servicios Técnicos. None of these three corporations have any material assets. We pay these
companies their costs plus a fee of up to 5% of the gross payroll and benefits, excluding payroll
taxes. For the years ended December 31, 2004, 2003 and 2002 this fee was 0.00 ($138,000) and
$524,000, respectively. Service revenue from related parties, primarily the Mexican government, amounted to $7.3
million, $9.6 million and $10.2 million for the years ended December 31, 2004, 2003 and 2002,
respectively. We lease transponder capacity to Loral affiliates, and recorded service revenue in
2004 and 2003 was $1.5 million and $2.7 million, respectively. Loral Skynet billed us $6,000, $1.0 million and $4.2 million for providing capacity on Loral
Skynet satellites in 2004, 2003 and 2002, respectively. Loral Skynet billed us $395,000 and
$547,000 for sales commissions in 2003 and 2002, respectively. We provide satellite capacity to Loral and certain of its affiliates under various service
contracts. On July 15, 2003, Loral and certain of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the U.S. Code in the U.S. Bankruptcy Court for the
Southern District of New York. Loral currently owes us $2.3 million for services rendered under
these contracts, of which $1.3 million was due pre-petition. In 2003, we applied $0.9 million of
provision for uncollectible accounts toward the prefiling amount, leaving a balance of $1.4
million. No assurance can be made that we will be able to collect these amounts, although the
Settlement Agreement provides for their payment. We continue to provide satellite capacity to
Loral under these contracts. We have contracted with SS/L to build Satmex 6, the replacement satellite for Solidaridad 1.
As a result of schedule delays, we and SS/L agreed that Satmex 6 would be delivered in 2003. Under
the original contract, we earned certain liquidated damages as a result of the delay. We concluded
the negotiation with Loral and SS/L of an amendment to the contract, which, among other things,
waives the liquidated damages in exchange for a like amount of other benefits that include
additional work required on the satellite, a reduction in future orbital incentive payments due to
SS/L and certain other financial benefits to us. (See Major Shareholders and Related Party
Transactions  Loral Settlement for additional information.) In 2000, Principia and Loral founded Enlaces Integra, a telecommunications service integrator
that provides tailor made solutions of high speed data communications to private and public
networks, value-added service providers and audio/video service providers. In January 2000,
Enlaces Integra was granted a concession to install, operate and exploit a public
telecommunications network. Additionally, Enlaces Integra received a value-added license that
allows it to develop Broadband Internet access and a wide range of multimedia services. On August
10, 2001, Enlaces Integra was granted a concession to provide fixed satellite services in Mexico
through satellite operators other than Satmex. Enlaces Integra leases transponder capacity from us. In 2004, 2003 and 2002 service revenue
from this lease was $659,000, $223,000 and $421,000 respectively. Further, Enlaces Integra
contracts services provided from affiliated companies to perform its activities. In 2002, we
purchased $2.3 million of equipment from Enlaces Integra and we advanced $2.9 million to them. We
leased equipment back to Enlaces Integra for rental payments of $500,000, $995,000 and $230,000
during 2004, 2003 and 2002 respectively, and invoice expenses incurred of behalf of Enlaces
amounting $2.6 million in December, 2004. As of December 31, 2004, Enlaces Integra owed us a total of $6.4 million. 59




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Item 8.Financial Information Legal Proceedings Theconcurso mercantil On June 30, 2004, our outstanding senior secured floating rate notes due June 2004 (the
Floating Rate Notes) came due and we did not make the required principal payment of $203.4
million. On November 1, 2004, our outstanding 10.125% senior notes due November 2004 (the Fixed
Rate Notes) came due and we did not make the required principal payment of $320.0 million. Also,
we did not make the August 1, 2003, February 1, 2004, and August 1, 2004 interest on the Fixed Rate
Notes or the interest due on maturity on the Fixed Rate Notes. The aggregate amount of interest
payment due on the Fixed Rate Notes at maturity was $56.7 million. We did not make the interest
payments on the Fixed Rate Notes nor the required principal payments under both indentures due to
cash shortfalls from our operating activities. In an effort to restructure, among other things,
these defaulted obligations, on June 29, 2005 we filed a voluntary petition for concurso mercantil
in a District Court in Mexico City. A concurso mercantilis a Mexican reorganization proceeding and is based on the Ley de
Concursos Mercantiles(the LCM) of Mexico, enacted in May 2000. A concurso mercantilis
comprised of two separate and successive stages: conciliation and liquidation (quiebra). The
objective of the conciliation stage is to preserve the business of the debtor through the
negotiation and execution of an agreement between the debtor and its creditors. Such agreement, as
confirmed by the court, would have the effect of ending the concurso mercantil. Absent protracted
litigation, the conciliation stage may last up to 185 days from the date of the last publication of
the courts order. This initial 185-day term may be extended for up to two 90-day periods, subject
to certain conditions including the approval of specific portions of the debtors indebtedness. If
the debtor does not reach an agreement with its creditors within such period of time or, if prior
to its expiration, the mediator (conciliador) determines that the debtor and its creditors are
unwilling to reach an agreement or that such agreement is impossible, the conciliation stage is
terminated and the debtor is put into liquidation (quiebra). The purpose of liquidation (quiebra)
is to sell the business and/or assets of the debtor to pay its creditors with the proceeds realized
from such sale. Both proceedings may take significantly more time and be significantly less
predictable than a reorganization case under U.S. laws. It is unclear whether holders of the Fixed
Rate Notes or the Floating Rate Notes would be subject to greater risks under the LCM than under
the U.S. Bankruptcy Code. Once the District Court confirms our petition and issues an order declaring our concurso
mercantil, all of our creditors, including the holders of our Fixed Rate Notes and Floating Rate
Notes, would have to file a proof of claim in Spanish against our estate in such court. The
courts order will officially commence the conciliation stage and will have, among others, the
effect of suspending of any foreclosure or attachment proceedings against our assets, and an
obligation to suspend our payment of any debt existing at that time, such as principal and interest
to the holders of the Fixed Rate Notes and Floating Rate Notes. Since our debt obligations under
the Fixed Rate Notes are unsecured, upon declaration of our concurso mercantil the principal amount
of that debt will be converted into pesos at the exchange rate determined by Mexicos central bank
(Banco de México) prevailing on the date of declaration, and the resulting amount will be further
converted into UDIs at the conversion rate prevailing at that time, and will cease to accrue
interest. Principal on the Floating Rate Notes, as secured debt, will remain in dollars and will
continue to bear interest at the ordinary rate of interest provided in the indenture. As of June 30, 2005, the District Court of Mexico City has not confirmed our petition and
declared the commencement of our concurso mercantil. Once the court issues an order declaring our
concurso mercantiland we enter into the conciliation stage, we cannot assure that we will reach an
agreement with our creditors within the statutory time period. Furthermore, we cannot predict the
duration of the concurso mercantilproceeding nor its outcome. If the proceeding becomes
adversarial and/or protracted, our ability to operate or manage our business, to retain employees,
to renew contracts or create new client relationships, to continue to collect payments for our
services or to obtain market-based funding or financing could be materially adversely affected. The
holders of the Fixed Rate Notes may receive little or no meaningful recovery in the concurso
mercantilproceeding if a restructuring of our debt is not approved within the conciliation period. Since the LCM has been recently enacted and its provisions have not been fully tested in
court, we cannot predict whether the actual implementation of the structural and procedural rules
described above will be consistent with our interpretation of the statute. 60




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Involuntary Chapter 11 Bankruptcy Case On May 25, 2005, the Petitioning Creditors filed the Involuntary Petition commencing a Chapter
11 case under the Bankruptcy Code against us in the Bankruptcy Court. Chapter 11 of the Bankruptcy
Code is designed to protect a business from its creditors while the business seeks to financially
reorganize. A Chapter 11 bankruptcy case is commenced by the filing of either a voluntary petition
by the debtor or an involuntary petition by creditors that meet certain requirements under the
Bankruptcy Code. Upon the filing of a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code or, in an involuntary case, the entry of an order for such relief, the debtor
automatically assumes an additional identity as the debtor in possession. This term refers to a
debtor that keeps possession and control of its assets while undergoing a reorganization under
Chapter 11 of the Bankruptcy Code, without the appointment of a case trustee. A debtor will remain
a debtor in possession until the debtors plan of reorganization is confirmed by the bankruptcy
court and consummated, the debtors case is dismissed or converted to a liquidation case under
Chapter 7 under the Bankruptcy Code, or a Chapter 11 trustee is appointed (which occurs only in a
small number of cases). On June 14, 2005, the Bankruptcy Court approved a stipulation between us and the Petitioning
Creditors extending our time to respond to the Involuntary Petition, which may be extended further
to allow the parties time to attempt to negotiate a consensual restructuring. Rather than
consenting to the Involuntary Petition and the Bankruptcy Courts entry of an order for relief, if
a consensual restructuring cannot be negotiated that the parties agree will be implemented in a
U.S. Chapter 11 case, we intend to seek dismissal of the Involuntary Petition on various grounds,
including, but not limited to, lack of the Bankruptcy Courts jurisdiction over us and the pendency
of the voluntary Mexican concurso mercantil.Ultimately, however, we are unable to predict if the
Bankruptcy Court will enter an order for relief making us a U.S. debtor in a Chapter 11 case or the
outcome of the bankruptcy case. Furthermore, we are unable to predict the impact of the bankruptcy
case on us or the concurso mercantilproceedings and vice versa. See Item 18  Financial Statements for a list of all financial statements filed as part of
this Form 20-F. 
 Item 9.Markets Our capital stock is not publicly traded. Our 10.125% Series B Senior Notes are not listed on
any securities exchange. 
 Item 10.Additional Information Documents concerning us referred to in this 20-F may be inspected at our corporate offices at
Blvd. Manuel Ávila Camacho 40, 23rd floor, Col. Lomas de Chapultepec, 11000, Mexico DF, Mexico. Articles of Incorporation We hereby incorporate by reference the description of our Articles of Incorporation set forth
in our Registration Statement on form F-4 dated November 9, 1998, File No. 333-08880. Material Contracts See Item 4  Information on the Company, Item 5  Operating and Financial Review and
Prospects and Item 7  Major Shareholders and Related Party Transactions for a description of
our material contracts. Exchange Controls The Mexican economy has in the past experienced balance of payment deficits and shortages in
foreign exchange reserves. While the Mexican government does not currently restrict the ability of
Mexican or foreign persons or entities to convert pesos to foreign currencies generally, and U.S.
dollars in particular, it has done so in the past and no assurance can be given that the Mexican
government will not institute a restrictive exchange control policy in the future. In addition,
while all of our customer contracts are dollar denominated, we require our Mexican 61




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customers who choose to pay us in pesos to deliver an amount of pesos equal to the current
exchange rate for the purchase of dollars prevailing on the date of payment. If we were unable to
exchange such pesos into dollars or were unable to obtain sufficient dollars, we would have
difficulty meeting our U.S. dollar payment obligations. The effect of any such exchange control
measures adopted by the Mexican government on the Mexican economy cannot be accurately predicted. TAXATION The following summary contains a description of the principal Mexican and U.S. federal income
tax consequences of the purchase, ownership and disposition of the Fixed Rate Notes and the
Floating Rate Notes. This summary is based on the tax laws in force as of January 1, 2004 and does
not describe any tax consequences arising under the laws of any state, locality or taxing
jurisdiction other than Mexico and the U.S. A Convention for the Avoidance of Double Taxation and a Protocol thereto (the Tax Treaty)
between the U.S. and Mexico entered into force on January 1, 1994 and has been amended by an
additional protocol that entered into force on July, 2003. Provisions of the Tax Treaty that may
affect the taxation of certain U.S. holders of fixed rate notes are summarized below. The U.S. and
Mexico have also entered into an agreement that covers the exchange of information with respect to
tax matters. Mexico has also entered into several treaties for the avoidance of double taxation with
various countries which are in effect. The tax effects of such treaties, or of any other tax
treaty to which Mexico may be a party in the future, are not discussed below. Mexican Taxation This summary of certain Mexican tax considerations deals only with holders of Fixed Rate Notes
that are not residents of Mexico for Mexican tax purposes and that do not conduct a trade or
business through a permanent establishment in Mexico (a Foreign Holder). For purposes of Mexican
Taxation, tax residency is a highly technical definition which involves several factual situations.
Generally, an individual is a resident of Mexico if he or she has established his or her home in
Mexico, and a corporation is considered a resident if it is incorporated under the laws of Mexico
or it has its center of interests in Mexico. However, any determination of residence should be
made considering the particular situation of each person or legal entity. Taxation of Interest and Principal Under the Mexican Income Tax Law, payments of interest made by the Company in respect of the
Fixed Rate Notes and Floating Rate Notes (including payments of principal in excess of the issue
price of such notes, which, under Mexican law, are deemed to be interest) to a Foreign Holder will
generally be subject to a Mexican withholding tax assessed at a rate of 4.9% if (1) the notes are
placed through banks or brokerage houses (casas de bolsa)in a country with which Mexico has
entered into a tax treaty for the avoidance of double taxation which is in effect, (2) the notes
are registered with the Special Section of the National Registry of Securities (Registro National
de Valores)(the Registry), and (3) the information requirements specified by the Ministry of
Finance and Public Credit (Secretaría de Hacienda y Crédito Público)(the SHCP) under its general
rules are satisfied. If such requirements are not met, the applicable withholding tax rate will be
10%. A higher withholding rate (currently and during 2004 up to a maximum of 33%) will be
applicable when the effective beneficiaries of payments treated as interest, whether directly or
indirectly, individually or collectively with related persons, who receive more than 5% of the
aggregate amount of such payments on the notes are (1) our shareholders who own, directly or
indirectly, individually or collectively with related persons, more than 10% of our voting stock,
or (2) entities more than 20% of whose stock is owned, directly or indirectly, individually or
collectively with related persons, by us or by persons related to us. For such purposes, under the
Mexican Income Tax Law, persons are considered related if one possesses an interest in the business
of the other, common interests exist between them, or a third person holds an interest in the
business or property of both persons. 62




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Payments of interest made by the Company with respect to the Fixed Rate Notes to non-Mexican
pension or retirement funds will be exempt from Mexican withholding taxes, provided that any such
fund is duly incorporated pursuant to the laws of its country of origin, is exempt from income tax
in such country and is registered with the Ministry of Finance for that purpose and the relevant
interest income is exempt from taxes in such country. The Company has agreed, subject to specified exceptions and limitations, to pay additional
amounts to the holders of the fixed rate notes in respect of the Mexican withholding taxes
mentioned above. If the Company pays additional amounts in respect of such Mexican withholding
taxes, any refunds of, or credits against, Mexican taxes received with respect to such additional
amounts will be for the account of the Company. Holders or beneficial owners of Fixed Rate Notes may be requested to provide certain
information or documentation necessary to enable the Company to establish the appropriate Mexican
withholding tax rate applicable to such holders or beneficial owners. In the event that the
specified information or documentation concerning the holder or beneficial owner, if requested, is
not provided on a timely basis, the obligation of the Company to pay additional amounts will be
limited. Under Mexican law and regulations, payments of principal on the Fixed Rate Notes to a Foreign
Holder will not be subject to any Mexican taxes. Taxation of Dispositions The application of Mexican tax law provisions to capital gains realized on the disposition of
Floating Rate Notes or Fixed Rate Notes by Foreign Holders is unclear. We expect that no Mexican
tax will be imposed on transfers of notes between Foreign Holders effected outside of Mexico. Transfer and Other Taxes There are no Mexican stamp, registration, or similar taxes payable by a Foreign Holder in
connection with the purchase, ownership or disposition of the fixed rate notes. A Foreign Holder
of fixed rate notes will not be liable for Mexican estate, gift, inheritance or similar tax with
respect to the Fixed Rate Notes. U.S. Taxation This summary of certain U.S. federal income tax considerations deals principally with U.S.
Holders (as defined below) that will hold Fixed Rate Notes as capital assets and whose functional
currency is the U.S. dollar. This summary generally does not address the tax treatment of U.S.
Holders that may be subject to special tax rules, such as banks, insurance companies, dealers in
securities, or persons that hold (or will hold) the fixed rate notes as a position in a straddle
for tax purposes or as part of a synthetic security or a conversion transaction or other
integrated investment composed of the Fixed Rate Notes and one or more other investments, nor does
it address the tax treatment of U.S. Holders that do not acquire Fixed Rate Notes at their issue
price as part of the initial distribution. As used under this section, the term U.S. Holder
means a beneficial owner of a Note that is a citizen or resident of the U.S. for U.S. federal
income tax purposes, a corporation or other entity taxable as a corporation created or organized
under the laws of the U.S., any state thereof or the District of Columbia, a trust whose
administration is subject to the primary supervision of a U.S. court and having one or more U.S.
persons with the authority to control all of such trusts substantial decisions, an estate that is
subject to U.S. federal income tax on its income regardless of the source thereof, or a person
whose worldwide income or gain is otherwise subject to U.S. federal income tax on a net income
basis. Taxation of Interest A U.S. Holder will treat the gross amount of interest and additional amounts (i.e., without
reduction for Mexican withholding taxes, determined using the appropriate Mexican withholding tax
rate applicable to the U.S. Holder) as ordinary interest income in respect of the Fixed Rate Notes.
Mexican withholding taxes paid at the appropriate rate applicable to the U.S. Holder will be
treated as foreign income taxes eligible for credit against such 63




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U.S. Holders U.S. federal income tax liability, subject to generally applicable limitations
and conditions, or, at the election of such U.S. Holder, for deduction in computing such U.S.
Holders taxable income. Interest and additional amounts will constitute income from sources
without the U.S. for foreign tax credit purposes. For purposes of applying the U.S. foreign tax
credit limitation, such income generally will constitute passive income or, in the case of
certain U.S. Holders, financial services income unless the Mexican withholding tax rate
applicable to the U.S. Holder is imposed at a rate of at least 5%, in which case such income
generally will constitute high withholding tax interest. The calculation of foreign tax credits and, in the case of a U.S. Holder that elects to deduct
foreign taxes, the availability of deductions, involves the application of rules that depend on a
U.S. Holders particular circumstances. U.S. Holders should consult their own tax advisors
regarding the availability of foreign tax credits and the treatment of additional amounts. Subject to the discussion below regarding backup withholding, a holder or beneficial owner of
Fixed Rate Notes that is not a U.S. Holder (a Non-U.S. Holder) generally will not be subject to
U.S. federal income or withholding tax on interest income or additional amounts earned in respect
of fixed rate notes, unless such income is effectively connected with the conduct by the Non-U.S.
Holder of a trade or business in the U.S. Taxation of Dispositions Gain or loss realized by a U.S. Holder on the sale, redemption or other disposition of fixed
rate notes (less amounts attributable to accrued interest) generally will be long-term capital gain
or loss if, at the time of the disposition, the fixed rate notes have been held for more than one
year. Generally, U.S. Holders that are individuals will be taxed at a preferential rate with
respect to long-term capital gains. There are limits on the deductibility of capital losses. Gain
or loss realized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S.
foreign tax credit purposes. Subject to the discussion below regarding backup withholding, a Non-U.S. Holder of fixed rate
notes will not be subject to U.S. federal income or withholding tax on gain realized on the sale or
other disposition of fixed rate notes unless such gain is effectively connected with the conduct by
the Non-U.S. Holder of a trade or business in the U.S. or in the case of gain realized by an
individual Non-U.S. Holder, the Non-U.S. Holder is present in the U.S. for 183 days or more in the
taxable year of the sale and certain other conditions are met. Backup Withholding and Information Reporting In general, payments of interest and the proceeds of a sale, redemption or other disposition
of the fixed rate notes payable to a U.S. Holder by a U.S. paying agent or other U.S. intermediary
will be reported to the Internal Revenue Service and to the U.S. Holder as may be required under
applicable regulations. Backup withholding at a current rate of 28% may apply to these payments if
the U.S. Holder fails to provide an accurate taxpayer identification number or certification of
foreign or other exempt status or fails to report all interest and dividends required to be shown
on its federal income tax returns. Any amount withheld from a payment to a holder under the backup
withholding rules is allowable as credit against such holders U.S. federal income tax liability,
provided that the required information is provided to the IRS. Certain U.S. Holders (including,
among others, corporations) are not subject to backup withholding. U.S. Holders should consult
their tax advisors as to their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption. 
 Item 11.Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk from changes in currency exchange rates and change in interest
rates. We from time to time assess our exposure and monitor opportunities to manage these risks. Exchange Rate Risk During 2003 and 2004, the annual rates of inflation in Mexico, as measured by changes in the
National Consumer Price Index as provided by the Banco de Mexico, were 4.4%, and 5.2%,
respectively. Our major 64




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expenditures, including capital expenses and satellite insurance will not
be affected by high levels of inflation, because they are denominated in dollars. Customer
contracts are also denominated in dollars. However, high inflation rates would affect peso
denominated expenses such as payroll and rent and could result in an increase in uncollectible
accounts receivable and customer lease cancellations. To the extent that the pesos devaluation
against the U.S. dollar is less than the inflation rate in Mexico, we will be adversely affected by
the effect of inflation in Mexico with respect to our peso denominated expenses. Approximately
half of our costs and expenses are peso denominated, an amount that represents 28% of our revenue.
If the Mexican peso were to increase in value against the US dollar by 5%, we estimate that our
expenses would increase by approximately $1 million. If the Mexican peso were to increase in value
against the US dollar by 10%, we estimate that our expenses would increases by approximately $2.0
million. Interest Rate Risk The estimated fair value of our financial instruments has been determined using available
market information and appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop estimates of fair value. The fair value of the Floating Rate Notes (with a nominal and recorded amount of $203.4
million), based on best estimates at December 31, 2004, was approximately $174.9 million. At
December 31, 2004, the fair value of the Companys Fixed Rate Notes (with a nominal and recorded
amount of $320 million) based on quoted market prices was $176.0 million. Our Floating Rate Notes accrue interest based on a floating interest rate, which is currently
determined as London Interbank Offer Rate (Libor) plus 450 basis points and the amount
outstanding is $203.4 million. An increase in Libor of 1% would increase our financial cost by
$2.0 million. An increase in Libor of 2% would increase our financial cost by $4.1 million. The
Floating Rate Notes will continue to accrue interest during the course of the concurso mercantil. 65




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PART II 
 Item 13.Defaults, Dividend Arrearages and Delinquencies The Floating Rate Notes On June 30, 2004, the Floating Rate Notes came due and we did not make the required principal
payment of $203.4 million, thereby causing an immediate event of default on the Floating Rate
Notes. As a result of the failure to pay the principal amount when due, the entire principal
amount of the Floating Rate Notes is currently due on the Floating Rates Notes. We did not make
the interest payments on the Floating Rate Notes nor the required principal payments under the
indentures of either the Floating Rate Notes or the Fixed Rate Notes due to cash shortfalls from
our operating activities. In addition to the payment event of default, there are other events of
defaults under the indenture governing the Floating Rate Notes, including, but not limited to,
those relating to insurance and financial covenants, and various cross defaults resulting from
defaults under the Fixed Rate Notes indenture and the Menoscabo. The Fixed Rate Notes On November 1, 2004, our Fixed Rate Notes came due and we did not make the required principal
payment of $320.0 million. Also, we did not make the August 1, 2003, February 1, 2004, and August
1, 2004 interest payments on the Fixed Rate Notes. The aggregate amount of interest payment due
was $56.7 million. We did not make the interest payments on the Fixed Rate Notes nor the required
principal payments under both indentures due to cash shortfalls from our operating activities. 
 Item 14.Material Modifications to the Rights of Security Holders Not applicable. 
 Item 15.Controls and Procedures Our CEO and chief financial offer (CFO) have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act rules 13a-14(c) and 15d-14(c)) as of December
31, 2004. These controls and procedures were designed to ensure that material information relating
to us is communicated to the CEO and CFO. Based on such evaluation, our CEO and CFO concluded that
our disclosure controls and procedures are effective in timely alerting them to material
information required to be included in our periodic SEC reports. There have been no significant
changes in our internal controls and procedures or in other factors that could significantly affect
these controls and procedures subsequent to the date of this evaluation. 
 Item 16.Audit Committee Financial Expert Item 16. A) Disclosure of Audit Committee Financial Expert We do not have an audit committee financial expert but our Board of Directors is currently in
the process of considering adding a new member to the Board of Directors who would qualify as an
audit committee financial expert. 
 Item 16. B) Code of Ethics We have in place a code of ethics that applies to all officers and senior management. Our
code of ethics was not amended during 2004 and no waivers, either explicit or implicit, of
provisions of the code of ethics were granted to our CEO, CFO or Chief Accounting Officer in 2004.
An English translation of our code of ethics has been posted on our website at www.satmex.comand a
copy of our code of ethics will be sent upon request. 66




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Item 16. C) Principal Accountant Fees and Services The aggregate fees billed by Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of Deloitte
Touche Tohmatsu, our independent registered public accounting firm, in connection with professional
services rendered to us in 2004 and 2003, respectively, were as follows: 2004
    
    
    2003(Amounts in thousands)Audit fees
    
    $
    234
    
    
    $
    417Audit related fees
    
    
    12
    
    
    
    13Tax fees
    
    
    114
    
    
    
    122All other fees
    
    
    31
    
    
    
    Total fees
    
    $
    391
    
    
    $
    552
 Audit fees: Audit fees in the above table are the aggregate fees billed by Galaz, Yamazaki,
Ruiz Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu, in connection with the audit of the
annual financial statements and statutory and regulatory audits Audit-related fees: Audit-related fees in the above table are the aggregate fees billed by
Galaz, Yamazaki, Ruiz Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu, for financial
accounting and reporting consultations. Tax fees: Tax fees in the above table are fees billed by Galaz, Yamazaki, Ruiz Urquiza, S.C.,
a member firm of Deloitte Touche Tohmatsu, for services for tax compliance and tax advice. Our audit committee must pre-approve any services provided by Galaz, Yamazaki, Ruiz Urquiza,
S.C., a member firm of Deloitte Touche Tohmatsu, prior to any engagement that is not specifically
included in the scope of the audit. In 2004, none of the fees paid to Galaz, Yamazaki, Ruiz
Urquiza, S.C., a member firm of Deloitte Touche Tohmatsu, were approved pursuant to a de minimus
exemption. (1) 
 Item 16. E) Purchases of Equity Securities by the Issuer and Affiliated Purchasers. Not Applicable 
 (1)
    
    The de minimis exception to pre-approval requirements applies to permitted non-audit
services not at first recognized to be non-audit services so long as (a) the aggregate amount
of all such non-audit services constituted 5% or less of the total revenues paid by the audit
client to the accountant during the fiscal year, (b) such services were not recognized at the
time of engagement as non-audit services, and (c) such services were
promptly brought to the attention of the audit committee and approved by the audit committee
prior to completion of the audit. 67




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SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 PART III 
 Item 18.Financial Statements INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Balance Sheets as of December 31, 2004 and 2003
    
    
    F-3Statements of Operations for the years ended December 31, 2004, 2003 and 2002
    
    
    F-4Statements of Changes in Stockholders Equity for the years ended December 31, 2004, 2003 and 2002
    
    
    F-5Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-6Notes to the Financial Statements
    
    
    F-7
 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of
Satélites Mexicanos, S.A. de C.V.
Mexico City, Mexico We
have audited the accompanying balance sheets of Satélites
Mexicanos, S.A. de C.V. (the Company) (a
subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) as of December 31,
2004 and 2003, and the related statements of operations, changes in stockholders equity, and cash
flows for each of the three years in the period ended December 31, 2004. Our audits also included
the financial statement schedule. These financial statements and the financial statement schedule
are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the
financial position of Satélites Mexicanos, S.A. de C.V. as of December 31, 2004 and 2003, and the
results of its operations and its cash flows for each of the three years in the period ended
December 31, 2004 in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein. As discussed in Note 1, the Company has been subjected to an involuntary petition for
reorganization under Chapter 11 of the U.S. Federal Bankruptcy Code and has also filed a voluntary
concurso mercantil in the District Court in Mexico City. The accompanying financial
statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings.
In particular, such financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition
liabilities, the amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the effect of any changes that may be made
in its business. The accompanying financial statements have been prepared assuming the Company will continue
operating as a going concern. However, as mentioned in Note 1, the Company has recurring losses,
current liabilities substantially exceed current assets, has defaulted on fixed rate debt
securities and floating rate notes, and lacks short-term financing sources to finance its
operations. These factors create substantial doubt about the Companys ability to continue as a
going concern. As described in Note 1, managements plans to address this situation mainly consist
of restructuring debt, obtaining additional resources to launch the Satmex 6 satellite and increase
revenues. The financial statements do not include any adjustments that might result from this
uncertainty. Galaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche TohmatsuC.P.C. Enrique Vázquez GorostizaJune 29, 2005
 F-2




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SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 BALANCE SHEETS
As of December 31, 2004 and 2003 2004
    
    
    2003(Amounts in thousands ofU.S. dollars)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,076
    
    
    $
    13,011Accounts receivable, net
    
    
    2,487
    
    
    
    3,477Prepaid insurance
    
    
    3,140
    
    
    
    3,275Due from related parties, net
    
    
    4,327
    
    
    
    2,685Total current assets
    
    
    49,030
    
    
    
    22,448Due from related parties long term
    
    
    5,587
    
    
    
    2,900Satellites and equipment, net
    
    
    222,019
    
    
    
    255,775Construction in process  Satmex 6
    
    
    246,113
    
    
    
    251,171Concessions, net
    
    
    424,805
    
    
    
    437,711Deferred financing costs, net
    
    
    
    
    
    
    1,929Guarantee Deposit
    
    
    2,663
    
    
    
    2,670Other assets
    
    
    761
    
    
    
    854Total assets
    
    $
    950,978
    
    
    $
    975,458LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    523,388
    
    
    $
    523,550Accounts payable
    
    
    2,908
    
    
    
    2,257Accrued expenses
    
    
    5,690
    
    
    
    6,338Interest payable
    
    
    64,886
    
    
    
    30,396Due to related parties
    
    
    4,980
    
    
    
    3,205Deferred revenue  Mexican government
    
    
    2,200
    
    
    
    2,200Total current liabilities
    
    
    604,052
    
    
    
    567,946Due to related parties
    
    
    1,674
    
    
    
    1,141Deferred revenue  Mexican government
    
    
    70,135
    
    
    
    72,335Deferred income taxes
    
    
    55,014
    
    
    
    44,553Total liabilities
    
    
    730,875
    
    
    
    685,975Commitments and contingenciesStockholders equity:Common stock (10,000,000 shares authorized, issued and outstanding)
    
    
    388,068
    
    
    
    386,561Preferred stock (606,730 shares authorized, issued and outstanding)
    
    
    31,886
    
    
    
    31,886Accumulated deficit
    
    
    (199,851
    )
    
    
    (128,964
    )Total stockholders equity
    
    
    220,103
    
    
    
    289,483Total liabilities and stockholders equity
    
    $
    950,978
    
    
    $
    975,458
 See notes to financial statements. F-3




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SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002(Amounts in thousands of U.S. dollars)Service revenue
    
    $
    71,705
    
    
    $
    78,823
    
    
    $
    85,011Operating expenses:Satellite operations
    
    
    13,871
    
    
    
    13,086
    
    
    
    17,059Selling and administrative expenses
    
    
    14,639
    
    
    
    23,812
    
    
    
    20,824License and management fees
    
    
    533
    
    
    
    1,126
    
    
    
    1,148Depreciation expense and amortization of concessions
    
    
    48,108
    
    
    
    48,405
    
    
    
    47,42977,151
    
    
    
    86,429
    
    
    
    86,460Operating loss
    
    
    (5,446
    )
    
    
    (7,606
    )
    
    
    (1,449
    )Gain on in-orbit failure of Solidaridad 1
    
    
    
    
    
    
    3,317
    
    
    
    8,379Interest income
    
    
    3,583
    
    
    
    304
    
    
    
    2,001Interest expense and amortization of deferred financing costs
    
    
    (56,959
    )
    
    
    (39,732
    )
    
    
    (37,789
    )Net foreign
exchange (loss) gain
    
    
    (97
    )
    
    
    264
    
    
    
    93Loss before deferred income tax
    
    
    (58,919
    )
    
    
    (43,453
    )
    
    
    (28,765
    )Deferred income tax expense (benefit)
    
    
    10,461
    
    
    
    35,744
    
    
    
    (8,837
    )Net loss
    
    
    (69,380
    )
    
    
    (79,197
    )
    
    
    (19,928
    )Preferred stock dividend requirement
    
    
    (1,507
    )
    
    
    (1,507
    )
    
    
    (1,507
    )Net loss applicable to common stockholders
    
    $
    (70,887
    )
    
    $
    (80,704
    )
    
    $
    (21,435
    )
 See notes to financial statements. F-4




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SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 2004, 2003 and 2002 Common Stock
    
    
    Preferred Stock
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    Total(Monetary amounts in thousands of U.S. dollars)Balance January 1, 2002
    
    
    10,000,000
    
    
    $
    383,547
    
    
    
    606,730
    
    
    $
    31,886
    
    
    $
    (26,825
    )
    
    $
    388,608Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,928
    )
    
    
    (19,928
    )Preferred stock dividend
requirement
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Balance December 31, 2002
    
    
    10,000,000
    
    
    
    385,054
    
    
    
    606,730
    
    
    
    31,886
    
    
    
    (48,260
    )
    
    
    368,680Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,197
    )
    
    
    (79,197
    )Preferred stock dividend
requirement
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Balance December 31, 2003
    
    
    10,000,000
    
    
    
    386,561
    
    
    
    606,730
    
    
    
    31,886
    
    
    
    (128,964
    )
    
    
    289,483Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,380
    )
    
    
    (69,380
    )Preferred stock dividend
requirement
    
    
    
    
    
    
    1,507
    
    
    
    
    
    
    
    
    
    
    
    (1,507
    )Balance December 31, 2004
    
    
    10,000,000
    
    
    $
    388,068
    
    
    
    606,730
    
    
    $
    31,886
    
    
    $
    (199,851
    )
    
    $
    220,103
 See notes to financial statements. F-5




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SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002(Amounts in thousands of U.S. dollars)Operating activitiesNet loss
    
    $
    (69,380
    )
    
    $
    (79,197
    )
    
    $
    (19,928
    )Adjustments to reconcile net (loss) income to operating cash flow:Depreciation expense and amortization of concessions
    
    
    48,108
    
    
    
    48,405
    
    
    
    47,429Amortization of deferred financing costs
    
    
    1,929
    
    
    
    2,238
    
    
    
    2,315Gain on in-orbit failure of Solidaridad 1
    
    
    
    
    
    
    (3,317
    )
    
    
    (5,277
    )Deferred revenue  customers
    
    
    
    
    
    
    (60
    )
    
    
    21Deferred revenue  Mexican government
    
    
    (2,200
    )
    
    
    (2,200
    )
    
    
    (2,200
    )Deferred income taxes
    
    
    10,461
    
    
    
    35,744
    
    
    
    (8,837
    )Interest income from restricted and segregated cash
    
    
    
    
    
    
    (5
    )
    
    
    (1,360
    )Use of restricted and segregated cash for interest payments
    
    
    
    
    
    
    177
    
    
    
    15,400Changes in assets and liabilities:Accounts receivable
    
    
    990
    
    
    
    436
    
    
    
    (2,836
    )Prepaid insurance
    
    
    135
    
    
    
    1,441
    
    
    
    5,870Accounts payable and accrued expenses
    
    
    3
    
    
    
    1,125
    
    
    
    (9,865
    )Interest payable
    
    
    34,490
    
    
    
    16,200Due from/to related parties
    
    
    (2,021
    )
    
    
    896
    
    
    
    265Deferred financing costs and other assets
    
    
    100
    
    
    
    (3,609
    )
    
    
    (135
    )Cash flow provided by operating activities
    
    
    22,615
    
    
    
    18,274
    
    
    
    20,862Investing activitiesUse of restricted and segregated cash  satellite construction
    
    
    
    
    
    
    6,645
    
    
    
    108,013Construction in progress  Satmex 6
    
    
    5,058
    
    
    
    (36,268
    )
    
    
    (119,811
    )Acquisition of equipment
    
    
    (1,446
    )
    
    
    (1,638
    )
    
    
    (3,436
    )Cash flow provided by (used in) investing activities
    
    
    3,612
    
    
    
    (31,261
    )
    
    
    (15,234
    )Financing activitiesUse of restricted and segregated cash  debt payments
    
    
    
    
    
    
    
    
    
    
    26,626Borrowing under revolving credit facility
    
    
    
    
    
    
    
    
    
    
    13,000Repayment of revolving credit facility
    
    
    
    
    
    
    
    
    
    
    (13,000
    )Repayment of floating rate notes
    
    
    (162
    )
    
    
    (824
    )
    
    
    (31,626
    )Cash flow used in financing activities
    
    
    (162
    )
    
    
    (824
    )
    
    
    (5,000
    )Increase (decrease) in cash and cash equivalents
    
    
    26,065
    
    
    
    (13,811
    )
    
    
    628Cash and cash equivalents  beginning of year
    
    
    13,011
    
    
    
    26,822
    
    
    
    26,194Cash and cash equivalents  end of year
    
    $
    39,076
    
    
    $
    13,011
    
    
    $
    26,822Supplemental disclosuresCapitalized interest
    
    
    
    
    
    $
    18,572
    
    
    $
    14,243Interest paid
    
    $
    14,664
    
    
    $
    30,325
    
    
    $
    49,309
 See notes to financial statements. F-6




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SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 NOTES TO THE FINANCIAL STATEMENTS
(Monetary Amounts Expressed in U.S. dollars) 1. The Company Satélites Mexicanos, S.A. de C.V. (The Company or Satmex) is the leading provider of
fixed satellite services in Mexico and has expanded its services to become a leading provider of
fixed satellite services throughout Latin America. Satmex provides transponder capacity to
customers for distribution of network and cable television programming, direct-to-home television
service, on-site transmission of live news reports, sporting events and other video feeds. It also
provides satellite transmission capacity to telecommunications service providers for public
telephone networks in Mexico and elsewhere and to corporate customers for their private business
networks with data, voice and video applications. Satmex is also marketing the use of satellite
transmission capacity for new applications, such as Internet access via satellite. Satmex has landing rights to provide broadcasting and telecommunications transmission capacity
in Mexico, the U.S., Canada and 43 other nations and territories in Latin America. The
broadcasting customers include Televisa and Productora y Comercializadora de Televisión, S.A. de
C.V. (PCTV) and the telecommunications services customers include Teléfonos de México S.A. de
C.V. (Telmex) and Petróleos Mexicanos (Pemex). Satmex data and Internet customers include
Hughes Network Systems (HNS). Satmex currently owns and operate two satellites. Solidaridad 2 and Satmex 5, in
geostationary orbit at 113.0° W.L. and 116.8° W.L., respectively, and expect to launch a third
satellite, Satmex 6, not before early 2006. In total, the company has 96 36-MHz
transponder-equivalents operating in the C- and Ku-bands with an aggregate footprint covering
substantially all of the continental U.S., the Caribbean and all of Latin America, other than
certain regions in Brazil. On November 17, 1997, Loral Space & Communications Ltd. (together with its subsidiaries,
Loral) and Principia, S.A. de C.V. (Principia), through Firmamento Mexicano, S. de R.L. de
C.V. (Firmamento) and its wholly owned subsidiary, Servicios Corporativos Satelitales, S.A. de
C.V. (Servicios) acquired 75% of Satmexs issued and outstanding stock from the government of
Mexico for approximately $647 million. The remaining 25% of the
Companys capital stock was retained at that time by the Mexican
government. Loral owns 65% of Firmamento and Principia owns 35%. Loral
holds 49% and Principia holds 51% of Firmamentos voting interests. As of December 31,
2004, Servicios holds 70.71% of the outstanding capital stock of Satmex, Loral holds 4.46%,
Principia holds 1.26% and the Mexican government holds 23.57%. On March 30, 1999, the Company issued 606,730 shares of preferred stock to Loral and Principia
for a total purchase price of approximately $31.9 million. The preferred stock has limited voting
rights and pays a cumulative dividend in common stock of the Company equal to 0.138 shares of
Series N or Series B common stock for each share of preferred stock. The preferred stock can be
exchanged at the Companys option into common stock of the Company, at an exchange ratio of 1 share
of preferred stock for 2.0008 shares of Series N or Series B common stock, if the exchange occurs
before February 2, 2005, and at an exchange ratio of 1 share of preferred stock for 4.0016 shares
of Series N or Series B common stock on and after February 2, 2005. On July 15, 2003, Loral and certain of its subsidiaries voluntarily filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. This filing did not include Satmex,
Servicios or Firmamento, and those entities may not file such a petition without the approval of at
least one director nominated by each of Principia and Loral. Although the Company does not believe
that Loral intends to sell or dispose of its direct or indirect interests in it, the possibility
exists that as part of its reorganization Loral may do so. Although Satmex is unable at this time to predict what effects, if any, Lorals Chapter 11
cases will have on it, these cases may have a material impact on the Companys business. In
addition, as with any bankruptcy filing, federal bankruptcy law may restrict the Companys ability
to enforce the terms of its agreements with such entities in accordance with their terms. F-7




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##### Table of Contents



SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) Recent Developments Defaults on Indebtedness On June 30, 2004, the Floating Rate Notes came due and the company did not make the required
principal payment of $203.4 million. On November 1, 2004, the Fixed Rate Notes came due and the
Company did not make the required principal payment of $320.0 million. Also, the company did not
make the August 1, 2003, February 1, 2004, and August 1, 2004 interest payments on the Fixed Rate
Notes or the interest due on maturity of the Fixed Rate Notes. The aggregate amount of interest
payment due was $56.7 million. Satmex did not make the interest payments on the Fixed Rate Notes
nor the required principal payments under both indentures due to cash shortfalls from its operating
activities. On December 29, 2004, the debt obligation of the Satmex parent company, Servicios, to the
Menoscabo of approximately $125.1 million plus accrued interest of approximately $63 million came
due and Servicios did not make payment of such amounts. This debt obligation is secured by the
shares of Firmamento held by Loral and Principia. As a result of the payment defaults under the
Menoscabo, the Mexican government could initiate proceedings against Servicios, which may include
foreclosure on the Firmamento shares and possibly transfer of those shares. The Company does not
know what actions the Mexican government may take to exercise its remedies pursuant to the
Menoscabo. The Mexican government may participate as an interested purchaser of those holdings
and, if awarded the sale, it would gain direct control of Firmamento and indirect control of
Satmex. If the Mexican government gains control, Satmex cannot make any assurances that it would
assume any of the debt, including the Fixed Rate Notes or the Floating Rate Notes. Also, in that
scenario, the Company would be controlled and managed by the Mexican government. Satmexs defaults on fixed and floating rate notes allow the holders of such notes to demand
the respective payment of principal. As a consequence of the defaults described above, on May 25, 2005, certain holders of the
Company Fixed Rate Notes and the Floating Rate Notes (the Petitioning Creditors) filed an
involuntary petition (the Involuntary Petition) commencing a Chapter 11 case under the Bankruptcy
Code against the company in the U.S. Bankruptcy Court for the Southern District of New York (the
Bankruptcy Court). On June 14, 2005, the Bankruptcy Court approved a stipulation between the Company and the
Petitioning Creditors extending the time to respond to the Involuntary Petition, which may be
extended further to allow the parties time to attempt to negotiate a consensual restructuring.
Rather than consenting to the Involuntary Petition and the Bankruptcy Courts entry of an order for
relief, if a consensual restructuring cannot be negotiated that the parties agree will be
implemented in a U.S. Chapter 11 case, Satmex intend to seek dismissal of the Involuntary Petition
on various grounds, including, but not limited to, lack of the Bankruptcy Courts jurisdiction over
the Company and the pendency of the voluntary Mexican concurso mercantil. Ultimately, however, the Company is unable to predict if the Bankruptcy Court will enter an
order for relief making the Company a U.S. debtor in a Chapter 11 case or the outcome of the
bankruptcy case. Furthermore, the Company is unable to predict the impact of the bankruptcy case
on Satmex or the concurso mercantilproceedings and vice versa. In an effort to restructure, among other things, these defaulted obligations, on June 29, 2005
the company filed a voluntary concurso mercantilin the District Court in Mexico City. The
District Court in Mexico City has not yet accepted the filing. The accompanying financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis or their
availability to satisfy liabilities: (b) as to prepetition liabilities, the amounts that may be
allowed for claims or contingencies, or the status and priority thereof: (c) as to stockholder F-8




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##### Table of Contents



SATELITES MEXICANOS, S. A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) accounts, the effect of any changes that may be made in the capitalization of the Company; or
(d) as to operations, the effect of any changes that may be made in its business. Going concern Satmex has defaulted on payment of its fixed and floating rate notes, has had recurring losses
and has current liabilities substantially exceeding current assets. Negative advertising has
caused existing customers to have doubts. Defaults and the inability to pay Satmexs debt, added
to a lack of access to additional financing, generate substantial doubts about Satmexs ability to
continue as a going concern, unless it is able to restructure its debt, finance the launch of
Satmex 6 and generate revenues. These factors indicate that Satmex may not be able to continue as
a going concern. Managements plans in relation to these issues are described in Note 1 to the
financial statements. The financial statements do not include adjustments related to asset
valuation and classification and liability classification and amounts, which may be necessary if
Satmex is unable to continue as a going concern. Loss of Solidaridad 1 In
August 2000, our Solidaridad 1 satellite ceased operating and was considered irretrievably
lost. The loss was caused by the failure of the back-up control processor on board the satellite.
Solidaridad 1 was insured for $250 million. At the date of the loss, Solidaridad 1 had a net book
value of approximately $109.6 million- After deducting prepaid insurance of $1.6 million, unpaid
insurance premiums of $12.5 million, on-going monitoring costs and the excess of the estimated cost
over revenue for the then committed transponder capacity to be provided to customers of $23.2
million, the net gain on the in-orbit failure of Solidaridad 1 was approximately $103.1 million.
In 2001, Satmex reduced the liability for the cost over revenue for the committed transponder
capacity to be provided to customers by $7.3 million. In 2002, the company received $3.3 million
from the satellite manufacturer under the Solidaridad 1 performance guarantee and the Company
reduced the liability for the cost over revenue for the committed transponder capacity to be
provided to customers by $5.1 million. In 2003, Satmex canceled the balance of the reserve for
monitoring costs of $3.3 million. These transactions were recorded as additional gain on the
in-orbit failure of Solidaridad 1 in the applicable periods. Satmex 6 Satmex 6, the replacement satellite of Solidaridad 1, was manufactured by Space Systems/Loral,
Inc.(SS/L) and is not expected to be launched before early 2006 into 113.0° W.L. Satmex 6, an FS
1300 X model, has a total of 60 36MHz transponders, 36 in C-band and 24 in Ku-band. Upon
initiating operations, Satmex 6s operating life is expected to be 15 years. Satmex 6 is designed to provide broader coverage and higher power levels than any other
satellite in the fleet. It wil be roughly 300% more powerful than Solidaridad 1 and roughly 50%
more powerful than Satmex 5. It will have hemispherical coverage in both C- and Ku-bands. From
Canada to Argentina, Satmex 6 will cover all the 48 contiguous U.S. states and Hawaii, the
Caribbean, all of Latin America and most of Brazil. In October 2003, the Satmex 6 satellite was completed and delivered to the Arianespace launch
facilities in Kourou, French Guiana. It is currently being maintained in protective storage at the
launch site. Due to the protracted storage period, additional testing on the satellite wil be
required. The company continues to hold discussions with Arianespace regarding the launch of
Satmex 6 on an Ariane 5 ECA. In order to launch the Satmex 6 satellite, the company must make the
payment of the launch insurance premium and other launch related payments estimated to be up to $50
million. F-9




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.)  2.
    
    Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The Companys financial statements are presented in U.S. dollars and have been prepared using
accounting principles generally accepted in the United States of America. Reclassifications Certain amounts in the financial statements as of and for the year ended December 31, 2003 and
2002 have been reclassified in order to conform to the presentation of the financial statements as
of and for the year ended December 31, 2004. Functional Currency and Translation The Company maintains its legal books and records in Mexican pesos. The functional currency
of the Company is the U.S. dollar. Monetary assets and liabilities denominated in pesos are
translated into U.S. dollars using current exchange rates. The effect of changes in exchange rates
is recorded in the results of operations. Non-monetary assets and liabilities originally
denominated in pesos are translated into U.S. dollars using the historical exchange rate at the
date of the transaction. Capital stock is translated at historical exchange rates. The financial statements should not be construed as representations that Mexican pesos have
been, could have been or may in the future be converted into U.S. dollars at such rates or any
other rates. Relevant exchange rates used in the preparation of the financial statements were as follows
(Mexican pesos per one U.S. dollar): 2004
    
    
    2003
    
    
    2002Current exchange rate at December 31
    
    Ps
    .11.26
    
    
    Ps
    .11.24
    
    
    Ps
    .10.31Weighted average exchange rate
    
    
    11.29
    
    
    
    10.79
    
    
    
    9.66
 Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the rate of exchange in effect
at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies
are converted into the Companys functional currency at the rate of exchange in effect at the
balance sheet date. The effect of changes in exchange rates is recorded in the results of
operations. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses
during the reporting period. Such estimates include the allowance for doubtful accounts, the
valuation of long-lived assets, the valuation allowance of deferred income tax assets, and the
estimated useful lives of the satellites. F-10




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) Although management believes the estimates and
assumptions used in the preparation of these financial statements were appropriate in the
circumstances, actual results could differ from those estimates and assumptions. Cash and Cash Equivalents The Company considers all highly-liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents. Restricted and Segregated Cash In accordance with the Companys debt agreements, the insurance proceeds from the failure of
Solidaridad 1 were restricted to debt service on the Companys Floating Rate Notes and revolving
credit facility and for payments toward the construction and launch of Satmex 6. Upon receipt of
the net insurance proceeds of $235.3 million, Satmex allocated $50.0 million of the proceeds for
debt service and the remainder of the proceeds towards the construction and launch of Satmex 6. At
December 31, 2003, Satmex had used all of the restricted and segregated cash received. Satellites and Equipment Satellites and equipment are stated at historical cost. Depreciation expense is calculated
using the straight-line method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the lease term or the estimated useful life of the
improvements. The
estimated useful lives of the Companys satellites and equipment, as of the commencement of useful life,
were: Solidaridad 2
    
    
    14.5
    yearsSatmex 5
    
    
    15
    yearsEquipment
    
    
    9
    yearsAntenna
    
    
    5
    yearsFurniture and fixtures
    
    
    10
    years
 Solidaridad 2 and Satmex 5 are being depreciated over their estimated useful lives commencing
on their in-orbit service dates of November 11, 1994 and January 22, 1999, respectively. The
estimated useful lives of the satellites were determined by engineering analyses performed at the
in-orbit service dates. Gains or losses from unsuccessful launches and in-orbit failures of the Companys satellites,
net of insurance proceeds, are recorded in the period in which a loss occurs. Construction in Progress Costs incurred in connection with the construction and successful deployment of the Companys
satellites and related equipment are capitalized. Such costs include direct contract costs,
allocated indirect costs, launch costs, launch insurance, construction period interest and the
estimated value of satellite incentive payments. There was no
capitalized interest related to the construction of Satmex 6 in
2004. Capitalized interest related to the construction
of Satmex 6 was $18.6 million and $14.2 million for the years ended December 31,
2003 and 2002, respectively. All capitalized satellite costs are amortized over the
estimated useful life of the related satellite. The estimated useful life of the satellites was
determined by engineering analyses performed at the satellites
in-service date. Satellite useful lives
are reevaluated periodically. Except
for the Companys in-orbit satellites and Satmex 6, all the Companys long-lived assets are located
in Mexico. F-11




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##### Table of Contents



SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) Concessions The Mexican government granted Satmex the rights to three 20-year concession titles (the
Concessions), to operate in three orbital slots. The Concessions are renewable on certain
conditions for an additional 20 years at no additional cost. The Concessions require Satmex to reserve certain capacity on each satellite for use by the
Mexican government. The Concessions are being amortized over
40 years using the straight-line method. Amortization expense
totals $12.9 million annually. Deferred Financing Costs Deferred financing costs are being amortized over the period of the related debt (see Note 6).
Amortization expense for the years ended December 31, 2004, 2003 and 2002 was $1.9 million, $2.2
million and $2.3 million, respectively. Valuation of Long-Lived Assets The carrying values of the Companys long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that an asset may not be recoverable. Assets are
determined to be impaired when the estimated undiscounted cash flows expected to result from the
use of the asset are less than the carrying value of the asset. The Company measures impairment as
the difference between the carrying value and the fair value of the asset. Labor Obligations Satmex has no employees; personnel services are provided by affiliated service companies under
executed service contracts. Upon payment, affiliated companies charge Satmex for seniority
premiums and other benefits in favor of personnel assigned to Satmex. Accordingly, Satmex
recognizes a liability in results as they are accrued. Retirement payments made by affiliated
companies to such personnel are recorded in Satmexs results
when determined to be payable. Deferred Income Tax The Company recognizes deferred income tax assets and liabilities for the future consequences
of temporary differences between the financial statement carrying amounts of assets and liabilities
and their respective income tax bases, measured using enacted rates. The effects of changes in the
statutory rates are accounted for in the period that includes the enactment date. Deferred income
tax assets are also recognized for the estimated future effects of tax loss carryforwards and asset
tax credit carryforwards. Deferred income tax assets are reduced by any benefits that, in the
opinion of management, are not likely to be realized. Revenue Recognition Satmex provides satellite capacity under service lease agreements for periods ranging from one
year to ten years. Such services are recognized as revenues on a monthly basis as provided. Some
service agreements provide for cash advances from customers with reduced rents. Such cash advances
are recognized as revenue on a straight-line method over the total term. Deferred Revenue  Mexican Government The Company is required to provide the Mexican government, at no charge, approximately 7% of
its available transponder capacity for the duration of the Concessions. In 1997, the Company
recorded $88 million as deferred revenue, as the value of this obligation, and an increase in the
value of the Concessions by the same F-12




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) amount. This obligation is being amortized over 40 years as an increase in revenue and a
corresponding increase in amortization expense. Amortization of deferred revenue totals $2.2
million annually. Financial Instruments The estimated fair value of the Companys financial instruments has been determined using
available market information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop estimates of fair value. The fair value of the Companys Floating Rate Notes (with a nominal and recorded amount of
$203.4 million), based on best estimates at December 31, 2004, was approximately $174.9 million.
At December 31, 2004, the fair value of the Companys Fixed Rate Notes (with a nominal and recorded
amount of $320 million) based on quoted market prices was $176.0 million. Derivative Instruments The Company records all derivatives including bifurcated embedded derivatives, on the balance
sheet at fair value, regardless of the purpose or intent for holding them. The accounting for
changes in fair value of the derivatives varies, depending if the derivative is considered to be a
hedge for accounting purposes, and whether that hedged instrument is a fair value, or a cash flow
hedge. The Company formally documents all relationships between hedging instruments and hedged items,
as well as its risk management objectives and strategies for undertaking various derivative
transactions. It is the Companys policy is to not enter into derivative financial instruments for
speculative purposes. Derivatives that are considered to be hedges from an accounting perspective are recognized in
the balance sheet at fair value with changes in fair value either: (1) offset by changes in fair
value of the hedged assets, liabilities or firm commitments through earnings as a component of the
corresponding asset or liability if the derivative is designated as a fair value hedge, or (2)
recognized in other comprehensive income until the hedged item is recognized in earnings if the
derivative is designated as a cash flow hedge. The ineffective portion of the change in fair value
for a hedged derivative is immediately recognized in earnings, regardless of whether the hedged
derivative is designated as a cash flow or fair value hedge. The Company has not entered to any
derivative contracts for the years ended December 31, 2004, 2003 and 2002. Concentration of Credit Risk and Principal Customers Financial instruments which potentially subject the Company to concentrations of credit risk
consist principally of cash and cash equivalents and accounts receivable. The Companys cash and
cash equivalents are maintained with high-credit-quality financial institutions. The Companys
customers are the Mexican government and large and mid-sized corporations. The creditworthiness of
such institutions is generally substantial. As the Company expands its operations, it has added
customers in emerging markets or customers that are in the development stage. Management believes
that its credit evaluation, approval and monitoring processes mitigate potential credit risks. A large portion of revenues are derived from a small number of customers. Approximately
thirty-eight of the customers account for approximately 80% of the current revenue base, and the
top 10 customers represented approximately 57% of the revenues during 2004. Satmex largest
customer is HNS. Revenue from HNS represented 28%, 23%, and 15% of service revenue for the years
ended December 31, 2004, 2003 and 2002, respectively. The Company expect that HNS will continue to
expand its capacity requirements and represent a greater portion of the service revenue in 2005.
Revenue from the Mexican government represented 8%, 7%, and 8% of service revenue for the years
ended December 31, 2004, 2003, and 2002, respectively. Early in 2004, one of the top ten
customers, Verestar, Inc. (Verestar) filed for relief under Chapter 11 of the U.S. Bankruptcy
Code and rejected their satellite service contract and therefore is no longer using the services.
Verestar represented approximately 8% of the 2003 revenue. Some of the companies that belong to
Grupo Azteca have notified us of an early termination of their
contracts. Grupo Azteca F-13




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) represented approximately 4% of the 2004 revenue. If other significant customers cancel their
contracts or fail to renew their contracts, it would adversely affect the revenues while only
marginally lowering the expenses. Approximately 46%, 42% and 49% of the service revenue for the years ended December 31, 2004,
2003 and 2002, respectively, were generated from customers in Mexico and 47%, 52% and 44% of the
service revenue for those years were generated from customers in the U.S. Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB)issued Statement of
Financial Accounting Standards (SFAS)No. 123 (revised 2004), Share-Based Paymentsor SFAS
123R. This statement eliminates the option to apply the intrinsic value measurement provisions of
Accounting Principles Board (APB)Opinion No. 25, Accounting for Stock Issued to Employeesto
stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the
cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the awardthe requisite service period
(usually the vesting period). SFAS 123R applies to all awards granted after the required effective
date and to awards modified, repurchased, or cancelled after that date. SFAS 123R will be
effective for our fiscal year ending December 31, 2006. We have not yet quantified the effect of
the future adoption of SFAS 123R. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  an
amendment of APB Opinion No. 29or SFAS 153, which amends APB Opinion No. 29, Accounting for
Nonmonetary Transactionsto eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of nonmonetary assets that
do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring
in fiscal periods beginning after June 15, 2005. We do not anticipate that the adoption of this
statement will have a material effect on our financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 requires that certain financial instruments be classified as
liabilities that were previously considered equity. The provisions of SFAS No. 150 are effective
for financial instruments entered into or modified after May 31, 2003, and for pre-existing
instruments, is effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 did not have a material impact on its financial position,
results of operations or cash flows. In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46). In December 2003, FIN 46
was replaced by FASB Interpretation No. 46 (revised
December 2003), Consolidation of Variable Interest Entities (FIN 46(R)).FIN 46(R) clarifies
the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements,to certain entities
in which equity investors do not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN46(R) requires an enterprise to consolidate
a variable interest entity if that enterprise will absorb a majority of the entitys expected
losses, is entitled to receive a majority of the entitys expected residual returns or both. The
Company has applied the F-14




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) provisions of FIN 46 and FIN 46-R to all entities subject to these provisions as of December
31, 2004. The Company does not currently have any variable interest in a variable interest entity
and therefore the adoption of the standard did not have an effect on Satmexs financial position,
results of operations or cash flows. In March 2004, the Emerging Issues Task Force (EITF) confirmed as a consensus EITF Issue No.
03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
(EITF 03-1). The objective of this Issue is to provide guidance on determining when an
investment is considered impaired, whether that impairment is other-than-temporary, and the
measurement of an impairment loss. The guidance also includes accounting considerations subsequent
to the recognition of an other-than-temporary impairment and requires certain disclosures about
unrealized losses that have not been recognized as other-than-temporary impairments. In September
2004, the FASB issued FASB Staff Position (FSP) EITF Issue 03-1-1 that delays the effective date
for the measurement and recognition guidance included in EITF 03-1. The disclosures required by
EITF 03-1 have not been deferred and are effective for the annual periods ending after June 15,
2004.  3.
    
    Accounts Receivable December 31,2004
    
    
    2003(In thousands)Customers
    
    $
    1,441
    
    
    $
    3,123Prepaid expenses
    
    
    978
    
    
    
    1,275Value added tax recoverable
    
    
    101
    
    
    
    652Other
    
    
    530
    
    
    
    286Allowance for doubtful accounts
    
    
    (563
    )
    
    
    (1,859
    )$
    2,487
    
    
    $
    3,477
  4.
    
    Satellites and Equipment December 31,2004
    
    
    2003(In thousands)Satellites
    
    $
    403,707
    
    
    $
    409,119Equipment
    
    
    31,929
    
    
    
    31,399Furniture and Fixtures
    
    
    7,623
    
    
    
    7,384Leasehold improvements
    
    
    4,498
    
    
    
    4,467Construction in process  other
    
    
    730
    
    
    
    336448,487
    
    
    
    452,705Accumulated depreciation
    
    
    (226,468
    )
    
    
    (196,930
    )$
    222,019
    
    
    $
    255,775
 F-15




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) Depreciation expense was $35.2 million, $35.5 million and $34.5 million for the years ended
December 31, 2004, 2003 and 2002, respectively. During 2004, Satmex obtained
a refund of an insurance deposit of $5.1 million related to the
launch of Satmex 6, such amount was originally capitalized as
part of Satmex 6s construction costs; therefore, in 2004,
capitalized construction costs have been decreased accordingly.  5.
    
    Balances and Transactions with Related Parties December 31,2004
    
    
    2003(In thousands)Amounts receivable, net:Loral
    
    $
    3,884
    
    
    $
    2,342Enlaces
Integra, S. de R.L. de C.V. ("Enlaces")
    
    
    847
    
    
    
    267Mexican government agencies
    
    
    499
    
    
    
    1,959Related Service Companies
    
    
    19
    
    
    
    51Allowance for doubtful accounts
    
    
    (922
    )
    
    
    (1,934
    )$
    4,327
    
    
    $
    2,685Amounts receivable long-term:Enlaces (1)
    
    $
    5,587
    
    
    $
    2,900
 December 31,2004
    
    
    2003(In thousands)Amounts payable:Loral
    
    $
    3,434
    
    
    $
    1,925Related Service Companies
    
    
    1,546
    
    
    
    1,280$
    4,980
    
    
    $
    3,205Amounts payable long-termLoral
    
    $
    1,674
    
    
    $
    1,141
 (1) The balance includes $2.9 million of a note payable bearing 10.34% fixed interest rate,
due on December 2009. Transactions with related parties, not otherwise disclosed, are as follows: December 31,2004
    
    
    2003
    
    
    2002(In thousands)RevenuesFrom Mexican government agencies services
    
    $
    4,654
    
    
    $
    5,648
    
    
    $
    6,708From Loral services
    
    
    1,542
    
    
    
    2,737
    
    
    
    2,600From Enlaces services and lease of equipment
    
    
    1,159
    
    
    
    1,218
    
    
    
    651From Enlaces interest income
    
    
    7
    
    
    
    
    
    
    
    204From Related Service Companies
    
    
    5ExpensesRelated Service Companies (Administrative labor)
    
    $
    14,773
    
    
    $
    15,464
    
    
    $
    16,881Loral storage  Satmex 6
    
    
    1,753
 F-16




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) December 31,2004
    
    
    2003
    
    
    2002(In thousands)Enlaces recovery of expenses
    
    
    (2,597
    )Intellectual Property fee to Loral
    
    
    533
    
    
    
    1,141
    
    
    
    1,213Rent control center to Mexican government
    
    
    382
    
    
    
    407
    
    
    
    321Purchase equipment to Enlaces
    
    
    107
    
    
    
    
    
    
    
    2,388Guaranty fees to Servicios and Firmamento
    
    
    53
    
    
    
    63
    
    
    
    102Replacement capacity to Loral
    
    
    7
    
    
    
    989
    
    
    
    4,196Sales
commissions to Loral
    
    
    
    
    
    
    395
    
    
    
    547Construction in progressConstruction
of Satmex 6 to Loral
    
    
    
    
    
    $
    12,170
    
    
    $
    22,080
  6.
    
    Long-Term Debt December 31,2004
    
    
    2003(In thousands)Floating Rate Notes (6.71% and 5.62% at
December 31, 2004 and 2003 respectively)
    
    $
    203,388
    
    
    $
    203,550Fixed Rate Notes
    
    
    320,000
    
    
    
    320,000Total debt
    
    $
    523,388
    
    
    $
    523,550
 The Fixed Rate Notes On February 2, 1998, Satmex issued the Fixed Rate Notes in an aggregate principal amount of
$320 million, which matured on November 1, 2004, all of which was outstanding on December 31, 2004. The
interest rate on the Fixed Rate Notes is 10.125%. The Fixed Rate Notes are unsecured,
unsubordinated obligations, rank pari passuin right of payment with all of the existing and future
unsecured, unsubordinated obligations, and are senior in right of payment to all of the future
subordinated indebtedness. The Fixed Rate Notes indenture contains certain covenants that impose certain limitations and
restrictions on the ability to incur additional indebtedness, pay dividends or make other
distributions, make certain loans and investments, apply the proceeds of asset sales (and use the
proceeds thereof), create liens, enter into certain transactions with affiliates, merge,
consolidate or transfer substantially all of the assets and make investments in unrestricted
subsidiaries. The events of default under the Fixed Rate Notes indenture includes various events
of default customary for similar issues of notes, including the failure to pay principal and
interest when due, cross acceleration and certain events of bankruptcy, insolvency and
reorganization. Satmex is currently in default on these notes. (See
Note 1. Defaults on Indebtedness). The Floating Rate Notes On March 4, 1998, Satmex issued unsubordinated debt securities of $325 million with collateral
at a floating interest rate due on June 30, 2004. The $203.4 million balance is outstanding as of
December 31, 2004. The Floating Rate Notes rank senior in right of payment to all of subordinated
debt and pari passuin right of payment to all senior indebtedness, including the Fixed Rate Notes.
They are secured by a lien on substantially all of the Companys assets. The Floating Rate Notes
bear interest at rates based either on LIBOR or the base rate specified in the Fixed Rate Notes
indenture, at the Companys option, and are redeemable at the Companys option. In addition, the
Floating Rate Notes are guaranteed by Firmamento and Servicios. Floating rate notes have accrued interest at LIBOR plus 4.5 points or at the base rate
specified in the contract. F-17




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) In addition to containing similar covenants as the Fixed Rate Notes, the Floating Rate Notes
contain covenants that require maintenance of certain quarterly financial and operating ratio
levels and impose limits on spending for capital expenditures. Satmex
is currently in default on these notes (See Note 1, Defaults on
Indebtedness). See Note 1 for additional information related to Defaults on Indebtedness.  7.
    
    Stockholders Equity At December 31, 2004 and 2003 the Companys issued and outstanding capital stock was comprised
of a fixed and variable portion, with the fixed portion represented by 611,730 shares and the
variable portion by 9,995,000 shares, respectively in both years. On March 30, 1999, the Company issued 606,730 shares of preferred stock to Loral and Principia
for a total purchase price of approximately $31.9 million. The preferred stock has limited voting
rights and pays a cumulative dividend in common stock of the Company equal to 0.138 shares of
Series N or Series B common stock for each share of preferred stock. The preferred stock can be
exchanged at the Companys option into common stock of the Company, at an exchange ratio of 1 share
of preferred stock for 2.0008 shares of Series N or Series B common stock, if the exchange occurs
before February 2, 2005, and at an exchange ratio of 1 share of preferred stock for 4.0016 shares
of Series N or Series B common stock on and after February 2, 2005. As of December 31, 2004,
Servicios holds 70.71% of the outstanding capital stock of Satmex, Loral holds 4.46%, Principia
holds 1.26% and the Mexican government holds 23.57%. Loral and Principia own 65% and 35% of
Firmamento, respectively. At December 31, 2004 and 2003, the issued and outstanding capital stock of the Company
consisted of the following: December 31,Series
    
    2004
    
    
    2003A Common stock
    
    
    2,601,000
    
    
    
    2,601,000B Common stock
    
    
    2,499,000
    
    
    
    2,499,000N Common stock
    
    
    4,900,000
    
    
    
    4,900,000C Preferred stock
    
    
    606,730
    
    
    
    606,73010,606,730
    
    
    
    10,606,730
 At December 31, 2004 and 2003 the capital stock and the notional value is as follows: 2004
    
    
    2003Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount(In thousands)
    
    
    
    
    
    
    (In thousands)Common stock:Fixed portion
    
    
    5,000
    
    
    $
    6
    
    
    
    5,000
    
    
    $
    6Variable portion
    
    
    9,995,000
    
    
    
    388,062
    
    
    
    9,995,000
    
    
    
    386,55510,000,000
    
    
    $
    388,068
    
    
    
    10,000,000
    
    
    $
    386,561Preferred stock:Fixed portion
    
    
    606,730
    
    
    $
    31,886
    
    
    
    606,730
    
    
    $
    31,886
 Stockholders equity except restated paid-in capital and tax retained earnings will be subject
to a dividend tax, payable by the Company, in the event of
distribution. In 2004 and 2003, the rate was 34% and 33%,
respectively; it will decrease to 30% in 2005, subsequently, one
percentage point until reaching 28% in 2007. Any
income tax paid on such distribution may be credited against the
income tax payable for the year in which the tax on the dividend is
paid and for the two fiscal years following such payment. F-18




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) Series A shares have full voting rights and can only be acquired by Mexican individuals,
Mexican corporations or irrevocable trusts. These shares are divided into Class I (minimum fixed
capital) and Class II (variable capital) shares. Series B shares have full voting rights and may
be acquired by Mexican or foreign investors. These shares are divided into Class I (minimum fixed
capital) and Class II (variable capital) shares. Series N shares contain restricted voting and
limited corporate rights and may represent more than 49% of the total capital of the Company.
These shares may be acquired by Mexican and foreign investors and currently represent variable
capital.  8.
    
    Income Tax and Tax on Assets Income
tax expense (benefit) for the years ended December 31,
2004, 2003 and 2002 was as
follows: 2004
    
    
    2003
    
    
    2002(In thousands)Net deferred income tax expense (benefit)
    
    $
    10,461
    
    
    $
    35,744
    
    
    $
    (8,837
    )
 The
components of the net deferred income tax asset (liability) were as follows: December 31,2004
    
    
    2003(In thousands)Tax loss carryforwards
    
    $
    104,806
    
    
    $
    106,377Deferred revenue
    
    
    14,514
    
    
    
    17,212Other, net
    
    
    2,302
    
    
    
    2,568Satellites and equipment
    
    
    (39,057
    )
    
    
    (47,390
    )Concessions
    
    
    (31,865
    )
    
    
    (36,526
    )Prepaid insurance
    
    
    (908
    )
    
    
    (1,749
    )Deferred financing costs
    
    
    
    
    
    
    (467
    )Subtotal
    
    
    49,792
    
    
    
    40,025Valuation allowance
    
    
    (104,806
    )
    
    
    (84,578
    )Net long term deferred tax liability
    
    $
    (55,014
    )
    
    $
    (44,553
    )
 At
December 31, 2004 the Company had tax loss carryforwards, which
are available to offset future taxable income, of approximately $374 million
which expire from 2008 to 2014. Due to the uncertainties regarding the Companys ability to
realize the full benefit from these tax loss carryforwards, Satmex established a valuation
allowance of $104.8 million at December 31, 2004 against the deferred tax assets. Expiration Date
    
    (In thousands)2008
    
    $
    92,1092010
    
    
    128,4002012
    
    
    59,0132013
    
    
    69,2642014
    
    
    25,520$
    374,306
 The amounts presented above have been adjusted for Mexican inflation as permitted by Mexican
tax law. The
provision for income tax, for the years ended December 31, 2004, 2003 and 2002 differs
from the Mexican statutory income tax rate as follows: F-19




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 2004
    
    
    2003
    
    
    2002(In thousands)Tax benefit at Mexican statutory income tax rate (33%) in
2004 and (34%) in 2003 and (35%) in 2002
    
    $
    (19,443
    )
    
    $
    (14,774
    )
    
    $
    (10,068
    )Inflation component and effect of remeasurement
    
    
    1,113
    
    
    
    (8,981
    )
    
    
    (11,895
    )Non deductible expenses
    
    
    71
    
    
    
    529
    
    
    
    79Change in valuation allowance
    
    
    36,300
    
    
    
    58,970
    
    
    
    14,887Effect of change in statutory tax rates
    
    
    (7,580
    )
    
    
    
    
    
    
    (1,840
    )Net income tax expense (benefit)
    
    $
    10,461
    
    
    $
    35,744
    
    
    $
    (8,837
    )
 Satmex
is subject to income tax and tax on assets. Income tax is calculated considering as
taxable or deductible certain inflationary effects such as depreciation calculated on pesos of
purchasing power at the end of the year, which allows to deduct actual costs and to accumulate or
deduct the effects of inflation over certain monetary assets and
liabilities. The income tax rate was
33 % in 2004 and 34 % in 2003. Tax on assets is calculated by
applying 1.8% on the net average of the majority of restated assets,
less certain liabilities and is payable only to the extent that it
exceeds income tax payable for the same period; any required payment
of tax on assets is creditable against the excess of income tax over
tax on assets for the following ten years. In 2004 Satmex had no tax on asset basis and in
2003 the tax on assets was offset against the credit available due to the immediate deduction
taken in 1998 of the cost of the Satmex 5 satellite. On
December 1st, 2004, certain amendments to the income tax and tax on
assets laws were enacted and are effective as of
2005, the most significant amendments are as follows:  a)
    
    Reduces the statutory income tax rate as follows : 30% for 2005, 29% for 2006 and 28 % for
2007.b)
    
    Bank Liabilities and liabilities with foreign entities are now included in
the determination of the asset tax base. To
determine deferred income tax at December 31, 2004, Satmex
applied the different tax rates that will be in effect beginning in
2005 to temporary differences according to their estimated dates of
reversal. The result derived from applying the different tax rates is
shown in the income tax composition and income tax reconciliation tables above under the
caption, effect of change in statutory tax rates.  9.
    
    Commitments and Contingencies In
November 2004, Satmex renewed the in-orbit insurance for
Solidaridad 2 for a 372 days period on substantially similar terms to the previous one-year policy. The current policy for
Solidaridad 2 is bound for $35 million and does not insure against an in-orbit failure due to the loss of the satellites
spacecraft control processors, the same component that caused the loss of Solidaridad 1 and other Boeing 601
satellites. Further, the current policy requires that 75% of the satellites capacity must be
impaired before a total loss can be declared. The original insurance policy covering Satmex 5 expired on December 5, 2003. In December 2003
and again in December 2004, Satmex renewed the in-orbit insurance for the Satmex 5 satellite and
such insurance was bound for $75 million. The new policy excludes coverage for the Xenon Ion
Propulsion Systems (XIPS) and any related systems as well as anomalies with the same telemetry
signature as the anomaly that occurred on October 12, 2004 and the transponder that was similarly
affected in October 2004. Because XIPS on other satellites have also experienced anomalies, the
XIPS exclusion has become a typical feature in insurance policies for satellites with this same
propulsion system. Except as otherwise provided above, the new policy is effective as of December
5, 2004 for a one-year period an is based on prevailing market terms and conditions. Furthermore,
the current policy requires that 75% of the satellites capacity must be impaired before a total
loss can be declared. Any uninsured loss of Satmex 5 or Solidaridad 2 would have a material adverse effect on
Satmexs results of operations and financial condition. Satmex 5 was launched in 1998 with a primary and a secondary XIPS, each designed to perform
station-keeping activities that maintain the satellites position in orbit during its design life.
To provide further back-up, Satmex 5 has an independent chemical propulsion system that provides
station-keeping operations to maintain its position in orbit. Should both the primary and
secondary XIPS fail, the Company currently estimate that the back-up chemical propulsion system of
Satmex 5 would provide up to 3.7 years of station-keeping capability to maintain its position in
orbit. During standard station-keeping procedures to maintain Satmex 5s position in orbit, on
November 17, 2003, the secondary XIPS, which was then the system in operation, failed to operate
satisfactorily. The primary F-20




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) XIPS was started on December 1, 2003 as an alternate to the secondary XIPS, and it initially
failed to operate satisfactorily. Satmex engineers and the manufacturer, Boeing Satellite Systems,
working together, returned the primary XIPS to an acceptable level of operation. On October 13, 2004, Satmex 5 suffered a pointing anomaly, which caused a temporary
interruption on some of the satellites service. The main on-board computer was switched to the
back-up computer and services were restored on the same day. On October 15, 2004, the main
on-board computer was switched on for testing purposes; after verifying its proper operation, it
was switched off again. Since February 23, 2005, the satellite has been operating in an adequate
and stable manner on its primary system; however, the Company cannot assure that Satmex 5 or
Solidaridad 2 will continue to operate satisfactorily and that there will not be a significant
system failure that will result in a partial or total loss of either satellite. In February 2004, the Company returned to the secondary XIPS as the operating propulsion
system. During May, 2005 the performance of the secondary XIPS was below manufacturing
specifications. On the recommendation of the manufacturer, Satmex 5 has been operated by the
primary XIPS. The use of the primary XIPS to effect satellite maneuvers generates contaminants on
the solar arrays and requires supplemental bipropellant consumption. Maneuver testing in the
secondary XIPS continues to be performed, but to date substantially all such tests have failed. If
both of these systems were to fail, the Company could lose operation of Satmex 5 within 3.7 years
and the business would be materially and adversely harmed. The Company contracted with SS/L to build Satmex 6, the replacement satellite for Solidaridad
1. As a result of schedule delays, Satmex and SS/L agreed that Satmex 6 would be delivered in
2003. Under the original contract, the Company earned certain liquidated damages as a result of
the delay. Satmex concluded the negotiation with Loral and SS/L of an amendment to the contract,
which, among other things, waives the liquidated damages in exchange for a like amount of other
benefits that include additional work required on the satellite, a reduction in future orbital
incentive payments due to SS/L and certain other financial benefits. Tax differences in transactions with foreign related parties may arise if tax authorities
consider that prices and amounts used by Satmex are not similar to those used with independent
parties in comparable transactions. Satmex prepared the 2001 transfer pricing study, which
indicates that transactions with related parties are valued at market values similar to those with
third parties. The 2004 study is being updated. At December 31, 2004, 88.2% of the Companys liabilities were outstanding for more than 30
days, and the Company does not have cash or equivalents to fully meet
its obligations. According
to the Mexican bankruptcy law (Ley de Concursos Mercantiles)
(the LCM), this factor places the Company in a general state of default and
either Satmex or any of its creditors may initiate Concurso
Mercantil proceedings of the Company. As of December 31, 2004, Satmex had a contingent obligation in the amount of $4.5 million
representing three surety bonds issued as a condition to maintain compliance with the orbital
concessions. Satmex pledged and deposited $2.7 million as collateral to these surety bonds. The
collateral will be returned to the Company upon the completion of the financial restructuring. The
Company leases office space under a noncancelable operating lease
that expired in May 2005.
The monthly rent, including maintenance, is approximately $106,000. Rent expense under this lease was
$1.1 million, $1.3 million and $1.4 million for the years ended December 31, 2004, 2003 and 2002,
respectively. Minimum payments for the future will amount to $470,000. Future minimum revenue due from customers under non-cancelable operating contracts for
transponder capacity on satellites in-orbit as of December 31, 2004, are as follows: F-21




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V. 2004(In thousands)2005
    
    $
    56,3702006
    
    
    31,7332007
    
    
    19,0062008
    
    
    10,9012009
    
    
    8,697Thereafter
    
    
    23,111$
    149,818
  10.
    
    Revenue by Customer Location The following table presents revenue by country based on customer location for the years ended
December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002(In thousands)Mexico
    
    $
    32,712
    
    
    $
    33,449
    
    
    $
    41,630United States
    
    
    33,569
    
    
    
    40,740
    
    
    
    37,619Other
    
    
    5,424
    
    
    
    4,634
    
    
    
    5,762Total
    
    $
    71,705
    
    
    $
    78,823
    
    
    $
    85,011
 The Company does not present segment disclosure as it only operates in one segment. F-22




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) F-23




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2004, 2003 and 2002 AdditionalBalance at
    
    
    Charged
    
    
    
    
    
    
    Balance atBeginning of
    
    
    (credited) to
    
    
    
    
    
    
    End ofyear
    
    
    Expenses
    
    
    Deductions
    
    
    Year(Amounts in thousands of U.S. dollars)Allowance for doubtful accountsYear ended December 31, 2004
    
    $
    1,859
    
    
    $
    12
    
    
    $
    1,308
    (1)
    
    $
    563Year ended December 31, 2003
    
    $
    1,739
    
    
    $
    300
    
    
    $
    180
    (1)
    
    $
    1,859Year ended December 31, 2002
    
    $
    2,046
    
    
    $
    254
    
    
    $
    561
    (1)
    
    $
    1,739Allowance for due from related parties accountsYear ended December 31, 2004
    
    $
    1,934
    
    
    $
    
    
    
    $
    1,012
    
    
    $
    922Year ended December 31, 2003
    
    $
    430
    
    
    $
    1,504
    
    
    $
    
    
    
    $
    1,934Year ended December 31, 2002
    
    $
    
    
    
    $
    430
    
    
    $
    
    
    
    $
    430Valuation allowance deferred income taxesYear ended December 31, 2004
    
    $
    84,578
    
    
    $
    20,228
    
    
    $
    
    
    
    $
    104,806Year ended December 31, 2003
    
    $
    25,608
    
    
    $
    58,970
    
    
    $
    
    
    
    $
    84,578Year ended December 31, 2002
    
    $
    10,721
    
    
    $
    14,887
    
    
    $
    
    
    
    $
    25,608
 
 (1)
    
    Write-offs of uncollectible accounts. * * * * * * F-24




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SATELITES MEXICANOS, S.A. DE C.V.
(A Subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) 
 Item 19.Exhibits Exhibit No.
    
    Description1.1
    
    Estatutos Sociales(bylaws) of Satélites Mexicanos, S.A. de C.V.1.2
    
    Estatutos Sociales(bylaws) of Satélites Mexicanos, S.A. de C.V. (English translation).2.1
    
    Indenture, dated as of February 2, 1998, between Satélites Mexicanos, S.A. de C.V. and
The Bank of New York, as trustee.2.2
    
    Indenture, dated as of March 4, 1998, among, Satélites Mexicanos, S.A. de C.V., as the
Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios Corporativos Satelitales,
S.A. de C.V., as Guarantors, and Citibank, N.A., as trustee.2.3
    
    First Supplemental Indenture, dated as of June 30, 1998, Supplemental to Indenture,
dated as of March 4, 1998, among, Satélites Mexicanos, S.A. de C.V., as the Issuer,
Firmamento Mexicano S. de R.L. de C.V. and Servicios Corporativos Satelitales, S.A. de
C.V., as Guarantors, and Citibank, N.A., as trustee.2.4
    
    Second Supplemental Indenture, dated as of February 16, 2000, to Indenture, dated as of
March 4, 1998, among, Satélites Mexicanos, S.A. de C.V., as the Issuer, Firmamento
Mexicano S. de R.L. de C.V. and Servicios Corporativos Satelitales, S.A. de C.V., as
Guarantors, and Citibank, N.A., as trustee.2.5
    
    Supplemental Indenture, dated as of November 25, 2002, to Indenture, dated as of
February 2, 1998, between Satélites Mexicanos, S.A. de C.V. and The Bank of New York,
as trustee.2.6
    
    Third Supplemental Indenture, dated as of March 18, 2003, to Indenture, dated as of
March 4, 1998, among, Satélites Mexicanos, S.A. de C.V., as the Issuer, Firmamento
Mexicano S. de R.L. de C.V. and Servicios Corporativos Satelitales, S.A. de C.V., as
Guarantors and Citibank, N.A., as trustee.4.1
    
    Satellite Concession 116.8 degrees W.L.4.2
    
    Satellite Concession 116.8 degrees W.L. (English Translation)4.3
    
    Satellite Concession 113.0 degrees W.L.4.4
    
    Satellite Concession 113.0 degrees W.L. (English Translation)4.5
    
    Satellite Concession 109.2 degrees W.L.4.6
    
    Satellite Concession 109.2 degrees W.L. (English Translation)4.7
    
    Property Concession4.8
    
    Property Concession (English Translation)4.9
    
    Amended and Restated Membership Agreement, dated as of August 21, 1998 among Loral
SatMex Ltd., Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S. de R.L. de
C.V.12.1
    
    Section 302 Certification of
Sergio Miguel Angel Autrey Maza, Chief Executive Officer.*12.2
    
    Section 302 Certification of Cynthia Pelini, Chief Financial Officer.*13.1
    
    Section 906 Certification of Sergio Miguel Angel Autrey Maza, Chief Executive Officer.*13.3
    
    Section 906 Certification of Cynthia Pelini, Chief Financial Officer.*
 
 
    
    Incorporated by reference from the registrants Registration Statement on Form F-4 filed on
November 9, 1998 (File No. 333-8880).
    
    Incorporated by reference from the registrants Annual Report on Form 20-F for the year
ended December 31, 1999.
    
    Incorporated by reference from the registrants Annual Report on Form 20-F for the year
ended December 31, 2002.*
    
    Filed herewith.




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SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly
caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Satélites Mexicanos, S.A. de C.V.By:
    /s/       Cynthia PeliniCynthia PeliniChief Financial Officer Date: June 30, 2005