|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
(Mark One)
|------------------------------------------------------------------------------------------

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

|                                             
|---------------------------------------------
|For the quarterly period ended March 31, 2005
|                                             
|or                                           
|                                             

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

|                                                                                                                                            
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|For the transition period from        to
Commission File Number: 0-30364
NDS Group plc(Exact name of registrant as specified in its charter)
|                                                                                                                                            

|England and Wales                                              | Not applicable                      
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     
|One London Road, Staines, Middlesex, United Kingdom            | TW18 4EX                            
|(Address of principal executive offices)                       | (Zip Code)                          

|                                                                    
|--------------------------------------------------------------------
|+44 208 476 8000(Registrants telephone number, including area code)
|                                                                    

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

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|Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).                                                                                                                                 
|Yes         x          No           o                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                      
|As of May 4, 2005, the following shares were outstanding: 13,128,393 Series A ordinary shares of $0.01 par value per share, 42,001,000 Series B ordinary shares of $0.01 par value per share and 42,000,002 deferred shares of £1 par value per share.

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|



|NDS Group plc
Table of contents
PART I  Financial Information
|--------------------------------------------------------------
|                                                              

|                            |                                                                                       | Page                                                                                                                                   
|--------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------
|Introduction                | 1                                                                                    
|                            |                                                                                       |                                                                                                                                        
|Item 1.                     | Financial Statements                                                                  |                                                                                                                                        
|                            |                                                                                       | Unaudited Condensed Consolidated Statements of Operations for the three and nine month  periods ended March 31, 2005 and March 31, 2004
|                            |                                                                                       |                                                                                                                                        
|                            |                                                                                       | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2005 and June 30, 2004                                                 
|                            |                                                                                       |                                                                                                                                        
|                            |                                                                                       | Unaudited Condensed Consolidated Statements of Cash Flows for the nine month periods  ended March 31, 2005 and March 31, 2004          
|                            |                                                                                       |                                                                                                                                        
|                            |                                                                                       | Notes to Unaudited Condensed Consolidated Financial Statements                                                                         
|                            |                                                                                       |                                                                                                                                        
|Item 2.                     | Managements Discussion and Analysis of Financial Condition and Results of Operations | 13                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 3.                     | Quantitative and Qualitative Disclosures About Market Risk                            | 21                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 4.                     | Controls and Procedures                                                               | 22                                                                                                                                     
|                            |                                                                                      
|PART II  Other Information |                                                                                      
|                            |                                                                                       |                                                                                                                                        
|Item 1.                     | Legal Proceedings                                                                     | 22                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 2.                     | Unregistered Sales of Equity Securities and Use of Proceeds                           | 23                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 3.                     | Defaults Upon Senior Securities                                                       | 23                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 4.                     | Submission of Matters to a Vote of Security Holders                                   | 23                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 5.                     | Other Information                                                                     | 23                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Item 6.                     | Exhibits                                                                              | 23                                                                                                                                     
|                            |                                                                                       |                                                                                                                                        
|Signatures                  | 24                                                                                   

|
|



|INTRODUCTION
As used in this Quarterly Report on Form 10-Q, references to the Company are to NDS Group
plc. References to NDS, the Group, NDS Group, we
and our are to NDS Group plc and its subsidiaries.
The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to June 30. References
to a year are, unless otherwise indicated, references to the Companys fiscal year ending June
30 of such year.
This Quarterly Report on Form 10-Q should be read in conjunction with other documents which we have
filed with the Securities and Exchange Commission. In particular, details about our business and
risk factors which may affect investors are provided in our Annual Report on Form 20-F, which we
filed with the Securities and Exchange Commission on October 22, 2004.
NDS, VideoGuard, Value@TV, MediaHighway, XTV, Synamedia, OpenBet, Visionik Games, Streamserver, Provider
and Streamshaper are either trademarks or registered trademarks of NDS Group plc and subsidiaries
in one or more countries worldwide. This Quarterly Report on Form 10-Q also includes trade names
and trademarks of companies other than NDS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains statements that constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. The words expect, estimate, anticipate,
predict, believe and similar expressions and variations thereof are intended
to identify forward-looking statements. These statements appear in a number of places in this document
and include statements regarding the intent, belief or current expectations of NDS Group plc (the
Company), its directors or its officers with respect to, among other things, trends affecting
the Companys financial condition or results of operations. The readers of this document are
cautioned that any such forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Those risks and uncertainties are discussed under the heading Risk
Factors, in the Companys Annual Report on Form 20-F (SEC file no. 0-30364) as filed with
the Securities and Exchange Commission on October 22, 2004, as well as the information set forth
below. The Company does not ordinarily make projections of its future operating results and undertakes
no obligation to publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by law. Readers should carefully
review other documents filed by the Company with the Securities and Exchange Commission.
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|PART I  Financial Information
Item 1. Financial Statements
NDS Group plc
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per-share amounts)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                      

|                                                      | For the three months ended |   | For the nine months ended |  
|----------------------------------------------------- | -------------------------- | - | ------------------------- | -
|
|
|Revenue:                                              |                            |   |                           |  
|Conditional access                                    |                            | $ | 66,712                    |  
|Integration, development & support                    |                            |   | 13,855                    |  
|License fees & royalties                              |                            |   | 18,319                    |  
|New technologies                                      |                            |   | 26,131                    |  
|Other                                                 |                            |   | 1,577                     |  
|                                                      |                            |   |                           |  
|Total revenue                                         |                            |   | 126,594                   |  
|                                                      |                            |   |                           |  
|Cost of goods and services sold:                      |                            |   |                           |  
|Smart card costs                                      |                            |   | (22,996                   | )
|Operations & support                                  |                            |   | (19,751                   | )
|Royalties                                             |                            |   | (2,815                    | )
|Other                                                 |                            |   | (2,399                    | )
|                                                      |                            |   |                           |  
|Total cost of goods and services sold                 |                            |   | (47,961                   | )
|                                                      |                            |   |                           |  
|Gross margin                                          |                            |   | 78,633                    |  
|                                                      |                            |   |                           |  
|Operating expenses:                                   |                            |   |                           |  
|Sales & marketing                                     |                            |   | (7,035                    | )
|Research & development                                |                            |   | (40,847                   | )
|General & administration                              |                            |   | (4,995                    | )
|Amortization of other intangibles                     |                            |   | (3,286                    | )
|Foreign exchange gains (losses)                       |                            |   | 160                       |  
|                                                      |                            |   |                           |  
|Total operating expenses                              |                            |   | (56,003                   | )
|                                                      |                            |   |                           |  
|Operating income                                      |                            |   | 22,630                    |  
|                                                      |                            |   |                           |  
|Other income:                                         |                            |   |                           |  
|Interest                                              |                            |   | 2,313                     |  
|Gain on sale of investments-                          |                            |   |                          |  
|                                                      |                            |   |                           |  
|Total other income                                    |                            |   | 2,313                     |  
|                                                      |                            |   |                           |  
|Income before income tax expense and                  |                           
|minority interests in subsidiaries, net of tax        |                            |   | 24,943                    |  
|                                                      |                            |   |                           |  
|Income tax expense                                    |                            |   | (8,353                    | )
|Minority interests in subsidiaries, net of tax        |                            |   |                          |  
|                                                      |                            |   |                           |  
|Net Income                                            |                            | $ | 16,590                    |  
|                                                      |                            |   |                           |  
|Net income per share:                                 |                            |   |                           |  
|Basic net income per share                            |                            | $ | 0.30                      |  
|Diluted net income per share                          |                            | $ | 0.29                      |  
|                                                      |                            |   |                           |  
|                                                      |                            |   |                           |  
|Shares used in computing basic net income per share   |                            |   | 54,994,616                |  
|Shares used in computing diluted net income per share |                            |   | 57,308,475                |  
|                                                      |                            |   |                           |  

|                                                                                                            
|------------------------------------------------------------------------------------------------------------
|The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

|Page 2
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|NDS Group plc
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
|--------------------------------------------------------------------------------------------------
|                                                                                                  

|                                                                                                  | As of
    March 31, 2005 |   | As of
    June 30, 2004 |  
|------------------------------------------------------------------------------------------------- | ------------------------ | - | ----------------------- | -
|
|ASSETS                                                                                            |                          |   |                         |  
|Current assets:                                                                                   |                         
|Cash and cash equivalents                                                                         |                          | $ | 308,942                 |  
|Accounts receivable, net of an allowance for doubtful accounts of $2,764 and                      |                         
|$3,021 as of March 31, 2005 and June 30, 2004, respectively                                       |                          |   | 104,038                 |  
|Accrued income                                                                                    |                          |   | 18,698                  |  
|Inventories                                                                                       |                          |   | 44,788                  |  
|Prepaid expenses                                                                                  |                          |   | 17,620                  |  
|Other current assets                                                                              |                          |   | 5,533                   |  
|                                                                                                  |                          |   |                         |  
|Total current assets                                                                              |                          |   | 499,619                 |  
|                                                                                                  |                          |   |                         |  
|Property, plant & equipment, net                                                                  |                          |   | 31,365                  |  
|Goodwill                                                                                          |                          |   | 67,776                  |  
|Other intangibles, net                                                                            |                          |   | 54,095                  |  
|Deferred tax assets                                                                               |                          |   | 11,884                  |  
|Other non-current assets                                                                          |                          |   | 20,400                  |  
|                                                                                                  |                          |   |                         |  
|Total assets                                                                                      |                          | $ | 685,139                 |  
|                                                                                                  |                          |   |                         |  
|                                                                                                  |                          |   |                         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              |                          |   |                         |  
|Current liabilities:                                                                              |                         
|Accounts payable                                                                                  |                          | $ | 18,647                  |  
|Customer deposits & deferred income                                                               |                          |   | 145,470                 |  
|Accrued expenses                                                                                  |                          |   | 45,922                  |  
|Income tax liabilities                                                                            |                          |   | 19,733                  |  
|Other current liabilities                                                                         |                          |   | 19,181                  |  
|                                                                                                  |                          |   |                         |  
|Total current liabilities                                                                         |                          |   | 248,953                 |  
|                                                                                                  |                          |   |                         |  
|Accrued expenses                                                                                  |                          |   | 29,546                  |  
|                                                                                                  |                          |   |                         |  
|Total liabilities                                                                                 |                          |   | 278,499                 |  
|                                                                                                  |                          |   |                         |  
|                                                                                                  |                          |   |                         |  
|Stockholders equity:                                                                             |                          |   |                         |  
|Series A ordinary shares of $0.01 par value per share: 48,000,000 shares authorized;              |                         
|13,110,865 and 12,186,598 shares outstanding as of March 31, 2005 and June 30, 2004, respectively |                          |   | 131                     |  
|Series B ordinary shares of $0.01 par value per share: 52,000,000 shares authorized;              |                         
|42,001,000 shares outstanding as of March 31, 2005 and June 30, 2004                              |                          |   | 420                     |  
|Deferred shares of £ 1 par value per share: 42,000,002 shares authorized and outstanding          |                         
|as of March 31, 2005 and June 30, 2004                                                            |                          |   | 64,103                  |  
|Additional paid-in capital                                                                        |                          |   | 493,090                 |  
|Accumulated deficit and other comprehensive income                                                |                          |   | (151,104                | )
|                                                                                                  |                          |   |                         |  
|Total stockholders equity                                                                        |                          |   | 406,640                 |  
|                                                                                                  |                          |   |                         |  
|Total liabilities and stockholders equity                                                        |                          | $ | 685,139                 |  
|                                                                                                  |                          |   |                         |  

|                                                                                                            
|------------------------------------------------------------------------------------------------------------
|The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

|Page 3
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|NDS Group plc
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
|--------------------------------------------------------------------------------------
|                                                                                      

|                                                                                           | For the nine months ended March 31, |  
|------------------------------------------------------------------------------------------ | ----------------------------------- | -
|
|
|Operating activities:                                                                      |                                     |  
|Net income                                                                                 |                                     | $
|                                                                                           |                                     |  
|Adjustments to reconcile net income to net cash provided by 
        operating activities: |                                     |  
|Depreciation                                                                               |                                     |  
|Amortization of other intangibles                                                          |                                     |  
|Stock-based compensation                                                                   |                                     |  
|Gain on sale of investments                                                                |                                     |  
|Minority interest in subsidiaries, net of tax                                              |                                     |  
|                                                                                           |                                     |  
|Change in operating assets and liabilities, net of acquisitions                            |                                     |  
|                                                                                           |                                     |  
|Net cash provided by operating activities                                                  |                                     |  
|                                                                                           |                                     |  
|                                                                                           |                                    
|Investing activities:                                                                      |                                    
|Capital expenditure                                                                        |                                     |  
|Proceeds from sale of investments                                                          |                                     |  
|Business acquisitions, net of cash acquired                                                |                                     |  
|                                                                                           |                                     |  
|Net cash used in investing activities                                                      |                                     |  
|                                                                                           |                                     |  
|                                                                                           |                                    
|Financing activities:                                                                      |                                    
|Issuance of shares                                                                         |                                     |  
|Other                                                                                      |                                     |  
|                                                                                           |                                     |  
|Net cash provided by financing activities                                                  |                                     |  
|                                                                                           |                                     |  
|                                                                                           |                                     |  
|Net increase (decrease) in cash and cash equivalents                                       |                                     |  
|                                                                                           |                                     |  
|Cash and cash equivalents, beginning of period                                             |                                     |  
|Exchange movements                                                                         |                                     |  
|                                                                                           |                                     |  
|Cash and cash equivalents, end of period                                                   |                                     | $
|                                                                                           |                                     |  

|                                                                                                            
|------------------------------------------------------------------------------------------------------------
|The accompanying notes form an integral part of these unaudited condensed consolidated financial statements.

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|NDS Group plc
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Description of business
NDS Group plc (the Company) is incorporated in Great Britain and registered in England
and Wales. The Company, together with its subsidiaries (NDS or the Group), is engaged
in the business of supplying digital technology and services, enabling and supporting digital pay-TV
platform operators and content providers.
NDS operates through a number of subsidiaries. There is a common management structure across the Group,
which ensures that the various subsidiary companies operate in a co-ordinated and complementary manner.
The business is managed as a single operating unit or segment, being the supply of digital technology
and services enabling and supporting digital pay-TV platform operators and content providers.
The Company is a majority owned subsidiary of News Corporation and conducts business transactions with
a number of affiliates and subsidiaries of News Corporation.
Note 2. Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles (US GAAP) for interim
financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Information
and footnote disclosures normally included in annual financial statements prepared in accordance
with US GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion
of management, the unaudited condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair presentation of the consolidated
financial position, the consolidated operating results and the consolidated cash flows as of, and
for the periods shown. The consolidated results of operations for the three and nine month periods
ended March 31, 2005 are not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year ending June 30, 2005.
Effective November 12, 2004, News Corporation changed its corporate domicile from Australia to the
United States and as a result, NDS Group plc no longer qualifies as a foreign private issuer under
US securities laws. NDS has also changed its reporting currency from pounds sterling to US dollars.
Accordingly, these condensed consolidated financial statements are stated in US dollars, and have
been prepared in accordance with US generally accepted accounting principles (US GAAP).
Prior to November 12, 2004, NDS published financial information in accordance with UK generally accepted
accounting practice (UK GAAP) in pounds sterling.
These interim unaudited condensed consolidated financial statements and notes thereto should be read
in conjunction with the audited consolidated financial statements and notes thereto for the fiscal
year ended June 30, 2004 included in the Companys Annual Report on Form 20-F as filed with
the Securities and Exchange Commission on October 22, 2004.
Certain prior period amounts have been reclassified to conform with the presentation of items in the
current periods.
Note 3.  Summary of significant accounting policies
The significant accounting policies adopted by NDS are summarized below.
a)         Principles of consolidation
The consolidated financial statements include the accounts of all majority-owned and controlled subsidiaries.
In addition, the Company reviews its relationships with other entities to assess whether it is the
primary beneficiary of a variable interest entity in accordance with Financial Accounting Standards
Board (FASB) Interpretation No. (FIN) 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 as revised in December 2003 (FIN 46R),
which was adopted in fiscal 2004. The Company has concluded that it is not the primary beneficiary
of any variable interest entity for any of the periods covered by these condensed consolidated financial
statements.
All intercompany transactions and balances have been eliminated on consolidation. Acquisitions of controlled
entities are accounted for using the purchase method of accounting. The results and cash flows of
businesses acquired or sold are consolidated for the periods from or to the date on which control
passed to or from the Company.
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|b)         Use of estimates
The preparation of financial statements in conformity with US 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. Actual results could differ from those estimates.
c)         Foreign currency
The reporting currency of NDS is the US dollar. The functional currency of each of the entities which
comprise NDS is the currency of the primary economic environment in which each entity operates.
Normal trading activities denominated in foreign currencies are recorded in the functional currency
of the relevant entity at actual exchange rates as of the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are reported at the rates of exchange prevailing
at the balance sheet date, with any resulting gain or loss being recorded in the statement of operations.
The results and cash flows of entities whose functional currency is not the US dollar are translated
into US dollars at the average rates of exchange during the period and their balance sheets at the
rates prevailing at the balance sheet date. Resulting foreign exchange differences are recorded in
other comprehensive income.
d)         Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities
of three months or less.
e)         Concentration of credit risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks
may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed
upon demand and are maintained with financial institutions of reputable credit and therefore bear
minimal credit risk.
f)          Inventories
Inventories are valued at the lower of cost (calculated on a first in, first out basis) and market
value. Cost represents purchase price and, in respect of manufactured or processed items, includes
an appropriate proportion of production overheads. Market value is based on estimated selling price,
less further costs expected to be incurred to completion and disposal.
Contract work-in-progress represents the cost of bought-in goods and services and the direct labor
cost of work undertaken for customer contracts, where such costs can be clearly related to development
and integration work for which the associated revenue has not been recognized.
g)         Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is recorded using the straight-line
method over estimated useful lives of three to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of their useful lives or the life of the lease. Costs associated
with the repair and maintenance of property are expensed as incurred. The Group has received grants
from the government of the State of Israel towards the cost of certain plant, property and equipment.
Such grants are treated as a reduction in the cost of the related asset.
Changes in circumstances such as technological advances, changes to the Companys business model
or capital strategy could result in the actual useful lives differing from the Companys estimates.
In those cases where the Company determines that the useful life of buildings and equipment should
be shortened, the Company would depreciate the asset over its revised remaining useful life thereby
increasing depreciation expense. An impairment test is conducted if circumstances indicate that the
carrying value may not be recoverable and any impairment is recorded in the statement of operations
in the period in which it is identified.
h)         Goodwill and other intangible assets
NDS follows Statement of Financial Accounting Standard (SFAS) No. 142: Goodwill and
Other Intangible Assets. The standard requires that goodwill and indefinite-lived intangible
assets should not be amortized. However, goodwill and indefinite-lived intangible assets are tested
for impairment at least annually or more frequently if circumstances indicate that the carrying value
is impaired. Any impairment is recorded in the statement of operations in the period in which it
is identified.
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|Intellectual property rights purchased by the Company are included at cost as intangible assets and
amortized on a straight-line basis over their useful economic lives. The useful life of purchased
intellectual property rights is considered on a case by case basis. The estimates of the periods
over which benefits will accrue to the Company in respect of purchased intellectual property rights
have ranged from three to ten years. An impairment test is conducted if circumstances indicate that
the carrying value may not be recoverable and any impairment is recorded in the statement of operations
in the period in which it is identified.
i)          Revenue recognition
The Company follows Staff Accounting Bulletin No. 104: Revenue Recognition, Statement of
Position (SOP) 97-2: Software Revenue Recognition, SOP 81-1: Accounting
for Performance of Construction-type and Certain Production-type Contracts, and Emerging Issues
Task Force Issue No. 00-21: Revenue Arrangements with Multiple Deliverables. Revenue
is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable,
the product or service has been delivered and collectability is assured.
NDS derives revenues from the provision of conditional access, broadcast control, set-top box middleware,
personal video recorder software, interactive software, systems and other services to pay-TV platform
operators and content providers. Conditional access systems enable such customers to manage and control
the distribution of content and to protect such content from signal theft. Other software and systems
provide platform operators and content providers with additional functionality and enable them to
offer additional services. The systems that NDS sells include software that is installed at the platform
operators facilities as well as software and smart cards in set-top boxes, digital televisions
and PCs. The Companys business gives rise to a number of revenue streams for which accounting
policies are applied as follows:
Smart cards
Smart cards are sold to platform operators for distribution to and use by their subscribers. The revenues
derived from these sales are recognized upon delivery of the cards in accordance with the customers
instructions. Appropriate provision is made for warranty and similar arrangements agreed with customers.
Security fees
For some contracts, NDS receives fees from platform operators for the maintenance of security of conditional
access systems for a specified duration which is typically between 24 and 48 months. Fees are received
over the duration of the agreed service period and are related to the number of subscribers or authorized
smart cards of the relevant broadcast platform. These revenues are recognized over the term of the
security contract in the period in which the security services are performed. In some instances,
the maintenance of security requires the replacement of a population of smart cards (changeover
cards). In such instances, an amount of maintenance income is deferred and recognized when
the changeover cards are delivered. The estimate of the amount of revenue to be deferred requires
management to make assessments of the timing of the card changeover, the volume of cards to be supplied
and a fair unit revenue for those cards.
Development, integration and installation contracts
Contracts for development, integration and installation work are undertaken for customers on the basis
of time and materials or by reference to a defined scope of work and related fixed price terms, or
a combination of the two. The duration of such contracts has varied from a few weeks to approximately
two years. Revenue for contracts negotiated on a time and materials basis is recognized as costs
are incurred. Where there is uncertainty as to the scope of work or the fee payable, revenue is deferred
until any uncertainties are resolved. For fixed price contracts involving significant adaptation
of software, revenue and profit are recognized according to the proportion of the estimated contract
value completed, ascertained by reference to percentage of technical completion, having regard to
customer acceptance provisions in the contract. Where a contract has not sufficiently progressed
for the outcome to be seen with reasonable certainty, but no loss is expected, then revenue is deferred
until any uncertainties are resolved. All losses are recognized as soon as incurred or reasonably
foreseen. Total contract revenue and profitability to date are reviewed periodically and the cumulative
effects of changes are recognized in the period in which they are identified. Revenue from the supply
of hardware and other items procured from third party suppliers, which are an integral part of an
overall system, is recognized once customer acceptance is achieved, where this is a critical element
of the contractual arrangements with the customer.
License fees and royalties
License fee income is recognized when the software is delivered to the customer unless the supply is
closely linked to customisation, integration and installation work, in which case revenue recognition
is deferred until customer acceptance has occurred. Royalty income is typically receivable on the
basis of the number of units manufactured or deployed by a licensee. Such income is recognized when
it is fixed or determinable.
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|Support and maintenance income
Support and maintenance income is recognized over the term of the contract.
j)         Income taxes
NDS accounts for income taxes in accordance with SFAS No. 109: Accounting for Income Taxes.
SFAS No. 109 requires an asset and liability approach for financial accounting and reporting for
income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood
of realization of tax benefits in future years. Under the asset and liability approach, deferred
taxes are provided for the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries
to the extent amounts are expected to be reinvested indefinitely.
k)         Stock-based compensation expense
The Company accounts for employee stock options using the intrinsic value method in accordance with
Accounting Principles Board Opinion (APB) No. 25: Accounting for Stock Issued to
Employees, and has adopted the disclosure-only alternative of SFAS No. 123: Accounting
for Stock-Based Compensation, as amended by SFAS No. 148: Accounting for Stock-based
CompensationTransition and Disclosure. Under the intrinsic value method, only stock-based
compensation resulting from options granted at below fair market value has been recorded.
The following table illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to stock-based
employee compensation data. These pro forma effects may not be representative of future amounts since
the estimated fair value of stock options on the date of grant is amortized to expense over the vesting
period and additional options may be granted in future years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                                                                                                   | For the three months ended |   | For the nine months ended |  
|---------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | - | ------------------------- | -
|(in thousands, except per-share data)                                                                                             
|                                                                                                                                   |                            |   |                           |  
|Net income, as reported                                                                                                            |                            | $ | 16,590                    |  
|                                                                                                                                   |                            |   |                           |  
|Add: Stock option-based compensation cost included
 in the determination of net income as reported                                 |                            |   | 567                       |  
|                                                                                                                                   |                            |   |                           |  
|Deduct: Total stock option-based compensation determined
 under fair value based method for all awards, net of related tax effects |                            |   | (3,523                    | )
|                                                                                                                                   |                            |   |                           |  
|Pro-forma net income                                                                                                               |                            | $ | 13,634                    |  
|                                                                                                                                   |                            |   |                           |  
|Net income per share                                                                                                               |                            |   |                           |  
|Basic net income per share, as reported                                                                                            |                            | $ | 0.30                      |  
|Diluted net income per share, as reported                                                                                          |                            | $ | 0.29                      |  
|                                                                                                                                   |                            |   |                           |  
|Pro-forma basic net income per share                                                                                               |                            | $ | 0.25                      |  
|Pro-forma diluted net income per share                                                                                             |                            | $ | 0.24                      |  
|                                                                                                                                   |                            |   |                           |  
|                                                                                                                                   |                            |   |                           |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|In December 2004, FASB issued SFAS No. 123(R): Share-Based Payment. This standard will require the cost of employee compensation paid with equity instruments to be measured based on grant-date fair values. That cost will be recognized over the vesting period. SFAS No. 123(R) will become effective for the Company in the first quarter of fiscal 2006. An illustration of the impact on the Company using a Black-Scholes methodology is presented above.

|Page 8
|------



|Note 4. Comprehensive income
    Comprehensive income comprises net income, foreign currency translation adjustments, certain pension adjustments and unrealized holding losses on investments available for sale. The components of comprehensive income were as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                          

|                                                 | For the three months ended |   | For the nine months ended |  
|------------------------------------------------ | -------------------------- | - | ------------------------- | -
|(in thousands)                                  
|                                                 |                            |   |                           |  
|Net income                                       |                            | $ | 16,590                    |  
|Currency translation differences (no tax effect) |                            |   | (9,209                    | )
|Other                                            |                            |   | 6                         |  
|                                                 |                            |   |                           |  
|Comprehensive income                             |                            | $ | 7,387                     |  
|                                                 |                            |   |                           |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 5. Net income per share
      Basic net income per share is calculated as net income divided by the weighted average number of shares in issue in each period. The interests of ordinary shareholders may be diluted due to the existence of stock options granted to employees. The dilutive effect of potential shares has been calculated using the treasury method and as such, is a function of the average share price in each period. The Series A and Series B ordinary shares have equal rights except in respect of voting and as such have equal weighting in the calculation of earnings per share.
    The numerator for the calculations of net income per share is net income. The denominator for the calculations is the weighted average numbers of shares, as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                    | For the three months ended |  | For the nine months ended | 
|--------------------------------------------------- | -------------------------- |  | ------------------------- | 
|
|                                                    |                            |  |                           | 
|                                                    |                            |  |                           | 
|Weighted average number of ordinary shares in issue |                            |  | 54,994,616                | 
|                                                    |                            |  |                           | 
|Effect of dilutive stock options                    |                            |  | 2,313,859                 | 
|                                                    |                            |  |                           | 
|Denominator for dilutive net income per share       |                            |  | 57,308,475                | 
|                                                    |                            |  |                           | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note 6. Inventories
      Inventories comprise work-in-progress and include unprocessed smart cards and their components. Inventories are stated net of provisions of $3,578,000 and $4,242,000 as of March 31, 2005 and June 30, 2004, respectively.
      Note 7. Related party transactions
      NDS conducts business transactions with News Corporation and its subsidiaries and affiliates. These entities are considered to be related parties. Agreements covering arrangements between News Corporation and its subsidiaries or affiliates and the Company are entered into in the context of two entities over which a third entity exercises significant influence or control. There can be no assurance therefore, that each of the agreements, or the transactions provided for therein, or any amendments thereof will be effected on terms at least as favourable to NDS as could have been obtained from unaffiliated third parties. Any new contracts with related parties or significant amendments to such contracts are approved by the Companys Audit Committee.
      These transactions are of three main types: the provision by NDS of technology and services for digital pay-TV systems; the payment by NDS of royalties for the use of certain intellectual property rights; and the receipt by NDS of administrative services.
      a)         Provision of technology and services
    Technology and services for digital pay-TV systems are supplied to affiliates and subsidiaries of News Corporation. The principal related parties supplied by NDS are BSkyB, DIRECTV (from December 2003), DIRECTV Latin America (from December 2003), Sky Brasil, Sky Mexico, DTH TechCo, Sky Colombia, Sky Chile, FOXTEL and Sky Network Television (all of which are affiliates of News Corporation) and Sky Italia and STAR TV (both subsidiaries of News Corporation).

|Page 9
|------



|Revenue recognized from such related parties was as follows:
|------------------------------------------------------------
|                                                            

|                             | **For the three months ended** |   | **For the nine months ended** | 
|---------------------------- | ------------------------------ | - | ----------------------------- | 
|(in thousands)              
|                             |                                |   |                               | 
|Revenue from related parties |                                | $ | 86,534                        | 
|                             |                                |   |                               | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Included within accounts receivable are amounts of $65,375,000 and $60,312,000 as of March 31, 2005 and June 30, 2004, respectively which are due from related parties in respect of normal sales transactions.
      b)         Royalty payments
      A royalty is payable to a related party in respect of certain intellectual property rights which NDS has licensed for use in certain applications supplied to customers. The royalty expense was as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                           | **For the three months ended** |   | **For the nine months ended** | 
|------------------------------------------ | ------------------------------ | - | ----------------------------- | 
|(in thousands)                            
|                                           |                                |   |                               | 
|Royalty expense payable to related parties |                                | $ | 1,341                         | 
|                                           |                                |   |                               | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|c)         Administration and finance services
      News Corporation provides services under a Master Intercompany Agreement which provides, among other things, for arrangements governing the relationship between NDS and News Corporation. The consideration for each of the services and other arrangements set forth in the Master Intercompany Agreement is mutually agreed and based upon allocated costs. All such consideration and any material arrangements are subject to the approval of the Companys Audit Committee. The services covered by the Master Intercompany Agreement include cash management and financing, services of News Corporation employees, facility arrangements, employee matters, including pensions and certain other services. Amounts charged in respect of these services amounted to:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                                   | **For the three months ended** |   | **For the nine months ended** | 
|-------------------------------------------------- | ------------------------------ | - | ----------------------------- | 
|(in thousands)                                    
|                                                   |                                |   |                               | 
|Administrative expenses payable to related parties |                                | $ | 68                            | 
|                                                   |                                |   |                               | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Included within accounts payable are amounts of $2,724,000 and $3,107,000 as of March 31, 2005 and
June 30, 2004, respectively, which were owed to News Corporation in respect of administrative services
and operating costs paid on behalf of NDS.
NDS has a short-term loan facility of £30 million from News Corporation. The facility has no expiry
date and no amounts were drawn down as of March 31, 2005 or June 30, 2004. The facility is considered
to be adequate for the Companys needs.
The Company and certain subsidiaries have entered into cross-guarantees with HSBC Bank plc providing
mutual guarantees with other subsidiaries of News Corporation for amounts owed to the bank under
a collective overdraft facility of £20 million. The Company has been informed by News Corporation
that no amounts were owed to HSBC Bank plc as of March 31, 2005 or June 30, 2004 which would be covered
by these guarantees.
d)         UK Corporation Tax
NDS Group plc has entered into a Group Relief Agreement with a UK subsidiary of News Corporation, which
provides for the mutual surrender of losses and other allowances by group relief. Subject to the
terms of the agreement, the party accepting such surrender shall pay or cause to be paid to the surrendering
party an amount equal to the amount of tax such accepting party would have paid but for such surrender.
Income tax expense includes such amounts and part of the income tax liability may be settled by payments
to News Corporation, rather than the UK Inland Revenue.
Note 8.  Contingencies and commitments
a)         Litigation
On June 6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation, Echostar Technologies
Corporation and Nagrastar L.L.C. (collectively, Echostar) filed an action against NDS in the United
States District Court for the Central

|Page 10
|-------



|District of California. Echostar filed an amended complaint on October 8, 2003, which purported to
allege claims for violation of the Digital Millennium Copyright Act (DMCA), the Communications Act
of 1934 (CA), the Electronic Communications Privacy Act, The Computer Fraud and Abuse Act, Californias
Unfair Competition statute and the federal RICO statute. The complaint also purported to allege claims
for civil conspiracy, misappropriation of trade secrets and interference with prospective business
advantage. The complaint sought injunctive relief, unspecified compensatory and exemplary damages
and restitution. On December 22, 2003, all of the claims were dismissed by the court, except for
the DMCA, CA and unfair competition claims, and the Court limited these claims to acts allegedly
occurring within three years of the filing of the complaint. Echostar filed a second amended complaint.
NDS filed a motion to dismiss the second amended complaint on March 31, 2004. The motion was
scheduled to be heard by the Court on July 23, 2004. On July 21, 2004, the Court issued an order
vacating the July 23, 2004 hearing date and ordering, among other things, Echostar to file a third
amended complaint within 10 days correcting various deficiencies in the second amended complaint
noted by the Court. Echostar filed its third amended complaint on August 4, 2004. On August 6, 2004,
the Court ruled that NDS was free to file motion to dismiss the third amended complaint, which NDS
did on September 20, 2004. The hearing occurred on January 3, 2005. On February 28, 2005, the Court
issued an order treating the motion as a motion for a more definite statement, granted the motion
and gave Echostar until March 30, 2005 to file a fourth amended compliant correcting various deficiencies
in the third amended complaint noticed by the Court. On March 30, 2005, Echostar filed a fourth amended
complaint. NDS believes the claims contained therein are without merit and intends to file a motion to dismiss with the court.
On July 25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L., Spanish satellite
broadcasters and customers of Canal+ Technologies SA (together, Sogecable), filed an action against
NDS in the United States District Court for the Central District of California. Sogecable filed an
amended complaint on October 9, 2003, which purported to allege claims for violation of the DMCA
and the federal RICO statute. The amended complaint also purported to allege claims for interference
with contract and prospective business advantage. The complaint sought injunctive relief, unspecified
compensatory and exemplary damages and restitution. On December 22, 2003, all of the claims were
dismissed by the court. Sogecable filed a second amended complaint. NDS filed a motion to dismiss
the second amended complaint on March 31, 2004. On July 23, 2004, the Court heard oral argument on
the motion and advised that a formal ruling should be issued by early August. On August 4, 2004,
the court issued an order dismissing the second amended complaint in its entirety. Sogecable had
until October 4, 2004 to file a third amended complaint. On October 1, 2004, Sogecable notified the
Court that it would not be filing a third amended complaint, but would appeal the Courts entry
of final judgement dismissing the suit to the Ninth Circuit Court of Appeals. Sogecable has until
May 17, 2005 to file its brief or appeal and there have been no developments since October 4, 2004.
On April 18, 1997, International Electronics Technology Corp. filed suit in the United States District
Court for the Central District of California against NDSs customers, DIRECTV, Inc. and Thomson
Consumer Electronics, Inc., alleging infringement of one US patent and seeking unspecified damages and injunction. Although not a party
to this case, NDS has assumed the defense and agreed to indemnify the named defendants. The defendants
have raised defenses of non-infringement and/or invalidity. On August 2, 2004, the Court stayed
the case indefinitely pending decision by the Federal Circuit in another case.
b)         Lease commitments
The Company has accrued costs in respect of leased premises identified as surplus to requirements.
During the three months ended March 31, 2005 the Company decided to re-occupy the premises and
as a result of this commitment, reversed a charge of approximately $8 million against general
and administrative expenses. For the nine months ended March 31, 2005 this reversal has resulted
in a net reduction in general and administrative expenses of approximately $5 million.
c)         Guarantees
In the normal course of business, NDS provides indemnification agreements of varying scopes, including
limited product warranties and indemnification of customers against claims of intellectual property
infringement made by third parties arising from the use of our products or services. The nature of
these commitments has been considered in determining the revenues and costs recognized in these financial
statements. Costs are accrued for known warranty and indemnification issues if a loss is probable
and can be reasonably estimated. Historically, costs related to these warranties and indemnification
agreements have not been significant, but because potential future costs are highly variable, we
are unable to estimate the maximum potential impact of these guarantees on the Companys future
results of operations.
d)         Other
The nature of the Companys business is such that it may be subject to claims by third parties
alleging infringements of various intellectual property rights. Such claims are vigorously defended.
Where a liability arising from these claims is probable, an accrual is made based on managements
best estimate. It is not considered that any resulting liability in excess of amounts recognized
in these financial statements would materially affect the Companys financial position.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Page 11
|-------



|Note 10. Pension expense
The elements of expense related to the defined benefit pension plan which NDS operates for the benefit
of certain current and former UK employees, are as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                           

|                                      | For the three months ended |   | For the nine months ended |  
|------------------------------------- | -------------------------- | - | ------------------------- | -
|(in thousands)                       
|                                      |                            |   |                           |  
|                                      |                            |   |                           |  
|Service cost                          |                            | $ | 44                        |  
|Interest cost                         |                            |   | 229                       |  
|Expected return on plan assets        |                            |   | (171                      | )
|Amortization of unrecognized net loss |                            |   | 115                       |  
|                                      |                            |   |                           |  
|                                      |                            | $ | 217                       |  
|                                      |                            |   |                           |  

|Page 12
|-------



|Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
This document contains statements that constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. The words expect, estimate, anticipate,
predict, believe and similar expressions and variations thereof are intended
to identify forward-looking statements. These statements appear in a number of places in this document
and include statements regarding the intent, belief or current expectations of NDS Group plc (the
Company), its directors or its officers with respect to, among other things, trends affecting
the Companys financial condition or results of operations. Readers of this document are cautioned
that any such forward-looking statements are not guarantees of future performance and involve risks
and uncertainties. Those risks and uncertainties are discussed under the heading Risk Factors
in the Companys Annual Report on Form 20-F as filed with the Securities and Exchange Commission
(SEC) on October 22, 2004 (SEC file no. 0-30364), as well as the information set forth
below. The Company does not ordinarily make projections of its future operating results and undertakes
no obligation to publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by law. Readers should carefully
review other documents filed by the Company with the SEC. This section should be read in conjunction
with the unaudited consolidated condensed financial statements of the Company and related notes set forth elsewhere herein.
Introduction
Managements discussion and analysis of financial condition and results of operations (MD&A)
is intended to help provide an understanding of the Companys financial condition, changes in
financial condition and results of operations. MD&A is organized as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | Overview of our business -  This section provides a general description of the Companys businesses, as well as recent
developments that have occurred either during fiscal 2005 that the Company believes are important
in understanding the results of operations and financial condition or to disclose known future trends.    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                    
| | Results of operations -  This section provides an analysis of the Companys results of operations for the three
months and nine months ended March 31, 2005 and 2004. In addition, a brief description is provided
of significant transactions and events that impact the comparability of the results being analyzed.             
|  |                                                                                                                                                                                                                                                                                                                                    
| | Liquidity and capital resources -  This section provides an analysis of the Companys cash flows for the nine months ended
March 31, 2005 and 2004. It includes a discussion of the financial capacity available to fund the
Companys future commitments and obligations, as well as a discussion of other financing arrangements.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Overview of our business
We supply open end-to-end digital technology and services to digital pay television platform operators
and content providers. Our technologies include conditional access and microprocessor security, broadcast
stream management, set-top box middleware, program guides (EPG), personal video recorder
(PVR) technologies, and interactive applications. Our software systems, consultancy and
systems integration services are focused on providing platform operators and content providers with
technology to help them profit from the secure distribution of digital information and entertainment
to consumer devices which incorporate various technologies supplied by us.
Our customers consist of a limited number of large digital pay-TV platform operators who are introducing,
marketing and promoting products and services that utilise our technology. We currently derive, and
we expect to continue to derive, a significant portion of our revenues from a limited number of large
customers. Our two largest customers have been DIRECTV in the USA and BSkyB in the UK. We expect
that a limited number of customers will continue to contribute a significant portion of our revenues.
If a large customer purchases significantly less of our products or services, defers or cancels orders,
or terminates its relationship with us, our revenues could decline significantly and as a result,
our business, operating results and financial condition could be materially adversely affected.
We compete primarily with technologies such as NagraVision (developed by Kudelski SA); DigiCypher (developed
by Motorola, Inc.); Power Key (developed by Scientific-Atlanta, Inc.); and OpenTV (developed by OpenTV
Corp.) both to attract new customers and to retain our existing customers. In addition, some of the
companies that currently operate in the software business, but which have not historically been active
competitors of ours may, in the future, through acquisitions or the development of their own resources,
seek to enter and obtain significant market share in our current or planned business areas.
A significant portion of our revenues is dependent upon our customers subscriber base and the
growth in their subscribers. If our customers subscriber numbers decline or do not continue
to increase, we are unlikely to be able to generate substantial

|Page 13
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|revenue growth or sustain our current revenue levels and as a consequence our business, operating results
and financial condition could be materially adversely affected.
Unauthorised viewing and use of content may be accomplished by counterfeiting our technology or otherwise
circumventing its security features. Any significant increase in the incidence of signal theft could
require the replacement of a platform operators smart cards sooner than otherwise planned.
In those cases where we have accepted specific responsibilities for maintaining the security of a
platform operators conditional access system, significant costs could be imposed on us if a
security breach requires an accelerated replacement of smart cards.
Revenues can vary from period to period as our revenues reflect a small number of relatively large
orders for our technology and services. These generally have long sales and order cycles, and delivery
and acceptance of our products and services fluctuates over the course of these cycles.
We consider that we operate as a single segment and our business is managed as such. There are no separate
divisions or profit centers. We assess the financial performance of our business by reviewing specific
revenue streams and cost categories as described below.
Conditional access revenues
Conditional access revenues consist of sales of smart cards and the receipt of security fees. Conditional
access revenues from a particular platform operator are generally related to the number of subscribers
to that platform and / or the quantity of smart cards authorized to decrypt content broadcast by
that platform. Contracts with customers typically provide for the long-term supply of smart cards
and the provision of conditional access services to preserve the security of the platform.
Integration, development and support revenues
Integration, development and support consists of activities such as software development and adaptation;
design, implementation and project management for broadcast systems; and, ongoing support and maintenance
of software and broadcast systems. Integration, development and support fees depend on the amount
of time required to manage the integration, customise or develop the software and also on the level
of support and assistance required by the customer. In December 2003 we acquired the MediaHighway
middleware business from Thomson SA for 60 million. This acquisition has broadened our customer
base and has increased the range of middleware functionality that we can offer our customers. Therefore
integration, development and support revenues are higher in the nine month period in fiscal 2005
than in the corresponding period in fiscal 2004.
License fees and royalty revenues
We derive license fees and royalties from licensing technology to broadcasters and platform operators
for use in their head-end and to set-top box manufacturers for use in set-top boxes. License fees
and royalties are charged for different elements of our software, such as our VideoGuard conditional
access, EPG and middleware (including, from December 2003, the MediaHighway middleware elements).
License revenues are dependent upon our ability to obtain new customers and upon the ongoing needs
of existing customers to expand their services or upgrade their systems to more sophisticated technology.
Royalties are generally a function of the quantity of set-top boxes manufactured, which in turn is
dependent upon the ability of the platform operator or service provider to generate new subscribers.
New technologies revenues
We have developed, and are marketing, new technologies which offer the platform operator or content
provider the opportunity to increase the revenue per subscriber through enhancing the viewing experience
and delivering more than just video. Examples include games and gaming, interactive applications,
PVR technologies, OpenBet, and Synamedia (technology to manage and control the secure distribution
of digital content via broadband networks). Revenues under this category are in the form of development
fees, license fees or royalties per subscriber or user. These are typically earned on the successful
deployment of technology to a customer or on the manufacture of the set-top box or device containing
the technology. In some instances, an ongoing fee is payable for support and maintenance which is
dependent upon the number of subscribers having access to, or making use of, the enhanced functionality.
We have entered into several revenue-share arrangements whereby we receive a share of the incremental
revenues earned by the operator from an application supplied by us.
The new technologies revenue stream depends upon us developing and selling applications for use by
platform operators and content providers, and the take-up by subscribers of new services, applications
and functions offered by the service provider.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Page 14
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|Costs and expenses
Our costs and expenses consist of the physical and processing costs of smart cards, personnel, travel
and facilities costs, royalties paid for the right to use and sub-license certain intellectual
property rights owned by third parties and the amortization of intangible assets which we acquired
for incorporation within our technologies.
The physical costs of smart cards include the costs of the integrated circuits manufactured by third
party suppliers, the micro-module which houses the computer chips and the plastic body of the smart
cards. We do not manufacture smart cards, but our engineers design the embedded computer chips. We
arrange for the chips to be manufactured and assembled by third party suppliers. We then program
the smart cards with our proprietary software. Smart card costs are dependent upon the costs of raw
materials, including the cost of computer chips, plastic and assembly, and the quantity of smart
cards purchased and processed in any period.
Personnel and facilities costs are allocated to four categories: operations, sales and marketing,
research and development, and general and adminstration. Facilities costs include the depreciation
of equipment used in customer support, development and test activities.
Critical accounting policies
Our discussion and analysis of our financial condition and financial performance are based upon our
consolidated financial statements, which have been prepared in accordance with US GAAP. Our reported
financial results are dependent, amongst other things, on our choice of accounting policies, the
application of those policies, and on the use of estimates. The preparation of financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements, and the amounts of reported revenues and expenses for the fiscal period. Judgements involved
in making estimates can significantly affect our reported profits, assets and liabilities.
For a summary of all of our significant accounting policies, see Note 3 to the accompanying unaudited
condensed consolidated financial statements. The policies and estimation techniques which we consider
are most critical relate to the valuation of assets (principally goodwill and other intangible assets)
and the recognition or de-recognition of liabilities (principally revenue recognition and cost accruals).
These are further explained below:
a)         Goodwill and other intangible assets
We have significant intangible assets, primarily intellectual property rights and goodwill arising
in connection with business combinations. We account for business combinations under the purchase
method of accounting. The total cost of acquisitions is allocated to the underlying net assets acquired,
based on their respective estimated fair market values. Goodwill is recorded as the difference between
the cost of acquiring an entity and the estimated fair market values assigned to its tangible and
identifiable intangible net assets at the date of acquisition. Determining the fair market value
of assets acquired and liabilities assumed requires managements judgement and often involves
the use of significant estimates and assumptions, including assumptions with respect to future cash
inflows and outflows, discount rates, asset lives, and market multiples. Goodwill is subject to an
annual impairment test (or more often if circumstances dictate). Intangible assets are amortized
over their expected useful lives and the remaining useful life is re-assessed from time to time.
If we identify an impairment in value of goodwill or other intangible assets, we record an impairment
charge in the period in which it is identified. The judgements made in determining the estimated
fair market value assigned to each class of intangible assets acquired as well as their useful lives
and any potential impairment can significantly impact on our reported operating income.
b)         Revenue recognition and liabilities to customers
Revenue may only be recognized if persuasive evidence of an arrangement exists, the fees are fixed
or determinable, the product or service has been delivered and collectability is assured. Judgement
is required in assessing whether these criteria have been met. The technologies and services we supply
to our customers are technically complicated and are frequently covered by long-term contracts. In
assessing the amounts of revenue recognized in any period, we must make estimates about such matters
as the future costs we will incur to complete our contractual obligations and, if these costs exceed
estimated future revenues, make a provision for the estimated loss. Where we have obligations to
supply smart cards in the future as part of our support and maintenance obligations, we are required
to make estimates about the timing of supply of such changeover cards and to defer an appropriate
amount of revenue from the security fees received from our platform operator customers and recognize
an appropriate amount of revenue when such cards are supplied. These estimates include assessments
of the likely timing of the card changeover, the quantity of smart cards to be supplied, the costs
of those smart cards and the future receipt of security fees. The judgements made in determining
the value of our liabilities to customers can significantly impact our reported operating income.
The effect of changes in such estimates is recorded prospectively.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Page 15
|-------



|c)         Litigation and intellectual property claims
Certain of our customers and others have from time to time made allegations and claims in law against
us. The existence of these matters require us to make estimates of the likely outcome of the actions
or potential claims and to make a cost accrual for any liabilities where it is probable that we will
make a settlement or be subject to an adverse court ruling. The judgements made in assessing the
amount, if any, of cost accruals required can significantly impact our reported operating income.
Results of operations
Commentary on three months and nine months ended March 31, 2005
The results of the fiscal 2005 periods and the comparisons with fiscal 2004 are significantly affected
by business conducted with DIRECTV. Until August 13, 2003, we provided conditional access services,
including the supply of smart cards to DIRECTV in the United States. The contract came to an end
on August 13, 2003 and subsequently we received payments under post-termination support arrangements.
Additionally, we realized revenue in the first and second quarters of fiscal 2004 from DIRECTV for
the use of NDS technology contained within cards which DIRECTV had procured from a third party.
In March 2004, NDS and DIRECTV signed a new six-year contract for conditional access services, which
was effective from March 1, 2004. Under the new contract, we receive monthly fees for the provision
of conditional access services, which includes NDS taking on the obligation to provide periodic replacement
smart cards in the future as an integral part of our security maintenance activities. In June 2004,
we also re-commenced the supply of new smart cards.
Comparisons are also affected by the results of the MediaHighway middleware business which we acquired
on December 16, 2003.
Revenue
Revenue for the periods under review was as follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                   | For the three months ended |   |         |  |   |        |  |  
|---------------------------------- | -------------------------- | - | ------- |  | - | ------ |  | -
|(in thousands)                    
|                                   |                            |   |         |  |   |        |  |  
|Conditional access                 |                            | $ | 66,712  |  | $ | 35,677 |  | $
|Integration, development & support |                            |   | 13,855  |  |   | 16,181 |  |  
|License fees & royalties           |                            |   | 18,319  |  |   | 24,277 |  |  
|New technologies                   |                            |   | 26,131  |  |   | 20,685 |  |  
|Other                              |                            |   | 1,577   |  |   | 1,116  |  |  
|                                   |                            |   |         |  |   |        |  |  
|Total revenue                      |                            | $ | 126,594 |  | $ | 97,936 |  | $
|                                   |                            |   |         |  |   |        |  |  
|                                   |                            |   |         |  |   |        |  |  

|                                   |  | For the nine months ended |         |  |   |         |  |   |        
|---------------------------------- |  | ------------------------- | ------- |  | - | ------- |  | - | -------
|(in thousands)                    
|                                   |  |                           |         |  |   |         |  |   |        
|Conditional access                 |  | $                         | 243,755 |  | $ | 122,935 |  | $ | 120,820
|Integration, development & support |  |                           | 42,680  |  |   | 43,232  |  |   | (552   
|License fees & royalties           |  |                           | 53,157  |  |   | 39,034  |  |   | 14,123 
|New technologies                   |  |                           | 64,641  |  |   | 45,734  |  |   | 18,907 
|Other                              |  |                           | 5,263   |  |   | 4,440   |  |   | 823    
|                                   |  |                           |         |  |   |         |  |   |        
|Total revenue                      |  | $                         | 409,496 |  | $ | 255,375 |  | $ | 154,121
|                                   |  |                           |         |  |   |         |  |   |        

|Page 16
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|The increase in conditional access revenues is due to a combination of an increase in the number of smart cards supplied and growth in the number of authorized smart cards in use. The quantity of smart cards delivered in each period was as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                        

|                                | **For the three months ended** |  | **For the nine months ended** | 
|------------------------------- | ------------------------------ |  | ----------------------------- | 
|(in millians)                  
|                                |                                |  |                               | 
|                                |                                |  |                               | 
|Number of smart cards delivered |                                |  | 5.1                           | 
|                                |                                |  |                               | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The increase in smart card sales in the quarter compared to the previous fiscal year is principally due to demand from DIRECTV, to whom we sold no smart cards in the corresponding quarter of the previous fiscal year. The increase between the nine month periods is due to demand from DIRECTV and also to higher purchases from Sky Italia, which recently completed the migration of all their subscribers to NDS technology, and higher demand from our Latin America customers.
    The number of authorized cards in use at our broadcast platform customers has grown as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|June 2003                  |  | December 2003 |  | March 2004 |  | June 2004 |  | December 2004 |  | March 2005 | 
|-------------------------- |  | ------------- |  | ---------- |  | --------- |  | ------------- |  | ---------- | 
|                           |  |               |  |            |  |           |  |               |  |            | 
|                           |  |               |  |            |  |           |  |               |  |            | 
|Number of authorized cards |  | 34.4          |  | 38.0       |  | 41.0      |  | 44.0          |  | 51.8       | 
|                           |  |               |  |            |  |           |  |               |  |            | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The growth in authorized cards in use reflects the demand for smart cards noted above. The volume of
cards supplied exceeds the increase in authorized smart cards in use due to a mixture of churn and
the build-up of inventory by platform operators. The prior year periods included only one month of
conditional access service fee income from DIRECTV as the new contract was effective from March 1,
2004. The prior year nine month period includes conditional access revenues from a third party that

used NDS technology within their smart cards, with no comparable amounts in the current fiscal year.
Revenues from integration, development and support have decreased by 14% for the quarter. In the prior
year, revenues were recognized in the quarter from the from the acceptance of a new digital broadcasting
system at FOXTEL in Australia. There have been no major system deliveries or upgrades in the current
year.
Revenues from integration, development and support have decreased by 1% for the nine month period.
The full-year impact of the MediaHighway acquisition and revenue from work related to Sky Italias
migration were off-set by revenues in the corresponding period from FOXTEL and from our previous
contract with DIRECTV.
Revenues from license fees and royalties declined by 25% in the three months ended March 31,2005 compared
to the corresponding period in fiscal 2004. The prior year included conditional access royalties
reflecting high volumes of set-top boxes manufactured for DIRECTV which we no longer receive as part
of our new agreement with DIRECTV. For the nine months ended March 31, 2005, revenues from license
fees and royalties increased by 36% compared to the corresponding period in fiscal 2004. This was
due to higher royalties from the download of our set-top box software as part of the Sky Italia migration
and the acquisition of the MediaHighway middleware business. As of March 31, 2005, we estimate that
a cumulative 19.7 million set-top boxes containing NDS middleware have been shipped, an increase
of 1.3 million since June 30, 2004 and of 0.4 million since December 31, 2004. We have not yet recognized
revenue from middleware projects for DIRECTV.
The increase in revenues from new technologies is due to higher development and royalty income related
to the deployment of our advanced PVR technologies by several of our customers. In addition, revenue
from interactive infrastructure, gaming applications and our IP-TV technologies has increased due
to the higher number of subscribers using our technology and the addition of our technology on new
platforms. We have not yet recognized revenue from PVR projects for DIRECTV.

|Page 17
|-------



|Cost of goods and services sold and gross margin
    Cost of goods and services sold and gross margin for the periods under review were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                   

|                                                                                                                                                               | For the nine months ended |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | - | ------ | -
|(in thousands)                                                                                                                                                
|                                                                                                                                                               |                           |   |        |  
|Smart card costs                                                                                                                                               |                           | $ | 22,996 |  
|Operations & support                                                                                                                                           |                           |   | 19,751 |  
|Royalties                                                                                                                                                      |                           |   | 2,815  |  
|Other (net of reversal of bad debt expense 
    of $358 for the three months ended 
    March 31, 2005 and $826 for the three
    months ended March 31, 2004) |                           |   | 2,399  |  
|                                                                                                                                                               |                           |   |        |  
|Total cost of goods and services sold                                                                                                                          |                           | $ | 47,961 |  
|                                                                                                                                                               |                           |   |        |  
|                                                                                                                                                               |                           |   |        |  
|Gross margin                                                                                                                                                   |                           | $ | 78,633 |  
|                                                                                                                                                               |                           |   |        |  
|Gross margin as a percentage of revenues                                                                                                                       |                           |   | 62.1   | %
|                                                                                                                                                               |                           |   |        |  
|                                                                                                                                                               |                           |   |        |  
|**: Not meaningful.                                                                                                                                            |                           |   |        |  
|                                                                                                                                                               |                           |   |        |  

|                                                   | For the nine months ended |   |         |  
|-------------------------------------------------- | ------------------------- | - | ------- | -
|(in thousands)                                    
|
|Smart card costs                                   |                           | $ | 94,338  |  
|Operations & support                               |                           |   | 52,360  |  
|Royalties                                          |                           |   | 10,573  |  
|Other (net of reversal of bad debt expense of $269 |                           |   |         |  
|for the nine months ended March 31, 2005 and $826  |                           |   |         |  
|for the nine months ended March 31, 2004)          |                           |   | 2,643   |  
|                                                   |                           |   |         |  
|Total cost of goods and services sold              |                           | $ | 159,914 |  
|                                                   |                           |   |         |  
|                                                   |                           |   |         |  
|Gross margin                                       |                           | $ | 249,582 |  
|                                                   |                           |   |         |  
|Gross margin as a percentage of revenues           |                           |   | 60.9    | %
|                                                   |                           |   |         |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**: Not meaningful.
We consider that gross margin, defined as revenues less costs and expenses associated with those revenues
(being those costs identified above), is an important measure for our management and investors. We
consider that it gives a measure of profitability that distinguishes between those costs which are
broadly a function of direct revenue-earning activities and costs which are of a general nature or
which are incurred in the expectation of being able to earn future revenues.
The increase in smart card costs for the three and nine month periods is due to the volume increases
noted above. Also, the unit cost of smart cards sold to DIRECTV is higher than those supplied to
other customers, due to specifications required by DIRECTV. Operations and support costs have increased
for the three and nine month periods due to the greater number of NDS employees working on customer
delivery and support and on smart card processing. Royalty costs are a function of particular revenue
items and the change in royalty expense for the three and nine month periods is due to changes in
the mix of revenues. Other cost of sales in all periods is inclusive of a net reversal of bad debt
expense, due to receipts from a customer who was subject to bankruptcy process and for which the
debt had previously been written off.
These factors have resulted in a decline in gross margins as a percentage of revenues from the three
and nine month periods ended March 31, 2005 compared to the corresponding periods of the prior fiscal
year. Additionally, the prior year periods included conditional access revenues from a third party
that used NDS technology contained within their smart cards and set-top box royalties from DIRECTV,
with no comparable amounts in the current periods. No costs apart from royalty expenses were incurred
in relation to these revenue items and hence gross margin as a percentage of revenues in the three
and nine month periods ended March 31, 2004 were unusually high.

|Page 18
|-------



|Operating expenses
    Operating expenses for the periods under review may be analyzed as follows:
|--------------------------------------------------------------------------------------------------
|                                                                                                  

|                                | For the three months ended |   |        |  
|------------------------------- | -------------------------- | - | ------ | -
|(in thousands)                 
|
|Sales & marketing               |                            | $ | 7,035  |  
|Research & development          |                            |   | 40,847 |  
|General & administration        |                            |   | 4,995  |  
|Amortization of intangibles     |                            |   | 3,286  |  
|Foreign exchange (gains) losses |                            |   | (160   | )
|                                |                            |   |        |  
|Total operating expenses        |                            | $ | 56,003 |  
|                                |                            |   |        |  
|**: Not meaningful              |                           
|                                |                           

|                                | For the nine months ended |   |         |  
|------------------------------- | ------------------------- | - | ------- | -
|(in thousands)                 
|
|Sales & marketing               |                           | $ | 19,154  |  
|Research & development          |                           |   | 119,501 |  
|General & administration        |                           |   | 32,280  |  
|Amortization of intangibles     |                           |   | 9,576   |  
|Foreign exchange (gains) losses |                           |   | (2,974  | )
|                                |                           |   |         |  
|Total operating expenses        |                           | $ | 177,537 |  
|                                |                           |   |         |  
|**: Not meaningful              |                          

|                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Our main operating costs are employee costs, facilities costs, depreciation and travel costs. Our employee numbers (including contractors) have increased over the period under review, as follows:
|                                                                                                                                                                                                    

|                    | June 2003 |  | December 2003 |  | March 2004 |  | June 2004 |  | December 2004 |  | March 2005 | 
|------------------- | --------- |  | ------------- |  | ---------- |  | --------- |  | ------------- |  | ---------- | 
|                    |           |  |               |  |            |  |           |  |               |  |            | 
|Number of employees | 1,468     |  | 1,872         |  | 1,972      |  | 2,004     |  | 2,234         |  | 2,381      | 
|                    |           |  |               |  |            |  |           |  |               |  |            | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Towards the end of calendar 2003, we commenced a program of hiring additional staff to increase our
capabilities in set-top box middleware, to provide our customers with sufficient resources to develop
new technologies and to improve our customer delivery and support. In December 2003, we added approximately
300 employees with the acquisition of the MediaHighway middleware business and we have continued
to recruit across all areas of the company.
Our research and development facilities in Korea and India are now well established. While most of
the new headcount has been within our research and development groups, we have transferred some experienced
staff from these groups to groups working on customer delivery and support and on smart card processing
and their costs are included within the operations and support cost line as part of cost of goods
and services sold. This has resulted in an overall decline in research and development costs for
the three months ended March 31, 2005 compared to the corresponding period in the prior fiscal year.
The increase in research and development costs for the nine months ended March 31, 2005 compared
to the corresponding period is due to the acquisition of the MediaHighway middleware business.
In March 2005 we commenced planning to re-occupy premises we lease in the UK to accommodate head count
growth. As a result of managements commitment to re-occupy the premises we reversed a charge
of approximately $8 million in the quarter ended March 31, 2005. For the nine months ended March
31, 2005 this reversal has produced a decrease in general and administrative expenses of approximately
$5 million. Other increases in general and administrative costs are primarily due to headcount increases.
The increase in amortization expense for the periods of fiscal 2005 compared to the corresponding periods
of fiscal 2004 is due to the amortization of the fair value of intellectual property rights acquired
as part of the MediaHighway transaction on December 16, 2003. The amortization charge in the
three and nine months ended March 31, 2004 was based on a preliminary allocation of the purchase
price which was not finalized until the fourth quarter of fiscal 2004.

|Page 19
|-------



|Foreign exchange gains have arisen in the three and nine month periods ended March 31, 2005 due to
the volatility in exchange rates causing differences to arise between the amounts at which revenues
and expenses are translated into the functional currency of the entity in which they are recorded
and the amount paid or received in cash. A loss arose on this item in the three months ended March
31, 2004. During the nine months ended March 31, 2004 we realized a gain of approximately $1.9 million
arising from a euro forward exchange contract entered into to fix the pound sterling purchase price
of the MediaHighway acquisition between signing the acquisition agreement and the completion of the
transaction.
Operating income and other items
As a result of the factors outlined above, operating income was $22.6 million for the three months
ended March 31, 2005 and $72.0 million for the nine months then ended. Operating income for the corresponding
periods of fiscal 2004 was $17.2 million and $49.5 million, respectively.
Interest income earned on cash deposits was $2.3 million for the three months ended March 31, 2005
and $7.1 million for the nine months then ended. Equivalent figures for fiscal 2004 were $1.8 million
and $5.5 million respectively. The increase is due to higher average cash balances and slightly higher
interest rates.
Our effective tax rate is approximately 34% for the three and nine month periods of fiscal 2005. The
effective tax rates for the three and nine month periods of fiscal 2004 were approximately 35% and
33% respectively.
As a consequence of all these factors, net income for the three months ended March 31, 2005 was $16.6
million or $0.30 per share ($0.29 on a diluted basis) compared to $12.3 million or $0.23 per share
($0.22 on a diluted basis) for the three months ended March 31, 2004. For the nine months ended March
31, 2005 net income was $52.1 million or $0.95 per share ($0.92 on a diluted basis) compared to $37.0
million or $0.68 per share ($0.67 on a diluted basis) for the nine months ended March 31, 2004.
Liquidity and capital resources
Current financial condition
The Companys principal source of liquidity is internally generated funds.; The Company also has
access to the worldwide capital markets.
As of March 31, 2005 we had cash of $308.9 million. Cash accumulated is being held with the intention
of using it for the future development of the business and there are currently no plans to pay any
dividends to shareholders. We believe that we have sufficient working capital resources for our present
requirements. The Companys internally generated funds are dependent on the continuing profitability
of our business. As of March 31, 2005, and as of the date hereof, we have an unused facility to borrow
up to £30 million from a subsidiary of News Corporation. No amounts have been drawn under
this facility during fiscal 2005.
The principal uses of cash that affect the Companys liquidity position include the following:
purchases of smart cards, operational expenditures, capital expenditures and income tax payments.
Sources and uses of cash
We had a net in-flow of cash of $76.1 million for the nine months ended March 31, 2005 and a net cash
outflow of $19.4 million in the nine months ended March 31, 2004.
Net cash provided by operating activities for the nine months ended March 31, 2005 and 2004 is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|For the nine months ended March 31,       |  
|----------------------------------------- | -
|(in thousands)                           
|                                          |  
|Net cash provided by operating activities | $
|                                          |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The increase in net cash provided by operating activities reflects higher receipts from customers, particularly in respect of conditional access income from DIRECTV and income from the MediaHighway business. In particular, we have received higher monthly security fees which includes payment towards the future provision of smart cards. In future years we expect inventory purchases to be higher as we satisfy this obligation to our customers. The increases in receipts during the nine month

|Page 20
|-------



|period were offset in part by higher payments to suppliers of smart cards and higher payments of payroll costs and travel expenses as a result of an increase in the number of our employees.
    Net cash used in investing activities for the nine months ended March 31, 2005 and 2004 is as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                        

|                                            | For the nine months ended March 31, |        
|------------------------------------------- | ----------------------------------- | -------
|(in thousands)                             
|                                            |                                     |        
|Capital expenditure                         | $                                   | (13,287
|Proceeds from sale of investments           |                                     | 232    
|Business acquisitions, net of cash acquired |                                     | (17    
|                                            |                                     |        
|Net cash used in investing activities       | $                                   | (13,072
|                                            |                                     |        

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Cash used in investing activities during the nine months ended March 31, 2005 was lower than the corresponding period of fiscal 2004 due to the purchase of the MediaHighway middleware business for the equivalent of $65.0 million. The increase in capital expenditure payments relates to higher purchases of technical development and test equipment used by our software development engineers and customer support employees and our new facility in Israel. We expect future payments of capital expenditure to be higher due to expansion of our facilities in India, the UK and California.
    Net cash used in financing activities for the nine months ended March 31, 2005 and 2004 is as follows:
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                      | For the nine months ended March 31, |       
|------------------------------------- | ----------------------------------- | ------
|(in thousands)                       
|                                      |                                     |       
|Issuance of shares                    | $                                   | 10,543
|Other                                 |                                     |      
|                                      |                                     |       
|Net cash used in financing activities | $                                   | 10,543
|                                      |                                     |       

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The increase in cash received from the issuance of shares is due to higher numbers of stock options exercised by employees during the nine months ended March 31, 2005 than in the corresponding period of fiscal 2004. The Company has evaluated, and expects to continue to evaluate, possible acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the Companys securities or the assumption of indebtedness.
      Commitments and contractual obligations
      There has been no material change to our commitments since June 30, 2004.
      Item 3.  Quantitative and Qualitative Disclosures About Market Risk
      The only significant financial market risk to which we are exposed is to changes in foreign exchange rates. We operate in international markets and have operational presence in several countries. Accordingly, our costs and revenues are denominated in a mixture of US dollars, UK pounds sterling and euros. Historically, we have not entered into free-standing derivative contracts to hedge foreign exchange exposure arising from operating activities. We expect to review this policy from time to time as circumstances change. No such derivative instruments were outstanding as of March 31, 2005.
      As a result of the weakening in the US dollar during the nine month periods of both fiscal years, we experienced foreign exchange gains on holding cash of $4.7 million in the nine months ended March 31, 2005 and $15.0 million in the nine months ended March 31, 2004.
    As of March 31, 2005 approximately 74% of our cash was held in US dollars and 21% in pounds sterling, with most of the remainder being held in euros. Prior to December 2004, our policy was to hold the bulk of our cash in pounds sterling deposits of up to three month maturity because pounds sterling was our reporting currency. As a consequence of the change in our reporting currency to US dollars and the fact that the majority of our revenues are now denominated in US dollars, we re-evaluated our treasury policy. Since January 2005, our policy has been to hold the bulk of our cash in US dollar deposits of up to three month maturity. During January 2005, we switched most of our sterling currency holdings above our foreseeable requirements into US dollars. As a consequence of this, we expect our future interest income to be less as US dollar interest rates are lower than sterling interest rates. However our reported cash balances are expected to
be less sensitive to fluctuations

|Page 21
|-------



|in foreign exchange rates. Additionally, we may place cash on deposit for longer than three month term,
which would introduce an exposure to the risks associated with fixed interest rates.
Item 4. Controls and Procedures
a)         Disclosure controls and procedures
The Companys management, with the participation of the Companys Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this
quarterly report. Based on such evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period, the Companys disclosure
controls and procedures are effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act and are effective in ensuring that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
b)         Internal control over financial reporting
There have not been any changes in the Companys internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Companys
fiscal quarter to which this report relates that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
PART II  Other Information
Item 1. Legal Proceedings
On June 6, 2003, Echostar Communications Corporation, Echostar Satellite Corporation, Echostar Technologies
Corporation and Nagrastar L.L.C. (collectively, Echostar) filed an action against NDS in the United
States District Court for the Central District of California. Echostar filed an amended complaint
on October 8, 2003, which purported to allege claims for violation of the Digital Millennium Copyright
Act (DMCA), the Communications Act of 1934 (CA), the Electronic Communications Privacy Act, The Computer
Fraud and Abuse Act, Californias Unfair Competition statute and the federal RICO statute. The
complaint also purported to allege claims for civil conspiracy, misappropriation of trade secrets
and interference with prospective business advantage. The complaint sought injunctive relief, unspecified
compensatory and exemplary damages and restitution. On December 22, 2003, all of the claims were
dismissed by the court, except for the DMCA, CA and unfair competition claims, and the Court limited
these claims to acts allegedly occurring within three years of the filing of the complaint. Echostar
filed a second amended complaint. NDS filed a motion to dismiss the second amended complaint on March 31,
2004. The motion was scheduled to be heard by the Court on July 23, 2004. On July 21, 2004, the Court
issued an order vacating the July 23, 2004 hearing date and ordering, among other things, Echostar
to file a third amended complaint within 10 days correcting various deficiencies in the second amended
complaint noted by the Court. Echostar filed its third amended complaint on August 4, 2004. On August
6, 2004, the Court ruled that NDS was free to file motion to dismiss the third amended complaint,
which NDS did on September 20, 2004. The hearing occurred on January 3, 2005. On February 28, 2005,
the Court issued an order treating the motion as a motion for a more definite statement, granted
the motion and gave Echostar until March 30, 2005 to file a fourth amended compliant correcting various
deficiencies in the third amended complaint noticed by the Court. On March 30, 2005, Echostar filed
a fourth amended complaint. NDS believes the claims contained therein are without merit and intends
to file a motion to dismiss with the court.
On July 25, 2003, Sogecable, S.A. and its subsidiary Canalsatellite Digital, S.L., Spanish satellite
broadcasters and customers of Canal+ Technologies SA (together, Sogecable), filed an action against
NDS in the United States District Court for the Central District of California. Sogecable filed an
amended complaint on October 9, 2003, which purported to allege claims for violation of the DMCA
and the federal RICO statute. The amended complaint also purported to allege claims for interference
with contract and prospective business advantage. The complaint sought injunctive relief, unspecified
compensatory and exemplary damages and restitution. On December 22, 2003, all of the claims were
dismissed by the court. Sogecable filed a second amended complaint. NDS filed a motion to dismiss
the second amended complaint on March 31, 2004. On July 23, 2004, the Court heard oral argument on
the motion and advised that a formal ruling should be issued by early August. On August 4, 2004,
the court issued an order dismissing the second amended complaint in its entirety. Sogecable had
until October 4, 2004 to file a third amended complaint. On October 1, 2004, Sogecable notified the
Court that it would not be filing a third amended
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|complaint, but would appeal the Courts entry of final judgement dismissing the suit to the Ninth
Circuit Court of Appeals. Sogecable has until May 17, 2005 to file its brief or appeal and there
have been no developments since October 4, 2004.
On April 18, 1997, International Electronics Technology Corp. filed suit in the United States District

Court for the Central District of California against NDSs customers, DIRECTV, Inc. and Thomson

Consumer Electronics, Inc., alleging infringement of one US patent and seeking unspecified damages and injunction. Although not a party

to this case, NDS has assumed the defense and agreed to indemnify the named defendants. The defendants

have raised defenses of non-infringement and/or invalidity. On August 2, 2004, the Court stayed
the
case indefinitely pending decision by the Federal Circuit in another case.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4.  Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|31.1 | Certification by the Chief Executive Officer pursuant to SEC Rule 13a-14(a) / 15d-14(a), as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002*
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                               
|31.2 | Certification by the Chief Financial Officer pursuant to SEC Rule 13a-14(a) / 15d-14(a), as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002*
|     |                                                                                                                                                               
|32.1 | Certification of the Chief Executive Officer pursuant to U.S.C section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002*            
|     |                                                                                                                                                               
|32.2 | Certification of the Chief Financial Officer pursuant to U.S.C section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002*            

|  |               
|- | --------------
|* | Filed herewith

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

|Date: May 6, 2005 | NDS Group plc          
|----------------- | -----------------------
|                  |                        
|                  | by                     
|                  |                        
|                  | /s/ Alexander Gersh    
|                  |                        
|                  |                        
|                  | Alexander Gersh        
|                  | Chief Financial Officer

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