**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**FORM 10-Q**

 

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**(Mark One)**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                               |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | **For the quarterly period ended  September 30, 2005**                                                                                                                                                                                                                                                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **or**     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|       |       | **For the transition period from                                to                                ** |

 

 

**Commission FileNumber:  001-32495**

 

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**NEW SKIESSATELLITES HOLDINGS LTD.**

(Exactname of Registrant as specified in its charter)

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

 

**Canon’s Court**

**22Victoria Street**

**HamiltonHM12**

**Bermuda**

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

 

**(441) 295-1443**

(Registrant’s telephonenumber, including area code)

 

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

 

Indicate by check markwhether the registrant is an accelerated filed (as defined in Rule 12b-2of the Exchange Act).   o Yes  ý No

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).   o Yes  ý No

 

As of October 31, 2005,32,299,631 ordinary shares of our common stock were outstanding.

 

 

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**NEW SKIES SATELLITES HOLDINGS LTD**

 

**TABLE OF CONTENTS**

 
| Introduction                                       |                                                                                        |
|----------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                               |                                                                                        |
| Special Note Regarding Forward-Looking  Statements |                                                                                        |
|                                               |                                                                                        |
| Part I — Financial Information                |                                                                                        |
|                                               |                                                                                        |
| Item 1.                                            | Financial Statements                                                                        |   |
|                                               |                                                                                        |
|                                               | Condensed Consolidated Balance Sheets  (Unaudited)                                          |   |
|                                               |                                                                                        |   |
|                                               | Condensed Consolidated Statements of  Operations (Unaudited)                                |   |
|                                               |                                                                                        |   |
|                                               | Condensed Consolidated Statements of Cash  Flows (Unaudited)                                |   |
|                                               |                                                                                        |   |
|                                               | Notes to Condensed Consolidated Financial  Statements (Unaudited)                           |   |
|                                               |                                                                                        |
| Item 2.                                            | Management’s Discussion and Analysis Of  Financial Condition And Results Of Operations |   |
|                                               |                                                                                        |
| Item 3.                                            | Quantitative and Qualitiative Disclosure  About Market Risk                                 |   |
|                                               |                                                                                        |
| Item 4.                                            | Controls and Procedures                                                                     |   |
|                                               |                                                                                        |
| Part II — Other Information                   |                                                                                        |
|                                               |                                                                                        |
| Item 1.                                            | Legal Proceedings                                                                           |   |
|                                               |                                                                                        |
| Item 2.                                            | Unregistered Sales of Equity Securities and  Use of Proceeds                                |   |
|                                               |                                                                                        |
| Item 3.                                            | Defaults Upon Senior Securities                                                             |   |
|                                               |                                                                                        |
| Item 4.                                            | Submission of Matters to a Vote of Security  Holders                                        |   |
|                                               |                                                                                        |
| Item 5.                                            | Other Information                                                                           |   |
|                                               |                                                                                        |
| Item 6.                                            | Exhibits                                                                                    |   |

 

1

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# **INTRODUCTION**

#  

In this quarterly report, all references to “New Skies,” “the Company,”“we,” “us,” “our” and “ours” refer to New Skies Satellites Holdings Ltd. andits subsidiaries, unless the context otherwise requires or it is otherwiseindicated.

 

# **SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS**

#  

Certain statements in this quarterly report are not historical factsand are “forward-looking statements” within the meaning of the U.S. federalsecurities laws. The Private Securities Litigation Reform Act of 1995 providesa “safe harbor” for certain forward-looking statements as long as suchinformation is identified as forward-looking and is accompanied by meaningfulcautionary statements identifying important factors that could cause actualresults to differ materially from those projected in the information. We intendthat forward looking statements contained in this report be covered by the safeharbors created under the U.S. federal securities laws. Words such as “believes,”“expects,” “estimates,” “may,” “intends,” “will,” “should” or “anticipates” andsimilar expressions or their negatives identify forward-looking statements.

 

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

 

•             the level and type of demand forour services and for the products and services provided by our customers tothird parties, including the extent to which changes in demand and ourcompetitive position as well as the creditworthiness of our customers mayresult in changes to our contractual backlog for future services and in pricingpressure and overcapacity in the markets in which we compete;

 

•             problems with respect to theconstruction, launch or in-orbit performance of our existing and futuresatellites, including possible future losses on satellites that are not fullycovered by insurance, or with the performance of our ground-based facilities,including with the performance of our Satellite Operations Center;

 

•             our ability to attract sufficientfunding to meet our future capital and debt-repayment requirements;

 

•             our ability, and the ability ofour subsidiaries, to pay dividends;

 

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

 

•             the pace and effects of industryconsolidation;

 

•             the continued availability ofinsurance on commercially reasonable terms, and the effects of any insuranceexclusions;

 

•             changing technology;

 

•             changes in our business strategy ordevelopment plans;

 

•             our ability to attract and retainqualified personnel;

 

2

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•             worldwide economic, geopoliticaland business conditions and risks associated with doing business on a globalbasis;

 

•             control by certain investmentfunds affiliated with The Blackstone Group; and

 

•             legal, regulatory, and taxdevelopments, including changes in domestic and international governmentalregulation.

 

We caution you that the foregoing list of important factors is notexclusive. These risks and uncertainties could cause actual results to varymaterially from future results indicated, expressed or implied in anyforward-looking statements. In addition, in light of these risks anduncertainties, the matters referred to in the forward-looking statements maynot in fact occur. We undertake no obligation to update or revise publicly anyforward-looking statement as a result of new information, future events orotherwise, except as otherwise required by law.

 

3

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# **PART I— FINANCIAL INFORMATION**

#  

## **ITEM 1.**                             FINANCIAL STATEMENTS.

##  

### **NEW SKIES SATELLITES HOLDINGS LTD.**

### **CONDENSEDCONSOLIDATED BALANCE SHEETS (UNAUDITED)**

***(in thousands ofU.S. dollars, except per share data)***

 
| ** **                                                                                                                                               | ** ** | **As of  December 31, 2004** | ** ** | **As of  September 30, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|------------------------------------|------------|
| **Assets**                                                                                                                                               | ** ** | ** **                        | ** ** | ** **                         | ** ** |
| **Current  assets**                                                                                                                                      | ** ** | ** **                        | ** ** | ** **                         | ** ** |
| Cash  and cash equivalents                                                                                                                               |       | $                                 | 37,974     |                               | $          | 53,918 |   |
| Trade  receivables, net of allowance for doubtful accounts of $7,262 and $8,172 as  of December 31, 2004 and September 30, 2005, respectively  |       | 36,371                            |       | 35,421                             |       |
| Prepaid  expenses and other assets                                                                                                                       |       | 10,591                            |       | 5,404                              |       |
| **Total  current assets**                                                                                                                                |       | 84,936                            |       | 94,743                             |       |
|                                                                                                                                                     |       |                              |       |                               |       |
| Communications,  plant and other property, net                                                                                                           |       | 895,906                           |       | 634,640                            |       |
| Intangible  assets (see Note 2)                                                                                                                          |       | —                            |       | 28,276                             |       |
| Deferred  tax assets                                                                                                                                     |       | 17,362                            |       | 18,578                             |       |
| Debt  issuance costs and other assets                                                                                                                    |       | 32,109                            |       | 20,096                             |       |
| Restricted  cash                                                                                                                                         |       | —                            |       | 30,000                             |       |
| **TOTAL  ASSETS**                                                                                                                                        |       | $                                 | 1,030,313  |                               | $          | 826,333 |   |
|                                                                                                                                                     |       |                              |       |                               |       |
| **Liabilities  and Shareholders’ Equity**                                                                                                           | ** ** | ** **                        | ** ** | ** **                         | ** ** |
| **Current  liabilities**                                                                                                                                 | ** ** | ** **                        | ** ** | ** **                         | ** ** |
| Accounts  payable and accrued liabilities                                                                                                                |       | $                                 | 28,381     |                               | $          | 26,960 |   |
| Accrued  interest                                                                                                                                        |       | 4,880                             |       | 12,805                             |       |
| Dividends  payable                                                                                                                                       |       | —                            |       | 15,341                             |       |
| Income  taxes payable                                                                                                                                    |       | 20,480                            |       | 20,055                             |       |
| Deferred  tax liabilities                                                                                                                                |       | 10,848                            |       | 7,468                              |       |
| Deferred  revenues and other liabilities                                                                                                                 |       | 21,031                            |       | 24,291                             |       |
| Satellite  performance incentives                                                                                                                        |       | 6,332                             |       | 5,090                              |       |
| **Total  current liabilities**                                                                                                                           |       | 91,952                            |       | 112,010                            |       |
| Deferred  revenues and other liabilities                                                                                                                 |       | 10,224                            |       | 9,052                              |       |
| Satellite  performance incentives                                                                                                                        |       | 30,597                            |       | 29,531                             |       |
| Term  loan facility                                                                                                                                      |       | 460,000                           |       | 203,560                            |       |
| Fixed  and floating rate notes                                                                                                                           |       | 285,000                           |       | 285,000                            |       |
| Preferred  equity securities subject to mandatory redemption                                                                                             |       | 164,327                           |       | —                             |       |
| **Total  liabilities**                                                                                                                                   |       | 1,042,100                         |       | 639,153                            |       |
|                                                                                                                                                     |       |                              |       |                               |       |
| **Shareholders’  Equity (Deficiency)**                                                                                                              | ** ** | ** **                        | ** ** | ** **                         | ** ** |
| Ordinary  shares (57,142 shares authorized, par value $35.00; 43,312 shares issued and  outstanding as of December 31, 2004) (see Note 10)          |       | 1,516                             |       | —                             |       |
| Preferred  shares (250,000,000 shares authorized, par value $0.01; none issued)                                                                          |       | —                            |       | —                             |       |
| Ordinary  shares (500,000,000 shares authorized, par value $0.01; 32,299,631 shares  issued and outstanding as of September 30, 2005) (see Note 10) |       | —                            |       | 323                                |       |
| Additional  paid in capital                                                                                                                              |       | —                            |       | 300,988                            |       |
| Accumulated  deficit                                                                                                                                     |       | (13,973                           | )          | (114,515                           | )          |
| Accumulated  other comprehensive income                                                                                                                  |       | 670                               |       | 384                                |       |
| **Total  shareholders’ equity (deficiency)**                                                                                                        |       | (11,787                           | )          | 187,180                            |       |
|                                                                                                                                                     |       |                              |       |                               |       |
| **TOTAL  LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                     |       | $                                 | 1,030,313  |                               | $          | 826,333 |   |

 

**See notes to condensed consolidatedfinancial statements**.

 

4

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### **NEW SKIES SATELLITES HOLDINGS LTD.**

### **CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

***(in thousands ofU.S. dollars, except per share data)***

 
| ** **                                            | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                            | ** ** | **2004**                                  | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                            | ** ** | **(Predecessor)**                         | ** ** | **(Successor)**                          | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
|                                                  |       |                                      |       |                                     |       |   |   |   |   |
| **Revenues**                                          |       | $                                         | 53,781     |                                     | $          | 61,242 |   | $ | 156,889 |   | $ | 179,136 |   |
| **Operating expenses:**                               |       |                                      |       |                                     |       |   |   |   |   |
| Depreciation  and amortization                        |       | 25,976                                    |       | 24,039                                   |       | 77,619 |   | 71,317 |   |
| Cost  of operations:                                  |       |                                      |       |                                     |       |   |   |   |   |
| General                                               |       | 13,548                                    |       | 11,239                                   |       | 40,759 |   | 33,068 |   |
| Stock-based  compensation                             |       | 24                                        |       | 521                                      |       | 188 |   | 1,998 |   |
| Selling,  general and administrative:                 |       |                                      |       |                                     |       |   |   |   |   |
| General                                               |       | 9,692                                     |       | 10,187                                   |       | 30,452 |   | 30,841 |   |
| Stock-based  compensation                             |       | 174                                       |       | 3,891                                    |       | 1,406 |   | 15,583 |   |
| Transaction  related expenses                         |       | 780                                       |       | —                                   |       | 3,626 |   | — |   |
| Monitoring  agreement fees                            |       | —                                    |       | —                                   |       | — |   | 6,938 |   |
| **Total Operating Expenses**                          |       | 50,194                                    |       | 49,877                                   |       | 154,050 |   | 159,745 |   |
| Gain  arising on frequency coordination               |       | —                                    |       | 9,500                                    |       | 32,000 |   | 19,500 |   |
| **Operating Income**                                  |       | 3,587                                     |       | 20,865                                   |       | 34,839 |   | 38,891 |   |
| Interest  expense, net                                |       | 194                                       |       | 12,340                                   |       | 782 |   | 48,226 |   |
|                                                  |       |                                      |       |                                     |       |   |   |   |   |
| **Income (Loss) Before Income Tax Expense (Benefit)** |       | 3,393                                     |       | 8,525                                    |       | 34,057 |   | (9,335 | ) |
| Income  tax expense (benefit)                         |       | 1,222                                     |       | 2,430                                    |       | 12,261 |   | (2,661 | ) |
| **Net Income (Loss)**                                 |       | $                                         | 2,171      |                                     | $          | 6,095 |   | $ | 21,796 |   | $ | (6,674 | ) |
| ** **                                            |       |                                      |       |                                     |       |   |   |   |   |
| **Basic  and Diluted Earnings (Loss) per share:**     |       |                                      |       |                                     |       |   |   |   |   |
| Basic                                                 |       | $                                         | 0.02       |                                     | $          | 0.19 |   | $ | 0.18 |   | $ | (0.26 | ) |
| Diluted                                               |       | $                                         | 0.02       |                                     | $          | 0.18 |   | $ | 0.18 |   | $ | (0.26 | ) |

 

**See notes to condensed consolidatedfinancial statements.**

 

5

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### **NEW SKIES SATELLITES HOLDINGS LTD.**

### **CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

***(in thousands ofU.S. dollars, except per share data)***

 
| ** **                                                   | ** ** | **Three Months Ended****September 30** | ** ** | **Nine Months Ended****September 30** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                                    | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                   | ** ** | **(Predecessor)**                           | ** ** | **(****Successor)**                        | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| Cash  flows from operating activities:                       |       |                                        |       |                                       |       |   |   |   |   |
| Net  income (loss)                                           |       | $                                           | 2,171      |                                       | $          | 6,095 |   | $ | 21,796 |   | $ | (6,674 | ) |
| Adjustments  for non-cash items:                             |       |                                        |       |                                       |       |   |   |   |   |
| Depreciation  and amortization                               |       | 25,976                                      |       | 24,039                                     |       | 77,619 |   | 71,317 |   |
| Non-cash  interest on preferred equity securities            |       | —                                      |       | —                                     |       | — |   | 4,379 |   |
| Deferred  taxes                                              |       | 282                                         |       | 1,767                                      |       | 1,057 |   | (4,586 | ) |
| Non-cash  stock-based compensation expense                   |       | 198                                         |       | 4,387                                      |       | 1,594 |   | 12,126 |   |
| Amortization  of debt issuance costs                         |       | —                                      |       | 1,750                                      |       | 321 |   | 12,527 |   |
| Changes  in operating assets and liabilities:                |       |                                        |       |                                       |       |   |   |   |   |
| Trade  receivables                                           |       | 1,271                                       |       | 987                                        |       | (302 | ) | 926 |   |
| Prepaid  expenses and other assets                           |       | 3,445                                       |       | 4,652                                      |       | 5,742 |   | 5,325 |   |
| Accounts  payable and accrued liabilities                    |       | (2,732                                      | )          | (2,398                                     | )          | 2,696 |   | (1,331 | ) |
| Accrued  interest                                            |       | —                                      |       | 5,711                                      |       | — |   | 7,925 |   |
| Income  taxes payable                                        |       | 527                                         |       | 274                                        |       | 10,373 |   | (408 | ) |
| Other  liabilities                                           |       | 507                                         |       | 1,137                                      |       | 960 |   | 2,111 |   |
| **Net Cash Provided by Operating Activities**                |       | 31,645                                      |       | 48,401                                     |       | 121,856 |   | 103,637 |   |
|                                                         |       |                                        |       |                                       |       |   |   |   |   |
| Cash  flows from investing activities:                       |       |                                        |       |                                       |       |   |   |   |   |
| Payments  for communication, plant and other property        |       | (2,102                                      | )          | (817                                       | )          | (5,961 | ) | (4,379 | ) |
| Reimbursement  of NSS-8 construction costs                   |       | —                                      |       | —                                     |       | — |   | 168,000 |   |
| Increase  in restricted cash                                 |       | —                                      |       | —                                     |       | — |   | (30,000 | ) |
| **Net Cash Provided by (Used in) Investing Activities** |       | (2,102                                      | )          | (817                                       | )          | (5,961 | ) | 133,621 |   |
|                                                         |       |                                        |       |                                       |       |   |   |   |   |
| Cash  flows from financing activities:                       |       |                                        |       |                                       |       |   |   |   |   |
| Stock  options exercised                                     |       | 2,397                                       |       | —                                     |       | 3,138 |   | — |   |
| Dividends  paid                                              |       | (472                                        | )          | (8,142                                     | )          | (4,457 | ) | (78,527 | ) |
| Satellite  performance incentives and other                  |       | (1,373                                      | )          | (1,418                                     | )          | (4,532 | ) | (5,247 | ) |
| Repayments  of senior long-term debt                         |       | —                                      |       | (25,000                                    | )          | — |   | (256,440 | ) |
| Issuance  of preferred equity certificates                   |       | —                                      |       | —                                     |       | — |   | 4,639 |   |
| Repayment  of preferred equity securities                    |       | —                                      |       | —                                     |       | — |   | (88,000 | ) |
| Proceeds  from Initial Public Offering, net of expenses      |       | —                                      |       | —                                     |       | — |   | 202,313 |   |
| **Net Cash Provided By (Used in) Financing Activities**      |       | 552                                         |       | (34,560                                    | )          | (5,851 | ) | (221,262 | ) |
| **Effect of exchange rate differences**                      |       | 688                                         |       | 3                                          |       | 403 |   | (52 | ) |
| **Net increase in cash and cash equivalents**                |       | 30,783                                      |       | 13,027                                     |       | 110,447 |   | 15,944 |   |
| **Cash and cash equivalents, beginning of period**           |       | 102,917                                     |       | 40,891                                     |       | 23,253 |   | 37,974 |   |
| **Cash and cash equivalents, end of period**                 |       | $                                           | 133,700    |                                       | $          | 53,918 |   | $ | 133,700 |   | $ | 53,918 |   |

 

**See notes to condensed consolidatedfinancial statements.**

 

6

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**NEW SKIES SATELLITES HOLDINGS LTD.**

### **NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

###  

**1.****             ****BASIS OFPRESENTATION**

 

References made to the “Company” or “New Skies” shall mean New SkiesSatellites N.V. and its subsidiaries for the period up to and including November 1,2004, New Skies Investments S.a.r.l. and its subsidiaries for the period up toand including the date of the internal restructuring discussed below, and NewSkies Satellites Holdings Ltd. and its subsidiaries for periods thereafter.

 

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

 

New Skies Satellites Holdings Ltd. completed its Initial PublicOffering on May 13, 2005 (the “NSS IPO”). Immediately prior to the NSSIPO, the Company performed an internal restructuring pursuant to whichpre-existing shareholders indirectly contributed 100 percent of the equity,preferred equity certificates and convertible preferred equity certificates ofNew Skies Satellites S.a.r.l. to New Skies Satellites Holdings Ltd. As NewSkies Satellites Holdings Ltd. did not trade prior to the restructuring, thebalance sheet at December 31, 2004 represents that of New SkiesInvestments S.a.r.l. and the results for the nine month period ended September 30,2005 represent the combination of the results of New Skies Investments S.a.r.land its subsidiaries for the period up to and including the date of therestructuring and those of New Skies Satellites Holdings Ltd. and itssubsidiaries for the periods thereafter (the “Successor”).

 

On November 2, 2004, New Skies Investments S.a.r.l, through itswholly owned subsidiaries, New Skies Holding B.V. and New Skies SatellitesB.V., purchased substantially all of the assets and liabilities of New SkiesSatellites N.V. Prior to this transaction, New Skies Investments S.a.r.l didnot trade. Accordingly, the results for the three and nine month periods ended September 30,2004 represent the results of New Skies Satellites N.V. and its subsidiaries(the “Predecessor”).

 

These unaudited interim condensed consolidated financial statementshave been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Qand Article 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by accounting principles generallyaccepted in the United States for complete financial statements. In the opinionof management, the unaudited interim consolidated financial statements havebeen prepared on a basis consistent with the audited consolidated financialstatements and include all adjustments, which are of a normal recurring nature,that management considers necessary for a fair statement of the Company’sconsolidated financial position and results of operations for the interimperiods presented. The results of operations for the three and nine monthperiods ended September 30, 2005 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2005.

 

The condensed consolidated balance sheet at December 31, 2004 hasbeen derived from the audited consolidated financial statements of New SkiesInvestments S.a.r.l. at that date but does not include all of the informationand footnotes required by generally accepted accounting principles for completefinancial statements.

 

For further information, refer to the audited consolidated financialstatements and footnotes thereto included in the Company’s audited consolidatedfinancial statements for the year ended December 31, 2004 included in theCompany’s registration statement on Form S-1 (File No. 333-122322)filed with the Securities and Exchange Commission (“SEC”), as such registrationstatement became effective on May 9, 2005.

 

7

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**2.****             ****DESCRIPTION OFBUSINESS**

 

*Acquisition of New Skies Satellites N.V.*

 

On November 2, 2004, New Skies Satellites B.V. purchasedsubstantially all of the assets and liabilities of New Skies Satellites N.V.(the “Acquisition”). New Skies Satellites B.V. acquired these assets andliabilities for cash consideration of $958.0 million and direct acquisitioncosts of $24.8 million, for a total purchase price of $982.8 million

 

During the three month period ended September 30, 2005, New SkiesSatellites B.V. finalized its purchase price allocation of the assets andliabilities acquired, based on the results of an independent valuation study.

 

A preliminary purchase price allocation had initiallybeen performed based on management’s best estimate of the fair values of theassets acquired and liabilities assumed at the date of Acquisition.  Cashand cash equivalents, trade receivables, prepaid and other expenses, accountspayable and accrued liabilities and deferred revenues and other liabilitieswere stated at historical carrying values. Given the short-term nature of theseassets and liabilities it was determined that these historical carrying valuesapproximated fair value. Communications, plant and other property, satelliteperformance incentives and income taxes payable were recorded at estimated fairvalue based on evaluations performed by the Company as of the date to theAcquisition.

 

The Company, in connection with the purchase priceallocation, engaged an independent valuation firm to further analyze thetransaction.  Based on their findings, the preliminary purchase priceallocation was adjusted, in the third quarter of 2005, primarily to reflect therecognition of certain intangible assets.  As a result, the fair value ofcommunications, plant and other property was reduced by $28.5 million and thefollowing items were separately recorded as part of the Company’s long-livedassets:  intangible assets relating toin-use orbital slots in the amount of $19.9 million, trade names in the amountof $3.8 million and goodwill in the amount of $4.8 million.  TheCompany determined that the in-use orbital slots and the goodwill haveindefinite lives and the intangible asset associated with the Company’s tradename has a determinable life of 15 years.

 

The following table provides a breakdown of the fair values assigned tothe assets acquired and liabilities assumed at the date of Acquisition (inthousands of U.S. dollars):

 

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

 

In connection with the Acquisition, the investment funds contributed$153.0 million in the form of preferred equity certificates and $8.5 million inthe form of convertible preferred equity certificates in New Skies InvestmentsS.a.r.l. (see Note 11). In addition, New Skies Satellites B.V. entered intosenior secured credit facilities, consisting of a $460.0 million term loanfacility and a $75.0 million revolving credit facility, issued $160.0 millionaggregate principal amount of Floating Rate Notes due 2011 and issued $125.0million aggregate principal amount of 9 1/8 Senior Subordinated Notes due 2012to fund the Acquisition (see Note 9). Immediately preceding the NSS IPO, theCompany performed an internal restructuring pursuant to which pre-existingshareholders indirectly contributed 100 percent of the equity, preferred equitycertificates and convertible preferred equity certificates of New SkiesInvestments S.a.r.l. 

 

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to New Skies SatellitesHolding Ltd. Due to this reorganization, the investment funds and managementbecame owners of 100% of the equity of the Company. As a result, New SkiesInvestments S.a.r.l., New Skies Holding B.V. and New Skies Satellites B.V.became indirect wholly-owned subsidiaries of the Company.

 

*Prepayment of Credit Facility and Shareholder Loans;Amendment of Credit Facilities*

 

In the first quarter of 2005, New Skies Satellites B.V. entered into anamended agreement for the NSS-8 satellite, pursuant to which the manufacturerrefunded to New Skies Satellites B.V. all construction payments that had beenmade to date. In February 2005, New Skies Satellites B.V. used thisrefund, along with cash-on-hand, to pay down $88.8 million under its term loanfacility and to make an indirect repayment of $88.0 million of the preferredequity certificates held by the existing shareholders of New Skies InvestmentsS.a.r.l.

 

In connection with the NSS IPO, New Skies Satellites B.V.’s seniorsecured credit agreement was amended to increase the level of permitteddividends and to make the other changes described in Item 2, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”. The amended credit facilities allow for thepayment of dividends by New Skies Satellites B.V. and New Skies Holding B.V. ofup to $65 million for 2005 and annual dividends thereafter in an amount equalto 105% of the amount permitted to be paid in the immediately preceding fiscalyear. Such dividends will be permitted only so long as no events of defaultexist under the credit agreement and provided that New Skies Satellites B.V.’sdebt to Adjusted EBITDA is below certain thresholds at the time of payment. Theamount of dividends available will also be reduced by certain shareholder andother payments made by New Skies Satellites B.V. This amendment becameeffective upon the consummation of the NSS IPO that occurred on May 13,2005.

 

Pursuant to the amendment to the senior secured credit agreement, theamounts allowed for additional dividends increased (i) from $95.0 millionto $100.0 million (to allow for the distribution paid in connection with theamended NSS-8 agreement, as discussed above) and (ii) from $10.0 millionto $20.0 million, increasing to $30.0 million if the Total Leverage Ratio ofNew Skies Satellites B.V. is equal to or less than 5.0x.

 

In connection with the NSS IPO, New Skies Satellites B.V. also amendedthe terms of its Subordinated Shareholder PIK Loans to provide for the optionto make payments of principal and interest in cash or in-kind in order toaccommodate the payment of dividends by New Skies Satellites B.V., which willallow the Company to pay dividends to its shareholders going forward.

 

*Initial Public Offering*

 

On May 13, 2005, the Company completed the sale of 11.9 millionnewly issued ordinary shares, equivalent to approximately 37% of the totalissued and outstanding ordinary shares, in an initial public offering. TheCompany also sold an additional 1.8 million shares on May 27, 2005pursuant to the underwriters’ over-allotment option. The Company’s principalasset is its equity interest in its operating subsidiary, New Skies SatellitesB.V.

 

The Company provided New Skies Satellites B.V. with $137.3 million ofthe NSS IPO net proceeds by way of an indirect shareholder loan. New SkiesSatellites B.V. used $131.2 million of these funds, together with $11.4 millionof cash-on-hand, to repay $142.6 million of its term loan facility and theremaining $6.1 million of these funds to pay a fee to Blackstone ManagementPartners IV L.L.C. in connection with the termination of the transaction and monitoringfee agreement.

 

During the second quarter of 2005, the Company used $43.2 million ofthe net proceeds from the NSS IPO and $27.5 million from the net proceeds ofthe exercise of the underwriters’ overallotment option to pay a dividend to theexisting, pre-NSS IPO shareholders, including management.

 

In connection with the NSS IPO, the Company granted options to some ofNew Skies Satellites B.V.’s employees, including its senior executives, topurchase shares of the Company’s common stock. See Note 12 and Item 2, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —StockCompensation.”

 

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*Dividend Policy*

 

The board of directors of the Company has adopted a dividend policywhich reflects an intention to distribute a substantial portion of the cashgenerated by its business in excess of operating expenses and working capitalrequirements, interest and capital expenditures as regular quarterly dividendsto its shareholders.

 

On September 20, 2005, the Company declared a quarterly cashdividend of $0.463125 per share for the third quarter of 2005, which was paidmid-October, 2005 to shareholders of record as of September 30,2005.   Since the NSS IPO, the Company has declaredand paid $23.1 million of dividends.

 

*Offers to Exchange Senior Floating Rate Notes andSenior Subordinated Notes*

 

In July of 2005, New Skies Satellites B.V. concluded an offer toexchange $160,000,000 principal amount of its Senior Floating Rate Notes due2011 registered under the Securities Act of 1933 for any and all of itspreviously outstanding $160,000,000 Senior Floating Rate Notes due 2011 and toexchange $125,000,000 principal amount of its 9 1/8% Senior Subordinated Notesdue 2012 registered under the Securities Act of 1933 for any and all of its previouslyoutstanding $125,000,000 9 1/8% Senior Subordinated Notes due 2012. Allpreviously outstanding notes were tendered in the exchange offers. New SkiesSatellites B.V. conducted the exchange offers in order to satisfy certain ofits obligations under the registration rights agreements entered into inconnection with the placement of the outstanding notes. The terms of theexchange notes issued in the exchange offers are substantially identical to theoutstanding notes, except that the exchange notes are freely tradeable. NewSkies Satellites B.V. did not receive any cash proceeds from the issuance ofthe exchange notes in the exchange offers.

 

**3.****             ****SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

 

The Company’s significant accounting policies are summarized in itsaudited consolidated financial statements for the year ended December 31,2004 included in its registration statement on Form S-1 (File No. 333-122322)filed with the SEC, as such registration statement became effective on May 9,2005. There have been no material changes to the Company’s significantaccounting policies since that date.

 

*Recently Issued But Not Yet Adopted AccountingStandard*

 

In May 2005, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standards (“SFAS”) No. 154, “AccountingChanges and Error Corrections” (“SFAS 154”) which replaces AccountingPrinciples Board Opinion No. 20, “Accounting Changes”, and SFAS No. 3,“Reporting Accounting Changes in Interim Financial Statements.” This statementapplies to all voluntary changes in accounting principle and changes resultingfrom the adoption of a new accounting pronouncement that do not specifytransition requirements. SFAS 154 requires retrospective application to priorperiods’ financial statements for changes in accounting principle unless it isimpracticable to determine either the period-specific effects or the cumulativeeffect of the change. SFAS 154 also requires that retrospective application ofa change in accounting principle be limited to the direct effects of thechange. Indirect effects of a change in accounting principle should berecognized in the period of the accounting change. SFAS 154 is effective foraccounting changes and corrections of errors made in fiscal years beginningafter December 15, 2005 with early implementation permitted for accountingchanges and corrections of errors made in fiscal years beginning after the datethis statement was issued. SFAS 154 is effective for the Company as of January 1,2006 and is not expected to have a material impact on the Company’sconsolidated financial statements.

 

**4.****             ****EARNING (LOSS)PER SHARE**

 

Basic net earnings (loss) per share is computed by dividing net income(loss) by the weighted average ordinary shares outstanding. For the purpose ofcalculating the weighted average shares outstanding for the three and ninemonth periods ended September 30, 2005, the effects of the internalrestructuring completed immediately prior to the NSS IPO are deemed to haveoccurred at the beginning of each period presented, and reflect 18.5 millionshares.

 

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Diluted earnings (loss) per share reflects the potential dilution thatcould occur if potentially dilutive securities, such as stock options,convertible securities and contracts that may be settled in cash or stock, wereconverted to shares as of the beginning of the period, if dilutive. For thepurpose of calculating diluted loss per share for the nine month period ended September 30,2005, approximately 1.5 million potentially dilutive shares relating tooutstanding stock options have been excluded from the calculation of adjustedweighted average shares outstanding as their inclusion would have had an anti-dilutiveeffect due to the net loss in that period.

 

A summary of the weighted average number of shares and incrementalshares used in the calculation of earnings (loss) per share follows:

 
| ** **                            | ** ** | **Three  Months Ended********September 30** | ** ** | **Nine  Months Ended********September 30** | ** ** |
|---------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| **(in thousands of shares)**          | ** ** | **2004**                                         | ** ** | **2005**                                        | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                            | ** ** | **(Predecessor)**                                | ** ** | **(Successor)**                                 | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| Weighted  average shares outstanding: |       |                                             |       |                                            |       |   |   |   |   |
| Basic                                 |       | 118,277                                          |       | 32,289                                          |       | 118,057 |   | 25,654 |   |
| Diluted                               |       | 120,075                                          |       | 33,825                                          |       | 119,797 |   | 25,654 |   |

 

**5.****             ****COMPREHENSIVEINCOME (LOSS)**

 

Comprehensive income (loss) includes net income (loss) and translationadjustments that were recognized directly in equity. Translation adjustments of$0.6 million for the three months ended September 30, 2004,and $(0.3) millionfor the nine months ended September 30, 2005,were incurred andconsequently, comprehensive income (loss) is equal to $2.8 million, $6.1million, $21.8 million and $(7.0) million, in the three month periods ended September 30,2004 and 2005 and nine month periods ended September 30, 2004 and 2005,respectively.

 

**6.****             ****COMMUNICATIONS,PLANT AND OTHER PROPERTY**

 

Communications, plant and other property consisted of the following (inthousands of U.S. dollars):

 
| ** **                        | ** ** | **December 31,  2004** | ** ** | **September 30,  2005** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| Spacecraft  and launch costs      |       | $                           | 684,348    |                         | $          | 647,744 |   |
| Construction-in-progress          |       | 171,684                     |       | 14,976                       |       |
| Communications  support and other |       | 35,883                      |       | 39,567                       |       |
| Buildings                         |       | 20,013                      |       | 19,463                       |       |
|                              |       | 911,928                     |       | 721,750                      |       |
| Less:  accumulated depreciation   |       | 16,022                      |       | 87,110                       |       |
| Total                             |       | $                           | 895,906    |                         | $          | 634,640 |   |

 

Construction-in-progress relates primarily to satellites underconstruction and related launch services.

 

In January 2005, the Company entered into an amended agreement forthe NSS-8 satellite, which (among other things) amended the satellite’scontractual delivery deadline and the payment terms. Under the prior agreement,NSS-8 was scheduled to enter commercial service in the first quarter of 2005.Consistent with the terms of the amended agreement, NSS-8 is projected to belaunched in the second half of 2006 and to enter commercial serviceapproximately 90 days after launch. In consideration for the agreement toincrease the purchase price and to amend the delivery deadline, themanufacturer agreed to refund all construction payments made to date, amountingto $168.0 million. The entire purchase price, including $30.0 million that hasbeen placed in escrow, will be paid as satellite performance incentives,subject to satisfactory performance of the satellite during its contractualdesign life, and the Company will 

 

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provide commerciallyreasonable security to the manufacturer with respect to unpaid incentives.

 

Upon acceptance of a spacecraft from a satellite manufacturer, the netpresent value of performance incentive payments is recorded as a part of thehistorical cost of the satellite.

 

**7.****             ****CONTRACTUALCOMMITMENTS**

 

In further development and operation of the Company’s global commercialcommunications satellite system, significant additional expenditures areanticipated. At September 30, 2005, New Skies Satellites B.V. had acontract for the construction, development and launch of the NSS-8 satellitewith future committed payments on this program. Such commitments (“satelliteincentives”) totalled $386.5 million at September 30, 2005, includinginterest that will be accrued thereon, that are scheduled to fall due over theanticipated operating life of this satellite, to the extent that the satelliteoperates successfully throughout its contractual design life.

 

The Company has recorded a liability of $4.5 million at September 30,2005 representing the present value, at a weighted average discount rate ofapproximately 8%, for incentive payments on the NSS-5, NSS-703 and NSS-806 satellites.Incentive payments of $0.4 million, $1.4 million, $1.4 million, $0.9 million,$0.5 million and $0.4 million are due for the three months ending December 31,2005 and for the years ending 2006, 2007, 2008, 2009 and 2010, respectively.

 

Additionally, the Company has recorded a liability of $30.1 million at September 30,2005 representing incentive payments, before interest, on the NSS-6 and NSS-7satellites requiring payments of $0.9 million in the fourth quarter of 2005,$3.5 million in each of the four subsequent years ending December 31, 2009and $17.4 million in the years thereafter. A variable interest chargeequivalent to LIBOR plus 1% on the outstanding principal will also be incurredon these payments.

 

**8.****             ****INCOME TAXES**

 

The Company has yet to conclude its discussions with the Dutch taxauthorities regarding the final tax obligation of its Predecessor, New SkiesSatellites N.V. Such obligation was a liability assumed by New Skies SatellitesB.V. in connection with the Acquisition, and accordingly, New Skies SatellitesB.V. recorded a provision for income tax liabilities of $20.0 million at thedate of Acquisition. The Company believes that this adequately covers theliability assumed with respect to the predecessor’s tax liability.

 

Certain countries within which the Company operates have sought toimpose withholding taxes or income taxes on payments from customers in thosecountries, notwithstanding the existence of tax treaties that the Companybelieves do not permit the imposition of such taxes. In particular, theGovernment of India has characterized payments made by Indian-based customersand certain payments made by non-resident customers in India as “royaltypayments”. The Government of India has assessed taxes on these payments for theperiod April 1999 to March 2002 and may in the future assess taxes onthese payments for subsequent periods. New Skies Satellites B.V. has appealedthe assessment in accordance with applicable procedures for handling disputedtax assessments. However, New Skies Satellites B.V. believes it is probablethat a loss has been incurred and has recorded an accrual totalling $5.0million as of September 30, 2005, representing management’s best estimateof the amounts of the withholding tax obligations that have accrued through September 30,2005. There were no material developments in these proceedings during the threeand nine month periods ended September 30, 2005.

 

For further information on these matters, see Note 6 to the Notes toConsolidated Financial Statements included in the Company’s registrationstatement on Form S-1 (File No. 333-122322) filed with the SEC, assuch registration statement became effective on May 9, 2005.

 

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**9.****             ****FINANCINGARRANGEMENTS**

 

At September 30, 2005, senior long-term debt consisted of thefollowing (in thousands of U.S. dollars):

 

| Senior  Secured Credit Facilities        |   | $       | 203,560 |   |
|------------------------------------------|--------|---------|---------|--------|
| Senior  Floating Rate Notes due 2011     |   | 160,000 |    |
| 91/8% Senior Subordinated Notes due 2012 |   | 125,000 |    |
| Total  senior long-term debt             |   | $       | 488,560 |   |

 

In addition, at September 30, 2005 the Company had $125.0 millionavailable under its revolving credit facility against which $3.0 million ofstandby letters of credit had been drawn.

 

*Senior Secured Credit Facilities*

 

Concurrent with the consummation of the Acquisition, the Company,through its wholly owned subsidiary, New Skies Satellites B.V., entered intosenior secured credit facilities consisting of a $460.0 million senior securedterm loan facility that matures in May 2011 and a $75.0 million seniorsecured revolving credit facility that matures in November 2010. Duringthe first half of 2005, New Skies Satellites B.V. prepaid $256.4 million of theterm loan borrowings and entered into an amendment to the credit facilitiesthat, among other things, increased the revolving credit facility to $125.0million. See Note 2. During the three month period ended September 30,2005, New Skies Satellites B.V. prepaid an additional $25.0 million of the termloan borrowings. Borrowings under the facilities bear interest at an adjustablerate based on LIBOR for the associated period of draw-down plus an applicablemargin. The facilities are subject to customary covenant requirements andrestrictions, including a maximum leverage ratio and a minimum interestcoverage ratio.  At maturity anyoutstanding borrowings on the facilities must be repaid in full.

 

At September 30, 2005, a one-month draw-down under the seniorsecured credit facilities would bear interest at 6.1% per annum. In addition, acommitment fee of 0.375% is paid on the unused revolving credit amount. At September 30,2005 there was $203.6 million outstanding on the senior secured term loanfacility and no amounts outstanding under the senior secured revolving creditfacility.

 

*Senior Floating Rate Notes due 2011*

 

In connection with the Acquisition, New Skies Satellites B.V. issued$160.0 million aggregate principal amount of Senior Floating Rate Notes due2011. The notes bear interest at a rate per annum, reset semi-annually, equalto LIBOR plus 5 1/8%. The notes rank equally in right of payment to all of NewSkies Satellites B.V.’s existing and future senior indebtedness; rank senior inright of payment to all of New Skies Satellites B.V.’s existing and futuresenior subordinated indebtedness and subordinated indebtedness and ranksubordinated in right of payment to New Skies Satellites B.V.’s securedindebtedness. Early redemption is permitted without penalty on or after November 1,2006. Redemption prior to this date is subject to a reducing premium of amaximum of 2% of the principal amount. The notes are subject to customarycovenant requirements and restrictions. On July 9, 2005, New SkiesSatellites B.V. concluded an exchange offer pursuant to which all outstandingSenior Floating Rate Notes due 2011 were exchanged for Senior Floating RateNotes due 2011 that been registered under the Securities Act of 1933. See Note2. At September 30, 2005, the $160.0 million of outstanding notes bore aninterest rate of approximately 8.5% per annum.

 

91/8% *SeniorSubordinated Notes due 2012*

 

In connection with the Acquisition, New Skies Satellites B.V. issued$125.0 million aggregate principal amount of 9 1/8% Senior Subordinated Notesdue 2012. The notes rank junior in right of payment to all of New SkiesSatellites B.V.’s existing and future senior indebtedness; rank equal in rightof payment to all of New Skies Satellites B.V.’s existing and future seniorsubordinated indebtedness and rank subordinated in right of payment to NewSkies Satellites B.V.’s secured indebtedness. Early redemption is permittedwithout penalty on or after November 1, 2007. Redemption prior to thisdate is subject to a reducing premium of a maximum of 4.6% of the principalamount. The notes are subject to customary covenant requirements andrestrictions. On July 9, 2005, New Skies Satellites B.V. concluded anexchange 

 

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offer pursuant to which alloutstanding Senior Subordinated Notes due 2012 were exchanged for SeniorSubordinated Notes due 2012 that have been registered under the Securities Actof 1933. See Note 2. At September 30, 2005, all $125.0 million of issuednotes were outstanding.

 

**10.****      ****SHARE CAPITAL**

 

At December 31, 2004, ordinary shares relate to those of New SkiesInvestment S.a.r.l. As part of the reorganization that occurred in connectionwith the NSS IPO, New Skies Satellites Holdings Ltd. indirectly acquired theshares of New Skies Investments S.a.r.l. and became the Group’s ultimate parentcompany. At September 30, 2005, the Company had 32,299,631 shares issuedand outstanding.

 

**11.****      ****PREFERRED EQUITY SECURITIESSUBJECT TO MANDATORY REDEMPTION**

 

In connection with the Acquisition, on November 2, 2004 theinvestment funds contributed to New Skies Investments S.a.r.l. aggregateproceeds of $153.0 million in the form of 4,371,428 preferred equitycertificates and $8.5 million in the form of 242,857 convertible preferredequity certificates. The preferred equity certificates rank behind the rightsof all other creditors of New Skies Investments S.a.r.l. The yield accrues onthe certificates at a rate of 11.25% per annum. The convertible preferredequity certificates also rank behind the rights of all other creditors of NewSkies Investments S.a.r.l. The yield accrues on the certificates at a rate of3.25% per annum.

 

On February 25, 2005, New Skies Investments S.a.r.l. issued andindirectly sold 125,608 preferred equity certificates and 6,972 convertiblepreferred equity certificates to New Skies (Cayman) Ltd., which is owned by thesix members of New Skies Satellites B.V.’s executive management committee, for$4.6 million. In addition, following the receipt of the NSS-8 milestone refundin February of 2005, $88.0 million of the preferred equity certificateswere repaid in the first quarter of 2005. See Note 2.

 

Immediately prior to the NSS IPO, the Company performed an internalrestructuring pursuant to which pre-existing shareholders contributed 100percent of the equity, preferred equity certificates and convertible preferredequity certificates, including all interest accrued thereon, of New SkiesInvestments S.a.r.l. to the Company. The amount contributed totalled $86.9million and is shown as an addition to Additional Paid-in Capital of theCompany.

 

**12.****      ****STOCK-BASED COMPENSATION**

 

In conjunction with the NSS IPO, the Company granted 2,016,524 optionsto New Skies Satellites B.V.’s employees to acquire shares of the Company’scommon stock pursuant to the Company’s Stock Incentive Plan. The aggregatestock-based compensation associated with these awards is approximately $21.7million, reflecting the estimated fair value of the options at the date ofgrant. The non- cash stock-based compensation is being recognized as anoperating expense over the vesting period of the options. Certain of theoptions will vest based solely on continued employment over the next four yearsand the remaining options will vest upon the achievement of performance goalsover the next four to seven years or imputed returns realized on sales of theCompany’s shares by the investment funds.

 

Certain of the options granted in conjunction with the NSS IPO vestedupon issuance and were immediately exercised, allowing New Skies SatellitesB.V.’s employees to acquire 108,763 shares of the Company’s common stock.

 

The Company’s optionholders also received a bonus in May of 2005of approximately $4.3 million from cash on hand as a consequence of theunderwriters’ decision to exercise their overallotment option.

 

During the three month periods ending June 30 and September 30,2005, 11,701 and 20,055 of the issued and outstanding options were exercised,respectively, allowing New Skies Satellites B.V. employees to acquire 6,312 and10,900 shares of the Company’s common stock, respectively.  The Company also granted 22,401 and 39,305new options during the three month periods ended June 30 and September 30,2005, respectively.

 

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All options must be exercised or forfeited upon vesting. At September 30,2005, all options had exercise prices of approximately $2.99 and weightedaverage remaining contractual lives of approximately three years. No optionswere exercisable at September 30, 2005. Upon the payment of dividends bythe Company, options will be adjusted to take into account that theoptionholder will not receive the benefit of that dividend.

 

The Company recognized $4.4 million and $17.6 million of stock-basedcompensation expense for the three and nine month periods ended September 30,2005, respectively, under the Stock Incentive Plan. For the three and ninemonth periods ended September 30, 2004 stock-based compensation was $0.2million and $1.6 million, respectively.

 

**13.****      ****SUBSEQUENT EVENT**

 

On November 8, 2005 the Company sold one of its wholly-ownedsubsidiaries, New Skies Networks Pty Limited, to Multiemedia for cashconsideration of $10.0 million. Concurrent with the sale, the Company also entered into a five yearTeleport Services Ordering agreement and a five year Space Segment Capacity agreementto ensure that the services that were previously provided to and received fromNew Skies Networks Pty Limited continue to be received and from which theCompany will continue to generate significant direct cash flows.  Accordingly, the results of New SkiesNetworks Pty Limited for the three and nine month periods ended September 30,2005 are shown as generated from continuing operations.

 

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**ITEM 2.****                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS.**

 

*The following discussion and analysis of ourfinancial condition and results of operations should be read in conjunctionwith our consolidated financial statements and related notes included elsewherein this report and with our management’s discussion and analysis included inour registration statement on Form S-1 (File No. 333-122322) filedwith the SEC, as such registration statement became effective on May 9,2005. This discussion contains forward-looking statements. Please see “SpecialNote Regarding Forward- Looking Statements” and the Risk Factors included inour registration statement on Form S-1 for a discussion of certain of theuncertainties, risks and assumptions associated with these statements.*

 

*References made to the “Company”, “New Skies”, “we”or “our” shall mean New Skies Satellites N.V. and its subsidiaries for theperiod up to and including November 1, 2004, New Skies InvestmentsS.a.r.l. and its subsidiaries up to the date of the restructuring, and New SkiesSatellites Holdings Ltd. and its subsidiaries thereafter.*

 

***Management Overview***

 

We are a global satellite communications company that owns and operatesfive in-orbit satellites and has one additional satellite under construction.We provide satellite-based transponder capacity for the transmission of dataservices, video services, Internet-related services and voice services. We alsooffer ground-based services in conjunction with our satellite capacity in orderto provide our customers with end-to-end communications services for certainapplications.

 

Overall, the business climate for the three and nine month periodsended September 30, 2005, while continuing to improve somewhat, on balanceremained difficult. Because pricing was relatively stable throughout theseperiods at approximately $1.2 million per 36 MHz-equivalent transponder, thegrowth in our fill rate from 55% at September 30, 2004 to 63% at September 30,2005, resulted in a 14% revenue growth over this period.

 

New Skies Satellites Holdings Ltd. commenced trading on May 10,2005, three days before the Company successfully completed its initial publicoffering (the “NSS IPO”). Immediately prior to the NSS IPO, the Companyperformed an internal restructuring pursuant to which pre-existing shareholderscontributed 100 percent of the equity, preferred equity certificates andconvertible preferred equity certificates of New Skies Satellites S.a.r.l. toNew Skies Satellites Holdings Ltd. As discussed in Note 1 to the CondensedConsolidated Financial Statements, because New Skies Satellites Holdings Ltd.did not trade prior to the restructuring, the results for the nine month periodended September 30, 2005 represent the combination of the results of NewSkies Investments S.a.r.l. and its subsidiaries for the period up to andincluding the date of the restructuring and those of New Skies SatellitesHoldings Ltd. and its subsidiaries for the periods thereafter (the “Successor”).

 

On November 2, 2004, New Skies Investments S.a.r.l., through itswholly owned subsidiaries, New Skies Holding B.V. and New Skies SatellitesB.V., purchased substantially all of the assets and liabilities of New SkiesSatellites N.V. (the “Acquisition”). Prior to this transaction, New SkiesInvestments S.a.r.l. did not trade. Accordingly, the results for the three andnine month periods ended September 30, 2004 represent the results of NewSkies Satellites N.V. and its subsidiaries (the “Predecessor”).

 

***Revenues***

 

We earn revenues by providing transponder capacity, or a combination oftransponder capacity and terrestrial facilities and services, to customersaround the globe to allow them to transmit and receive signals using oursatellites.

 

We provide transponder capacity on both a fixed term and occasional usebasis. For the three and nine month periods ended September 30, 2004 and2005, we derived our revenues from the following geographic regions (based onthe billing addresses of our customers):

 

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| ** **                     | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|--------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| **Region**                     | ** ** | **2004**                                  | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                     | ** ** | **(Predecessor)**                         | ** ** | **(Successor)**                          | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| North  America                 |       | 36                                        | %          | 40                                       | %          | 33 | % | 40 | % |
| Europe                         |       | 20                                        |       | 22                                       |       | 21 |   | 21 |   |
| India,  Middle East and Africa |       | 22                                        |       | 19                                       |       | 23 |   | 18 |   |
| Latin  America                 |       | 13                                        |       | 11                                       |       | 14 |   | 11 |   |
| Asia  Pacific                  |       | 9                                         |       | 8                                        |       | 9 |   | 10 |   |
| Total                          |       | 100                                       | %          | 100                                      | %          | 100 | % | 100 | % |

 

Generally, the region within which a customer purchases servicesprovides a reasonable indication of the location where the services are used.However, some of our customers may purchase capacity to provide servicesoutside of their home country and, as a result, this distribution may notreflect actual traffic flow on our satellites. Based on our analysis of markettrends, we believe that we will continue to experience geographic diversity ofour revenues going forward.

 

The table below presents our estimate, based on our analysis ofinformation provided by our customers, of the percentage of our revenues forthe three and nine month periods ended September 30, 2004 and 2005 thatwere attributable to each of the three broad categories of content for whichour customers used our services: data and voice transmissions for governmentand corporate communications networks and international carriers; videotransmissions for broadcasting, cable, and other entertainment media; and thetransmission of Internet content for Internet service providers and others.

 
| ** **               | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|--------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| **Services**             | ** ** | **2004**                                  | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **               | ** ** | **(Predecessor)**                         | ** ** | **(Successor)**                          | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
| Data  and voice services |       | 47                                        | %          | 55                                       | %          | 47 | % | 55 | % |
| Video  services          |       | 35                                        |       | 29                                       |       | 35 |   | 31 |   |
| IP  services             |       | 18                                        |       | 16                                       |       | 18 |   | 14 |   |
| Total                    |       | 100                                       | %          | 100                                      | %          | 100 | % | 100 | % |

 

Based on an analysis of information provided by our customers, weestimate that during both the three and nine month periods ended September 30,2005, we derived approximately one-third of our revenues from services tocustomers where the ultimate end user was a governmental entity.

 

On August 29, 2005, Intelsat Ltd. announced that it and PanAmSatHolding Corporation had signed a definitive merger agreement.  Intelsat and PanAmSat are two of our largestcompetitors, with 28 and 25 in-orbit satellites, respectively.  The net effect of the merger of these twocompanies, if concluded, is difficult to determine.  On the one hand, the combined entity willpotentially be able to compete more effectively in light of its significantlylarger scale.  At the same time, thecombination of these two entities may help to rationalize further the supply ofsatellite capacity and, consequently, help to reduce the oversupply of capacityand the resulting risk of downward pricing pressure for satellite services.

 

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***Results of Operations***

 

***Three and nine month periods ended September 30,2005 compared to the three and nine month periods ended September 30, 2004***

 

*Revenues.*Our revenues for the three month period endedSeptember 30, 2005 were $61.2 million, an increase of $7.4 million, or 14%,as compared to $53.8 million for the same period in 2004. Our revenues for thenine month period ended September 30, 2005 were $179.1 million, anincrease of $22.2 million, or 14%, as compared to $156.9 million for the sameperiod in 2004.

 

Our revenue growth during the three and nine month periods ended September 30,2005 was primarily due to an increase in the overall satellite fleet fill rateto 63% as of September 30, 2005 compared to 55% as of September 30,2004. This growth in fill rate was principally driven by increased demand forNSS-6 capacity serving the Indian subcontinent, central Asia, and the MiddleEast, and from restoration services provided to Intelsat on NSS-5 commencing inthe first quarter of 2005.

 

*Depreciation and amortization*. Depreciation and amortizationdecreased by $2.0 million, or 8%, to $24.0 million for the three month periodended September 30, 2005 from $26.0 million for the same period last year.Depreciation and amortization decreased by $6.3 million, or 8%, to $71.3 millionfor the nine month period ended September 30, 2005 from $77.6 million forthe same period last year.

 

In both cases, the net decrease was primarily due to the fair valueadjustment of our fixed asset base that occurred in connection with theAcquisition.

 

*Cost of operations.*Our cost of operations for thethree month period ended September 30, 2005 decreased by $1.8 million, or13%, to $11.8 million from $13.6 million for the same period in 2004. Our costof operations for the nine month period ended September 30, 2005 decreasedby $5.8 million, or 14%, to $35.1 million from $40.9 million for the sameperiod in 2004.

 

The decrease in our cost of operations resulted from reductions inthird party teleport and satellite capacity procurements as well as overallreductions in other operating expenditures offset, in part, by an increase instock-based compensation expense.

 

*Selling, general and administrative.*For the quarter ended September 30,2005, our selling, general and administrative expenses increased $4.2 million,or 42%, to $14.1 million from $9.9 million in the same period in 2004. For thenine month period ended September 30, 2005, our selling, general andadministrative expenses increased $14.5 million, or 45%, to $46.4 million from$31.9 million in the same period in 2004.

 

The increase in each period primarily resulted from the stock-basedcompensation expense of $3.9 million and $15.6 million for the three and ninemonth periods ended September 30, 2005, respectively, compared to $0.2million and $1.4 million, respectively, in the same periods in 2004.

 

*Transaction related expenses.*We did not incur anytransaction-related expenses during the three and nine month periods ended September 30,2005. New Skies Satellites N.V. incurred $0.8 million and $3.6 million oftransaction-related expenses for the three and nine month periods ended September 30,2004, respectively.

 

These expenditures related to financial advisory fees and expenses,legal costs and accounting fees in connection with the sale of substantiallyall the assets and liabilities of New Skies Satellites N.V. on November 2,2004.

 

*Monitoring agreement fees.*In connection with theAcquisition, Blackstone Management Partners IV L.L.C. entered into atransaction fee and monitoring agreement with New Skies Satellites B.V.relating to certain monitoring, advisory and consulting services for a periodof ten years ending November 2, 2014. In connection with the NSS IPO,Blackstone Management Partners IV L.L.C. terminated this agreement. As contemplatedby this agreement, New Skies Satellites B.V. paid, in the second quarter of2005, a termination fee to Blackstone Management Partners IV L.L.C. of $6.1million from the proceeds of the NSS IPO. In addition, New Skies SatellitesB.V. paid $0.8 million for these services in 2005 during the period prior tothe agreement being terminated. No such costs were incurred in the equivalentperiods in 2004.

 

18

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*Gain arising on frequency coordination.*In the first quarter of 2005, wereceived a one-time payment of $10.0 million from SES Global affiliates and inthe third quarter of 2005 we received a one-time payment of $9.5 million fromSES Global affiliates, in each case following the successful resolution of certainfrequency coordination matters. These payments positively affected ouroperating income for the three and nine month periods ended September 30,2005. Similarly, in the second quarter of 2004, we received a one-time paymentof $32.0 million from Intelsat LLC following the successful resolution ofcertain frequency coordination matters. This payment also positively affectedour operating income for the nine month period ending September 30, 2004.

 

*Interest expense, net.*Interest expense, net was $12.3 millionand $48.2 million for the three and nine month periods ended September 30,2005, respectively, compared to $0.2 million and $0.8 million, respectively, inthe same period in 2004. The net increase was due to the addition of new debtused to finance the Acquisition.

 

*Income tax expense (benefit).*Our income tax expense for thequarter ended September 30, 2005 was $2.4 million compared $1.2 millionfor the quarter ended September 30, 2004. Our effective income tax ratefor the quarter ended September 30, 2005 decreased to 28.5% as compared to36% in the same period in 2004. Our income tax benefit for the nine monthperiod ended September 30, 2005 was $2.7 million, compared to income taxexpense of $12.3 million for the same period in 2004. Our effective income taxrate for the nine month period ended September 30, 2005 was 28.5%, ascompared to 36% in the same period in 2004.

 

In both cases, the decrease in our effective tax rate was primarily dueto the reduction in the statutory rate of taxation in The Netherlands, the taxjurisdiction of New Skies Satellites B.V., our primary operating subsidiary,from 34.5% to 30.0% during the period in which we expect to realize thebenefits of our tax loss carry forwards.

 

***Backlog***

 

At September 30, 2005, we had a contractual backlog for futureservices of $537.5 million, with $58.1 million of payments scheduled to falldue during the fourth quarter of 2005, $159.7 million for 2006, $100.6 millionfor 2007, $64.7 million for 2008, $46.3 million for 2009 and $108.1 million for2010 and thereafter.

 

***Liquidity and Capital Resources***

 

Historically, our principal sources of liquidity have been cash flowprovided by operating activities and amounts available under our revolvingcredit facility.

 

Based upon our current level of operations, we believe that our cashfrom operating activities, together with available borrowings under ourrevolving credit facility, will be adequate to meet our anticipatedrequirements for the foreseeable future.

 

If we do not generate sufficient cash flow provided by operatingactivities to satisfy our debt service obligations, we may have to undertakealternative financing plans, such as refinancing or restructuring ourindebtedness, selling assets, reducing or delaying capital investments or seekingto raise additional capital. Our ability to restructure or refinance our debtwill depend on the capital markets and our financial condition at such time.Any refinancing of our debt could be at higher interest rates and may requireus to comply with more onerous covenants, which could further restrict ourbusiness operations. In addition, the terms of existing or future debtinstruments, including the senior secured credit facilities and the indenturesgoverning the notes, may restrict us from adopting some of these alternatives.Furthermore, the investment funds do not have any obligation to provide us withdebt or equity financing in the future. Our inability to generate sufficientcash flow to satisfy our debt service obligations, or to refinance our obligationson commercially reasonable terms, would have an adverse effect, which could bematerial, on our business, financial position, results of operations and cashflows, as well as on our ability to satisfy our obligations in respect of thenotes and the senior secured credit facilities.

 

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In connection with the purchase of New Skies Satellites N.V. in November 2004,New Skies Satellites B.V. entered into senior secured credit facilities,consisting of a $460.0 million term loan facility and a $75.0 million revolvingcredit facility. During the quarter ended March 31, 2005, New SkiesSatellites B.V. repaid $88.8 million of borrowings under the term loan facilityusing proceeds of the NSS-8 satellite construction milestone payment refund andcash-on-hand and, during the quarter ended June 30, 2005, New SkiesSatellites B.V. repaid $142.6 million of borrowings under the term loanfacility from a loan indirectly received from us out of the proceeds of the NSSIPO and from cash on hand. See Note 2 to Condensed Consolidated FinancialStatements (Unaudited).  In the threemonth period ended September 30, 2005 New Skies Satellites B.V repaid anadditional $25.0 million of borrowings under our term loan facility fromcash-on-hand.

 

In connection with the NSS IPO and effective upon its consummation, andas a result of the prepayments that had been made to date, New Skies SatellitesB.V. amended its senior secured credit facilities to, among other things:

 

•             increase the amount of permitteddividends (see Note 2 to Condensed Consolidated Financial Statements(Unaudited));

 

•             eliminate the requirement that werepay the term loans under the senior secured credit facilities with excesscash flow;

 

•             reduce the maximum required totalleverage ratio covenant;

 

•             lower the applicable margins forthe term loan facility;

 

•             permit the payment of themanagement fee to Blackstone Management Partners IV L.L.C. in connection withthe termination of the transaction and monitoring fee agreement;

 

•             conform the change of controldefinition to the change of control definition in the indentures governing thenotes; and

 

•             increase the revolving creditfacility from $75.0 million to $125.0 million.

 

As of September 30, 2005, we had $488.6 million outstanding inaggregate senior indebtedness, with an additional $125.0 million of availableborrowings under our revolving credit facility (excluding $3.0 million of outstandingletters of credit, which reduce the amount available under the revolving creditfacility).

 

New Skies Satellites B.V.’s credit facilities require them to maintaincertain financial covenants and also subject them to certain restrictivecovenants. As of September 30, 2005, they were in compliance with all ofsuch covenants.

 

On May 13, 2005, we completed the NSS IPO.  Our principal asset is our equity interest inNew Skies Satellites B.V., the Group’s primary operating subsidiary.  (See Note 2 to Condensed ConsolidatedFinancial Statements (Unaudited).)

 

***Dividend Policy***

 

Our board of directors has adopted a dividend policy which reflects anintention to distribute a substantial portion of the cash generated by ourbusiness in excess of operating expenses and working capital requirements,interest and capital expenditures as regular quarterly dividends to ourshareholders. In connection with the NSS IPO, New Skies Satellites B.V. amendedits senior secured credit facilities to, among other things, permit greaterflexibility to pay dividends to shareholders. Since the NSS IPO, the companyhas declared $23.1 million of dividends. (See Note 2 to Condensed Consolidated Financial Statements (Unaudited).)

 

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***Sources and Uses of Cash***

 
| ** **                                           | ** ** | **Three Months Ended  September 30** | ** ** | **Nine Months Ended  September 30** | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| **(In millions of US dollars)**                      | ** ** | **2004**                                  | ** ** | **2005**                                 | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | **(Predecessor)**                         | ** ** | **(Successor)**                          | ** ** | **(Predecessor)** | ** ** | **(Successor)** | ** ** |
|                                                 |       |                                      |       |                                     |       |   |   |   |   |
| Net cash  provided by operating activities           |       | $                                         | 31.6       |                                     | $          | 48.4 |   | $ | 121.9 |   | $ | 103.6 |   |
| Net cash  provided by (used in) investing activities |       | (2.1                                      | )          | (0.8                                     | )          | (6.0 | ) | 133.6 |   |
| Net cash  provided by (used in) financing activities |       | 0.6                                       |       | (34.6                                    | )          | (5.9 | ) | (221.3 | ) |
|                                                      |            |                                           |            |                                          |            |  |  |  |  |  |  |  |  |

 

 

Net cash provided by operating activities for the three and nine monthperiods ended September 30, 2005 totalled $48.4 million and $103.6million, respectively, compared to $31.6 million and $121.9 million,respectively, for the same periods in 2004. We had cash and cash equivalents ofapproximately $53.9 million as of September 30, 2005, and net tradereceivables of $35.4 million, of which $26.8 million, or approximately 76%,were current or less than 30 days overdue.

 

Cash used in investing activities during the three and nine monthperiods ended September 30, 2005, was funded using cash flow fromoperating activities. Net cash used in investing activities totalled $0.8million and $4.4 million in the three and nine month periods ended September 30,2005, respectively, excluding $168.0 million of satellite procurement milestonepayments refunded to us in the first quarter of 2005 of which $30.0 million ofcash was placed in escrow as part of the amended NSS-8 agreement.

 

Net cash used in financing activities included $256.4 million ofrepayments made against the senior long-term debt in the nine month periodended September 30, 2005 from operating cash flows, the NSS-8 refundreferred to above and from the net proceeds of the NSS IPO.

 

***Contractual Obligations***

 

The following table summarizes our contractual obligations, includingrelated estimated interest payments based on actual applicable rates for fixedrate obligations and forward interest rates for the relevant period forvariable rate obligations, and commercial commitments as of September 30,2005:

 
| ** **                                     | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------------------|------------|----------------------------|------------|
| **(In  millions of US Dollars)**               | ** ** | **Total**                  | ** ** | **Less than  one year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After 5  years** | ** ** |
|                                           |       |                       |       |   |   |   |   |   |   |   |   |
| Long-term  debt:                               |       |                       |       |   |   |   |   |   |   |   |   |
| Term  loan facility(1)                         |       | $                          | 282.6      |   | $ | 10.2 |   | $ | 28.3 |   | $ | 28.5 |   | $ | 215.6 |   |
| Senior  floating rate notes(1)                 |       | 254.8                      |       | 11.3 |   | 31.1 |   | 31.3 |   | 181.1 |   |
| Senior  subordinated notes(1)                  |       | 205.8                      |       | 8.6 |   | 22.8 |   | 22.8 |   | 151.6 |   |
| Operating  leases                              |       | 2.7                        |       | 0.7 |   | 1.5 |   | 0.5 |   | — |   |
| Unconditional  purchase obligations(2)         |       | 16.3                       |       | 5.3 |   | 5.8 |   | 2.3 |   | 2.9 |   |
| Conditional  payment obligations(3)            |       | 46.0                       |       | 6.8 |   | 12.5 |   | 10.1 |   | 16.6 |   |
| Contingent  conditional payment obligations(4) |       | 386.5                      |       | — |   | 57.8 |   | 27.1 |   | 301.6 |   |
| Total                                          |       | $                          | 1,194.7    |   | $ | 42.9 |   | $ | 159.8 |   | $ | 122.6 |   | $ | 869.4 |   |

 

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(1)          The senior secured creditfacilities consist of a $460.0 million senior secured term loan facility thatmatures in May 2011 and a $125.0 million senior secured revolving creditfacility that matures in November 2010. Borrowings under the facilitiesbear interest at an adjustable rate based on LIBOR for the associated period ofdraw-down plus an applicable margin. At September 30, 2005, a one-monthdraw-down under the facilities would bear interest at 6.1% per annum. Inaddition, a 

 

21

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commitment fee of 0.375% is paid on the unused revolving credit amount.

 

The outstanding senior floating rate notes bear interest at a rate perannum, reset semi-annually, equal to LIBOR plus 5 1/8%. At September 30,2005, these notes accrued interest at a rate of approximately 8.5% per annum.

 

The outstanding senior subordinated notes bear interest at a rate of 9 1/8%.

 

(2)   Unconditional purchase obligationsreflect agreements for the procurement of fiber, satellite capacity andteleport services.

 

(3)   Conditional payment obligationsreflect the in-orbit performance incentives of our in-orbit satellite fleet andare paid over the lifetime of the respective satellite.

 

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

 

***Off-Balance Sheet Arrangements***

 

We do not have any off-balance sheet arrangements as defined under SECrules.

 

***Stock Compensation***

 

In conjunction with the NSS IPO, the Company granted 2,016,524 optionsto New Skies Satellites B.V.’s employees to acquire shares of its common stockpursuant to the Company’s Stock Incentive Plan. The aggregate stock-basedcompensation associated with these awards is approximately $21.7 million, reflectingthe estimated fair value of the options at the date of grant. The non-cashstock-based compensation is being recognized as an operating expense over thevesting period of the options. Certain of the options will vest based solely oncontinued employment over the next four years and the remaining options willvest upon the achievement of performance goals over the next four to sevenyears or imputed returns realized on sales of our shares by the investmentfunds.

 

Certain of the options granted in conjunction with the NSS IPO vestedupon issuance and were immediately exercised, allowing New Skies SatellitesB.V.’s employees to acquire 108,763 shares of the Company’s common stock.

 

Our optionholders also received a bonus in May of 2005 ofapproximately $4.3 million from cash on hand as a consequence of theunderwriters’ decision to exercise their overallotment option.

 

During the three month periods ending June 30 and September 30,2005, 11,701 and 20,055 of the issued and outstanding options were exercised,respectively, allowing New Skies Satellites B.V.’s employees to acquire 6,312and 10,900 shares of our common stock, respectively.  The Company also granted 22,401 and 39,305new options during the three month periods ended June 30 and September 30,2005, respectively.

 

All options must be exercised or forfeited upon vesting. At September 30,2005, all options had exercise prices of approximately $2.99 and weightedaverage remaining contractual lives of approximately three years. No optionswere exercisable at September 30, 2005. Upon the payment of dividends bythe Company, options will be adjusted to take into account that theoptionholder will not receive the benefit of that dividend.

 

The Company recognized $4.4 million and $17.6 million of stock-basedcompensation expense for the three and nine month periods ended September 30,2005, respectively, under the Stock Incentive Plan. For the three and ninemonth periods ended September 30, 2004, stock-based compensation was $0.2million and $1.6 million, respectively.

 

As a result of the non-cash stock-based compensation costs noted above,our operating expenses for the three month period ended September 30, 2005were, and we anticipate that our operating expenses for 2005 will be, higherthan for prior periods. Additionally, the recognition of the deferredstock-based 

 

22

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compensation over theapplicable vesting periods will result in non-cash expense in the respectiveperiods, thereby reducing our earnings in those periods.

 

***Taxation***

 

We have yet to conclude our discussions with the Dutch tax authoritiesregarding the final tax obligation of our Predecessor, New Skies SatellitesN.V. Such obligation was a liability assumed by New Skies Satellites B.V. inconnection with the Acquisition, and accordingly, New Skies Satellites B.V.recorded a provision for income tax liabilities of $20.0 million at the date ofAcquisition. We believe that this adequately covers the liability assumed withrespect to the Predecessor’s tax liability.

 

Certain countries within which we operate have sought to imposewithholding taxes or income taxes on payments from customers in thosecountries, notwithstanding the existence of tax treaties that we believe do notpermit the imposition of such taxes. In particular, the Government of India hascharacterized payments made by Indian-based customers and certain payments madeby non-resident customers in India as “royalty payments”. The Government ofIndia has assessed taxes on these payments for the period April 1999 to March 2002and may in the future assess taxes on these payments for subsequent periods. Wehave appealed the assessment in accordance with applicable procedures forhandling disputed tax assessments. However, we believe it is probable that aloss has been incurred and have recorded an accrual totalling $5.0 million asof September 30, 2005, representing management’s best estimate of theamounts of the withholding tax obligations that have accrued through September 30,2005. There were no material developments in this proceeding during the threemonth period ended September 30, 2005.

 

***Recently Issued But Not Yet Adopted Accounting Standards***

 

In May 2005, the Financial Accounting Standards Board issued SFAS No. 154,“Accounting Changes and Error Corrections” (“SFAS 154”), which replacesAccounting Principles Board Opinion No. 20, “Accounting Changes”, and SFASNo. 3, “Reporting Accounting Changes in Interim Financial Statements.”This statement applies to all voluntary changes in accounting principle andchanges resulting from the adoption of a new accounting pronouncement that donot specify transition requirements. SFAS 154 requires retrospectiveapplication to prior periods’ financial statements for changes in accounting principleunless it is impracticable to determine either the period-specific effects orthe cumulative effect of the change. SFAS 154 also requires that retrospectiveapplication of a change in accounting principle be limited to the directeffects of the change. Indirect effects of a change in accounting principleshould be recognized in the period of the accounting change. SFAS 154 iseffective for accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005 with early implementation permitted foraccounting changes and corrections of errors made in fiscal years beginningafter the date this statement was issued. SFAS 154 is effective for us as of January 1,2006 and is not expected to have a material impact on our consolidatedfinancial statements.

 

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**ITEM 3.****                                                  QUANTITATIVE AND QUALITIATIVE DISCLOSURE ABOUT MARKET RISK.**

 

For a discussion of the market risks affecting us, see “Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Market Risk” in our registration statement on Form S-1 (File No. 333-122322)filed with the SEC, as such registration statement became effective on May 9,2005.

 

As of September 30, 2005, our senior debt consisted of $125.0million of senior subordinated notes, $160.0 million of senior floating ratenotes and $203.6 million outstanding under our floating rate term loanfacility. The potential effect of a hypothetical 10% adverse fluctuation ininterest rates for one year on our fixed rate borrowings outstanding at September 30,2005 would be a reduction in fair value of approximately $1.0 million. Thepotential effect of a hypothetical 10% adverse fluctuation in interest ratesfor one year on $160.0 million of floating rate notes and $203.6 million offloating rate term loans at September 30, 2005 would be a reduction incash flows of approximately $1.1 million and $1.4 million, respectively, and areduction in net income of approximately $0.8 million and $1.0 million,respectively.

 

**ITEM 4.****                                                  CONTROLS AND PROCEDURES.**

 

We maintain disclosure controls and procedures that are designed toensure that information required to be disclosed in our report under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms, and that suchinformation is accumulated and communicated to our management, including ourPresident and Vice President, as appropriate, to allow timely decisionsregarding required disclosures. Any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives. Our management, with the participation of ourPresident and Vice President, has evaluated the effectiveness of the design andoperation of our disclosure controls and procedures as of September 30,2005. Based upon that evaluation and subject to the foregoing, our President andVice President concluded that the design and operation of our disclosurecontrols and procedures provided reasonable assurance that the disclosurecontrols and procedures are effective to accomplish their objectives.

 

In addition, there was no change in our internal control over financialreporting that occurred during the quarter ended September 30, 2005 thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

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# **PART II — OTHER INFORMATION**

 

**ITEM 1.****                                                  LEGAL PROCEEDINGS.**

 

                None.

 

**ITEM 2.****                                                  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.**

** **

                None.

 

**ITEM 3.****                                                  DEFAULTS UPON SENIOR SECURITIES.**

** **

                None.

 

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

##  

                None.

 

**ITEM 5.****                                                  OTHER INFORMATION.**

** **

In January 2005, Intelsat, Ltd. (“Intelsat”) announced that its IS-804satellite, a Lockheed Martin Series 7000 satellite, experienced anelectrical power system anomaly that caused the total loss of thespacecraft.  Lockheed Martin has completed its investigation of thisfailure, although it has not yet released its final report.  Based uponinformation provided to us by Lockheed Martin, it is our understanding that theIS-804 failure was not likely to have been caused by an IS-804 specificworkmanship or hardware element, but most likely was caused by a high currentevent in the battery circuitry triggered by an electrostatic discharge thatpropagated to cause the failure of the satellite’s high voltage powersystem.  We further understand that, although this risk exists for othersatellites of the same series manufactured by Lockheed Martin, including twosatellites owned by us (NSS-5 and NSS-806), the risk to any individualsatellite is low.  We do not currently believe that any changes to ouroperating procedures or satellite deployment plans are required to mitigate therisk.  We will be meeting with Lockheed-Martin over the next severalmonths to discuss whether any operational procedure modifications might bebeneficial.

 

As a result of the IS-804 failure, our insurers have excluded frominsurance coverage any losses arising from power losses and/or failures on ourNSS-5 or NSS-806 satellites if they are due to a defect or defects identical tothe defect(s) that caused the IS-804 and/or Telstar 401 and Telstar 402-Rin-orbit failures.  (Telstar 401 and Telstar 402-R are two other LM Series 7000satellites that have suffered in-orbit failures due to power subsystemanomalies.  Lockheed Martin previouslyattributed the most likely potential causes of the failures of the two Telstarsatellites to failure modes other than the most likely cause(s) of the IS-804failure. Due to design differences between the Telstar satellites and oursatellites, Lockheed Martin had believed that it was unlikely that oursatellites could experience these other failure modes. In light of the mostrecent IS-804 failure, however, Lockheed Martin believes that there isinsufficient information to determine the exact relationship between theseevents or different failure modes.) We have the burden of proving that theexclusion does not apply in the event of a failure.  This exclusion issubject to review when data concerning Lockheed Martin’s analysis of the IS-804failure becomes available.

 

**ITEM 6.****                                                  EXHIBITS.**

 

A list of exhibits filed in this QuarterlyReport on Form 10-Q is set forth in the Exhibit Index and isincorporated in this Item 6 by reference.

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|   | NEW SKIES  SATELLITES HOLDINGS LTD. |
|--------|-------------------------------------|
|   | November 14,  2005             |
|   |                                |
|   |                                |
|   | /s/ Andrew M. Browne                |
|   | Andrew M.  Browne                   |
|   | Vice  President and Director        |
|   | (Principal  Financial Officer)      |
|   |                                |
|   |                                |
|   | /s/ Mary J. Dent                    |   |
|   | Mary J. Dent                        |
|   | Authorized  U.S. Representative     |

 

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**EXHIBIT INDEX**

** **
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1 (1)             |       | Acquisition Agreement among Neptune One  Holdings Ltd., Munaro Holdings B.V. and New Skies Satellites N.V., dated June 5,  2004                                                                                                                                                                                                                                                                                                                          |
| 3.1 (5)             |       | Certificate of Incorporation and Memorandum  of Association of New Skies Satellites Holdings Ltd.                                                                                                                                                                                                                                                                                                                                                             |
| 3.2 (7)             |       | Amended and Restated Bye-Laws of New Skies  Satellites Holdings Ltd.                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1 (5)             |       | Form of Specimen Certificate of New  Skies Satellites Holdings Ltd. common stock                                                                                                                                                                                                                                                                                                                                                                         |
| 10.1 (2)            |       | Credit Agreement, dated November 2,  2004, among New Skies Holding B.V., New Skies Satellites B.V., certain other  subsidiaries, the lenders party thereto from time to time, Deutsche Bank AG,  New York Branch, as Administrative Agent and as Collateral Agent for the  Lenders, ABN Amro Bank N.V., as Syndication Agent and Deutsche Bank  Securities Inc. and ABN Amro Incorporated, as Joint Lead Arrangers and  Joint Book Running Managers |
| 10.2 (2)            |       | Parent Guarantee and U.S. Pledge Agreement,  dated November 2, 2004, between New Skies Satellites B.V. and Deutsche  Bank AG, New York Branch                                                                                                                                                                                                                                                                                                            |
| 10.3 (2)            |       | Holdings Guarantee, dated November 2,  2004, between New Skies Holding B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                                                                        |
| 10.4 (3)            |       | Equitable Charge of Shares, dated November 2,  2004, between New Skies Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                                                             |
| 10.5 (2)            |       | Subordinated Intercompany Loan Agreement,  dated November 2, 2004, between New Skies Satellites B.V. and New Skies  Holding B.V.                                                                                                                                                                                                                                                                                                                         |
| 10.6 (2)            |       | Subordinated Intercompany Loan Agreement,  dated November 2, 2004, between New Skies Holding B.V. and New Skies  Investments S.à.r.l.                                                                                                                                                                                                                                                                                                               |
| 10.7 (2)            |       | Agreement of Undisclosed Pledge of Third  Party Accounts Receivable, dated November 2, 2004, between New Skies  Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                    |
| 10.8 (2)            |       | Agreement of Disclosed Pledge of  Subordinated Intercompany Loan Receivables, dated November 2, 2004,  between New Skies Holding B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                              |
| 10.9 (2)            |       | Agreement of Disclosed Pledge of Bank  Accounts, dated November 2, 2004, between New Skies Satellites B.V. and  Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                                        |
| 10.10 (2)           |       | Agreement of Non-Possessory Pledge of  Assets, dated November 2, 2004, between New Skies Satellites B.V. and  Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                                          |
| 10.11 (2)           |       | Agreement of Disclosed Pledge of Insurance  Receivables, Subordinated Intercompany Loan Agreement, dated November 2,  2004, between New Skies Satellites B.V. and Deutsche Bank AG                                                                                                                                                                                                                                                                       |
| 10.12 (2)           |       | Agreement of Pledge of Intellectual  Property Rights, dated November 2, 2004, between New Skies Satellites  B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                                   |
| 10.13 (2)           |       | Agreement and Deed of Mortgage and Pledge,  dated November 2, 2004, between New Skies Satellites B.V. and Deutsche  Bank AG, New York Branch                                                                                                                                                                                                                                                                                                             |
| 10.14 (2)           |       | Agreement and Deed of Pledge of Shares in  New Skies Satellites MAR B.V., dated November 2, 2004, between New Skies  Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                               |
| 10.15 (2)           |       | Agreement and Deed of Pledge of Shares in  Morharras B.V., dated November 2, 2004, between New Skies Satellites  B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                              |
| 10.16 (2)           |       | Agreement of Disclosed Pledge of  Intercompany Accounts Receivable, dated November 2, 2004, between New  Skies Satellites B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                     |
| 10.17 (2)           |       | Agreement and Deed of Pledge of Shares in  New Skies Satellites B.V., dated November 2, 2004, between New Skies  Holding B.V. and Deutsche Bank AG, New York Branch                                                                                                                                                                                                                                                                                      |
| 10.18 (3)           |       | Transaction and Monitoring Fee Agreement,  dated November 2, 2004, between New Skies Satellites B.V. and Blackstone  Management Partners IV L.L.C.                                                                                                                                                                                                                                                                                                       |
| 10.19 (3)           |       | Indenture, dated November 2, 2004,  between New Skies Satellites B.V. and U.S. Bank National Association (Senior  Floating Rate Notes)                                                                                                                                                                                                                                                                                                                   |
| 10.20 (3)           |       | Indenture, dated November 2, 2004,  between New Skies Satellites B.V. and U.S. Bank National Association (Senior  Subordinated Notes)                                                                                                                                                                                                                                                                                                                    |
| 10.23 (7)           |       | Registration Rights Agreement for New Skies  Satellites Holdings Ltd.                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.24 (7)           |       | New Skies Satellites 2005 Stock Incentive  Plan                                                                                                                                                                                                                                                                                                                                                                                                               |

 

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| 10.25 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Daniel S. Goldberg                                                                                                                                                                                  |
|-----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.26 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Andrew M. Browne                                                                                                                                                                                    |
| 10.27 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Scott J. Sprague                                                                                                                                                                                    |
| 10.28 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and  Michael C. Schwartz                                                                                                                                                                                 |
| 10.29 (8)             |   | Amended and Restated Employment Agreement,  dated October 10, 2005, between New Skies Satellites B.V. and Stephen J.  Stott                                                                                                                                                                                    |
| 10.30 (3)             |   | Agreement, dated April 29, 2004,  between New Skies Satellites N.V. and Intelsat LLC                                                                                                                                                                                                                                |
| 10.31 (3)             |   | Agreement, dated March 2, 2005,  between New Skies Satellites B.V. and SES Global Satellite Leasing Limited                                                                                                                                                                                                         |
| 10.32 (1)             |   | Satellite and In-orbit Insurance Policy No. 875/A3F005932                                                                                                                                                                                                                                                           |
| 10.33 (3)             |   | Satellite and In-orbit Insurance Policy No. 875/A4F024902                                                                                                                                                                                                                                                           |
| 10.34 (6) † |   | Term Sheet, dated February 17, 2005,  between New Skies Satellites B.V. and Intelsat Global Sales &  Marketing Ltd.                                                                                                                                                                                   |
| 10.35 (6) † |   | Composite Compiled Satellite Contract,  dated February 22, 2005, between New Skies Satellites B.V. and Boeing  Satellites Systems International, Inc. for NSS-8 Spacecraft and  Associated Equipment and Services, Contract No. NSS-20-03-01, as amended                                                  |
| 10.36 (5)             |   | First Amendment to Credit Agreement, dated February 22,  2005, among New Skies Holding B.V., New Skies Satellites B.V., the lenders  party to the Credit Agreement named therein, Deutsche Bank AG, New York  Branch, as Administrative Agent and as Collateral Agent and ABN Amro Bank  N.V., as Syndication Agent |
| 10.37 (5)             |   | First Amendment to Agreement of  Non-Possessory Pledge of Assets, dated February 22, 2005, between New  Skies Satellites B.V., as Pledgor, and Deutsche Bank AG, New York Branch, as  Pledgee                                                                                                                       |
| 10.38 (5)             |   | First Amendment to Agreement of Disclosed  Pledge of Bank Accounts, dated February 22, 2005, between New Skies  Satellites B.V., as Pledgor, and Deutsche Bank AG, New York Branch, as  Pledgee                                                                                                                     |
| 10.39 (5)             |   | First Amendment to Agreement of Undisclosed  Pledge of Third Party Accounts Receivable, dated February 22, 2005,  between New Skies Satellites B.V., as Pledgor, and Deutsche Bank AG, New York  Branch, as Pledgee                                                                                                 |
| 10.40 (9)             |   | Share Purchase Agreement, dated as of August 24,  2005, by and among New Skies Networks Pty Ltd., New Skies Networks Australia  Pty Ltd., New Skies Satellites B.V., NSN Holdings Pty Ltd. and Multiemedia  Limited                                                                                                 |
| 31.1                  |   | Certification of President pursuant to Rule 13a-14(a) and  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended                                                                                                                                                                         |
| 31.2                  |   | Certification of Vice President pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the Securities  Exchange Act of 1934, as amended                                                                                                                                                                   |
| 32.1 +                |   | Certification of President pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                          |
| 32.2 +                |   | Certification of Vice President pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                     |

 

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(1)                                  Incorporatedby reference to the Registration Statement on Form 20-F of New SkiesSatellites N.V. (File No. 001-15130) filed on June 30, 2004.

 

(2)                                  Incorporatedby reference to the Registration Statement on Form S-1 of New SkiesSatellites Holdings Ltd. (File No. 333-122322) filed on January 27,2005.

 

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(3)                                  Incorporatedby reference to Amendment No. 1 to the Registration Statement on Form S-1of New Skies Satellites Holdings Ltd. (File No. 333-122322) filed on March 9,2005.

 

(4)                                  Incorporatedby reference to Amendment No. 2 to the Registration Statement on Form S-1of New Skies Satellites Holdings Ltd. (File No. 333-122322) filed on March 28,2005.

 

(5)                                  Incorporatedby reference to Amendment No. 3 to the Registration Statement on Form S-1of New Skies Satellites Holdings Ltd. (File No. 333-122322) filed on April 25,2005.

 

(6)                                  Incorporatedby reference to Amendment No. 4 to the Registration Statement on Form S-1of New Skies Satellites Holdings Ltd. (File No. 333-122322) filed on May 6,2005.

 

(7)                                  Incorporatedby reference to the Current Report on Form 8-K of New Skies SatellitesHoldings Ltd. (File No. 001-32495) filed on May 17, 2005.

 

(8)                                  Incorporatedby reference to the Current Report on Form 8-K of New Skies SatellitesHoldings Ltd. (File No. 001-32495) filed on October 13, 2005.

 

(9)                                  Incorporatedby reference to the Current Report on Form 8-K of New Skies SatellitesHoldings Ltd. (File No. 001-32495) filed on November 14, 2005.

 

†                                          Confidential treatment has been granted for portions of thisdocument.

 

+                                         Pursuant to Commission Release No. 33-8212, this certificationwill be treated as “accompanying” this Quarterly Report on Form 10-Q andnot “filed” as part of such report for purposes of Section 18 of theExchange Act, or otherwise subject to the liability of Section 18 of theExchange Act and this certification will not be deemed to be incorporated byreference into any filing under the Securities Act of 1933, as amended, or theExchange Act, except to the extent that the registrant specificallyincorporates it by reference.

 

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