Exhibit 99.1
Annual Report
2002
New Skies
Satellites
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[New Skies Satellites LOGO]
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New Skies Satellites, listed on Euronext Amsterdam and the New York Stock
Exchange, and one of only four global satellite communications companies, offers
video, Internet, voice and data communications services to a range of
broadcasters, Internet service providers and telecommunications companies around
the world.
We combine the agility and resourcefulness of an entrepreneurial company with
the technical and financial strength of an experienced operator to provide the
highest quality communications services that enable our customers - and
ourselves - to grow.
Contents
01
Highlights 2002
02-07
At a glance
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Global presence, Total reliability, Financial strength
08-09
Network review
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Solid engineering, reliability and open access
10-11
Chairman's letter
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New Skies has delivered strong and stable financial results every quarter of its
existence and has preserved its strong balance sheet.
12-13
Year in review
14-17
Chief Executive's letter
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In 2002, we achieved solid financial performance, launched two new satellites to
allow us to grow our future revenues and profitability, and took a number of
other important steps to enhance shareholder value.
18
Management Board
19-28
Operating and financial review and prospects
29
Report of the Supervisory Board
30-31
Information regarding the members of the Supervisory Board
32
Responsibility for financial statements
33-59
Financial statements
60
New Skies offices
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Highlights 2002
Operational highlights
o Launched two state-of-the-art satellites,
NSS-6 and NSS-7
o Repositioned the NSS-5 satellite for
Pacific Rim coverage
o Significant expansion to, and upgrade
of, global mediaport network
o Opened offices in Beijing and
Hong Kong
o Launched share buyback program
$200.5m
Revenues
12%
Growth in contractual backlog to $706 million
11%
Growth in customer base
24%
Increase in number of countries served
Strong balance sheet
Annual Report 2002 New Skies Satellites N.V. 1
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At a glance
Global presence
Getting closer to our customers
Regardless of where our customers are, as a global satellite service provider,
we are where they need us to be: everywhere. Our satellites collectively offer
worldwide connectivities for more than 240 broadcasters, telecommunications
companies and other users located in 78 countries. Our owned and affiliated
mediaports located in every region of the world allow for access to both our
global fleet and terrestrial facilities so customers can deliver their signals
anywhere on the globe, using just one fully managed, completely secure and
reliable network.
242 customers in
78 countries
9 offices on 6 continents
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2 New Skies Satellites N.V. Annual Report 2002
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Samantha McCloskey, vice president of customer relations, Srini Prasanna, vice
president of sales for India, the Middle East and Africa, and Thangaraj
Durairaj, director of sales for the Indian Subcontinent work closely with our
sales and engineering teams around the world to ensure that our customers have
timely access to New Skies' commercial and technical expertise.
"There are two critical elements to commercial success in the diverse part of
the world in which I work. One is the fundamental importance of trust in the
relationship with your customers. And two is the ability to work together as
partners, being flexible and helping customers quickly adapt their business
strategies to changing market conditions."
Srini Prasanna
264 employees from
34 different countries
6 satellites and 9 owned
or affiliated mediaports
Dubai/Middle East
[graphic omitted]
Annual Report 2002 New Skies Satellites N.V. 3
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At a glance
Total reliability
Our customers' success depends on it
In this tough market environment, one of the competitive advantages that
telecommunications companies are emphasizing is network reliability. Our
customers - be they broadcasters, telecommunications carriers or Internet
service providers - rely on the robustness of our network for the vital services
they provide to their own customers and users.
With a satellite availability standard of 99.998 percent in 2002, New Skies
boasts one of the industry's most reliable communications networks.
Satellite availability - 99.998%
Los Angeles, USA
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4 New Skies Satellites N.V. Annual Report 2002
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Our satellite network is in safe hands with Steve Collar, manager of satellite
planning and procurement, Stewart Sanders, manager of the satellite operations
center, and Jim Budden, vice president of operations.
"New Skies has taken the lead in the industry as one of the only satellite
operators specifying triple redundancy for critical satellite sub-systems.
This is an increasingly important factor for our customers, whose businesses
depend on our industry-leading reliability."
Steve Collar
Average years of related
experience of satellite
operations staff - 20
Available transponder
hours - 1.2 million
Annual Report 2002 New Skies Satellites N.V. 5
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At a glance
Financial strength
During 2002, we launched two new satellites, adding a significant amount of
highly desirable capacity to our global fleet. As a result, we signed a number
of important long-term agreements allowing us to increase our contractual
backlog by 12 percent. Virtually debt free, we boast one of the strongest
balance sheets in the industry. Our revenues continue to be well diversified
across regions and services, enhancing our stability. In light of these solid
fundamentals and our confidence in the strength of the business and our
prospects going forward, we implemented a share buyback program that we believe
will further promote shareholder value.
Hong Kong, China
[graphic omitted]
6 New Skies Satellites N.V. Annual Report 2002
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12% growth in
contractual backlog
67% more capacity
Stable operating costs
All committed capital
programs - fully funded
[graphic omitted]
Annual Report 2002 New Skies Satellites N.V. 7
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Network review
An open network with global coverage
New Skies' global network has been built on the principles of solid engineering,
reliability and open access. Growing rapidly, we launched two new satellites and
signed up several new teleports in the last 12 months.
Strategically placed hubs collect and act as switches, routers and peering
points for video, Internet, voice and data traffic, while our state-of-the-art
satellites deliver that traffic to destinations worldwide. Earth and sky unite
into a single, elegant and resilient network serving customers around the world.
The New Skies global network is an open system. We do not mandate customer
equipment, encryption systems, proprietary technologies or special practices. We
operate to open standards and accommodate our customers' signals and services at
our teleports and on our satellites in whatever configuration they require.
The satellites
NSS-806
Primary distribution satellite for Spanish- and Portuguese-language programing.
With coverage of most of North America, Latin America and Western Europe,
NSS-806 provides a television delivery network to almost all the cable systems
in the Spanish- and Portuguese-speaking markets of the Americas and Europe.
There are more than 140 video channels and a community of about 4,000 cable head
ends on this satellite. NSS-806 also features high-power Ku-band coverage over
urban areas of the Mercosur region (Argentina, Brazil, Paraguay and Uruguay) for
corporate network communications.
NSS-7
New Skies' first new satellite since its creation in 1998.
NSS-7 is a state-of-the-art hybrid Ku- and C-band satellite providing enhanced
coverage of the Americas, Europe, Africa and the Middle East. Launched on April
16, 2002, the spacecraft replaced
New Skies Satellites coverage map
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8 New Skies Satellites N.V. Annual Report 2002
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the popular NSS-K and NSS-803 satellites, combining the existing television and
Internet services on NSS-K with the substantial video and data traffic on
NSS-803.
In high demand are connections for news traffic from the Middle East and North
America to the television stations of Europe and Africa, direct-to-home (DTH)
television transmission in Africa and government services across the Atlantic.
NSS-703
Cross-roads connectivity for Europe, Africa, Asia and Australasia.
This is one of our most highly-utilized satellites located at the desirable and
well-established orbital location of 57 degrees east and covering a region with
strong and growing demand. The range of services provided is enormous,
reflecting the complexity of the television and telecommunications needs of its
multiple regions. The satellite is in continuous demand from analogue and
digital television broadcasters, PTTs and communications service providers.
NSS-703 provides video links from Hong Kong and Australia to Europe and capacity
for domestic Indian cable networks and voice and data traffic between Europe and
India.
NSS-6
Launched December 17, 2002 - the new broadband multimedia satellite for Asia.
From the prime orbital slot at 95 degrees east, NSS-6's six broad Ku-band beams
- - covering India, China, the Middle East (including Cyprus and Southern Africa),
Australia, Southeast Asia and Northeast Asia - are capable of connecting more
than 60 percent of the world's population.
This satellite is a sophisticated router in the sky that can be configured and
reconfigured from our ground network in response to demand for video, Internet,
voice and data applications.
NSS-5
Strategically placed to link North America with Pacific Rim markets.
NSS-803 completed its drift from the Atlantic Ocean region to replace the
NSS-513 satellite at 183 degrees east in mid-December 2002.
Renamed NSS-5, the satellite forms a vital link in New Skies' global network,
providing more robust capacity for Internet and data traffic as well as digital
video transmissions throughout the Asia-Pacific region, with transoceanic
connectivity between North America and the Pacific Rim. NSS-5 also serves the
Pacific Island communities and ships at sea.
NSS-513
NSS-513 is presently not in commercial service. We are exploring opportunities
for this satellite at this time.
The mediaports
To offer the easiest and most seamless access to our global satellite fleet from
every region of the world, we have implemented a comprehensive strategy of
partnering with leading teleport providers to complement our owned and operated
gateways. The result is a worldwide mediaport network providing first-class
connectivity to each of our satellites.
Our state-of-the-art Washington D.C. mediaport accesses the NSS-806 and NSS-7
satellites for services for the United States, Europe, the Middle East, Latin
America, and Africa. The teleport's co-location facilities and local loop
connectivity to several major metro video hubs and the terrestrial network
enable the relay of voice, video and Internet transmissions between the
Americas, Europe, Africa and the Middle East.
Our affiliated teleports in the United Kingdom and the Middle East extend this
network further east, accessing the NSS-7 as well as the NSS-703 Indian Ocean
region and NSS-6 pan-Asian satellites. The positions of these strategically
located facilities mean that customers can transport television, Internet and
voice traffic between the Eastern and Western Hemispheres.
For our Asian customers, our teleports in Hong Kong, Singapore, Perth and
Adelaide allow intra-Asian traffic to flow on NSS-6. The Hong Kong and Australia
facilities also access NSS-5 for Pacific Rim coverage and trans-Pacific
connectivity to the West Coast of the United States, where customers may access
this satellite via our hubs in Southern California and Washington state.
[graphic omitted]
"Regardless of where our customers are or where they need to go, we can provide
the communications infrastructure and services to support them. We have the
youngest and one of the most advanced and reliable fleets in the sky and have
now added a network of strategically located gateways throughout the world to
offer the most comprehensive and easiest access for our customers.
"Over the years we have helped our customers, who range from sophisticated
engineers to business people who are new to satellite technology, to determine
the optimal way to meet their diverse and evolving requirements."
Ian Wright, manager of network implementation
Annual Report 2002 New Skies Satellites N.V. 9
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Chairman's letter
Dear Shareholder,
I am proud to send you this report, which not only highlights the company's many
operational and financial achievements during 2002, but also communicates our
vision for future growth.
Since beginning commercial operations in late 1998, New Skies Satellites has
posted an impressive list of accomplishments. Over the past four years, its
employees have established a world-class global satellite communications
company, which now spans the world to place the company's resources - its
satellites, its ground-based infrastructure, and its people - close to its
customers. At the same time, New Skies has delivered solid financial results
every quarter of its existence and has preserved its strong balance sheet.
A world-class
global satellite
communications
company
[photo omitted]
Terry Seddon
Chairman
10 New Skies Satellites N.V. Annual Report 2002
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"Without question, the hallmark of 2002 from the perspective of a
corporate board member was the heightened focus on fundamental
principles of integrity, transparency, and governance."
The company's efforts culminated in 2002 with the launch of the NSS-7 and NSS-6
satellites, and the redeployment of the NSS-5 satellite to a new region. The
company's newly launched satellites complemented its existing capacity to create
the youngest fleet in the industry, serving every region of the world. In
addition, by giving the company 67 percent more capacity available for sale
heading into 2003, the launches of NSS-7 and NSS-6 have positioned the company
for future growth that is unparalleled by its peers.
As you are aware, 2002 opened with the appointment of Daniel Goldberg as chief
executive officer. Throughout the year, Dan has demonstrated his hands-on
knowledge of the business and his commitment to the shareholders he serves, as
well as a balanced, intelligent, and prudent approach for achieving organic and
strategic growth. I would like to take this opportunity to congratulate Dan for
his accomplishments during 2002 and to thank him for his unwavering focus and
his commitment to enhancing shareholder value.
Without question, the hallmark of 2002 from the perspective of a corporate board
member was the heightened focus on fundamental principles of integrity,
transparency, and governance. Events in the United States and elsewhere served
as vivid reminders of the serious consequences that can occur when a company -
or its Board - loses sight of its fundamental responsibility to preserve,
protect, and enhance shareholder value.
New Skies' Supervisory Board has benefited tremendously from the experience and
integrity of its members, and from honest, candid and comprehensive
communications between the Supervisory Board and Management. The Board now
contains representatives from a diverse geographical base from both inside and
outside the satellite communications realm; individuals with backgrounds in
finance, management, sales, strategy, law, and government; and persons with a
range of interests and perspectives. The Supervisory Board's audit and finance
committee includes individuals with extensive financial expertise; together,
this committee has worked hand in glove with the rest of the Supervisory Board
to oversee the company's accounting and disclosure practices and ensure that
you, the shareholders, are given an honest and straightforward picture of the
company's performance and future prospects.
The Supervisory Board also has carefully monitored executive compensation
matters to provide incentives for management that align their interests with
shareholders and maintain their focus on sustained, real growth.
During the year, the Supervisory Board took two actions that are of particular
importance to shareholders. First, in November we authorized Management to
implement a share repurchase program for up to 10 percent of the company's
then-outstanding shares. This initiative reflects our confidence in the strength
of New Skies' business and prospects going forward. Because we believed that the
company's share price did not reflect its true value, we concluded that the
buyback would serve shareholders by accreting value to those who do not elect to
sell and, at the same time, providing an exit path to those who do. As of
December 31, 2002, the company had repurchased 5,194,030 shares, or
approximately 40 percent of the total authorized, at an average cost of $3.72.
As New Skies remains virtually debt free, the share buyback is being
accomplished without constraining our ability to fund our remaining satellite
procurement program or impairing our flexibility going forward.
Second, the Supervisory Board decided to begin expensing stock options,
effective January 1, 2003, using the prospective method. We hope through this
action to communicate to the company's shareholders our commitment to use all of
the resources that have been entrusted to us wisely and prudently - even where
accounting rules would have allowed us to treat some resources differently than
others. We also believe that this change will give us more flexibility to design
equity compensation structures that are tailored to meet the company's overall
objectives.
As we head into 2003, I believe that your company is well positioned - in terms
of its management and staff; its satellites and other infrastructure; its
financial health; and its governance - to reap the rewards of what it has spent
the past four years building. I am honored to serve as its chairman, and look
forward to speaking with you at the upcoming meeting of shareholders.
/s/ Terry Seddon
Terry Seddon
Chairman
Annual Report 2002 New Skies Satellites N.V. 11
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Year in review
A year of
outstanding
achievement
Satellites
In 2002, New Skies increased its satellite resources in key markets by 67
percent, launching two new satellites and redeploying a third, enabling us to
offer customers the highest quality satellite services worldwide.
[graphic omitted]
April 2002
NSS-7 is successfully rocketed into orbit to take over for two satellites in one
orbital location, extending and enhancing coverage of the Americas, Europe, the
Middle East and Africa. The deployment also allows New Skies to transition one
of its satellites, NSS-5, to the Pacific Rim, upgrading the company's resources
in two regions of the world through one launch.
November 2002
NSS-5 begins its 100,000 kilometer journey to an orbital position above the
Pacific Ocean region after all of its customers have been seamlessly
transitioned to NSS-7. One month later, the satellite replaces the aging NSS-513
and begins offering video, telecom and Internet services throughout the Pacific
Rim as well as transoceanic connectivity between Asia and the West Coast of the
United States.
[graphic omitted]
December 2002
Following a flawless launch, NSS-6 takes its place at one of New Skies' prized
expansion orbital slots, 95 degrees east longitude, high above the Asian
continent. From this ideal location, NSS-6 has a bird's eye view of more than 50
percent of the world's landmass and is capable of serving two-thirds of the
world's population with high powered capacity for video, Internet, voice and
data applications.
12 New Skies Satellites N.V. Annual Report 2002
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Mediaports
Throughout the year, New Skies created a global network of mediaports to
complement its advanced space-based communications infrastructure with the most
comprehensive terrestrial connectivity and satellite access services.
[graphic omitted]
June 2002
New Skies finishes a complete enhancement to its Washington D.C. mediaport,
which now offers access to the NSS-7 and NSS-806 satellites, and serves as a
gateway between the Americas and Europe, Africa and the Middle East. The
upgraded mediaport is equipped with state-of-the-art co-location facilities for
customer hardware and is fully interconnected to the U.S. terrestrial network.
August 2002
New Skies signs an agreement with a U.K.-based teleport operator to offer access
to its Atlantic and Indian Ocean region satellites, relaying video, Internet,
voice and data traffic throughout the Americas, Europe, the Middle East, Africa,
Asia and the Indian Subcontinent.
October 2002
A partnership with a Middle East teleport operator provides a gateway between
the Eastern and Western Hemispheres, where U.S. and European broadcasters can
send video programing over NSS-7 for onward distribution across Asia on NSS-6.
November 2002
At a prime location in Singapore, New Skies' Asian gateway provides premium
turnaround services and excellent connectivity to terrestrial network
infrastructures and Internet exchanges, allowing New Skies to offer seamless
video, Internet and data transmissions between Asia Pacific, the Middle East,
Africa and Europe via the NSS-703 and NSS-6 satellites.
New offices - new people
New Skies continued to attract experienced professionals, adding significant
commercial, technical and market knowledge to an already strong sales force hand
picked from throughout the industry.
[graphic omitted]
August 2002
Scott J. Sprague, a telecommunications sales executive with more than 20 years
of experience, joins the company as its new senior vice president of global
sales, leading the company's sales force located throughout nine offices around
the world.
December 2002
To establish a foothold in the promising China market, New Skies opens an office
in Beijing, appointing Yang, Yingmei as chief representative and sales director
for Greater China.
New Skies also announces the appointment of Maurice Liu, vice president of sales
for the Asia Pacific region.
Customers
New Skies achieved a 12 percent increase in its contractual backlog, giving us
strong momentum for the new year and making us a standout in the industry. A
number of significant customer contract wins enabled this industry achievement.
[graphic omitted]
For video services
BT Broadcast Services signs a multi-year agreement for capacity on NSS-7 to
launch a new African direct-to-home (DTH) television service for Media Overseas,
a unit of Vivendi Universal's group.
New Zealand-based broadcaster TVNZ Satellite Services doubles its capacity on
New Skies' global satellite network.
China Central Television (CCTV) takes capacity on NSS-703 to broadcast coverage
of the 2002 Asian Games, taking place in September and October.
The European Broadcasting Union signs up for capacity on NSS-7 to support its
value-added television contribution services.
Pramer, a wholly-owned unit of Liberty Media and one of Latin America's largest
cable programers, increases its capacity on the NSS-806 video neighborhood to
support Pramer's international expansion plans.
The International Broadcasting Bureau takes additional capacity on NSS-703 to
broaden and enhance its distribution of radio and television programing across
the Indian Ocean region.
For voice and data services
Data Access, the first private international voice carrier licensed to operate
in India, signs a $100 million agreement for capacity on two New Skies
satellites, NSS-6 and NSS-703.
More than 500 towns and villages throughout the Dominican Republic are being
linked by a rural telecommunications network being deployed by CODETEL, a
Verizon company, using NSS-7.
CPR Marconi signs for capacity on NSS-803 for data applications between Portugal
and the Azores.
Telenor uses NSS-803 for a variety of data applications between Norway and
countries in Latin America and Africa.
For Internet services
Launching internationally, U.S.-based Microspace Communications, operator of one
of the largest business satellite broadcasting networks in the world, chooses
New Skies' NSS-7 satellite to broadcast real-time, IP-based information to
thousands of locations throughout Europe and the Middle East.
Kuwait-based FalconStream signs for capacity on NSS-7 to expand their Internet
services throughout Kuwait and Algeria.
Gulfsat, Kuwait's only VSAT operator, takes capacity on NSS-7 and NSS-703 to
support services for universities and research institutions.
Three Internet service providers based in the former Yugoslavia increase their
satellite capacity by up to 120 percent as a result of growing demand for their
services.
Annual Report 2002 New Skies Satellites N.V. 13
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Chief Executive's letter
Dear Shareholder,
In the opening pages of this annual report, we sought to capture the essence of
New Skies. Unique among its peers, New Skies combines the agility and
entrepreneurial spirit of a start-up with the technical, operational and
financial strength of a well-established company.
Our achievements during 2002 reflect our continued commitment to capitalize upon
these strengths in order to better respond to our customers' needs and deliver
the services that will enable them - and, in turn, us - to grow. During the
year, we launched two new satellites, providing 67 percent more capacity to fuel
our future growth. At the same time, we avoided the pitfall of excessive growth,
refraining from additional significant capital expenditures for expansion
satellites and terrestrial facilities at a time of market uncertainty.
2002 was also a year in which we demonstrated our ability to endure - and grow -
even during difficult times. Over the past four years, we have delivered strong
and stable financial results, quarter after quarter, year after year. 2002 was
no exception, and I am pleased to discuss below the year's highlights.
Solid financial results
Before turning to the important operational achievements we completed during
2002, I would first like to highlight the year's financial results.
2002 was a strong year for New Skies. Notwithstanding a very difficult economic
environment, we delivered stable revenue, EBITDA, and net income results.
Revenues for the year were $200.5 million, EBITDA was $110.3 million, and net
income was $18.7 million, or $0.14 diluted earnings per share, prior to the
effect of our adoption of a new accounting standard relating to the
Capacity to
fuel future
growth
"Over the past four years, we have delivered
strong and stable financial results, quarter
after quarter, year after year."
[photo omitted]
Daniel S. Goldberg
Chief Executive Officer
14 New Skies Satellites N.V. Annual Report 2002
<page>
treatment of goodwill. After giving effect to a one-time, non-cash write-down of
$23.4 million due to the introduction of this new standard, net loss for the
year was $4.6 million, or $0.04 diluted loss per share.
As we had anticipated at the year's outset, 2002 was a year in which it was not
possible to replicate the growth we had achieved in prior years. This was the
result of three factors. Perhaps most importantly, as is all too well known,
2002 was a challenging year, characterized by tepid demand, strong competition,
and a weak economic climate both generally and within the telecommunications
sector. Second, and more specific to New Skies, during 2002 we transformed our
in-orbit fleet, launching two new satellites and repositioning a third to serve
a new region. Although these actions will contribute to New Skies' long-term
success by giving the company substantially more capacity to sell going forward,
during 2002 they meant that we needed to idle a meaningful portion of our fleet
in order operationally to make the changes. Finally, during 2002 we experienced
two changes below the EBITDA line: first, our depreciation expenses rose
significantly following the launch of NSS-7, and second, we were no longer able
to earn interest income due to our use of the proceeds from our initial public
offering to fund our satellite procurements.
Yet, while we could not deliver growth during 2002, we were able to deliver
stability. We recognized the 'bridge' nature of 2002 at the outset of the year
and managed our operations in two important ways. First, and most importantly,
we were clear in communicating our prospects with you, our shareholders, as well
as with the financial analysts and others who follow the company. I am pleased
to report that our 2002 results were fully consistent with our original guidance
for the year; indeed, in terms of earnings per share, we came in at the top end
of our guidance range, excluding the goodwill write-off. Second, we closely
managed our costs, thereby ensuring that we delivered to our shareholders the
maximum benefit of the revenues we were able to capture.
Q&A
Daniel S. Goldberg
Q. Why are you optimistic that you can sell in a market environment
characterized by over-capacity and soft demand?
The tough market conditions that exist today have been in place for close to two
years now. We've performed well over this period and that gives us confidence
going forward. Our confidence is bolstered by the new desirable satellite
capacity we put in place at the end of last year. Lastly, we don't operate in a
homogenous market. Although demand is soft in some regions, there are certain
markets and regions where demand remains strong and we're focusing our efforts
in these areas.
Q. How do you compete against fiber when there is already plenty of fiber
capacity and prices are so low?
Because fiber and satellites have very different transmission characteristics, I
see them as largely complementary rather than competing technologies. Fiber, on
one hand, is the most cost-effective medium for point-to-point transmissions.
Satellite, on the other, excels when you need to broadcast signals from one
point to many locations. It also offers a very cost-effective, ubiquitous and
rapidly deployable infrastructure for connecting destinations in remote areas
beyond the reach of fiber networks or for applications that can't wait for
fiber.
At New Skies, we understand these differences and, in fact, we are ourselves a
consumer of fiber capacity. We have become adept at creating hybrid services -
part satellite capacity and part terrestrial facilities, including fiber
capacity - that exploit the advantages of both transmission mediums. It all
depends on the requirements of our customers and determining the most
cost-effective, efficient and highest quality solutions to meet those
requirements.
Q. How can you compete against the larger satellite companies?
Over the course of our history, we've delivered impressive growth in all the
important performance categories. Although revenues were down in 2002, that was
consistent with a broader industry trend. Importantly, we grew our contractual
backlog 12 percent in 2002, which makes us a stand out with regard to this
important performance metric. Last year, we launched two powerful new satellites
offering some of the industry's most comprehensive coverage and flexible beam
configurations, which means we can dynamically allocate capacity across
different beams in response to changing market conditions. This powerful new
capacity, combined with our operational agility and strong customer focus, will
allow us to continue to compete effectively in the market.
Q. Why are you conducting a share buyback program?
Put simply, we felt our shares were undervalued and, given our strong confidence
in the company's prospects and in the fundamentals of the underlying business,
we decided this program would be the most productive use of our capital while
enhancing value for our shareholders. Because we have a strong balance sheet and
cash flow, we can buy all 13 million shares authorized under the buyback program
and still have adequate funding for our present satellite expansion program as
well as to maintain our strategic flexibility going forward.
Annual Report 2002 New Skies Satellites N.V. 15
<page>
Chief Executive's letter
[graphic omitted]
[graphic omitted]
[graphic omitted]
"The diversity of our revenues across geography and
service applications will allow us to capitalize upon
growth wherever it occurs and will help shield us
from downturns in any one region or market."
Positive momentum
2002 was important not only in terms of the financial results we delivered for
the year, but also - or, indeed, perhaps even more so - because we succeeded in
putting in place the foundation for our future growth.
I am pleased to report that during 2002 we not only maintained, but actually
grew, our order book. Over the course of the year, we increased our backlog by
12 percent, ending the year with $706 million in contractual backlog for future
services. This substantial growth in backlog is the result of a diverse
portfolio of important customer agreements that we signed throughout the year,
and has allowed us to enter the new year with the confidence one can derive from
a committed, stable future revenue stream.
The confidence we draw from our backlog is strengthened by the well-balanced
nature of our revenues, both geographically and in terms of service
applications. As detailed elsewhere in this annual report, our customers are
spread across every region of the globe, from North America and Latin America,
through Europe, India, the Middle East and Africa, to Australia and Asia.
Similarly, we derive our revenues in roughly equal proportion from three broad
segments of the telecommunications industry - 41 percent from video
transmissions for broadcasting, cable, and other entertainment media; 32 percent
from data and voice transmissions for government and corporate communications
networks and international carriers; and 27 percent from the transmission of
Internet content for Internet service providers and other networks using
Internet-based protocols. The diversity of our revenues across geography and
service applications will allow us to capitalize upon growth wherever it occurs
and will help shield us from downturns in any one region or market.
From an operational perspective, we used 2002 to augment our in-orbit and
ground-based resources in order to better serve our customers.
Through our satellite launches, we increased our in-orbit capacity by 67 percent
and transformed our satellite fleet into the youngest global fleet in the
satellite industry. NSS-7, now serving customers from the Americas, Europe, the
Middle East and Africa, replaced two of our inherited satellites and provided
much-needed expansion capacity throughout this important region. NSS-6, covering
the Indian Subcontinent, the Middle East, Asia and Australia - home to
two-thirds of the world's population - is one of the most technically advanced,
powerful and flexible satellites ever launched. And NSS-5, which replaced the
aging NSS-513 satellite following NSS-7's launch, has given us strong coverage
of the western portion of the United States and the Pacific Rim. As is the
hallmark of New Skies' satellites, we designed both NSS-7 and NSS-6 to allow us
to assign our capacity dynamically throughout the life of the satellites, giving
us the flexibility to shift our in-orbit resources to reflect changing demand
patterns and to respond to our customers' needs as they develop over time.
To help both New Skies and our customers exploit our satellites, we also
expanded our ground network. First, we completed enhancements to our Washington
mediaport, which, in addition to providing access to the U.S. market, 24 X 7
customer service and state-of-the-art co-location facilities, also offers full
connectivity to the North American fiber network. Elsewhere around the globe, we
continued our strategy of partnering with industry leaders, signing new or
expanded agreements with London-based Kingston inmedia, ST Teleport in
Singapore, and Satlink
[graphic omitted]
New Skies' Washington mediaport serves as a gateway between the Americas and
Europe, Africa and the Middle East.
16 New Skies Satellites N.V. Annual Report 2002
<page>
[photo omitted]
The NSS-7 satellite is successfully launched aboard an Ariane 4 rocket.
in the Middle East. Together with teleport operators Verestar and WilTel in the
western United States as well as our own teleports in Australia, and Hong
Kong-based Reach, which joined our network early in 2003, these teleports
provide a comprehensive global network allowing our customers to access our
satellites from any region of the world.
Prudent growth
As proud as I am of what we did in 2002, I am equally proud of what we declined
to do. We avoided the pitfall of investing too heavily or aggressively in growth
- - whether in-orbit, on the ground, or in the M&A arena. Consequently, we leave
2002 having preserved our virtually debt-free balance sheet, with more than
enough existing funding to meet all of our committed future capital
expenditures, and with a portfolio of new capacity that will fuel our growth
going forward.
As we announced early in 2003, we also have refined our future capital program
by redesigning our NSS-8 satellite to be sent to the Indian Ocean region as a
replacement for our NSS-703 satellite rather than launched to a new orbital
location over the Americas.
This move will give us a new, very high-powered satellite to meet existing and
future demand throughout this growing region, a region in which we already have
a leading market presence. It also will position us to become free cash flow
positive in 2003, one year earlier than originally anticipated, and avoid the
risks inherent in launching a large and powerful satellite into a new orbital
location over a still-struggling market.
Shareholder focus
During 2002, we augmented our efforts to grow the business over the long term
with a focused effort to return value to shareholders in the nearer term through
a share repurchase program. Quite simply, the share buyback reflects our
confidence in the strength of the business and our continued optimism regarding
our commercial prospects going forward. In addition, we believe it has served
our shareholders by providing an exit path to those who wish to sell and, at the
same time, accreting value to those who choose to remain our owners. By the end
of 2002, we had repurchased approximately 5 of the 13 million total shares
authorized to be repurchased as part of the repurchase program.
[photo omitted]
[photo omitted]
1. NSS-7 has been built with triple redundancy for critical satellite
sub-systems. 2. New Skies' payload operations center is one of the world's most
advanced.
A future of growth
Looking forward, I am confident that we will be able to leverage our new
satellite capacity to achieve meaningful revenue growth. As I am also committed
to maintaining tight cost controls, our revenue growth should translate into
significant growth in EBITDA. And although we anticipate that net income will be
slightly down in 2003 as a result of higher depreciation expense associated with
NSS-6 and NSS-7, we expect to grow our profitability thereafter as we increase
the utilization of our new capacity. In addition, although New Skies remains
focused first and foremost on realizing its ability to grow organically, we are
also well-positioned to take advantage of any promising strategic opportunities
that may arise.
With significant desirable satellite capacity to market; a first-class
terrestrial infrastructure that complements our state-of-the-art satellite fleet
and expands our service offerings; a contractual backlog of more than $700
million; virtually no debt; and - perhaps most importantly - a lean, focused,
talented and dedicated team with a commitment to serving our customers and
enhancing shareholder value, I anticipate that 2003 will be a great year for New
Skies. I look forward to reporting to you on our successes in this regard at our
Annual Meeting of Shareholders in May, and in next year's Annual Report.
/s/ Daniel S. Goldberg
Daniel S. Goldberg
Chief Executive Officer
Annual Report 2002 New Skies Satellites N.V. 17
<page>
Management Board
[graphic omitted]
01 Daniel S. Goldberg
Chief Executive Officer
Daniel S. Goldberg has been with New Skies Satellites since its creation. He was
a member of the three-person team that established the company in November 1998.
Mr. Goldberg initially served as general counsel and later as chief operating
officer before assuming the role of CEO in January 2002.
Mr. Goldberg joined New Skies from PanAmSat Corporation, where he was vice
president of government and regulatory affairs and associate general counsel. In
addition to managing PanAmSat's Washington, DC office, he was responsible for
legislative and regulatory activities at both the domestic and international
levels.
Prior to PanAmSat, Mr. Goldberg was an associate with the telecommunications law
firm Goldberg, Godles, Wiener & Wright, as well as with Covington and Burling.
While in private law practice, he represented a range of companies, including
satellite operators, wireless service providers, broadcasters and computer
manufacturers, on commercial and regulatory matters.
Mr. Goldberg earned an undergraduate degree from the University of Virginia,
graduating with highest honors, and a law degree from Harvard Law School, where
he graduated cum laude.
02 Rudo Jockin
Executive Vice President, Sales & Marketing
Rudo Jockin is New Skies' executive vice president of sales and marketing. He
joined the company in February 1999 after nearly 15 years with the Dutch
telecommunications carrier, KPN, where he held several senior management
positions within the company, including sales and marketing director for KPN
Telecom Broadcast. Mr. Jockin represented KPN on the board of signatories of
EUTELSAT as well as at the Inter-union satellite operations group. Mr. Jockin
was also instrumental in creating Intrax, the first international satellite
newsgathering company in The Netherlands.
Mr. Jockin holds a law degree from the University of Leiden, as well as a
master's of law degree from the University of Virginia.
03 Andrew M. Browne
Chief Financial Officer
Andrew M. Browne is chief financial officer for New Skies Satellites. Prior to
joining New Skies, Mr. Browne served as vice president and chief financial
officer of Intelsat, where he was responsible for the company's financial
operations and was instrumental in creating the financial plan for New Skies.
Previously, Mr. Browne was director of finance, worldwide finance operations and
strategic marketing for Advanced Micro Devices, Inc. (AMD), based in Sunnyvale,
California. While working for AMD, he received the CFO International Award and
the Chairman Special Award for Achievement.
Mr. Browne holds an undergraduate degree from Dublin College of Commerce and a
master's of business administration from Trinity College in Dublin. He received
his CPA from the Institute of Certified Public Accountants of Ireland.
04 Timothy L. Cowart
Senior Vice President, Corporate Development
Timothy L. Cowart has served as New Skies' senior vice president of corporate
development since March 1999. Prior to joining the company, he worked at
PanAmSat Corporation, serving first as director of financial planning and then
as vice president of business development.
Mr. Cowart joined PanAmSat from Hughes Electronics Corp., where, as a senior
associate of corporate development, he was involved in a number of corporate
acquisitions and divestitures, including the merger of PanAmSat and Hughes
Communications, Inc.
Mr. Cowart received his bachelor of science degree in finance and accounting
with honors from Menlo College, in Atherton, California. Mr. Cowart also earned
a master's in business administration with a concentration in finance from the
University of Southern California in Los Angeles, California.
05 Mary J. Dent
General Counsel
Mary J. Dent joined New Skies as general counsel in March of 2000. Before
joining New Skies, Ms. Dent practiced telecommunications law with the U.S. law
firm Goldberg, Godles, Wiener & Wright. Ms. Dent's primary areas of expertise
were in the fields of satellite communications, computer/information technology,
broadband and advanced services, unlicensed technologies, and the regulation of
telecommunications equipment.
Previously, Ms. Dent worked in various capacities for satellite communications
companies Hughes Communications Inc. and Equatorial Communications Co. She also
served as a counsel for U.S. Senator Edward M. Kennedy.
Ms. Dent received a bachelor's degree in economics from the University of
California, Los Angeles and her juris doctorate from Stanford Law School, from
which she graduated Order of the Coif and With Distinction.
06 Stephen J. Stott
Chief Technology Officer
Stephen Stott, PhD is chief technology officer at New Skies. Prior to joining
New Skies, Dr. Stott was director of satellite engineering at Intelsat, where
his primary responsibilities included technology staff management, launch
mission planning, in-orbit testing, monitoring of satellite construction, and
in-orbit engineering operations.
Dr. Stott has held many other distinguished positions, including manager of
spacecraft engineering at Comsat and head of engineering analysis at Hughes
Aircraft Company. While working for Hughes and Comsat he was also a part-time
California State University lecturer/adjunct professor.
Dr. Stott received his bachelor of science degree in mechanical engineering from
the University of California, Berkeley, and holds numerous degrees from the
University of Southern California, Los Angeles, including a master's degree in
aerospace engineering as well as mechanical engineering, and a doctorate in
applied mechanics.
18 Annual Report 2002
<page>
Operating and financial review and prospects
In November 2002, we launched a share buyback initiative to repurchase a total
of 13 million shares as a way to provide additional liquidity to our
shareholders.
Andrew M. Browne
Chief Financial Officer
[photo omitted]
Overview
We are a global satellite telecommunications company that owns and operates six
in-orbit satellites, and has one additional satellite under construction. We
provide satellite-based transponder capacity for the transmission of video
signals, data and telephone traffic, and Internet access services. We also offer
ground-based services in conjunction with our satellite capacity in order to
provide our customers with end-to-end communications services for certain
applications.
Revenues
In 2002 we had revenues of $200.5 million. earn revenues by providing
transponder capacity, or a combination of transponder capacity and terrestrial
facilities and services, customers to allow them to transmit and signals using
our satellites. We currently provide transponder capacity on fixed-term and
occasional-use bases. recognize revenues on a straight-line over the period
during which satellite are provided.
The chart above presents our estimate, on our analysis of frequency plans
supplied by our customers, of the percentage of our total revenues in 2002
attributable to each of the three broad categories of content for which our
customers used our services.
As the chart shows, our revenues are well-balanced across these three categories
of demand. Video transmission represented largest source of revenues in 2002
followed by data and voice services. Internet connectivity and other
transmissions using Internet formats accounted for the remainder of our
revenues.
Diversity of products 2002
[graphic omitted]
- ---------------------------
A Video 41%
- ---------------------------
B Data and voice 32%
- ---------------------------
C IP 27%
- ---------------------------
Data and voice services have contributed a significant and growing portion of
our revenues, increasing from 20% of total revenues in 2000 to 32% in 2002. We
expect continued demand for our data and voice services in 2003, driven in part
by government requirements for these services and in part by increasing
requirements for international long-distance voice services from newly
authorized service providers in countries undergoing telephony deregulation.
These sources of demand have helped to counter-balance the general trend toward
the use of fiber optic networks for voice services, and we expect that this
segment will continue to contribute to our revenues over time (although possibly
at declining levels).
Revenue drivers
The primary drivers of revenues in the satellite communications industry are the
supply of suitable capacity - i.e., capacity that is capable of providing the
desired communications links between two or more different points - and the
level of demand for that capacity.
The supply of suitable capacity is driven by two principal factors:
o the availability of unused existing satellite capacity and the launch of new
satellites serving the relevant region; and
o the availability of capacity offered by ground-based competitors that is
suitable for serving a given communications requirement.
Annual Report 2002 New Skies Satellites N.V. 19
<page>
Operating and financial review and prospects
Both we and our competitors build and launch new satellites to replace existing
satellites and to provide new geographic or frequency coverage. Because the
entry into service of any new satellite can add a significant amount of
capacity, the increase in supply can outstrip demand for some period following
launch. We try to mitigate this risk by working to sell the capacity of a new
satellite to customers before it is launched and by employing a business model
that makes reasonable assumptions about the speed with which we will be able to
sell capacity on a new satellite. More generally, we try to mitigate the risk of
over-supply of satellite capacity by designing our new satellites with better
performance characteristics and greater flexibility than other satellites. As
such, we design new satellites with flexibility to address different markets in
a dynamic manner as demand patterns shift, while focusing our new capacity on
regions and communications routes with high demand.
We also try to mitigate the risk of oversupply of satellite capacity by
enhancing the attractiveness of our satellites to potential customers in other
ways, such as through the creation of a video distribution 'neighborhood'. If a
satellite carries video content that is in high demand, then an increasing
number of ground-based receiving antennas will be dedicated to that particular
satellite to receive the popular video signal. If a high number of receiving
antennas are installed to receive the signal from the satellite, then the
satellite has created a 'neighborhood' that is desirable to other broadcasters
of video content because a large number of their potential customers already
have antennas dedicated to that satellite. Accordingly, the remaining available
capacity on the satellite that can serve the neighborhood becomes more desirable
to the satellite operator's customers and prospective customers.
As noted above, the second source of supply is ground-based competition, such as
fiber optic networks. Where ground-based networks exist, and when new networks
are brought into service, they typically are able to provide large amounts of
bandwidth at very low rates. Ground-based capacity and satellite system
capacity, however, are not perfect substitutes. The ability to provide desirable
communications links between different points (for example, between various
corporate offices or between a video programer's production facility and cable
operators' local networks) is driven by the design of a satellite- or
ground-based network. Capacity can be used for transmissions only along the
particular communications routes or in the areas that the capacity connects. We
call the ability to provide transmission capacity between different places
'connectivity', and the desirability of a given connectivity drives the value of
that particular capacity. The connectivities of a satellite network are
determined principally by the geographic coverage of the satellites and the
frequencies in which they transmit signals. The connectivities of a ground-based
network are determined principally by the geographic route along which it
travels, such as a cable between New York and London. A ground-based network can
only transmit a signal along the route that it physically travels, which we call
'point-to-point' connectivity. A satellite network has the advantage of being
able to connect multiple points with a single transmission because satellites,
in essence, 'blanket' an entire coverage area with their signal, which we call
'point-to-multi-point' or 'broadcast' connectivity.
We try to avoid competing with ground-based services by focusing on regions
where such ground-based services are not available, and on services
(particularly point-to-multi-point or broadcast services) where satellites have
a competitive advantage. In addition, we seek to provide services to customers
who desire a combination of ground-based and satellite services, for redundancy
or other reasons.
Demand is principally driven by economic conditions, both generally and within a
particular geographic area or product/service market. Economic growth fuels new
demand for capacity as society seeks increasing access to news, entertainment
and other forms of media rich content. For example, in healthy economic
environments people may purchase more televisions or personal computers.
Increased television viewership raises demand for additional video content
provided by television broadcasters, who then need to purchase more capacity to
transmit their increased programing. Increased personal computer use may
increase demand for Internet services provided by local Internet Service
Providers, which similarly then need to purchase more capacity to transmit their
data packets. Demand for other applications, such as data and telephony services
or the establishment of private telecommunications networks used by businesses,
also is driven by general economic conditions, both globally and in specific
regions.
Another key driver of demand for capacity is regulatory access to new markets.
As communications markets are liberalized, competition generally increases, with
two consequences. First, the new competitors desire capacity upon which to
establish their new networks. Second, competition tends to place downward
pressure on prices; as prices decline, a larger number of customers in the newly
liberalized markets are able to afford communications services. Declining prices
and increased competition, moreover, may encourage consumers to demand improved
access to and a broader selection of telecommunications and video services.
Demand also can be driven by events of a shorter-term nature, such as major
sporting events (for example, the Olympics or World Cup) or events of a
newsworthy nature.
The continuation of past trends for growth, such as the growth of the Internet
and video programing offerings, are uncertain. In 2002 approximately nine
satellites were launched that could reasonably be expected to compete, at
varying levels, with our own satellites. We anticipate, on the basis of publicly
available information, that 17 such
20 New Skies Satellites N.V. Annual Report 2002
<page>
satellites could be launched by our competitors in 2003. Certain of these
satellites are replacement satellites, although they may have incremental
capacity. As satellites take roughly three years to procure, build and launch,
the satellites that were launched in 2002 and 2003 were, in all likelihood,
contracted for a number of years ago. The introduction of this new capacity,
particularly in the current economic environment and in light of existing
capacity that remains available on some pre-existing satellites, could place
downward pressure on pricing and/or result in a slower uptake on the capacity we
are offering.
In light of the fact that there is excess satellite capacity in many markets
today, a significant number of commercial satellite operators have announced
their intention to put their expansion plans on hold. Consistent with such
announcements, publicly available information indicates that only two commercial
satellite orders were placed in 2002.
New Skies was created in 1998 and, at that time, was transferred five
operational satellites. From 1998 to 2002, our growth resulted from our ability
to sell the unused capacity on these satellites. During 2002, however, we
expanded our fleet by launching two new satellites and redeploying a third.
NSS-7, launched in April, replaced one satellite at the end of its life and
freed a second, NSS-5 (formally referred to as NSS-803) for re-deployment to the
Pacific Ocean Region. NSS-6, launched in December 2002, provides new capacity
for us to utilize in the Asia Pacific region. We plan to launch another
satellite, NSS-8, in late 2004. NSS-8 will be used to replace an existing
satellite in the Indian Ocean Region, giving us both a newer, more competitive
satellite in that region and incremental capacity to be able to satisfy future
growth. NSS-7 became available for new services in late August 2002, after we
had completed the process of transitioning services onto it from the two
satellites it replaced. NSS-5 completed its drift to the Pacific Ocean region in
mid-December, and NSS-6 entered commercial service in early 2003.
Looking forward, we expect our revenues in 2003 and beyond to reflect the
addition of this new capacity. Together, these new satellites give us
approximately 67% more capacity to sell. We believe that our new satellites are
commercially attractive, given their relatively high power levels, good
connectivities, and flexibility that will allow us to allocate capacity over
time to areas in which demand exists.
Our growth also relies in part on our ability to sell bundled services. These
services involve combining our transponder capacity with ground-based services,
such as transmission of signals from the earth to a satellite and providing
ground-based connections to the Internet. We believe that our ability to provide
those services will allow us to address a broader marketplace by supplying
services to customers further down the signal distribution chain. We further
believe, based on our experience with providing these services, that this will
provide us with an opportunity to capture incremental revenue that we could not
generate from the supply of satellite-based transponder capacity alone. We
provide bundled services using both our own facilities as well as third-party
facilities. In 2002, we entered into agreements with service providers in Hong
Kong, the Middle East, Singapore and the United States that will expand the
range of bundled services we are able to offer to our customers.
Pricing also affects our revenues. Various market forces, which differ by
region, affect our pricing of transponder capacity. We sell our available
capacity at prevailing market prices, which vary with the connectivity and
neighborhood, the amount of capacity required, and the duration of the service
under contract. In general, we price contracts of shorter duration and for less
capacity on a higher cost-per-unit capacity basis than contracts of longer
duration and for more capacity. Prior to 1999, the majority of our contracts
were for video transmission, which generally had an average duration of five
years and were for capacities of 18 MHz or greater. Over the past several years,
we observed increased customer demand for services related to the transmission
of voice and data and Internet-related content, with capacity requirements of
typically 1-2 MHz and contract durations of three years or less. That said, the
majority of our revenues in 2002 continue to reflect contracts with average
duration of three years or greater with the weighted average duration of our
backlog as of December 31, 2002 reflecting approximately 6.7 years. For new
contracts concluded during 2002, our average rates per transponder (expressed in
36-MHz units) were approximately $1.5 million per year. These rates were 50%
higher than the per transponder rates we inherited from INTELSAT, but less than
the approximate $1.7 million average per transponder rate for similar contracts
that we had concluded in the years since our inception but prior to 2002. Based
on our analysis of market trends, we believe the decrease in average
per-transponder pricing is a result of difficult economic conditions during
2002, significant competition from other operators, and incentives given to
customers to commence services on one of our newest satellites, NSS-7.
We continue to market and sell long-term contracts in order to provide greater
stability and certainty regarding our revenues going forward. During 2002, we
succeeded in increasing our customers' contractual service commitments, or
backlog, from $631 million at December 31, 2001 to $706 million at December 31,
2002. (See '- Backlog'). Among the market segments that we serve, video and data
customers tend to enter into multi-year
Annual Report 2002 New Skies Satellites N.V. 21
<page>
Operating and financial review and prospects
contracts, while Internet customers tend to prefer shorter-term contracts. We
anticipate that, consistent with our prior experience, a number of our Internet
customers will renew their commitments and increase the amount of our capacity
they use as their businesses grow, although some Internet and other customers
may not renew contracts for various reasons.
We derive our revenues from customers spread around the globe. The chart below
sets forth the geographic source of our revenues in 2002, based on the sales
region. Many of our customers purchase capacity to provide services outside of
their home country. As a result, this distribution may not reflect actual
traffic flow on our satellites.
Geographic diversity of revenues 2002
[graphic omitted]
- ---------------------------
A North America 37%
- ---------------------------
B Europe 20%
- ---------------------------
C India, Middle 23%
East and Africa
- ---------------------------
D Latin America 13%
- ---------------------------
E Asia Pacific 7%
- ---------------------------
We believe, based on our analysis of market trends, that we will continue to see
revenue growth from all regions as we sell capacity on our newest satellites
launched in 2002, NSS-6 and NSS-7, as well as the NSS-5 satellite, which we
relocated to the Pacific Ocean Region. While we will continue to market our
services in all geographic markets, we expect that revenues from customers in
Asia Pacific, India, the Middle East and Africa will form a greater proportion
of our revenue mix in the future, due to the arrival of incremental capacity in
these regions from NSS-5 and NSS-6 and, ultimately, NSS-8.
Expenses
Our ongoing operating expenses include our cost of operations, selling, general
and administrative expenses and depreciation. Our cost of operations includes
costs associated with:
o tracking, telemetry, control and payload management operations for our
satellites;
o fiber optic and teleport services associated with the provision of bundled
services;
o in-orbit insurance for our satellites; and
o the costs associated with our own operations and engineering infrastructure.
Selling, general and administrative expenses include costs associated with:
o our sales and marketing and administrative staff;
o travel, office and occupancy costs; and
o other related expenses.
Depreciation includes the costs associated with the depreciation of capital
items, principally our satellites.
In 2000, we began to perform our own payload management operations for all of
our satellites, and during 2001 we successfully assumed operational control for
the NSS-5, NSS-703 and NSS-806 satellites, activities previously performed by
INTELSAT. We are currently fully monitoring and operating these satellites using
our own tracking, telemetry and control facilities, and our ongoing net savings
achieved from bringing these activities in-house are reflected in the results of
operations in 2002. We also perform tracking, telemetry, control and monitoring
services for our newest satellites, NSS-7 and NSS-6, and expect to perform these
services for NSS-8 once it has been delivered to us in-orbit.
As discussed in the previous section, we believe that by providing bundled
services we can capture incremental revenue that we could not generate from the
supply of satellite-based transponder capacity alone. Additionally, offering
bundled services allows us to seek new customers and gain access to developing
markets. In order to provide bundled services, however, we incur the costs of
operating our owned teleports and generally must incur additional third-party
ground infrastructure costs. In 2002, we noted an incremental rise in ground
infrastructure costs. To a significant extent, however, the third-party costs
are correlated with actual services and can be scaled to reflect actual sales
success.
We believe that we have achieved a critical mass with respect to our operations
and staff, with the result that we do not anticipate significant increases in
these expenses in the near term except for effects of insurance markets and
related impact on in-orbit insurance, and from additional third-party costs as
we provide incremental bundled services to our customers, as mentioned above. To
the extent that our operations and sales infrastructure is in place, we consider
this aspect of our business to represent a largely fixed cost.
Depreciation is our single largest expense. Because we depreciate our satellites
on a straight-line basis over their anticipated commercial lives, depreciation
expense is generally constant from year to year unless we launch a satellite or
a satellite reaches the end of its depreciable life. Depreciation of a satellite
starts when it enters operational service, which begins upon successful
completion of in-orbit testing. In 2002, we placed one new satellite, NSS-7,
into service and took one existing (although fully depreciated) satellite out of
service. This resulted in a significant net increase in depreciation expense
beginning in second half 2002. We launched our NSS-6 satellite in December 2002,
which became operational in the first quarter 2003. Consequently, depreciation
expense will increase substantially in 2003 as a result of the full-year effect
of the NSS-7 depreciation and the partial year effect of the NSS-6 depreciation.
We are constructing one additional satellite, NSS-8, which is planned for launch
in late 2004. This new satellite will involve significant capital expenditures
and will further increase depreciation charges once it is placed into service.
As we add new satellites to our fleet, we will also incur additional costs for
launch insurance and in-orbit insurance.
Backlog
We provide customers with satellite transponder capacity for contract periods
varying from less than one year to 15 years. At December 31, 2002, we had a
contractual backlog for future services of approximately $706 million. Of this
amount, which we do not recognize as revenue until we actually perform the
services, approximately $601 million, or 85%, relates to obligations provided
under non-cancelable agreements. The remaining backlog relates to preemptible
capacity contracts that have cancelation options,
22 New Skies Satellites N.V. Annual Report 2002
<page>
subject to the payment of early termination penalties. We cannot rule out the
possibility we could face contract terminations arising in the normal course of
business or as a result of other market forces.
As of December 31, 2002, the average remaining duration of our contracted
backlog, based on a simple average of our order book, was approximately 2.2
years. On a weighted average basis, the average remaining duration of our
contracts was approximately 6.7 years.
Results of operations
Table 1 sets forth, for the periods indicated, certain items in the consolidated
statements of operations, reflected as a percentage of revenues.
Year ended December 31, 2002 compared to year ended December 31, 2001
Revenues
Our revenues for the year ended December 31, 2002 were $200.5 million, a
decrease of $8.5 million, or 4%, from $209.0 million for the year ended December
31, 2001. The decrease for the year is principally the result of the prevailing
difficult market conditions, as well as the unavailability of some of our
capacity for service during the transition of traffic from the NSS-K and NSS-5
satellites to NSS-7, which went into commercial service in August 2002, and the
subsequent migration of NSS-5 to the Pacific Ocean region, completed in December
2002.
Our station-kept satellite fleet fill rate for satellites available for service
at December 31, 2002 was 67% as compared to 65% at December 31, 2001. Fill rate
is defined as the number of our revenue-generating transponders (expressed in
36-MHz units) divided by our fleet-wide station-kept transponder capacity
available for service (expressed in 36-MHz units). Average rate per transponder
for contracts concluded in 2002 was approximately $1.5 million per year, down
$0.2 million as compared to 2001, reflecting difficult market conditions as well
as incentives given to customers to commence services on NSS-7.
Cost of operations
Our cost of operations decreased $0.8 million, or 2%, to $50.7 million for the
year ended December 31, 2002 compared to $51.5 million for the year ended
December 31, 2001. As a percentage of revenues, our cost of operations remained
unchanged at 25%. In absolute terms, the net decrease in our cost of operations
reflects our success in managing our discretionary costs and from bringing our
tracking, telemetry, control and payload management operations in-house.
Selling, general and administrative
Our selling, general and administrative expenses increased by $0.8 million, or
2%, to $39.5 million in the year ended December 31, 2002 from $38.7 million for
the year ended December 31, 2001.
Table 1 Statement of operations data as a percentage of revenues
- --------------------------------------------------------------------------------
Years ended December 31,
2002 2001 2000
- --------------------------------------------------------------------------------
Statement of operations data:
Revenues 100% 100% 100%
Operating expenses:
Cost of operations 25 25 24
Selling, general and administrative 20 18 18
Depreciation and amortization 40 36 35
Total operating expenses 85 79 77
Operating income 15 21 23
Income before cumulative effect of
change in accounting principle 9 16 16
Cumulative effect of change in
accounting principle (11) - -
Net (loss) income (2) 16 16
- --------------------------------------------------------------------------------
This slight net increase resulted primarily from the expansion of the sales and
marketing staff that we undertook in order to better exploit the capacity on our
new satellites primarily offset by savings arising from careful management of
our discretionary costs.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Our EBITDA for the year ended December 31, 2002 was $110.3 million,
a decrease of $8.5 million, or 7%, from $118.8 million in 2001. The
decrease in EBITDA is attributable to decreased revenues in 2002.
As a percentage of revenues, EBITDA decreased to 55% for the year ended December
31, 2002 from 57% for the year ended December 31, 2001. EBITDA is not presented
as an alternative measure of operating results or cash flow from operations, as
determined in accordance with generally accepted accounting principles in the
U.S. We use EBITDA as a measurement of our financial results. New Skies believes
EBITDA is a measure of performance used by some investors, equity analysts and
others to make informed investment decisions. EBITDA as presented herein may not
be comparable to similarly titled measures reported by other companies. (See
Table 2 '- Reconciliation of EBITDA to net (loss) Income').
Depreciation and amortization
Our depreciation and amortization expense increased $5.3 million, or 7%, to
$80.6 million for the year ended December 31, 2002 from $75.3 million for 2001.
This increase was primarily due to commencement of service of NSS-7,
successfully launched in April 2002, net of elimination of goodwill amortization
of $2.8 million in 2001.
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, (SFAS No. 142) Goodwill and Other Intangible Assets and, in
accordance with the standard, stopped amortizing goodwill that resulted from
business combinations completed prior to the adoption of SFAS No. 141. (See the
section called '- Recently Issued Accounting Standards').
Annual Report 2002 New Skies Satellites N.V. 23
<page>
Operating and financial review and prospects
Interest expense (income) and other, net
Net interest expense for the year ended December 31, 2002 was $0.5 million, a
decrease of $9.5 million, compared to net interest income of $9.0 million for
the year ended December 31, 2001. The decrease primarily arises from lower
interest income in 2002, as we fully utilized the remaining funds raised through
our initial public offering to fund the ongoing construction of our new
satellites, NSS-7, NSS-6 and NSS-8. (See the section called '- Liquidity'.)
Income tax expense
Our income tax expense decreased $8.9 million, or 46%, to $10.5 million for the
year ended December 31, 2002, from $19.4 million in 2001. The decrease was due
primarily to the decrease in our pre-tax income.
Cumulative effect of change in accounting principle, relating to goodwill, net
of taxes
As of January 1, 2002, we adopted SFAS No. 142. (See the section called '-
Recently Issued Accounting Standards'). This Standard eliminates goodwill
amortization from the consolidated statement of operations and requires an
evaluation of goodwill for impairment upon adoption of this Standard, as well as
subsequent evaluations on an annual basis, and more frequently if circumstances
indicate a possible impairment.
Upon adoption of SFAS No. 142, we performed a transitional impairment test on
the goodwill resulting from the purchase of New Skies Networks Pty Limited in
March 2000. As a result of this impairment test, we recorded an impairment
charge of $23.4 million, which is classified as a cumulative effect of a change
in accounting principle.
Year ended December 31, 2001 compared to year ended December 31, 2000
Revenues
Our revenues increased by $10.7 million, or 5%, to $209.0 million in the year
ended December 31, 2001 from $198.3 million in the year ended December 31, 2000.
Our 2000 revenues included the positive impact of a $19.7 million exceptional
one-time contract termination payment made by one customer. Excluding this
one-time payment recorded in 2000, our 2001 revenues increased 17% from $178.6
million in 2000.
The increase in revenues was attributable to the success in increasing the
fleet-wide average yield per transponder and in increasing the fill rate of our
station-kept satellite fleet to 65% at December 31, 2001 from a 63% fill rate at
December 31, 2000. The increase in the fleet-wide average yield per transponder
was a result of our market-based pricing strategy as compared to the pricing we
inherited at the time we commenced independent commercial operations, our
willingness to enter into contracts for smaller units of capacity and for
shorter duration, and our ability to offer value-added services.
Table 2 Reconciliation of EBITDA to net (loss) income
- --------------------------------------------------------------------------------------------------------
Years ended December 31,
2002 2001 2000
(In thousands of U.S. dollars) $ $ $
- --------------------------------------------------------------------------------------------------------
Net (loss) income (4,645) 33,068 31,674
Cumulative effect of change in accounting principle 23,375 - -
Income tax expense 10,506 19,364 17,506
Interest expense (income) and other, net 510 (9,008) (2,543)
Depreciation and amortization 80,574 75,338 69,870
- --------------------------------------------------------------------------------------------------------
Earnings before interest, taxes, depreciation
and amortization (EBITDA) 110,320 118,762 116,507
- --------------------------------------------------------------------------------------------------------
Cost of operations
Our cost of operations increased $4.5 million, or 10%, to $51.5 million for the
year ended December 31, 2001 compared to $47.0 million for the year ended
December 31, 2000. As a percentage of revenues, our cost of operations remained
relatively unchanged at 25% for the year ended December 31, 2001 compared to 24%
for the year ended December 31, 2000. Excluding the net impact of a one-time
exceptional payment to us that was recorded in the third quarter 2000, cost of
operations as a percentage of revenues was 26% in 2000. In absolute terms, the
net increase in our cost of operations of $4.5 million related to the continued
development of the engineering and operational worldwide infrastructure,
including the development of our terrestrial infrastructure.
Selling, general and administrative
Our selling, general and administrative expenses increased $3.9 million, or 11%,
to $38.7 million in the year ended December 31, 2001 from $34.8 million in the
year ended December 31, 2000. This increase resulted primarily from the full
year effect of our continuing expansion of our sales, marketing and support
staff required to fully exploit the unused capacity of our existing satellites.
We employed 261 full-time employees as of December 31, 2001 compared to 219
full-time employees as of December 31, 2000.
Earnings before interest, taxes, depreciation and amortization
(EBITDA)
Our EBITDA increased by $2.3 million, or 2%, to $118.8 million for the year
ended December 31, 2001 from $116.5 million in 2000. Excluding the $19.7 million
one-time exceptional contract termination payment received in the third quarter
2000, EBITDA increased by $22.0 million, or 23%. The increase in EBITDA was
largely attributable to increased revenues in 2001 offset in part by the planned
expansion of marketing and support staff and overall build up of the corporate
and terrestrial infrastructure required to fully exploit the unutilized capacity
of our existing satellites.
24 New Skies Satellites N.V. Annual Report 2002
<page>
As a percentage of revenues, EBITDA decreased to 57% for the year ended December
31, 2001 from 59% for the year ended December 31, 2000. Excluding the one-time
termination payment, EBITDA as a percentage of revenues improved 3% from 54%.
EBITDA is not presented as an alternative measure of operating results or cash
flow from operations, as determined in accordance with generally accepted
accounting principles in the U.S. We use EBITDA as a measurement of our
financial results. New Skies believes EBITDA is a measure of performance used by
some investors, equity analysts and others to make informed investment
decisions. EBITDA as presented herein may not be comparable to similarly titled
measures reported by other companies. (See Table 2 '- Reconciliation of EBITDA
to net (loss) income').
Depreciation and amortization
Our depreciation and amortization expense increased $5.4 million, or 8%, to
$75.3 million for the year ended December 31, 2001 from $69.9 million for 2000.
This increase was due to the increase in the depreciable assets as a result of
the completion of the construction of our satellite operations center in The
Hague and our Washington D.C. mediaport and the full year effect of amortization
of goodwill relating to the acquisition of New Skies Networks Pty Ltd. on March
31, 2000.
Interest expense (income) and other, net
Net interest income increased $6.5 million, or 254%, to $9.0 million for the
year ended December 31, 2001 from net interest income of $2.5 million in 2000.
The increase in the overall interest income was primarily due to the investment
of unexpended proceeds arising from our initial public offering completed in
October 2000 and reimbursement of $1.8 million of KTV project management costs
as part of an arbitration judgement.
Income tax expense
Our income tax expense increased $1.9 million, or 11%, to $19.4 million for the
year ended December 31, 2001, from $17.5 million in 2000. The increase was due
primarily to the increase in our taxable income.
Liquidity and capital resources
Our liquidity requirements arise principally from the need to:
o fund capital expenditures for the construction and launch of new satellites;
o fund working capital requirements;
o expand our business organically; and
o finance any acquisitions we may make.
Liquidity
As of December 31, 2002, our principal sources of funds were cash flows from
operating activities and amounts available under a $300 million unsecured
revolving credit facility. At December 31, 2002, we had drawn down $10 million
on our $300 million credit facility, with $290 million remaining available. Net
cash provided by operating activities totaled $112.0 million in 2002, $130.7
million in 2001 and $117.9 million in 2000. We had cash and cash equivalents of
approximately $8.3 million as of December 31, 2002.
We intend to use our $300 million facility for capital expenditures,
acquisitions and general corporate purposes. We currently can borrow up to $290
million under this facility, although this maximum amount will be reduced to
$200 million on December 31, 2003 and further reduced to $100 million on June
30, 2004. The facility must be repaid in full by December 31, 2004. The interest
rate on borrowings will vary with LIBOR or EURIBOR and the applicable margin,
which will vary with the amount of our indebtedness as a proportion of our
EBITDA. The facility also contains customary events of default and financial
covenants that relate to our business and regulations that affect us.
In November 2002, we launched a share buyback initiative to repurchase a total
of 13 million shares as a way to provide additional liquidity to our
shareholders. As of December 31, 2002, 5,194,030 shares had been repurchased at
a cost of $19.3 million. The acquired shares are recorded as 'Treasury Stock' as
a reduction of Shareholders' Equity.
As our business is generally not seasonal, we have little need for short-term
borrowings to finance normal operations.
As of December 31, 2002, we had approximately $39.1 million of trade receivables
outstanding. Pursuant to its policy, INTELSAT sold capacity with credit terms
that included making payments in arrears. Approximately 52% of trade receivables
at the end of 2002 reflect credit terms monthly or quarterly in arrears. New
service agreements generally require payment monthly in advance.
Our cost of satellite construction includes an element of deferred consideration
to the satellite manufacturers called 'satellite performance incentives'. We are
contractually obligated to make these payments, representing up to 8% of the
overall contract price of our existing satellites, over the minimum,
contractually obligated, orbital design lives of the satellites so long as those
satellites continue to meet contractual specifications. We capitalize the
present value of these payments as part of the cost of constructing these
satellites and record a corresponding liability to the satellite manufacturers.
This obligation is then reduced as the satellite performance incentive payments
are made.
We believe that our cash flows from operations, our cash and cash equivalents
and funds available under our $300 million credit facility will provide us with
sufficient liquidity to meet our currently anticipated future financial
obligations, committed capital expenditures and other needs through the end of
2003. Nevertheless, we plan to carefully evaluate opportunities to expand our
operations. If capital investments exceed expected levels, we may seek
additional financing.
Capital expenditures and investments
Cash used in investing activities, primarily representing capital expenditures
for satellite construction, launch contracts, launch insurance and other
property, was mainly funded using cash flow from operations and, to the extent
necessary,
Annual Report 2002 New Skies Satellites N.V. 25
<page>
Operating and financial review and prospects
borrowings under our credit facility. Net payments for investing activities
totaled $231.4 million in 2002, $222.7 million in 2001 and $148.9 million in
2000. We signed a contract for a new satellite, NSS-7, with Lockheed Martin in
1999, which was launched in April 2002. We signed a contract for another
satellite, NSS-6, with Lockheed Martin in 2000, which was launched in December
2002. We also signed a contract for a third satellite, NSS-8, with Boeing
Satellite Systems in March 2001. We recently amended that contract,
reconfiguring the satellite for deployment for service in an established slot in
the Indian Ocean Region. We anticipate that NSS-8 will enter commercial service
in the first half of 2005.
We currently anticipate that our capital expenditures for 2003 will be
approximately $65 to $85 million, to be financed with a combination of
borrowings under our $300 million facility and operating cash flow. We expect
that these expenditures will consist primarily of:
o payments with respect to the final acceptance of the NSS-6 satellite and
construction and launch contract for NSS-8;
o payments made to acquire and upgrade ground station facilities; and
o costs associated with the expansions of our operations.
As part of our operational and strategic plan, we plan to launch replacement
satellites when existing satellites near the end of their commercial lives. We
will also explore the possibility of adding additional satellites to our fleet
and will evaluate strategic opportunities such as joint ventures and
acquisitions. While we expect our fleet to grow over time, we will enter into
procurement contracts for new satellites only where we have a demonstrated need
for the additional capacity and a sound business case for the particular
satellite. We regularly study the demand for satellite services in various
regions and for different applications in order to keep abreast of
opportunities. We are committed to a long-term growth strategy of enhancing our
satellite fleet, and expect that additional deployments will be the product of
careful market studies, design taking advantage of technological developments,
and intelligent commitment of our capital resources.
Table 3 below summarizes our contractual obligations and commercial commitments
as of December 31, 2002.
Table 3 Contractual obligations
Payments due by period
--------------------------------------------------------------
Less than
Total 1 year 1-3 years 4-5 years After 5 years
(In thousands of U.S. dollars) $ $ $ $ $
- ------------------------------ ------- ------ ------ ------ -------------
Short-term debt 10,000 10,000 - - -
Long-term debt - - - - -
Capital lease obligations - - - - -
Operating leases 6,088 1,395 2,008 961 1,724
Unconditional purchase
obligations 27,377 13,643 10,149 2,014 1,571
Conditional purchase
obligations 86,196 43,988 42,208 - -
(In-progress satellite
procurement programs)
Conditional payment
obligations 40,517 5,756 11,538 7,673 15,550
(In-orbit satellite performance
incentives)
Contingent conditional
payment obligations
(In-progress satellite performance
incentives) 39,952 1,672 6,659 6,659 24,962
- -----------------------------------------------------------------------------------------------------------
Total 210,130 76,454 72,562 17,307 43,807
- -----------------------------------------------------------------------------------------------------------
Taxation
We are currently in discussions with the Dutch tax authorities to determine the
tax basis of the assets contributed to us by INTELSAT. While we have not agreed
the final determination of the tax basis of these assets with those authorities,
we have made a preliminary valuation of these assets. The difference between the
book value of the assets on November 30, 1998 and the estimated initial tax
basis of the assets of $750 million gave rise to a deferred tax asset, which
approximated $15.6 million at December 1, 1998. We believe that it is more
likely than not that the results of future operations will generate sufficient
taxable income to realize this deferred tax asset. Application of the deferred
tax asset will reduce our annual tax payments by approximately $1.3 million per
year for approximately the next 12 years, based on the average lives of our
current satellites. Should the tax authorities agree to a different initial
valuation of the assets as of November 30, 1998, then 34.5% of the difference
between that amount and $750 million would be adjusted to this deferred tax
asset provided that recovery is more likely than not.
Certain countries within which we operate have sought to impose withholding
taxes or income taxes on payments from customers in those countries,
notwithstanding the existence of tax treaties that do not permit the imposition
of such taxes. We use available legal means to contest such taxation and in
addition, in many but not all such cases, we also have the right under contracts
to pass withholding taxes on to our customers or to other third parties.
Currency and exchange rates
All of our major capital expenditures and substantially all of our revenues and
operating expenses are denominated in U.S. dollars. Accordingly, we have adopted
the U.S. dollar as our functional currency. Transactions in other currencies are
26 New Skies Satellites N.V. Annual Report 2002
<page>
translated into U.S. dollars using the rates that were in effect at
the transaction date. Since all of our major inflows and outflows
are denominated in U.S. dollars, we are not exposed to significant
foreign currency exchange risk.
Disclosures about market risk
We are exposed to market risks relating to interest rate changes
from time to time. To the extent that we make significant
borrowings under our $300 million facility, we will evaluate the
appropriateness of using various hedging instruments. We do not
enter into derivatives or other financial instruments for trading,
hedging foreign currency exposure or speculative purposes.
Dutch GAAP reconciliation matters
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America and
do not differ in any material respect from those which would have
been prepared if we had used accounting principles generally
accepted in The Netherlands other than the accounting for goodwill.
Under Dutch GAAP goodwill continues to be amortized. However, given
that New Skies Networks Pty Limited was impaired both under US GAAP
and Dutch GAAP, our result for 2002 was the same under both
accounting methods. Under Dutch law, we prepare annual financial
statements in accordance with Dutch accounting principles and file
those statements with the Trade Register of the Chamber of Commerce
and Industry in The Hague. These accounts are available for
inspection at our executive offices.
Recently issued accounting standards
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 establishes
accounting standards for the recognition and measurement of legal obligations
associated with the retirement of tangible long-lived assets and requires
recognition of a liability for an asset retirement obligation in the period in
which it is incurred. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after June 15, 2002. We
do not anticipate that the adoption of SFAS No. 143 will have a material impact
on our consolidated financial statements.
As of January 1, 2002 we adopted SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement defines the accounting and
reporting for the impairment and disposal of long-lived assets and is effective
on January 1, 2002. Adopting SFAS No. 144 did not have a material impact on our
consolidated financial statements.
As of January 1, 2002, we adopted SFAS No. 145, Rescission of SFAS No. 4, 44,
64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 4, which was
amended by SFAS No. 64, required all gains and losses from the extinguishment of
debt to be aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. As a result, the criteria in Opinion 30 will now
be used to classify those gains and losses. The provisions of this statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2002. The adoption of SFAS No. 145 did not have a material impact
on our consolidated financial statements.
As of January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible
Assets. This Standard eliminates goodwill amortization from the Consolidated
Statement of Operations and requires an evaluation of goodwill for impairment
upon adoption of this Standard, as well as subsequent evaluations on an annual
basis, and more frequently if circumstances indicate a possible impairment. Upon
adoption of SFAS No. 142, we performed a transitional impairment test on the
goodwill resulting from the purchase of New Skies Networks Pty Limited. As a
result of this impairment test, an impairment charge of $23.4 million was
recorded, which is classified as a cumulative effect of a change in accounting
principle. Changes in the carrying amount of goodwill are reflected in Table 4.
Table 4 Changes in the carrying amount of goodwill
- ----------------------------------------------------------------------------------------------------------
(In thousands of U.S. dollars) $
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 26,135
Amortization (2,760)
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 23,375
Impairment loss (23,375)
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 -
- ----------------------------------------------------------------------------------------------------------
Table 5 Net (loss) income and earnings per share as adjusted
for goodwill amortization
- ----------------------------------------------------------------------------------------------------------
2002 2001 2000
(In thousands of U.S. dollars, except per share amounts) $ $ $
- ----------------------------------------------------------------------------------------------------------
Net (loss) income, as reported (4,645) 33,068 31,674
Add: Goodwill amortization - 2,760 1,494
- ----------------------------------------------------------------------------------------------------------
Adjusted net (loss) income (4,645) 35,828 33,168
- ----------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share, as reported (0.04) 0.25 0.29
Add: Goodwill amortization - 0.02 0.02
- ----------------------------------------------------------------------------------------------------------
Adjusted basic and diluted earnings per share (0.04) 0.27 0.31
- ----------------------------------------------------------------------------------------------------------
Annual Report 2002 New Skies Satellites N.V. 27
<page>
Operating and financial review and prospects
The reconciliation of reported net (loss) income and earnings per share to net
(loss) income and earnings per share for the years ended December 31, 2002, 2001
and 2000, adjusted to eliminate the effect of goodwill amortization in 2001 and
2000, is reflected in Table 5 on the previous page.
Upon adoption of SFAS No. 142, the transition provisions of SFAS No. 141,
Business Combinations, also became effective. These transition provisions
specify criteria for determining whether an acquired intangible asset should be
recognized separately from goodwill. Adopting SFAS No. 141 did not have a
material impact on our consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement defines the accounting and reporting
for costs associated with exit or disposal activities and is effective for exit
or disposal activities that are initiated after December 31, 2002. We do not
anticipate that the adoption of SFAS No. 146 will have a material impact on our
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 establishes accounting
standards for the transition from accounting for stock-based compensation to
employees under the intrinsic value method under APB No. 25, Accounting for
Stock Issued to Employees to the fair value based method as defined by SFAS No.
123, Accounting for Stock-Based Compensation. The statement provides three
alternatives of transition: a prospective method, a modified prospective method,
and a retroactive restatement method. We adopted the fair value method as of
January 2003 and will transition using the prospective method provided by SFAS
No. 148. Under the prospective method, we will apply the fair-value based method
of accounting for stock options, recognizing expense for awards granted after
January 1, 2003.
Several new Dutch accounting guidelines became effective January 1, 2002.
Generally, these guidelines further align Dutch accounting standards with
international accounting standards. The new guidelines did not have a material
impact on our Dutch GAAP financial statements or the reconciliation between
United States and Dutch GAAP.
28 New Skies Satellites N.V. Annual Report 2002
<page>
Report of the Supervisory Board
We are pleased to present the statutory accounts of New Skies Satellites N.V.
for the fiscal year ended December 31, 2002, as prepared by the Board of
Management, for adoption by shareholders. These accounts, which are included in
this annual report, have been audited by Deloitte & Touche, who have rendered an
unqualified report on those accounts. The Supervisory Board has adopted these
financial statements in accordance with article 28.5 of the Company's Articles
of Association and has approved the allocation of profit (loss) to reserves
pursuant to article 29.7 of such Articles. We recommend that the shareholders
approve these financial statements at the next Annual General Meeting in
accordance with the proposal of the Board of Management.
The Supervisory Board met four times during 2002. Topics of discussion at these
regularly scheduled meetings included the Company's budget and its financial and
operational performance, its general strategy and business plan, significant
capital expenditure initiatives, the Company's satellite deployment strategy,
possible strategic alliances and acquisitions, the share repurchase program and
other possible methods of returning value to shareholders, compensation and
related policies and plans, corporate governance and controls (both generally
and in light of the Sarbanes-Oxley legislation in the United States), the risks
associated with the Company, and the conduct of the audit and the Company's
adoption of new accounting standards. In all of these areas, the Board focused
particular attention on developing sound strategies for increasing shareholder
value for the benefit of the Company, its shareholders, and its other
stakeholders. The Supervisory Board has three standing committees which
generally also hold session at each regularly scheduled meeting of the
Supervisory Board.
These committees also hold special sessions as and when they determine
appropriate. The Audit and Finance Committee supervises the quality of external
financial reports as well as compliance with rules and the control of risks. The
Audit and Finance Committee also oversees the audit, pre-approves all audit and
permitted non-audit services to be performed by the independent auditor, and
plays a central role in appointing, determining the compensation of,
co-ordinating communications with, and assessing the performance of the
independent auditor. In addition, it reviews the Company's financial condition,
financial plans, proposed capital expenditures, and key financial policies. The
Management Compensation and Development Committee determines remuneration and
compensation matters for the Company's executive management and supervises the
policies regarding compensation, remuneration, and benefit plans for the
remainder of the Company. In connection with this function, the Committee
administers the Company's stock option and restricted stock plans. The Committee
also oversees succession planning and related matters. The Corporation
Governance Committee oversees the Board's processes and procedures, including
its agendas, calendar, the orientation of new directors, and the composition of
the Board's committees; reviews and recommends the compensation of Supervisory
directors; makes recommendations regarding nominations to the Supervisory Board
and Board of Management; and periodically assesses the size, composition, and
performance of the Board.
The decision-making process in the Supervisory Board is on a collective basis.
The Supervisory Board operates in accordance with internal rules and regulations
that govern the Supervisory Board's constitution, profile, responsibilities,
procedures, co-operation among members and relationship with the Company and
shareholders. The rules specify a fixed schedule of Combined Meetings, which
serve as the basis for formal contacts between the Supervisory Board and the
Board of Management. In addition, regular informal contact is maintained and
additional meetings are convened when necessary.
The Board of Management also informs the Supervisory Board about the course of
the business through quarterly reports and regular informal contact. No members
of Management serve on the Supervisory Board.
In addition, during 2002 the Supervisory Board periodically met in executive
session, without Members of the Board of Management present, to discuss its own
functioning, its relations with shareholders and Board of Management, strategic
issues, and issues regarding compensation and succession.
At the 2002 Annual General Meeting of shareholders, the shareholders elected Dr.
Ashok S. Ganguly to the Supervisory Board and re-elected the eight members
currently serving on the Supervisory Board who had been nominated for
re-election.
We are grateful for the commitment and accomplishments that the Board of
Management and employees of New Skies Satellites have achieved in what has been
a difficult year for the industry as a whole. Their invaluable dedication and
contribution is reflected in the success of the Company in 2002.
The Supervisory Board,
T.M. Seddon N. Kroes
S.K. Fung G.D. Mueller
A.S. Ganguly L. Ruspantini
J.W. Kolb C. Seguin
D. Wear
Annual Report 2002 New Skies Satellites N.V. 29
<page>
Information regarding the members of the Supervisory Board
Mr. Seddon, 62 years of age, has served as Chairman of the Supervisory Board
since May 1998. He is a citizen of the United Kingdom. Mr. Seddon currently is
retired. Prior to his retirement he served as Director of Projects in Europe and
also as the Malaysian Representative Director for Cable and Wireless. Prior to
that, Mr. Seddon served as chief executive officer of Asia Satellite
Telecommunications Company Ltd. from 1988 to 1993. Mr. Seddon is a Non-Executive
Director of Multitone Electronics plc, a specialist mobile telecommunications
product provider.
Mr. Fung, 56 years of age, has served as a supervisory Director since May 1999.
He is a citizen of the United States of America. Mr. Fung currently is Managing
Director, North Asia of ACNielsen (a VNU N.V. company), a global provider of
market information, research and analysis. Previously, he was a Director of
Media Genesis Limited from 2000 to 2002. From 1999 to 2000, Mr. Fung was
Managing Director of Sage Capital Management and from 1995 to 1999 he was
President of NBC Asia and established the Asian operations of NBC. Mr. Fung also
served as the Chairman of the Cable and Satellite Broadcasting Association of
Asia (CASBAA) from 1997 to 1999. From 1987 to 1995, he was General Manager of
TVB International, a leading broadcaster in Hong Kong.
Dr. Ganguly, 67 years of age, has served as a Supervisory Director since May
2002. He is a citizen of India. Dr. Ganguly currently serves as the Chairman of
ICICIOne Source and as a Director on the Central Board of the Reserve Bank of
India, to which post he was appointed in November 2000. In addition, Dr. Ganguly
heads his own company, Technology Network India Pvt Ltd., which focuses on
industrial research & development and supply chain management. Dr. Ganguly's
principal professional career spanned 35 years with Unilever, which culminated
with his service as a member of the Board of Directors of Unilever N.V. from
1990 through 1997 with responsibility for worldwide research and technology. Dr.
Ganguly also currently serves as a Non-Executive Director of British Airways
plc, Mahindra & Mahindra and WIPRO Ltd. During his career, Dr. Ganguly has
served several public bodies including as a member of the Science Advisory
Council to the Prime Minister of India (1985-89) and the UK Advisory Board of
Research Councils. His honors include, among others, the Indian award of Padma
Bhushan and being named an Honorary Professor by the Chinese Academy of Science,
Shanghai.
Mr. Kolb, 67 years of age, has served as a Supervisory Director since May 1998.
He is a citizen of the United States of America. Until his retirement in May
1998, Mr. Kolb was Vice Chairman of Deloitte & Touche LLP, an international
public accounting and consulting firm. He joined the accounting firm in 1957 and
served as Managing Partner of the Chicago office, Managing Partner of
Professional Services, and Chief Financial and Administrative Officer, as well
as Vice Chairman. Mr. Kolb has been a member of the Board of Directors of
Gaylord Container Corporation, a manufacturer and distributor of corrugated
containers, containerboard and other paper products, from August 1998 to May
2002, and of Mid America Group, a commercial and residential real estate
development and management company, from August 2002.
Mrs. Kroes, 61 years of age, has served as a Supervisory Director since May
1999. She is a citizen of The Netherlands. From 1991 to 2000, Mrs. Kroes served
as President of Nijenrode University in The Netherlands. Prior to that, she
served as an advisor to the European Transport Commissioner from 1989 to 1991
and as Cabinet Minister for Transport and Public Works in The Netherlands from
1982 to 1989. She also served as Deputy Minister for Transport and Public Works
in The Netherlands from 1977 to 1981. Mrs. Kroes is a Member of the boards of
the following companies: Port Support International B.V. (Chairman), Ballast
Nedam N.V., P & O Nedloyd, ProLogis Corio N.V. (formerly VIB N.V.), Lucent
Technologies B.V. and MM02 (Non-executive board).
Mr. Mueller, 66 years of age, has served as a supervisory Director since May
2001. He is a citizen of Germany and the United States of America residing in
the United States of America. Mr. Mueller is currently retired. Prior to his
retirement, Mr. Mueller served as Executive Vice President and Chief
Administrative and Financial Officer of Bayer Corporation, the U.S. wholly-owned
subsidiary of Bayer AG, Germany. He is currently a member of the Board of
Directors of Schott Corporation, a U.S. wholly-owned subsidiary of the German
company Schott Glas. Mr. Mueller is also a trustee of the Robert Morris
University, a member of the Board of Directors of the Western Pennsylvania
Hospital and Chairman of CDS International (formerly Carl Duisberg Society), a
non-profit organization engaged in the implementation of exchange programs for
young professionals primarily between the United States and Europe.
Mr. Ruspantini, 63 years of age, has served as a Supervisory Director since May
1998. He is a citizen of Italy. Mr. Ruspantini is presently retired after more
than 30 years of experience in satellite communications. Prior to his
retirement, he served as Assistant to the Chief Executive Officer of Telespazio,
a fully owned subsidiary of Telecom Italia,
30 New Skies Satellites N.V. Annual Report 2002
<page>
where he was responsible for the definition of the Company's multi-media program
strategy and implementation. Prior to 1997, Mr. Ruspantini served as Director of
the Broadcast Services division of Telespazio and oversaw the production of
Television, Business Television and Radio Services to the company's customers in
Italy and abroad.
Mr. Seguin, 53 years of age, has served as a Supervisory Director since May
1998. He is a citizen of Canada. Mr. Seguin is currently employed by the Caisse
de depot et placement du Quebec where he was until recently President of CDP
Capital - Private Equity. Previously, he served as Executive Vice-President and
Chief Financial Officer of Teleglobe Inc. from October 1992 until 2000.
Immediately prior to that, he was the Deputy Minister of Finance for the
Province of Quebec, to which post he was appointed in 1987.
Mr. Wear, 56 years of age, has served as a Supervisory Director since May 2001.
He is a citizen of the United States of America. In 2001 Mr. Wear started his
own business, Wear Multimedia International. Mr. Wear has spent the majority of
his career in the media, television and telecommunications industries, working
in legal, regulatory, commercial, business and senior executive positions. From
1997 to 2001 Mr. Wear was the President, International Policy and President,
International Networks at Discovery Communications, Inc. From 1993 to 1997, Mr.
Wear was Vice President and General Counsel of INTELSAT. Mr. Wear is a member of
the Board of Directors of the International Council of the National Academy of
Television Arts and Sciences in the United States. He is also a member of
several advisory panels, committees and councils dealing with
telecommunications-and television-related matters.
Information regarding the compensation and stock ownership of the Supervisory
Board
Each of our Supervisory Directors receives a quarterly fee. Additionally, each
Supervisory Director is paid a stipend in connection with attendance at, and
travel to and from, a Supervisory Board meeting or a Supervisory Board committee
meeting, and reimbursement in connection with other expenses. We currently have
no loans outstanding to members of our Supervisory Board.
Several of our Supervisory Directors own shares in the Company. As of 28
February 2003, they own an aggregate of 10,600 New Skies ordinary shares, which
represents less than one-hundredth of one percent of the issued and outstanding
shares of the Company. In addition, in the past shareholders have approved
annual stock option grants and restricted stock grants to the members of our
Supervisory Board. The vesting period for these options is three years and the
options have a maximum term of ten years. The vesting period for restricted
stock is three years.
Please refer to the notes to the financial statements contained in this Annual
Report for further information regarding compensation and stock options of the
Supervisory Board.
Annual Report 2002 New Skies Satellites N.V. 31
<page>
Responsibility for financial statements
The accompanying financial statements have been prepared under management's
direction using generally accepted accounting principles and, where appropriate,
reflect estimates based on management's best judgement. Management is
responsible for the integrity and accuracy of these financial statements.
To provide reasonable assurance that the Company's records accurately reflect
the underlying transactions, management maintains a system of internal controls,
which includes such safeguards as segregation of responsibilities in
organizational arrangements, the selection and training of qualified personnel
and the establishment of policies and procedures. The adequacy and effectiveness
of these controls are reviewed by Deloitte & Touche, the Company's independent
auditors in their assessment of auditing procedures for the purpose of
expressing an opinion on the Company's financial statements.
The independent auditors have audited the accompanying financial statements, and
their report in included therein. The auditors' report expresses an opinion that
the financial statements present fairly, in all material respects, the Company's
financial position, operating results and cash flows using accounting principles
generally accepted in the United States of America.
The Audit Committee of the Supervisory Board, which consists solely of directors
who are not employees of the Company, meets regularly with the independent
auditors, and representatives of management to establish that all are
appropriately discharging their responsibilities. In addition, the independent
auditors have direct access to the Audit Committee to discuss the results of
their audits, the adequacy of the Company's internal controls and the quality of
its financial reporting.
/s/ Daniel S. Goldberg
Daniel S. Goldberg
Chief Executive Officer
/s/ Andrew M. Browne
Andrew M. Browne
Chief Financial Officer
32 New Skies Satellites N.V. Annual Report 2002
<page>
Index to financial statements
Consolidated financial statements
34 Independent auditors' report
35 Consolidated balance sheets as of December 31, 2002 and 2001
36 Consolidated statements of operations for the
years ended December 31, 2002, 2001 and 2000
37 Consolidated statements of shareholders' equity for
the years ended December 31, 2002, 2001 and 2000
38 Consolidated statements of cash flows for the years ended
December 31, 2002, 2001 and 2000
39 Notes to consolidated financial statements
Statutory financial statements
50 Introduction to statutory financial statements
51 Company balance sheets as of December 31, 2002 and 2001
52 Company statements of operations for the years
ended December 31, 2002 and 2001
53 Notes to statutory financial statements
58 Additional information
59 Independent auditors' opinion
Annual Report 2002 New Skies Satellites N.V. 33
<page>
Independent auditors' report
To the Supervisory Board of Directors and Shareholders of New Skies
Satellites N.V:
We have audited the consolidated balance sheets of New Skies Satellites N.V. and
subsidiaries (the 'Company') as of December 31, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of New Skies Satellites N.V. and subsidiaries
as of December 31, 2002 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for goodwill in 2002.
Deloitte & Touche Accountants
Amsterdam, The Netherlands
January 24, 2003
34 New Skies Satellites N.V. Annual Report 2002
<page>
New Skies Satellites N.V. and subsidiaries
Consolidated balance sheets
(In thousands of U.S. dollars, except share data)
December 31,
2002 2001
$ $
- --------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 8,329 138,268
Trade receivables (including trade receivables
from shareholders totaling $22,100 in 2002
and $25,321 in 2001 less: allowance for doubtful
accounts of $6,171 for 2002 and $4,948 for 2001) 39,109 41,981
Prepaid expenses and other assets 10,885 9,139
- --------------------------------------------------------------------------------------------------------
Total current assets 58,323 189,388
Communications, plant and other property, net (Note 4) 1,058,119 886,244
Deferred tax asset (Note 6) 10,087 11,441
Goodwill, net and other assets (Note 2) 1,226 22,730
- --------------------------------------------------------------------------------------------------------
Total 1,127,755 1,109,803
- --------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Short-term debt 10,000 -
Accounts payable and accrued liabilities 18,396 20,350
Income taxes payable 29,124 22,357
Deferred revenues 8,994 8,848
Satellite performance incentives 6,218 4,610
- --------------------------------------------------------------------------------------------------------
Total current liabilities 72,732 56,165
Deferred revenues and other liabilities 8,351 3,925
Satellite performance incentives 27,639 12,529
- --------------------------------------------------------------------------------------------------------
Total liabilities 108,722 72,619
- --------------------------------------------------------------------------------------------------------
Shareholders' equity (Note 8)
Governance preference shares (227,530,000 shares authorized,
par value (euro)0.05; none issued) - -
Cumulative preferred financing shares (22,753,000 shares
authorized, par value (euro)0.05; none issued) - -
Ordinary shares (204,777,000 shares authorized,
par value (euro)0.05; 130,570,241 shares issued) 6,026 6,026
Additional paid-in capital 977,506 976,168
Retained earnings 56,019 60,664
Unearned compensation (Note 10) (685) (352)
Accumulated other comprehensive loss (492) (5,322)
Treasury stock, at cost (5,194,030 ordinary shares) (19,341) -
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,019,033 1,037,184
- --------------------------------------------------------------------------------------------------------
Total 1,127,755 1,109,803
- --------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
Annual Report 2002 New Skies Satellites N.V. 35
<page>
New Skies Satellites N.V. and subsidiaries
Consolidated statements of operations
(In thousands of U.S. dollars, except per share amounts)
Years ended December 31,
2002 2001 2000
$ $ $
- ------------------------------------------------------------------------------------------
Revenues
(Including services to shareholders totaling $ 108,346
in 2002, $101,916 in 2001 and $117,999 in 2000) (Note 9) 200,524 209,028 198,294
- ------------------------------------------------------------------------------------------
Operating expenses:
Cost of operations (including services received
from shareholders totaling $12,031 in 2000) 50,714 51,533 47,022
Selling, general and administrative 39,490 38,733 34,765
Depreciation and amortization 80,574 75,338 69,870
- ------------------------------------------------------------------------------------------
Total operating expenses 170,778 165,604 151,657
- ------------------------------------------------------------------------------------------
Operating income 29,746 43,424 46,637
Interest expense (income) and other, net 510 (9,008) (2,543)
- ------------------------------------------------------------------------------------------
Income before income tax expense 29,236 52,432 49,180
Income tax expense (Note 6) (10,506) (19,364) (17,506)
- ------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting 18,730 33,068 31,674
principle
Cumulative effect of change in accounting principle,
relating to goodwill, net of taxes (23,375) - -
- ------------------------------------------------------------------------------------------
Net (Loss) Income (4,645) 33,068 31,674
- ------------------------------------------------------------------------------------------
Basic and diluted earnings per share:
Income before cumulative effect of change in accounting 0.14 0.25 0.29
principle
Cumulative effect of change in accounting principle (0.18) - -
- ------------------------------------------------------------------------------------------
Basic and diluted earnings per share (0.04) 0.25 0.29
- ------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
36 New Skies Satellites N.V. Annual Report 2002
<page>
New Skies Satellites N.V. and subsidiaries
Consolidated statements of shareholders' equity
Years ended December 31, 2002, 2001 and 2000
(In thousands of U.S. dollars, except share data)
Accumulated
Number of Additional Retained other Treasury Total
ordinary Ordinary paid-in earnings Unearned comprehensive stock shareholders'
shares shares capital (deficit) compensation loss (at cost) equity
(in thousands) $ $ $ $ $ $ $
------------- -------- ---------- --------- ------------ ------------- --------- --------------
Balance, December 31, 1999 100,285 5,110 718,542 (4,078) (413) - - 719,161
Ordinary shares issued 30,276 1,329 254,531 - - - - 255,860
Adjustment in par value of
ordinary shares (Note 8) - (413) 413 - - - - -
Unearned stock compensation - - 2,691 - (2,691) - - -
Amortization of unearned
stock compensation - - - - 1,757 - - 1,757
Cumulative translation - - - - - (2,895) - (2,895)
adjustment
Net income - - - 31,674 - - - 31,674
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 130,561 6,026 976,177 27,596 (1,347) (2,895) - 1,005,557
Stock options exercised 9 - 67 - - - - 67
(Note 10)
Stock option forfeiture - - (23) - 23 - - -
Amortization of unearned
stock compensation - - - - 972 - - 972
Cumulative translation - - - - - (2,427) - (2,427)
adjustment
Net income - - - 33,068 - - - 33,068
Other - - (53) - - - - (53)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 130,570 6,026 976,168 60,664 (352) (5,322) - 1,037,184
Unearned stock compensation - - 1,338 - (1,338) - - -
Amortization of unearned
stock compensation - - - - 1,005 - - 1,005
Purchase of treasury stock - - - - - - (19,341) (19,341)
Cumulative translation - - - - - 4,830 - 4,830
adjustment
Net loss - - - (4,645) - - - (4,645)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 130,570 6,026 977,506 56,019 (685) (492) (19,341) 1,019,033
- ----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
Annual Report 2002 New Skies Satellites N.V. 37
<page>
New Skies Satellites N.V. and subsidiaries
Consolidated statements of cash flows
(In thousands of U.S. dollars)
Years ended December 31,
2002 2001 2000
$ $ $
- -----------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income (4,645) 33,068 31,674
Adjustments for non-cash items:
Depreciation and amortization 80,574 75,338 69,870
Cumulative effect of change in accounting principle 23,375 - -
Deferred taxes 1,354 1,382 4,943
Amortization of unearned stock compensation 1,005 972 1,757
Changes in operating assets and liabilities:
Trade receivables 2,981 4,940 (7,932)
Prepaid expenses and other (1,727) (1,855) 800
Accounts payable and accrued liabilities (2,096) (321) 9,291
Deferred revenues 4,501 (129) 2,288
Income taxes payable 6,668 17,296 5,170
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 111,990 130,691 117,861
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for communications, plant and other property (231,400) (274,167) (118,480)
Reimbursement of KTV constructions costs - 51,452 -
Acquisition of business - - (30,462)
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (231,400) (222,715) (148,942)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Ordinary shares issued - - 255,860
Stock options exercised - 67 -
Proceeds of note payable and short-term borrowings 10,000 - 20,000
Purchases of treasury stock (19,341) - -
Repayment of note payable and short-term borrowings - - (42,000)
Satellite performance incentives and other (1,297) (2,553) (3,392)
- -----------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (10,638) (2,486) 230,468
- -----------------------------------------------------------------------------------------
Effect of exchange rate differences 109 (120) (551)
- -----------------------------------------------------------------------------------------
Net change in cash and cash equivalents (129,939) (94,630) 198,836
Cash and cash equivalents, beginning of year 138,268 232,898 34,062
- -----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 8,329 138,268 232,898
- -----------------------------------------------------------------------------------------
See notes to consolidated financial statements.
Cash payments for interest (net of amounts capitalized) were $0.9 million for
the year ended December 31, 2000. Income taxes paid amounted to $2.1 million and
$0.8 million for the years ended December 31, 2002 and 2001, respectively.
38 New Skies Satellites N.V. Annual Report 2002
<page>
New Skies Satellites N.V. and subsidiaries
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
1. Basis of presentation
Business description
New Skies Satellites N.V. (the 'Company') is an independent, global satellite
communications company. The Company owns and operates six satellites in
geosynchronous orbit that provide capacity to various entities throughout the
world for the global public telecommunications, broadcasting, Internet and
corporate business network market sectors. During 2002, two satellites were
launched, the NSS-6 and NSS-7, and the NSS-K was retired. As the NSS-6 was
launched in the fourth quarter of 2002 it is expected to enter commercial
service in the first quarter of 2003. A further satellite, the NSS-8, is
currently under construction, with a projected launch date in the fourth quarter
of 2004.
Formation and asset transfer
The Company was formed on April 23, 1998 as a corporation organized under the
laws of The Netherlands, with headquarters in The Hague, through the issuance of
90 million shares of common stock to International Telecommunications Satellite
Organization ('INTELSAT') for 9.0 million Dutch Guilders (or approximately $4.6
million) to carry on the satellite communication business associated with the
satellites contributed by INTELSAT. The Company and INTELSAT then entered into a
subscription agreement (the 'Subscription Agreement'). Under the Subscription
Agreement dated November 30, 1998 INTELSAT received an additional 10 million of
the Company's shares and in exchange, the Company received certain assets
including five in-orbit satellites and assumed certain liabilities (the 'Asset
Transfer'). Immediately after the Asset Transfer, INTELSAT distributed 90% of
its shares in the Company to its investment shareholders. Following distribution
of these shares, INTELSAT held 10% of the stock through a passive, non-voting
trust and no longer controlled the Company. In February 2000, INTELSAT
distributed the remaining shares to its investment shareholders.
At the Asset Transfer, the Company and INTELSAT also entered into various other
agreements including a space segment capacity, a satellite communications
services and a transition services agreement. For the years ended December 31,
2001 and 2000, $4.1 million and $12.0 million, respectively, of operating
expenses were incurred under the terms of these agreements which have since
expired.
INTELSAT also leased from the Company space segment capacity to fulfill the
needs of certain INTELSAT contracts. During the years ended December 31, 2001
and 2000, approximately 9% and 15%, respectively, of the Company's revenues were
derived from these lease agreements. On January 16, 2002 INTELSAT assigned all
of these remaining lease agreements to the Company.
2. Summary of significant accounting policies
Functional currency
The Company's revenues, capital expenditures and substantially all operating
expenses are denominated in U.S. dollars. Accordingly, the U.S. dollar has been
adopted as the functional currency. Transactions in other currencies are
translated into U.S. dollars using rates that are in effect at the transaction
date.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned domestic and foreign subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Foreign currency translation
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at exchange rates prevailing at the balance sheet date. Revenues and costs
relating to the operations of such subsidiaries are translated at average
exchange rates during the period. Resulting translation adjustments are directly
recorded in shareholders' equity as a component of accumulated other
comprehensive loss.
Annual Report 2002 New Skies Satellites N.V. 39
<page>
New Skies Satellites N.V. and subsidiaries
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect: (1) the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and (2) the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Revenue recognition
Telecommunications revenue results from utilization charges that are recognized
as revenue on a straight-line basis over the period during which the satellite
services are provided. Deferred revenues represent the unearned balances
remaining from amounts received from customers pursuant to transponder lease
prepayment options. These amounts are recorded as revenues on a straight-line
basis over the respective lease terms.
Cash and cash equivalents
The Company considers temporary investments with original maturities of three
months or less when purchased to be cash equivalents.
Communications, plant and other property
Communications, plant and other property are carried at cost and consist
primarily of the costs of spacecraft construction and launch, including
capitalized performance payments, insurance premiums, capitalized interest, and
costs directly associated with monitoring and support of spacecraft
construction. Interest expense in the accompanying statements of operations is
net of capitalized interest of $1.6 million, $1.4 million, and $2.7 million for
the years ended December 31, 2002, 2001 and 2000, respectively.
Upon commencement of commercial operation, communications, plant and other
property are depreciated on a straight-line basis over the following estimated
useful lives (see Note 4):
Years
Spacecraft and launch costs 7-13
Communication support and other 3-7
Buildings 30
Goodwill
The excess of the purchase price over the fair market value of net assets
acquired is recorded as goodwill and is tested for impairment at least on an
annual basis. See 'Recently Issued Accounting Standards'.
Unsuccessful launches and satellite failures
In the event of an unsuccessful launch or total in-orbit satellite failure, all
unamortized costs that are not recoverable under launch or in-orbit insurance
are recorded as an operating expense.
Impairment of long-lived assets
The Company periodically reviews its long-lived assets, which are comprised
primarily of its in-service satellite fleet, to determine whether an impairment
exists. Impairment can arise from complete failure or partial failure of the
satellites as well as a change in expected cash flows. Such impairment tests are
based on a comparison of estimated undiscounted future cash flows to the
recorded value of the asset. If impairment is indicated, the asset value will be
written down to fair value based upon discounted cash flows, using an
appropriate discount rate.
Satellite performance incentives
The Company has certain contracts with its satellite manufacturers that require
the Company to make incentive payments over the orbital design life of the
satellites. The Company records the present value of such payments as a
liability and capitalizes these costs in the cost of the satellite.
40 New Skies Satellites N.V. Annual Report 2002
<page>
Income taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income taxes. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities and net operating loss carry-forwards using enacted
rates. Valuation allowances are provided against assets that are not likely to
be realized.
Net earnings (loss) per share
Basic earnings (loss) per share is computed by dividing net income (loss) by the
weighted average ordinary shares outstanding. Diluted earnings per share
reflects the potential dilution that could occur if options issued under New
Skies stock option plans were exercised.
In 2002, the weighted average number of shares outstanding was 130.3 million.
Due to the net loss in that year, approximately 307,000 incremental common
shares relating to outstanding dilutive stock options have been excluded from
the calculation of diluted earnings per share due to their anti-dilutive effect.
A summary of the weighted average number of shares and incremental shares used
in the calculation of earnings per share for 2001 and 2000 follows:
Years ended December 31,
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
Basic weighted average shares outstanding 130,569 107,407
Weighted average incremental shares 141 691
- -------------------------------------------------------------------------------
Adjusted weighted average shares outstanding 130,710 108,098
- -------------------------------------------------------------------------------
The difference in the weighted average number of shares outstanding and the
adjusted weighted average number of shares outstanding resulted in no difference
between basic and diluted earnings per share for 2001 and 2000.
Stock compensation
Statement of Financial Accounting Standards ('SFAS') No. 123, Accounting for
Stock-Based Compensation, encourages but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. For
periods through December 31, 2002 the Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the estimated fair market value of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock. Effective January 1, 2003 the Company will record
compensation cost for options and other forms of stock-based compensation issued
subsequent to that date. See Note 10.
Fair value of financial instruments
The Company's financial instruments consist of accounts receivable, accounts
payable, short-term debt and satellite performance incentives. The current
carrying amounts of such instruments are considered reasonable estimates of the
fair market value of these instruments due to the short maturity of these items
or as a result of the current market interest rates accruing on these
instruments.
Comprehensive income
Comprehensive income includes net income (loss) and translation adjustments that
were recognized directly in equity. Translation adjustments of $4.8 million,
$(2.4) million and $(2.9) million for the years ended December 31, 2002, 2001
and 2000, respectively, were incurred and consequently comprehensive income in
these years is equal to $0.2 million, $30.6 million and $28.8 million,
respectively.
Annual Report 2002 New Skies Satellites N.V. 41
<page>
New Skies Satellites N.V. and subsidiaries
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
Recently issued accounting standards
In June 2001, the Financial Accounting Standards Board ('FASB') issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 establishes
accounting standards for the recognition and measurement of legal obligations
associated with the retirement of tangible long-lived assets and requires
recognition of a liability for an asset retirement obligation in the period in
which it is incurred. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company does not anticipate that the adoption of SFAS No. 143 will have a
material impact on the consolidated financial statements.
As of January 1, 2002 the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement defines the
accounting and reporting for the impairment and disposal of long-lived assets
and is effective for the Company on January 1, 2002. Adopting SFAS No. 144 did
not have a material impact on the consolidated financial statements.
As of January 1, 2002, the Company adopted SFAS No. 145, Rescission of SFAS No.
4, 44, 64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 4,
which was amended by SFAS No. 64, required all gains and losses from the
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Opinion 30 will now be used to classify those gains and losses. The
provisions of this statement are effective for financial statements issued for
fiscal years beginning after December 15, 2002. The Company does not anticipate
that the adoption of SFAS No. 145 will have a material impact on the
consolidated financial statements.
As of January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets. This statement eliminates goodwill amortization from the
Consolidated Statement of Operations and requires an evaluation of goodwill for
impairment upon adoption of this Statement, as well as subsequent evaluations on
an annual basis, and more frequently if circumstances indicate a possible
impairment. Upon adoption of SFAS No. 142, the Company performed a transitional
impairment test on the goodwill resulting from the purchase of New Skies
Networks Pty Limited (see Note 3). As a result of this impairment test, the
Company recorded an impairment charge of $23.4 million, which is classified as a
cumulative effect of a change in accounting principle. Changes in the carrying
amount of goodwill were as follows:
(In thousands of U.S. dollars) $
- -------------------------------------------------------
Balance at December 31, 2000 26,135
Amortization (2,760)
- -------------------------------------------------------
Balance at December 31, 2001 23,375
Impairment loss (23,375)
- -------------------------------------------------------
Balance at December 31, 2002 -
- -------------------------------------------------------
The reconciliation of reported net (loss) income and earnings per share to
adjusted net (loss) income and earnings per share for the years ended December
31, 2002, 2001 and 2000 was as follows:
2002 2001 2000
(In thousands of U.S. dollars, except per share amounts) $ $ $
- ---------------------------------------------------------------------------------------------------------
Net (loss) income, as reported (4,645) 33,068 31,674
Add: Goodwill amortization - 2,760 1,494
- ---------------------------------------------------------------------------------------------------------
Adjusted Net (Loss) Income (4,645) 35,828 33,168
- ---------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share, as reported (0.04) 0.25 0.29
Add: Goodwill amortization - 0.02 0.02
- ---------------------------------------------------------------------------------------------------------
Adjusted basic and diluted earnings per share (0.04) 0.27 0.31
- ---------------------------------------------------------------------------------------------------------
42 New Skies Satellites N.V. Annual Report 2002
<page>
Upon adoption of SFAS No. 142, the transition provisions of SFAS No. 141,
Business Combinations, also became effective. These transition provisions
specify criteria for determining whether an acquired intangible asset should be
recognized separately from goodwill. Adopting SFAS No. 141 did not have a
material impact on the consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement defines the accounting and reporting
for costs associated with exit or disposal activities and is effective for exit
or disposal activities that are initiated after December 31, 2002. The Company
does not anticipate that the adoption of SFAS No. 146 will have a material
impact on the consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 establishes accounting
standards for the transition from accounting for stock-based compensation to
employees under the intrinsic value method under APB 25, Accounting for Stock
Issued to Employees to the fair value based method as defined by SFAS No. 123,
Accounting for Stock-Based Compensation. The statement provides three
alternatives of transition, a prospective method, a modified prospective method
and a retroactive restatement method. Upon adoption of the fair value method in
2003, the Company will utilize the prospective method provided by SFAS No. 148.
Presentation
Certain amounts reported in 2001 and 2000 have been reclassified to conform to
the 2002 financial statement presentation.
3. Acquisition of a business
On March 31, 2000, the Company acquired all of the outstanding shares of New
Skies Networks Pty Limited (formerly AAPT Sat-Tel Pty Limited) for cash
consideration of AUD $49.75 million ($30.5 million). New Skies Networks is a
system integrator and network service provider, operating six teleports in major
Australian cities and providing Internet access services as well as tracking,
telemetry and control services to satellite operators. The acquisition was
accounted for as a purchase business combination. The results of New Skies
Networks operations have been included with those of the Company from March 31,
2000, the date of acquisition.
The acquired assets and liabilities were valued at fair market value on the date
of acquisition. The resulting goodwill amount was $27.6 million, and was being
amortized over a period of 10 years. In implementing SFAS No.142, Goodwill and
Other Intangible Assets in 2002, the Company performed a transitional impairment
test on its goodwill. As a result of this impairment test which now requires the
primary evaluation to be performed on a discounted cash flow basis, the Company
recorded an impairment charge of $23.4 million, which is classified as a
cumulative effect of a change in accounting principle.
The unaudited consolidated results of operations on a pro forma basis as though
New Skies Networks had been acquired as of the beginning of 2000 are as follows:
$
Revenues 203,176,000
Net income 31,107,000
Earnings per share - basic and diluted 0.29
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the New Skies Networks acquisition been consummated as of the
beginning of 2000, nor are they necessarily indicative of future operating
results.
Annual Report 2002 New Skies Satellites N.V. 43
<page>
New Skies Satellites N.V. and subsidiaries
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
4. Communications, plant and other property
Communications, plant and other property consisted of the following:
December 31,
2002 2001
(In thousands of U.S. dollars) $ $
- -------------------------------------------------------------------------------
Spacecraft & launch costs 1,002,083 884,259
Construction in progress 395,976 447,816
Communication support and other 71,547 59,657
Buildings 23,736 12,330
- -------------------------------------------------------------------------------
1,493,342 1,404,062
Less: accumulated depreciation 435,223 517,818
- -------------------------------------------------------------------------------
Total 1,058,119 886,244
- -------------------------------------------------------------------------------
Construction-in-progress relates primarily to satellites under construction and
related launch services.
5. Contractual commitments
In further development and operation of the Company's global commercial
communications satellite system, significant additional expenditures are
anticipated. At December 31, 2002, the Company had a contract for the
construction, development and launch of the NSS-8 satellite, and pending final
acceptance of the NSS-6 satellite, future committed payments totaling $44.0
million and $42.2 million, for the years ending December 31, 2003 and 2004,
respectively. Additional commitments on these satellite programs ('satellite
incentives') totaling $40.0 million will fall due over the design lives of these
satellites to the extent that they continue to operate successfully throughout
this time.
The Company has recorded a liability of $33.9 million at December 31, 2002
representing the present value, at a weighted average discount rate of 5.2%, of
the remaining satellite incentive payments on the satellites which were in
service at December 31, 2002 of $5.8 million, $5.9 million, $5.7 million, $3.9
million, $3.8 million and $15.4 million for payments to be made in the years
ending December 31, 2003, 2004, 2005, 2006, 2007, and 2008 and thereafter,
respectively.
Commitments as of December 31, 2002 for future payments under operating leases
primarily relating to telecommunication infrastructure and office facilities are
as follows:
(In thousands of U.S. dollars) $
- -----------------------------------------------------
2003 15,038
2004 10,035
2005 2,122
2006 1,694
2007 1,281
2008 and thereafter 3,295
- -----------------------------------------------------
Total commitments 33,465
- -----------------------------------------------------
44 New Skies Satellites N.V. Annual Report 2002
<page>
6. Income taxes
The Company is currently in negotiations with the Dutch tax authorities to
determine the fair value (tax basis) of the assets contributed by INTELSAT.
While the final determination of the tax basis of these assets has not been
agreed, we have made a preliminary valuation of these assets. The difference
between the book and estimated tax bases of the contributed assets gives rise to
a deferred tax asset, which approximated $15.6 million at December 1, 1998, the
date of the Asset Transfer. To the extent that the final tax value of the
contributed assets differs from this estimate, a corresponding adjustment will
be made to the deferred tax asset and additional paid-in capital.
The Company's provision for income taxes consists of the following:
2002 2001 2000
(In thousands of U.S. dollars) $ $ $
- -----------------------------------------------------------------------
Current Domestic 6,953 16,032 12,444
Current Foreign 2,207 1,950 119
Deferred Domestic 1,346 1,382 4,943
- -----------------------------------------------------------------------
Total income tax expense 10,506 19,364 17,506
- -----------------------------------------------------------------------
The income tax expense is computed in the financial statements at 35.9%, 36.9%
and 35.6% for the years ended December 31, 2002, 2001 and 2000, respectively, as
compared with The Netherlands statutory rate of 34.5% for 2002 and 35% for 2001
and 2000. The Company's provision for income taxes differs from the statutory
rate by 1.4%, 1.9% and 0.6% for 2002, 2001 and 2000, respectively, due to the
permanent differences arising from certain non-deductible amounts.
Management believes that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets.
The deferred tax asset as of December 31, 2002 and 2001 consists of the tax
effect of the difference in the tax and book basis of communications, plant and
other property.
7. Financing arrangements
Available credit facility
The Company has an unsecured credit facility that provides up to $300 million in
available credit through December 31, 2004. Borrowings under the facility bear
interest at an adjustable rate, which as of December 31, 2002 is 1.9%. A
commitment fee of 0.225% is paid on the unused revolving credit amount. As of
December 31, 2002 $290 million of the facility was unused and amounts
outstanding under this facility as of December 31, 2002 totaled $10 million.
8. Change in share capital
In October 2002, the Supervisory Board authorized the purchase of up to 13
million ordinary shares. The Company purchased 5,194,030 shares in 2002 at an
average cost of $3.72 per share. The acquired shares are recorded as 'Treasury
Stock' as a reduction of Shareholders' Equity.
On June 28, 2000, the Shareholders of the Company approved a ten-for-one
ordinary share split and a change in the currency denomination and par value of
the Company's ordinary shares, from NLG 1.00 to (euro)0.05. The stock split has
been given retroactive recognition in all periods presented in the accompanying
financial statements. In addition, the Shareholders approved the increase in the
number of authorized ordinary shares to 204,777,000 with a par value of
(euro)0.05. As a result of this change, $413,000 originally classified as
ordinary shares was reclassified as additional paid-in capital.
Annual Report 2002 New Skies Satellites N.V. 45
<page>
New Skies Satellites N.V. and subsidiaries
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
In addition, on June 28, 2000, the Shareholders authorized the issuance of one
class of preferred financing shares, par value (euro)0.05 per share, with a
total authorized amount of 22,753,000 shares. No shares of preferred stock have
been issued.
The Shareholders also authorized on June 28, 2000 the issuance of up to
227,530,000 governance preference shares at a par value of (euro)0.05 per share.
The Shareholders also approved in the Shareholders' Meeting on the same date an
option right to an independent foundation (the 'Foundation') to purchase
governance preference shares. Under this option, if certain preconditions are
satisfied, the Foundation may acquire up to the number of then outstanding
ordinary and financing preference shares at the time of the purchase, less one.
The shares will be issued at par upon a payment of 25% of the par value. The
object of the Foundation is to own and vote the Company's preference shares in
order to protect the interests of the Company and its ordinary shareholders. No
governance preference shares have been issued.
9. Significant customers
Certain shareholders are the principal customers of the Company. These
shareholders accounted for approximately 54%, 49% and 60% of total
telecommunications revenue for years ended December 31, 2002, 2001 and 2000,
respectively.
The Company had one customer in 2002 representing more than 10% of revenues.
This significant customer represented 19%, 15% and 15% of total revenues for the
years ended December 31, 2002, 2001 and 2000, respectively. In 2000, the Company
had a further significant customer representing more than 10% of revenues which
accounted for 13% of total revenues for that year. The Company has no other
unusual credit risks or concentrations.
10. Retirement and incentive plans
Defined contribution plan
The Company has defined contribution plans for substantially all Company
employees. The Company matches a portion of the employee contribution. Total
compensation expense related to the defined contribution plans approximated
$1,097,000, $1,079,000 and $733,000 for the years ended December 31, 2002, 2001
and 2000, respectively.
Executive incentive plan
In 1998, the Company executed a long-term incentive plan (the 'Executive Plan')
with the chief executive officer. Under the Executive Plan, the individual was
entitled to receive ordinary shares of the Company if an initial public offering
('IPO') of the Company's stock or a private transaction involving no less than
20% of the common shares of the Company (collectively, the 'Equity Transaction')
was completed prior to August 1, 2002. The number of shares awarded under the
Executive Plan was to be dependent upon the fair market value of the Company on
the date of the Equity Transaction. On October 10, 2000, the Company
successfully completed its IPO and the individual was granted 155,556 ordinary
shares valued at $9.00 per ordinary share. Under the terms of the Executive
Plan, the Company also paid an additional $0.9 million relating to the tax
liability due on this award. One third of the awarded shares vested on the date
of the Equity Transaction and the remaining shares vested in two equal
instalments ending on December 31, 2001.
The total compensation awarded in relation to the Executive Plan was $2.3
million. The Company recognized $1,069,000 and $1,124,000 of compensation
expense for the years ended December 31, 2001 and 2000, respectively, under the
Executive Plan.
Stock option plans
The Supervisory Board of Directors adopted the 1999 Stock Option Plan as amended
('Stock Plan') effective January 1, 1999. The Supervisory Board can administer
the Stock Plan itself or through a committee of the Supervisory Board or can
appoint a foundation to administer the plan. At no time can the number of
options issued under the Stock Plan exceed 10% of the issued common stock of the
Company unless the Board amends the Stock Plan. All grants under the plan,
including option grants and incentive stock plan grants, are subject to an
aggregate limitation, which was increased in 2002 to a total of 13,057,024
ordinary shares representing 10% of the issued ordinary shares as of the date of
the amendment. As of December 31, 2002, the total number of shares available for
grant was 5,600,291.
46 New Skies Satellites N.V. Annual Report 2002
<page>
The Board utilized independent valuations performed by KPMG Corporate Finance in
establishing the estimated fair value of the common shares underlying each of
the options that have been granted under the Stock Plan in the period prior to
the Company's IPO in 2000. Options granted subsequent to the IPO were based on
the fair market value at the date of grant. The options have a maximum term of
10 years. All options vest in three equal annual installments.
The Supervisory Board has also approved the Stock Option Plan for the
Supervisory Board, as amended (the 'Directors Plan'). The terms of the Directors
Plan are similar to those of the 1999 Stock Option Plan. The options have a term
of ten years and vest ratably in three equal installments annually from the date
of grant. At December 31, 1999, options to acquire 227,930 common shares were
granted under the Directors Plan and were approved by the shareholders at the
annual meeting on June 28, 2000. Substantially all of the options that were
awarded were for prior service on the Supervisory Board. As such, these awards
vest as if they had been issued during 1998 and 1999. At the annual meeting of
shareholders in the years 2002, 2001 and 2000, the shareholders approved further
grants to members of the Supervisory Board of 46,450 options, 89,659 options and
21,570 options, respectively.
The following table presents a summary of the Company's share option activity
and related information for the years ended December 31, 2002, 2001 and 2000:
Weighted
average
Options exercise price
outstanding $
Outstanding, December 31, 1999 2,291,290 7.50
Granted 1,373,400 10.03
Exercised - -
Forfeited (123,650) 8.40
- -----------------------------------------------------------------------------
Outstanding, December 31, 2000 3,541,040 8.45
Granted 1,534,849 9.02
Exercised (8,905) 7.50
Forfeited (162,682) 9.14
- -----------------------------------------------------------------------------
Outstanding, December 31, 2001 4,904,302 8.61
Granted 2,525,847 4.95
Exercised - -
Forfeited (519,520) 7.77
- -----------------------------------------------------------------------------
Outstanding, December 31, 2002 6,910,629 7.35
- -----------------------------------------------------------------------------
Additional information regarding options outstanding at December 31, 2002 is as
follows:
Options outstanding
--------------------------------------------------------------
Weighted average
remaining
Number contractual life Number
Range of exercise prices per share outstanding (years) exercisable
$3.50 - $5.00 2,350,097 9.2 -
$5.01 - $6.50 58,750 9.3 -
$6.51 - $8.00 2,272,649 6.3 2,169,150
$8.01 - $9.50 1,475,401 7.9 585,049
$9.51 - $11.00 753,732 7.3 470,303
Annual Report 2002 New Skies Satellites N.V. 47
<page>
New Skies Satellites N.V. and subsidiaries
Notes to consolidated financial statements
Years ended December 31, 2002, 2001 and 2000
The Company records compensation related to stock options using the intrinsic
value method prescribed by APB No. 25, Accounting for Stock Issued to Employees,
and related interpretations. Certain options awarded during 1999 and 2000 were
considered to be granted below fair market value according to an independent
valuation report prepared by KPMG Corporate Finance and received subsequent to
the granting of these options. Prior to the receipt of this report, an earlier
independent valuation report had been used to determine the exercise price of
options granted. In addition, certain other option awards required shareholder
ratification by which time the market value of the shares had changed. The
difference in value at the grant date for such option awards and the subsequent
determined market value was required to be accounted for as compensation. As of
December 31, 2001 and 2000, $352,000 and $871,000, respectively, of such
compensation was considered unearned and is being amortized over the remaining
vesting period of the related options. The amount of unearned compensation
amortized to income in 2002, 2001 and 2000 under the Stock Option Plans was
approximately $352,000, $473,000 and $944,000, respectively.
The Company has adopted the disclosure requirements of SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 defines a fair value method of
accounting for stock-based compensation awards to employees and non-employees.
SFAS No. 123 requires that the fair value of stock-based awards to employees be
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
which greatly affect the calculated values.
The fair value of the stock option grants has been estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions:
2002 2001 2000
Expected life 5 years 5 years 5 years
Interest rate 3.75% 4.5% 5.75%
Volatility 40% 30% 25%
Assumed forfeitures 10% 10% 10%
The weighted average fair value of stock options granted during 2002, 2001 and
2000 was $2.01, $3.14 and $4.22, respectively.
Had compensation expense for the stock option plans been determined consistent
with SFAS No. 123, the Company's pro forma net income (loss) and net income
(loss) per share would have been as follows:
2002 2001 2000
$ $ $
Net income (loss):
As reported (4,645,000) 33,068,000 31,674,000
Pro forma (9,074,000) 28,371,000 29,236,000
Basic and diluted net income (loss) per share:
As reported (0.04) 0.25 0.29
Pro forma (0.07) 0.22 0.27
Effective January 1, 2003, the Company will record compensation cost for stock
options and other forms of stock-based compensation issued subsequent to that
date in accordance with SFAS No. 123. (See Note 2).
48 New Skies Satellites N.V. Annual Report 2002
<page>
Incentive stock plan
In 2002 the members of the Management Board were awarded rights to acquire an
aggregate of 233,736 ordinary shares. These rights are similar to restricted
stock grants which entitle (and require) the individual to purchase the shares
specified in the grant at a price per share equal to the nominal value
((euro)0.05). The purchase of shares under each grant is to be settled in three
equal instalments within 30 days of the designated settlement dates, which
generally are the first, second and third anniversary of the date of grant. The
Management Board grants are governed by a plan administered by the Supervisory
Board. All grants under the plan are subject to the aggregate limitation that
was raised in 2002 to a total of 13,057,024 ordinary shares. Grants may be
extinguished under certain limited circumstances if the individual recipient
ceases to be an employee of the Company.
In 2002, the Shareholders also approved the grant to the members of the
Supervisory Board of the rights to acquire an aggregate of 18,583 ordinary
shares, with similar entitlements and obligations as the rights granted to the
Management Board as described above. The fair value of the restricted stock
grants made to the Management Board and Supervisory Board members in 2002 was
$1,237,000 and $101,000, respectively. At December 31, 2002 $685,000 of such
compensation was considered unearned and is being amortized over the remaining
vesting period of these grants. The amount of unearned compensation amortized to
income in 2002 under the Incentive Stock Plan was $653,000.
11. Business segments and geographic information
The Company monitors its operations as a single enterprise and therefore
believes that it has one operating segment, which is telecommunication satellite
services.
The geographic source of revenues, based on the billing addresses of customers,
for the years ended December 31 is as follows:
2002 2001 2000
(In thousands of U.S. dollars) $ $ $
- ---------------------------------------------------------------------------
North America 74,861 72,043 73,181
Europe 41,407 48,795 57,871
Asia Pacific 16,069 17,906 20,663
Latin America 24,577 34,094 27,827
India, Middle East and Africa 43,610 36,190 18,752
- ---------------------------------------------------------------------------
Total 200,524 209,028 198,294
- ---------------------------------------------------------------------------
The Company's satellites are in geosynchronous orbit, and consequently are not
attributable to any geographic location. Of the remaining assets, substantially
all are located in Europe.
Annual Report 2002 New Skies Satellites N.V. 49
<page>
Introduction to statutory financial statements
In accordance with the requirements of Part 9, Book 2 of The Netherlands Civil
Code, the Company financial statements consist of the Statutory Financial
Statements and the Consolidated Financial Statements (as presented in pages 34
through 59). In this section, both the Statutory Financial Statements and the
additional footnote disclosures that are required for the Consolidated Financial
Statements by Part 9, Book 2 of The Netherlands Civil Code, are included. These
additional footnote disclosures relate to:
o movements in communications, plant & other property
o movements in, and a listing of, our investments in subsidiaries
o personnel and remuneration information
o significant provisions from our Articles of Association
The Statutory Financial Statements are prepared in accordance with the
accounting policies set out in Note 2 to the Consolidated Financial Statements
with the exception of the accounting for goodwill. In the Statutory Financial
Statements goodwill is amortized for the consolidation and Company accounts
under Dutch GAAP on a straight-line basis over a period of 10 years. Dutch GAAP
therefore differs from U.S.GAAP for goodwill treatment. Under U.S. GAAP goodwill
is no longer amortized but tested annually for impairment. On January 1, 2002
goodwill was tested for impairment and fully written off under Dutch GAAP.
The Statutory Financial Statements should be read in conjunction with the Notes
to the Consolidated Financial Statements, however, it should be noted that
certain information reflected therein should not be read in conjunction with the
Statutory Financial Statements because it reflects information on a consolidated
basis. The information that is not applicable is as follows:
o Note '5. Contractual Commitments'
o Note '6. Income Taxes'
o Note '9. Significant Customers'
o 'Defined Contribution Plan' section and SFAS No.123, Accounting for
Stock-Based Compensation disclosure within the section 'Stock Option
Plans' in Note '10. Retirement and Incentive Plans'
o Note '11. Business Segments and Geographic Information'
50 New Skies Satellites N.V. Annual Report 2002
<page>
New Skies Satellites N.V.
Company balance sheets
(In thousands of U.S. dollars, except share data)
December 31,
2002 2001
$ $
Assets
Current assets
Cash and cash equivalents 2,892 136,071
Trade receivables 37,759 40,678
Prepaid expenses and other assets 9,418 7,331
Amounts due from subsidiaries 24,105 22,099
- -------------------------------------------------------------------------------------------------------
Total current assets 74,174 206,179
Communications, plant and other property, net (Note 2) 1,021,143 855,583
Deferred tax asset 9,836 11,330
Investment in subsidiaries (Note 3) 13,377 26,378
Other assets 1,103 1,593
- -------------------------------------------------------------------------------------------------------
Total 1,119,633 1,101,063
- -------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities
Short-term debt 10,000 -
Accounts payable and accrued liabilities 12,931 14,369
Income taxes payable 27,418 20,465
Deferred revenues 8,043 7,980
Satellite performance incentives 6,218 4,610
- -------------------------------------------------------------------------------------------------------
Total current liabilities 64,610 47,424
Deferred revenues and other liabilities 8,351 3,926
Satellite performance incentives 27,639 12,529
- -------------------------------------------------------------------------------------------------------
Total liabilities 100,600 63,879
- -------------------------------------------------------------------------------------------------------
Shareholders' equity
Governance preference shares (227,530,000
shares authorized, par value (euro)0.05; none issued) - -
Cumulative preferred financing shares (22,753,000
shares authorized, par value (euro)0.05; none issued) - -
Ordinary shares (204,777,000 shares authorized, par
value (euro)0.05; 130,570,241 shares issued) 6,026 6,026
Additional paid-in capital 977,506 976,168
Retained earnings 56,019 60,664
Unearned compensation (685) (352)
Accumulated other comprehensive loss (492) (5,322)
Treasury stock, at cost (5,194,030 ordinary shares) (19,341) -
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,019,033 1,037,184
- -------------------------------------------------------------------------------------------------------
Total 1,119,633 1,101,063
- -------------------------------------------------------------------------------------------------------
See notes to statutory financial statements.
Annual Report 2002 New Skies Satellites N.V. 51
<page>
New Skies Satellites N.V.
Company statements of operations
(In thousands of U.S. dollars)
Years ended December 31,
2002 2001
$ $
Revenues 194,483 201,945
- ----------------------------------------------------------------------------------------
Operating expenses:
Cost of operations 66,575 58,688
Selling, general and administrative 32,335 35,190
Depreciation 73,759 69,478
- ----------------------------------------------------------------------------------------
Total operating expenses 172,669 163,356
- ----------------------------------------------------------------------------------------
Goodwill impairment 23,375 -
- ----------------------------------------------------------------------------------------
Operating income (loss) (1,561) 38,589
Interest expense (income) and other, net 329 (8,933)
- ----------------------------------------------------------------------------------------
Income (loss) before income tax expense (1,890) 47,522
Income tax expense (Note 5) 8,299 16,937
Equity in income of subsidiaries 5,544 2,483
- ----------------------------------------------------------------------------------------
Net income (loss) (4,645) 33,068
- ----------------------------------------------------------------------------------------
See notes to statutory financial statements.
52 New Skies Satellites N.V. Annual Report 2002
<page>
New Skies Satellites N.V.
Notes to statutory financial statements
Years ended December 31, 2002 and 2001
1. Summary of significant accounting policies
Significant accounting policies
The accounting policies used in the preparation of the Company Financial
Statements are the same as those used in the preparation of the Consolidated
Financial Statements. Please refer to the Notes to the Consolidated Financial
Statements. In addition to those accounting policies, the following accounting
policies for the Company Financial Statements are described below.
Presentation of amounts
The accompanying financial statements include the accounts of New Skies
Satellites N.V. The Company follows accounting policies that conform with those
generally accepted in the United States of America ('U.S. GAAP'). The Company
believes that its application of U.S. GAAP is in accordance with accounting
principles generally accepted in The Netherlands and that these financial
statements are in accordance with the legal requirements for the financial
statements as included in Part 9, Book 2 of The Netherlands Civil Code.
Investments in subsidiaries
Investments in subsidiaries are valued using the equity method of accounting.
2. Changes in communications, plant and other property
Changes in communications, plant and other property assets for New Skies
Satellites N.V. on a stand alone and consolidated basis were as follows:
New Skies Satellites N.V. 2002 2001
(In thousands of U.S. dollars) $ $
- -----------------------------------------------------------------------------------------
Balance, January 1 855,583 670,749
Additions 242,433 254,312
Disposals (3,114) -
Depreciation (73,759) (69,478)
- -----------------------------------------------------------------------------------------
Balance, December 31 1,021,143 855,583
- -----------------------------------------------------------------------------------------
New Skies Satellites N.V. and subsidiaries 2002 2001
(In thousands of U.S. dollars) $ $
- -----------------------------------------------------------------------------------------
Balance, January 1 886,244 $ 685,413
Additions 255,004 274,167
Disposals (3,114) -
Depreciation (80,574) (72,593)
Currency translation adjustment 559 (743)
- -----------------------------------------------------------------------------------------
Balance, December 31 1,058,119 $ 886,244
- -----------------------------------------------------------------------------------------
Annual Report 2002 New Skies Satellites N.V. 53
<page>
New Skies Satellites N.V.
Notes to statutory financial statements
Years ended December 31, 2002 and 2001
3. Investment in subsidiaries
2002 2001
(In thousands of U.S. dollars) $ $
- ------------------------------------------------------------------------
Balance, January 1 26,378 26,322
Equity in earnings of subsidiaries 5,544 2,483
Goodwill impairment (23,375) -
- ------------------------------------------------------------------------
8,547 28,805
Cumulative translation adjustment 4,830 (2,427)
- ------------------------------------------------------------------------
Balance, December 31 13,377 26,378
- ------------------------------------------------------------------------
During 2002 an impairment test was performed on the goodwill from the purchase
of New Skies Networks Pty Limited. The outcome of the test resulted in a
goodwill write-off of $23.4 million.
4. Contractual commitments
In further development and operation of the Company's global commercial
communications satellite system, significant additional expenditures are
anticipated. At December 31, 2002, the Company had a contract for the
construction, development and launch of the NSS-8 satellite, and pending final
acceptance of the NSS-6 satellite, future committed payments totaling $44.0
million and $42.2 million, for the years ending December 31, 2003 and 2004,
respectively. Additional commitments on these satellite programs ('satellite
incentives') totaling $40.0 million will fall due over the design lives of these
satellites to the extent that they continue to operate successfully throughout
this time.
The Company has recorded a liability of $33.9 million at December 31, 2002
representing the present value, at a weighted average discount rate of 5.2%, of
the remaining satellite incentive payments on the satellites which were in
service at December 31, 2002 of $5.8 million, $5.9 million, $5.7 million, $3.9
million, $3.8 million and $15.4 million for payments to be made in the years
ending December 31, 2003, 2004, 2005, 2006, 2007 and 2008 and thereafter,
respectively.
Commitments as of December 31, 2002 for future payments under operating leases
primarily relating to telecommunication infrastructure and office facilities are
as follows:
(In thousands of U.S. dollars) $
- --------------------------------------------------------------------------
2003 10,678
2004 8,086
2005 882
2006 628
2007 628
2008 and thereafter 1,571
- --------------------------------------------------------------------------
Total commitments 22,473
- --------------------------------------------------------------------------
5. Income tax
New Skies Satellites consolidated provision for income taxes consists of the
following:
2002 2001
(In thousands of U.S. dollars) $ $
- --------------------------------------------------------------------------
Income tax provision - Holding Company 8,299 16,937
Income tax provision - Subsidiaries 2,207 2,427
- --------------------------------------------------------------------------
Income tax provision - Consolidated 10,506 19,364
- --------------------------------------------------------------------------
54 New Skies Satellites N.V. Annual Report 2002
<page>
6. Personnel and remuneration
Personnel expenses can be summarized as follows:
2002 2001
(In thousands of U.S. dollars) $ $
- --------------------------------------------------------------
Wages and salaries 18,984 18,608
Social securities 633 574
Pension costs 672 754
- --------------------------------------------------------------
Total 20,289 19,936
- --------------------------------------------------------------
The average number of staff employed by the Group during 2002 and 2001 were 262
and 253, respectively, and the total number of personnel employed per sector
were:
As of December 31,
2002 2001
---- ----
Engineering and operations 121 120
Sales and marketing 76 75
Other 67 66
- --------------------------------------------------------------
Total 264 261
- --------------------------------------------------------------
At December 31, 2002 and 2001, 146 and 140 personnel were employed in The
Netherlands, respectively.
In 2002, the total remuneration of the individual members of the Supervisory
Board and Management Board, including pension costs were as follows:
Base salary Bonus(1) Pension Total
(In thousands of U.S. dollars) $ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Supervisory Board Management Board
T.M. Seddon 87 D.S. Goldberg 450 151 27 628
J.W. Kolb 59 A.M. Browne 451 95 34 580
C. Seguin 55 S.J. Stott 340 71 31 442
G.D. Mueller 54 R. Jockin 275 92 21 388
L. Ruspantini 53 M.J. Dent 262 88 16 366
D. Wear 53 T.L. Cowart 255 54 15 324
S.K. Fung 50
N. Kroes 39
A.S. Ganguly 33
T. Hashimoto 10
- ------------------------------------------------------------------------------------------------------------------
Total 493 2,033 551 144 2,728
- ------------------------------------------------------------------------------------------------------------------
(1) The bonus for year 2002 performance is subject to Supervisory Board
approval.
Annual Report 2002 New Skies Satellites N.V. 55
<page>
New Skies Satellites N.V.
Notes to statutory financial statements
Years ended December 31, 2002 and 2001
The Supervisory Directors and members of the Management Board also have rights
to acquire ordinary shares. These rights are similar to restricted stock grants,
which entitle (and require) the individual to purchase a pre-determined number
of shares at a price per share equal to nominal value ((euro)0.05), and the
purchase of shares subject to each grant is to be settled in three equal
instalments within 30 days of the designated settlement dates, which generally
are the first, second and third anniversary of the date of grant. The following
table illustrates the shares subject to these rights agreements issued in 2002:
- -------------------------------------------------------------------------------
Number of Number of
shares shares
- -------------------------------------------------------------------------------
Supervisory Board Management Board
T.M. Seddon 3,643 D.S. Goldberg 108,000
J.W. Kolb 1,822 A.M. Browne 32,505
C. Seguin 2,004 S.J. Stott 24,468
G.D. Mueller 1,822 R. Jockin 19,255
L. Ruspantini 1,822 M.J. Dent 26,579
D. Wear 1,822 T.L. Cowart 22,929
S.K. Fung 1,822
N. Kroes 2,004
A.S. Ganguly 1,822
- -------------------------------------------------------------------------------
Total 18,583 233,736
- -------------------------------------------------------------------------------
In addition the following table sets forth the information regarding stock
option ownership for each member of our Supervisory Board and Management Board
under the Company's stock option plans in 2002.
Cancelled/
Beginning of year Granted Exercised forfeited End of year
------------------- ------------------ ------------------ ------------------ ------------------------------
Weighted
Weighted Weighted Weighted Weighted Weighted average
average average average average average remaining
share price share price share price share price share price contractual
Number $ Number $ Number $ Number $ Number $ Lives
- -----------------------------------------------------------------------------------------------------------------------------------
Supervisory Board
T.M. Seddon 55,191 7.56 9,108 5.49 - - - - 64,299 7.27 7.1
J.W. Kolb 40,380 7.61 4,554 5.49 - - - - 44,934 7.40 6.8
C. Seguin 41,489 7.62 5,009 5.49 - - - - 46,498 7.39 6.9
G.D. Mueller 8,790 7.11 4,554 5.49 - - - - 13,344 6.56 8.7
L. Ruspantini 37,720 7.62 4,554 5.49 - - - - 42,274 7.39 6.9
D. Wear 8,790 7.11 4,554 5.49 - - - - 13,344 6.56 8.7
S.K. Fung 24,390 7.69 4,554 5.49 - - - - 28,944 7.34 7.6
N. Kroes 26,829 7.69 5,009 5.49 - - - - 31,838 7.34 7.6
A.S. Ganguly - - 4,554 5.49 - - - - 4,554 5.49 9.4
T. Hashimoto 37,720 7.62 - - - 37,720 7.62 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total 281,299 7.59 46,450 5.49 - - 37,720 7.62 290,029 7.25 7.3
- -----------------------------------------------------------------------------------------------------------------------------------
Management Board
D.S. Goldberg 379,840 8.31 - - - - - - 379,840 8.31 6.6
A.M. Browne 425,450 8.30 81,262 5.00 - - - - 506,712 7.77 7.0
S.J. Stott 249,430 8.24 61,170 5.00 - - - - 310,600 7.60 7.3
R. Jockin 152,230 8.83 48,062 5.00 - - - - 200,292 7.91 5.9
M.J. Dent 135,770 9.39 66,448 5.00 - - - - 202,218 7.95 8.0
T.L. Cowart 188,450 8.26 57,322 5.00 - - - - 245,772 7.50 7.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,531,170 8.44 314,264 5.00 - - - - 1,845,434 7.85 7.2
- -----------------------------------------------------------------------------------------------------------------------------------
56 New Skies Satellites N.V. Annual Report 2002
<page>
7. Business segments and geographic information
The Company monitors its operations as a single enterprise and therefore
believes that it has one operating segment, which is telecommunication satellite
services.
The geographic source of our revenues, based on the billing addresses of our
customers, for the years ended December 31, 2002 and 2001 is as follows:
Years ended December 31,
2002 2001
(In thousands of U.S. dollars) $ $
- -------------------------------------------------------------------------------
North America 74,861 72,044
Latin America 24,577 34,094
Europe 41,407 48,795
Asia Pacific 10,096 10,961
India, Middle East and Africa 43,542 36,052
- -------------------------------------------------------------------------------
Total 194,483 201,946
- -------------------------------------------------------------------------------
8. List of significant subsidiaries
The significant subsidiaries as of December 31, 2002 are:
Name Location % ownership
New Skies Networks, Inc. Delaware, U.S.A. 100%
New Skies Satellites, Inc. Delaware, U.S.A. 100%
New Skies Satellites Asset Holding, Inc. Delaware, U.S.A. 100%
New Skies Networks Pty Ltd. New South Wales, Australia 100%
New Skies Networks (UK) Ltd. London, United Kingdom 100%
New Skies Satellites (UK) Ltd. London, United Kingdom 100%
New Skies Satellites MAR B.V. The Hague, The Netherlands 100%
New Skies Satellites Kazakhstan B.V. The Hague, The Netherlands 100%
New Skies Satellites Singapore B.V. The Hague, The Netherlands 100%
New Skies Satellites India B.V. The Hague, The Netherlands 100%
New Skies Satellites Brazil Ltda. Sao Paulo, Brazil 100%
Annual Report 2002 New Skies Satellites N.V. 57
<page>
Additional information
The following three paragraphs contain a brief summary of certain provisions of
the Articles of Association of New Skies Satellites N.V. (the 'Company').
Appropriation and determination of profits
According to the Articles of Association, dividends are payable out of profits
shown in the annual accounts, as signed by the members of the Board of
Management and the Supervisory Board and adopted by the General Meeting of
Shareholders. Profits that are not reserved may be distributed to shareholders
pursuant to a shareholders' resolution, provided that the distribution does not
reduce shareholders' equity below the statutory legal minimum, which is the sum
of paid and called-up capital and reserve that must be retained on the basis of
the law and the Articles of Association. Any dividends and distributions that
are not claimed within five years after they are payable become the property of
the Company. In addition, with the prior approval of the Supervisory Board, the
Board of Management may:
o Decide that all or part of the profit should be reserved and not be
made available for distribution to shareholders.
o Declare interim dividends from the distributable profits of the Company
from any financial year before the Annual General Meeting of the
Shareholders for such year, provided that the level of equity allows
for this.
o Pay declared dividends from the Company's existing share premium and
freely distributable reserves.
o The Articles of Association require that the financing preference
shares and governance preference shares must be paid their dividends,
if any, before any dividend can be paid to holders of ordinary shares.
Voting rights
Each ordinary share of the Company entitles the holder to one vote at the Annual
General Meeting of Shareholders on each matter presented to shareholders for a
vote. All shareholder resolutions shall be adopted with an absolute majority of
the votes validly cast unless otherwise specified in the Articles of
Association.
Adoption of the annual accounts
The annual accounts shall be signed by all members of the Board of Management
and the Supervisory Board. Upon signing, the annual accounts will be submitted
to the General Meeting of Shareholders for adoption. Prior to the annual
accounts being adopted by the General Meeting of Shareholders, an auditor must
express an opinion thereon and issue a statement in respect thereof. As provided
by the Company's Articles of Association, adoption of the annual accounts by the
shareholders discharges the Board of Management and the Supervisory Board from
liability for the performance of their respective duties for the past financial
year.
58 New Skies Satellites N.V. Annual Report 2002
<page>
Independent auditors' opinion
We have audited the financial statements of New Skies Satellites N.V., The
Hague, The Netherlands for the year ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in The Netherlands. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements of New Skies Satellites N.V. give a
true and fair view of the financial position of the Company as of December 31,
2002 and of the result for the period then ended in accordance with accounting
principles generally accepted in The Netherlands and comply with the legal
requirements for financial statements as included in Part 9, Book 2 of The
Netherlands Civil Code.
Deloitte & Touche Accountants
Amsterdam, The Netherlands
January 24, 2003
Annual Report 2002 New Skies Satellites N.V. 59
<page>
New Skies offices Singapore
Head office #31-05 Centennial Tower
3 Temasek Avenue
Rooseveltplantsoen 4 Singapore 039190
2517 KR The Hague T: +65 6238 04 00
The Netherlands F: +65 6238 11 41
P.O. Box 82197 Sydney
2508 ED The Hague
T: +31 70 306 4100 Level 26, 201 Kent Street
F: +31 70 306 4101 Sydney NSW 2000
Australia
T: +61 2 90 09 88 88
Washington D.C. F: +61 2 90 09 88 99
2001 L Street, Suite 800
Washington D.C. 20036
USA Sao Paulo
T: +1 202 478 7100
F: +1 202 478 7101 Av. Das Nacoes Unidas 12551
9 andar - Cep 04578 - 903
Sao Paulo - SP Brazil
T: +55 11 34 43 74 52
F: +55 11 34 43 74 74
New Delhi
Suite #409, fourth floor
International Trade Tower
Nehru Place
New Delhi - 110 019
India
T: +91 11 16 44 35 56/7
F: +91 11 16 44 35 58
Beijing
Room 1468,
Everbright Building
6 Fu Xing Men Wai Street
Beijing, China 100045
T: +86 10 68561021
F: +86 10 68561030
60 New Skies Satellites N.V. Annual Report 2002
<page>
Designed and produced by Emperor Design Consultants Ltd
Telephone 020 7729 9090 www.emperor.uk.com
<page>
New Skies Satellites N.V.
Rooseveltplantsoen 4
2517 KR The Hague
The Netherlands
T +31 70 306 41 00
F +31 70 306 41 01
www.newskies.com