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<P align="center"><FONT size="4"><B>SECURITIES AND EXCHANGE COMMISSION</B>
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<DIV align="center"><FONT size="3"><B>Washington, D.C. 20549</B>
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<P align="center"><FONT size="5"><B>FORM 20-F</B>
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<P align="center"><FONT size="3"><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934<BR>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002</B>
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<P align="center"><FONT size="2"><B>Commission File No.&nbsp;333-8880</B>
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<DIV align="center"><FONT size="6"><B>SATELITES MEXICANOS, S.A. de C.V.</B>
</FONT></DIV>
<P align="center"><FONT size="2"><B>Blvd. M. Avila Camacho No.&nbsp;40<BR>
Col. Lomas de Chapultepec<BR>
11000 Mexico, D.F.<BR>
Mexico<BR>
(52)&nbsp;55-5201-0800</B>
</FONT>

<P align="center"><FONT size="2"><B>Jurisdiction of incorporation: Mexico<BR>
Securities for which there is a reporting obligation pursuant to Section&nbsp;15(d) of the Act:<BR>
10 1/8 % Series&nbsp;B Senior Notes due 2004</B>
</FONT>

<P align="center"><FONT size="2"><B>The number of outstanding shares of capital stock as of December&nbsp;31, 2002 was:<BR>
2,550 Class&nbsp;I Series&nbsp;A Shares<BR>
2,598,450 Class&nbsp;II Series&nbsp;A Shares<BR>
2,450 Class&nbsp;I Series&nbsp;B Shares<BR>
2,496,550 Class&nbsp;II Series&nbsp;B Shares<BR>
4,900,000 Class&nbsp;II Series&nbsp;N Shares<BR>
606,730 Class&nbsp;I Series&nbsp;C Shares</B>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant has filed all reports required to be filed by Section&nbsp;13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months and
has been subject to such filing requirements for the past 90&nbsp;days.
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant has elected to follow Financial Statement Item&nbsp;18.
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<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

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<TR><TD colspan="9"><A HREF="#000">PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;3. Key Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#002">Item&nbsp;4. Information on the Company</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">Item&nbsp;5. Operating and Financial Review and Prospects</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">Item&nbsp;6. Directors, Senior Management and Employees</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">Item&nbsp;7. Major Shareholders and Related Party Transactions</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;8. Financial Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;9. Markets</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;10. Additional Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">Item&nbsp;11. Quantitative and Qualitative Disclosures About Market Risk</A></TD></TR>
<TR><TD colspan="9"><A HREF="#010">PART II</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;14. Material Modifications to the Rights of Security Holders</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">Item&nbsp;15. Controls and Procedures</A></TD></TR>
<TR><TD colspan="9"><A HREF="#014">PART IV</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">Item&nbsp;18. Financial Statements</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#016">Item&nbsp;19. Exhibits</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv2w5.txt">SUPPLEMENTAL INDENTURE</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv2w6.txt">3RD SUPPLEMENTAL INDETURE</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv7w1.txt">COMPUTATION OF EXCESS</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv10w1.txt">302 CERTIFICATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv10w2.txt">302 CERTIFICATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv10w3.txt">906 CERTIFICATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87813tfexv10w4.txt">906 CERTIFICATION</A></TD></TR>
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<P align="center"><FONT size="2"><B>TABLE OF CONTENTS</B>
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<B>PART I</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Key Information</B></FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD valign="top"><FONT size="2">Item&nbsp;4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Information on the Company</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Operating and Financial Review and Prospects</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD valign="top"><FONT size="2">Item&nbsp;6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Directors, Senior Management and Employees</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;7.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Major Shareholders and Related Party Transactions</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Financial Information</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;9.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Markets</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD valign="top"><FONT size="2">Item&nbsp;10.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Additional Information</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;11.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Quantitative and Qualitative Disclosures About Market Risk</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<B>PART II</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;13.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Defaults, Dividend Arrearages and Delinquencies</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD valign="top"><FONT size="2">Item&nbsp;14.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Material Modifications to the Rights of Security Holders</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;15.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Controls and Procedures</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<B>PART IV</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;18.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Financial Statements</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD valign="top"><FONT size="2">Item&nbsp;19.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<B>Exhibits</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">51</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD width="96%"><FONT size="2">All other items have been omitted because they are not applicable or are not required.</FONT></TD>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
annual report includes or incorporates &#147;forward-looking statements,&#148; as that
term is defined in the Private Securities Litigation Reform Act of 1995. In
addition, the Company or its representatives have made and may continue to make
forward-looking statements, orally or in writing, in other contexts, such as in
reports filed with the SEC, press releases or statements made with the approval
of an authorized executive officer of the Company. These forward-looking
statements can be identified by the use of forward-looking terminology such as
&#147;believes,&#148; &#147;expects,&#148; &#147;plans,&#148; &#147;may,&#148; &#147;will,&#148; &#147;would,&#148; &#147;could,&#148; &#147;should,&#148;
&#147;anticipates,&#148; &#147;estimates,&#148; &#147; project,&#148; &#147;intend,&#148; or &#147;outlook&#148; or the negative
of these words or other variations of these words or other comparable words, or
by discussion of strategy that involves risks and uncertainties. These
forward-looking statements are only predictions, and actual events or results
may differ materially as a result of a wide variety of factors and conditions,
many of which are beyond the Company&#146;s control. Some of these factors and
conditions include: partial or total failure of the Company&#146;s in-orbit
satellites; the Company&#146;s reliance on certain customers; the Company&#146;s
operations are located in Mexico; competition in the Company&#146;s industry; and
the Company owes significant amounts of money. In addition, the Company
operates in an industry sector where securities values may be volatile and may
be influenced by economic and other factors beyond the Company&#146;s control. The
Company undertakes no obligation to update any forward-looking statement.
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<P align="center"><FONT size="2">&nbsp;i
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<DIV align="left"><A NAME="000"></A></DIV>


<P align="center"><FONT size="2"><B>PART I</B>
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<DIV align="left"><A NAME="001"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;3. </B><B><I>Key Information</I></B>
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<P align="center"><FONT size="2"><B>SELECTED FINANCIAL DATA</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents selected financial information for Sat&#233;lites
Mexicanos, S.A. de C.V. (&#147;we,&#148; &#147;us&#148; or the &#147;Company&#148; or &#147;Satmex&#148;) for the five
years in the period ended December&nbsp;31, 2002. The information was derived from
our audited financial statements. The audited financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America. The following information should be read in conjunction with,
and is qualified in its entirety by reference to, &#147;Operating and Financial
Review and Prospects&#148; and to our financial statements, and the related notes
thereto, included elsewhere herein.
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    <TD nowrap align="center" colspan="19"><FONT size="1"><B>Years ended December 31,</B></FONT></TD>
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    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
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    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
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    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B>(Amounts in millions of U.S. dollars)</B></FONT></TD>
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<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Statement of Operations Data:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenue<SUP>(1)</SUP>
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">85.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">128.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">136.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">135.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">104.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income (loss)<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before income taxes and extraordinary
loss<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(28.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(41.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred income tax benefit (expense)<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before extraordinary loss<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(46.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)<SUP>(1)</SUP>
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(46.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(23.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;applicable to
common stockholders<SUP>(1)</SUP>
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(21.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(47.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(23.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Other Data:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">47.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">47.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">56.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">61.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">48.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital expenditures
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">152.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Excess (deficiency)&nbsp;of earnings to fixed charges
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(42.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(37.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance Sheet Data (at end of period):</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,011.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,089.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,123.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,041.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,138.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term debt
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">523.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">542.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">571.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">587.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">608.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Stockholders&#146; equity<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">368.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">391.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">336.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">351.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> In August 2000, our Solidaridad 1 satellite ceased operating and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1 was
insured for $250&nbsp;million. At the date of the loss, Solidaridad 1 had a net
book value of approximately $109.6&nbsp;million. After deducting prepaid
insurance of $1.6&nbsp;million, the unpaid insurance premiums of $12.5&nbsp;million
and on-going monitoring costs and the excess of the estimated cost over
revenue for the then committed transponder capacity to be provided to
customers of $23.2&nbsp;million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1&nbsp;million. In 2001, we reduced the
liability for the cost over revenue for the committed transponder capacity
to be provided to customers by $7.3&nbsp;million. In 2002, we received $3.3
million from the satellite manufacturer under the Solidaridad 1
performance guarantee and we reduced the liability for the cost over
revenue for the committed transponder capacity to be provided to customers
by $5.1&nbsp;million. These transactions were recorded as additional gain on
the in-orbit failure of Solidaridad 1 in the applicable periods.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">2</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>EXCHANGE RATES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents the period-end, average, low and high Noon
Buying Rate for the purchase and sale of dollars, each expressed in pesos per
dollar. The exchange rate translations presented should not be construed as
representations that the peso amounts actually represent such dollar amounts or
could be converted into dollars at the rate indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="18%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Exchange Rate<SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Period End</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Average<SUP>(2)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1998
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1999
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2000
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2001
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2002
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Source: Federal Reserve Bank.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Average of month-end rates.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth for each month in the six-month period
ended on May&nbsp;31, 2003, the high and low Noon Buying Rate, all
expressed in pesos per dollar.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="9"><FONT size="1"><B>Noon Buying Rate<SUP>(1)</SUP></B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="9"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Month ended</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">January&nbsp;31, 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.98</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">February&nbsp;28, 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">March&nbsp;31, 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.24</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April&nbsp;30, 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">May&nbsp;31, 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.11</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Source: Federal Reserve Bank.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;26, 2003, the Noon Buying Rate was Ps.&nbsp;10.4580 per
dollar.
</FONT>

<P align="center"><FONT size="2"><B>CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This annual report on Form&nbsp;20-F contains forward-looking statements within
the meaning of Section&nbsp;27A of the Securities Act of 1933, as amended, and
Section&nbsp;21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. They can be identified by the
use of forward-looking words such as &#147;believes&#148;, &#147;expects&#148;, &#147;plans&#148;, &#147;may&#148;,
&#147;will&#148;, &#147;should&#148;, or &#147;anticipate&#148; or their negatives or other variations of
these words or other comparable words, or by discussion of strategy that
involves risks and uncertainties. These forward-looking statements may be
included in, but are not limited to, various filings made by us with the
Securities and Exchange Commission, press releases or oral statements made by
or with the approval of one of our authorized executive officers.
Forward-looking statements are only predictions. Actual events or results could
differ materially from those projected or suggested in any forward-looking
statement as a result of a wide variety of factors and conditions, including,
but not limited to, the factors summarized below. We undertake no obligation to
update any forward-looking statement.
</FONT>

<P align="left"><FONT size="2"><B>Factors relating to Satmex</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are currently negotiating new financing and the extension or
restructuring of our current debt. If these efforts are not successful, we
may not be able to make future payments on our indebtedness.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At March&nbsp;31, 2003, we had total debt of $524.1&nbsp;million. In April 2003, we
received confirmation of approval from Compagnie Francaise d&#146;Assurance pour le
Commerce Exterieur, known as Coface, for its loan insurance program to support
85% of the cost of its launch services for the Satmex 6 satellite. Also in
April, we received confirmation of approval from the Export-Import Bank of the
United States, or Ex-Im Bank, for its loan guarantee program to support 85% of
eligible costs of the Satmex 6 satellite, insurance, ground equipment and
related investments. Each of the Coface and Ex-Im Bank facilities is subject to
negotiation of final documentation. In order to complete the Ex-Im Bank and
Coface financings, we will have to repay, refinance or restructure our floating
rate notes and our fixed rate notes. We have hired a financial advisor to
assist us in the restructuring of our indebtedness. In addition, we are
considering pursuing various alternatives to cover the remaining costs of the
Satmex 6 satellite project that the Ex-Im Bank and Coface support does not
cover. If we are unable to obtain all the financing arrangements on
satisfactory terms, there can be no assurance that we will be able to fulfill
our financing strategy or to complete and launch the Satmex 6 satellite, and
our financial condition and results of operations will be materially adversely
affected. Further, if our indebtedness is not restructured, we do not expect
future cash flows to be sufficient to make future interest and principal
payments on our indebtedness.</FONT>
<P align="center"><FONT size="2">3</FONT>

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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred significant indebtedness, including secured
indebtedness, to acquire and launch our satellites that may limit our cash
flow for capital expenditures and other expenses.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our cash flow is used to service our debt, which
in turn affects our ability to pay our other expenses and to fund our capital
expenditures. The level of our indebtedness has had and may continue to have
important consequences. For example, it has:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">limited cash flow available for capital expenditures,
acquisitions, working capital and other general corporate purposes
because a substantial portion of our cash flow from operations must
be dedicated to servicing our debt;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">increased our vulnerability to general adverse economic and
industry conditions;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">limited our flexibility in planning for, or reacting to,
competitive and other changes in our business and the industries in
which we operate;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">placed us at a relative disadvantage to our competitors that
have less debt and greater operating and financing flexibility than
we do; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">limited, through covenants in our indebtedness, our ability
to borrow additional funds.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We cannot assure you that the restrictions contained in agreements
governing our indebtedness will not impair our ability to finance our future
operations or capital needs or engage in other business activities.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to meet our planned schedule for launching or
commencing operations of Satmex 6. Extensive delays in the launch or
commencement of operations of Satmex 6 could affect our ability to generate
revenue in the short term.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We originally planned to launch Satmex 6 in the first quarter of 2003.
However, as a result of production and launch schedule delays, we do not expect
to be able to launch Satmex 6 until the second half of 2003. We may experience
additional delays that may result in our further postponing the launch of
Satmex 6. Satellite launches may be delayed for several reasons, including
delays in the manufacture of satellites or launch vehicles or the periodic
unavailability of optimum launch dates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any significant delay in the commencement of service of Satmex 6 would
delay the revenue anticipated to be generated by the satellite. It could also
cause us to lose some customers that have indicated interest in Satmex 6. In
addition, if we are unable to complete the Ex-Im Bank, Coface and other
financing arrangements on satisfactory terms, we cannot assure you that we will
be able to fulfill our financing strategy or complete and launch the Satmex 6
satellite, and our financial condition and results of operations will be
materially adversely affected.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may experience a launch failure or other satellite damage or
destruction during launch, which could result in a total or partial loss of
Satmex 6. Satmex 6 could also fail to achieve its designated orbital
location after launch.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may experience launch failure with respect to Satmex 6 that could
result in the partial or total loss of the satellite. Satellite manufacture and
launch involve complex processes and technology, and we rely on contractors for
both the manufacture and the launch of our satellites. Even if launched into
orbit, a satellite may fail to enter into its designated orbital location or we
may use more fuel than planned to place a satellite into its orbital location
and, as a result, reduce the orbital maneuver life of the satellite.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, Arianespace, the French company that will be launching
Satmex 6, experienced a failure of its Ariane 5 ECA rocket minutes after blast
off. The rocket crashed into the Atlantic Ocean and all satellites on board
were irretrievably lost. Satmex 6 will not be launched on the Ariane 5 ECA
rocket, but rather on the Ariane 5G&#043; rocket, which is a modified version of the
Ariane 5G. The Ariane 5G has performed more reliably than the Ariane 5 ECA in
the past. However, we cannot assure you that there will not be a failure of the
launch vehicle upon the launch of Satmex 6. While a loss of Satmex 6 from a
launch failure would generate insurance</FONT>
<P align="center"><FONT size="2">4</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">proceeds for us, our ability to increase our revenues would be materially
adversely affected.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The indenture governing our floating rate notes contains covenants that
may cause us to default under that indenture.</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The indenture governing our floating rate notes contains financial,
operating and negative covenants, all of which restrict us in some way. If we
default on any of those covenants, we would be in default under our floating
rate notes. As of March&nbsp;31, 2003, approximately $204.1&nbsp;million aggregate
principal amount of floating rate notes was outstanding. In 1999, our
stockholders contributed $31.9&nbsp;million of capital to us so that we could pay
down debt in order to ensure compliance with certain covenants contained in our
debt agreements. We do not expect our shareholders to contribute any more
equity in similar situations. If we cannot meet our financial covenants, we
will be in default under our floating rate notes, and the holders of those
notes will have the right to accelerate the payment of those notes. If our
indebtedness is accelerated we will not have sufficient resources to repay all
of the accelerated principal.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2000, we amended certain financial covenants in our floating
rate note indenture and our now expired credit agreement to more closely align
those covenants with our then-current business trends and covenants
then-prevalent in the satellite industry. In connection with those amendments,
we agreed to pay a consent fee to approving debtholders and lenders and to
increase the applicable interest rate margin on the debt by up to 0.75%. In
March 2003, we again sought consent from the holders of our floating rate notes
to amend the financial covenants in the indenture to more closely align those
covenants with our business trends. The consent solicitation was successful,
and we paid a fee to consenting holders of our floating rate notes of 0.25%. In
addition to amending the financial covenants, the amendments to the floating
rate note indenture provided that a default would occur under the floating rate
notes if we fail to complete the Ex-Im Bank and Coface financings on or prior
to September&nbsp;30, 2003. A failure to complete those financings would result in a
default under the floating rate note indenture, which could cause a cross
default under the indenture governing our fixed rate notes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our ability to find additional financing is limited.</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the future, we may require additional financing in order to service our
indebtedness and fund our operations. We may not have sufficient resources or
have access to financing on terms acceptable to us if at all. Our ability to
satisfy our obligations will depend upon our future performance, which will be
subject to prevailing economic conditions in Mexico, the state of the global
telecommunications industry and financial, business, regulatory and other
factors. Many of these factors are beyond our control, such as the willingness
of our equity holders to contribute additional capital to finance any cash flow
deficiency.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our financial condition and prospects may be materially and adversely
affected by ratings downgrades.</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;1, 2002, Moody&#146;s Investor Services lowered its ratings of our
senior unsecured indebtedness from &#147;B3&#148; to &#147;Ca.&#148; A &#147;B3&#148; rating is the sixth
lowest rating category out of 21 used by Moody&#146;s. A &#147;B&#148; rating describes
obligations that Moody&#146;s believes generally lack characteristics of a desirable
investment where there is little assurance that interest and principal payments
will be made or of maintenance of other terms will be kept over a long period
of time. &#147;Ca&#148; is the second lowest rating category out of 21 and describes
obligations that Moody&#146;s believes are speculative in a high degree and that are
often in default or have other marked shortcomings.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;23, 2002, Standard &#038; Poor&#146;s lowered our long term foreign
issuer credit rating from &#147;B&#148; to &#147;CCC&#043;.&#148; A &#147;B&#148; rating is the eighth lowest
rating category out of 22 used by S&#038;P and a &#147;CCC&#043;&#148; rating is the sixth lowest
rating out of 22. A &#147;B&#148; rating describes an obligation that S&#038;P believes is
more vulnerable to nonpayment than obligations rated &#147;BB,&#148; but where the
obligor has the capacity to meet its financial commitment on the obligation at
that time. S&#038;P believes that adverse business, financial, or economic
conditions will likely impair the &#147;B&#148; rated obligor&#146;s capacity or willingness
to meet its financial commitments. A &#147;CCC&#043;&#148; rating describes an obligation that
S&#038;P believes is currently vulnerable to nonpayment and is dependent upon
favorable business, financial and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial or economic conditions, S&#038;P believes that a &#147;CCC&#148; rated obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
</FONT><P align="center"><FONT size="2">5</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As a result of these negative credit ratings and downgrades, our sources
of short-term financing have become limited, which impedes our ability to
finance our operations. Furthermore, the negative publicity surrounding these
recent downgrades has generated concern among certain of our existing
customers.
</FONT>

<P>
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    <TD width="6%"></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technological advances may require us to make significant expenditures
to maintain and improve the competitiveness of our service offerings.</I></B></FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The satellite industry is subject to continuous, rapid and significant
changes in technology and introduction of new products and services. We cannot
predict the effect of technological changes on our business. New services and
technological advances may offer additional opportunities for other service
providers to compete with us on the basis of cost, quality or functionality. It
may not be practical or cost-effective for us to replace or upgrade our
technologies in response to competitors&#146; actions. Responding to such changes
may require us to devote substantial capital to the development, procurement or
implementation of new technologies, and may depend upon the final cost of
technology and our ability to obtain additional financing. Although we believe
that, for the foreseeable future, existing and developing technologies will not
materially adversely affect the viability or competitiveness of our business,
we cannot assure you as to the nature and extent of the impact on us of
technological change.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our in-orbit satellites remain vulnerable to failure.</I></B></FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Random failure of satellite components may result in damage to or loss of
a satellite before the end of its expected useful life. Satellites are
carefully built and tested and have certain redundant systems in case of
failure. However, in-orbit failure may result from various causes including:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">component failure;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">loss of power or fuel;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">inability to control positioning of the satellite;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">solar and other astronomical events; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">space debris.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repair of satellites in space is not feasible. Many factors affect the
useful lives of satellites. These factors include:
</FONT>

<P>
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<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">station-keeping fuel consumption;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the quality of manufacture;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">gradual degradation of solar panels or other components; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the durability of components.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;29, 2000, our Solidaridad 1 satellite ceased operating and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Previously, Solidaridad 1,
which was built by Boeing Space Systems (formerly Hughes Space and
Communications), and commenced service in January 1994, experienced a failure
of its primary control processor in April 1999, and the satellite had been
operating on its back-up processor since that time.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, our Solidaridad 2 and Satmex 5 satellites had
remaining estimated useful lives of 6.3 and 11&nbsp;years,
respectively. Solidaridad 2 was manufactured by Hughes Space and Communications
and is similar in design to Solidaridad 1 and to other satellites built by the
same manufacturer that have experienced in-orbit component failures, including
failures of on-board satellite control processors, even though Solidaridad 2
has not experienced any such failures.

</FONT><P align="center"><FONT size="2">6</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion system of the Xenon Ion Propulsion System (&#147;XIPS&#148;), which
provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, we were able to start the back-up
propulsion subsystem, and at no time was service on Satmex 5 interrupted.
Failures related to XIPS have occurred on other BS 601 HP spacecraft.
Performance on both Satmex 5 XIPS systems is normal. Currently, however, we are
using the second XIPS system as the primary propulsion system and the first
system as the back-up. In addition, Satmex 5 has a chemical propulsion system
in place to provide further redundancy.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to obtain acceptable insurance coverage for our
satellites at commercially reasonable rates.</I></B></FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we have obtained in-orbit insurance for Solidaridad 2 and Satmex 5,
a satellite failure may result in a decrease in our profits, which loss would
not be insured. The in-orbit insurance for Solidaridad 2 expired in November
2002 and the in-orbit insurance for Satmex 5 expires in December 2003. In November 2002 we renewed the in-orbit insurance for
Solidaridad 2 for a one-year period on terms that differed from the original
policy. The renewal policy for Solidaridad 2 does not insure against an
in-orbit failure due to the loss of the satellite&#146;s control processors, the
same component that caused the loss of Solidaridad 1 and other Boeing 601
satellites. Further, the new policy raises the percentage of the satellite&#146;s
capacity that must be impaired before a total loss can be declared from 50% to
75%. We
cannot guarantee that we will be able to renew the insurance at the end of
these periods, or that if renewal is available, that it would be on terms
acceptable to us. Any uninsured loss would have a material adverse effect on our results of
operations and financial condition.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A small number of customers account for a large portion of our revenues,
and the loss of one or more of these significant customers would adversely
affect our revenues.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A large portion of revenues are derived from a small number of customers.
Approximately 35 of our customers account for approximately 80% of our current
revenue base, and our top 10 customers represented approximately 53% of our
revenues during 2002. Our largest customer is Hughes Network Systems, a wholly
owned subsidiary of Hughes Electronics Corporation. Revenue from Hughes Network
Systems represented 15% and 10%, of service revenue for the years ended
December&nbsp;31, 2002, and 2001, respectively. We expect that Hughes Network
Systems will represent a greater portion of our service revenue in 2003.
Revenue from the Mexican government represented 8%, 8% and 7% of service
revenue for the years ended December&nbsp;31, 2002, 2001 and 2000, respectively. If
any of our significant customers cancelled their contracts with us or failed to
renew their contracts, it would adversely affect our revenues while only
marginally lowering our expenses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001 and 2002, we experienced significant terminations and were
unable to renew contracts with certain customers upon expiration. Additional
terminations occurred in the first quarter of 2003. Cancellation or non-renewal of service contracts of our large customers
would have an adverse effect on our results of operations.
</FONT>
<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our customers are in the telecommunications industry, which is
currently suffering from financial difficulties.</I></B></FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, customers representing approximately 61% of our
revenues were in the telecommunications industry. The telecommunications
industry has been suffering economically in recent years, and has generally
seen a decrease in that industry&#146;s ability to fund its own growth and
development. As a result, we recently have seen the cancellation and
non-renewals of some of our long-term contracts with telecommunications
customers. As of December&nbsp;31, 2002, approximately 23% of our revenues were
derived from customers in the telecommunications industry under contracts with
a remaining term greater than 5&nbsp;years. If these contracts are cancelled prior
to their expiration, our revenue would decline and we would be adversely
affected.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in a highly competitive environment.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government has liberalized its regulatory environment to allow
non-Mexican satellite companies to provide satellite services in Mexico. On
August&nbsp;10, 2001, the Mexican government granted licenses to
</FONT>
<P align="center"><FONT size="2">7</FONT>
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<P align="left"><FONT size="2">provide satellite service in Mexico to PanAmSat, SES Global, Televisa and
Enlaces Integra. PanAmSat registered 11 satellites and SES Global registered
seven satellites to provide satellite service in Mexico. While we continue to
be the leading provider of domestic fixed satellite services in Mexico, our
Mexican market share has been reduced by these new competitors. Future
additional reduction in market share may have a corresponding adverse effect on
our revenue. For the year ended December&nbsp;31, 2002, approximately 49% of our
revenues were from satellite services provided in Mexico.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also face competition from companies in our markets in the United
States and Latin America. PanAmSat has a fleet of 21 satellites, including 14
that serve the Latin American market. Intelsat, a former international
consortium, has 24 satellites, including 9 that cover Latin America. New Skies
Satellites N.V. has a fleet of six satellites including two that serve Latin
America. In November 2000, Telesat Canada successfully launched the Anik F1
satellite, which serves all of the Americas. Further, in 2001, SES Astra merged
with GE Americom to form SES Global. SES Global has a fleet of 39 satellites,
of which 19 serve Latin America. We cannot assure you that we will be able to
compete successfully with our competitors. Moreover, as our competitors launch
new satellites with coverage over the regions that we serve, price reductions
may result. This in turn could hurt our revenue and impact our ability to
service our debt obligations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, we face competition from land-based telecommunications services.
For example, in the past we have experienced a number of contract cancellations
or nonrenewals by customers that switched to fiber optic service providers.
These fiber optic service providers can generally provide services at a lower
cost for point-to-point applications. Further build-out of this infrastructure
could hurt our revenue.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are potential conflicting interests between us and our shareholders.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders, Loral Space &#038; Communications Ltd. (together with its
subsidiaries, &#147;Loral&#148;) and Principia, S.A. de C.V. (&#147;Principia&#148;) own and have
interests in other companies that are in businesses similar to ours, which
could give rise to a conflict of interest. In particular, Loral Skynet and
Loral Skynet do Brasil own or are building satellites, the footprints of which
overlap or are planned to overlap with those of our satellites. We have,
together with Loral Skynet, Skynet do Brasil and Europe*Star, a joint venture
between Loral and Alcatel, adopted a marketing policy that provides for
collaboration and cross-selling among the Loral Global Alliance members. If,
however, the members of the Loral Global Alliance do not collaborate but rather
compete in areas of overlapping capacity, conflicting commercial interests
between us and the Loral entities may arise. If Loral Skynet and Skynet do
Brasil do not collaborate with us or vice versa under the Loral Global
Alliance, Loral Skynet and Skynet do Brasil might compete directly with us for
customers.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disagreements between Loral and Principia could result in deadlock.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may undertake certain material actions only with the prior agreement of
both Loral and Principia. If Loral and Principia are unable to reach an
agreement, it could lead to a management deadlock, which would hurt us. To
resolve this deadlock, Loral or Principia may seek to sell its interests or,
alternatively, buy the interests of the other. This could in turn result in a
change of control under our debt documents, which would entitle certain of our
debtholders to require us to buy back their debt, including in some cases at a
purchase price equal to 101% of the principal amount. A change of control may,
under certain circumstances, also result in a termination of our concessions
from the Mexican government.
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Servicios defaults in the payment of certain debt owed to the
Mexican government, the Mexican government would gain control of us.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Servicios Corporativos Satelitales, S.A. de C.V. (&#147;Servicios&#148;), which
directly owns 70.71% of our capital stock, issued to the Mexican government in
December 1997, a note in the principal amount of $125.1&nbsp;million, which accrues
interest at 6.03%, matures in December 2004 and is secured by Loral&#146;s and
Principia&#146;s holdings in Firmamento Mexicano, S. de R.L. de C.V. (&#147;Firmamento&#148;),
our parent company. This obligation is subject to early prepayment under
certain circumstances, including upon a failure by Loral and Principia to
maintain sufficient collateral to secure Servicios&#146; obligation to the Mexican
government. Servicios will depend upon dividends from us to repay this
obligation to the Mexican government. We do not believe that Servicios will
have the resources to repay this obligation when due. If Servicios were to
default in the payment of this obligation, the Mexican</FONT>
<P align="center"><FONT size="2">8</FONT>
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<P align="left"><FONT size="2">government would have the right to foreclose upon the Firmamento
interests. This would result in the Mexican government gaining control of us.
It is a condition to the closing of the Ex-Im Bank and Coface financing
arrangements that Servicios is able to restructure its obligation to the
Mexican government on terms acceptable to it. Servicios is in discussions with
the Mexican government to extend this obligation.
</FONT>
<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You probably will not be able to effect service of process in the
United States upon our officers or our Mexican directors.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a Mexican company and most of our directors, all of our officers,
and nearly all of our assets are located in Mexico. As a result, you probably
will not be able to effect service of process on our Mexican directors or our
officers in the United States, and you will probably need to effect service of
process on them in Mexico. Additionally, it may be difficult to enforce any
actions against us, our Mexican directors or our officers outside of Mexico.
</FONT>

<P align="left"><FONT size="2"><B>Factors relating to regulatory environment</B>
</FONT>

<P>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is regulated, causing uncertainty and additional costs.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is regulated by the Mexican authorities. The services we
provide outside of Mexico and into other countries in Latin America and the
United States subject us to regulations in those countries. For example, we
need to obtain landing rights in the countries where we seek to operate.
Regulatory authorities in the various jurisdictions in which we operate can
modify, withdraw or impose charges or conditions upon the licenses that we
need, and so increase our cost of doing business. For example, the concessions
granted to us by the Mexican government require that we reserve approximately
7% of our satellite capacity for use by the Mexican government free of charge.
Moreover, the concessions are subject to government regulations, which may make
modifications to or impose limitations on our operations. If the Mexican
government determines that we are a dominant carrier in our segment, it could
impose informational and pricing requirements on us, which would hurt our
results of operations and financial condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The regulatory process also requires that we negotiate with third parties
operating or intending to operate satellites at or near orbital locations where
we place our satellites so that the frequencies of the satellites do not
interfere with each other. Because we cannot guarantee the results of
negotiations with third parties, &#147;frequency coordination&#148; is an additional
source of uncertainty. For example, we are currently working to coordinate our
Satmex 6 satellite through the Mexican government with the government of
Canada. There can be no assurance that negotiation of a new coordination
agreement between the governments of Mexico and Canada and the affected
satellite operators will be successful. The scheduled launch of Satmex 6 will
proceed whether or not a new coordination agreement has been negotiated.
However, the inability to conclude a satisfactory agreement may negatively
impact our ability to provide expanded services in the United States and could
adversely affect our business.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our government concessions may be revoked under certain circumstances.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government has granted to us four concessions, three relating
to our use of the orbital slots occupied by our satellites and the fourth
relating to our use of the satellite control centers and the related land and
buildings on which they are located. The orbital concessions have an initial
twenty-year term, expiring in October 2017, and are renewable after that time,
subject to certain conditions, for an additional twenty-year term. The property
concession has a forty-year term. However, these concessions are subject to
termination prior to the expiration of their terms upon the occurrence of
certain events, including our bankruptcy or liquidation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also, the Mexican government has the right to revoke the orbital
concessions pursuant to an expropriation. The Mexican government may also
temporarily seize the orbital concessions in the event of natural disaster, war
or threat to national security, public order or the Mexican economy. In the
past, the Mexican government has used this power to ensure continued service
during labor disputes. If the concessions are terminated, revoked or
temporarily seized, our results of operations and financial condition will be
materially and adversely impacted.</FONT>
<P align="center"><FONT size="2">9</FONT>
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<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to different corporate disclosure requirements than U.S.
companies.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investors may not be able to obtain as much publicly available information
about foreign issuers of securities traded in the United States as is regularly
published by or about U.S. issuers of publicly traded securities. Therefore,
potential investors may not be able to as easily ascertain the risks of our
company as they would if we were a U.S. company.
</FONT>

<P align="left"><FONT size="2"><B>Factors relating to Mexico</B>
</FONT>

<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Downturns in the Mexican economy adversely affect us.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2002, approximately 49% of our service
revenue was from billings to Mexican customers. As a result, our operations,
results and financial condition are dependent upon the level of economic
activity in Mexico. Adverse economic conditions in Mexico, such as those
experienced beginning in December 1994 or economic developments in or affecting
Mexico, could generally hurt the Mexican economy, thereby adversely affecting
our revenues, while simultaneously increasing our nominal peso-denominated
costs and expenses. In the year 2002, the Mexican gross domestic product grew
only at a rate of 0.9% and, as a result, consumer purchasing was lower than
previously forecast, reducing income to our customers and adversely affecting
our revenues.
</FONT>

<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currency devaluations may impair our ability to service our debt.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in the value of the peso relative to the dollar could adversely
affect our financial condition and results of operations. We bill our customers
in dollars, but customers may pay us in pesos at the prevailing exchange rate
on the date of payment. At the same time, all of our debt obligations are
denominated and paid in dollars. Therefore, a decline in the dollar relative to
the peso between the date of billing and the date of collection could adversely
affect our revenues.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The value of the peso sharply declined in the 1990s compared to the
dollar. The devaluation of the peso in 1990s increased the peso equivalent of
Mexican companies&#146; obligations under dollar-denominated borrowings and
adversely affected companies&#146; operations and financial position. Future
devaluations of the peso relative to the U.S. dollar could adversely affect our
ability to meet our U.S. dollar-denominated obligations. In addition, any
further devaluation of the peso may negatively affect the value of Mexican
securities, such as ours. We do not have in place hedging arrangements with
respect to devaluation risk because we do not believe them to be cost effective
for us. We may in the future consider entering into such arrangements
considering the then-relevant risks, costs and other factors.
</FONT>

<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchange controls may impair our ability to obtain dollars to make
dollar-denominated payments.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican economy has suffered current account balance of payment
deficits and shortages in foreign exchange reserves in the past. The Mexican
government may restrict the ability of Mexican or foreign persons or entities
to convert pesos into dollars or other currencies. The Mexican government has
instituted restrictive exchange control policies in the past. The imposition
of such a policy in the future may impair our ability to obtain imported goods
and to meet our obligations requiring payments in foreign currency, including
our fixed rate notes and our floating rate notes.
</FONT>

<P>
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    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Political developments in Mexico may adversely affect us.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Mexican governmental action
concerning the economy and state-owned enterprises could have a significant
impact on Satmex, Mexican private sector entities in general, and on market
conditions, prices and returns on Mexican securities, including our financial
obligations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the government of Mexico has pursued policies of economic
liberalization and deregulation in the past decade, a significant change in
those policies may hurt business and economic conditions in Mexico in</FONT>
<P align="center"><FONT size="2">10</FONT>
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<P align="left"><FONT size="2">general and our business in particular. For example, in past years Mexico has
experienced considerable political, social and economic instability, which
resulted in economic recessions and significant volatility in exchange rates,
reduced availability of credit, high inflation and high interest rates. Since
1995, the government has implemented a series of economic reform measures
designed, among other things, to stabilize the peso and reduce inflation.
Although the peso/U.S. dollar exchange rate has since remained relatively
stable and inflation has recently been reduced, such stability may not
continue. We do not have and do not intend to obtain political risk insurance.
</FONT>
<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of judgments against us would be in pesos.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that proceedings are brought against us and result in a
judgment against us in Mexico, we would not be required to discharge those
obligations in a currency other than Mexican currency. Under the <I>Ley Monetaria
de los Estados Unidos Mexicanos</I>, an obligation in a currency other than Mexican
currency, which is payable in Mexico, may be satisfied in Mexican currency at
the rate of exchange in effect on the date on which payment is made. Such rate
is currently determined and published by the Banco de M&#233;xico every business and
banking day. Although we are contractually required, and intend, to make
payments of all amounts owed under our fixed rate notes and our floating rate
notes in U.S. dollars, we are legally entitled to pay in pesos if payment on
those obligations is sought in Mexico (through the enforcement of a non-Mexican
judgment or otherwise). In the event that we make payment in pesos, holders may
experience a U.S. dollar shortfall when converting the pesos to U.S. dollars.
</FONT>

<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are declared subject to reorganization under Mexican law, holders
may find it difficult to collect payment on our fixed rate notes and our
floating rate notes.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we were subject to a reorganization proceeding in a Mexican court, our
obligations under our fixed rate notes and our floating rate notes:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">would be converted into pesos at the exchange rate prevailing
at the time of a declaration of bankruptcy or <I>concurso mercantil </I>and
from pesos into inflation indexed units at the exchange rate
prevailing at that time;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">would be dependent upon the outcome of the reorganization
proceeding and payment, if any, would occur at the time claims of
all of our unsecured creditors are satisfied if and to the extent
funds are sufficient; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">would cease to accrue interest.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">We cannot assure holders that they would be able to collect payment on the
fixed rate notes or the floating rate notes in dollars, or at all, if we became
subject to bankruptcy proceedings.
</FONT>
<P>
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<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mexican law and regulations may impair creditors&#146; ability to enforce
certain rights in Mexico.</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Mexican law, our creditors have their rights limited in the
following ways:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">any obligation to pay interest on interest is currently not
enforceable under Mexican law;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the floating rate notes and the fixed rate notes may not
constitute negotiable instruments under Mexican law and, therefore,
if you initiate an action against us in a Mexican court, that court
may not grant an immediate lien on our property;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">service of process by mail does not constitute effective
service under Mexican law, and if a final judgment based on service
of process by mail was made outside of Mexico, it would not be
enforceable in Mexico;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">any judgments as a result of enforcement proceedings in
Mexico would be payable in Pesos; and</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">11</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">payment of obligations under the floating rate notes or the
fixed rate notes would depend on the outcome of a reorganization
proceeding, which is likely to be very lengthy.</FONT></TD>
</TR>
</TABLE>
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<DIV align="left"><A NAME="002"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;4. </B><B><I>Information on the Company</I></B>
</FONT>

<P align="left"><FONT size="2"><B>General Description</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are the leading provider of fixed satellite services in Mexico and are
expanding our services to become a leading provider of fixed satellite services
throughout Latin America. We provide transponder capacity to customers for
distribution of network and cable television programming, direct-to-home
television service, on-site transmission of live news reports, sporting events
and other video feeds. We also provide satellite transmission capacity to
telecommunications service providers for public telephone networks in Mexico
and elsewhere and to corporate customers for their private business networks
with data, voice and video applications. We are also marketing the use of
satellite transmission capacity for new applications, such as Internet via
satellite.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have landing rights to provide broadcasting and telecommunications
transmission capacity in Mexico, the United States, Canada and 37 nations and
territories in Latin America. Our broadcasting customers include Grupo
Televisa, MVS Multivision, Television Azteca and PCTV and our
telecommunications services customers include Telmex, Pemex and Elektra. Our
data and Internet customers include Hughes Network Systems and Verestar.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently own and operate two satellites, Solidaridad 2 and Satmex 5,
in geostationary orbit at 113.0 degrees W.L. and 116.8 degrees W.L.,
respectively, and will be launching a third satellite, Satmex 6, in the second
half of 2003. In total, we have 96 36-MHz transponder-equivalents operating in
the C- and Ku-bands with an aggregate footprint covering substantially all of
the continental United States, the Caribbean and all of Latin America, other
than certain regions in Brazil. We also own another satellite, Morelos 2, which
is in an inclined orbit.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 6 is in the final stages of manufacture and testing. We have
contracted with Space Systems/Loral, Inc., a wholly owned subsidiary of Loral,
to build this satellite. It is scheduled to be launched in the second half of
2003 and is designed to provide broader coverage and higher power levels than
any satellite in the Satmex fleet.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2000, our Solidaridad 1 satellite ceased operations and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. The satellite was insured and
we received an insurance payment of $235&nbsp;million, which was used to service
debt and to invest in the manufacture, launch and insurance of a new satellite,
Satmex 6.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since our privatization in 1997, we have expanded our sales outside Mexico
through our direct sales force, our participation in the Loral Global Alliance
and, to a lesser extent, our network of agents, distributors and value-added
resellers in the Latin American region. This regional expansion is a result of
the broader footprint of the Satmex 5 satellite. The footprint of Satmex 6 is
designed to cover an equally broad region.
</FONT>

<P align="left"><FONT size="2"><B>The Satmex Satellites</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own and operate two geostationary communications satellites,
Solidaridad 2 and Satmex 5. Satmex 6, the high-powered replacement of
Solidaridad 1, is currently being manufactured and is scheduled to be launched
during the second half of 2003. Satmex also owns another satellite, Morelos 2,
which is in an inclined orbit, an orbit that conserves fuel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The currently operating Satmex satellites have a total capacity of 3,456
MHz (96 36MHz transponder equivalents), consisting of 1,728 MHz of C-band (48
36MHz transponder equivalents) and 1,728 MHz of Ku-band (48 36MHz transponder
equivalents) capacity. Upon the replacement of Solidaridad 1 with Satmex 6, the
Satmex system is expected to have total capacity of 5,616 MHz (156 36MHz
transponder equivalents), consisting of 3,024MHz of C-band (84 36MHz
transponder equivalents) and 2,592 MHz of Ku-band capacity (72 36MHz
transponder equivalents).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The footprints of our satellites are designed to encompass the region
extending from Argentina to the northern United States.
</FONT>

<P align="center"><FONT size="2">12</FONT>
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<P align="left"><FONT size="2"><B>Satmex 5</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 5 was launched in December 1998 and occupies the 116.8 degrees W.L.
orbital position. Satmex 5, a BS 601 HP, has 24 36MHz C-band and 24 36MHz
Ku-band transponders. As of December&nbsp;31, 2002, the satellite had an estimated
operational life of 11&nbsp;years and is
currently operating in a satisfactory condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 5 has approximately ten times the power (as measured in total
watts) of Morelos 2 and has a footprint extending from substantially all of the
48 contiguous United States to Argentina. Major Latin American countries that
are covered by the Satmex 5 footprint include Mexico, Argentina, Venezuela,
Chile and Colombia. Major U.S. cities include Los Angeles, Miami, New York,
Houston, Dallas, Chicago, San Francisco and Washington, D.C.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion system of the Xenon Ion Propulsion System (&#147;XIPS&#148;), which
provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, we were able to start the back-up
propulsion subsystem, and at no time was service on Satmex 5 interrupted.
Failures related to XIPS have occurred on other BS 601 HP spacecraft.
Performance on both Satmex 5 XIPS systems is normal. Currently, however, we are
using the second XIPS system as the primary propulsion system, and the first
system as the back-up. In addition, Satmex 5 has a chemical propulsion system
in place to provide further redundancy.
</FONT>

<P align="left"><FONT size="2"><B>Solidaridad 2</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Solidaridad 2 was launched on October&nbsp;7, 1994 and occupies the 113.0
degrees W.L. orbital position. As of December&nbsp;31, 2002, the satellite had an
estimated operational life of 6.3&nbsp;years and is currently operating in a
satisfactory condition. A BS 601 model, the satellite has 12 36MHz transponders
and 6 72MHz transponders in C-band (24 36MHz transponder equivalents) and 16
54MHz transponders in Ku-band (24 36MHz transponder equivalents).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Major Latin American countries covered by the Solidaridad 2 footprint
include Mexico, Argentina, Venezuela, Chile, Colombia, Guatemala, Belize and
Cuba. Major U.S. cities covered include Los Angeles, San Antonio, Houston,
Dallas and San Francisco. In addition, major U.S. cities that can be covered by
Solidaridad 2 spot beams include Miami and New York.
</FONT>

<P align="left"><FONT size="2"><B>Satmex 6</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 6, the replacement satellite of Solidaridad 1, is being
manufactured by Space Systems/Loral, a subsidiary of Loral, and is scheduled to
be launched in the second half of 2003 to the 109.2 degrees W.L. orbital
position. Satmex 6, a FS 1300X Satmex model, will have a total of 60 36MHz
transponders, 36 in C-band and 24 in Ku-band. Upon initiating operations,
Satmex 6&#146;s operating life is expected to be 15&nbsp;years.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 6 is designed to provide broader coverage and higher power levels
than any other satellite in the Satmex fleet. It will be roughly 300% more
powerful than Solidaridad 1 and roughly 50% more powerful than Satmex 5. It
will have hemispherical coverage in both C- and Ku-bands. From Canada to
Argentina, Satmex 6 will cover all the 48 contiguous United States and Hawaii,
the Caribbean and all of Latin America and Brazil.
</FONT>

<P align="left"><FONT size="2"><B>Solidaridad 1</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;29, 2000, our Solidaridad 1 satellite, located at 109.2 degrees
W.L., ceased operating and was considered irretrievably lost. The loss was
caused by the failure of the back-up control processor on board the satellite.
Solidaridad 1, which was built by Boeing Space Systems (formerly Hughes Space
and Communications) and commenced service in January 1994, experienced a
failure of its primary control processor in April 1999, and the satellite had
been operating on its back-up processor since that time.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Solidaridad 1 was insured for $250&nbsp;million. At the date of the loss,
Solidaridad 1 had a net book value of approximately $109.6&nbsp;million. After
deducting prepaid insurance of $1.6&nbsp;million, the unpaid insurance premiums of
</FONT><P align="center"><FONT size="2">13</FONT>
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<P align="left"><FONT size="2">$12.5&nbsp;million and on-going monitoring costs and the excess of the
estimated cost over revenue for the currently committed transponder capacity to
be provided to customers of $23.2&nbsp;million, the net gain on the in-orbit failure
of Solidaridad 1 was approximately $103.1&nbsp;million. In 2001, we reduced the
liability for the cost over revenue for the committed transponder capacity to
be provided to customers by $7.3&nbsp;million. In 2002, we received $3.3&nbsp;million
from the satellite manufacturer under the Solidaridad 1 performance guarantee
and we reduced the liability for the cost over revenue for the committed
transponder capacity to be provided to customers by $5.1&nbsp;million. These
transactions were recorded as additional gain on the in-orbit failure of
Solidaridad 1 in the applicable periods. We used the net insurance proceeds
toward the manufacture, launch and insurance of a replacement satellite (Satmex
6), as well as for debt service.
</FONT>

<P align="left"><FONT size="2"><B>Morelos 2</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Morelos 2 was launched on November&nbsp;27, 1985. Morelos 2 was placed in
inclined orbit in August 1998, earlier than expected, in order to extend its
useful life. An HS 376, it has 12 36MHz and six 72MHz transponders in C-band
(24 36MHz transponder equivalents) and another four 108MHz transponders in
Ku-band (12 36MHz transponder equivalents).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From July&nbsp;31 to August&nbsp;26, 2002, satellite maneuvers were executed to
relocate Morelos 2 from the 120.2 degrees W.L. orbital position to 109.2
degrees W.L. orbital position. Morelos 2 is in an inclined orbit and is no
longer available for commercial purposes.
</FONT>

<P align="left"><FONT size="2"><B>Landing Rights</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have secured landing rights to provide a variety of satellite-based
communications services in 40 countries in the Western Hemisphere, including
the United States. We are in the process of updating our landing rights
agreements to include Satmex 6.
</FONT>

<P align="left"><FONT size="2"><B>Satellite Control Centers and Property Concession</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once a satellite is placed in its orbital location, specialized earth
stations monitor its health, control and positioning through the end of its
in-orbit lifetime. Under the terms of our concessions, we currently operate our
satellites through two satellite control centers. The first is located at
Iztapalapa, Federal District, Mexico and the second is located at Hermosillo,
Sonora, Mexico. These centers, aggregating 31,500 square meters, are designed
to monitor user frequencies and to ensure that the satellites are operating
within established parameters and are correctly positioned to generate the
anticipated footprint.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary control center is composed of a building that houses (i)&nbsp;the
telemetry, tracking and control (TT&#038;C) systems, (ii)&nbsp;an equipment maintenance
area, (iii)&nbsp;a communications signal monitoring area, (iv)&nbsp;a dynamic simulator,
which allows for the simulation of spacecraft dynamics and control maneuvers,
and (v)&nbsp;antennae for the control, monitoring and in-orbit testing of
satellites. The primary control center forms part of a building complex that
also houses equipment owned and used for the Mexican government&#146;s teleport and
mobile service systems. While we are the only occupant of the building that
houses the satellite control center, we are required to share the site&#146;s water
facilities with the rest of the complex.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to control and operate Satmex 6, we have installed new
state-of-the-art technology hardware and software in both control centers. As
of December&nbsp;31, 2002, that investment was approximately $3.1&nbsp;million dollars.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own the equipment within the control centers and the Mexican government
owns the land and buildings that house these centers. The Property Concession
granted to us by the Mexican government allows us to use the land and
buildings. Under the terms of the concessions, we pay to the government an
annual fee of 7.5% of the value of the property on which our satellite control
centers are located. For the years ended December&nbsp;31, 2002, 2001 and 2000, the
rent expense under this agreement was $321,000, $317,000 and $289,000,
respectively.
</FONT>


<P align="center"><FONT size="2">14</FONT>



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<P align="left"><FONT size="2"><B>Properties</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not own any real property. As part of the Property Concession, we
were granted the right to use the buildings and areas in which the satellite
control centers are located, together with certain other related properties. We
lease office space under a non-cancelable operating lease expiring in May 2005.
The monthly rent, including maintenance, is approximately $118,000. Rent
expense under this lease was $1.6&nbsp;million, $1.4&nbsp;million, and $1.3&nbsp;million for
the years ended December&nbsp;31, 2002, 2001 and 2000, respectively. We believe our
facilities are adequate for our present needs.
</FONT>

<P align="left"><FONT size="2"><B>Insurance</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the floating rate note indenture, as well as under the fixed rate
note indenture, we have agreed that we will maintain in-orbit insurance for
Solidaridad 2 and Satmex 5 in an amount equal to the replacement value of such
satellites plus $25million in each case.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon launch of Satmex 5 in 1998, we purchased a five-year policy providing
for $250&nbsp;million of insurance for Satmex 5. This insurance policy for Satmex 5
expires on December&nbsp;4, 2003.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The insurance coverage on Satmex 5 provides that if 50% or more of
satellite capability is lost, then a constructive total loss is deemed to have
occurred, and the full amount of insurance would become due and payable. In the
event of a constructive or total satellite loss, the insurance policy provides
for a payment to us of up to the insured amount, less any unpaid premiums. Upon
renewal of this policy, we expect that 50% constructive total loss provisions
will no longer be available in the market on commercially reasonable terms.
Currently, policies in the marketplace contain 75% constructive total loss
provisions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently have insurance for Solidaridad 2 under terms reflecting
current market conditions. Solidaridad 2 is insured for replacement value plus
$25&nbsp;million, which we have determined to be $125&nbsp;million. The insurance
coverage on Solidaridad 2 provides that if 75% or more of satellite capability
is lost, then a constructive total loss is deemed to have occurred, and the
full amount of insurance would become due and payable. In the event of a
constructive or total satellite loss, the insurance policy provides for a
payment to us of up to the insured amount, less any unpaid premiums.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our insurance for Solidaridad 2 includes substantial exclusions relating
to the Spacecraft Control Processor (&#147;SCP&#148;) and the motor drivers, which have
been identified by insurers as at risk of failure. The primary and secondary
SCPs have failed in three BS601s, including Solidaridad 1, resulting in the
complete loss of those satellites. Currently, the primary SCP on Solidaridad 2
is operating normally, and we believe the secondary SCP is functional and would
allow for uninterrupted service from the satellite in the event of a primary
SCP failure, giving us redundant SCP capacity on Solidaridad 2. However, a
failure of the primary and secondary SCPs would result in a complete and
uninsured loss of Solidaridad 2.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, the insurance policies on Satmex 5 and Solidaridad 2 include
customary exclusions such as (i)&nbsp;military or similar actions, (ii)
anti-satellite devices, (iii)&nbsp;governmental actions, (iv)&nbsp;nuclear reaction or
radiation contamination, (v)&nbsp;willful or intentional acts of us or our
contractors, (vi)&nbsp;loss of income, indirect and consequential damages and (vii)
third-party claims against us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are in the process of obtaining launch insurance for Satmex 6. Prior to
launch, we intend to insure Satmex 6 for $300&nbsp;million against failure during
launch or its first year in orbit. Documentation is currently being negotiated
and we anticipate no exclusions other than as customary.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The control centers are covered by insurance policies against risk to the
buildings and their contents, including the antennae and equipment. To date, no
claim has been made against the insurance policies covering the control centers
or the insurance policies covering Solidaridad 2 and Satmex 5.
</FONT>

<P align="center"><FONT size="2">15</FONT>
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<P align="left"><FONT size="2"><B>Business Strategy</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The focus of our business strategy is to increase our customer base
throughout our coverage area and to increase the number of services provided to
each customer by:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="86%"><FONT size="2">enhancing our regional presence;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">strengthening our position in sectors that benefit from fixed satellite services advantages; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">growing with our current customer base and offering value-added solutions.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Enhance our regional presence</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to our extensive coverage, technical characteristics designed for our
target markets and culturally-attuned customer support, we are one of the
leading regional satellite operators in the Americas. Our fleet has a footprint
that reaches almost the entirety of the North and South American continents and
has superior design coverage over our domestic market, Mexico. However, the
failure of our satellite Solidaridad 1 on August&nbsp;29, 2000 reduced our sellable
capacity significantly. We are close to completing the manufacture of a new
satellite, Satmex 6, to replace Solidaridad 1 and increase our capacity. We
have taken extra steps to ensure the design and manufacture quality of our new
satellite by implementing a satellite and launch quality control process and by
establishing a field office where a highly experienced engineering and
consultant team supervises the design and manufacture program.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 6 was designed to provide satellite services across the Americas.
Its footprint will allow us to improve our presence in North America as well as
in key segments of Latin America. The design of Satmex 6 creates an opportunity
for our customers to expand their businesses by providing high performance
levels in markets where telecommunications infrastructure is limited. Most of
Latin America qualifies as a target market because fiber optic cables only
reach major cities and the coastlines. We expect that both Satmex 5 and Satmex
6 can generate incremental growth from these markets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we are targeting the Hispanic population in the United Sates.
Hispanics are a significant and rapidly growing segment of the U.S. population
and have sufficient resources to pay for subscriber television and Internet
services. Often, Spanish-speaking parents in the United States want their
children to maintain their native language skills. Moreover, these individuals
prefer content from their own region and are not entirely satisfied with
general &#147;Spanish-speaking&#148; programming.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our contracts are long term, which creates a base to ensure revenues for
the coming years and reduces our exposure to cancellations and renewal risks.
We continue to seek long term contracts and have recently extended the
contracts of our most important customers in Mexico, at attractive rates,
despite intense competition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to provide full regional services, we are constantly working to
resolve regulatory and political issues to increase our landing rights
throughout the Americas. We expect to take advantage of the current
liberalization of regulations in certain countries and islands of the region to
further increase our landing rights and negotiate more favorable terms for the
existing ones.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Strengthen our position in sectors that benefit from fixed satellite
services advantages</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of our strategy, we are strengthening our position in areas where
satellite service is the best solution to serve our customer needs. These are
typically video distribution, broadband applications and other point to
multi-point services. Except for rural telephony, which is only provided
through satellite, we do not expect to grow in voice transmission services,
where terrestrial infrastructure has an economic advantage.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To strengthen our position as a provider of video distribution, we
launched a new video platform called &#147;Satmex Maximo.&#148; The platform is designed
to provide a highly effective alternative to export video content from Latin
America to the Hispanic market in the U.S. Under this program we are taking
advantage of already having the premiere Mexican programmers under long-term
contracts to attract new programmers and create a cable neighborhood of
Hispanic content to be distributed in the United States. From an Atlanta
facility, the channels will
</FONT>

<P align="center"><FONT size="2">16</FONT>
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<P align="left"><FONT size="2">be combined and transmitted to U.S. cable head-ends on Satmex 5, C-band (and
will be transmitted on Satmex 6 once it is launched). Major U.S. cable
operators will be able to access our satellites and deliver Satmex Maximo
content to the growing Hispanic community in the U.S. We are providing cable
operators with the required antennas to receive our satellite signals, which
will allow them access Satmex Maximo&#146;s content from anchor tenants and top
Latin American programmers that take advantage of satellite strengths.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fleet is designed to provide broadband services throughout the
Americas. We plan to penetrate the broadband market with &#147;satellite natural&#148;
applications. Broadband satellite networks are especially attractive to markets
where terrestrial infrastructure is inadequate or non-existent. These markets
include developing countries as well as rural and underserved areas of
developed countries.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Applications of broadband service involve point to multipoint solutions
such as Internet direct-to-home, corporate very small aperture terminal (VSAT)
networks, and solutions for government objectives, among others. To increase
our participation in the broadband market, we are exploring strategic
alliances, joint-ventures and revenue sharing initiatives with technology
providers, teleports and resellers in order to offer turn-key solutions to our
customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distance learning is an attractive opportunity as it provides an
interactive data, audio and video uplink to and from the remote distance
learning site and the central location. This is attractive in many areas of
Mexico and Latin America that do not have access to universities or other
facilities with communication infrastructure.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Grow with our current customer base and offer value-added solutions</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to increase capacity utilization levels with both current and
new customers by promoting mutual business growth and by reacting to emerging
market trends that may enhance our customers&#146; businesses. We regularly develop
tailor-made marketing solutions that match our current available capacity
characteristics with our customers&#146; needs. In this process, we have begun to
offer bundled services that include satellite capacity, equipment and
maintenance for video, data and broadband customers such as state-owned TV
stations, corporate users and telecommunication service carriers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To maintain the satisfaction of our current customers, we have implemented
a customer retention strategy based on customer support and commercial
flexibility. This customer-oriented strategy strengthens our relationship with
current customers, reduces cancellation risk and promotes the expansion of
their business on our satellites.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Emerging trends in the television industry</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Video distribution is a natural application for satellite capacity as it
is point to multi-point. While satellite direct-to-home television systems are
common, cable operators also use satellites to downlink their signals. In
recent years, digital compression technology has reduced the need for satellite
capacity by compressing signals to operate within a smaller bandwidth. However,
other developments have offset this impact. Services such as High Definition
Television (HDTV)&nbsp;require more bandwidth than regular television. By offering
local channels (local-to-local), subscription television (cable and satellite
direct-to-home) will generate greater demand for satellite services. Rising
demand for national and foreign channels also has begun to stimulate demand for
satellite capacity. For example, demand in the United States for Spanish
language programming is rising rapidly, as is demand in Latin America for U.S.
channels. We are seeking to enter the market for Spanish language programming
in an effort to create demand for our satellite services.
</FONT>

<P align="left"><FONT size="2"><B>Services</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide satellite transmission capacity to broadcasting customers for
network and cable television programming, direct-to-home television service and
transmission of live news reports, sporting events and other video feeds from
the scene of the event. In addition, we provide satellite transmission capacity
to telecommunications service customers for public telephone networks in Mexico
and elsewhere and corporate customers for their private business networks with
data, voice and corporate video applications. We also provide satellite
connectivity to the Internet backbone for ISPs (Internet Service Providers). We
offer our customers part-time service, varied power and footprint service,
grades of service protection and value-added services.
</FONT>

<P align="center"><FONT size="2">17</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Broadcasting Transmission Services</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satellite capacity is utilized for broadcasting transmission services by
various national and international networks for point-to-point and
point-to-multi-point distribution of television programs, video signals and
other services, including distance learning, business television, special
events and live reports. Customers include private and state-owned broadcasting
networks, cable television programmers and direct-to-home operators.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Broadcasting customers use satellite capacity to transmit coverage of live
scheduled special events, such as the World Cup, to programmers on an ad hoc
basis. We also provide broadcasting transmission services to relay live news
coverage, short duration video feeds and syndicated programming for
broadcasters on a scheduled or ad hoc basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Broadcasting customers also use satellite capacity for &#147;backhaul&#148;
operations, such as transporting programming from a broadcaster&#146;s foreign news
bureau to a broadcast center for simultaneous or later transmission. Our
service in this area is focused on the transportation of program material and
syndicated programming for broadcasters on a scheduled basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Telecommunications Transmission Services</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide satellite capacity for domestic and international
telecommunications transmission services to public and private
telecommunications networks. These networks belong to companies across the
spectrum in financial, industrial and commercial operations, as well as
government and education, transportation and tourism, and media companies.
Companies may lease channels, circuits or fractions of a transponder, allowing
these transponders to be shared among several users.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide satellite capacity to carriers that use the capacity as part of
their communications network on a national or international basis. Our services
include the provision of satellite capacity to carriers that provide public and
private networks for data, voice and corporate video communications. Network
users utilize satellites rather than ground-based transmission media because
satellite systems provide customers cost savings for large, geographically
dispersed networks, greater independence from telephone companies,
predictability of costs over a long period, flexibility in changing or adding
remote locations to a network, integrated network management and control of all
remote locations and increased network availability and lower transmission
error rates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many businesses and organizations currently use satellite communications
networks for certain of their communications needs. For example, retail chains
use satellite business communications networks for rapid credit card
authorization and inventory control. Banks use satellite networks to connect
automatic teller machines to processing computers. News agencies use satellite
networks to distribute information continuously to numerous locations, and
paging operators use satellite networks to distribute paging information from a
central switch to multiple remote transmitters for retransmission to pagers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide satellite capacity to domestic and regional communications
centers in Latin America. The provision of satellite capacity to carriers
involves relatively low marketing and operating costs and promotes the use of
satellite networks for business communications in Latin America. The Mexican
government currently represents one of the largest users of communications
facilities in Mexico.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer transponder capacity for end-to-end satellite services for two
types of private business communications networks: international digital
services networks and very small aperture terminal (VSAT)&nbsp;networks.
International digital services networks consist of rooftop antennas and are
used by customers that have relatively steady flows of information to and/or
from all of the points in the network. Because of their large transmission
requirements, international digital services networks require dedicated,
permanent communications links to each point. Very small aperture terminals
networks differ from international digital services networks in that very small
aperture terminals networks consist of very small rooftop antennas and are
utilized by customers that need to send short bursts of data over the network
for relatively short periods of time. Through the use of very small aperture
terminals technology and sophisticated software, these networks can be served
with a relatively small amount of satellite capacity.
</FONT>

<P align="center"><FONT size="2">18</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Internet Service Providers</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide satellite capacity to deliver high-speed satellite-based
Internet connectivity, offering a variety of configurations, throughout most of
North America and Latin America. Our fleet provides an efficient means by which
ISPs, service integrators, infrastructure enablers, universities, governments
and other corporations may utilize Internet-related applications. The benefits
of satellite transmission include avoiding the congestion typically associated
with land-based networks, faster network deployment and configuration, high
data throughput, ubiquitous coverage, low cost and highly reliable service. We
believe that these benefits, together with Latin America&#146;s lack of
infrastructure, geographic dispersion and low population density indicate that
demand for Internet connectivity via satellite, in both the consumer and
corporate markets, will have strong growth in the future.
</FONT>

<P align="left"><FONT size="2"><B>Customers</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a broad customer base that includes private and state-owned
broadcasting networks, cable television programmers, direct-to-home operators,
and public and private telecommunications networks belonging to financial,
industrial and commercial, government, transportation and tourism, educational
and press-related companies. A large portion of our revenues are derived from a
small number of customers. Approximately 35 of our customers account for
approximately 80% of our current revenue base, and our top 10 customers
represented approximately 53% of our revenues during 2002. Our largest
customer is Hughes Network Systems, a wholly owned subsidiary of Hughes
Electronics Corporation. Revenue from Hughes Network Systems represented 15%
and 10% of service revenue for the years ended December&nbsp;31, 2002, and 2001,
respectively. We expect that Hughes Network Systems will continue to expand its
capacity requirements and represent a greater portion of our service revenue in
2003. Revenue from the Mexican government represented 8%, 8% and 7% of service
revenue for the years ended December&nbsp;31, 2002, 2001 and 2000, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001 and 2002, we experienced significant terminations and were
unable to renew contracts with certain customers upon expiration. Some
terminations occurred in the first quarter of 2003, but we do not expect
terminations and non-renewals to be significant throughout the remainder of
2003. Cancellation or non-renewal of service contracts of our large customers
would have an adverse effect of our results of operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 49%, 55% and 53% of our service revenue for the years ended
December&nbsp;31, 2002, 2001 and 2000, respectively, were generated from customers
in Mexico.
</FONT>

<P align="left"><FONT size="2"><B>Sales and Marketing</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales Force</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our sales force is divided by geographic markets. The majority of our
sales force is fluent in at least two of Spanish, English and Portuguese,
enabling them to communicate comfortably with individuals in domestic and
foreign companies. We have been increasing our sales force in order to execute
our Satmex 6 pre-sales and sales campaign.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a member of the Loral Global Alliance, which is currently composed
of Satmex, Loral Skynet, Skynet do Brasil and Europe*Star. The Loral Global
Alliance provides for cross-selling arrangements among the alliance members&#146;
respective sales forces and for cooperative marketing and promotional
activities. We believe that such arrangements enable the members of the
alliance to compete more effectively in sales of communications satellite
services worldwide. Revenues from customers referred from the Loral Global
Alliance represented approximately 17% of our 2002 revenues.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>International Sales</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our satellites have broad international footprints and landing rights.
Markets in the Western Hemisphere as a whole are similar for the major
broadcasting and telecommunications transmission segments. We have expanded our
sales outside of Mexico through our direct sales force, our participation in
the Loral Global Alliance and our network of agents, distributors and
value-added resellers in the Latin American region.
</FONT>

<P align="center"><FONT size="2">19</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tariffs</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our existing tariffs are comparable to those of other satellite operators,
such as Loral Skynet, SES Americom and PanAmSat.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to our privatization in 1997, a rigid pricing structure had been
required by Mexican law and impeded the customization of service. Under the
Federal Telecommunications Law passed in 1995, we are allowed to establish
rates and terms and conditions for services. Tariffs must be filed with the
Mexican Federal Telecommunications Commission (COFETEL)&nbsp;prior to their taking
effect, but price changes do not require prior governmental approval. However,
regulators may specify maximum tariffs, minimum service quality and certain
informational requirements for a dominant service provider. We are not deemed
to be a dominant service provider at this point in time.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Contracts</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The terms of our current contracts with customers range from one year to
end-of-life. Substantially all of our customers&#146; contracts are non-cancelable
or carry a substantial cancellation penalty.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our customers have lease contracts that are denominated in
U.S. dollars and require payment during the beginning of each month for which
satellite services are provided. Any late payment is generally subject to an
interest charge. Our domestic customers may pay the Mexican peso equivalent of
the U.S. dollar lease amount calculated on the basis of the spot exchange rate
at the time of payment. We set our prices to customers in U.S. dollars and
operate in a manner intended to minimize the effect of fluctuations in exchange
rates. Nonetheless, fluctuations of the exchange rate and other developments
related to currencies could adversely affect our customers&#146; demand for our
services and their ability to pay for them.
</FONT>

<P align="left"><FONT size="2"><B>Competition</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technological advances in satellite systems and deregulation in the
worldwide satellite market have led to the globalization of the satellite
industry and an increasingly competitive framework both for domestic and
international services. We face competition from other satellite companies as
well as telecommunications companies that offer competing services via
satellites or terrestrial facilities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete with PanAmSat, Intelsat, SES Global, and New Skies in providing
international satellite services in Latin America. PanAmSat has a fleet of 21
satellites, including 14 that provide some coverage of Latin American markets.
Intelsat, a former inter-governmental organization, provides satellite services
around the world with a fleet of 24 satellites, including 9 that provide some
coverage of Latin American markets. Currently, New Skies Satellites has a fleet
of six satellites including two that serve Latin America. In November 2000,
Telesat Canada successfully launched the Anik F1 satellite, which serves all of
the Americas. Further, in 2001, SES Astra merged with GE Americom to form SES
Global. SES Global has a fleet of 39 satellites, of which 19 serve parts of
Latin America. We cannot assure you that we will be able to compete
successfully with our competitors.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. Open-Market Reorganization for the Betterment of International
Telecommunications Act (&#147;ORBIT&#148;) requires that Intelsat conduct an initial
public offering (&#147;IPO&#148;) of its equity securities no later than July&nbsp;30, 2004.
The privatization of Intelsat allowed it to become more commercially focused.
The public offering will allow it to raise capital to expand and grow.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several new satellites compete in our current and proposed coverage areas
and others are in the manufacture or planning stages. These new satellites
(other than replacement satellites not significantly larger than the ones they
replace) have increased the capacity available for the provision of services
that compete with our services. After a satellite has been successfully
delivered in orbit, the variable cost of transmitting additional data via the
satellite is minimal. Accordingly, absent a corresponding increase in demand,
this new capacity can be expected to result in price reductions. Price
reductions in transponder leases could have a material adverse effect on our
revenue and our ability to service our indebtedness.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As land-based telecommunications services expand, demand for our services
may be reduced. For example, in
</FONT>

<P align="center"><FONT size="2">20</FONT>

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<P align="left"><FONT size="2">the past we have experienced a number of contract cancellations or
non-renewals by customers who switched to fiber optic service providers. These
fiber optic service providers can generally provide services at a lower cost
and further build-out of this infrastructure could hurt our revenue.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Domestic Market</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are one of the main providers of fixed satellite services in Mexico,
which for the year ended December&nbsp;31, 2002, accounted for approximately 49% of
our total revenues. The Mexican Federal Telecommunications Law currently allows
competition in providing domestic fixed satellite services by any duly licensed
Mexican satellite operator and by foreign licensed satellite operators in the
provision of international fixed satellite services, direct-to-home fixed
satellite services and broadcast satellite services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government has liberalized its regulatory environment to allow
non-Mexican satellite companies to provide satellite services in Mexico. On
August&nbsp;10, 2001, the Mexican government granted licenses to provide satellite
service in Mexico to PanAmSat, SES Global, Televisa and Enlaces Integra (an
affiliate of Satmex). PanAmSat registered 11satellites and SES Global
registered seven satellites to provide satellite service in Mexico. While we
have historically been the leading provider of domestic fixed satellite
services in Mexico, our Mexican market share may be reduced in the future by
these new competitors. This would in turn have a corresponding adverse effect
on our revenue.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our competition for the provision of satellite capacity for transmissions
into Mexico, whether originating in Mexico or abroad, also comes from
telecommunications companies with fiber optic networks. Fiber optic lines have
expanded significantly in recent years, and lend themselves to inter-city high
volume transmissions, particularly point to point services. They are limited,
however, in their ability to compete with satellites to link a high number of
low volume points scattered across a wide or remote area. For television and
radio services, the costs associated with reaching subscribers is much higher
with fiber optic networks than it is with satellite transmissions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our satellites were designed and built to cover the Mexican domestic
market and therefore have broad footprints and high power levels for coverage
of Mexico. We believe that our orbital slots have superior positioning in
relation to the majority of our competitors that have access to the Mexican
market. In addition, the Fixed Satellite Services Protocol between the United
States and Mexico permits us to currently land international signals in the
U.S. market and provide domestic services in the United States upon obtaining
all necessary licenses and authorizations from the FCC.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we have several advantages over foreign and international
satellites with regard to power, capacity, price and ability to offer superior
customer service, which should allow us to maintain our leadership position in
domestic services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Central and South American Markets</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We face competition in Central and South America from several satellite
operators. These include PanAmSat, Intelsat, SES Americom, New Skies
Satellites, Hispasat, Star One and Nahuelsat. Partly in response to the
development of satellite services in the United States, the greater capacity of
new satellites and the development of the region, satellite operators have
begun expanding into the Central and South American markets. The FCC has
approved the international offerings of companies such as PanAmSat and SES
Americom from orbital positions originally intended solely for the United
States.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These satellite operators have concentrated on distributing television
programming to cable systems as well as direct to home. Latin America will
probably continue to rely on satellite communications more extensively than
other regions because most of the region&#146;s countries have low population
densities and low telecommunications equipment densities, heavy forest cover,
mountainous terrain and desert areas.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the upcoming launch of Satmex 6, we believe that we will improve our
presence in the Latin American market.
</FONT>

<P align="center"><FONT size="2">21</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>U.S. Market</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. commercial satellite market is currently dominated by three major
competitors: Loral Skynet, PanAmSat and SES Americom. Currently, the majority
of the capacity on U.S. satellites is used for broadcasting transmission
services, another significant portion is used for telecommunications
transmission services, and the remaining capacity is currently available or
used for part-time services. This relatively low percentage for
telecommunications transmission services can partially be explained by the high
demand for multi-channel pay television, which reaches more than 90% of all
U.S. homes, and by the fiber optic telephony network and the widespread use of
wireless systems.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fixed Satellite Services Protocol between the United States and Mexico
allows Mexican satellites to offer international and domestic services in the
United States, subject to obtaining all necessary FCC regulatory approvals, and
allows U.S. satellites to offer international fixed satellite services,
direct-to-home fixed satellite services and broadcast satellite services and
certain domestic fixed satellite services. Satellites licensed by the United
States were authorized to provide domestic fixed satellite services in Mexico
beginning in January 1999. Satellites licensed by Mexico were authorized to
provide domestic fixed satellite services in the United States beginning on
January&nbsp;1, 1998. This allows our customers to target the Hispanic population in
the United States. We believe that this protocol and the upcoming launch of
Satmex 6 will improve our presence in North America. The footprint of Satmex 6
was designed to provide satellite services in the U.S. market.
</FONT>

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<P align="left"><FONT size="2"><B>Item&nbsp;5. </B><B><I>Operating and Financial Review and Prospects</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Overview</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hold concessions from the government of Mexico to operate satellites in
three orbital positions. We own and operate two geostationary communications
satellites, Solidaridad 2 and Satmex 5, in two of those positions. We plan to
launch a third satellite, Satmex 6, in the second half of 2003. We also own
another satellite, Morelos 2, which is in an inclined orbit. We operate in the
fixed satellite services segment and are the leading provider of such services
in Mexico and are expanding our services to become a leading provider of such
services throughout the Americas. We are also marketing the use of satellite
transmission capacity for new broadband applications, such as connectivity to
the Internet backbone via satellite. We have landing rights to provide
broadcasting and telecommunications transmission capacity in Mexico, the United
States, Canada and 37 nations and territories in the Latin American region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;17, 1997, Loral Space &#038; Communications Ltd. (together with its
subsidiaries &#147;Loral&#148;) and Principia, S.A. de C.V. (&#147;Principia&#148;) acquired 75% of
our issued and outstanding stock from the government of Mexico for $647&nbsp;million
through Firmamento Mexicano, S. de R. L. de C.V. (&#147;Firmamento&#148;). Loral owns 65%
of Firmamento and Principia owns 35%. Loral holds 49% and Principia holds 51%
of Firmamento&#146;s voting interests. The remaining 25% of our capital stock was
retained by the Mexican government.</FONT>

<P align="center"><FONT size="2">22</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;30, 1999, we issued 606,730 shares of preferred stock to Loral
and Principia for a total purchase price of approximately $31.9&nbsp;million. The
preferred stock has limited voting rights and pays a cumulative dividend in our
common stock. The preferred stock can be exchanged at our option into our
common stock, at a ratio of one share of preferred stock for 2.0008 shares of
common stock if the exchange occurs before February&nbsp;2, 2005, and at a ratio of
one share of preferred stock for 4.0016 shares of common stock on and after
February&nbsp;2, 2005. As of December&nbsp;31, 2002, Servicios Corporativos Satelitales,
S.A. de C.V., a wholly owned subsidiary of Firmamento, holds 70.71% of our
outstanding capital stock, Loral holds 4.46%, Principia holds 1.26% and the
Mexican government holds 23.57%.
</FONT>

<P align="left"><FONT size="2"><B>Recent Trends in the Satellite Industry</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Early in 2001, the telecommunications sector began to suffer a sharp
downturn. Supply increased as a result of a build-out of fiber optics capacity
around the world. At the same time, demand was reduced via compression
technology that allows more efficient utilization of telecommunications
capacity. Also in 2001, the Internet sector, one of the primary growth drivers
for satellite services, also suffered a downturn from which it has not yet
recovered. The worldwide business climate began to slow down and Latin America,
because of its more volatile economies, has suffered to a greater extent.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This industry downturn affected both satellite operators and their
customer base. As of 1999, voice customers began to switch to fiber optic
cable, where available. Using new technology, some existing customers have been
able to compress data to a greater extent, requiring less satellite capacity to
send their signals. With the decline of the Internet sector, many businesses
that were users of satellite capacity failed and the pick-up of broadband/data
services has been slower than expected. In summary, many anticipated projects
have been postponed, some customers have been forced to cancel their satellite
service contracts, and the development of new business has been slower than
expected. From July 2001 to December 2002, our backlog decreased by $98
million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the same time, satellites themselves have been increasing in size,
capacity, power levels and the surface of the earth to which their signals can
reach. The use of compressed data has increased capacity of satellites to offer
more data. The result has been lower utilization rates across the fixed
satellite services industry.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During this period, in part because Latin America is recognized as a
market with long-term growth potential, competition has increased in our
market. On August&nbsp;10, 2001, the Mexican government granted licenses to provide
satellite service in Mexico to PanAmSat, SES Global, Televisa and Enlaces
Integra. A total of 18 satellites were registered to provide satellite service
in Mexico. Given the lower marginal cost to provide satellite service once a
satellite is in place, prices of fixed satellite services have fallen over the
last two years.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due, however, to lower pricing as well as early economic recovery, we are
beginning to see new demand for fixed satellite services. Technological
advances, such as high definition television, are working in our favor because
this service requires more bandwidth than regular television. In addition, the
requirement that subscription television (cable and satellite direct to home)
offer local channels (local-into-local) will entail significantly greater
demand for satellite services. Rising demand for national and foreign channels
has also begun to stimulate demand for satellite capacity. For example, demand
in the United States for Spanish language programming is rising rapidly as is
demand in Latin America for U.S. channels. Satmex is seeking to enter the
market for Spanish language programming in an effort to create demand for its
satellite services.
</FONT>

<P align="left"><FONT size="2"><B>Satellite Operations</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2000, our Solidaridad 1 satellite ceased operating and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1, which was
built by Hughes Space and Communications and commenced service in January 1994,
experienced a failure of its primary control processor in April 1999, and the
satellite had been operating on its back-up processor since that time.
Solidaridad 1 was insured for $250&nbsp;million. At the date of the loss,
Solidaridad 1 had a net book value of approximately $109.6&nbsp;million. After
deducting prepaid insurance of $1.6&nbsp;million, the unpaid insurance premiums of
$12.5&nbsp;million and on-going monitoring costs and the excess of the estimated
cost over revenue for the currently committed transponder capacity to be
provided to customers of $23.2&nbsp;million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1&nbsp;million. In January 2001, Satmex
received insurance proceeds of
</FONT>

<P align="center"><FONT size="2">23</FONT>
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<P align="left"><FONT size="2">approximately $235.3&nbsp;million, net of the unpaid insurance premiums and
related value added tax. We used the net insurance proceeds towards the
manufacture, launch and insurance of a replacement satellite and have
contracted with Space Systems/Loral, Inc., a wholly owned subsidiary of Loral,
to build the replacement satellite, known as Satmex 6. We also used a portion
of the net insurance proceeds for debt service. Satmex 6 is scheduled to be
launched in the second half of 2003, and is designed to provide broader
coverage and higher power levels than any other satellite currently in the
Satmex fleet. In 2001, we reduced the liability for the cost over revenue for
the committed transponder capacity to be provided to customers by $7.3&nbsp;million.
In 20002, we received $3.3&nbsp;million from the satellite manufacturer under the
Solidaridad 1 performance guarantee and we reduced the liability for the cost
over revenue for the committed transponder capacity to be provided to customers
by $5.1&nbsp;million. These transactions were recorded as additional gain on the
in-orbit failure of Solidaridad 1 in the applicable periods.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion system of the Xenon Ion Propulsion System (&#147;XIPS&#148;), which
provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, we were able to start the back-up
propulsion subsystem, and at no time was service on Satmex 5 interrupted.
Failures related to XIPS have occurred on other BS 601 HP spacecraft.
Performance on both Satmex 5 XIPS systems is normal. Currently, however, we are
using the second XIPS system as the primary propulsion system, and the first
system as the back-up. In addition, Satmex 5 has a chemical propulsion system
in place to provide further redundancy.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, our Solidaridad 2 and Satmex 5 were operating
normally and had remaining estimated useful lives of 6.3 and 11
years, respectively.
</FONT>

<P align="left"><FONT size="2"><B>Results of Operations for the Year Ended December&nbsp;31, 2002 Compared to December&nbsp;31, 2001</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenue for 2002 was $85.0&nbsp;million, as compared to $128.0&nbsp;million
for 2001. The decrease is due to lower utilization of Solidaridad 2 and Satmex
5 caused by contract cancellations of $13.7&nbsp;million and non-renewals of $29.3
million. As previously disclosed, the transponder lease for our then-largest
customer, Innova, ended on March&nbsp;31, 2002. Innova represented approximately
$1.5&nbsp;million and $25&nbsp;million of revenue for years ended December&nbsp;31, 2002 and
2001, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Early indications in 2003 suggest that the trend of cancellations and
non-renewals has slowed. Cancellation or non-renewal of service contracts of
our large customers would have an adverse effect on our results of operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating expenses decreased to $86.5&nbsp;million in 2002, from $92.9&nbsp;million
in 2001, as described below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Satellite operations. </I>Satellite operations costs, which consist primarily
of satellite insurance and the personnel costs related to the operation of the
satellites, were $17.1&nbsp;million for 2002, as compared to $19.8&nbsp;million in 2001.
The decrease is primarily due to a lower cost for replacement capacity on other
satellites for customers previously on Solidaridad 1, representing $2.4
million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling and administrative expenses. </I>Selling and administrative expenses
in 2002 were $20.8&nbsp;million as compared to $22.6&nbsp;million in 2001. The decrease
is primarily due to personnel reductions, which reduced expenses by $1.4
million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>License and management fees. </I>Loral and Principia are responsible for the
management of our operations. Loral and Principia receive a management fee,
based on a sliding scale, up to a maximum of 3.75% of our quarterly gross
revenue, as defined. For the year ended December&nbsp;31, 2002, no management fee
was earned. For the year ended December&nbsp;31, 2001, the management fee was $2.3
million, of which $767,000 was offset against accrued expenses. Loral has
licensed certain intellectual property to us for an annual fee of 1.5% of our
gross revenue, as defined. For 2002 and 2001, the fee was $1.2&nbsp;million and $1.8
million, respectively, of which $65,000 and $106,000, respectively, was offset
against accrued expenses. The license fee decreased due to our lower revenue.
</FONT>

<P align="center"><FONT size="2">24</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation and amortization. </I>Depreciation expense was $34.5&nbsp;million in
2002 and $34.4&nbsp;million in 2001. Amortization expense relating to the
concessions was $12.9&nbsp;million in each year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest income</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income for 2002 was $2.0&nbsp;million as compared to $9.3&nbsp;million for
2001. The decrease is primarily due to lower levels of restricted and
segregated cash available for investment, representing $7.1&nbsp;million, as well as
lower interest rates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest cost</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest cost, including $14.2&nbsp;million of capitalized interest
related to the construction of Satmex 6, was $52.0&nbsp;million in 2002 as compared
to $59.4&nbsp;million, including $3.5&nbsp;million of capitalized interest related to the
construction of Satmex 6, for 2001. Total interest cost decreased due to lower
average outstanding debt during 2002 and lower interest rates on our variable
rate debt.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net foreign exchange gain</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded a net foreign exchange gain of $93,000 in 2002 as compared to
a foreign exchange gain of $28,000 in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Deferred income tax benefit</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2002, the Mexican government enacted a new income tax law
that reduces the 35% statutory income tax rate by 1% per year beginning January
1, 2003 through January&nbsp;1, 2005. We recorded a deferred income tax benefit of
$1.8&nbsp;million in the first quarter of 2002 for the effect of this change on
deferred tax assets and liabilities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2002, we recorded a deferred income tax
benefit of $8.8&nbsp;million on a loss before income taxes of $28.8&nbsp;million,
yielding an effective rate of 30.7%, while for 2001 we recorded a benefit of
$1.1&nbsp;million on a loss of $4.3&nbsp;million, yielding an effective rate of 27%. The
change from 2001 to 2002 relates primarily to the increased benefits recorded
in 2002 for the Mexican income tax effect of inflation and currency
remeasurement , the reduction to the statutory income tax rate, and the
additional provision recorded in 2002 to increase the valuation allowance.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net operating losses may be carried forward for 10&nbsp;years and any asset tax
paid is available as a credit against the income tax liability for a ten-year
period. At December&nbsp;31, 2002 we had tax loss carryforwards of approximately
$278&nbsp;million, which expire from 2008 to 2012, and tax credits available against
the asset tax of approximately $38&nbsp;million, which expire in 2003. Without these
credits, we would have incurred an asset tax liability of approximately $3.1
million in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Preferred stock dividend requirement</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preferred stock dividend requirement of $1.5&nbsp;million in 2002 and 2001
relates to the value of the stock dividend issuable on the 606,730 shares of
preferred stock issued in March 1999.
</FONT>

<P align="left"><FONT size="2"><B>Results of Operations for the Year Ended December&nbsp;31, 2001 Compared to December
31, 2000</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenue for the year ended December&nbsp;31, 2001 was $128.0&nbsp;million,
as compared to $136.4&nbsp;million for the year ended December&nbsp;31, 2000. The
decrease is due to reduced utilization caused by contract cancellations and
non-renewals, partially offset by higher average prices on Solidaridad 2 and
Satmex 5. The failure of Solidaridad 1 did not have a significant effect on
revenue for the year ended December&nbsp;31, 2001 because most of its customers were
provided with alternative capacity on Solidaridad 2, Satmex 5 or on satellites
operated by Loral Skynet.
</FONT>

<P align="center"><FONT size="2">25</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating expenses</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating expenses decreased to $92.9&nbsp;million for the year ended December
31, 2001, as compared to $102.1&nbsp;million for 2000, as described below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Satellite operations. </I>Satellite operations costs, which consist primarily
of satellite insurance and the personnel costs related to the operation of the
satellites, were $19.8&nbsp;million for 2001, as compared to $20.0&nbsp;million for 2000.
The decrease is primarily due to the reduction in insurance expense related to
Solidaridad 1, offset by the cost of providing replacement capacity to
customers after the failure of Solidaridad 1 of $6.7&nbsp;million and an increase in
salary expense.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling and administrative expenses. </I>Selling and administrative expenses
for 2001 were $22.6&nbsp;million, as compared to $20.3&nbsp;million for 2000. The
increase is primarily due to increased legal and consulting costs and higher
compensation costs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>License and management fees. </I>Loral and Principia are responsible for the
management of our operations. Loral and Principia receive a management fee,
based on a sliding scale, up to a maximum of 3.75% of our quarterly gross
revenue, as defined. Also, Loral has licensed certain intellectual property to
us for an annual fee of 1.5% of our gross revenue, as defined. Fees for the
year ended December&nbsp;31, 2001 and 2000 were $3.3&nbsp;million and $5.1&nbsp;million,
respectively. License and management fees decreased due to our lower revenue.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation and amortization. </I>Depreciation expense for 2001 was $34.4
million as compared to $43.8&nbsp;million for 2000. The decrease in depreciation
expense is due to the write-off of Solidaridad 1 after it ceased operating in
August 2000. Amortization expense relating to the concessions amounted to $12.9
million during each period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest income</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income for 2001 was $9.3&nbsp;million as compared to $1.5&nbsp;million for
2000. The increase is primarily due to interest of $7.4&nbsp;million earned on the
restricted and segregated cash.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest cost, including $3.5&nbsp;million of capitalized interest
related to the manufacture of Satmex 6, was $59.4&nbsp;million in 2001 as compared
to $66.6&nbsp;million for 2000. Total interest cost decreased due to lower average
outstanding debt during 2001 and lower interest rates on our variable rate
debt.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net foreign exchange gain (loss)</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded a net foreign exchange gain of $28,000 in 2001 as compared to
a loss of $98,000 in 2000. The peso remained relatively stable against the
dollar in each year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Deferred income tax benefit (expense)</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded a deferred income tax benefit of $1.1&nbsp;million in 2001, as
compared to an expense of $17.0&nbsp;million in 2000 which included an expense of
$36.7&nbsp;million on the net gain from the in-orbit failure of Solidaridad 1.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the greater of an income tax at 35% of taxable income or
an asset tax at 1.8% on the average of assets less certain liabilities. During
2000, we received a favorable ruling from the Mexican Supreme Court of Justice
allowing the deduction for foreign liabilities, including but not limited to,
financial liabilities, when computing the taxable base for the asset tax. This
ruling will have a favorable effect to reduce our asset tax in the future.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net operating losses may be carried forward for 10&nbsp;years and any asset tax
paid is available as a credit against the income tax liability for a ten-year
period. At December&nbsp;31, 2001 we had tax loss carryforwards of approximately
$237&nbsp;million which expire from 2008 to 2010 and tax credits available against
the asset tax of approximately $43.7&nbsp;million which expire in 2003. Without
these credits, we would have incurred an asset tax liability of approximately
</FONT>

<P align="center"><FONT size="2">26</FONT>
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<P align="left"><FONT size="2">$6.6&nbsp;million in 2001.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Preferred stock dividend requirement</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preferred stock dividend requirement of $1.5&nbsp;million in 2001 and 2000,
relates to the value of the stock dividend payable on the 606,730 shares of
preferred stock issued to Loral and Principia in March 1999.
</FONT>

<P align="left"><FONT size="2"><B>Inflation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, 2001 and 2000, the annual rates of inflation in Mexico, as
measured by changes in the National Consumer Price Index as provided by the
Banco de Mexico, were 5.7%, 4.4% and 9.0%, respectively. Our major
expenditures, including capital expenses and satellite insurance, are not
affected by high levels of inflation, because they are denominated in dollars.
Our customer contracts are also denominated in dollars. However, high inflation
rates would affect peso denominated expenses such as payroll and rent and could
result in an increase in uncollectible accounts receivable and customer lease
cancellations. To the extent that the peso&#146;s devaluation against the U.S.
dollar is less than the inflation rate in Mexico, we will be adversely affected
by the effect of inflation in Mexico with respect to our peso denominated
expenses.
</FONT>

<P align="left"><FONT size="2"><B>Capital Expenditures</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our capital expenditures are denominated in U.S.
dollars. Capital expenditures were $123.2&nbsp;million for 2002, as compared to
$95.7&nbsp;million for 2001. Expenditures in 2002 and 2001 for the construction of
Satmex 6 were $119.8&nbsp;million and $91.9&nbsp;million, of which $108.0&nbsp;million and
$83.8&nbsp;million was funded through the use of restricted and segregated cash,
respectively. We expect capital expenditures for 2003 to be approximately $92.9
million for the completion of Satmex 6. Following the launch of Satmex 6, we
expect a sharp drop in capital expenditures.
</FONT>

<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
March&nbsp;31, 2003, we had total debt of $524.1&nbsp;million. At
each of December&nbsp; 31, 2002 and March&nbsp;31, 2003,
we were in compliance with all covenants contained in our debt agreements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary source of liquidity for working capital purposes is cash flow
from operations. As of March&nbsp;31, 2003, we had $16.3&nbsp;million in available cash
and cash equivalents. Funds from the satellite and debt escrow accounts had
been fully used and, as of March&nbsp;31, 2003, no remaining balances existed. We
believe that available working capital will not be sufficient to fund the in-orbit
delivery of the Satmex 6 satellite unless we extend the maturities of our fixed
rate notes and consummate the Ex-Im and Coface financing arrangements, or
obtain other financing or negotiate satisfactory payment terms for delivery of
Satmex 6 in-orbit. Further, if we do not complete the exchange offer and the
Satmex 6 financings, we do not expect future cash flows to be sufficient to
make future interest and principal payments on our fixed rate notes and our
floating rate notes. We do not expect our shareholders to contribute any more
equity to the Company.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cash used and provided</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for the year ended December&nbsp;31,
2002 of $20.9&nbsp;million consisted primarily of $27.6&nbsp;million of funds generated
by earnings before non-cash items, interest income on the restricted and
segregated cash and the use of restricted and segregated cash for interest
payments and decreases in prepaid insurance of $4.1&nbsp;million and amounts due
from related parties, net of $0.3&nbsp;million; partially offset by an increase in
accounts receivable of $3.6&nbsp;million, a decrease in accounts payable and accrued
expenses of $7.4&nbsp;million and an increase in deferred financing costs and other
assets of $0.1&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash used in investing activities for 2002 was $15.2&nbsp;million. Capital
expenditures for 2002 were $123.2&nbsp;million, which included $119.8&nbsp;million for
the construction of Satmex 6, and of which $108.0&nbsp;million was funded through
the use of the restricted and segregated cash account. Substantially all
capital expenditures are denominated in U.S. dollars.
</FONT>

<P align="center"><FONT size="2">27</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash used in financing activities for the year ended December&nbsp;31, 2002 was
$5.0&nbsp;million and reflects the repayment of $31.6&nbsp;million of our floating rate
notes, of which $26.6&nbsp;million was funded through the use of restricted and
segregated cash. During the fourth quarter of 2002, we borrowed $13.0&nbsp;million
under our revolving credit facility. All borrowings were repaid by December&nbsp;31,
2002 and the revolving credit facility expired.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Contractual Obligations and Other Commercial Commitments</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables aggregate our contractual obligations and other
commercial commitments as of December&nbsp;31, 2002 (in thousands).
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Payments Due by Period</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Less Than</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 - 3</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>4 - 5</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>After 5</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Contractual Obligations:</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center">&nbsp;</TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">524,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">523,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating
leases<SUP>(1)</SUP>
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,504</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unconditional purchase
obligations<SUP>(2)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,181</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other long-term
obligations<SUP>(3)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,797</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total contractual cash
obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">586,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">28,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">526,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">1,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">30,057</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Amount of Commitment Expiration Per Period</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amounts</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Less Than</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>4 - 5</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>After 5</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Other Commercial Commitments:</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Committed</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 - 3 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center">&nbsp;</TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monitoring service
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">$</FONT></TD>
    <TD align="right"><FONT size="2">13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Represents future minimum payments under non-cancelable operating leases
with initial or remaining terms of one year or more.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Represents the commitments for the construction and launch of Satmex 6.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Represents payments to the Mexican government under the Property
Concession.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The Fixed Rate Notes</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;2, 1998, we issued the fixed rate notes in an aggregate
principal amount of $320&nbsp;million, all of which was outstanding on March&nbsp;31,
2003. The interest rate on the fixed rate notes is 10.125%. We are required to
make interest payments on the fixed rate notes semi-annually in cash in arrears
on each February 1 and August 1 until maturity. The fixed rate notes mature on
November&nbsp;1, 2004 and are unsecured, unsubordinated obligations, rank <I>pari passu</I>
in right of payment with all of our existing and future unsecured,
unsubordinated obligations, and are senior in right of payment to all of our
future subordinated indebtedness.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fixed rate notes indenture contains certain covenants that impose
certain limitations and restrictions on our ability to incur additional
indebtedness, pay dividends or make other distributions, make certain loans and
investments, apply the proceeds of asset sales (and use the proceeds thereof),
create liens, enter into certain transactions with affiliates, merge,
consolidate or transfer substantially all of our assets and make investments in
unrestricted subsidiaries. The events of default under the fixed rate notes
indenture includes various events of default customary for similar issues of
notes, including the failure to pay principal and interest when due, cross
acceleration and certain events of bankruptcy, insolvency and reorganization.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The Floating Rate Notes</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;2, 1998, we issued $325&nbsp;million of senior secured floating rate
notes due June&nbsp;30, 2004. The floating rate notes rank senior in right of
payment to all of our subordinated debt and <I>pari passu </I>in right of payment to
all of
our senior indebtedness, including the fixed rate notes. They are secured
by a lien on substantially all of our assets. The floating rate notes bear
interest at rates based either on LIBOR or the base rate specified in the fixed
rate notes indenture, at our option, and are redeemable at our option. In
addition, the floating rate notes are guaranteed by Firmamento and Servicios.
</FONT>

<P align="center"><FONT size="2">28</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to containing similar covenants as the fixed rate notes, the
floating rate notes contain covenants that require maintenance of certain
quarterly financial and operating ratio levels and impose limits on our
spending for capital expenditures. At March&nbsp;31, 2003, we were in compliance
with all covenants in the floating rate note indenture.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are required to make quarterly redemption payments on the floating rate
notes of $250,000 through March&nbsp;31, 2004, plus additional prepayments from
excess cash flow, as defined in the floating rate note indenture, with the
balance due on June&nbsp;29, 2004.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2001, a technical default existed with respect to our
floating rate notes due to our failure to make a principal prepayment from
excess cash flow for the year ended December&nbsp;31, 2000, as defined under the
floating rate note indenture. On April&nbsp;23, 2002, we made the required principal
prepayment of $11.9&nbsp;million, plus accrued interest of $228,000, as well as a
principal prepayment for 2001 excess cash flow of $749,000. We believe that the
payment on April&nbsp;23, 2002, cured the technical default on the floating rate
notes. At December&nbsp;31, 2001, we classified $12.6&nbsp;million, representing the 2001
and 2000 principal repayments, as current portion of long-term debt.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2000, the floating rate notes were amended to permit the
modification of certain covenants, in exchange for the payment of a fee and an
increase in the applicable interest margin by up to 0.75%. On March&nbsp;18, 2003,
holders of the floating rate notes agreed to modify certain financial covenants
required by the floating rate note indenture and we agreed to pay the
consenting holders a fee of 0.25% of the amount of the debt. This fee was paid
on March&nbsp;21, 2003, solely to the holders that gave consent. The total fee paid
was US$494,877.50. The modification of the financial covenants consisted of
substituting certain financial ratios for a minimum level of cash flow to be
maintained during the remaining life of the floating rate notes. In addition, a
new covenant was incorporated to require that the loans backed by Ex-Im Bank
and Coface be closed on or prior to September&nbsp;30, 2003.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our Credit Rating</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;1, 2002, Moody&#146;s Investor Services lowered its ratings of our
senior unsecured indebtedness from &#147;B3&#148; to &#147;Ca.&#148; A &#147;B3&#148; rating is the sixth
lowest rating category out of 21 used by Moody&#146;s. A &#147;B&#148; rating describes
obligations that Moody&#146;s believes generally lack characteristics of a desirable
investment where there is little assurance that interest and principal payments
will be made or of maintenance of other terms will be kept over a long period
of time. &#147;Ca&#148; is the second lowest rating category out of 21 and describes
obligations that Moody&#146;s believes are speculative in a high degree and that are
often in default or have other marked shortcomings.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;23, 2002 Standard &#038; Poor&#146;s lowered our long term foreign
issuer credit rating from &#147;B&#148; to &#147;CCC&#043;.&#148; A &#147;B&#148; rating is the eighth lowest
rating category out of 22 used by S&#038;P and a &#147;CCC&#043;&#148; rating is the sixth lowest
rating out of 22. A &#147;B&#148; rating describes an obligation that S&#038;P believes is
more vulnerable to nonpayment than obligations rated &#147;BB,&#148; but where the
obligor has the capacity to meet its financial commitment on the obligation at
that time. S&#038;P believes that adverse business, financial, or economic
conditions will likely impair the &#147;B&#148; rated obligor&#146;s capacity or willingness
to meet its financial commitments. A &#147;CCC&#043;&#148; rating describes an obligation that
S&#038;P believes is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, S&#038;P believes that a &#147;CCC&#148; rated obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of these negative credit ratings and downgrades, our sources
of short-term financing have become limited, which impedes our ability to
finance our operations. Furthermore, the negative publicity surrounding these
recent downgrades has generated concern among certain of our existing
customers.
</FONT>



<P align="left"><FONT size="2"><B>Presentation of Financial Information</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our financial statements are published in U.S. dollars and prepared in
conformity with U.S. generally accepted accounting principles, which we refer
to as &#147;U.S. GAAP.&#148; We maintain our financial books and records in dollars. Sums
presented in this prospectus may not add due to rounding.
</FONT>


<P align="center"><FONT size="2">29</FONT>




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<P align="left"><FONT size="2"><B>Other Matters</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Insurance Costs</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, we renewed the in-orbit insurance on Solidaridad 2
through November 2003. The insurance coverage was provided in accordance with
usual and customary practices for the coverage of BS-601 satellites. This
insurance does not insure against an in-orbit failure due to the loss of the
satellite&#146;s control processor, the same component that caused the loss of
Solidaridad 1. Additionally, the new terms of insurance increased the
percentage of the satellite&#146;s transponder capacity that must be lost for a
total loss to be declared to 75%, from 50%. An uninsured loss of Solidaridad 2
would have a material adverse effect on our results of operations and financial
condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, like others in the satellite industry, are faced with significantly
higher premiums for launch and in-orbit insurance and significantly shorter
coverage periods than those that have been available in the past, which is due
in part to the events of September&nbsp;11, 2001, and in part to recent losses in
the satellite industry, including that of Solidaridad 1. This development in
the insurance industry will increase our cost of doing business. We intend to
pass on such increased cost to our customers. We cannot assure you, however,
that we will be able to do so. Insurance market conditions have historically
been cyclical in nature. While we anticipate that these conditions will improve
in the future, we cannot assure you that they will.
</FONT>

<P align="left"><FONT size="2"><B>Critical Accounting Policies</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from these estimates. Accounting policies that are
critical to understand in our financial statements and that require significant
judgment by management include the estimated useful lives of our satellites,
the valuation of long-lived assets, deferred income taxes, revenue recognition
and deferred revenue from the Mexican government.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Satellites</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satellites are stated at historical cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of
the satellites.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimated useful lives of our satellites are:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="57%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="18%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Solidaridad 2</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">14.5 years</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Satmex 5</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">15 years</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Solidaridad 2 and Satmex 5 are being depreciated over their estimated
useful lives commencing on their in-orbit service dates of November&nbsp;11, 1994
and January&nbsp;22, 1999, respectively. The estimated useful lives of the
satellites were determined by engineering analyses performed at the in-orbit
service dates. Morelos 2 was fully depreciated at June&nbsp;30, 1998.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs incurred in connection with the construction and successful
deployment of our satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch costs, launch
insurance, and construction period interest. Capitalized interest related to
the construction of Satmex 6 was $14.2&nbsp;million and $3.5&nbsp;million for the years
ended December&nbsp;31, 2002 and 2001, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Valuation of long-lived assets</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying value of our long-lived assets is reviewed for impairment
whenever events or changes in circumstances indicate that an asset may not be
recoverable. Assets are determined to be impaired when the estimated
undiscounted cash flows expected to result from the use of the asset are less
than the carrying value of the asset. We measure impairment as the difference
between the carrying value and the fair value of the asset.
</FONT>

<P align="center"><FONT size="2">30</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Deferred income tax</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognize deferred income tax assets and liabilities for the future
consequences of temporary differences between the financial statement carrying
amounts of assets and liabilities and their respective income tax bases,
measured using enacted rates. The effects of changes in the statutory rates are
accounted for in the period that includes the enactment date. Deferred income
tax assets are also recognized for the estimated future effects of tax loss
carryforwards and asset tax credit carryforwards. Deferred income tax assets
are reduced by any benefits that are not expected to be realized.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue recognition</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide satellite capacity under service lease agreements for periods
ranging from one year to twelve years. Some service lease agreements provide
for cash advances from customers with reduced rents. Such cash advances are
recognized as revenue on a straight-line method over the total lease term.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of end-of-life leases, in which we collect the total rent in
advance and provide no insurance or warranty on the related transponders, we
recognize the total revenue and related cost as sales-type leases.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Deferred
revenue - Mexican government</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are required to provide the Mexican government, at no charge,
approximately 7% of our available transponder capacity for the duration of the
concessions. In 1998 we recorded $88&nbsp;million as deferred revenue, as the value
of this obligation, and an increase in the value of the concessions by the same
amount. This obligation is being amortized over 40&nbsp;years as an increase in
revenue and a corresponding increase in amortization expense.
</FONT>

<P align="left"><FONT size="2"><B>Accounting Pronouncements</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2002, the Financial Accounting Standards Board, or FASB, issued
SFAS No.&nbsp;146, &#147;Accounting for Costs Associated with Exit or Disposal
Activities&#148; (&#147;SFAS 146&#148;). SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by this standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance was provided by EITF Issue No.&nbsp;94-3, Liability Recognition
for Certain Employee Termination Benefits and other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS 146 replaces EITF
Issue No.&nbsp;94-3. The adoption of SFAS 146 on January&nbsp;1, 2003 had no effect on
our financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, FASB issued FASB Interpretation No.&nbsp;45, &#147;Guarantor&#146;s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.&#148; This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of this interpretation are
effective for interim and annual periods after December&nbsp;15, 2002. The initial
recognition and initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after December&nbsp;31,
2002. The interpretation&#146;s expanded disclosures had no impact on our financial
position or result of operations. The adoption of the recognition and initial
measurement requirements of this interpretation on January&nbsp;1, 2003 had no
impact on our financial position or results of operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2003, FASB issued FASB Interpretation No.&nbsp;46, &#147;Consolidation of
Variable Interest Entities&#148; (&#147;FIN 46&#148;). This interpretation of Accounting
Research Bulletin No.&nbsp;51, &#147;Consolidated Financial Statements,&#148; addresses
consolidation by business enterprises of variable interest entities. Under
current practice, two enterprises generally have been included in consolidated
financial statements because one enterprise controls the other through voting
interests. FIN 46 defines the concept of &#147;variable interest&#148; and requires
existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse the risks among the parties involved. This
interpretation applies immediately to variable interest entities created after
January&nbsp;31,
</FONT>
<P align="center"><FONT size="2">31</FONT>
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<P align="left"><FONT size="2">2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June&nbsp;15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. If it is reasonably possible that an enterprise will consolidate or
disclose information about a variable interest entity when this interpretation
becomes effective, the enterprise shall disclose information about those
entities in all financial statements issued after January&nbsp;31, 2003. We do not
have variable interests in any variable interest entities that will require
consolidation in accordance with FIN 46.
</FONT>
<!-- link2 "Item&nbsp;6. Directors, Senior Management and Employees" -->
<DIV align="left"><A NAME="004"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;6. </B><B><I>Directors, Senior Management and Employees</I></B>
</FONT>

<P align="center"><FONT size="2"><B>DIRECTORS AND SENIOR MANAGEMENT</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Age</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Period of Service</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Sergio Autrey Maza(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chairman of the Board and Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">51</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since November 1997</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Bernard L. Schwartz(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">77</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since November 1997</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Carlos Autrey Maza</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">57</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since October 1999</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eric J. Zahler (1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">52</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since November 1997</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Lauro Gonz&#225;lez<BR>
Moreno (1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chief Executive Officer and Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">41</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since November 1997</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Cynthia Pelini</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Executive Vice President and Chief
Financial Officer
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">48</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since April 1998</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Juan Manuel Pinedo</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Executive Vice President and Chief
Marketing Officer
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">38</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Since April 1998</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Member of the Executive Committee.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors is chaired by Mr.&nbsp;Sergio Autrey Maza and pursuant
to an agreement between Loral and Principia currently consists of three
Principia directors and two Loral directors. Sergio Autrey Maza and Carlos
Autrey Maza are brothers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Executive Committee is authorized to take action on all matters that
may be authorized by the Board of Directors.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Gonz&#225;lez is the Chief Executive Officer and was named jointly by
Principia and Loral. The Chief Executive Officer reports to the Executive
Committee and the Board of Directors. His duties include day to day management
of the company, strategic planning and relationship development. The Chief
Executive Officer can be removed at the request of either Principia or Loral.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loral has the right to appoint a Chief Operating Officer of the company
who would be responsible for our day to day management and operations, subject
to approval from Principia, which approval cannot be unreasonably withheld.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All other executive officers have been and will be appointed by the mutual
consent of Loral and Principia.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sergio Autrey has been the Chairman of the Board and a director of Satmex
since November 1997 and is the Chairman of the Board of Principia and
Globalstar de M&#233;xico, a satellite telephony service provider owned by Principia
and Loral. He is also a member of the board of Par&#225;bola, and Grupo Editorial
Notmusa, Mexican publishing companies; and Beta San Miguel, a sugar production
company.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Schwartz has been a director of Satmex since November 1997. Mr.
Schwartz is Chairman of the Board and Chief Executive Officer of Loral.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Carlos Autrey has been a director of Satmex since October 1999 and is a
member of the board of Globalstar de M&#233;xico and Principia.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.&nbsp;Zahler has been a director of Satmex since November 1997. Mr.&nbsp;Zahler
is the President and Chief Operating Officer of Loral.
</FONT>

<P align="center"><FONT size="2">32</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lauro Gonz&#225;lez has been a director and the Chief Executive Officer of
Satmex since November 1997. Mr.&nbsp;Gonz&#225;lez is also the Chief Executive Officer of
Globalstar de M&#233;xico, Principia and Enlaces Integra. Mr.&nbsp;Gonz&#225;lez was an
engagement manager at McKinsey &#038; Company in Mexico and Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cynthia Pelini has been the Chief Financial Officer of Satmex since April
1998 and Executive Vice President of Finance and Administration since December
2000. Prior to that, she was Vice President of Investor Relations at Grupo
Iusacell, a Mexican cellular communications company, from 1996 to 1998. Ms.
Pelini was Director of Banking Relations for Grupo Televisa from 1995 to 1996,
Director of Financial Planning, Capital Markets and Investor Relations for
Grupo Dina, a Mexican transportation manufacturer, from 1992 to 1995, and
Corporate Treasurer of Corporaci&#243;n Industrial SanLuis from 1989 to 1992. From
1976 through 1989, she worked in international banking assignments for both The
Chase Manhattan Bank and Bankers Trust Company.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Juan Manuel Pinedo has been the Executive Vice President and Chief
Marketing Officer of Satmex since December 2000. Mr.&nbsp;Pinedo joined Satmex in
April 1998 and was the Executive Director of Business Development until January
1999, when he was named Executive Director of Sales and Marketing. From 1992 to
1998, Mr.&nbsp;Pinedo was a senior consultant and engagement manager for McKinsey &#038;
Company. From 1987 to 1992, Mr.&nbsp;Pinedo was an engagement manager for Andersen
Consulting.
</FONT>

<P align="center"><FONT size="2"><B>COMPENSATION</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2002, the aggregate compensation,
including bonuses, of management paid or accrued in that year for services in
all capacities was approximately $5.9&nbsp;million. During 2002, we did not make
payments to members of the Board for attendance at Board of committee meetings
and we did not provide any pension, retirement or similar benefits for
directors or executive officers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, management has earned, under existing long-term compensation
plans, $2.9&nbsp;million to be paid over the next three years. One condition for
payment of this deferred compensation is continued employment.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All employees are eligible for bonuses based on performance. The bonus
plan provides for us to pay bonuses based on achievement of financial targets
established for the year. During the year ended December&nbsp;31, 2002, we paid a
total of $2.4&nbsp;million for bonuses earned in 2001, of which $1.65 were paid to
management. Except for sales commissions, no performance bonuses were earned in
2002.
</FONT>

<P align="center"><FONT size="2"><B>EMPLOYEES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, we had approximately 226 employees, of which 57
are members of the Television and Radio labor union. The collective agreement
provides for, among other things: union exclusivity, a maximum workweek of 40
hours, overtime pay at twice the normal rate, company maintained life
insurance, severance payment after retirement of 12&nbsp;days&#146; pay for each year
worked, a statutory annual bonus equivalent to 20&nbsp;days&#146; pay, mandatory training
and a review of the collective contract every two years. We believe our
relationship with our union employees is satisfactory.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2003, after a hiring freeze in effect since June 2002, we
eliminated approximately 40 positions, of which 9 were union positions. We paid
severance compensation of approximately $710,000 related to these eliminations.
As of March&nbsp;31, 2003, we had approximately 187 employees.
</FONT>

<P align="center"><FONT size="2"><B>SHARE OWNERSHIP</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, the share ownership of Satmex is as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Percentage</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Servicios Corporativos</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mexican government</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,500,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loral</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">473,449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Principia</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">133,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">33</FONT>
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<!-- link2 "Item&nbsp;7. Major Shareholders and Related Party Transactions" -->
<DIV align="left"><A NAME="005"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;7. </B><B><I>Major Shareholders and Related Party Transactions</I></B>
</FONT>

<P align="center"><FONT size="2"><B>MAJOR SHAREHOLDERS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to October&nbsp;15, 1997, we were not operated as a stand-alone satellite
capacity provider, but were operated by the Mexican government as part of the
operations of Telecomunicaciones de Mexico, an agency of the Mexican
government. In 1997, Loral and Principia formed a joint venture, Firmamento, to
effect the acquisition of Satmex from the Mexican government. Firmamento is
owned 65% by Loral and 35% by Principia. Principia, however, holds 51% of
Firmamento&#146;s voting interests, while Loral holds the other 49%. On November&nbsp;17,
1997, an indirect subsidiary of Firmamento entered into a Stock Purchase
Agreement with the Mexican government to acquire 75% of our outstanding capital
stock from the Mexican government for a purchase price of $646.8&nbsp;million. On
November&nbsp;17, 1997, the acquisition subsidiary paid $194.0&nbsp;million of the
purchase price and on December&nbsp;29, 1997 paid the balance, plus interest. On
December&nbsp;29, 1997, the acquisition subsidiary was merged into Satmex.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In consideration of the debt incurred by Satmex in connection with the
acquisition, Servicios, a wholly owned subsidiary of Firmamento, agreed to pay
to the Mexican government $125.1&nbsp;million under the Menoscabo. The Menoscabo
accrues deferred interest at the rate of 6.03% per annum, compounds annually
and matures in December 2004. Payment of the Menoscabo is currently secured by
Loral&#146;s and Principia&#146;s interests in Firmamento. If Servicios were to default
in the payment of the Menoscabo, the Mexican government will have the right to
foreclose upon the Firmamento interests. This would result in the Mexican
government regaining control of us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, Servicios held 70.71% of our outstanding capital
stock, Loral holds 4.46%, Principia holds 1.26% and the Mexican government
holds 23.57%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government holds its 23.57% interest in Satmex through Class&nbsp;N
shares. The Class&nbsp;N shares have limited voting rights and may vote only with
respect to the following matters: extension of our term, merger, conversion or
anticipated dissolution, amendment to our corporate purpose, change to our
nationality or cancellation of our registration in the Securities Section of
the National Registry of Securities and Intermediaries or in any Mexican or
foreign stock exchange.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a member of the Loral Global Alliance. Through the alliance, we can
offer our customers an integrated portfolio of satellite capacity that provides
&#147;one stop shopping&#148; for local, regional and global geostationary satellite
services. The other Alliance members are Loral Skynet, Skynet do Brasil and
Europe*Star. The Alliance currently has a total of 172 C-band and 303 Ku-band
36 MHz transponder-equivalents available for lease (references to transponders
are in 36 MHz equivalents, unless otherwise noted) and a collective footprint
covering almost all of the world&#146;s population, excluding 28 36MHz transponders
not available due to previous sales or other events.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Loral Global Alliance provides for cross-selling arrangements among
the alliance members&#146; respective sales forces and for cooperative marketing and
promotional activities. Loral believes that such arrangements enable the
members of the alliance to compete more effectively in sales of communications
satellite services worldwide. In addition, the alliance offers in-orbit backup
capabilities for its members in regions where members&#146; fleets have overlapping
coverage.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We benefit from the strategic, marketing and operational capabilities of
our two corporate sponsors, Loral and Principia. Affiliates of the Sponsors
have entered into a management services agreement with us to provide us with
marketing and strategic planning services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also benefit from Principia&#146;s extensive experience in the Mexican
telecommunications industry and its working relationship with many of our
existing and potential customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loral Space &#038; Communications Ltd.</I>
</FONT>
<P align="center"><FONT size="2">34</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loral is one of the world&#146;s leading satellite communications companies
with substantial activities in satellite-based communications services and
satellite manufacturing. Loral is organized into three operating businesses:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Fixed Satellite Services</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through its wholly owned subsidiaries, Loral Skynet, Loral Orion, Loral
Skynet do Brasil Ltda., its 49%-owned affiliate Satmex, its 47%-owned affiliate
Europe*Star Limited and its 56%-owned affiliate XTAR L.L.C., Loral has become
one of the world&#146;s leading providers of satellite services using geostationary
communications satellites. Loral leases transponder capacity on its satellites
to its customers for various applications, including broadcasting, news
gathering, Internet access and transmission, private voice and data networks,
business television, distance learning and direct-to-home television and
provides telemetry, tracking and control services and network services to
customers. The Loral Global Alliance currently has 10 operating high-powered
geostationary satellites in orbit: the seven satellite Telstar fleet, two
Satmex satellites and one Europe*Star satellite, with footprints covering
almost all of the world&#146;s population.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loral Global Alliance: </I>Loral offers its customers an integrated portfolio
of satellite capacity that provides &#147;one stop shopping&#148; for local, regional and
global GEO satellite services. The alliance, which consists of Loral Skynet,
Skynet do Brasil, Satmex and Europe*Star, currently has a total of 172 C-band
and 303 Ku-band 36 MHz transponder-equivalents available for lease (references
to transponders are in 36 MHz equivalents, unless otherwise noted) and a
collective footprint covering almost all of the world&#146;s population, excluding
28 36MHz transponders not available due to previous sales or other events.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loral Skynet: </I>Its core business is providing satellite capacity to support
distribution of U.S. television network programming. The ABC, CBS and Fox
television networks are its major customers. All ABC, CBS and Fox stations and
network affiliates have their antennae pointed at Loral Skynet&#146;s satellites,
creating a configuration known as a &#147;neighborhood&#148; that is attractive to other
users requiring similar distribution channels. Loral Skynet currently has four
high power GEO satellites in operation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loral Orion: </I>On March&nbsp;20, 1998, Loral acquired Orion Network Systems,
Inc., a rapidly growing provider of satellite-based communications services,
which recently changed its name to Loral Orion, Inc. Loral completed its
integration plan for Loral Orion and transferred management of Loral Orion&#146;s
satellite capacity leasing and satellite operations to Loral Skynet, effective
January&nbsp;1, 1999. Loral Orion&#146;s leasing business currently provides satellite
capacity for video distribution, satellite news gathering and other satellite
services primarily to broadcasters, news organizations, telecommunications
service providers and Internet Service Providers, or ISPs. Loral Orion&#146;s
customers include HBO, Disney, Cable &#038; Wireless and United Pan Europe
Communications.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Satellite Manufacturing and Technology</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loral designs and manufactures satellites and space systems and develops
satellite technology for a broad variety of customers and applications through
SS/L. SS/L is a worldwide leader in the design, manufacture and integration of
satellites and space systems. SS/L draws on its 40-year history, during which
satellites manufactured by SS/L have achieved more than 900&nbsp;years of cumulative
on-orbit experience. SS/L also provides Loral with visibility into emerging and
new satellite-based technologies and applications. SS/L manufactures satellites
that provide telecommunications, weather forecasting and broadcast services.
SS/L is the leading supplier of satellites to Intelsat, currently one of the
world&#146;s largest operators of commercial communications satellites.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Data Services</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loral provides managed communications networks and Internet and intranet
services through Loral CyberStar, Inc. and delivers high-speed broadband data
communications, business television and business media services through
CyberStar, L.P. Using the GEO constellation of the Loral Global Alliance and
third party capacity, access to fiber networks and internet backbone entry
(peering)&nbsp;points, Loral can provide its customers with the ability to
distribute large, complex digital video and data files to multiple locations
throughout the world rapidly and cost efficiently. Data services currently
delivers U.S.-based Internet content via satellite; distributes high-speed data
over
private corporate very small aperture terminals networks; and offers
business television and business media services by satellite to corporations
for the delivery of teleconferences, distance learning and training, and
special events and
</FONT>

<P align="center"><FONT size="2">35</FONT>

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<P align="left"><FONT size="2">other corporate communications.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Principia, S.A. de C.V.</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principia is a Mexican telecommunications company which comprises the
business interests of some members of the Autrey family and Lauro Gonz&#225;lez. The
Autrey family has to date acquired interests in a number of companies
privatized by the Mexican Government.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Enlaces Integra, S. de R.L. de C.V.</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, Principia and Loral founded Enlaces Integra S. de R.L. de C.V., a
telecommunications service integrator that provides tailor made solutions of
high speed data communications to private and public networks, value-added
service providers and audio/video service providers. In January 2000, Enlaces
Integra was granted a concession to install, operate and exploit a public
telecommunications network. Enlaces Integra&#146;s value-added license allows it to
develop Broadband Internet access and a wide range of multimedia services. On
August&nbsp;10, 2001, Enlaces Integra was granted a concession to provide fixed
satellite services in Mexico through satellite operators other than Satmex.
</FONT>

<P align="center"><FONT size="2"><B>RELATED PARTY TRANSACTIONS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to a management services agreement among Satmex, Loral and
Principia, we have agreed to pay a quarterly management fee based on our
quarterly gross revenue, as defined, as follows: with respect to revenue of
less than $25&nbsp;million, no management fee will be payable; with respect to
revenue in excess of $25&nbsp;million but less than $32&nbsp;million, 10% of all revenue
in excess of $25&nbsp;million; and with respect to revenue equal to or in excess of
$32&nbsp;million, 15% of all revenue in excess of $32&nbsp;million; provided that the
management fee will in no event exceed 3.75% of our cumulative gross revenue.
The management fee represents compensation paid to Loral and Principia for
management services rendered to us. For the year ended December&nbsp;31, 2002,
Principia and Loral waived the management fee. For the years ended December&nbsp;31,
2001 and 2000, the management fee was $2.3&nbsp;million and $3.2&nbsp;million,
respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loral has licensed certain intellectual property to us for an annual fee
of 1.5% of our gross revenue, as defined. For the year ended December&nbsp;31, 1999,
Loral and Satmex reduced the license fee to 1.2%. In 2002, 2001 and 2000, we
recorded a license fee expense of $1.2&nbsp;million, $1.8&nbsp;million and $1.9&nbsp;million,
respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a member of the Loral Global Alliance, whose other members are
Loral Skynet, Skynet do Brasil and Europe*Star. The Loral Global Alliance
provides for cross-selling arrangements among the alliance members&#146; respective
sales forces and for cooperative marketing and promotional activities. We
believe that such arrangements enable the members of the alliance to compete
more effectively in sales of communications satellite services worldwide. In
addition, the alliance offers in-orbit backup capabilities for its members in
regions where members&#146; fleets have overlapping coverage.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the privatization, we are required to provide 181 MHz
C-band and 181 MHz Ku-band capacity to the Mexican government for national
security and certain public purposes at no charge. After the Solidaridad 1
failure the capacity provided to the government is 130 MHz C-band and 105 MHz
Ku-band. We also operate one L-band transponder on the Solidaridad 2 satellite
which is owned by the Mexican government. Under the property concession granted
by the Mexican government to us, we pay to the government an annual fee of 7.5%
of the value of the property on which our satellite control centers are
located.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;30, 1999, we issued 606,730 shares of preferred stock to Loral
and Principia for a total purchase price of approximately $31.9&nbsp;million. The
preferred stock has limited voting rights and pays a cumulative dividend in our
common stock. The preferred stock can be exchanged at our option into our
common stock, at an exchange ratio of 1 share of preferred stock for 2.0008
shares of common stock, if the exchange occurs before February&nbsp;2, 2005, and at
an exchange ratio of 1 share of preferred stock for 4.0016 shares of common
stock on and after February&nbsp;2, 2005.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1999, Loral Skynet entered into an end-of-life lease with us for three
Ku-band transponders on Satmex 5. For
</FONT>

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<P align="left"><FONT size="2">the year ended December&nbsp;31, 1999, we
accounted for this transaction as a sales-type lease and, accordingly, recorded
revenue of $25.5&nbsp;million and an operating expense of $14.2&nbsp;million for the cost
of the transponders. Loral Skynet pays us $5,000 per transponder per quarter
for tracking, telemetry and command services for the life of this agreement.
Loral and Principia have agreed to exclude these transactions from the
calculation of the management fee and the license fee.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1999, Firmamento formed three wholly owned subsidiaries; Satmex
Corporativo, S. de R.L. de C.V., Satmex Administraci&#243;n, S. de R.L. de C.V. and
Satmex Servicios T&#233;cnicos, S. de R.L. de C.V. In June 1999, we transferred our
management personnel to Satmex Corporativo and our administrative personnel to
Satmex Administraci&#243;n. In November 1999, we transferred our union personnel to
Satmex Servicios T&#233;cnicos. None of these three corporations have any material
assets. We pay these companies their costs plus a fee of approximately 4% of
the gross payroll and benefits, excluding payroll taxes. For the years ended
December&nbsp;31, 2002, 2001 and 2000 this fee was $524,000, $794,000 and $923,000,
respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Service revenue from related parties, primarily the Mexican government,
amounted to $10.2&nbsp;million, $14.7&nbsp;million and $13.8&nbsp;million for the years ended
December&nbsp;31, 2002, 2001 and 2000, respectively. We lease transponder capacity
to Loral affiliates. Service revenue in 2002 and 2001 was $2.6&nbsp;million and $4.7
million, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loral Skynet billed us $4.2&nbsp;million and $7.3&nbsp;million for providing
capacity on Loral Skynet satellites in 2002 and 2001, respectively. Loral
Skynet billed us $547,000 and $574,000 for sales commissions in 2002 and 2001,
respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have contracted with Space Systems/Loral, Inc., a wholly owned
subsidiary of Loral, to build Satmex 6, the replacement satellite for
Solidaridad 1. As a result of schedule delays, we and Space Systems/Loral have
agreed that Satmex 6 will be delivered in 2003. Under the original contract, we
earned certain liquidated damages as a result of the delay. We have recently
concluded the negotiation with Loral and SS/L of an amendment to the contract,
which, among other things, waives the liquidated damages in exchange for a like
amount of other benefits that include additional work required on the
satellite, a reduction in future orbital incentive payments due to Space
Systems/Loral and certain other financial benefits to us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enlaces Integra, a company owned by Principia and Loral, leases
transponder capacity from us. In 2002 and 2001, service revenue from this lease
was $421,000 and $350,000, respectively. Also, we agreed to loan Enlaces
Integra up to $5&nbsp;million of which $3.4&nbsp;million was outstanding as of December
31, 2001. The loan to Enlaces Integra matures January&nbsp;4, 2006 and accrues
interest at a rate equal to our weighted average interest cost plus 1%. The
maximum available borrowing is $5&nbsp;million, including accrued interest. Further,
Enlaces Integra uses services provided from affiliated companies to perform its
activities. In June 2002, we purchased approximately $718,000 of equipment from
Enlaces Integra and in July 2002, we purchased $1.6&nbsp;million of equipment and
paid $2.9&nbsp;million as an advance payment on one of the concessions held by
Enlaces Integra. Enlaces Integra used the proceeds from the sale to repay its
outstanding loan from us. We leased equipment back to Enlaces Integra for
rental payments of $230,000 during 2002. At December&nbsp;31, 2002, there were no
borrowings outstanding under the loan agreement.
</FONT>

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<DIV align="left"><A NAME="006"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;8. </B><B><I>Financial Information</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
&#147;Item&nbsp;18 - Financial Statements&#148; for a list of all financial
statements filed as part of this Form&nbsp;20-F.
</FONT>

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<DIV align="left"><A NAME="007"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;9. </B><B><I>Markets</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s capital stock is not publicly traded. The Company&#146;s 10 1/8%
Series&nbsp;B Senior Notes are not listed on any securities exchange.
</FONT>

<P align="center"><FONT size="2">37</FONT>
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<DIV align="left"><A NAME="008"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;10. </B><B><I>Additional Information</I></B>
</FONT>

<P align="center"><FONT size="2"><B>ARTICLES OF INCORPORATION</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hereby incorporate by reference the description of our Articles of
Incorporation set forth in our Registration Statement on form F-4 dated
November&nbsp;9, 1998.
</FONT>

<P align="center"><FONT size="2"><B>MATERIAL CONTRACTS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
&#147;Item&nbsp;4 - Information on the Company&#148;,
&#147;Item&nbsp;5 - Operating and
Financial Review and Prospects&#148; and &#147;Item&nbsp;7 - Major Shareholders and Related
Party Transactions&#148; for a description of our material contracts.
</FONT>

<P align="center"><FONT size="2"><B>EXCHANGE CONTROLS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican economy has in the past experienced balance of payment
deficits and shortages in foreign exchange reserves. While the Mexican
government does not currently restrict the ability of Mexican or foreign
persons or entities to convert pesos to foreign currencies generally, and U.S.
dollars in particular, it has done so in the past and no assurance can be given
that the Mexican government will not institute a restrictive exchange control
policy in the future. In addition, while all of the Company&#146;s customer
contracts are dollar denominated, the Company is required to accept payment
from its customers in pesos at the current exchange rate on the date of
payment. If the Company were unable to exchange such pesos into dollars or were
unable to obtain sufficient dollars, it would have difficulty meeting its U.S.
dollar payment obligations. The effect of any such exchange control measures
adopted by the Mexican government on the Mexican economy cannot be accurately
predicted.
</FONT>

<P align="left"><FONT size="2"><B>TAXATION</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary contains a description of the principal Mexican and
U.S. federal income tax consequences of the purchase, ownership and disposition
of the 10 1/8% Series&nbsp;B Senior Notes (the &#147;fixed rate notes&#148;). This summary is
based on the tax laws in force as of January&nbsp;1, 2002 and does not describe any
tax consequences arising under the laws of any state, locality or taxing
jurisdiction other than Mexico and the United States.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Convention for the Avoidance of Double Taxation and a Protocol thereto
(the &#147;Tax Treaty&#148;) between the United States and Mexico entered into force on
January&nbsp;1, 1994. Provisions of the Tax Treaty that may affect the taxation of
certain U.S. holders of fixed rate notes are summarized below. The United
States and Mexico have also entered into an agreement that covers the exchange
of information with respect to tax matters.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mexico has also entered into several treaties for the avoidance of double
taxation with various countries which are in effect. The tax effects of such
treaties, or of any other tax treaty to which Mexico may be a party in the
future, are not discussed below.
</FONT>

<P align="left"><FONT size="2"><B>Mexican Taxation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This summary of certain Mexican tax considerations deals only with holders
of fixed rate notes that are not residents of Mexico for Mexican tax purposes
and that do not conduct a trade or business through a permanent establishment
or fixed base in Mexico (a &#147;Foreign Holder&#148;). For purposes of Mexican taxation,
an individual is a resident of Mexico if he has established his domicile in
Mexico, unless he has resided in another country for more than 183 calendar
days, whether consecutive or not, in any one calendar year and can demonstrate
that he has become a resident of that country for tax purposes. A legal entity
is a resident of Mexico if it is incorporated under Mexican law or if it has
established its main administration or direction center in Mexico. A Mexican
citizen pursuant to Mexican law is presumed to be a resident of Mexico for tax
purposes unless such person can demonstrate otherwise. If a legal entity or an
individual has a permanent establishment or fixed base in Mexico for Mexican
federal tax purposes, such permanent establishment or fixed base shall be
required to pay taxes in Mexico on income attributable thereto in accordance
with applicable tax laws.
</FONT>

<P align="center"><FONT size="2">38</FONT>
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<P align="left"><FONT size="2"><B><I>Taxation of Interest and Principal</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Mexican Income Tax Law, payments of interest made by the Company
in respect of the fixed rate notes (including payments of principal in excess
of the issue price of such notes, which, under Mexican law, are deemed to be
interest) to a Foreign Holder will generally be subject to a Mexican
withholding tax assessed at a rate of 10% as long as the fixed rate notes are
registered in the Special Section of the National Registry of Securities and
Intermediaries maintained by the Mexican National Banking and Securities
Commission (the &#147;Registry&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to an amendment to the Income Tax Law, payments of interest made
by the Company to Foreign Holders with respect to the fixed rate notes will be
subject to withholding taxes imposed at a reduced rate of 4.9%, so long as i)
the fixed rate notes are registered with the Special Section of the Registry,
ii) the company files with the Ministry of Finance the information required
pursuant general rules issued by the Secretar&#237;a de Hacienda y Cr&#233;dito P&#250;blico
(the Ministry of Finance).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This reduced rate only applies if no party related to the Company (as such
term is defined under the Income Tax Law provision) directly or indirectly, is
the effective beneficiary of 5% or more of the aggregate amount of each such
interest payment.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Apart from the Reduced Rate, other special rates of Mexican withholding
tax may apply. In particular, under the Tax Treaty, the Mexican withholding tax
rate was reduced from 10% to 4.9%, effective January&nbsp;1, 1999 (the &#147;Treaty
Rate&#148;) for certain holders that are residents of the United States (within the
meaning of the Tax Treaty) under certain circumstances contemplated therein.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments of interest made by the Company with respect to the fixed rate
notes to non-Mexican pension or retirement funds will be exempt from Mexican
withholding taxes, provided that (i)&nbsp;any such fund is duly incorporated
pursuant to the laws of its country of origin, is exempt from income tax in
such country and is registered with the Ministry of Finance for that purpose
and (ii)&nbsp;the relevant interest income is exempt from taxes in such country.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has agreed, subject to specified exceptions and limitations,
to pay additional amounts to the holders of the fixed rate notes in respect of
the Mexican withholding taxes mentioned above. If the Company pays additional
amounts in respect of such Mexican withholding taxes, any refunds of, or
credits against, Mexican taxes received with respect to such additional amounts
will be for the account of the Company.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders or beneficial owners of fixed rate notes may be requested to
provide certain information or documentation necessary to enable the Company to
establish the appropriate Mexican withholding tax rate applicable to such
holders or beneficial owners. In the event that the specified information or
documentation concerning the holder or beneficial owner, if requested, is not
provided on a timely basis, the obligation of the Company to pay additional
amounts will be limited.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Mexican law and regulations, payments of principal on the fixed rate
notes to a Foreign Holder will not be subject to any Mexican taxes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Dispositions</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains resulting from the sale or other disposition of the fixed rate notes
by a Foreign Holder may be subject to Mexican income taxes in certain limited
circumstances.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Transfer and Other Taxes</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no Mexican stamp, registration, or similar taxes payable by a
Foreign Holder in connection with the purchase, ownership or disposition of the
fixed rate notes. A Foreign Holder of fixed rate notes will not be liable for
Mexican estate, gift, inheritance or similar tax with respect to the fixed rate
notes.
</FONT>


<P align="center"><FONT size="2">39</FONT>




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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>U.S. Taxation</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
summary of material U.S. federal income tax considerations deals
principally with U.S. Holders (as defined below) that will hold fixed rate
notes as capital assets and whose functional currency is the U.S. dollar. This
summary generally does not address the tax treatment of U.S. Holders that may
be subject to special tax rules, such as banks, insurance companies, dealers in
securities, or persons that hold (or will hold) the fixed rate notes as a
position in a &#147;straddle&#148; for tax purposes or as part of a &#147;synthetic security&#148;
or a &#147;conversion transaction&#148; or other integrated investment composed of the
fixed rate notes and one or more other investments, nor does it address the tax
treatment of U.S. Holders that do not acquire fixed rate notes at their issue
price as part of the initial distribution. As used under this section, the term
&#147;U.S. Holder&#148; means a beneficial owner of a Note that is a citizen or resident
of the United States for U.S. federal income tax purposes, a corporation or
other entity taxable as a corporation created or organized under the laws of
the United States, any state thereof or the District of Columbia, a trust whose
administration is subject to the primary supervision of a United States court
and having one or more U.S. persons with the authority to control all of such
trust&#146;s substantial decisions, an estate that is subject to U.S. federal income
tax on its income regardless of the source thereof, or a person whose worldwide
income or gain is otherwise subject to U.S. federal income tax on a net income
basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Interest</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A U.S. Holder will treat the gross amount of interest and additional
amounts (i.e., without reduction for Mexican withholding taxes, determined
using the appropriate Mexican withholding tax rate applicable to the U.S.
Holder) as ordinary interest income in respect of the fixed rate notes. Mexican
withholding taxes paid at the appropriate rate applicable to the U.S. Holder
will be treated as foreign income taxes eligible for credit against such U.S.
Holder&#146;s U.S. federal income tax liability, subject to generally applicable
limitations and conditions, or, at the election of such U.S. Holder, for
deduction in computing such U.S. Holder&#146;s taxable income. Interest and
additional amounts will constitute income from sources without the United
States for foreign tax credit purposes. For purposes of applying the U.S.
foreign tax credit limitation, such income generally will constitute &#147;passive
income&#148; or, in the case of certain U.S. Holders, &#147;financial services income&#148;
unless the Mexican withholding tax rate applicable to the U.S. Holder is
imposed at a rate of at least 5%, in which case such income generally will
constitute &#147;high withholding tax interest.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The calculation of foreign tax credits and, in the case of a U.S. Holder
that elects to deduct foreign taxes, the availability of deductions, involves
the application of rules that depend on a U.S. Holder&#146;s particular
circumstances. U.S. Holders should consult their own tax advisors regarding the
availability of foreign tax credits and the treatment of additional amounts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the discussion below regarding backup withholding, a holder or
beneficial owner of fixed rate notes that is not a U.S. Holder (a &#147;Non-U.S.
Holder&#148;) generally will not be subject to U.S. federal income or withholding
tax on interest income or additional amounts earned in respect of fixed rate
notes, unless such income is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business in the United States.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Dispositions</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain or loss realized by a U.S. Holder on the sale, redemption or other
disposition of fixed rate notes (less amounts attributable to accrued interest)
generally will be long-term capital gain or loss if, at the time of the
disposition, the fixed rate notes have been held for more than one year.
Generally, U.S. Holders that are individuals will be taxed at a preferential
rate with respect to long-term capital gains. There are limits on the
deductibility of capital losses. Gain or loss realized by a U.S. Holder
generally will be treated as U.S. source income or loss for U.S. foreign tax
credit purposes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the discussion below regarding backup withholding, a Non-U.S.
Holder of fixed rate notes will not be subject to U.S. federal income or
withholding tax on gain realized on the sale or other disposition of fixed rate
notes unless (i)&nbsp;such gain is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business in the United States or (ii)&nbsp;in the case
of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is
present in the United States for 183&nbsp;days or more in the taxable year of the
sale and certain other conditions are met.
</FONT>

<P align="center"><FONT size="2">40</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Backup Withholding and Information Reporting</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, payments of interest and the proceeds of a sale, redemption or
other disposition of the fixed rate notes payable to a U.S. Holder by a U.S.
paying agent or other U.S. intermediary will be reported to the Internal
Revenue Service and to the U.S. Holder as may be required under applicable
regulations. Backup withholding at a current rate of 28% may apply to these
payments if the U.S. Holder fails to provide an accurate taxpayer
identification number or certification of foreign or other exempt status or
fails to report all interest and dividends required to be shown on its federal
income tax returns. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as credit against such holder&#146;s U.S.
federal income tax liability, provided that the required information is
provided to the IRS. Certain U.S. Holders (including, among others,
corporations) are not subject to backup withholding. U.S. Holders should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
</FONT>

<P align="center"><FONT size="2"><B>REGULATION</B>
</FONT>

<P align="left"><FONT size="2"><B>Regulatory Framework</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Federal Telecommunications Law of Mexico (the &#147;Communications Law&#148;),
which provides the overall legal framework for the regulation of satellite
services in Mexico, became generally effective on June&nbsp;7, 1995. Under the
Telecommunications Law, a provider of satellite services, such as us, must
operate under a concession granted by the <I>Secretar&#237;a de Comunicaciones y
Transportes </I>(the Ministry of Communications and Transportation or the &#147;SCT&#148;),
pursuant to an auction process. Such a concession may only be granted to a
Mexican corporation and may not be transferred or assigned without the approval
of the SCT. Foreign investors are permitted by law to hold up to 49% of the
voting stock of such a corporation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our operations are mainly subject to the <I>Ley General de
Bienes Nacionales </I>(the General Law on National Assets), which regulates all
assets that fall within the public domain and the terms for the expropriation
<I>(rescate) </I>of our concessions, the <I>Ley General del Equilibrio Ecol&#243;gico y
Protecci&#243;n al Ambiente </I>(the General Law on Ecology and Protection of the
Environment or the &#147;Environment Law&#148;) and other environmental laws, the <I>Ley
Federal de Competencia Econ&#243;mica </I>(the Federal Economic Competition Law), the
<I>Ley de V&#237;as Generales de Comunicaci&#243;n </I>(the Law of General Means of
Communication) and other international treaties, laws, rules and decrees.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Telecommunications Law, the SCT is, among other things,
responsible for issuing concessions and permits related to telecommunications
and for formulating policies in the telecommunications area and otherwise
taking all other actions on behalf of the Mexican government in connection with
telecommunications. The Mexican Federal Telecommunications Commission (COFETEL)
is the telecommunications authority responsible for most day-to-day regulation
of satellite communications in Mexico. The Mexican Telecommunications
Commission&#146;s duties include, among other things: issuing administrative
regulations relating to telecommunications; recommending amendments to existing
laws and rules; making recommendations to the SCT on applications for the
grant, modification, renewal, transfer and revocation of concessions and
permits; administering the radio frequency spectrum; promoting and overseeing
interconnection of equipment and public telecommunications networks;
registering tariffs for telecommunications services and establishing specific
obligations relating to tariffs, quality of service and provision of
information by carriers with substantial market power; and ensuring that
carriers comply with the obligations set forth in concessions and permits.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satellite control centers must be established within Mexico for satellites
authorized to use Mexican orbital slots. The Communications Law allows
satellites licensed to Mexican orbital positions to serve other countries
subject to the terms and conditions of treaties with Mexico and subject to the
laws of the foreign country. The SCT may grant concessions at any time to
foreign satellite systems to serve Mexico subject to applicable treaties and
Mexican law. On August&nbsp;10, 2001, the Mexican government granted licenses to
provide satellite service in Mexico to PanAmSat, SES Global, Televisa and
Enlaces Integra. PanAmSat registered 11 satellites and SES Global registered
seven satellites to provide satellite service in Mexico.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rules promulgated pursuant to the Communications Law require licensees
of satellites intending to provide
</FONT>

<P align="center"><FONT size="2">41</FONT>
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<P align="left"><FONT size="2">telecommunications services through one or
more transmitting earth stations of their own to obtain a separate license to
construct and operate a public telecommunications network. Where the satellite
operator intends to provide services other than public telecommunications
services through its own earth stations, it must obtain a permit from the SCT.
Where a satellite operator intends to provide services other than the lease of
capacity by obtaining a separate license or permit, it may provide such
services only through an affiliate or subsidiary.
</FONT>
<P align="left"><FONT size="2"><B>The Concessions</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government has awarded us the following concessions (one per
orbital slot): (i)&nbsp;the right to occupy each of three orbital positions and
exploit their respective C- and Ku-band frequencies (the &#147;Orbital Concessions&#148;)
and (ii)&nbsp;the right to use the buildings and areas in which the control centers
are located (the &#147;Property Concession&#148;). The Orbital Concessions may be granted
as collateral to any party other than a foreign government or state.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Orbital Concessions include the right to exploit the 113.0 degrees
W.L., 116.8 degrees W.L. and 109.2 degrees W.L. orbital slots. As part of the
Orbital Concessions, we may establish rates and terms for transponder leasing,
which must be registered in order to become effective. However, if the SCT
determines that we have substantial power in the Mexican market, the Mexican
Telecommunications Commission may determine tariffs and specify conditions
relating to service quality and information requirements. Additionally, we are
prohibited from establishing cross subsidies and using discriminatory
practices.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the three Orbital Concessions, we are required to allocate 181
MHz C-band and 181 MHz Ku-band capacity to the Mexican government, free of
charge, for national security and certain public purposes. In addition, we were
required to operate two L-band transponders, one on each of the Solidaridad
satellites, which were owned by the Mexican government. After the failure of
Solidaridad 1, the capacity provided to the Government was 130 MHz C-band and
105 MHz Ku-band and one L-band transponder on Solidaridad 2. Upon the
commencement of commercial service of Satmex 6, we will be able to allocate the
required C-band and Ku-band capacity to the Mexican government. However, Satmex
6 will not have any L-band transponders.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Orbital Concessions, we are required to: (i)&nbsp;carry out research
and development in Mexico, (ii)&nbsp;maintain the control centers within Mexico and
preferentially staff them with Mexican nationals, and (iii)&nbsp;maintain satellite
service continuously and efficiently. As security for the performance by us of
our obligations under each Orbital Concession, we were required to post and
must maintain during the term thereof, a surety bond in the amount of 10
million pesos payable to the Federal Treasury of Mexico with respect to each
Orbital Concession. This amount is adjusted each year to reflect the inflation
rate in Mexico. At December&nbsp;31, 2002, the adjusted amount was approximately
16.4&nbsp;million pesos per Orbital Concession. Under the terms of the surety bond,
we have paid to ING Fianzas Comercial America, a surety, a premium of 205,000
pesos per Orbital Concession, and the surety has agreed to pay to the Federal
Treasury of Mexico, in the event we breach the terms of the Orbital
Concessions, a sum of 16.4&nbsp;million pesos per Orbital Concession. The Orbital
Concessions were finalized and published in the Official Gazette on December
30, 1997.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Orbital Concessions have twenty-year terms expiring on October&nbsp;22,
2017 and may, subject to certain conditions, be extended for an additional
twenty-year term, without the payment of any additional consideration to the
Mexican government.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except in limited circumstances, we must notify the SCT prior to issuing
and selling any of the shares that represent 10% or more of our outstanding
capital stock, and must identify the potential purchaser. Within 30&nbsp;days of
receipt of such notification the SCT may object to the sale. We may only
proceed with the proposed sale if no objection is raised by the SCT.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Property Concession includes two plots of land, and buildings and
fixtures built thereon. The Property Concession includes the right to use only
the property for the purposes of exploiting the orbital slots and frequency
assignments. Additionally, we may not rent or otherwise sublease the property
without the prior permission of the SCT. Under the Property Concession, we are
required to: (i)&nbsp;pay an annual fee in an amount equal to 7.5% of the assessed
property value and (ii)&nbsp;maintain the premises in good condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The duration of the Property Concession is 40&nbsp;years or for the length of
the Orbital Concessions. The Property
</FONT>

<P align="center"><FONT size="2">42</FONT>
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<P align="left"><FONT size="2">Concession duration may be extended at the discretion of the SCT.
</FONT>
<P align="left"><FONT size="2"><B>Concession Termination</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Orbital Concessions will terminate if (i)&nbsp;the term of any such Orbital
Concession expires, (ii)&nbsp;we resign our rights under any such Orbital
Concession, (iii)&nbsp;the Mexican government through the SCT, expropriates any of
the Orbital Concessions, (iv)&nbsp;we are liquidated or become bankrupt or (v)&nbsp;the
SCT revokes any of the Orbital Concessions. Our assets and rights under the
Orbital Concessions may also be temporarily seized by the SCT, as described
below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Communications Law provides that the SCT may revoke any of the Orbital
Concessions upon the occurrence of certain events, including: (i)&nbsp;failure by us
to exercise our rights under any of the Orbital Concessions for a period
greater than 180&nbsp;days from the date the Orbital Concessions were granted; (ii)
unjustified interruption of the services that may be provided under the Orbital
Concessions; (iii)&nbsp;our undertaking any action or refraining from taking any
action that affects the rights of other licensees or concessionaires; (iv)
failure by us to satisfy the terms or conditions set forth in the Orbital
Concessions; (v)&nbsp;unjustified failure by us to interconnect other
concessionaires or licensees that have the right to provide telecommunications
services; (vi)&nbsp;change of our nationality and (vii)&nbsp;assignment or transfer of
rights granted under the Orbital Concessions in contravention of the terms of
the Communications Law. In the cases of items (i), (v), (vi)&nbsp;and (vii)&nbsp;above,
the SCT may immediately revoke any of the Orbital Concessions. In the cases of
items (ii), (iii)&nbsp;and (iv)&nbsp;above, the SCT may only revoke any of the Orbital
Concessions if it has imposed sanctions on us for the relevant breach on at
least three separate occasions. In the event any of the Orbital Concessions is
revoked by the SCT, no compensation shall be paid to us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SCT also has the right to terminate any of the Orbital Concessions
pursuant to an expropriation (<I>rescate</I>). As of the date of any such
expropriation, assets used in connection with the exploitation of the Orbital
Concessions would be subject to the ownership and management of the Mexican
government.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SCT may also temporarily seize the Orbital Concessions in the event of
natural disaster, war, substantial breach of the public peace and order, or
imminent danger to national security, internal peace or the Mexican economy. In
the past, the Mexican government has used this power to ensure continued
service during labor disputes. Mexican law requires that the Mexican government
pay compensation to us if it effects an expropriation or a temporary seizure,
except in the case of a temporary seizure due to war. In respect of an
expropriation (<I>rescate</I>), the basis for any compensation to a concessionaire is
specified by decree of the Mexican government and is subject to judicial review
in the event of dispute. With respect to a temporary seizure, the
Communications Law provides that the Mexican government will indemnify the
affected concessionaire in an amount equal to damages and losses reflecting
their real value; in the event of a dispute regarding such matters, losses
shall be determined by appraisers mutually appointed by the parties and damages
shall be determined on the basis of the average net income generated by the
concessionaire in the year prior to the temporary seizure.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Property Concession will terminate if: (i)&nbsp;the Property Concession
term expires; (ii)&nbsp;we resign our rights to the Property Concession; (iii)&nbsp;the
Orbital Concessions are terminated; (iv)&nbsp;the purpose for which the Property
Concession is granted no longer exists; (v)&nbsp;the Mexican government expropriates
the Property Concession for reasons of public interest or (vi)&nbsp;the Property
Concession is revoked. The Mexican government may revoke the Property
Concession for various reasons, including without limitation, the following:
(i)&nbsp;failure to use the Property Concession for the purpose for which it was
granted; (ii)&nbsp;failure to comply with the terms of the Property Concession;
(iii)&nbsp;activities, without prior permission of the SCT, which interfere with
satellite operations; and (iv)&nbsp;under terms and conditions generally applicable
to property concessions of this type under applicable Mexican law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the end of the concession term, the orbital positions and control
center land and buildings will revert to the state. The Mexican government will
then have preference to acquire the satellites, control centers and other
associated and necessary equipment for the continuation of satellite service.
</FONT>

<P align="left"><FONT size="2"><B>Treaties and International Accords</B>
</FONT>

<P align="left"><FONT size="2"><B><I>Reciprocity Agreement Between the United States and Mexico</I></B></FONT>

<P align="center"><FONT size="2">43</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 1996, Mexico and the United States (the &#147;Parties&#148;) signed an
agreement (the &#147;Reciprocity Agreement&#148;) concerning the transmission and
reception of signals from satellites for the provision of satellite services to
users in Mexico and the United States. The main aspects of this agreement are
(i)&nbsp;Mexican satellites are permitted to provide satellite service to, from and
within the United States (in conformance with applicable U.S. law), (ii)&nbsp;U.S.
satellites are permitted to provide satellite service to, from and within
Mexico (in conformance with applicable Mexican law), (iii)&nbsp;the conditions for
the transmission and reception of satellite signals will be as agreed to in
protocols to the agreement, (iv)&nbsp;the entities operating commercial satellites
and earth stations may be structured with either public or private
participation (in conformity with both Mexican and U.S. law), (v)&nbsp;neither
Mexico nor the United States shall require a satellite licensed by the other
government to obtain an additional license for the operation of the satellite
in order to provide the satellite services described in the protocols to the
Reciprocity Agreement, (vi)&nbsp;licenses for earth stations and satellite services
must comply with national laws and regulations, (vii)&nbsp;applicable foreign
ownership restrictions on satellite service providers and earth station
licenses continue to apply and (viii)&nbsp;both Mexico and the United States retain
the right to take actions that either government considers necessary for the
protection of our essential security interests.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Reciprocity Agreement may be amended by agreement of the Parties.
Additional protocols or protocol amendments may be concluded by written
agreement of the Parties. The Reciprocity Agreement may be terminated by mutual
agreement of the Parties, or by either Party by written notice of termination
to the other Party through diplomatic channels. Such notice of termination will
enter into effect six months after receipt of the notice.
</FONT>

<P align="left"><FONT size="2"><B><I>Direct-to-Home Protocol</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 1996, Mexico and the United States signed a protocol (the &#147;DTH
Protocol&#148;) to the Reciprocity Agreement concerning the transmission and
reception of signals from satellites for the provision of direct-to-home
satellite services. Direct-to-home satellite services are defined to include
direct-to-home fixed satellite service and broadcasting satellite service,
which include one-way, encrypted video or video/audio radiocommunication
signals transmitted by satellite for direct reception by subscribers who pay a
periodic fee, distribution of video/audio to cable television head-ends and
multipoint distribution service (&#147;MDS&#148;) or wireless cable facilities. The DTH
Protocol addressed only a limited number of radiocommunication frequencies. The
United States and Mexico have each agreed to permit satellites licensed by the
other government to provide direct-to-home fixed satellite services and
broadcasting satellite services to, from, and within the other country&#146;s
territory. Entities seeking to transmit or receive direct-to-home fixed
satellite services or broadcasting satellite services signals via a satellite
licensed by the other administration (e.g., through an earth station in the
non-licensing jurisdiction) must still comply with the non-licensing
jurisdiction&#146;s other applicable laws (e.g., the earth station licensing
process). Both Mexico and the United States reserve the right to refuse to
accept signals originating from third countries. In addition, both countries
agree to permit direct-to-home fixed satellite service and broadcasting
satellite service signals to be delivered directly to subscribers without
requiring that they be retransmitted over an intermediary satellite system.
Mexico and the United States agree not to impose significant restrictions on
the amount or origin of advertising and program content. The DTH Protocol does
not apply to the transmission of any audio-only direct-to-home fixed satellite
service and broadcasting satellite service signals that do not contain solely
music. Service to cable television head-ends is permitted under the DTH
Protocol as of November&nbsp;8, 1997.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The DTH Protocol may be amended by written agreement of the Parties. The
DTH Protocol may be terminated by agreement of the Parties, or by either Party
by written notice of termination to the other Party. Such notice of termination
shall enter into effect six months after receipt of the notice. The DTH
Protocol will remain in force until it is terminated in such manner or replaced
by a new protocol. Upon termination of the DTH Protocol, a Party may, at its
discretion, terminate any license that has been issued pursuant to the DTH
Protocol. In addition to the general provisions for termination, the DTH
Protocol may be terminated upon sixty days&#146; written notice if a Party
determines that the other Party has failed to conform to the principles of the
DTH Protocol.
</FONT>

<P align="left"><FONT size="2"><B><I>Fixed Satellite Services Protocol</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 1997, Mexico and the United States signed another protocol (the
&#147;FSS Protocol&#148;) to the Reciprocity Agreement, with respect to the transmission
and reception of signals from satellites for the provision of international and
domestic fixed satellite services. The definition of fixed satellite services
includes, but is not limited to, signals carrying video or video/audio distributed to cable television head-end and
multipoint distribution service (restricted
</FONT>

<P align="center"><FONT size="2">44</FONT>
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<P align="left"><FONT size="2">microwave television service) facilities and excludes the direct-to-home fixed satellite services and
broadcasting satellite services governed by the DTH Protocol. Like the DTH
Protocol, the FSS Protocol addresses only a limited number of
radiocommunication frequencies. Subject to the terms of the FSS Protocol, the
United States and Mexico have agreed to permit satellites licensed by the other
to provide domestic and international fixed satellite services to, from, and
within the other country&#146;s territory. Satellites licensed by either Mexico or
the United States may be authorized to provide international service beginning
October&nbsp;16, 1997. Satellites licensed by the United States were authorized to
provide domestic fixed satellite services in Mexico beginning in January 1999.
Satellites licensed by Mexico were authorized to provide domestic fixed
satellite services in the United States beginning on January&nbsp;1, 1998. The FSS
Protocol also states that a satellite licensed by either Mexico or the United
States to provide direct-to-home fixed satellite services or broadcasting
satellite services shall be permitted to provide video or video-audio
distribution to cable television head-end and multipoint distribution service
(restricted microwave television services) facilities beginning November&nbsp;8,
1997. Entities seeking to transmit or receive fixed satellite service signals
via a satellite licensed by the other Party (e.g., through an earth station in
the non-licensing jurisdiction) must still comply with the non-licensing
jurisdiction&#146;s other applicable laws (e.g., the earth station licensing
process). Unlike the DTH Protocol, the FSS Protocol permits communications to
or from third countries. However, similar to the DTH Protocol, under the FSS
Protocol, both countries agree to permit fixed satellite service signals to be
delivered directly to fixed-earth stations without requiring that they be
retransmitted over an intermediary satellite system.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FSS Protocol may be amended by written agreement of the Parties. The
FSS Protocol may be terminated by agreement of the Parties, or by either Party
by written notice of termination to the other Party. Such notice of termination
shall enter into effect six months after receipt of the notice. Upon
termination of the FSS Protocol, a Party may, at its discretion, terminate any
license that has been issued pursuant to the FSS Protocol. The FSS Protocol
will remain in force until it is terminated in such manner or replaced by a new
protocol.
</FONT>

<P align="left"><FONT size="2"><B><I>Reciprocity Agreement Between Canada and Mexico</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 1999, Mexico and Canada signed an agreement similar to the
agreement between Mexico and the United States. In January, 2001, the FSS
Protocol between Canada and Mexico was signed.
</FONT>
<P align="left"><FONT size="2"><B><I>Argentine Agreement</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November of 1997, the governments of Mexico and the Argentine Republic
entered into a bilateral agreement to afford reciprocal treatment for satellite
service providers licensed under the laws of each party. The agreement provides
that satellite service providers licensed in Mexico may transmit certain
direct-to-home fixed satellite services, broadcasting satellite services and
other fixed satellite service signals to satellite customers in Argentina, and
vice versa. The agreement, using the radiocommunication rules of the
International Telecommunication Union (the &#147;ITU&#148;) as a base, sets forth the
terms and conditions for the technical coordination of each party&#146;s satellite
systems. The parties further agreed to cooperate in assuring compliance with
each party&#146;s applicable laws and regulations. Mexican satellite providers
operating in Argentina would remain subject to applicable Argentine law, and
vice versa. The parties agreed to apply their respective laws in a transparent
and non-discriminatory fashion. An agreement was entered into in June 2000, and
the mutual exchange of diplomatic notes has taken place. The direct-to-home
fixed satellite services agreement between Mexico and the Argentine Republic
was signed on July, 2002.
</FONT>

<P align="left"><FONT size="2"><B><I>ANDESAT Agreement</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;24, 1997, Mexico and Member Countries of the Andean Community
of Nations (the &#147;Andean Community&#148;) entered into a five-year agreement
regarding coordination between the Mexican satellite system and the Sim&#243;n
Bol&#237;var Andean satellite system, which was amended on March&nbsp;1, 1999 (the
&#147;ANDESAT Agreement&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the ANDESAT Agreement, we agreed to provide the Andean Community
satellite capacity until January 2003 at certain preferred rates. The Andean
Community had the right to use, at no charge, one and one quarter transponders.
Under the ANDESAT Agreement, we agreed to pay to the Andesat Community an
annual fee of $850,000, in four quarterly payments, correspondent to the
downlink signals in the Andean region. On October&nbsp;17, 2001, we reduced the
capacity provision not charged to one transponder and agreed to pay $212,500 as
a settlement payment for the ANDESAT Agreement obligations.
</FONT>

<P align="center"><FONT size="2">45</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2003, the ANDESAT Agreement expired and we now operate directly
in Bolivia, Ecuador and Peru. We are in the process of negotiating direct
operating rights in Colombia and Venezuela.
</FONT>

<P align="left"><FONT size="2"><B><I>The General Agreement on Trade in Services</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the auspices of the World Trade Organization (the &#147;WTO&#148;), the
Negotiating Group for Basic Telecommunications concluded negotiations that
resulted in receipt of commitments from 69 governments. The commitments cover
basic telecommunications services including telephony, packet and circuit data
transmission, fax, private leased, circuit, cellular telephony, individual
localization telex and telegraph services. These services can be offered
through a variety of available medium, such as cable, wireless, radio or
satellite. The agreement itself imposes an obligation to afford
most-favored-nation treatment to all other members unless an exemption is
filed. Mexico did not file an exemption.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mexico has adopted the regulatory reference paper which established
parameters relating to competition, interconnection, universal service, public
availability, criteria for awarding licenses, autonomy of the regulatory entity
and assignment and exploitation of available resources. Mexico has established
the following service parameters: (i)&nbsp;telex and telegraph services are not
included; (ii)&nbsp;cross-border traffic must be routed through a company licensed
by the SCT; (iii)&nbsp;license fees are imposed; (iv)&nbsp;licenses will only be awarded
to Mexican companies, in which foreign participation is limited to 49%, except
in cellular, where foreign participation may be higher; (v)&nbsp;services other than
international long-distance that require the use of satellites must employ
Mexican satellites until 2002; and (vi)&nbsp;there is no limit to foreign investment
in companies that offer services to third parties.
</FONT>

<P align="left"><FONT size="2"><B>Government and Supra-Governmental Regulation</B>
</FONT>

<P align="left"><FONT size="2"><B><I>FCC Regulation of Satellite Services and Foreign Ownership of FCC Licenses</I></B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. satellite and telecommunications industries are highly regulated.
In addition to the international accords and protocols discussed above, the
Federal Communications Commission (the &#147;FCC&#148;) regulates satellite providers
operating in the U.S. as well as the provision of satellite services,
generally. The FCC currently regulates access to the U.S. market by non-U.S.
licensed satellite systems.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the Second Domestic International Satellite Consolidation rulemaking
(&#147;DISCO II&#148;), the FCC adopted a framework under which it will consider requests
for the use of non-U.S. licensed satellites to provide services in the U.S. The
FCC will examine all requests to determine whether grant of authority is
consistent with the public interest, convenience and necessity. In doing so,
the FCC will consider factors such as the effect on competition in the U.S.
market, spectrum availability, eligibility requirements (such as foreign
ownership, legal, technical and financial qualifications), operating
requirements and national security, law enforcement, foreign policy and trade
concerns, as appropriate. Depending on the nature of the services offered in
the United States, these foreign-licensed satellites may be subject to a
variety of regulatory requirements. Petitions to reconsider certain aspects of
the DISCO II order have been filed with the FCC.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In determining the effect on competition, the order in DISCO II
establishes a presumption that competition will be promoted, and, therefore,
that no effective competitive opportunities (&#147;ECO&#148;) test is required, in
evaluating whether to permit satellites licensed by WTO member countries to
provide services covered by the U.S. schedule of commitments under the World
Trade Organization Agreement on Basic Telecommunications (the &#147;WTO Basic
Telecom Agreement&#148;). Except that if Comsat Corporation seeks to provide
domestic services, it will be required to make an appropriate waiver of
immunity from suit and demonstrate that the service will enhance competition in
the U.S. market. For requests to serve the U.S. market by satellite operators
from non-WTO member countries, the FCC will examine the effective competitive
opportunities in the foreign markets for U.S. satellite operators to determine
if the non-U.S. satellite satisfies the competition component of the public
interest analysis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FCC will also apply the ECO tests to requests to serve the U.S. market
with services not covered by the WTO Agreement such as direct-to-home fixed
satellite services, direct broadcast satellite services, and digital audio
radio services. The U.S. schedule of commitments under the WTO Basic Telecom
Agreement excludes direct-to-home fixed satellite services, direct broadcast
satellite service and digital audio radio service, and the U.S. has taken
a most-favored-nation and national treatment exception for these services.
Thus, for those services the FCC will
</FONT>

<P align="center"><FONT size="2">46</FONT>
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<P align="left"><FONT size="2">continue to apply the ECO test to entities including WTO member countries seeking to provide these services. The
FCC, however, has created an exception to this general rule where the U.S. has
entered into bilateral agreements with the other country regarding specific
services, as the U.S. has done with Mexico. The FCC will review earth station
applications to access a satellite licensed in a country with which the U.S.
has a bilateral agreement based on a presumption that entry will promote
competition. The application will be subject to other public interest
requirements and must comply with FCC technical and service rules.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once operational, a non-U.S. licensed satellite system serving the U.S.
will be subject to the same ongoing requirements that apply to U.S.-licensed
satellites. For instance, the FCC rules prohibit an international satellite
provider from entering into exclusionary arrangements with other countries for
satellite capacity for a particular service. The DISCO II process provides that
in order for non-U.S. satellite operators to bring before the FCC their
requests to serve the U.S. they may (i)&nbsp;participate in a U.S. space station
processing round, or (ii)&nbsp;have a U.S. earth station operator apply for
authority to communicate with the non-U.S. satellite or (iii)&nbsp;apply to be
listed on the &#147;Permitted Space Station List&#148; of non-U.S. licensed satellites
that any U.S.-authorized earth station with an &#147;ALSAT&#148; designation may
communicate with, subject to any condition the FCC may impose. The FCC does not
require space stations licensed by another country or administration to obtain
separate and duplicative U.S. space station licenses, but the FCC does require
compliance with the same technical requirements it imposes on U.S. satellites.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FCC also places certain restrictions on the ownership by non-U.S.
citizens and corporations of FCC licenses. The Communications Act of 1934, as
amended (the &#147;Communications Act&#148;), provides that certain radio licenses,
including earth station licenses, cannot be granted to or held by any foreign
government or the representative thereof. In addition, under Section&nbsp;310(b) of
the Communications Act, a non-U.S. citizen or a corporation organized under the
laws of any foreign government may not hold or vote more than 20% of the equity
of a common carrier, broadcast or aeronautical licensee directly. However,
under Section&nbsp;310(b)(4), the FCC does permit non-U.S. citizens or foreign
corporations to own or vote 25% of the equity of a U.S. corporation which, in
turn, owns all or part of the equity of a common carrier, broadcast or
aeronautical licensee (i.e., a holding company) unless such ownership would be
contrary to the public interest. The FCC has the discretion to permit such
persons and corporations to exceed the 25% benchmark applicable to such
indirect ownership interests.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The FCC had applied an ECO test as part of its public interest analysis
for allowing non-U.S. citizens or foreign corporations to exceed the 25%
benchmark under Section&nbsp;310(b)(4) for indirect interest in common carrier,
broadcast and aeronautical radio licensees. Recently the FCC eliminated the ECO
test for common carrier, broadcast and aeronautical licensees or applications
with indirect foreign ownership from WTO member countries. Instead, the FCC
adopted a rebuttable presumption that applications by investors from WTO member
countries to exceed the 25% foreign ownership benchmark under Section&nbsp;310(b)(4)
will promote competition. The FCC will, however, consider other public interest
factors such as national security, law enforcement, foreign policy and trade
concerns, if raised by the Executive Branch of the U.S. government. Licensees
must seek FCC approval before they accept indirect foreign ownership that would
put them over the 25% benchmark. The FCC may deny applications that pose a very
high risk to competition that cannot be addressed by conditions that it may
impose on the license. Petitions to reconsider certain aspects of the FCC order
adopting the regime described above have been filed with the FCC.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;14, 1999, we requested that the FCC include our satellites in
the United States Permitted Space Station List. This request was approved by
the FCC on October&nbsp;30, 2000, and our satellites, Solidaridad 2 and Satmex 5,
are now on the list. We are currently in the process of requesting the
necessary license for the Satmex 6 satellite, which we expect to be completed
by the end of this year.
</FONT>

<P align="left"><FONT size="2"><B><I>Role of the International Telecommunication Union</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Registration of orbital slots and international frequency coordination is
accomplished under the aegis of the ITU, an international body in which most of
the nations of the world are represented as member states. Representation at
the ITU for coordination purposes is limited to national governmental agencies;
private companies are not entitled to participate in their own right in
coordination activities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All ITU filings are made through ITU member states. Therefore, companies
must work within the constraints set by the administration representing their interests and factors such as
national interests and foreign relations concerns
</FONT>

<P align="center"><FONT size="2">47</FONT>
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<P align="left"><FONT size="2">often affect positions that an administration is willing to take on behalf of commercial entities.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nations are required by treaty to give notice of their proposed use of
satellite orbital slots and frequencies with the Radiocommunication Bureau
(&#147;Bureau&#148;) of the ITU. After notification by the Bureau of the orbital slot
request, other nations are afforded the opportunity to apprise the Bureau of
any conflicts with their present or planned satellite systems. When a conflict
or potential conflict is noted, nations are obligated to negotiate in an effort
to coordinate the proposed uses and resolve any interference concerns. The ITU,
however, has no power to resolve disputes formally.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The process is ultimately subject to enforcement by national regulatory
authorities acting pursuant to international treaty obligations. The ITU has
limited power to enforce or police its rules; it relies on the goodwill and
cooperation of the individual members.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ITU rules grant coordination priority with respect to most frequency
assignments at most orbital locations on a &#147;first to file, first in right&#148;
basis, even though a filing entails no enforceable commitment to manufacture or
launch a satellite within any particular period of time. When coordination
consultations have been successfully completed, the Bureau is notified of that
fact by the sponsoring administration. Subsequently, the satellite
registrations are listed in the Bureau&#146;s Master International Frequency
Register (&#147;MIFR&#148;), which contains, for instance, the assigned frequency, the
date of its registration, and technical details. Once this information is
registered, the assignment is entitled to international recognition and
protection against harmful interference for the life of the satellite while it
is in operation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SCT and other Mexican governmental agencies are responsible for filing
and coordinating requests by Mexican companies to coordinate orbital slots and
frequency assignments with the Bureau and for resolving interference concerns.
Use of the orbital slots remains subject to the continuing oversight of the SCT
and to a variety of regulations generally applicable to all satellite and radio
licensees, including the international radio regulations.
</FONT>

<P align="left"><FONT size="2"><B><I>Status of Our Satellites</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Mexican government notified the ITU on October&nbsp;4, 1994 that
coordination for Solidaridad 1 had been completed and notified the ITU on April
25, 1995 that coordination for Solidaridad 2 had been completed.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Satmex 5 request for coordination was published by the ITU on June&nbsp;24,
1997. We have favorably concluded coordination discussions with the government
of Canada regarding Satmex 5 and are able to provide service in Canada.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Satmex 6 advance publication was published by the ITU on April&nbsp;15, 2001
and the coordination request was filed on July 2001. In order to provide
expanded satellite services in the United States with the Satmex 6 satellite, a
new coordination agreement would need to be negotiated between the governments
of Mexico and Canada, as well as the affected satellite operators. New
coordination agreements are often negotiated to accommodate the operation of
new satellites. An existing coordination agreement between the governments of
Mexico and Canada, as well as the affected satellite operators, provides for
the operation of Mexican and Canadian satellites, including Satmex 6, in the
107.3 degrees W.L. to 118.7 degrees W.L. orbital arc. We have held discussions
with Canada regarding coordination of Satmex 6. The negotiation of a new
coordination agreement is in progress, with the active participation of the
governments of Mexico and Canada and the affected satellite operators. We
expect the new coordination agreement to be reached before the launch of Satmex
6, and the scheduled launch of Satmex 6 will proceed whether or not a new
coordination agreement has been negotiated. However, the inability to conclude
a satisfactory agreement may negatively impact our ability to provide expanded
services in the United States and could adversely affect our business.
</FONT>
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<DIV align="left"><A NAME="009"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;11. </B><B><I>Quantitative and Qualitative Disclosures About Market Risk</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is exposed to market risk from changes in currency exchange
rates and change in interest rates. The Company from time to time assesses its
exposure and monitors opportunities to manage these risks.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Exchange Rate Risk</I></B>
</FONT>
<P align="center"><FONT size="2">48</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2001 and 2002, the annual rates of inflation in Mexico, as measured
by changes in the National Consumer Price Index as provided by the Banco de
Mexico, were 4.4% and 5.7%, respectively. The Company&#146;s major expenditures,
including capital expenses and satellite insurance will not be affected by high
levels of inflation, because they are denominated in dollars. Customer
contracts are also denominated in dollars. However, high inflation rates would
affect peso denominated expenses such as payroll and rent and could result in
an increase in uncollectible accounts receivable and customer lease
cancellations. To the extent that the peso&#146;s devaluation against the U.S.
dollar is less than the inflation rate in Mexico, the Company will be adversely
affected by the effect of inflation in Mexico with respect to its peso
denominated expenses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interest Rate Risk</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, the fair value, based on quoted market prices, of
the Company&#146;s fixed rate notes was approximately $126.4&nbsp;million. The carrying
value of the Company&#146;s senior secured notes approximates their fair value
because their interest rates are based on floating rates. The carrying value of
the Company&#146;s fixed rate debt exceeded fair value by $193.6&nbsp;million. Market
risk on the Company&#146;s variable rate debt is estimated as the potential increase
in annual interest expense resulting from a hypothetical one percent increase
in interest rates and amounts to $2.0&nbsp;million.
</FONT>

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<DIV align="left"><A NAME="010"></A></DIV>
<P align="center"><FONT size="2"><B>PART II</B>
</FONT>

<!-- link2 "Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies" -->
<DIV align="left"><A NAME="011"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;13. </B><B><I>Defaults, Dividend Arrearages and Delinquencies</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<!-- link2 "Item&nbsp;14. Material Modifications to the Rights of Security Holders" -->
<DIV align="left"><A NAME="012"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;14. </B><B><I>Material Modifications to the Rights of Security Holders</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<!-- link2 "Item&nbsp;15. Controls and Procedures" -->
<DIV align="left"><A NAME="013"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;15. </B><B><I>Controls and Procedures</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
supervision and with the participation of our management, including
our principal executive officer and our principal financial officer,
we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in
Rules&nbsp;13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934, as amended, within 90&nbsp;days of the filing date of this
report (the &#147;Evaluation Date&#148;). Based on this evaluation,
our principal executive officer and our principal financial officer
concluded as of the Evaluation Date that our disclosure controls and
procedures were
effective such that the material information required to be included
in our Securities and Exchange Commission (&#147;SEC&#148;) reports
is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms relating to Satmex.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, there were no significant changes in our internal controls
or in other factors that could significantly affect these controls subsequent to
the Evaluation Date. We have not identified any significant
deficiencies or material weaknesses in our internal controls, and
therefore we took no corrective actions.
</FONT>

<!-- link1 "PART IV" -->
<DIV align="left"><A NAME="014"></A></DIV>
<P align="center"><FONT size="2"><B>PART IV</B>
</FONT>

<!-- link2 "Item&nbsp;18. Financial Statements" -->
<DIV align="left"><A NAME="015"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;18. </B><B><I>Financial Statements</I></B>
</FONT>


<P align="center"><FONT size="2">49</FONT>

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<P align="center">
<B><FONT size="2">INDEX TO FINANCIAL STATEMENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Independent Auditors&#146; Report
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">F-2
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance Sheets as of December&nbsp;31, 2002 and
    2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">F-3
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statements of Operations for the years ended
    December&nbsp;31, 2002, 2001 and 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">F-4
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statements of Changes in Stockholders&#146;
    Equity for the years ended December&nbsp;31, 2002, 2001 and 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">F-5
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Statements of Cash Flows for the years ended
    December&nbsp;31, 2002, 2001 and 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">F-6
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Notes to the Financial Statements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="bottom">
    <FONT size="2">F-7
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-1</FONT>
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<DIV><FONT size="1"><B>Galaz, Yamazaki, Ruiz Urquiza, S.C.<BR>
Paseo de la Reforma 505<BR>
Colonia Cuauht&#233;moc<BR>
06500 M&#233;xico, D.F.<BR>
M&#233;xico</B></FONT></DIV>

<P><FONT size="1"><B>Tel:+52(55) 5080 6000<BR>
Fax: +52 (55) 5080 6001<BR>
www.deloitte.com.mx</B></FONT>

<DIV align="right"><IMG src="y87813tfy8781300.gif" alt="DELOITTE & TOUCHE LETTERHEAD">
</DIV>
<P align="center"><FONT size="2"><B>INDEPENDENT AUDITORS&#146; REPORT</B></FONT>
<P><FONT size="2">To the Stockholders and Board of Directors
of<BR>
Sat&#233;lites Mexicanos, S.A. de C.V.<BR>
Mexico City, Mexico</font>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the
accompanying balance sheets of Sat&#233;lites Mexicanos, S.A. de C.V.
(a subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) as
of December&nbsp;31, 2002 and 2001, and the related statements of
operations, stockholders&#146; equity, and cash flows for each of the
three years in the period ended December&nbsp;31, 2002. These
financial statements are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our
audits in accordance with auditing standards generally accepted in
the United States of America. These 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.</FONT>

<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, such
financial statements present fairly, in all material respects, the
financial position of Sat&#233;lites Mexicanos, S.A. de C.V. as of
December&nbsp;31, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended
December&nbsp;31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
</FONT>
<P><FONT size="2">/s/ Deloitte&nbsp;&#038;&nbsp;Touche<BR>
Deloitte&nbsp;&#038;&nbsp;Touche<BR>
April&nbsp;21, 2003</FONT>

<P><IMG src="y87813tfy8781301.gif" alt="DELOITTE & TOUCHE LOGO">


<P align="center"><FONT size="2">F-2</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">

</DIV>

<P align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">BALANCE SHEETS</FONT></B>

<DIV align="center">
<B><FONT size="2">AS OF DECEMBER&nbsp;31, 2002 AND
2001</FONT></B>
</DIV>

<DIV align="center">
<FONT size="2">(Amounts in thousands of U.S. dollars)
</FONT>
</DIV>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">Assets</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current assets:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Restricted and segregated cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">155,496</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid insurance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due from related parties
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,857</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">200,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Satellites and equipment, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">289,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction in process&nbsp;&#151; Satmex&nbsp;6
    (Note&nbsp;1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">214,903</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">95,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Concessions, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">463,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid insurance, non current
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,671</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,011,094</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="7" align="center" valign="top">
    <B><FONT size="2">Liabilities and Stockholders&#146;
    Equity</FONT></B></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current maturities of long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses (Note 1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due to related parties
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue&nbsp;&#151; customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue&nbsp;&#151; Mexican government
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total current liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accrued expenses, non current (Note 1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue&nbsp;&#151; Mexican government
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">74,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,735</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">523,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">542,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">642,414</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">700,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Commitments and contingencies (Note&nbsp;9)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="11"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Stockholders&#146; equity:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">385,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">383,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated deficit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,260</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,825</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">368,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total liabilities and stockholders&#146; equity
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,011,094</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,089,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See notes to financial statements.
</FONT>

<P align="center"><FONT size="2">F-3</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">STATEMENTS OF OPERATIONS</FONT></B>

<DIV align="center">
<B><FONT size="2">FOR THE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000</FONT></B>
</DIV>

<DIV align="center">
<FONT size="2">(Amounts in thousands of U.S. dollars)
</FONT>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">128,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">136,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating expenses:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Satellite operations
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,768</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Selling and administrative expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,824</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">License and management fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation expense and amortization of
    concessions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">86,460</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">102,126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Operating (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,449</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">34,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on in-orbit failure of Solidaridad&nbsp;1
    (Note 1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,264</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">103,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest expense and amortization of deferred
    financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(37,789</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(55,917</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(66,635</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net foreign exchange gain (loss)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(98</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">(Loss) income before income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(28,765</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,261</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income tax benefit (expense)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,029</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,928</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,112</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividend requirement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income applicable to common
    stockholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(21,435</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,619</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See notes to financial statements.
</FONT>

<P align="center"><FONT size="2">F-4</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">STATEMENTS OF CHANGES IN STOCKHOLDERS&#146;
EQUITY</FONT></B>

<DIV align="center">
<B><FONT size="2">FOR THE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000</FONT></B>
</DIV>

<DIV align="center">
<FONT size="2">(Monetary amounts in thousands of U.S. dollars)
</FONT>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Common Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Preferred Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Accumulated</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Deficit</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Total</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance January 1, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">380,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(75,883</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">336,536</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividend requirement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance December&nbsp;31, 2000
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">382,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(22,206</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">391,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,112</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,112</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividend requirement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance December&nbsp;31, 2001
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">383,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(26,825</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">388,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net loss
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,928</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,928</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock dividend requirement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,507</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Balance December&nbsp;31, 2002
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">385,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(48,260</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">368,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center">
<FONT size="2">See notes to financial statements.
</FONT>

<P align="center"><FONT size="2">F-5</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">STATEMENTS OF CASH FLOWS</FONT></B>

<DIV align="center">
<B><FONT size="2">FOR THE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000</FONT></B>
</DIV>

<DIV align="center">
<FONT size="2">(Amounts in thousands of U.S. dollars)
</FONT>
</DIV>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="60%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Operating activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net (loss) income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(19,928</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,112</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">55,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Adjustments to reconcile net income (loss) to
    operating cash flow:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Depreciation expense and amortization of
    concessions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47,252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">56,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Amortization of deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,315</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on in-orbit failure of Solidaridad&nbsp;1
    (Note&nbsp;1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,277</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,264</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(103,114</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue&nbsp;&#151;&nbsp;customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,918</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,921</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue&nbsp;&#151; Mexican government
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,200</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,200</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,200</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred income taxes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,837</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,149</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,029</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest income from restricted and segregated
    cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,360</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,440</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Use of restricted and segregated cash for
    interest payments
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Changes in assets and liabilities:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts receivable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,555</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(562</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid insurance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accounts payable and accrued expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(7,422</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,345</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest payable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Due from/to related parties
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">265</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,233</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs and other assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(135</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(133</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(782</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flow provided by operating activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">20,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">29,005</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">40,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Investing activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Use of restricted and segregated cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">108,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction in progress&nbsp;&#151; Satmex&nbsp;6
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(119,811</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(91,920</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,172</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Acquisition of equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,436</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,822</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,480</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flow used in investing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,234</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,936</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,652</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Financing activities</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Use of restricted and segregated cash
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Borrowings (repayments) under revolving credit
    facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayment of revolving credit facility
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(13,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Repayment of senior secured notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(31,626</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash flow used in financing activities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(5,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(15,500</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(16,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Increase in cash and cash equivalents
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">18,175</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at beginning of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Cash and cash equivalents at end of year
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,822</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">26,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">24,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Supplemental disclosure</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Interest paid
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">57,147</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">63,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">Non-cash activities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2001, the Company received $235.3&nbsp;million
of insurance proceeds related to the in-orbit failure of
Solidaridad&nbsp;1, which was recorded as restricted and
segregated cash.
</FONT>

<P align="center">
<FONT size="2">See notes to financial statements.
</FONT>

<P align="center"><FONT size="2">F-6</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL STATEMENTS</FONT></B>

<DIV align="center">
<FONT size="2">(Monetary amounts expressed in U.S.&nbsp;dollars)
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">&nbsp;1.&nbsp;&nbsp;THE COMPANY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sat&#233;lites Mexicanos, S.A. de C.V. (the
&#147;Company&#148; or &#147;Satmex&#148;) owns and operates two
geosynchronous communications satellites, Solidaridad&nbsp;2 and
Satmex&nbsp;5. Satmex also owns another satellite,
Morelos&nbsp;2, which is in an inclined orbit. Satmex operates
in one business segment and is the leading provider of fixed
satellite services (&#147;FSS&#148;) to broadcasting and
telecommunications customers in Mexico. Satmex has landing
rights to provide broadcasting and telecommunications
transmission capacity in Mexico, the United States, Canada and
37&nbsp;nations and territories in the Latin American region.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On November 17, 1997, Loral Space &#38;
Communications Ltd. (together with its subsidiaries
&#147;Loral&#148;) and Principia,&nbsp;S.A. de C.V.
(&#147;Principia&#148;), through Firmamento Mexicano, S. de R.L.
de C.V. (&#147;Firmamento&#148;), acquired 75% of the issued and
outstanding capital stock of Satmex from the government of
Mexico for $646.8&nbsp;million. Firmamento is owned 65% by Loral
and 35% by Principia. Principia holds 51% of Firmamento&#146;s
voting interests. The remaining 25% of Satmex&#146;s capital
stock was retained by the Mexican government.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In consideration of the debt incurred by Satmex
in connection with the acquisition, Servicios Corporativos
Satelitales, S.A. de C.V. (&#147;Servicios&#148;), a wholly
owned subsidiary of Firmamento, agreed to pay to the Mexican
government $125.1&nbsp;million (the &#147;Government
Obligation&#148;). The Government Obligation accrues deferred
interest at the rate of 6.03% per annum, compounds annually and
matures in December 2004. Payment of the Government Obligation
is currently secured by Loral&#146;s and Principia&#146;s
interests in Firmamento.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August&nbsp;2000, Satmex&#146;s
Solidaridad&nbsp;1 satellite, located at 109.2 degrees W.L.,
ceased operating and was considered irretrievably lost. The loss
was caused by the failure of the back-up control processor on
board the satellite. Solidaridad&nbsp;1 was built by Hughes
Space and Communications and commenced service in January 1994.
Solidaridad 1 was insured for $250&nbsp;million. At the date of
the loss, Solidaridad 1 had a net book value of approximately
$109.6&nbsp;million. After deducting prepaid insurance of
$1.6&nbsp;million, the unpaid insurance premiums of
$12.5&nbsp;million and on-going monitoring costs and the excess
of the estimated cost over revenue for the currently committed
transponder capacity to be provided to customers of
$23.2&nbsp;million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1&nbsp;million. In 2001,
Satmex reduced the liability for the cost over revenue for the
committed transponder capacity to be provided to customers by
$7.3&nbsp;million. In 2002, the Company received
$3.3&nbsp;million from the satellite manufacturer under the
Solidaridad&nbsp;1 performance guarantee and Satmex reduced the
liability for the cost over revenue for the committed
transponder capacity to be provided to customers by $5.1
million. These transactions were recorded as additional gain on
the in-orbit failure of Solidaridad&nbsp;1 in the applicable
periods. In January 2001, Satmex received insurance proceeds of
approximately $235.3&nbsp;million, net of the unpaid insurance
premiums and related value added tax. Satmex is using the net
insurance proceeds towards the construction, launch and
insurance of a replacement satellite, Satmex&nbsp;6, as well as
for debt service. Satmex has contracted with Space
Systems/Loral, Inc. (&#147;SS/L&#148;), a wholly owned
subsidiary of Loral, to build Satmex&nbsp;6, designed to provide
broader coverage and higher power levels than any other
satellite currently in the Satmex fleet. Certain manufacturing
and testing procedures have resulted in the launch of
Satmex&nbsp;6 being extended to the third quarter of 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On August&nbsp;10, 2001, the Mexican government
granted licenses to provide satellite service in Mexico to
PanAmSat, SES Global, Televisa and Enlaces Integra. PanAmSat
registered 11 satellites and SES Global registered seven
satellites to provide satellite service in Mexico.
</FONT>

<P align="center"><FONT size="2">F-7</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;2.&nbsp;&nbsp;SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</FONT></B>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Basis of presentation</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s financial statements are
presented in U.S. dollars and have been prepared using
accounting principles generally accepted in the United States of
America.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Functional currency and
translation</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company maintains its legal books and records
in Mexican&nbsp;pesos. The functional currency of the Company is
the U.S.&nbsp;dollar. Monetary assets and liabilities
denominated in pesos are translated into U.S.&nbsp;dollars using
current exchange rates. Non-monetary assets and liabilities
originally denominated in pesos are translated into
U.S.&nbsp;dollars using the historical exchange rate at the date
of the transaction. Capital stock is translated at historical
exchange rates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The financial statements should not be construed
as representations that Mexican pesos have been, could have been
or may in the future be converted into U.S. dollars at such
rates or any other rates.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Relevant exchange rates used in the preparation
of the financial statements were as follows (Mexican pesos per
one U.S. dollar):
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="66%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current exchange rate at December&nbsp;31,
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Ps.10.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Ps.9.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">Ps.9.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Weighted average exchange rate
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Foreign currency
transactions</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Transactions denominated in foreign currencies
are recorded at the rate of exchange in effect at the date of
the transactions. Monetary assets and liabilities denominated in
foreign currencies are converted into the Company&#146;s
functional currency at the rate of exchange in effect at the
balance sheet date. The effect of changes in exchange rates is
recorded in the results of operations.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Use of estimates</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results could differ from these estimates. Significant estimates
include the estimated useful lives of the Company&#146;s
satellites and deferred income taxes.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Cash and cash
equivalents</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Cash and cash equivalents represent investments
in short-term deposits and commercial paper with banks which
have original maturities of ninety&nbsp;days or less.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Restricted and segregated
cash</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In accordance with the Company&#146;s debt
agreements, the insurance proceeds from the failure of
Solidaridad&nbsp;1 are restricted to use for debt service on the
Company&#146;s senior secured notes and revolving credit
facility and for payments toward the construction and launch of
Satmex&nbsp;6. Upon receipt of the net insurance proceeds of
$235.3&nbsp;million, Satmex allocated $50.0&nbsp;million of the
proceeds for debt service and the remainder of the proceeds
towards the construction and launch of Satmex&nbsp;6. At
December&nbsp;31, 2002, Satmex had $6.8&nbsp;million of
restricted and segregated cash of which $170,000 is available
for debt service on the senior secured notes and
$6.6&nbsp;million is available for the construction and launch
of Satmex&nbsp;6.
</FONT>

<P align="center"><FONT size="2">F-8</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Satellites and equipment</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Satellites and equipment are stated at historical
cost. Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The estimated useful lives of the Company&#146;s
fixed assets are:
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="82%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="15%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Solidaridad 2
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">14.5 years
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Satmex 5
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">15 years
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">9 years
    </FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top">
    <FONT size="2">10 years
    </FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Solidaridad&nbsp;2 and Satmex 5 are being
depreciated over their estimated useful lives commencing on
their in-orbit service dates of November 11, 1994 and January
22, 1999, respectively. The estimated useful lives of the
satellites were determined by engineering analyses performed at
the in-orbit service dates. Morelos&nbsp;2 was fully depreciated
at June&nbsp;30, 1998.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Costs incurred in connection with the
construction and successful deployment of the Company&#146;s
satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch
costs, launch insurance, and construction period interest.
Capitalized interest related to the construction of
Satmex&nbsp;6 was $14.2&nbsp;million and $3.5&nbsp;million for
the years ended December&nbsp;31, 2002 and 2001, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Gains or losses from in-orbit satellite failures,
after consideration of insurance proceeds, are recorded in the
period the failure occurs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except for the Company&#146;s in-orbit
satellites, all the Company&#146;s long-lived assets are located
in Mexico.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Concessions</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Mexican government granted Satmex the rights
to three 20-year concession titles (the
&#147;Concessions&#148;), to operate in three orbital slots;
109.2 degrees W.L., 113.0 degrees W.L. and 116.8 degrees W.L.
The Concessions are renewable on certain conditions for an
additional 20&nbsp;years at no additional cost. The Concessions
require Satmex to reserve certain capacity on each satellite for
use by the Mexican government. The Concessions are being
amortized over 40 years. Amortization expense totals
$12.9&nbsp;million annually.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Deferred financing costs</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Deferred financing costs are being amortized over
the period of the related debt (see Note&nbsp;6). Amortization
expense for the years ended December&nbsp;31, 2002, 2001 and
2000 was $2.3&nbsp;million, $2.3&nbsp;million and
$2.1&nbsp;million, respectively.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Valuation of long-lived
assets</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying value of the Company&#146;s
long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that an asset may not be
recoverable. Assets are determined to be impaired when the
estimated undiscounted cash flows expected to result from the
use of the asset are less than the carrying value of the asset.
The Company measures impairment as the difference between the
carrying value and the fair value of the asset.
</FONT>

<P align="center"><FONT size="2">F-9</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Labor benefits, indemnification
payments and other benefits plans</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2002 and 2001 the Company
has no obligation for statutory seniority premiums and severance
costs because the Company uses external services from affiliated
companies to perform its activities. The Company has no
obligation for post-retirement health care insurance or other
benefits.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Deferred income tax</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company recognizes deferred income tax assets
and liabilities for the future consequences of temporary
differences between the financial statement carrying amounts of
assets and liabilities and their respective income tax bases,
measured using enacted rates. The effects of changes in the
statutory rates are accounted for in the period that includes
the enactment date. Deferred income tax assets are also
recognized for the estimated future effects of tax loss
carryforwards and asset tax credit carryforwards. Deferred
income tax assets are reduced by any benefits that are not
expected to be realized.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Revenue recognition</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Satmex provides satellite capacity under service
lease agreements for periods ranging from one year to ten years.
Some service lease agreements provide for cash advances from
customers with reduced rents. Such cash advances are recognized
as revenue on a straight-line method over the total lease term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the case of end-of-life leases, in which
Satmex collects the total rent in advance and provides no
insurance or warranty on the related transponders, Satmex
recognizes the total revenue and related cost as sales-type
leases.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Deferred revenue&nbsp;&#151;
Mexican government</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is required to provide the Mexican
government, at no charge, approximately 7% of its available
transponder capacity for the duration of the Concessions. In
1997, the Company recorded $88 million as deferred revenue, as
the value of this obligation, and an increase in the value of
the Concessions by the same amount. This obligation is being
amortized over 40&nbsp;years as an increase in revenue and a
corresponding increase in amortization expense. Amortization of
deferred revenue totals $2.2 million annually.
</FONT>

<P align="left">
<I><FONT size="2">&nbsp;&nbsp;Financial instruments</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The estimated fair value of the Company&#146;s
financial instruments has been determined using available market
information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to
develop estimates of fair value.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The carrying value of the Company&#146;s senior
secured notes approximate fair value because the interest rate
is based on floating rates. At December&nbsp;31, 2002, the fair
value of the Company&#146;s fixed rate notes (with a nominal and
recorded amount of $320 million) based on quoted market prices
was $126.4&nbsp;million.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Foreign
exchange forward contracts</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has used foreign exchange forward
contracts to hedge the Company&#146;s net monetary liabilities
in foreign currencies. Gains and losses from the contracts are
included in the component &#147;Net foreign exchange gain
(loss)&#148; in the Statements of Operations. No such contracts
were outstanding at December&nbsp;31, 2002 and 2001.
</FONT>

<P align="center"><FONT size="2">F-10</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Concentration
of credit risk and principal customers</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally
of cash and cash equivalents and accounts receivable. The
Company&#146;s cash and cash equivalents are maintained with
high-credit-quality financial institutions. The Company&#146;s
customers are the Mexican government and large and mid-sized
corporations. The creditworthiness of such institutions is
generally substantial. As the Company expands its operations, it
has added customers in emerging markets or customers that are in
the development stage. Management believes that its credit
evaluation, approval and monitoring processes mitigate potential
credit risks.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Revenue from Innova, S. de R.L. de C.V.
(&#147;Innova&#148;), an affiliate of Grupo Televisa,
represented 2%, 19% and 18% of service revenue for the years
ended December&nbsp;31, 2002, 2001 and 2000, respectively.
Revenue from the Mexican government represented 5%, 8% and 7% of
service revenue for the years ended December&nbsp;31, 2002, 2001
and 2000, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Approximately 49%, 55% and 53% of the
Company&#146;s service revenue for the years ended December 31,
2002, 2001 and 2000, respectively, was generated from customers
in Mexico.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Value
added tax</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company collects value added tax based on
revenue from its customers. Value added taxes previously paid
for the acquisition of assets or operating expenses may be
offset against value added tax collected from customers.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Accounting
Pronouncements</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the FASB issued Statement No. 141,
&#147;Business Combinations&#148; (&#147;SFAS 141&#148;) and
Statement No. 142 &#147;Goodwill and Other Intangible
Assets&#148; (&#147;SFAS 142&#148;). SFAS 141 requires that all
business combinations initiated after June 30, 2001 be accounted
for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible
assets acquired in a business combination. SFAS 142 addresses
the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives not be amortized, but
will rather be tested at least annually for impairment. The
adoption of SFAS 142 on January&nbsp;1, 2002 did not have an effect on
the Company&#146;s financial position or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2001, the FASB issued Statement No. 143,
&#147;Accounting for Asset Retirement Obligations&#148;
(&#147;SFAS 143&#148;). SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the
acquisition, construction, development and the normal operation
of a long-lived asset, except for certain obligations of
lessees. The Company is required to adopt SFAS 143 on January 1,
2003. The adoption of SFAS 143 had no effect on the
Company&#146;s financial position or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In August 2001, the FASB issued Statement No.
144, &#147;Accounting for the Impairment or Disposal of
Long-Lived Assets&#148; (&#147;SFAS 144&#148;). SFAS 144
addresses financial accounting and reporting for the impairment
of disposal of long-lived assets. It supersedes SFAS No. 121,
&#147;Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of&#148;, and the accounting
and provisions of APB 30, &#147;Reporting the Results of
Operation&nbsp;&#151; Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions&#148;, for the
disposal of a segment or
</FONT>

<P align="center"><FONT size="2">F-11</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<FONT size="2">a business. The adoption of SFAS 144 on January
1, 2002 did not have an effect on the Company&#146;s financial
position or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2002, the FASB issued Statement No. 145,
Rescission of FASB Statement No. 4, 44, and 64, Amendment FASB
Statement No. 13, and Technical Corrections (&#147;SFAS
145&#148;). SFAS 145 generally requires that any gains or losses
on extinguishment of debt in current or prior periods be
classified as other income (expense) beginning in fiscal 2003,
with early adoption encouraged. This SFAS No. 145 is not expected to
have a material effect
in the financial statements of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In June 2002, FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities
(&#147;SFAS 146&#148;), SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by standard include
lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No.
94-3, Liability Recognition for Certain Employee Termination
Benefits and other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS 146 replaces EITF Issue
No. 94-3. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. This SFAS
No. 146 is not expected to have a material effect on the financial statements of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the FASB issued FASB
Interpretation No. 45, &#147;Guarantor&#146;s Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.&#148;. This interpretation
elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure requirements
of this interpretation are effective for interim and annual
periods after December 15, 2002. The initial recognition and
initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after
December 31, 2002. The interpretation&#146;s expanded
disclosures did not have a material impact on our financial
position or result of operations. We do not believe the adoption
of the recognition and initial measurement requirements of this
interpretation will have a material impact on our financial
position or results of operations.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, the FASB issued Statement of
Financial Accounting Standards No. 148, &#147;Accounting for
Stock-Based Compensation&nbsp;&#151; Transition and
Disclosure&nbsp;&#151; an amendment to of FASB Statement
No.&nbsp;123,&#148; (&#147;SFAS No. 148&#148;). SFAS No. 148
amends SFAS No. 123, &#147;Accounting for Stock-Based
Compensation,&#148; to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual
disclosure provisions of SFAS No.&nbsp;148 are effective for
financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are
effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. This SFAS
No. 148 has no effect in the financial statements of the Company.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In January 2003, the FASB issued FASB
Interpretation No. 46, &#147;Consolidation of Variable Interest
Entities.&#148; This interpretation of Accounting Research
Bulletin No. 51, &#147;Consolidated Financial Statements,&#148;
addresses consolidation by business enterprises of variable
interest entities. Under current practice, two enterprises
generally have been included in consolidated financial
statements because one enterprise controls the other through
voting interest. This interpretation defines the concept of
&#147;variable interest&#148; and requires existing
unconsolidated variable interest entities to be consolidated by
their primary beneficiaries if the entities
</FONT>

<P align="center"><FONT size="2">F-12</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<FONT size="2">do not effectively disperse the risks among the
parties involved. This interpretation applies immediately to
variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. If it is
reasonably possible that an enterprise will consolidate or
disclose information about a variable interest entity when this
interpretation becomes effective, the enterprise shall disclose
information about those entities in all financial statements
issued after January 31, 2003.
</FONT>

<P align="left">
<B><FONT size="2">3.&nbsp;&nbsp;ACCOUNTS RECEIVABLE</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Customers
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Value added tax recoverable
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Allowance for uncollectible accounts
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,169</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(2,046</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">4.&nbsp;&nbsp;SATELLITES AND
EQUIPMENT</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Satellites (Note 1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">409,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">409,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">30,677</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,647</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Furniture and fixtures
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,664</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Leasehold improvements
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,371</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,772</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Construction in progress
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,245</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">451,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448,104</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Accumulated depreciation
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(161,649</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(127,379</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">289,637</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Depreciation expense was $34.5&nbsp;million,
$34.4&nbsp;million and $43.8&nbsp;million for the years ended
December&nbsp;31, 2002, 2001 and 2000, respectively.
</FONT>

<P align="center"><FONT size="2">F-13</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">5.&nbsp;&nbsp;BALANCES AND TRANSACTIONS WITH
RELATED PARTIES</FONT></B>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="75%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Amounts receivable:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Enlaces
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,672</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mexican government agencies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loral
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service companies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Amounts payable:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Loral
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">314</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">768</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Principia
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Service companies
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,493</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Enlaces
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Transactions with related parties, not otherwise
disclosed, are as follows:
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Enlaces</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Enlaces Integra (&#147;Enlaces&#148;) a company
owned by Principia and Loral leases transponder capacity from
Satmex. In 2002 and 2001, service revenue from this lease was
$421,000 and $350,000, respectively. Also, Satmex agreed to loan
Enlaces up to $5 million of which $3.4 million was outstanding
as of December&nbsp;31, 2001. The loan to Enlaces matures
January&nbsp;4, 2006 and accrues interest at a rate equal to
Satmex&#146;s weighted average interest cost plus 1%. Further, Enlaces uses services provided from
affiliated companies to perform its activities. In June 2002,
Satmex purchased approximately $718,000 of equipment from
Enlaces and in July 2002, Satmex purchased $1.6&nbsp;million of
equipment and paid $2.9&nbsp;million as an advance payment on
one of the concessions held by Enlaces. Furthermore, the
equipment was leased to Enlaces in the amount of $230,000 during
2002. Enlaces used the proceeds from the sale to repay its
outstanding loan from Satmex. At December&nbsp;31, 2002, there
were no borrowings outstanding under the loan agreement.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Revenue</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Service revenue from related parties, primarily
the Mexican government, amounted to $10.2&nbsp;million,
$14.7&nbsp;million and $13.8&nbsp;million for the years ended
December&nbsp;31, 2002, 2001 and 2000, respectively. Satmex
leases transponder capacity to Loral affiliates. Service revenue
in 2002, 2001 and 2000 was $2.6&nbsp;million, $4.7&nbsp;million and
$3.5&nbsp;million,
respectively.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Replacement
Capacity</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Loral Skynet, a wholly owned subsidiary of Loral,
billed Satmex $4.2&nbsp;million and $6.7&nbsp;million for
providing capacity on Loral Skynet satellites in 2002 and 2001,
respectively.
</FONT>

<P align="center"><FONT size="2">F-14</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Commissions</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Loral Skynet billed Satmex $547,000 and $574,000
for sales commissions in 2002 and 2001, respectively.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Management
fee</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Loral and Principia are responsible for managing
the Company. Loral and Principia receive a management fee, based
on a sliding scale, up to a maximum of 3.75% of the
Company&#146;s quarterly gross revenue, as defined. For the year
ended December&nbsp;31, 2002, Loral and Principia waived the
management fee. For the years ended December 31, 2001 and 2000,
the management fee was $2.3&nbsp;million and $3.2&nbsp;million,
respectively, of which, $767,000 and $396,000, respectively, was
offset against accrued expenses.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">License
fee</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Loral has licensed certain intellectual property
to the Company for an annual fee of 1.5% of the Company&#146;s
gross revenue, as defined. For the years ended December 31,
2002, 2001 and 2000, the license fee was $1.2&nbsp;million,
$1.8&nbsp;million and $1.9 million, respectively, of which
$65,000, $106,000 and $41,000, was offset against accrued
expenses.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Rent</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The equipment in the satellite control centers is
owned by the Company, while the buildings and land that house
these centers are property of the Mexican government. The
Company pays rent to the Mexican government for the use of the
buildings and land equal to 7.5% of appraised value. For the
years ended December&nbsp;31, 2002, 2001 and 2000, the rent
expense under this agreement was $321,000, $317,000 and
$289,000, respectively.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Service
companies</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Satmex uses external services from affiliated
companies to perform its activities. Satmex pays these companies
cost plus a fee. For the years ended December&nbsp;31, 2002,
2001 and 2000, this fee was $524,000, $794,000 and $923,000,
respectively.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;&nbsp;</FONT></B><I><FONT size="2">Guarantee
arrangements</FONT></I>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the loan agreements (see Note
6), Firmamento and Servicios have provided and continue to
provide guarantees on behalf of the Company.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;6.&nbsp;&nbsp;LONG-TERM DEBT</FONT></B>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December 31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Senior secured notes (5.88% and 6.58% at December
    31, 2002 and 2001, respectively)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">204,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">236,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed rate notes
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">320,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total debt
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">524,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">556,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Less, current maturities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">13,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">523,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">542,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-15</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On February&nbsp;2, 1998, the Company issued
$320&nbsp;million 10.125% fixed rate notes due November&nbsp;1,
2004 (the &#147;Fixed Rate Notes&#148;). The Fixed Rate Notes
are unsecured and rank senior in right of payment to all
subordinated debt of the Company and <I>pari passu</I> in right
of payment to all senior debt of the Company, including the
Senior Secured Notes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;2, 1998, the Company issued
$325&nbsp;million of senior secured floating rate notes due
June&nbsp;30, 2004 (the &#147;Senior Secured Notes&#148;). The
Senior Secured Notes rank senior in right of payment to all
subordinated debt of the Company and <I>pari passu </I>in right
of payment to all senior indebtedness of the Company including
the Fixed Rate Notes. The Senior Secured Notes bear interest, at
the Company&#146;s option, at rates based on LIBOR or the base
rate specified in the credit agreement, are redeemable at the
option of the Company and are secured by substantially all of
the assets of the Company. In addition, the Senior Secured Notes
are guaranteed by Firmamento and Servicios.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Senior Secured Notes contain covenants which
require maintenance of certain quarterly financial and operating
ratio levels and impose limits on the Company&#146;s spending
for capital expenditures. In addition, the Senior Secured Notes
and the Fixed Rate Notes contain limitations on indebtedness,
investments, business combinations and other customary
restrictions. At December&nbsp;31, 2002, Satmex was in
compliance with all covenants governing its debt
agreements.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2001, a technical default
existed with respect to the Company&#146;s Senior Secured Notes
due to the failure to make a principal prepayment from excess
cash flow for the year ended December&nbsp;31, 2000, as defined
under the Senior Secured Note Indenture. On April&nbsp;23, 2002,
the Company made the required principal prepayment of
$11.9&nbsp;million, plus accrued interest of $228,000, as well
as a principal prepayment for 2001 excess cash flow of $749,000. At
December&nbsp;31, 2001, the Company classified
$12.6&nbsp;million, representing the 2001 and 2000 principal
repayments, as current portion of long-term debt.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company is required to make quarterly
redemption payments on the Senior Secured Notes of $250,000
through March&nbsp;31, 2004, plus additional prepayment from
excess cash flow, as defined in the indenture, with the balance
due on June&nbsp;29, 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In February 2000, the Senior Secured Notes were
amended to permit the modification of certain covenants, in
exchange for the payment of a fee and an increase in the
applicable interest margin by up to 0.75%.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, the Company amended the
insurance covenant in the Fixed Rate Note Indenture. The
indenture required the Company to maintain in-orbit insurance
coverage on certain terms that could not be obtained in the
market at commercially reasonable rates. In addition, the
Company received waivers from the holders of the Senior Secured
Notes of the provisions contained in the agreement governing
that debt obligation that obligates the Company not to amend the
terms of the Fixed Rate Notes.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The aggregate maturities of debt are as follows
(in thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">523,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">524,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Funds available from the restricted and
segregated cash account allocated for the construction and
launch and cash flow from operations are not sufficient to fund
the in-orbit delivery of the Satmex 6 satellite. For that
reason, the Company pursued loans supported by export credit
agencies, the terms of which will likely require the Company to
extend the maturities of the Fixed Rate Notes.
</FONT>

<P align="center"><FONT size="2">F-16</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In April 2003, Satmex received confirmation of
approval from Coface for its loan insurance program to support
85% of the cost of its launch services for the Satmex 6
satellite. Also in April, Satmex received confirmation of
approval from Ex-Im Bank for its loan guarantee program to
support 85% of eligible costs of the Satmex 6 satellite,
insurance, ground equipment and related investments. Each of the
Coface and Ex-Im Bank facilities is subject to negotiations of
final documentation. In order to complete the Ex-Im Bank and
Coface financing, Satmex will have to repay, refinance or
restructure its Senior Secured Notes and extend the maturity of
its Fixed Rate Notes. The Company has hired a financial advisor
to assist it in the restructuring of its indebtness. In
addition, Satmex is considering pursuing various alternatives to
cover the remaining costs of the Satmex 6 satellite project that
the Ex-Im Bank and Coface support does not cover. If the Company
is unable to obtain all the financing arrangements on
satisfactory terms, there can be no assurance that the Company
will be able to fulfill its financing strategy.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March 18, 2003, holders of Satmex&#146;s Senior
Secured Notes agreed to modify certain financial covenants
required by the Senior Secured Notes Indenture, Satmex agreed to
pay the consenting holders a fee of 0.25% of the amount of the
debt. This fee was paid on March 20, 2003, solely to the holders
that gave consent. The total fee paid was US$494,877.50. The
modification of the financial covenants consisted of
substituting certain financial ratios for a minimum level of
cash flow to be maintained during the remaining life of the
Senior Secured Notes. In addition, a new covenant was
incorporated to require that the Ex-Im Bank and Coface
financings be closed on or prior to September 30, 2003.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;7.&nbsp;&nbsp;STOCKHOLDERS&#146;
EQUITY</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2002 and 2001 the
Company&#146;s issued and outstanding capital stock was
comprised of a fixed and variable portion, with the fixed
portion represented by 611,730 shares and the variable portion
by 9,995,000 shares, respectively in both years.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On March&nbsp;12, 1999, at an extraordinary
general meeting of Satmex&#146;s stockholders it was agreed to
increase the fixed capital stock by $56.1&nbsp;million through
the authorization of 1,068,000 shares of Series&nbsp;C preferred
stock. On March&nbsp;30, 1999, the Company issued 606,730 shares
of preferred stock to Loral and Principia for a total purchase
price of approximately $31.9&nbsp;million. The preferred stock
has limited voting rights and pays a cumulative dividend in
common stock of the Company equal to 0.138 shares of
Series&nbsp;N or Series&nbsp;B common stock for each share of
preferred stock. The preferred stock can be exchanged at the
Company&#146;s option into common stock of the Company, at an
exchange ratio of 1&nbsp;share of preferred stock for 2.008
shares of Series&nbsp;N or Series&nbsp;B common stock, if the
exchange occurs before February&nbsp;2, 2005, and at an exchange
ratio of 1&nbsp;share of preferred stock for 4.016 shares of
Series&nbsp;N or Series&nbsp;B common stock on and after
February&nbsp;2, 2005. As of December&nbsp;31, 2002, Servicios
holds 70.71% of the outstanding capital stock of Satmex, Loral
holds 4.46%, Principia holds 1.26% and the Mexican government
holds 23.57%. Loral and Principia own 65% and 35% of Servicios,
respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The issued and outstanding capital stock of the
Company consisted of the following:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="70%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Series</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">A Common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,601,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,601,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">B Common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,499,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,499,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">N Common stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,900,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,900,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">C Preferred stock
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-17</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2002 and 2001 the capital
stock and the notional value is as follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="28%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Description</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Shares</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Common stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Variable portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,995,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">385,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">9,995,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">383,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">385,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,000,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">383,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Preferred stock:
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Fixed portion
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">606,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Stockholder&#146;s equity except restated capital
paid by stockholders and net taxable retained earnings adjusted
for inflation in accordance with Mexican tax law, will be
subject to a 35% dividend tax in the event of distribution.
Restatement of capital paid and net tax retained earnings are
computed in accordance with certain tax procedures which is
approximately the accumulated effect of inflation on both items.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Series&nbsp;A shares have full voting rights and
can only be acquired by Mexican individuals, Mexican
corporations or irrevocable trusts. These shares are divided
into Class&nbsp;I (minimum fixed capital) and Class&nbsp;II
(variable capital) shares. Series&nbsp;B shares have full voting
rights and may be acquired by Mexican or foreign investors.
These shares are divided into Class&nbsp;I (minimum fixed
capital) and Class&nbsp;II (variable capital) shares.
Series&nbsp;N shares contain restricted voting and limited
corporate rights and may represent up to 80% of the total
capital of the Company. These shares may be acquired by Mexican
and foreign investors and currently represent variable capital.
</FONT>

<P align="left">
<B><FONT size="2">&nbsp;8.&nbsp;&nbsp;INCOME TAXES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The income tax (benefit) expense for the years
ended December&nbsp;31, 2002, 2001 and 2000 is as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="63%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,837</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,149</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,029</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income tax (benefit) expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,837</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,149</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,029</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-18</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The components of the net deferred income tax
asset and (liability) are as follows:
</FONT>

<CENTER>
<TABLE width="80%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="73%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax loss carryforwards
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">89,006</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">83,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred revenue
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,232</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other, net
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Satellites and equipment
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(51,696</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(64,145</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gain on in-orbit failure of Solidaridad 1
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Concessions
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(39,773</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(49,143</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Prepaid insurance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,523</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,861</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Deferred financing costs
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(967</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,775</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Subtotal
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(6,925</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Valuation allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(25,608</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,721</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net deferred tax liability
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,809</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(17,646</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The net deferred income tax liability is
classified as follows:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="76%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Current deferred income tax assets
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Long-term deferred income tax liabilities
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">10,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At December&nbsp;31, 2002 the Company had tax
loss carryforwards of approximately $278&nbsp;million which
expire from 2008 to 2012 and credits available against the asset
tax of approximately $38&nbsp;million which expire in 2003. Due
to the uncertainties regarding the Company&#146;s ability to
realize the full benefit from these tax loss carryforwards,
Satmex established a valuation allowance of $25.6&nbsp;million
at December 31, 2002 against the deferred tax assets.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The provision for income taxes, for the years
ended December&nbsp;31, 2002, 2001 and 2000 differs from the
amount computed by applying the Mexican income tax rate because
of the effect of the following items:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax (benefit) expense at Mexican statutory
    income<BR>
    tax rate (35%)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(10,068</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,491</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">25,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Inflation component and effect of remeasurement
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(11,895</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(3,409</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Non deductible expenses
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Change in valuation allowance
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,119</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(4,701</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Effect of change in statutory tax rates
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,840</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(195</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Net income tax (benefit) expense
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(8,837</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(1,149</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17,029</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Mexican asset tax law provides for a minimum
tax of 1.8% on average assets, as defined in the law, less
certain liabilities, which is payable to the extent it exceeds
amounts due for income taxes. During 2000, the Company received
a favorable ruling from the Mexican Supreme Court of Justice
allowing the deduction for foreign liabilities, including but
not limited to, financial liabilities, when computing the
taxable base for the asset tax. This ruling will have a
favorable effect to reduce the Company&#146;s asset tax in the
future. Any asset taxes paid may be used to offset future income
taxes payable if certain conditions are met. For the year ended
December&nbsp;31, 2002, the Company had no asset tax liability.
</FONT>

<P align="center"><FONT size="2">F-19</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;1, 2002, the Mexican government
enacted a new income tax law that reduces the statutory income
tax rate by 1% per year beginning January&nbsp;1, 2003 through
January&nbsp;1, 2005. The effect of this change on the deferred
tax assets and liabilities was recognized in 2002.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On January&nbsp;1, 2002, the Mexican government
amended existing legislation to impose a fee on all satellite
service providers. The fee is based on megahertz used in the C-
and Ku-bands. At December 31, 2002 Satmex has sufficient credits
available under the amended law to offset this fee.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Further, the Mexican government amended the tax
law, on January&nbsp;1, 2002, to broaden the scope of
telecommunications services subject to a 10% tax. The Company
believes, based on discussions with its external tax advisors and its internal legal
department that its services do not fall within the scope of
this tax. However, there is a risk that the tax authorities will
not agree with the Company&#146;s interpretation. Satmex has
presented its interpretation to the Mexican government and is
awaiting a resolution of the matter.
</FONT>

<P align="left">
<B><FONT size="2">9.&nbsp;&nbsp;COMMITMENTS AND
CONTINGENCIES</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2002, Satmex renewed the in-orbit
insurance policy on Solidaridad&nbsp;2 through November 2003.
The renewal policy does not insure against an in-orbit failure
due to the loss of the satellite&#146;s control processor, the
same component that caused the loss of Solidaridad&nbsp;1 and
other Hughes satellites, and increased the requirement for a
constructive total loss of the satellite to the loss of 75% of
the satellite&#146;s transponder capacity. An uninsured loss of
Solidaridad&nbsp;2 would have a material effect on Satmex&#146;s
results of operations and financial condition.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In order to provide expanded satellite services
in the United States with the Satmex&nbsp;6 satellite, a new
coordination agreement would need to be negotiated between the
governments of Mexico and Canada, as well as the affected
satellite operators. New coordination agreements are often
negotiated to accommodate the operation of new satellites. An
existing coordination agreement between the governments of
Mexico and Canada, as well as the affected satellite operators,
provides for the operation of Mexican and Canadian satellites,
including Satmex&nbsp;6, in the 107.3 degrees W.L. to 118.7
degrees W.L. orbital arc. There can be no assurance that
negotiation of a new coordination agreement between the
governments of Mexico and Canada and the affected satellite
operators will be successful. The launch of
Satmex&nbsp;6 will proceed whether or not a new coordination
agreement has been negotiated. However, the inability to
conclude a satisfactory agreement may negatively impact our
ability to provide expanded services in the United States and
could adversely affect our business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company leases office space under a
noncancelable operating lease expiring in May 2005. The monthly
rent, including maintenance, is approximately $118,000. Rent
expense under this lease was $1.6&nbsp;million,
$1.4&nbsp;million and $1.3&nbsp;million for the years ended
December&nbsp;31, 2002, 2001 and 2000, respectively.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Management is not aware of any pending litigation
against the Company. Liability for all legal actions or other
claims against Satmex prior to October&nbsp;15, 1997 has been
retained by the Mexican government.
</FONT>

<P align="center"><FONT size="2">F-20</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="center">
<B><FONT size="2">SATELITES MEXICANOS, S.A. de C.V.</FONT></B>
</DIV>

<DIV align="center">
<B><FONT size="2">(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)</FONT></B>
</DIV>

<P align="center">
<B><FONT size="2">NOTES TO THE FINANCIAL
STATEMENTS&#151;(Continued)</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future minimum lease receipts due from customers
under non-cancelable operating leases for transponder capacity
on satellites in-orbit as of December&nbsp;31, 2002, are as
follows (in thousands):
</FONT>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="86%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2003
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">70,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2004
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">61,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2006
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">32,768</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">2007
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,453</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Thereafter
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">84,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">328,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<B><FONT size="2">10.&nbsp;&nbsp;REVENUE BY CUSTOMER
LOCATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presents revenue by country
based on customer location for the years ended December&nbsp;31,
2002, 2001 and 2000:
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="64%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2001</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2000</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">(in thousands)</FONT></B></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Mexico
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">41,630</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">69,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">72,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">United States
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">50,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">58,094</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Other
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5,762</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">85,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">128,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">136,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-21</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link2 "Item&nbsp;19. Exhibits" -->
<DIV align="left"><A NAME="016"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;19. </B><B><I>Exhibits</I></B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="91%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Exhibit No.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<I>Estatutos Sociales </I>(bylaws)&nbsp;of Sat&#233;lites Mexicanos, S.A. de C.V.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;1.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<I>Estatutos Sociales </I>(bylaws)&nbsp;of Sat&#233;lites Mexicanos, S.A. de C.V. (English translation).&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;2.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Indenture, dated as of February&nbsp;2, 1998, between Satelites Mexicanos,
S.A. de C.V. and The Bank of New York, as trustee.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Indenture, dated as of March&nbsp;4, 1998, among, Sat&#233;lites Mexicanos, S.A.
de C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and
Servicios Corporativos Satelitales, S.A. de C.V., as Guarantors, and
Citibank, N.A., as trustee.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;2.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
First Supplemental Indenture, dated as of June&nbsp;30, 1998, Supplemental
to Indenture, dated as of March&nbsp;4, 1998, among, Sat&#233;lites Mexicanos,
S.A. de C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and
Servicios Corporativos Satelitales, S.A. de C.V., as Guarantors, and
Citibank, N.A., as trustee.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;2.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Second Supplemental Indenture, dated as of February&nbsp;16, 2000, to
Indenture, dated as of March&nbsp;4, 1998, among, Sat&#233;lites Mexicanos, S.A. de
C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios
Corporativos Satelitales, S.A. de C.V., as Guarantors, and Citibank,
N.A., as trustee.&#134;&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Supplemental Indenture, dated as of November&nbsp;25, 2002, to Indenture,
dated as of February&nbsp;2, 1998, between Sat&#233;lites Mexicanos, S.A. de C.V.
and The Bank of New York, as trustee.*</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;2.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Third Supplemental Indenture, dated as of March&nbsp;18, 2003, to Indenture,
dated as of March&nbsp;4, 1998, among, Sat&#233;lites Mexicanos, S.A. de C.V., as
the Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios
Corporativos Satelitales, S.A. de C.V., as Guarantors and Citibank, N.A.,
as trustee.*</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Satellite Concession 116.8 degrees W.L.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Satellite Concession 116.8 degrees W.L. (English Translation)&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Satellite Concession 113.0 degrees W.L.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Satellite Concession 113.0 degrees W.L. (English Translation)&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Satellite Concession 109.2 degrees W.L.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Satellite Concession 109.2 degrees W.L. (English Translation)&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Property Concession&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Property Concession (English Translation)&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;4.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Amended and Restated Membership Agreement, dated as of August&nbsp;21, 1998
among Loral SatMex Ltd., Ediciones Enigma, S.A. de C.V. and Firmamento
Mexicano, S. de R.L. de C.V.&#134;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;7.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Computation of Excess (Deficiency) of Earnings to Fixed Charges.*</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Secion 302 Certification of Lauro Gonz&#225;lez Moreno, Chief Executive Officer.*</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;10.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Section&nbsp;302 Certification of Cynthia Pelini, Chief Financial Officer.*</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;10.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Section&nbsp;906 Certification of Lauro Gonz&#225;lez Moreno, Chief Executive Officer.*</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Section&nbsp;906 Certification of Cynthia Pelini, Chief Financial Officer.*</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#134;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference from the registrant&#146;s Registration Statement on Form&nbsp;F-4 filed on November&nbsp;9, 1998 (File No.&nbsp;333-8880).</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#134;&#134;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Incorporated by reference from the registrant&#146;s Annual Report on Form&nbsp;20-F for the year ended December&nbsp;31, 1999.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Filed herewith.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">51</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>




<P align="center"><FONT size="2"><B>SIGNATURES</B>
</FONT>

<P align="left"><FONT size="2">Pursuant to the requirements of Section&nbsp;12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form&nbsp;20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
</FONT>

<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" valign="top" align="left"><FONT size="2">SAT&#201;LITES MEXICANOS, S.A. de C.V.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">CYNTHIA PELINI</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Cynthia Pelini<BR>
Chief Financial Officer</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Date: June&nbsp;30, 2003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>


<P align="center"><FONT size="2">52</FONT>




</BODY>
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SATELITES MEXICANOS, S.A. DE C.V.
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
Commission File No. 333-8880
SATELITES MEXICANOS, S.A. de C.V.
Blvd. M. Avila Camacho No. 40
Col. Lomas de Chapultepec
11000 Mexico, D.F.
Mexico
(52) 55-5201-0800
Jurisdiction of incorporation: Mexico
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
10 1/8 % Series B Senior Notes due 2004
The number of outstanding shares of capital stock as of December 31, 2002 was:
2,550 Class I Series A Shares
2,598,450 Class II Series A Shares
2,450 Class I Series B Shares
2,496,550 Class II Series B Shares
4,900,000 Class II Series N Shares
606,730 Class I Series C Shares
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.
The registrant has elected to follow Financial Statement Item 18.
TABLE OF CONTENTS
PART I
Item 3. Key Information
Item 4. Information on the Company
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. Markets
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders
Item 15. Controls and Procedures
PART IV
Item 18. Financial Statements
Item 19. Exhibits
SUPPLEMENTAL INDENTURE
3RD SUPPLEMENTAL INDETURE
COMPUTATION OF EXCESS
302 CERTIFICATION
302 CERTIFICATION
906 CERTIFICATION
906 CERTIFICATION
Table of Contents
TABLE OF CONTENTS
Page
PART I
Item 3.
Key Information
2
Item 4
Information on the Company
12
Item 5.
Operating and Financial Review and Prospects
22
Item 6.
Directors, Senior Management and Employees
32
Item 7.
Major Shareholders and Related Party Transactions
34
Item 8.
Financial Information
37
Item 9.
Markets
37
Item 10.
Additional Information
38
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
48
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
49
Item 14.
Material Modifications to the Rights of Security Holders
49
Item 15.
Controls and Procedures
49
PART IV
Item 18.
Financial Statements
49
Item 19.
Exhibits
51
All other items have been omitted because they are not applicable or are not required.
This
annual report includes or incorporates "forward-looking statements," as that
term is defined in the Private Securities Litigation Reform Act of 1995. In
addition, the Company or its representatives have made and may continue to make
forward-looking statements, orally or in writing, in other contexts, such as in
reports filed with the SEC, press releases or statements made with the approval
of an authorized executive officer of the Company. These forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "plans," "may," "will," "would," "could," "should,"
"anticipates," "estimates," " project," "intend," or "outlook" or the negative
of these words or other variations of these words or other comparable words, or
by discussion of strategy that involves risks and uncertainties. These
forward-looking statements are only predictions, and actual events or results
may differ materially as a result of a wide variety of factors and conditions,
many of which are beyond the Company's control. Some of these factors and
conditions include: partial or total failure of the Company's in-orbit
satellites; the Company's reliance on certain customers; the Company's
operations are located in Mexico; competition in the Company's industry; and
the Company owes significant amounts of money. In addition, the Company
operates in an industry sector where securities values may be volatile and may
be influenced by economic and other factors beyond the Company's control. The
Company undertakes no obligation to update any forward-looking statement.
i
Table of Contents
PART I
Item 3.
Key Information
SELECTED FINANCIAL DATA
The following table presents selected financial information for Satélites
Mexicanos, S.A. de C.V. ("we," "us" or the "Company" or "Satmex") for the five
years in the period ended December 31, 2002. The information was derived from
our audited financial statements. The audited financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America. The following information should be read in conjunction with,
and is qualified in its entirety by reference to, "Operating and Financial
Review and Prospects" and to our financial statements, and the related notes
thereto, included elsewhere herein.
Years ended December 31,
2002
2001
2000
1999
1998
(Amounts in millions of U.S. dollars)
Statement of Operations Data:
Revenue
(1)
$
85.0
$
128.0
$
136.4
$
135.5
$
104.8
Operating income (loss)
(1)
(1.4
)
35.1
34.3
25.0
32.8
Income (loss) before income taxes and extraordinary
loss
(1)
(28.8
)
(4.3
)
72.2
(41.0
)
(17.2
)
Deferred income tax benefit (expense)
(1)
8.8
1.1
(17.0
)
(5.7
)
(0.9
)
Income (loss) before extraordinary loss
(1)
(19.9
)
(3.1
)
55.2
(46.7
)
(18.1
)
Net income (loss)
(1)
(19.9
)
(3.1
)
55.2
(46.7
)
(23.7
)
Net income (loss) applicable to
common stockholders
(1)
(21.4
)
(4.6
)
53.7
(47.8
)
(23.7
)
Other Data:
Depreciation and amortization
$
47.4
$
47.3
$
56.7
$
61.3
$
48.7
Capital expenditures
123.2
95.7
6.7
6.3
152.3
Excess (deficiency) of earnings to fixed charges
(43.0
)
(7.7
)
72.2
(42.5
)
(37.7
)
Balance Sheet Data (at end of period):
Total assets
$
1,011.1
$
1,089.3
$
1,123.6
$
1,041.7
$
1,138.0
Long-term debt
523.4
542.4
571.0
587.0
608.0
Stockholders' equity
(1)
368.7
388.6
391.7
336.5
351.3
(1)
In August 2000, our Solidaridad 1 satellite ceased operating and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1 was
insured for $250 million. At the date of the loss, Solidaridad 1 had a net
book value of approximately $109.6 million. After deducting prepaid
insurance of $1.6 million, the unpaid insurance premiums of $12.5 million
and on-going monitoring costs and the excess of the estimated cost over
revenue for the then committed transponder capacity to be provided to
customers of $23.2 million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1 million. In 2001, we reduced the
liability for the cost over revenue for the committed transponder capacity
to be provided to customers by $7.3 million. In 2002, we received $3.3
million from the satellite manufacturer under the Solidaridad 1
performance guarantee and we reduced the liability for the cost over
revenue for the committed transponder capacity to be provided to customers
by $5.1 million. These transactions were recorded as additional gain on
the in-orbit failure of Solidaridad 1 in the applicable periods.
2
Table of Contents
EXCHANGE RATES
The following table presents the period-end, average, low and high Noon
Buying Rate for the purchase and sale of dollars, each expressed in pesos per
dollar. The exchange rate translations presented should not be construed as
representations that the peso amounts actually represent such dollar amounts or
could be converted into dollars at the rate indicated.
Exchange Rate
(1)
Year ended December 31,
Period End
Average
(2)
Low
High
1998
9.90
9.24
8.04
10.63
1999
9.48
9.56
9.24
10.60
2000
9.62
9.47
9.18
10.09
2001
9.16
9.33
8.95
9.97
2002
10.31
9.66
9.00
10.36
(1)
Source: Federal Reserve Bank.
(2)
Average of month-end rates.
The
following table sets forth for each month in the six-month period
ended on May 31, 2003, the high and low Noon Buying Rate, all
expressed in pesos per dollar.
Noon Buying Rate
(1)
Month ended
High
Low
December 31, 2002
10.43
10.10
January 31, 2003
10.98
10.32
February 28, 2003
11.06
10.77
March 31, 2003
11.24
10.66
April 30, 2003
10.77
10.54
May 31, 2003
10.42
10.11
(1)
Source: Federal Reserve Bank.
On
June 26, 2003, the Noon Buying Rate was Ps. 10.4580 per
dollar.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 20-F contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, we or our representatives have made or may make
forward-looking statements, orally or in writing. They can be identified by the
use of forward-looking words such as "believes", "expects", "plans", "may",
"will", "should", or "anticipate" or their negatives or other variations of
these words or other comparable words, or by discussion of strategy that
involves risks and uncertainties. These forward-looking statements may be
included in, but are not limited to, various filings made by us with the
Securities and Exchange Commission, press releases or oral statements made by
or with the approval of one of our authorized executive officers.
Forward-looking statements are only predictions. Actual events or results could
differ materially from those projected or suggested in any forward-looking
statement as a result of a wide variety of factors and conditions, including,
but not limited to, the factors summarized below. We undertake no obligation to
update any forward-looking statement.
Factors relating to Satmex
We are currently negotiating new financing and the extension or
restructuring of our current debt. If these efforts are not successful, we
may not be able to make future payments on our indebtedness.
At March 31, 2003, we had total debt of $524.1 million. In April 2003, we
received confirmation of approval from Compagnie Francaise d'Assurance pour le
Commerce Exterieur, known as Coface, for its loan insurance program to support
85% of the cost of its launch services for the Satmex 6 satellite. Also in
April, we received confirmation of approval from the Export-Import Bank of the
United States, or Ex-Im Bank, for its loan guarantee program to support 85% of
eligible costs of the Satmex 6 satellite, insurance, ground equipment and
related investments. Each of the Coface and Ex-Im Bank facilities is subject to
negotiation of final documentation. In order to complete the Ex-Im Bank and
Coface financings, we will have to repay, refinance or restructure our floating
rate notes and our fixed rate notes. We have hired a financial advisor to
assist us in the restructuring of our indebtedness. In addition, we are
considering pursuing various alternatives to cover the remaining costs of the
Satmex 6 satellite project that the Ex-Im Bank and Coface support does not
cover. If we are unable to obtain all the financing arrangements on
satisfactory terms, there can be no assurance that we will be able to fulfill
our financing strategy or to complete and launch the Satmex 6 satellite, and
our financial condition and results of operations will be materially adversely
affected. Further, if our indebtedness is not restructured, we do not expect
future cash flows to be sufficient to make future interest and principal
payments on our indebtedness.
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We have incurred significant indebtedness, including secured
indebtedness, to acquire and launch our satellites that may limit our cash
flow for capital expenditures and other expenses.
A significant portion of our cash flow is used to service our debt, which
in turn affects our ability to pay our other expenses and to fund our capital
expenditures. The level of our indebtedness has had and may continue to have
important consequences. For example, it has:
•
limited cash flow available for capital expenditures,
acquisitions, working capital and other general corporate purposes
because a substantial portion of our cash flow from operations must
be dedicated to servicing our debt;
•
increased our vulnerability to general adverse economic and
industry conditions;
•
limited our flexibility in planning for, or reacting to,
competitive and other changes in our business and the industries in
which we operate;
•
placed us at a relative disadvantage to our competitors that
have less debt and greater operating and financing flexibility than
we do; and
•
limited, through covenants in our indebtedness, our ability
to borrow additional funds.
We cannot assure you that the restrictions contained in agreements
governing our indebtedness will not impair our ability to finance our future
operations or capital needs or engage in other business activities.
We may not be able to meet our planned schedule for launching or
commencing operations of Satmex 6. Extensive delays in the launch or
commencement of operations of Satmex 6 could affect our ability to generate
revenue in the short term.
We originally planned to launch Satmex 6 in the first quarter of 2003.
However, as a result of production and launch schedule delays, we do not expect
to be able to launch Satmex 6 until the second half of 2003. We may experience
additional delays that may result in our further postponing the launch of
Satmex 6. Satellite launches may be delayed for several reasons, including
delays in the manufacture of satellites or launch vehicles or the periodic
unavailability of optimum launch dates.
Any significant delay in the commencement of service of Satmex 6 would
delay the revenue anticipated to be generated by the satellite. It could also
cause us to lose some customers that have indicated interest in Satmex 6. In
addition, if we are unable to complete the Ex-Im Bank, Coface and other
financing arrangements on satisfactory terms, we cannot assure you that we will
be able to fulfill our financing strategy or complete and launch the Satmex 6
satellite, and our financial condition and results of operations will be
materially adversely affected.
We may experience a launch failure or other satellite damage or
destruction during launch, which could result in a total or partial loss of
Satmex 6. Satmex 6 could also fail to achieve its designated orbital
location after launch.
We may experience launch failure with respect to Satmex 6 that could
result in the partial or total loss of the satellite. Satellite manufacture and
launch involve complex processes and technology, and we rely on contractors for
both the manufacture and the launch of our satellites. Even if launched into
orbit, a satellite may fail to enter into its designated orbital location or we
may use more fuel than planned to place a satellite into its orbital location
and, as a result, reduce the orbital maneuver life of the satellite.
In December 2002, Arianespace, the French company that will be launching
Satmex 6, experienced a failure of its Ariane 5 ECA rocket minutes after blast
off. The rocket crashed into the Atlantic Ocean and all satellites on board
were irretrievably lost. Satmex 6 will not be launched on the Ariane 5 ECA
rocket, but rather on the Ariane 5G+ rocket, which is a modified version of the
Ariane 5G. The Ariane 5G has performed more reliably than the Ariane 5 ECA in
the past. However, we cannot assure you that there will not be a failure of the
launch vehicle upon the launch of Satmex 6. While a loss of Satmex 6 from a
launch failure would generate insurance
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proceeds for us, our ability to increase our revenues would be materially
adversely affected.
The indenture governing our floating rate notes contains covenants that
may cause us to default under that indenture.
The indenture governing our floating rate notes contains financial,
operating and negative covenants, all of which restrict us in some way. If we
default on any of those covenants, we would be in default under our floating
rate notes. As of March 31, 2003, approximately $204.1 million aggregate
principal amount of floating rate notes was outstanding. In 1999, our
stockholders contributed $31.9 million of capital to us so that we could pay
down debt in order to ensure compliance with certain covenants contained in our
debt agreements. We do not expect our shareholders to contribute any more
equity in similar situations. If we cannot meet our financial covenants, we
will be in default under our floating rate notes, and the holders of those
notes will have the right to accelerate the payment of those notes. If our
indebtedness is accelerated we will not have sufficient resources to repay all
of the accelerated principal.
In February 2000, we amended certain financial covenants in our floating
rate note indenture and our now expired credit agreement to more closely align
those covenants with our then-current business trends and covenants
then-prevalent in the satellite industry. In connection with those amendments,
we agreed to pay a consent fee to approving debtholders and lenders and to
increase the applicable interest rate margin on the debt by up to 0.75%. In
March 2003, we again sought consent from the holders of our floating rate notes
to amend the financial covenants in the indenture to more closely align those
covenants with our business trends. The consent solicitation was successful,
and we paid a fee to consenting holders of our floating rate notes of 0.25%. In
addition to amending the financial covenants, the amendments to the floating
rate note indenture provided that a default would occur under the floating rate
notes if we fail to complete the Ex-Im Bank and Coface financings on or prior
to September 30, 2003. A failure to complete those financings would result in a
default under the floating rate note indenture, which could cause a cross
default under the indenture governing our fixed rate notes.
Our ability to find additional financing is limited.
In the future, we may require additional financing in order to service our
indebtedness and fund our operations. We may not have sufficient resources or
have access to financing on terms acceptable to us if at all. Our ability to
satisfy our obligations will depend upon our future performance, which will be
subject to prevailing economic conditions in Mexico, the state of the global
telecommunications industry and financial, business, regulatory and other
factors. Many of these factors are beyond our control, such as the willingness
of our equity holders to contribute additional capital to finance any cash flow
deficiency.
Our financial condition and prospects may be materially and adversely
affected by ratings downgrades.
On November 1, 2002, Moody's Investor Services lowered its ratings of our
senior unsecured indebtedness from "B3" to "Ca." A "B3" rating is the sixth
lowest rating category out of 21 used by Moody's. A "B" rating describes
obligations that Moody's believes generally lack characteristics of a desirable
investment where there is little assurance that interest and principal payments
will be made or of maintenance of other terms will be kept over a long period
of time. "Ca" is the second lowest rating category out of 21 and describes
obligations that Moody's believes are speculative in a high degree and that are
often in default or have other marked shortcomings.
On September 23, 2002, Standard & Poor's lowered our long term foreign
issuer credit rating from "B" to "CCC+." A "B" rating is the eighth lowest
rating category out of 22 used by S&P and a "CCC+" rating is the sixth lowest
rating out of 22. A "B" rating describes an obligation that S&P believes is
more vulnerable to nonpayment than obligations rated "BB," but where the
obligor has the capacity to meet its financial commitment on the obligation at
that time. S&P believes that adverse business, financial, or economic
conditions will likely impair the "B" rated obligor's capacity or willingness
to meet its financial commitments. A "CCC+" rating describes an obligation that
S&P believes is currently vulnerable to nonpayment and is dependent upon
favorable business, financial and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial or economic conditions, S&P believes that a "CCC" rated obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
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As a result of these negative credit ratings and downgrades, our sources
of short-term financing have become limited, which impedes our ability to
finance our operations. Furthermore, the negative publicity surrounding these
recent downgrades has generated concern among certain of our existing
customers.
Technological advances may require us to make significant expenditures
to maintain and improve the competitiveness of our service offerings.
The satellite industry is subject to continuous, rapid and significant
changes in technology and introduction of new products and services. We cannot
predict the effect of technological changes on our business. New services and
technological advances may offer additional opportunities for other service
providers to compete with us on the basis of cost, quality or functionality. It
may not be practical or cost-effective for us to replace or upgrade our
technologies in response to competitors' actions. Responding to such changes
may require us to devote substantial capital to the development, procurement or
implementation of new technologies, and may depend upon the final cost of
technology and our ability to obtain additional financing. Although we believe
that, for the foreseeable future, existing and developing technologies will not
materially adversely affect the viability or competitiveness of our business,
we cannot assure you as to the nature and extent of the impact on us of
technological change.
Our in-orbit satellites remain vulnerable to failure.
Random failure of satellite components may result in damage to or loss of
a satellite before the end of its expected useful life. Satellites are
carefully built and tested and have certain redundant systems in case of
failure. However, in-orbit failure may result from various causes including:
•
component failure;
•
loss of power or fuel;
•
inability to control positioning of the satellite;
•
solar and other astronomical events; and
•
space debris.
Repair of satellites in space is not feasible. Many factors affect the
useful lives of satellites. These factors include:
•
station-keeping fuel consumption;
•
the quality of manufacture;
•
gradual degradation of solar panels or other components; and
•
the durability of components.
On August 29, 2000, our Solidaridad 1 satellite ceased operating and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Previously, Solidaridad 1,
which was built by Boeing Space Systems (formerly Hughes Space and
Communications), and commenced service in January 1994, experienced a failure
of its primary control processor in April 1999, and the satellite had been
operating on its back-up processor since that time.
At December 31, 2002, our Solidaridad 2 and Satmex 5 satellites had
remaining estimated useful lives of 6.3 and 11 years,
respectively. Solidaridad 2 was manufactured by Hughes Space and Communications
and is similar in design to Solidaridad 1 and to other satellites built by the
same manufacturer that have experienced in-orbit component failures, including
failures of on-board satellite control processors, even though Solidaridad 2
has not experienced any such failures.
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In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion system of the Xenon Ion Propulsion System ("XIPS"), which
provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, we were able to start the back-up
propulsion subsystem, and at no time was service on Satmex 5 interrupted.
Failures related to XIPS have occurred on other BS 601 HP spacecraft.
Performance on both Satmex 5 XIPS systems is normal. Currently, however, we are
using the second XIPS system as the primary propulsion system and the first
system as the back-up. In addition, Satmex 5 has a chemical propulsion system
in place to provide further redundancy.
We may not be able to obtain acceptable insurance coverage for our
satellites at commercially reasonable rates.
While we have obtained in-orbit insurance for Solidaridad 2 and Satmex 5,
a satellite failure may result in a decrease in our profits, which loss would
not be insured. The in-orbit insurance for Solidaridad 2 expired in November
2002 and the in-orbit insurance for Satmex 5 expires in December 2003. In November 2002 we renewed the in-orbit insurance for
Solidaridad 2 for a one-year period on terms that differed from the original
policy. The renewal policy for Solidaridad 2 does not insure against an
in-orbit failure due to the loss of the satellite's control processors, the
same component that caused the loss of Solidaridad 1 and other Boeing 601
satellites. Further, the new policy raises the percentage of the satellite's
capacity that must be impaired before a total loss can be declared from 50% to
75%. We
cannot guarantee that we will be able to renew the insurance at the end of
these periods, or that if renewal is available, that it would be on terms
acceptable to us. Any uninsured loss would have a material adverse effect on our results of
operations and financial condition.
A small number of customers account for a large portion of our revenues,
and the loss of one or more of these significant customers would adversely
affect our revenues.
A large portion of revenues are derived from a small number of customers.
Approximately 35 of our customers account for approximately 80% of our current
revenue base, and our top 10 customers represented approximately 53% of our
revenues during 2002. Our largest customer is Hughes Network Systems, a wholly
owned subsidiary of Hughes Electronics Corporation. Revenue from Hughes Network
Systems represented 15% and 10%, of service revenue for the years ended
December 31, 2002, and 2001, respectively. We expect that Hughes Network
Systems will represent a greater portion of our service revenue in 2003.
Revenue from the Mexican government represented 8%, 8% and 7% of service
revenue for the years ended December 31, 2002, 2001 and 2000, respectively. If
any of our significant customers cancelled their contracts with us or failed to
renew their contracts, it would adversely affect our revenues while only
marginally lowering our expenses.
During 2001 and 2002, we experienced significant terminations and were
unable to renew contracts with certain customers upon expiration. Additional
terminations occurred in the first quarter of 2003. Cancellation or non-renewal of service contracts of our large customers
would have an adverse effect on our results of operations.
Many of our customers are in the telecommunications industry, which is
currently suffering from financial difficulties.
As of December 31, 2002, customers representing approximately 61% of our
revenues were in the telecommunications industry. The telecommunications
industry has been suffering economically in recent years, and has generally
seen a decrease in that industry's ability to fund its own growth and
development. As a result, we recently have seen the cancellation and
non-renewals of some of our long-term contracts with telecommunications
customers. As of December 31, 2002, approximately 23% of our revenues were
derived from customers in the telecommunications industry under contracts with
a remaining term greater than 5 years. If these contracts are cancelled prior
to their expiration, our revenue would decline and we would be adversely
affected.
We operate in a highly competitive environment.
The Mexican government has liberalized its regulatory environment to allow
non-Mexican satellite companies to provide satellite services in Mexico. On
August 10, 2001, the Mexican government granted licenses to
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provide satellite service in Mexico to PanAmSat, SES Global, Televisa and
Enlaces Integra. PanAmSat registered 11 satellites and SES Global registered
seven satellites to provide satellite service in Mexico. While we continue to
be the leading provider of domestic fixed satellite services in Mexico, our
Mexican market share has been reduced by these new competitors. Future
additional reduction in market share may have a corresponding adverse effect on
our revenue. For the year ended December 31, 2002, approximately 49% of our
revenues were from satellite services provided in Mexico.
We also face competition from companies in our markets in the United
States and Latin America. PanAmSat has a fleet of 21 satellites, including 14
that serve the Latin American market. Intelsat, a former international
consortium, has 24 satellites, including 9 that cover Latin America. New Skies
Satellites N.V. has a fleet of six satellites including two that serve Latin
America. In November 2000, Telesat Canada successfully launched the Anik F1
satellite, which serves all of the Americas. Further, in 2001, SES Astra merged
with GE Americom to form SES Global. SES Global has a fleet of 39 satellites,
of which 19 serve Latin America. We cannot assure you that we will be able to
compete successfully with our competitors. Moreover, as our competitors launch
new satellites with coverage over the regions that we serve, price reductions
may result. This in turn could hurt our revenue and impact our ability to
service our debt obligations.
Further, we face competition from land-based telecommunications services.
For example, in the past we have experienced a number of contract cancellations
or nonrenewals by customers that switched to fiber optic service providers.
These fiber optic service providers can generally provide services at a lower
cost for point-to-point applications. Further build-out of this infrastructure
could hurt our revenue.
There are potential conflicting interests between us and our shareholders.
Our shareholders, Loral Space & Communications Ltd. (together with its
subsidiaries, "Loral") and Principia, S.A. de C.V. ("Principia") own and have
interests in other companies that are in businesses similar to ours, which
could give rise to a conflict of interest. In particular, Loral Skynet and
Loral Skynet do Brasil own or are building satellites, the footprints of which
overlap or are planned to overlap with those of our satellites. We have,
together with Loral Skynet, Skynet do Brasil and Europe*Star, a joint venture
between Loral and Alcatel, adopted a marketing policy that provides for
collaboration and cross-selling among the Loral Global Alliance members. If,
however, the members of the Loral Global Alliance do not collaborate but rather
compete in areas of overlapping capacity, conflicting commercial interests
between us and the Loral entities may arise. If Loral Skynet and Skynet do
Brasil do not collaborate with us or vice versa under the Loral Global
Alliance, Loral Skynet and Skynet do Brasil might compete directly with us for
customers.
Disagreements between Loral and Principia could result in deadlock.
We may undertake certain material actions only with the prior agreement of
both Loral and Principia. If Loral and Principia are unable to reach an
agreement, it could lead to a management deadlock, which would hurt us. To
resolve this deadlock, Loral or Principia may seek to sell its interests or,
alternatively, buy the interests of the other. This could in turn result in a
change of control under our debt documents, which would entitle certain of our
debtholders to require us to buy back their debt, including in some cases at a
purchase price equal to 101% of the principal amount. A change of control may,
under certain circumstances, also result in a termination of our concessions
from the Mexican government.
If Servicios defaults in the payment of certain debt owed to the
Mexican government, the Mexican government would gain control of us.
Servicios Corporativos Satelitales, S.A. de C.V. ("Servicios"), which
directly owns 70.71% of our capital stock, issued to the Mexican government in
December 1997, a note in the principal amount of $125.1 million, which accrues
interest at 6.03%, matures in December 2004 and is secured by Loral's and
Principia's holdings in Firmamento Mexicano, S. de R.L. de C.V. ("Firmamento"),
our parent company. This obligation is subject to early prepayment under
certain circumstances, including upon a failure by Loral and Principia to
maintain sufficient collateral to secure Servicios' obligation to the Mexican
government. Servicios will depend upon dividends from us to repay this
obligation to the Mexican government. We do not believe that Servicios will
have the resources to repay this obligation when due. If Servicios were to
default in the payment of this obligation, the Mexican
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government would have the right to foreclose upon the Firmamento
interests. This would result in the Mexican government gaining control of us.
It is a condition to the closing of the Ex-Im Bank and Coface financing
arrangements that Servicios is able to restructure its obligation to the
Mexican government on terms acceptable to it. Servicios is in discussions with
the Mexican government to extend this obligation.
You probably will not be able to effect service of process in the
United States upon our officers or our Mexican directors.
We are a Mexican company and most of our directors, all of our officers,
and nearly all of our assets are located in Mexico. As a result, you probably
will not be able to effect service of process on our Mexican directors or our
officers in the United States, and you will probably need to effect service of
process on them in Mexico. Additionally, it may be difficult to enforce any
actions against us, our Mexican directors or our officers outside of Mexico.
Factors relating to regulatory environment
Our business is regulated, causing uncertainty and additional costs.
Our business is regulated by the Mexican authorities. The services we
provide outside of Mexico and into other countries in Latin America and the
United States subject us to regulations in those countries. For example, we
need to obtain landing rights in the countries where we seek to operate.
Regulatory authorities in the various jurisdictions in which we operate can
modify, withdraw or impose charges or conditions upon the licenses that we
need, and so increase our cost of doing business. For example, the concessions
granted to us by the Mexican government require that we reserve approximately
7% of our satellite capacity for use by the Mexican government free of charge.
Moreover, the concessions are subject to government regulations, which may make
modifications to or impose limitations on our operations. If the Mexican
government determines that we are a dominant carrier in our segment, it could
impose informational and pricing requirements on us, which would hurt our
results of operations and financial condition.
The regulatory process also requires that we negotiate with third parties
operating or intending to operate satellites at or near orbital locations where
we place our satellites so that the frequencies of the satellites do not
interfere with each other. Because we cannot guarantee the results of
negotiations with third parties, "frequency coordination" is an additional
source of uncertainty. For example, we are currently working to coordinate our
Satmex 6 satellite through the Mexican government with the government of
Canada. There can be no assurance that negotiation of a new coordination
agreement between the governments of Mexico and Canada and the affected
satellite operators will be successful. The scheduled launch of Satmex 6 will
proceed whether or not a new coordination agreement has been negotiated.
However, the inability to conclude a satisfactory agreement may negatively
impact our ability to provide expanded services in the United States and could
adversely affect our business.
Our government concessions may be revoked under certain circumstances.
The Mexican government has granted to us four concessions, three relating
to our use of the orbital slots occupied by our satellites and the fourth
relating to our use of the satellite control centers and the related land and
buildings on which they are located. The orbital concessions have an initial
twenty-year term, expiring in October 2017, and are renewable after that time,
subject to certain conditions, for an additional twenty-year term. The property
concession has a forty-year term. However, these concessions are subject to
termination prior to the expiration of their terms upon the occurrence of
certain events, including our bankruptcy or liquidation.
Also, the Mexican government has the right to revoke the orbital
concessions pursuant to an expropriation. The Mexican government may also
temporarily seize the orbital concessions in the event of natural disaster, war
or threat to national security, public order or the Mexican economy. In the
past, the Mexican government has used this power to ensure continued service
during labor disputes. If the concessions are terminated, revoked or
temporarily seized, our results of operations and financial condition will be
materially and adversely impacted.
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We are subject to different corporate disclosure requirements than U.S.
companies.
Investors may not be able to obtain as much publicly available information
about foreign issuers of securities traded in the United States as is regularly
published by or about U.S. issuers of publicly traded securities. Therefore,
potential investors may not be able to as easily ascertain the risks of our
company as they would if we were a U.S. company.
Factors relating to Mexico
Downturns in the Mexican economy adversely affect us.
For the year ended December 31, 2002, approximately 49% of our service
revenue was from billings to Mexican customers. As a result, our operations,
results and financial condition are dependent upon the level of economic
activity in Mexico. Adverse economic conditions in Mexico, such as those
experienced beginning in December 1994 or economic developments in or affecting
Mexico, could generally hurt the Mexican economy, thereby adversely affecting
our revenues, while simultaneously increasing our nominal peso-denominated
costs and expenses. In the year 2002, the Mexican gross domestic product grew
only at a rate of 0.9% and, as a result, consumer purchasing was lower than
previously forecast, reducing income to our customers and adversely affecting
our revenues.
Currency devaluations may impair our ability to service our debt.
Changes in the value of the peso relative to the dollar could adversely
affect our financial condition and results of operations. We bill our customers
in dollars, but customers may pay us in pesos at the prevailing exchange rate
on the date of payment. At the same time, all of our debt obligations are
denominated and paid in dollars. Therefore, a decline in the dollar relative to
the peso between the date of billing and the date of collection could adversely
affect our revenues.
The value of the peso sharply declined in the 1990s compared to the
dollar. The devaluation of the peso in 1990s increased the peso equivalent of
Mexican companies' obligations under dollar-denominated borrowings and
adversely affected companies' operations and financial position. Future
devaluations of the peso relative to the U.S. dollar could adversely affect our
ability to meet our U.S. dollar-denominated obligations. In addition, any
further devaluation of the peso may negatively affect the value of Mexican
securities, such as ours. We do not have in place hedging arrangements with
respect to devaluation risk because we do not believe them to be cost effective
for us. We may in the future consider entering into such arrangements
considering the then-relevant risks, costs and other factors.
Exchange controls may impair our ability to obtain dollars to make
dollar-denominated payments.
The Mexican economy has suffered current account balance of payment
deficits and shortages in foreign exchange reserves in the past. The Mexican
government may restrict the ability of Mexican or foreign persons or entities
to convert pesos into dollars or other currencies. The Mexican government has
instituted restrictive exchange control policies in the past. The imposition
of such a policy in the future may impair our ability to obtain imported goods
and to meet our obligations requiring payments in foreign currency, including
our fixed rate notes and our floating rate notes.
Political developments in Mexico may adversely affect us.
The Mexican government has exercised, and continues to exercise,
significant influence over the Mexican economy. Mexican governmental action
concerning the economy and state-owned enterprises could have a significant
impact on Satmex, Mexican private sector entities in general, and on market
conditions, prices and returns on Mexican securities, including our financial
obligations.
Although the government of Mexico has pursued policies of economic
liberalization and deregulation in the past decade, a significant change in
those policies may hurt business and economic conditions in Mexico in
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general and our business in particular. For example, in past years Mexico has
experienced considerable political, social and economic instability, which
resulted in economic recessions and significant volatility in exchange rates,
reduced availability of credit, high inflation and high interest rates. Since
1995, the government has implemented a series of economic reform measures
designed, among other things, to stabilize the peso and reduce inflation.
Although the peso/U.S. dollar exchange rate has since remained relatively
stable and inflation has recently been reduced, such stability may not
continue. We do not have and do not intend to obtain political risk insurance.
Payment of judgments against us would be in pesos.
In the event that proceedings are brought against us and result in a
judgment against us in Mexico, we would not be required to discharge those
obligations in a currency other than Mexican currency. Under the
Ley Monetaria
de los Estados Unidos Mexicanos
, an obligation in a currency other than Mexican
currency, which is payable in Mexico, may be satisfied in Mexican currency at
the rate of exchange in effect on the date on which payment is made. Such rate
is currently determined and published by the Banco de México every business and
banking day. Although we are contractually required, and intend, to make
payments of all amounts owed under our fixed rate notes and our floating rate
notes in U.S. dollars, we are legally entitled to pay in pesos if payment on
those obligations is sought in Mexico (through the enforcement of a non-Mexican
judgment or otherwise). In the event that we make payment in pesos, holders may
experience a U.S. dollar shortfall when converting the pesos to U.S. dollars.
If we are declared subject to reorganization under Mexican law, holders
may find it difficult to collect payment on our fixed rate notes and our
floating rate notes.
If we were subject to a reorganization proceeding in a Mexican court, our
obligations under our fixed rate notes and our floating rate notes:
•
would be converted into pesos at the exchange rate prevailing
at the time of a declaration of bankruptcy or
concurso mercantil
and
from pesos into inflation indexed units at the exchange rate
prevailing at that time;
•
would be dependent upon the outcome of the reorganization
proceeding and payment, if any, would occur at the time claims of
all of our unsecured creditors are satisfied if and to the extent
funds are sufficient; and
•
would cease to accrue interest.
We cannot assure holders that they would be able to collect payment on the
fixed rate notes or the floating rate notes in dollars, or at all, if we became
subject to bankruptcy proceedings.
Mexican law and regulations may impair creditors' ability to enforce
certain rights in Mexico.
Under Mexican law, our creditors have their rights limited in the
following ways:
•
any obligation to pay interest on interest is currently not
enforceable under Mexican law;
•
the floating rate notes and the fixed rate notes may not
constitute negotiable instruments under Mexican law and, therefore,
if you initiate an action against us in a Mexican court, that court
may not grant an immediate lien on our property;
•
service of process by mail does not constitute effective
service under Mexican law, and if a final judgment based on service
of process by mail was made outside of Mexico, it would not be
enforceable in Mexico;
•
any judgments as a result of enforcement proceedings in
Mexico would be payable in Pesos; and
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•
payment of obligations under the floating rate notes or the
fixed rate notes would depend on the outcome of a reorganization
proceeding, which is likely to be very lengthy.
Item 4.
Information on the Company
General Description
We are the leading provider of fixed satellite services in Mexico and are
expanding our services to become a leading provider of fixed satellite services
throughout Latin America. We provide transponder capacity to customers for
distribution of network and cable television programming, direct-to-home
television service, on-site transmission of live news reports, sporting events
and other video feeds. We also provide satellite transmission capacity to
telecommunications service providers for public telephone networks in Mexico
and elsewhere and to corporate customers for their private business networks
with data, voice and video applications. We are also marketing the use of
satellite transmission capacity for new applications, such as Internet via
satellite.
We have landing rights to provide broadcasting and telecommunications
transmission capacity in Mexico, the United States, Canada and 37 nations and
territories in Latin America. Our broadcasting customers include Grupo
Televisa, MVS Multivision, Television Azteca and PCTV and our
telecommunications services customers include Telmex, Pemex and Elektra. Our
data and Internet customers include Hughes Network Systems and Verestar.
We currently own and operate two satellites, Solidaridad 2 and Satmex 5,
in geostationary orbit at 113.0 degrees W.L. and 116.8 degrees W.L.,
respectively, and will be launching a third satellite, Satmex 6, in the second
half of 2003. In total, we have 96 36-MHz transponder-equivalents operating in
the C- and Ku-bands with an aggregate footprint covering substantially all of
the continental United States, the Caribbean and all of Latin America, other
than certain regions in Brazil. We also own another satellite, Morelos 2, which
is in an inclined orbit.
Satmex 6 is in the final stages of manufacture and testing. We have
contracted with Space Systems/Loral, Inc., a wholly owned subsidiary of Loral,
to build this satellite. It is scheduled to be launched in the second half of
2003 and is designed to provide broader coverage and higher power levels than
any satellite in the Satmex fleet.
In August 2000, our Solidaridad 1 satellite ceased operations and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. The satellite was insured and
we received an insurance payment of $235 million, which was used to service
debt and to invest in the manufacture, launch and insurance of a new satellite,
Satmex 6.
Since our privatization in 1997, we have expanded our sales outside Mexico
through our direct sales force, our participation in the Loral Global Alliance
and, to a lesser extent, our network of agents, distributors and value-added
resellers in the Latin American region. This regional expansion is a result of
the broader footprint of the Satmex 5 satellite. The footprint of Satmex 6 is
designed to cover an equally broad region.
The Satmex Satellites
We own and operate two geostationary communications satellites,
Solidaridad 2 and Satmex 5. Satmex 6, the high-powered replacement of
Solidaridad 1, is currently being manufactured and is scheduled to be launched
during the second half of 2003. Satmex also owns another satellite, Morelos 2,
which is in an inclined orbit, an orbit that conserves fuel.
The currently operating Satmex satellites have a total capacity of 3,456
MHz (96 36MHz transponder equivalents), consisting of 1,728 MHz of C-band (48
36MHz transponder equivalents) and 1,728 MHz of Ku-band (48 36MHz transponder
equivalents) capacity. Upon the replacement of Solidaridad 1 with Satmex 6, the
Satmex system is expected to have total capacity of 5,616 MHz (156 36MHz
transponder equivalents), consisting of 3,024MHz of C-band (84 36MHz
transponder equivalents) and 2,592 MHz of Ku-band capacity (72 36MHz
transponder equivalents).
The footprints of our satellites are designed to encompass the region
extending from Argentina to the northern United States.
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Satmex 5
Satmex 5 was launched in December 1998 and occupies the 116.8 degrees W.L.
orbital position. Satmex 5, a BS 601 HP, has 24 36MHz C-band and 24 36MHz
Ku-band transponders. As of December 31, 2002, the satellite had an estimated
operational life of 11 years and is
currently operating in a satisfactory condition.
Satmex 5 has approximately ten times the power (as measured in total
watts) of Morelos 2 and has a footprint extending from substantially all of the
48 contiguous United States to Argentina. Major Latin American countries that
are covered by the Satmex 5 footprint include Mexico, Argentina, Venezuela,
Chile and Colombia. Major U.S. cities include Los Angeles, Miami, New York,
Houston, Dallas, Chicago, San Francisco and Washington, D.C.
In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion system of the Xenon Ion Propulsion System ("XIPS"), which
provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, we were able to start the back-up
propulsion subsystem, and at no time was service on Satmex 5 interrupted.
Failures related to XIPS have occurred on other BS 601 HP spacecraft.
Performance on both Satmex 5 XIPS systems is normal. Currently, however, we are
using the second XIPS system as the primary propulsion system, and the first
system as the back-up. In addition, Satmex 5 has a chemical propulsion system
in place to provide further redundancy.
Solidaridad 2
Solidaridad 2 was launched on October 7, 1994 and occupies the 113.0
degrees W.L. orbital position. As of December 31, 2002, the satellite had an
estimated operational life of 6.3 years and is currently operating in a
satisfactory condition. A BS 601 model, the satellite has 12 36MHz transponders
and 6 72MHz transponders in C-band (24 36MHz transponder equivalents) and 16
54MHz transponders in Ku-band (24 36MHz transponder equivalents).
Major Latin American countries covered by the Solidaridad 2 footprint
include Mexico, Argentina, Venezuela, Chile, Colombia, Guatemala, Belize and
Cuba. Major U.S. cities covered include Los Angeles, San Antonio, Houston,
Dallas and San Francisco. In addition, major U.S. cities that can be covered by
Solidaridad 2 spot beams include Miami and New York.
Satmex 6
Satmex 6, the replacement satellite of Solidaridad 1, is being
manufactured by Space Systems/Loral, a subsidiary of Loral, and is scheduled to
be launched in the second half of 2003 to the 109.2 degrees W.L. orbital
position. Satmex 6, a FS 1300X Satmex model, will have a total of 60 36MHz
transponders, 36 in C-band and 24 in Ku-band. Upon initiating operations,
Satmex 6's operating life is expected to be 15 years.
Satmex 6 is designed to provide broader coverage and higher power levels
than any other satellite in the Satmex fleet. It will be roughly 300% more
powerful than Solidaridad 1 and roughly 50% more powerful than Satmex 5. It
will have hemispherical coverage in both C- and Ku-bands. From Canada to
Argentina, Satmex 6 will cover all the 48 contiguous United States and Hawaii,
the Caribbean and all of Latin America and Brazil.
Solidaridad 1
On August 29, 2000, our Solidaridad 1 satellite, located at 109.2 degrees
W.L., ceased operating and was considered irretrievably lost. The loss was
caused by the failure of the back-up control processor on board the satellite.
Solidaridad 1, which was built by Boeing Space Systems (formerly Hughes Space
and Communications) and commenced service in January 1994, experienced a
failure of its primary control processor in April 1999, and the satellite had
been operating on its back-up processor since that time.
Solidaridad 1 was insured for $250 million. At the date of the loss,
Solidaridad 1 had a net book value of approximately $109.6 million. After
deducting prepaid insurance of $1.6 million, the unpaid insurance premiums of
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$12.5 million and on-going monitoring costs and the excess of the
estimated cost over revenue for the currently committed transponder capacity to
be provided to customers of $23.2 million, the net gain on the in-orbit failure
of Solidaridad 1 was approximately $103.1 million. In 2001, we reduced the
liability for the cost over revenue for the committed transponder capacity to
be provided to customers by $7.3 million. In 2002, we received $3.3 million
from the satellite manufacturer under the Solidaridad 1 performance guarantee
and we reduced the liability for the cost over revenue for the committed
transponder capacity to be provided to customers by $5.1 million. These
transactions were recorded as additional gain on the in-orbit failure of
Solidaridad 1 in the applicable periods. We used the net insurance proceeds
toward the manufacture, launch and insurance of a replacement satellite (Satmex
6), as well as for debt service.
Morelos 2
Morelos 2 was launched on November 27, 1985. Morelos 2 was placed in
inclined orbit in August 1998, earlier than expected, in order to extend its
useful life. An HS 376, it has 12 36MHz and six 72MHz transponders in C-band
(24 36MHz transponder equivalents) and another four 108MHz transponders in
Ku-band (12 36MHz transponder equivalents).
From July 31 to August 26, 2002, satellite maneuvers were executed to
relocate Morelos 2 from the 120.2 degrees W.L. orbital position to 109.2
degrees W.L. orbital position. Morelos 2 is in an inclined orbit and is no
longer available for commercial purposes.
Landing Rights
We have secured landing rights to provide a variety of satellite-based
communications services in 40 countries in the Western Hemisphere, including
the United States. We are in the process of updating our landing rights
agreements to include Satmex 6.
Satellite Control Centers and Property Concession
Once a satellite is placed in its orbital location, specialized earth
stations monitor its health, control and positioning through the end of its
in-orbit lifetime. Under the terms of our concessions, we currently operate our
satellites through two satellite control centers. The first is located at
Iztapalapa, Federal District, Mexico and the second is located at Hermosillo,
Sonora, Mexico. These centers, aggregating 31,500 square meters, are designed
to monitor user frequencies and to ensure that the satellites are operating
within established parameters and are correctly positioned to generate the
anticipated footprint.
The primary control center is composed of a building that houses (i) the
telemetry, tracking and control (TT&C) systems, (ii) an equipment maintenance
area, (iii) a communications signal monitoring area, (iv) a dynamic simulator,
which allows for the simulation of spacecraft dynamics and control maneuvers,
and (v) antennae for the control, monitoring and in-orbit testing of
satellites. The primary control center forms part of a building complex that
also houses equipment owned and used for the Mexican government's teleport and
mobile service systems. While we are the only occupant of the building that
houses the satellite control center, we are required to share the site's water
facilities with the rest of the complex.
In order to control and operate Satmex 6, we have installed new
state-of-the-art technology hardware and software in both control centers. As
of December 31, 2002, that investment was approximately $3.1 million dollars.
We own the equipment within the control centers and the Mexican government
owns the land and buildings that house these centers. The Property Concession
granted to us by the Mexican government allows us to use the land and
buildings. Under the terms of the concessions, we pay to the government an
annual fee of 7.5% of the value of the property on which our satellite control
centers are located. For the years ended December 31, 2002, 2001 and 2000, the
rent expense under this agreement was $321,000, $317,000 and $289,000,
respectively.
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Properties
We do not own any real property. As part of the Property Concession, we
were granted the right to use the buildings and areas in which the satellite
control centers are located, together with certain other related properties. We
lease office space under a non-cancelable operating lease expiring in May 2005.
The monthly rent, including maintenance, is approximately $118,000. Rent
expense under this lease was $1.6 million, $1.4 million, and $1.3 million for
the years ended December 31, 2002, 2001 and 2000, respectively. We believe our
facilities are adequate for our present needs.
Insurance
Under the floating rate note indenture, as well as under the fixed rate
note indenture, we have agreed that we will maintain in-orbit insurance for
Solidaridad 2 and Satmex 5 in an amount equal to the replacement value of such
satellites plus $25million in each case.
Upon launch of Satmex 5 in 1998, we purchased a five-year policy providing
for $250 million of insurance for Satmex 5. This insurance policy for Satmex 5
expires on December 4, 2003.
The insurance coverage on Satmex 5 provides that if 50% or more of
satellite capability is lost, then a constructive total loss is deemed to have
occurred, and the full amount of insurance would become due and payable. In the
event of a constructive or total satellite loss, the insurance policy provides
for a payment to us of up to the insured amount, less any unpaid premiums. Upon
renewal of this policy, we expect that 50% constructive total loss provisions
will no longer be available in the market on commercially reasonable terms.
Currently, policies in the marketplace contain 75% constructive total loss
provisions.
We currently have insurance for Solidaridad 2 under terms reflecting
current market conditions. Solidaridad 2 is insured for replacement value plus
$25 million, which we have determined to be $125 million. The insurance
coverage on Solidaridad 2 provides that if 75% or more of satellite capability
is lost, then a constructive total loss is deemed to have occurred, and the
full amount of insurance would become due and payable. In the event of a
constructive or total satellite loss, the insurance policy provides for a
payment to us of up to the insured amount, less any unpaid premiums.
Our insurance for Solidaridad 2 includes substantial exclusions relating
to the Spacecraft Control Processor ("SCP") and the motor drivers, which have
been identified by insurers as at risk of failure. The primary and secondary
SCPs have failed in three BS601s, including Solidaridad 1, resulting in the
complete loss of those satellites. Currently, the primary SCP on Solidaridad 2
is operating normally, and we believe the secondary SCP is functional and would
allow for uninterrupted service from the satellite in the event of a primary
SCP failure, giving us redundant SCP capacity on Solidaridad 2. However, a
failure of the primary and secondary SCPs would result in a complete and
uninsured loss of Solidaridad 2.
Furthermore, the insurance policies on Satmex 5 and Solidaridad 2 include
customary exclusions such as (i) military or similar actions, (ii)
anti-satellite devices, (iii) governmental actions, (iv) nuclear reaction or
radiation contamination, (v) willful or intentional acts of us or our
contractors, (vi) loss of income, indirect and consequential damages and (vii)
third-party claims against us.
We are in the process of obtaining launch insurance for Satmex 6. Prior to
launch, we intend to insure Satmex 6 for $300 million against failure during
launch or its first year in orbit. Documentation is currently being negotiated
and we anticipate no exclusions other than as customary.
The control centers are covered by insurance policies against risk to the
buildings and their contents, including the antennae and equipment. To date, no
claim has been made against the insurance policies covering the control centers
or the insurance policies covering Solidaridad 2 and Satmex 5.
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Business Strategy
The focus of our business strategy is to increase our customer base
throughout our coverage area and to increase the number of services provided to
each customer by:
•
enhancing our regional presence;
•
strengthening our position in sectors that benefit from fixed satellite services advantages; and
•
growing with our current customer base and offering value-added solutions.
Enhance our regional presence
Due to our extensive coverage, technical characteristics designed for our
target markets and culturally-attuned customer support, we are one of the
leading regional satellite operators in the Americas. Our fleet has a footprint
that reaches almost the entirety of the North and South American continents and
has superior design coverage over our domestic market, Mexico. However, the
failure of our satellite Solidaridad 1 on August 29, 2000 reduced our sellable
capacity significantly. We are close to completing the manufacture of a new
satellite, Satmex 6, to replace Solidaridad 1 and increase our capacity. We
have taken extra steps to ensure the design and manufacture quality of our new
satellite by implementing a satellite and launch quality control process and by
establishing a field office where a highly experienced engineering and
consultant team supervises the design and manufacture program.
Satmex 6 was designed to provide satellite services across the Americas.
Its footprint will allow us to improve our presence in North America as well as
in key segments of Latin America. The design of Satmex 6 creates an opportunity
for our customers to expand their businesses by providing high performance
levels in markets where telecommunications infrastructure is limited. Most of
Latin America qualifies as a target market because fiber optic cables only
reach major cities and the coastlines. We expect that both Satmex 5 and Satmex
6 can generate incremental growth from these markets.
In addition, we are targeting the Hispanic population in the United Sates.
Hispanics are a significant and rapidly growing segment of the U.S. population
and have sufficient resources to pay for subscriber television and Internet
services. Often, Spanish-speaking parents in the United States want their
children to maintain their native language skills. Moreover, these individuals
prefer content from their own region and are not entirely satisfied with
general "Spanish-speaking" programming.
Our contracts are long term, which creates a base to ensure revenues for
the coming years and reduces our exposure to cancellations and renewal risks.
We continue to seek long term contracts and have recently extended the
contracts of our most important customers in Mexico, at attractive rates,
despite intense competition.
In order to provide full regional services, we are constantly working to
resolve regulatory and political issues to increase our landing rights
throughout the Americas. We expect to take advantage of the current
liberalization of regulations in certain countries and islands of the region to
further increase our landing rights and negotiate more favorable terms for the
existing ones.
Strengthen our position in sectors that benefit from fixed satellite
services advantages
As part of our strategy, we are strengthening our position in areas where
satellite service is the best solution to serve our customer needs. These are
typically video distribution, broadband applications and other point to
multi-point services. Except for rural telephony, which is only provided
through satellite, we do not expect to grow in voice transmission services,
where terrestrial infrastructure has an economic advantage.
To strengthen our position as a provider of video distribution, we
launched a new video platform called "Satmex Maximo." The platform is designed
to provide a highly effective alternative to export video content from Latin
America to the Hispanic market in the U.S. Under this program we are taking
advantage of already having the premiere Mexican programmers under long-term
contracts to attract new programmers and create a cable neighborhood of
Hispanic content to be distributed in the United States. From an Atlanta
facility, the channels will
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be combined and transmitted to U.S. cable head-ends on Satmex 5, C-band (and
will be transmitted on Satmex 6 once it is launched). Major U.S. cable
operators will be able to access our satellites and deliver Satmex Maximo
content to the growing Hispanic community in the U.S. We are providing cable
operators with the required antennas to receive our satellite signals, which
will allow them access Satmex Maximo's content from anchor tenants and top
Latin American programmers that take advantage of satellite strengths.
Our fleet is designed to provide broadband services throughout the
Americas. We plan to penetrate the broadband market with "satellite natural"
applications. Broadband satellite networks are especially attractive to markets
where terrestrial infrastructure is inadequate or non-existent. These markets
include developing countries as well as rural and underserved areas of
developed countries.
Applications of broadband service involve point to multipoint solutions
such as Internet direct-to-home, corporate very small aperture terminal (VSAT)
networks, and solutions for government objectives, among others. To increase
our participation in the broadband market, we are exploring strategic
alliances, joint-ventures and revenue sharing initiatives with technology
providers, teleports and resellers in order to offer turn-key solutions to our
customers.
Distance learning is an attractive opportunity as it provides an
interactive data, audio and video uplink to and from the remote distance
learning site and the central location. This is attractive in many areas of
Mexico and Latin America that do not have access to universities or other
facilities with communication infrastructure.
Grow with our current customer base and offer value-added solutions
We intend to increase capacity utilization levels with both current and
new customers by promoting mutual business growth and by reacting to emerging
market trends that may enhance our customers' businesses. We regularly develop
tailor-made marketing solutions that match our current available capacity
characteristics with our customers' needs. In this process, we have begun to
offer bundled services that include satellite capacity, equipment and
maintenance for video, data and broadband customers such as state-owned TV
stations, corporate users and telecommunication service carriers.
To maintain the satisfaction of our current customers, we have implemented
a customer retention strategy based on customer support and commercial
flexibility. This customer-oriented strategy strengthens our relationship with
current customers, reduces cancellation risk and promotes the expansion of
their business on our satellites.
Emerging trends in the television industry
Video distribution is a natural application for satellite capacity as it
is point to multi-point. While satellite direct-to-home television systems are
common, cable operators also use satellites to downlink their signals. In
recent years, digital compression technology has reduced the need for satellite
capacity by compressing signals to operate within a smaller bandwidth. However,
other developments have offset this impact. Services such as High Definition
Television (HDTV) require more bandwidth than regular television. By offering
local channels (local-to-local), subscription television (cable and satellite
direct-to-home) will generate greater demand for satellite services. Rising
demand for national and foreign channels also has begun to stimulate demand for
satellite capacity. For example, demand in the United States for Spanish
language programming is rising rapidly, as is demand in Latin America for U.S.
channels. We are seeking to enter the market for Spanish language programming
in an effort to create demand for our satellite services.
Services
We provide satellite transmission capacity to broadcasting customers for
network and cable television programming, direct-to-home television service and
transmission of live news reports, sporting events and other video feeds from
the scene of the event. In addition, we provide satellite transmission capacity
to telecommunications service customers for public telephone networks in Mexico
and elsewhere and corporate customers for their private business networks with
data, voice and corporate video applications. We also provide satellite
connectivity to the Internet backbone for ISPs (Internet Service Providers). We
offer our customers part-time service, varied power and footprint service,
grades of service protection and value-added services.
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Broadcasting Transmission Services
Satellite capacity is utilized for broadcasting transmission services by
various national and international networks for point-to-point and
point-to-multi-point distribution of television programs, video signals and
other services, including distance learning, business television, special
events and live reports. Customers include private and state-owned broadcasting
networks, cable television programmers and direct-to-home operators.
Broadcasting customers use satellite capacity to transmit coverage of live
scheduled special events, such as the World Cup, to programmers on an ad hoc
basis. We also provide broadcasting transmission services to relay live news
coverage, short duration video feeds and syndicated programming for
broadcasters on a scheduled or ad hoc basis.
Broadcasting customers also use satellite capacity for "backhaul"
operations, such as transporting programming from a broadcaster's foreign news
bureau to a broadcast center for simultaneous or later transmission. Our
service in this area is focused on the transportation of program material and
syndicated programming for broadcasters on a scheduled basis.
Telecommunications Transmission Services
We provide satellite capacity for domestic and international
telecommunications transmission services to public and private
telecommunications networks. These networks belong to companies across the
spectrum in financial, industrial and commercial operations, as well as
government and education, transportation and tourism, and media companies.
Companies may lease channels, circuits or fractions of a transponder, allowing
these transponders to be shared among several users.
We provide satellite capacity to carriers that use the capacity as part of
their communications network on a national or international basis. Our services
include the provision of satellite capacity to carriers that provide public and
private networks for data, voice and corporate video communications. Network
users utilize satellites rather than ground-based transmission media because
satellite systems provide customers cost savings for large, geographically
dispersed networks, greater independence from telephone companies,
predictability of costs over a long period, flexibility in changing or adding
remote locations to a network, integrated network management and control of all
remote locations and increased network availability and lower transmission
error rates.
Many businesses and organizations currently use satellite communications
networks for certain of their communications needs. For example, retail chains
use satellite business communications networks for rapid credit card
authorization and inventory control. Banks use satellite networks to connect
automatic teller machines to processing computers. News agencies use satellite
networks to distribute information continuously to numerous locations, and
paging operators use satellite networks to distribute paging information from a
central switch to multiple remote transmitters for retransmission to pagers.
We provide satellite capacity to domestic and regional communications
centers in Latin America. The provision of satellite capacity to carriers
involves relatively low marketing and operating costs and promotes the use of
satellite networks for business communications in Latin America. The Mexican
government currently represents one of the largest users of communications
facilities in Mexico.
We offer transponder capacity for end-to-end satellite services for two
types of private business communications networks: international digital
services networks and very small aperture terminal (VSAT) networks.
International digital services networks consist of rooftop antennas and are
used by customers that have relatively steady flows of information to and/or
from all of the points in the network. Because of their large transmission
requirements, international digital services networks require dedicated,
permanent communications links to each point. Very small aperture terminals
networks differ from international digital services networks in that very small
aperture terminals networks consist of very small rooftop antennas and are
utilized by customers that need to send short bursts of data over the network
for relatively short periods of time. Through the use of very small aperture
terminals technology and sophisticated software, these networks can be served
with a relatively small amount of satellite capacity.
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Internet Service Providers
We provide satellite capacity to deliver high-speed satellite-based
Internet connectivity, offering a variety of configurations, throughout most of
North America and Latin America. Our fleet provides an efficient means by which
ISPs, service integrators, infrastructure enablers, universities, governments
and other corporations may utilize Internet-related applications. The benefits
of satellite transmission include avoiding the congestion typically associated
with land-based networks, faster network deployment and configuration, high
data throughput, ubiquitous coverage, low cost and highly reliable service. We
believe that these benefits, together with Latin America's lack of
infrastructure, geographic dispersion and low population density indicate that
demand for Internet connectivity via satellite, in both the consumer and
corporate markets, will have strong growth in the future.
Customers
We have a broad customer base that includes private and state-owned
broadcasting networks, cable television programmers, direct-to-home operators,
and public and private telecommunications networks belonging to financial,
industrial and commercial, government, transportation and tourism, educational
and press-related companies. A large portion of our revenues are derived from a
small number of customers. Approximately 35 of our customers account for
approximately 80% of our current revenue base, and our top 10 customers
represented approximately 53% of our revenues during 2002. Our largest
customer is Hughes Network Systems, a wholly owned subsidiary of Hughes
Electronics Corporation. Revenue from Hughes Network Systems represented 15%
and 10% of service revenue for the years ended December 31, 2002, and 2001,
respectively. We expect that Hughes Network Systems will continue to expand its
capacity requirements and represent a greater portion of our service revenue in
2003. Revenue from the Mexican government represented 8%, 8% and 7% of service
revenue for the years ended December 31, 2002, 2001 and 2000, respectively.
During 2001 and 2002, we experienced significant terminations and were
unable to renew contracts with certain customers upon expiration. Some
terminations occurred in the first quarter of 2003, but we do not expect
terminations and non-renewals to be significant throughout the remainder of
2003. Cancellation or non-renewal of service contracts of our large customers
would have an adverse effect of our results of operations.
Approximately 49%, 55% and 53% of our service revenue for the years ended
December 31, 2002, 2001 and 2000, respectively, were generated from customers
in Mexico.
Sales and Marketing
Sales Force
Our sales force is divided by geographic markets. The majority of our
sales force is fluent in at least two of Spanish, English and Portuguese,
enabling them to communicate comfortably with individuals in domestic and
foreign companies. We have been increasing our sales force in order to execute
our Satmex 6 pre-sales and sales campaign.
We are a member of the Loral Global Alliance, which is currently composed
of Satmex, Loral Skynet, Skynet do Brasil and Europe*Star. The Loral Global
Alliance provides for cross-selling arrangements among the alliance members'
respective sales forces and for cooperative marketing and promotional
activities. We believe that such arrangements enable the members of the
alliance to compete more effectively in sales of communications satellite
services worldwide. Revenues from customers referred from the Loral Global
Alliance represented approximately 17% of our 2002 revenues.
International Sales
Our satellites have broad international footprints and landing rights.
Markets in the Western Hemisphere as a whole are similar for the major
broadcasting and telecommunications transmission segments. We have expanded our
sales outside of Mexico through our direct sales force, our participation in
the Loral Global Alliance and our network of agents, distributors and
value-added resellers in the Latin American region.
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Tariffs
Our existing tariffs are comparable to those of other satellite operators,
such as Loral Skynet, SES Americom and PanAmSat.
Prior to our privatization in 1997, a rigid pricing structure had been
required by Mexican law and impeded the customization of service. Under the
Federal Telecommunications Law passed in 1995, we are allowed to establish
rates and terms and conditions for services. Tariffs must be filed with the
Mexican Federal Telecommunications Commission (COFETEL) prior to their taking
effect, but price changes do not require prior governmental approval. However,
regulators may specify maximum tariffs, minimum service quality and certain
informational requirements for a dominant service provider. We are not deemed
to be a dominant service provider at this point in time.
Contracts
The terms of our current contracts with customers range from one year to
end-of-life. Substantially all of our customers' contracts are non-cancelable
or carry a substantial cancellation penalty.
All of our customers have lease contracts that are denominated in
U.S. dollars and require payment during the beginning of each month for which
satellite services are provided. Any late payment is generally subject to an
interest charge. Our domestic customers may pay the Mexican peso equivalent of
the U.S. dollar lease amount calculated on the basis of the spot exchange rate
at the time of payment. We set our prices to customers in U.S. dollars and
operate in a manner intended to minimize the effect of fluctuations in exchange
rates. Nonetheless, fluctuations of the exchange rate and other developments
related to currencies could adversely affect our customers' demand for our
services and their ability to pay for them.
Competition
Technological advances in satellite systems and deregulation in the
worldwide satellite market have led to the globalization of the satellite
industry and an increasingly competitive framework both for domestic and
international services. We face competition from other satellite companies as
well as telecommunications companies that offer competing services via
satellites or terrestrial facilities.
We compete with PanAmSat, Intelsat, SES Global, and New Skies in providing
international satellite services in Latin America. PanAmSat has a fleet of 21
satellites, including 14 that provide some coverage of Latin American markets.
Intelsat, a former inter-governmental organization, provides satellite services
around the world with a fleet of 24 satellites, including 9 that provide some
coverage of Latin American markets. Currently, New Skies Satellites has a fleet
of six satellites including two that serve Latin America. In November 2000,
Telesat Canada successfully launched the Anik F1 satellite, which serves all of
the Americas. Further, in 2001, SES Astra merged with GE Americom to form SES
Global. SES Global has a fleet of 39 satellites, of which 19 serve parts of
Latin America. We cannot assure you that we will be able to compete
successfully with our competitors.
The U.S. Open-Market Reorganization for the Betterment of International
Telecommunications Act ("ORBIT") requires that Intelsat conduct an initial
public offering ("IPO") of its equity securities no later than July 30, 2004.
The privatization of Intelsat allowed it to become more commercially focused.
The public offering will allow it to raise capital to expand and grow.
Several new satellites compete in our current and proposed coverage areas
and others are in the manufacture or planning stages. These new satellites
(other than replacement satellites not significantly larger than the ones they
replace) have increased the capacity available for the provision of services
that compete with our services. After a satellite has been successfully
delivered in orbit, the variable cost of transmitting additional data via the
satellite is minimal. Accordingly, absent a corresponding increase in demand,
this new capacity can be expected to result in price reductions. Price
reductions in transponder leases could have a material adverse effect on our
revenue and our ability to service our indebtedness.
As land-based telecommunications services expand, demand for our services
may be reduced. For example, in
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the past we have experienced a number of contract cancellations or
non-renewals by customers who switched to fiber optic service providers. These
fiber optic service providers can generally provide services at a lower cost
and further build-out of this infrastructure could hurt our revenue.
Domestic Market
We are one of the main providers of fixed satellite services in Mexico,
which for the year ended December 31, 2002, accounted for approximately 49% of
our total revenues. The Mexican Federal Telecommunications Law currently allows
competition in providing domestic fixed satellite services by any duly licensed
Mexican satellite operator and by foreign licensed satellite operators in the
provision of international fixed satellite services, direct-to-home fixed
satellite services and broadcast satellite services.
The Mexican government has liberalized its regulatory environment to allow
non-Mexican satellite companies to provide satellite services in Mexico. On
August 10, 2001, the Mexican government granted licenses to provide satellite
service in Mexico to PanAmSat, SES Global, Televisa and Enlaces Integra (an
affiliate of Satmex). PanAmSat registered 11satellites and SES Global
registered seven satellites to provide satellite service in Mexico. While we
have historically been the leading provider of domestic fixed satellite
services in Mexico, our Mexican market share may be reduced in the future by
these new competitors. This would in turn have a corresponding adverse effect
on our revenue.
Our competition for the provision of satellite capacity for transmissions
into Mexico, whether originating in Mexico or abroad, also comes from
telecommunications companies with fiber optic networks. Fiber optic lines have
expanded significantly in recent years, and lend themselves to inter-city high
volume transmissions, particularly point to point services. They are limited,
however, in their ability to compete with satellites to link a high number of
low volume points scattered across a wide or remote area. For television and
radio services, the costs associated with reaching subscribers is much higher
with fiber optic networks than it is with satellite transmissions.
Our satellites were designed and built to cover the Mexican domestic
market and therefore have broad footprints and high power levels for coverage
of Mexico. We believe that our orbital slots have superior positioning in
relation to the majority of our competitors that have access to the Mexican
market. In addition, the Fixed Satellite Services Protocol between the United
States and Mexico permits us to currently land international signals in the
U.S. market and provide domestic services in the United States upon obtaining
all necessary licenses and authorizations from the FCC.
We believe that we have several advantages over foreign and international
satellites with regard to power, capacity, price and ability to offer superior
customer service, which should allow us to maintain our leadership position in
domestic services.
Central and South American Markets
We face competition in Central and South America from several satellite
operators. These include PanAmSat, Intelsat, SES Americom, New Skies
Satellites, Hispasat, Star One and Nahuelsat. Partly in response to the
development of satellite services in the United States, the greater capacity of
new satellites and the development of the region, satellite operators have
begun expanding into the Central and South American markets. The FCC has
approved the international offerings of companies such as PanAmSat and SES
Americom from orbital positions originally intended solely for the United
States.
These satellite operators have concentrated on distributing television
programming to cable systems as well as direct to home. Latin America will
probably continue to rely on satellite communications more extensively than
other regions because most of the region's countries have low population
densities and low telecommunications equipment densities, heavy forest cover,
mountainous terrain and desert areas.
With the upcoming launch of Satmex 6, we believe that we will improve our
presence in the Latin American market.
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U.S. Market
The U.S. commercial satellite market is currently dominated by three major
competitors: Loral Skynet, PanAmSat and SES Americom. Currently, the majority
of the capacity on U.S. satellites is used for broadcasting transmission
services, another significant portion is used for telecommunications
transmission services, and the remaining capacity is currently available or
used for part-time services. This relatively low percentage for
telecommunications transmission services can partially be explained by the high
demand for multi-channel pay television, which reaches more than 90% of all
U.S. homes, and by the fiber optic telephony network and the widespread use of
wireless systems.
The Fixed Satellite Services Protocol between the United States and Mexico
allows Mexican satellites to offer international and domestic services in the
United States, subject to obtaining all necessary FCC regulatory approvals, and
allows U.S. satellites to offer international fixed satellite services,
direct-to-home fixed satellite services and broadcast satellite services and
certain domestic fixed satellite services. Satellites licensed by the United
States were authorized to provide domestic fixed satellite services in Mexico
beginning in January 1999. Satellites licensed by Mexico were authorized to
provide domestic fixed satellite services in the United States beginning on
January 1, 1998. This allows our customers to target the Hispanic population in
the United States. We believe that this protocol and the upcoming launch of
Satmex 6 will improve our presence in North America. The footprint of Satmex 6
was designed to provide satellite services in the U.S. market.
Item 5.
Operating and Financial Review and Prospects
Overview
We hold concessions from the government of Mexico to operate satellites in
three orbital positions. We own and operate two geostationary communications
satellites, Solidaridad 2 and Satmex 5, in two of those positions. We plan to
launch a third satellite, Satmex 6, in the second half of 2003. We also own
another satellite, Morelos 2, which is in an inclined orbit. We operate in the
fixed satellite services segment and are the leading provider of such services
in Mexico and are expanding our services to become a leading provider of such
services throughout the Americas. We are also marketing the use of satellite
transmission capacity for new broadband applications, such as connectivity to
the Internet backbone via satellite. We have landing rights to provide
broadcasting and telecommunications transmission capacity in Mexico, the United
States, Canada and 37 nations and territories in the Latin American region.
On November 17, 1997, Loral Space & Communications Ltd. (together with its
subsidiaries "Loral") and Principia, S.A. de C.V. ("Principia") acquired 75% of
our issued and outstanding stock from the government of Mexico for $647 million
through Firmamento Mexicano, S. de R. L. de C.V. ("Firmamento"). Loral owns 65%
of Firmamento and Principia owns 35%. Loral holds 49% and Principia holds 51%
of Firmamento's voting interests. The remaining 25% of our capital stock was
retained by the Mexican government.
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On March 30, 1999, we issued 606,730 shares of preferred stock to Loral
and Principia for a total purchase price of approximately $31.9 million. The
preferred stock has limited voting rights and pays a cumulative dividend in our
common stock. The preferred stock can be exchanged at our option into our
common stock, at a ratio of one share of preferred stock for 2.0008 shares of
common stock if the exchange occurs before February 2, 2005, and at a ratio of
one share of preferred stock for 4.0016 shares of common stock on and after
February 2, 2005. As of December 31, 2002, Servicios Corporativos Satelitales,
S.A. de C.V., a wholly owned subsidiary of Firmamento, holds 70.71% of our
outstanding capital stock, Loral holds 4.46%, Principia holds 1.26% and the
Mexican government holds 23.57%.
Recent Trends in the Satellite Industry
Early in 2001, the telecommunications sector began to suffer a sharp
downturn. Supply increased as a result of a build-out of fiber optics capacity
around the world. At the same time, demand was reduced via compression
technology that allows more efficient utilization of telecommunications
capacity. Also in 2001, the Internet sector, one of the primary growth drivers
for satellite services, also suffered a downturn from which it has not yet
recovered. The worldwide business climate began to slow down and Latin America,
because of its more volatile economies, has suffered to a greater extent.
This industry downturn affected both satellite operators and their
customer base. As of 1999, voice customers began to switch to fiber optic
cable, where available. Using new technology, some existing customers have been
able to compress data to a greater extent, requiring less satellite capacity to
send their signals. With the decline of the Internet sector, many businesses
that were users of satellite capacity failed and the pick-up of broadband/data
services has been slower than expected. In summary, many anticipated projects
have been postponed, some customers have been forced to cancel their satellite
service contracts, and the development of new business has been slower than
expected. From July 2001 to December 2002, our backlog decreased by $98
million.
At the same time, satellites themselves have been increasing in size,
capacity, power levels and the surface of the earth to which their signals can
reach. The use of compressed data has increased capacity of satellites to offer
more data. The result has been lower utilization rates across the fixed
satellite services industry.
During this period, in part because Latin America is recognized as a
market with long-term growth potential, competition has increased in our
market. On August 10, 2001, the Mexican government granted licenses to provide
satellite service in Mexico to PanAmSat, SES Global, Televisa and Enlaces
Integra. A total of 18 satellites were registered to provide satellite service
in Mexico. Given the lower marginal cost to provide satellite service once a
satellite is in place, prices of fixed satellite services have fallen over the
last two years.
Due, however, to lower pricing as well as early economic recovery, we are
beginning to see new demand for fixed satellite services. Technological
advances, such as high definition television, are working in our favor because
this service requires more bandwidth than regular television. In addition, the
requirement that subscription television (cable and satellite direct to home)
offer local channels (local-into-local) will entail significantly greater
demand for satellite services. Rising demand for national and foreign channels
has also begun to stimulate demand for satellite capacity. For example, demand
in the United States for Spanish language programming is rising rapidly as is
demand in Latin America for U.S. channels. Satmex is seeking to enter the
market for Spanish language programming in an effort to create demand for its
satellite services.
Satellite Operations
In August 2000, our Solidaridad 1 satellite ceased operating and was
considered irretrievably lost. The loss was caused by the failure of the
back-up control processor on board the satellite. Solidaridad 1, which was
built by Hughes Space and Communications and commenced service in January 1994,
experienced a failure of its primary control processor in April 1999, and the
satellite had been operating on its back-up processor since that time.
Solidaridad 1 was insured for $250 million. At the date of the loss,
Solidaridad 1 had a net book value of approximately $109.6 million. After
deducting prepaid insurance of $1.6 million, the unpaid insurance premiums of
$12.5 million and on-going monitoring costs and the excess of the estimated
cost over revenue for the currently committed transponder capacity to be
provided to customers of $23.2 million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1 million. In January 2001, Satmex
received insurance proceeds of
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approximately $235.3 million, net of the unpaid insurance premiums and
related value added tax. We used the net insurance proceeds towards the
manufacture, launch and insurance of a replacement satellite and have
contracted with Space Systems/Loral, Inc., a wholly owned subsidiary of Loral,
to build the replacement satellite, known as Satmex 6. We also used a portion
of the net insurance proceeds for debt service. Satmex 6 is scheduled to be
launched in the second half of 2003, and is designed to provide broader
coverage and higher power levels than any other satellite currently in the
Satmex fleet. In 2001, we reduced the liability for the cost over revenue for
the committed transponder capacity to be provided to customers by $7.3 million.
In 20002, we received $3.3 million from the satellite manufacturer under the
Solidaridad 1 performance guarantee and we reduced the liability for the cost
over revenue for the committed transponder capacity to be provided to customers
by $5.1 million. These transactions were recorded as additional gain on the
in-orbit failure of Solidaridad 1 in the applicable periods.
In April 2001, Satmex 5 experienced temporary difficulties starting the
back-up propulsion system of the Xenon Ion Propulsion System ("XIPS"), which
provides station-keeping capability for the satellite. Using procedures
provided by the satellite manufacturer, we were able to start the back-up
propulsion subsystem, and at no time was service on Satmex 5 interrupted.
Failures related to XIPS have occurred on other BS 601 HP spacecraft.
Performance on both Satmex 5 XIPS systems is normal. Currently, however, we are
using the second XIPS system as the primary propulsion system, and the first
system as the back-up. In addition, Satmex 5 has a chemical propulsion system
in place to provide further redundancy.
At December 31, 2002, our Solidaridad 2 and Satmex 5 were operating
normally and had remaining estimated useful lives of 6.3 and 11
years, respectively.
Results of Operations for the Year Ended December 31, 2002 Compared to December 31, 2001
Revenue
Service revenue for 2002 was $85.0 million, as compared to $128.0 million
for 2001. The decrease is due to lower utilization of Solidaridad 2 and Satmex
5 caused by contract cancellations of $13.7 million and non-renewals of $29.3
million. As previously disclosed, the transponder lease for our then-largest
customer, Innova, ended on March 31, 2002. Innova represented approximately
$1.5 million and $25 million of revenue for years ended December 31, 2002 and
2001, respectively.
Early indications in 2003 suggest that the trend of cancellations and
non-renewals has slowed. Cancellation or non-renewal of service contracts of
our large customers would have an adverse effect on our results of operations.
Operating expenses
Operating expenses decreased to $86.5 million in 2002, from $92.9 million
in 2001, as described below.
Satellite operations.
Satellite operations costs, which consist primarily
of satellite insurance and the personnel costs related to the operation of the
satellites, were $17.1 million for 2002, as compared to $19.8 million in 2001.
The decrease is primarily due to a lower cost for replacement capacity on other
satellites for customers previously on Solidaridad 1, representing $2.4
million.
Selling and administrative expenses.
Selling and administrative expenses
in 2002 were $20.8 million as compared to $22.6 million in 2001. The decrease
is primarily due to personnel reductions, which reduced expenses by $1.4
million.
License and management fees.
Loral and Principia are responsible for the
management of our operations. Loral and Principia receive a management fee,
based on a sliding scale, up to a maximum of 3.75% of our quarterly gross
revenue, as defined. For the year ended December 31, 2002, no management fee
was earned. For the year ended December 31, 2001, the management fee was $2.3
million, of which $767,000 was offset against accrued expenses. Loral has
licensed certain intellectual property to us for an annual fee of 1.5% of our
gross revenue, as defined. For 2002 and 2001, the fee was $1.2 million and $1.8
million, respectively, of which $65,000 and $106,000, respectively, was offset
against accrued expenses. The license fee decreased due to our lower revenue.
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Depreciation and amortization.
Depreciation expense was $34.5 million in
2002 and $34.4 million in 2001. Amortization expense relating to the
concessions was $12.9 million in each year.
Interest income
Interest income for 2002 was $2.0 million as compared to $9.3 million for
2001. The decrease is primarily due to lower levels of restricted and
segregated cash available for investment, representing $7.1 million, as well as
lower interest rates.
Interest cost
Total interest cost, including $14.2 million of capitalized interest
related to the construction of Satmex 6, was $52.0 million in 2002 as compared
to $59.4 million, including $3.5 million of capitalized interest related to the
construction of Satmex 6, for 2001. Total interest cost decreased due to lower
average outstanding debt during 2002 and lower interest rates on our variable
rate debt.
Net foreign exchange gain
We recorded a net foreign exchange gain of $93,000 in 2002 as compared to
a foreign exchange gain of $28,000 in 2001.
Deferred income tax benefit
On January 1, 2002, the Mexican government enacted a new income tax law
that reduces the 35% statutory income tax rate by 1% per year beginning January
1, 2003 through January 1, 2005. We recorded a deferred income tax benefit of
$1.8 million in the first quarter of 2002 for the effect of this change on
deferred tax assets and liabilities.
For the year ended December 31, 2002, we recorded a deferred income tax
benefit of $8.8 million on a loss before income taxes of $28.8 million,
yielding an effective rate of 30.7%, while for 2001 we recorded a benefit of
$1.1 million on a loss of $4.3 million, yielding an effective rate of 27%. The
change from 2001 to 2002 relates primarily to the increased benefits recorded
in 2002 for the Mexican income tax effect of inflation and currency
remeasurement , the reduction to the statutory income tax rate, and the
additional provision recorded in 2002 to increase the valuation allowance.
Net operating losses may be carried forward for 10 years and any asset tax
paid is available as a credit against the income tax liability for a ten-year
period. At December 31, 2002 we had tax loss carryforwards of approximately
$278 million, which expire from 2008 to 2012, and tax credits available against
the asset tax of approximately $38 million, which expire in 2003. Without these
credits, we would have incurred an asset tax liability of approximately $3.1
million in 2002.
Preferred stock dividend requirement
The preferred stock dividend requirement of $1.5 million in 2002 and 2001
relates to the value of the stock dividend issuable on the 606,730 shares of
preferred stock issued in March 1999.
Results of Operations for the Year Ended December 31, 2001 Compared to December
31, 2000
Revenue
Service revenue for the year ended December 31, 2001 was $128.0 million,
as compared to $136.4 million for the year ended December 31, 2000. The
decrease is due to reduced utilization caused by contract cancellations and
non-renewals, partially offset by higher average prices on Solidaridad 2 and
Satmex 5. The failure of Solidaridad 1 did not have a significant effect on
revenue for the year ended December 31, 2001 because most of its customers were
provided with alternative capacity on Solidaridad 2, Satmex 5 or on satellites
operated by Loral Skynet.
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Operating expenses
Operating expenses decreased to $92.9 million for the year ended December
31, 2001, as compared to $102.1 million for 2000, as described below.
Satellite operations.
Satellite operations costs, which consist primarily
of satellite insurance and the personnel costs related to the operation of the
satellites, were $19.8 million for 2001, as compared to $20.0 million for 2000.
The decrease is primarily due to the reduction in insurance expense related to
Solidaridad 1, offset by the cost of providing replacement capacity to
customers after the failure of Solidaridad 1 of $6.7 million and an increase in
salary expense.
Selling and administrative expenses.
Selling and administrative expenses
for 2001 were $22.6 million, as compared to $20.3 million for 2000. The
increase is primarily due to increased legal and consulting costs and higher
compensation costs.
License and management fees.
Loral and Principia are responsible for the
management of our operations. Loral and Principia receive a management fee,
based on a sliding scale, up to a maximum of 3.75% of our quarterly gross
revenue, as defined. Also, Loral has licensed certain intellectual property to
us for an annual fee of 1.5% of our gross revenue, as defined. Fees for the
year ended December 31, 2001 and 2000 were $3.3 million and $5.1 million,
respectively. License and management fees decreased due to our lower revenue.
Depreciation and amortization.
Depreciation expense for 2001 was $34.4
million as compared to $43.8 million for 2000. The decrease in depreciation
expense is due to the write-off of Solidaridad 1 after it ceased operating in
August 2000. Amortization expense relating to the concessions amounted to $12.9
million during each period.
Interest income
Interest income for 2001 was $9.3 million as compared to $1.5 million for
2000. The increase is primarily due to interest of $7.4 million earned on the
restricted and segregated cash.
Interest
Total interest cost, including $3.5 million of capitalized interest
related to the manufacture of Satmex 6, was $59.4 million in 2001 as compared
to $66.6 million for 2000. Total interest cost decreased due to lower average
outstanding debt during 2001 and lower interest rates on our variable rate
debt.
Net foreign exchange gain (loss)
We recorded a net foreign exchange gain of $28,000 in 2001 as compared to
a loss of $98,000 in 2000. The peso remained relatively stable against the
dollar in each year.
Deferred income tax benefit (expense)
We recorded a deferred income tax benefit of $1.1 million in 2001, as
compared to an expense of $17.0 million in 2000 which included an expense of
$36.7 million on the net gain from the in-orbit failure of Solidaridad 1.
We are subject to the greater of an income tax at 35% of taxable income or
an asset tax at 1.8% on the average of assets less certain liabilities. During
2000, we received a favorable ruling from the Mexican Supreme Court of Justice
allowing the deduction for foreign liabilities, including but not limited to,
financial liabilities, when computing the taxable base for the asset tax. This
ruling will have a favorable effect to reduce our asset tax in the future.
Net operating losses may be carried forward for 10 years and any asset tax
paid is available as a credit against the income tax liability for a ten-year
period. At December 31, 2001 we had tax loss carryforwards of approximately
$237 million which expire from 2008 to 2010 and tax credits available against
the asset tax of approximately $43.7 million which expire in 2003. Without
these credits, we would have incurred an asset tax liability of approximately
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$6.6 million in 2001.
Preferred stock dividend requirement
The preferred stock dividend requirement of $1.5 million in 2001 and 2000,
relates to the value of the stock dividend payable on the 606,730 shares of
preferred stock issued to Loral and Principia in March 1999.
Inflation
During 2002, 2001 and 2000, the annual rates of inflation in Mexico, as
measured by changes in the National Consumer Price Index as provided by the
Banco de Mexico, were 5.7%, 4.4% and 9.0%, respectively. Our major
expenditures, including capital expenses and satellite insurance, are not
affected by high levels of inflation, because they are denominated in dollars.
Our customer contracts are also denominated in dollars. However, high inflation
rates would affect peso denominated expenses such as payroll and rent and could
result in an increase in uncollectible accounts receivable and customer lease
cancellations. To the extent that the peso's devaluation against the U.S.
dollar is less than the inflation rate in Mexico, we will be adversely affected
by the effect of inflation in Mexico with respect to our peso denominated
expenses.
Capital Expenditures
Substantially all of our capital expenditures are denominated in U.S.
dollars. Capital expenditures were $123.2 million for 2002, as compared to
$95.7 million for 2001. Expenditures in 2002 and 2001 for the construction of
Satmex 6 were $119.8 million and $91.9 million, of which $108.0 million and
$83.8 million was funded through the use of restricted and segregated cash,
respectively. We expect capital expenditures for 2003 to be approximately $92.9
million for the completion of Satmex 6. Following the launch of Satmex 6, we
expect a sharp drop in capital expenditures.
Liquidity and Capital Resources
At
March 31, 2003, we had total debt of $524.1 million. At
each of December  31, 2002 and March 31, 2003,
we were in compliance with all covenants contained in our debt agreements.
Our primary source of liquidity for working capital purposes is cash flow
from operations. As of March 31, 2003, we had $16.3 million in available cash
and cash equivalents. Funds from the satellite and debt escrow accounts had
been fully used and, as of March 31, 2003, no remaining balances existed. We
believe that available working capital will not be sufficient to fund the in-orbit
delivery of the Satmex 6 satellite unless we extend the maturities of our fixed
rate notes and consummate the Ex-Im and Coface financing arrangements, or
obtain other financing or negotiate satisfactory payment terms for delivery of
Satmex 6 in-orbit. Further, if we do not complete the exchange offer and the
Satmex 6 financings, we do not expect future cash flows to be sufficient to
make future interest and principal payments on our fixed rate notes and our
floating rate notes. We do not expect our shareholders to contribute any more
equity to the Company.
Cash used and provided
Net cash provided by operating activities for the year ended December 31,
2002 of $20.9 million consisted primarily of $27.6 million of funds generated
by earnings before non-cash items, interest income on the restricted and
segregated cash and the use of restricted and segregated cash for interest
payments and decreases in prepaid insurance of $4.1 million and amounts due
from related parties, net of $0.3 million; partially offset by an increase in
accounts receivable of $3.6 million, a decrease in accounts payable and accrued
expenses of $7.4 million and an increase in deferred financing costs and other
assets of $0.1 million.
Cash used in investing activities for 2002 was $15.2 million. Capital
expenditures for 2002 were $123.2 million, which included $119.8 million for
the construction of Satmex 6, and of which $108.0 million was funded through
the use of the restricted and segregated cash account. Substantially all
capital expenditures are denominated in U.S. dollars.
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Cash used in financing activities for the year ended December 31, 2002 was
$5.0 million and reflects the repayment of $31.6 million of our floating rate
notes, of which $26.6 million was funded through the use of restricted and
segregated cash. During the fourth quarter of 2002, we borrowed $13.0 million
under our revolving credit facility. All borrowings were repaid by December 31,
2002 and the revolving credit facility expired.
Contractual Obligations and Other Commercial Commitments
The following tables aggregate our contractual obligations and other
commercial commitments as of December 31, 2002 (in thousands).
Payments Due by Period
Less Than
1 - 3
4 - 5
After 5
Contractual Obligations:
Total
1 year
years
years
years
Debt
$
524,374
$
1,000
$
523,374
$
—
$
—
Operating
leases
(1)
3,504
1,431
2,073
—
—
Unconditional purchase
obligations
(2)
53,123
26,181
250
500
26,192
Other long-term
obligations
(3)
5,797
386
773
773
3,865
Total contractual cash
obligations
$
586,798
$
28,998
$
526,470
$
1,273
$
30,057
Amount of Commitment Expiration Per Period
Total
Amounts
Less Than
4 - 5
After 5
Other Commercial Commitments:
Committed
1 year
1 - 3 years
years
years
Monitoring service
$
131
$
118
$
13
—
—
(1)
Represents future minimum payments under non-cancelable operating leases
with initial or remaining terms of one year or more.
(2)
Represents the commitments for the construction and launch of Satmex 6.
(3)
Represents payments to the Mexican government under the Property
Concession.
The Fixed Rate Notes
On February 2, 1998, we issued the fixed rate notes in an aggregate
principal amount of $320 million, all of which was outstanding on March 31,
2003. The interest rate on the fixed rate notes is 10.125%. We are required to
make interest payments on the fixed rate notes semi-annually in cash in arrears
on each February 1 and August 1 until maturity. The fixed rate notes mature on
November 1, 2004 and are unsecured, unsubordinated obligations, rank
pari passu
in right of payment with all of our existing and future unsecured,
unsubordinated obligations, and are senior in right of payment to all of our
future subordinated indebtedness.
The fixed rate notes indenture contains certain covenants that impose
certain limitations and restrictions on our ability to incur additional
indebtedness, pay dividends or make other distributions, make certain loans and
investments, apply the proceeds of asset sales (and use the proceeds thereof),
create liens, enter into certain transactions with affiliates, merge,
consolidate or transfer substantially all of our assets and make investments in
unrestricted subsidiaries. The events of default under the fixed rate notes
indenture includes various events of default customary for similar issues of
notes, including the failure to pay principal and interest when due, cross
acceleration and certain events of bankruptcy, insolvency and reorganization.
The Floating Rate Notes
On March 2, 1998, we issued $325 million of senior secured floating rate
notes due June 30, 2004. The floating rate notes rank senior in right of
payment to all of our subordinated debt and
pari passu
in right of payment to
all of
our senior indebtedness, including the fixed rate notes. They are secured
by a lien on substantially all of our assets. The floating rate notes bear
interest at rates based either on LIBOR or the base rate specified in the fixed
rate notes indenture, at our option, and are redeemable at our option. In
addition, the floating rate notes are guaranteed by Firmamento and Servicios.
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In addition to containing similar covenants as the fixed rate notes, the
floating rate notes contain covenants that require maintenance of certain
quarterly financial and operating ratio levels and impose limits on our
spending for capital expenditures. At March 31, 2003, we were in compliance
with all covenants in the floating rate note indenture.
We are required to make quarterly redemption payments on the floating rate
notes of $250,000 through March 31, 2004, plus additional prepayments from
excess cash flow, as defined in the floating rate note indenture, with the
balance due on June 29, 2004.
At December 31, 2001, a technical default existed with respect to our
floating rate notes due to our failure to make a principal prepayment from
excess cash flow for the year ended December 31, 2000, as defined under the
floating rate note indenture. On April 23, 2002, we made the required principal
prepayment of $11.9 million, plus accrued interest of $228,000, as well as a
principal prepayment for 2001 excess cash flow of $749,000. We believe that the
payment on April 23, 2002, cured the technical default on the floating rate
notes. At December 31, 2001, we classified $12.6 million, representing the 2001
and 2000 principal repayments, as current portion of long-term debt.
In February 2000, the floating rate notes were amended to permit the
modification of certain covenants, in exchange for the payment of a fee and an
increase in the applicable interest margin by up to 0.75%. On March 18, 2003,
holders of the floating rate notes agreed to modify certain financial covenants
required by the floating rate note indenture and we agreed to pay the
consenting holders a fee of 0.25% of the amount of the debt. This fee was paid
on March 21, 2003, solely to the holders that gave consent. The total fee paid
was US$494,877.50. The modification of the financial covenants consisted of
substituting certain financial ratios for a minimum level of cash flow to be
maintained during the remaining life of the floating rate notes. In addition, a
new covenant was incorporated to require that the loans backed by Ex-Im Bank
and Coface be closed on or prior to September 30, 2003.
Our Credit Rating
On November 1, 2002, Moody's Investor Services lowered its ratings of our
senior unsecured indebtedness from "B3" to "Ca." A "B3" rating is the sixth
lowest rating category out of 21 used by Moody's. A "B" rating describes
obligations that Moody's believes generally lack characteristics of a desirable
investment where there is little assurance that interest and principal payments
will be made or of maintenance of other terms will be kept over a long period
of time. "Ca" is the second lowest rating category out of 21 and describes
obligations that Moody's believes are speculative in a high degree and that are
often in default or have other marked shortcomings.
On September 23, 2002 Standard & Poor's lowered our long term foreign
issuer credit rating from "B" to "CCC+." A "B" rating is the eighth lowest
rating category out of 22 used by S&P and a "CCC+" rating is the sixth lowest
rating out of 22. A "B" rating describes an obligation that S&P believes is
more vulnerable to nonpayment than obligations rated "BB," but where the
obligor has the capacity to meet its financial commitment on the obligation at
that time. S&P believes that adverse business, financial, or economic
conditions will likely impair the "B" rated obligor's capacity or willingness
to meet its financial commitments. A "CCC+" rating describes an obligation that
S&P believes is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, S&P believes that a "CCC" rated obligor is
not likely to have the capacity to meet its financial commitment on the
obligation.
As a result of these negative credit ratings and downgrades, our sources
of short-term financing have become limited, which impedes our ability to
finance our operations. Furthermore, the negative publicity surrounding these
recent downgrades has generated concern among certain of our existing
customers.
Presentation of Financial Information
Our financial statements are published in U.S. dollars and prepared in
conformity with U.S. generally accepted accounting principles, which we refer
to as "U.S. GAAP." We maintain our financial books and records in dollars. Sums
presented in this prospectus may not add due to rounding.
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Other Matters
Insurance Costs
In November 2002, we renewed the in-orbit insurance on Solidaridad 2
through November 2003. The insurance coverage was provided in accordance with
usual and customary practices for the coverage of BS-601 satellites. This
insurance does not insure against an in-orbit failure due to the loss of the
satellite's control processor, the same component that caused the loss of
Solidaridad 1. Additionally, the new terms of insurance increased the
percentage of the satellite's transponder capacity that must be lost for a
total loss to be declared to 75%, from 50%. An uninsured loss of Solidaridad 2
would have a material adverse effect on our results of operations and financial
condition.
We, like others in the satellite industry, are faced with significantly
higher premiums for launch and in-orbit insurance and significantly shorter
coverage periods than those that have been available in the past, which is due
in part to the events of September 11, 2001, and in part to recent losses in
the satellite industry, including that of Solidaridad 1. This development in
the insurance industry will increase our cost of doing business. We intend to
pass on such increased cost to our customers. We cannot assure you, however,
that we will be able to do so. Insurance market conditions have historically
been cyclical in nature. While we anticipate that these conditions will improve
in the future, we cannot assure you that they will.
Critical Accounting Policies
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results could differ from these estimates. Accounting policies that are
critical to understand in our financial statements and that require significant
judgment by management include the estimated useful lives of our satellites,
the valuation of long-lived assets, deferred income taxes, revenue recognition
and deferred revenue from the Mexican government.
Satellites
Satellites are stated at historical cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of
the satellites.
The estimated useful lives of our satellites are:
Solidaridad 2
14.5 years
Satmex 5
15 years
Solidaridad 2 and Satmex 5 are being depreciated over their estimated
useful lives commencing on their in-orbit service dates of November 11, 1994
and January 22, 1999, respectively. The estimated useful lives of the
satellites were determined by engineering analyses performed at the in-orbit
service dates. Morelos 2 was fully depreciated at June 30, 1998.
Costs incurred in connection with the construction and successful
deployment of our satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch costs, launch
insurance, and construction period interest. Capitalized interest related to
the construction of Satmex 6 was $14.2 million and $3.5 million for the years
ended December 31, 2002 and 2001, respectively.
Valuation of long-lived assets
The carrying value of our long-lived assets is reviewed for impairment
whenever events or changes in circumstances indicate that an asset may not be
recoverable. Assets are determined to be impaired when the estimated
undiscounted cash flows expected to result from the use of the asset are less
than the carrying value of the asset. We measure impairment as the difference
between the carrying value and the fair value of the asset.
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Deferred income tax
We recognize deferred income tax assets and liabilities for the future
consequences of temporary differences between the financial statement carrying
amounts of assets and liabilities and their respective income tax bases,
measured using enacted rates. The effects of changes in the statutory rates are
accounted for in the period that includes the enactment date. Deferred income
tax assets are also recognized for the estimated future effects of tax loss
carryforwards and asset tax credit carryforwards. Deferred income tax assets
are reduced by any benefits that are not expected to be realized.
Revenue recognition
We provide satellite capacity under service lease agreements for periods
ranging from one year to twelve years. Some service lease agreements provide
for cash advances from customers with reduced rents. Such cash advances are
recognized as revenue on a straight-line method over the total lease term.
In the case of end-of-life leases, in which we collect the total rent in
advance and provide no insurance or warranty on the related transponders, we
recognize the total revenue and related cost as sales-type leases.
Deferred
revenue - Mexican government
We are required to provide the Mexican government, at no charge,
approximately 7% of our available transponder capacity for the duration of the
concessions. In 1998 we recorded $88 million as deferred revenue, as the value
of this obligation, and an increase in the value of the concessions by the same
amount. This obligation is being amortized over 40 years as an increase in
revenue and a corresponding increase in amortization expense.
Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities" ("SFAS 146"). SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by this standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS 146 replaces EITF
Issue No. 94-3. The adoption of SFAS 146 on January 1, 2003 had no effect on
our financial statements.
In November 2002, FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of this interpretation are
effective for interim and annual periods after December 15, 2002. The initial
recognition and initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after December 31,
2002. The interpretation's expanded disclosures had no impact on our financial
position or result of operations. The adoption of the recognition and initial
measurement requirements of this interpretation on January 1, 2003 had no
impact on our financial position or results of operations.
In January 2003, FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," addresses
consolidation by business enterprises of variable interest entities. Under
current practice, two enterprises generally have been included in consolidated
financial statements because one enterprise controls the other through voting
interests. FIN 46 defines the concept of "variable interest" and requires
existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse the risks among the parties involved. This
interpretation applies immediately to variable interest entities created after
January 31,
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2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. If it is reasonably possible that an enterprise will consolidate or
disclose information about a variable interest entity when this interpretation
becomes effective, the enterprise shall disclose information about those
entities in all financial statements issued after January 31, 2003. We do not
have variable interests in any variable interest entities that will require
consolidation in accordance with FIN 46.
Item 6.
Directors, Senior Management and Employees
DIRECTORS AND SENIOR MANAGEMENT
Name
Position
Age
Period of Service
Sergio Autrey Maza(1)
Chairman of the Board and Director
51
Since November 1997
Bernard L. Schwartz(1)
Director
77
Since November 1997
Carlos Autrey Maza
Director
57
Since October 1999
Eric J. Zahler (1)
Director
52
Since November 1997
Lauro González
Moreno (1)
Chief Executive Officer and Director
41
Since November 1997
Cynthia Pelini
Executive Vice President and Chief
Financial Officer
48
Since April 1998
Juan Manuel Pinedo
Executive Vice President and Chief
Marketing Officer
38
Since April 1998
(1)
Member of the Executive Committee.
Our Board of Directors is chaired by Mr. Sergio Autrey Maza and pursuant
to an agreement between Loral and Principia currently consists of three
Principia directors and two Loral directors. Sergio Autrey Maza and Carlos
Autrey Maza are brothers.
The Executive Committee is authorized to take action on all matters that
may be authorized by the Board of Directors.
Mr. González is the Chief Executive Officer and was named jointly by
Principia and Loral. The Chief Executive Officer reports to the Executive
Committee and the Board of Directors. His duties include day to day management
of the company, strategic planning and relationship development. The Chief
Executive Officer can be removed at the request of either Principia or Loral.
Loral has the right to appoint a Chief Operating Officer of the company
who would be responsible for our day to day management and operations, subject
to approval from Principia, which approval cannot be unreasonably withheld.
All other executive officers have been and will be appointed by the mutual
consent of Loral and Principia.
Sergio Autrey has been the Chairman of the Board and a director of Satmex
since November 1997 and is the Chairman of the Board of Principia and
Globalstar de México, a satellite telephony service provider owned by Principia
and Loral. He is also a member of the board of Parábola, and Grupo Editorial
Notmusa, Mexican publishing companies; and Beta San Miguel, a sugar production
company.
Mr. Schwartz has been a director of Satmex since November 1997. Mr.
Schwartz is Chairman of the Board and Chief Executive Officer of Loral.
Carlos Autrey has been a director of Satmex since October 1999 and is a
member of the board of Globalstar de México and Principia.
Mr. Zahler has been a director of Satmex since November 1997. Mr. Zahler
is the President and Chief Operating Officer of Loral.
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Lauro González has been a director and the Chief Executive Officer of
Satmex since November 1997. Mr. González is also the Chief Executive Officer of
Globalstar de México, Principia and Enlaces Integra. Mr. González was an
engagement manager at McKinsey & Company in Mexico and Brazil.
Cynthia Pelini has been the Chief Financial Officer of Satmex since April
1998 and Executive Vice President of Finance and Administration since December
2000. Prior to that, she was Vice President of Investor Relations at Grupo
Iusacell, a Mexican cellular communications company, from 1996 to 1998. Ms.
Pelini was Director of Banking Relations for Grupo Televisa from 1995 to 1996,
Director of Financial Planning, Capital Markets and Investor Relations for
Grupo Dina, a Mexican transportation manufacturer, from 1992 to 1995, and
Corporate Treasurer of Corporación Industrial SanLuis from 1989 to 1992. From
1976 through 1989, she worked in international banking assignments for both The
Chase Manhattan Bank and Bankers Trust Company.
Juan Manuel Pinedo has been the Executive Vice President and Chief
Marketing Officer of Satmex since December 2000. Mr. Pinedo joined Satmex in
April 1998 and was the Executive Director of Business Development until January
1999, when he was named Executive Director of Sales and Marketing. From 1992 to
1998, Mr. Pinedo was a senior consultant and engagement manager for McKinsey &
Company. From 1987 to 1992, Mr. Pinedo was an engagement manager for Andersen
Consulting.
COMPENSATION
For the year ended December 31, 2002, the aggregate compensation,
including bonuses, of management paid or accrued in that year for services in
all capacities was approximately $5.9 million. During 2002, we did not make
payments to members of the Board for attendance at Board of committee meetings
and we did not provide any pension, retirement or similar benefits for
directors or executive officers.
Currently, management has earned, under existing long-term compensation
plans, $2.9 million to be paid over the next three years. One condition for
payment of this deferred compensation is continued employment.
All employees are eligible for bonuses based on performance. The bonus
plan provides for us to pay bonuses based on achievement of financial targets
established for the year. During the year ended December 31, 2002, we paid a
total of $2.4 million for bonuses earned in 2001, of which $1.65 were paid to
management. Except for sales commissions, no performance bonuses were earned in
2002.
EMPLOYEES
As of December 31, 2002, we had approximately 226 employees, of which 57
are members of the Television and Radio labor union. The collective agreement
provides for, among other things: union exclusivity, a maximum workweek of 40
hours, overtime pay at twice the normal rate, company maintained life
insurance, severance payment after retirement of 12 days' pay for each year
worked, a statutory annual bonus equivalent to 20 days' pay, mandatory training
and a review of the collective contract every two years. We believe our
relationship with our union employees is satisfactory.
In February 2003, after a hiring freeze in effect since June 2002, we
eliminated approximately 40 positions, of which 9 were union positions. We paid
severance compensation of approximately $710,000 related to these eliminations.
As of March 31, 2003, we had approximately 187 employees.
SHARE OWNERSHIP
As of December 31, 2002, the share ownership of Satmex is as follows:
Shares
Percentage
Servicios Corporativos
7,500,000
70.71
Mexican government
2,500,000
23.57
Loral
473,449
4.46
Principia
133,281
1.26
10,606,730
100.00
%
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Item 7.
Major Shareholders and Related Party Transactions
MAJOR SHAREHOLDERS
Prior to October 15, 1997, we were not operated as a stand-alone satellite
capacity provider, but were operated by the Mexican government as part of the
operations of Telecomunicaciones de Mexico, an agency of the Mexican
government. In 1997, Loral and Principia formed a joint venture, Firmamento, to
effect the acquisition of Satmex from the Mexican government. Firmamento is
owned 65% by Loral and 35% by Principia. Principia, however, holds 51% of
Firmamento's voting interests, while Loral holds the other 49%. On November 17,
1997, an indirect subsidiary of Firmamento entered into a Stock Purchase
Agreement with the Mexican government to acquire 75% of our outstanding capital
stock from the Mexican government for a purchase price of $646.8 million. On
November 17, 1997, the acquisition subsidiary paid $194.0 million of the
purchase price and on December 29, 1997 paid the balance, plus interest. On
December 29, 1997, the acquisition subsidiary was merged into Satmex.
In consideration of the debt incurred by Satmex in connection with the
acquisition, Servicios, a wholly owned subsidiary of Firmamento, agreed to pay
to the Mexican government $125.1 million under the Menoscabo. The Menoscabo
accrues deferred interest at the rate of 6.03% per annum, compounds annually
and matures in December 2004. Payment of the Menoscabo is currently secured by
Loral's and Principia's interests in Firmamento. If Servicios were to default
in the payment of the Menoscabo, the Mexican government will have the right to
foreclose upon the Firmamento interests. This would result in the Mexican
government regaining control of us.
As of December 31, 2002, Servicios held 70.71% of our outstanding capital
stock, Loral holds 4.46%, Principia holds 1.26% and the Mexican government
holds 23.57%.
The Mexican government holds its 23.57% interest in Satmex through Class N
shares. The Class N shares have limited voting rights and may vote only with
respect to the following matters: extension of our term, merger, conversion or
anticipated dissolution, amendment to our corporate purpose, change to our
nationality or cancellation of our registration in the Securities Section of
the National Registry of Securities and Intermediaries or in any Mexican or
foreign stock exchange.
We are a member of the Loral Global Alliance. Through the alliance, we can
offer our customers an integrated portfolio of satellite capacity that provides
"one stop shopping" for local, regional and global geostationary satellite
services. The other Alliance members are Loral Skynet, Skynet do Brasil and
Europe*Star. The Alliance currently has a total of 172 C-band and 303 Ku-band
36 MHz transponder-equivalents available for lease (references to transponders
are in 36 MHz equivalents, unless otherwise noted) and a collective footprint
covering almost all of the world's population, excluding 28 36MHz transponders
not available due to previous sales or other events.
The Loral Global Alliance provides for cross-selling arrangements among
the alliance members' respective sales forces and for cooperative marketing and
promotional activities. Loral believes that such arrangements enable the
members of the alliance to compete more effectively in sales of communications
satellite services worldwide. In addition, the alliance offers in-orbit backup
capabilities for its members in regions where members' fleets have overlapping
coverage.
We benefit from the strategic, marketing and operational capabilities of
our two corporate sponsors, Loral and Principia. Affiliates of the Sponsors
have entered into a management services agreement with us to provide us with
marketing and strategic planning services.
We also benefit from Principia's extensive experience in the Mexican
telecommunications industry and its working relationship with many of our
existing and potential customers.
Loral Space & Communications Ltd.
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Loral is one of the world's leading satellite communications companies
with substantial activities in satellite-based communications services and
satellite manufacturing. Loral is organized into three operating businesses:
Fixed Satellite Services
Through its wholly owned subsidiaries, Loral Skynet, Loral Orion, Loral
Skynet do Brasil Ltda., its 49%-owned affiliate Satmex, its 47%-owned affiliate
Europe*Star Limited and its 56%-owned affiliate XTAR L.L.C., Loral has become
one of the world's leading providers of satellite services using geostationary
communications satellites. Loral leases transponder capacity on its satellites
to its customers for various applications, including broadcasting, news
gathering, Internet access and transmission, private voice and data networks,
business television, distance learning and direct-to-home television and
provides telemetry, tracking and control services and network services to
customers. The Loral Global Alliance currently has 10 operating high-powered
geostationary satellites in orbit: the seven satellite Telstar fleet, two
Satmex satellites and one Europe*Star satellite, with footprints covering
almost all of the world's population.
Loral Global Alliance:
Loral offers its customers an integrated portfolio
of satellite capacity that provides "one stop shopping" for local, regional and
global GEO satellite services. The alliance, which consists of Loral Skynet,
Skynet do Brasil, Satmex and Europe*Star, currently has a total of 172 C-band
and 303 Ku-band 36 MHz transponder-equivalents available for lease (references
to transponders are in 36 MHz equivalents, unless otherwise noted) and a
collective footprint covering almost all of the world's population, excluding
28 36MHz transponders not available due to previous sales or other events.
Loral Skynet:
Its core business is providing satellite capacity to support
distribution of U.S. television network programming. The ABC, CBS and Fox
television networks are its major customers. All ABC, CBS and Fox stations and
network affiliates have their antennae pointed at Loral Skynet's satellites,
creating a configuration known as a "neighborhood" that is attractive to other
users requiring similar distribution channels. Loral Skynet currently has four
high power GEO satellites in operation.
Loral Orion:
On March 20, 1998, Loral acquired Orion Network Systems,
Inc., a rapidly growing provider of satellite-based communications services,
which recently changed its name to Loral Orion, Inc. Loral completed its
integration plan for Loral Orion and transferred management of Loral Orion's
satellite capacity leasing and satellite operations to Loral Skynet, effective
January 1, 1999. Loral Orion's leasing business currently provides satellite
capacity for video distribution, satellite news gathering and other satellite
services primarily to broadcasters, news organizations, telecommunications
service providers and Internet Service Providers, or ISPs. Loral Orion's
customers include HBO, Disney, Cable & Wireless and United Pan Europe
Communications.
Satellite Manufacturing and Technology
Loral designs and manufactures satellites and space systems and develops
satellite technology for a broad variety of customers and applications through
SS/L. SS/L is a worldwide leader in the design, manufacture and integration of
satellites and space systems. SS/L draws on its 40-year history, during which
satellites manufactured by SS/L have achieved more than 900 years of cumulative
on-orbit experience. SS/L also provides Loral with visibility into emerging and
new satellite-based technologies and applications. SS/L manufactures satellites
that provide telecommunications, weather forecasting and broadcast services.
SS/L is the leading supplier of satellites to Intelsat, currently one of the
world's largest operators of commercial communications satellites.
Data Services
Loral provides managed communications networks and Internet and intranet
services through Loral CyberStar, Inc. and delivers high-speed broadband data
communications, business television and business media services through
CyberStar, L.P. Using the GEO constellation of the Loral Global Alliance and
third party capacity, access to fiber networks and internet backbone entry
(peering) points, Loral can provide its customers with the ability to
distribute large, complex digital video and data files to multiple locations
throughout the world rapidly and cost efficiently. Data services currently
delivers U.S.-based Internet content via satellite; distributes high-speed data
over
private corporate very small aperture terminals networks; and offers
business television and business media services by satellite to corporations
for the delivery of teleconferences, distance learning and training, and
special events and
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other corporate communications.
Principia, S.A. de C.V.
Principia is a Mexican telecommunications company which comprises the
business interests of some members of the Autrey family and Lauro González. The
Autrey family has to date acquired interests in a number of companies
privatized by the Mexican Government.
Enlaces Integra, S. de R.L. de C.V.
In 2000, Principia and Loral founded Enlaces Integra S. de R.L. de C.V., a
telecommunications service integrator that provides tailor made solutions of
high speed data communications to private and public networks, value-added
service providers and audio/video service providers. In January 2000, Enlaces
Integra was granted a concession to install, operate and exploit a public
telecommunications network. Enlaces Integra's value-added license allows it to
develop Broadband Internet access and a wide range of multimedia services. On
August 10, 2001, Enlaces Integra was granted a concession to provide fixed
satellite services in Mexico through satellite operators other than Satmex.
RELATED PARTY TRANSACTIONS
Pursuant to a management services agreement among Satmex, Loral and
Principia, we have agreed to pay a quarterly management fee based on our
quarterly gross revenue, as defined, as follows: with respect to revenue of
less than $25 million, no management fee will be payable; with respect to
revenue in excess of $25 million but less than $32 million, 10% of all revenue
in excess of $25 million; and with respect to revenue equal to or in excess of
$32 million, 15% of all revenue in excess of $32 million; provided that the
management fee will in no event exceed 3.75% of our cumulative gross revenue.
The management fee represents compensation paid to Loral and Principia for
management services rendered to us. For the year ended December 31, 2002,
Principia and Loral waived the management fee. For the years ended December 31,
2001 and 2000, the management fee was $2.3 million and $3.2 million,
respectively.
Loral has licensed certain intellectual property to us for an annual fee
of 1.5% of our gross revenue, as defined. For the year ended December 31, 1999,
Loral and Satmex reduced the license fee to 1.2%. In 2002, 2001 and 2000, we
recorded a license fee expense of $1.2 million, $1.8 million and $1.9 million,
respectively.
We are a member of the Loral Global Alliance, whose other members are
Loral Skynet, Skynet do Brasil and Europe*Star. The Loral Global Alliance
provides for cross-selling arrangements among the alliance members' respective
sales forces and for cooperative marketing and promotional activities. We
believe that such arrangements enable the members of the alliance to compete
more effectively in sales of communications satellite services worldwide. In
addition, the alliance offers in-orbit backup capabilities for its members in
regions where members' fleets have overlapping coverage.
In connection with the privatization, we are required to provide 181 MHz
C-band and 181 MHz Ku-band capacity to the Mexican government for national
security and certain public purposes at no charge. After the Solidaridad 1
failure the capacity provided to the government is 130 MHz C-band and 105 MHz
Ku-band. We also operate one L-band transponder on the Solidaridad 2 satellite
which is owned by the Mexican government. Under the property concession granted
by the Mexican government to us, we pay to the government an annual fee of 7.5%
of the value of the property on which our satellite control centers are
located.
On March 30, 1999, we issued 606,730 shares of preferred stock to Loral
and Principia for a total purchase price of approximately $31.9 million. The
preferred stock has limited voting rights and pays a cumulative dividend in our
common stock. The preferred stock can be exchanged at our option into our
common stock, at an exchange ratio of 1 share of preferred stock for 2.0008
shares of common stock, if the exchange occurs before February 2, 2005, and at
an exchange ratio of 1 share of preferred stock for 4.0016 shares of common
stock on and after February 2, 2005.
In 1999, Loral Skynet entered into an end-of-life lease with us for three
Ku-band transponders on Satmex 5. For
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the year ended December 31, 1999, we
accounted for this transaction as a sales-type lease and, accordingly, recorded
revenue of $25.5 million and an operating expense of $14.2 million for the cost
of the transponders. Loral Skynet pays us $5,000 per transponder per quarter
for tracking, telemetry and command services for the life of this agreement.
Loral and Principia have agreed to exclude these transactions from the
calculation of the management fee and the license fee.
In 1999, Firmamento formed three wholly owned subsidiaries; Satmex
Corporativo, S. de R.L. de C.V., Satmex Administración, S. de R.L. de C.V. and
Satmex Servicios Técnicos, S. de R.L. de C.V. In June 1999, we transferred our
management personnel to Satmex Corporativo and our administrative personnel to
Satmex Administración. In November 1999, we transferred our union personnel to
Satmex Servicios Técnicos. None of these three corporations have any material
assets. We pay these companies their costs plus a fee of approximately 4% of
the gross payroll and benefits, excluding payroll taxes. For the years ended
December 31, 2002, 2001 and 2000 this fee was $524,000, $794,000 and $923,000,
respectively.
Service revenue from related parties, primarily the Mexican government,
amounted to $10.2 million, $14.7 million and $13.8 million for the years ended
December 31, 2002, 2001 and 2000, respectively. We lease transponder capacity
to Loral affiliates. Service revenue in 2002 and 2001 was $2.6 million and $4.7
million, respectively.
Loral Skynet billed us $4.2 million and $7.3 million for providing
capacity on Loral Skynet satellites in 2002 and 2001, respectively. Loral
Skynet billed us $547,000 and $574,000 for sales commissions in 2002 and 2001,
respectively.
We have contracted with Space Systems/Loral, Inc., a wholly owned
subsidiary of Loral, to build Satmex 6, the replacement satellite for
Solidaridad 1. As a result of schedule delays, we and Space Systems/Loral have
agreed that Satmex 6 will be delivered in 2003. Under the original contract, we
earned certain liquidated damages as a result of the delay. We have recently
concluded the negotiation with Loral and SS/L of an amendment to the contract,
which, among other things, waives the liquidated damages in exchange for a like
amount of other benefits that include additional work required on the
satellite, a reduction in future orbital incentive payments due to Space
Systems/Loral and certain other financial benefits to us.
Enlaces Integra, a company owned by Principia and Loral, leases
transponder capacity from us. In 2002 and 2001, service revenue from this lease
was $421,000 and $350,000, respectively. Also, we agreed to loan Enlaces
Integra up to $5 million of which $3.4 million was outstanding as of December
31, 2001. The loan to Enlaces Integra matures January 4, 2006 and accrues
interest at a rate equal to our weighted average interest cost plus 1%. The
maximum available borrowing is $5 million, including accrued interest. Further,
Enlaces Integra uses services provided from affiliated companies to perform its
activities. In June 2002, we purchased approximately $718,000 of equipment from
Enlaces Integra and in July 2002, we purchased $1.6 million of equipment and
paid $2.9 million as an advance payment on one of the concessions held by
Enlaces Integra. Enlaces Integra used the proceeds from the sale to repay its
outstanding loan from us. We leased equipment back to Enlaces Integra for
rental payments of $230,000 during 2002. At December 31, 2002, there were no
borrowings outstanding under the loan agreement.
Item 8.
Financial Information
See
"Item 18 - Financial Statements" for a list of all financial
statements filed as part of this Form 20-F.
Item 9.
Markets
The Company's capital stock is not publicly traded. The Company's 10 1/8%
Series B Senior Notes are not listed on any securities exchange.
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Item 10.
Additional Information
ARTICLES OF INCORPORATION
We hereby incorporate by reference the description of our Articles of
Incorporation set forth in our Registration Statement on form F-4 dated
November 9, 1998.
MATERIAL CONTRACTS
See
"Item 4 - Information on the Company",
"Item 5 - Operating and
Financial Review and Prospects" and "Item 7 - Major Shareholders and Related
Party Transactions" for a description of our material contracts.
EXCHANGE CONTROLS
The Mexican economy has in the past experienced balance of payment
deficits and shortages in foreign exchange reserves. While the Mexican
government does not currently restrict the ability of Mexican or foreign
persons or entities to convert pesos to foreign currencies generally, and U.S.
dollars in particular, it has done so in the past and no assurance can be given
that the Mexican government will not institute a restrictive exchange control
policy in the future. In addition, while all of the Company's customer
contracts are dollar denominated, the Company is required to accept payment
from its customers in pesos at the current exchange rate on the date of
payment. If the Company were unable to exchange such pesos into dollars or were
unable to obtain sufficient dollars, it would have difficulty meeting its U.S.
dollar payment obligations. The effect of any such exchange control measures
adopted by the Mexican government on the Mexican economy cannot be accurately
predicted.
TAXATION
The following summary contains a description of the principal Mexican and
U.S. federal income tax consequences of the purchase, ownership and disposition
of the 10 1/8% Series B Senior Notes (the "fixed rate notes"). This summary is
based on the tax laws in force as of January 1, 2002 and does not describe any
tax consequences arising under the laws of any state, locality or taxing
jurisdiction other than Mexico and the United States.
A Convention for the Avoidance of Double Taxation and a Protocol thereto
(the "Tax Treaty") between the United States and Mexico entered into force on
January 1, 1994. Provisions of the Tax Treaty that may affect the taxation of
certain U.S. holders of fixed rate notes are summarized below. The United
States and Mexico have also entered into an agreement that covers the exchange
of information with respect to tax matters.
Mexico has also entered into several treaties for the avoidance of double
taxation with various countries which are in effect. The tax effects of such
treaties, or of any other tax treaty to which Mexico may be a party in the
future, are not discussed below.
Mexican Taxation
This summary of certain Mexican tax considerations deals only with holders
of fixed rate notes that are not residents of Mexico for Mexican tax purposes
and that do not conduct a trade or business through a permanent establishment
or fixed base in Mexico (a "Foreign Holder"). For purposes of Mexican taxation,
an individual is a resident of Mexico if he has established his domicile in
Mexico, unless he has resided in another country for more than 183 calendar
days, whether consecutive or not, in any one calendar year and can demonstrate
that he has become a resident of that country for tax purposes. A legal entity
is a resident of Mexico if it is incorporated under Mexican law or if it has
established its main administration or direction center in Mexico. A Mexican
citizen pursuant to Mexican law is presumed to be a resident of Mexico for tax
purposes unless such person can demonstrate otherwise. If a legal entity or an
individual has a permanent establishment or fixed base in Mexico for Mexican
federal tax purposes, such permanent establishment or fixed base shall be
required to pay taxes in Mexico on income attributable thereto in accordance
with applicable tax laws.
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Taxation of Interest and Principal
Under the Mexican Income Tax Law, payments of interest made by the Company
in respect of the fixed rate notes (including payments of principal in excess
of the issue price of such notes, which, under Mexican law, are deemed to be
interest) to a Foreign Holder will generally be subject to a Mexican
withholding tax assessed at a rate of 10% as long as the fixed rate notes are
registered in the Special Section of the National Registry of Securities and
Intermediaries maintained by the Mexican National Banking and Securities
Commission (the "Registry").
Pursuant to an amendment to the Income Tax Law, payments of interest made
by the Company to Foreign Holders with respect to the fixed rate notes will be
subject to withholding taxes imposed at a reduced rate of 4.9%, so long as i)
the fixed rate notes are registered with the Special Section of the Registry,
ii) the company files with the Ministry of Finance the information required
pursuant general rules issued by the Secretaría de Hacienda y Crédito Público
(the Ministry of Finance).
This reduced rate only applies if no party related to the Company (as such
term is defined under the Income Tax Law provision) directly or indirectly, is
the effective beneficiary of 5% or more of the aggregate amount of each such
interest payment.
Apart from the Reduced Rate, other special rates of Mexican withholding
tax may apply. In particular, under the Tax Treaty, the Mexican withholding tax
rate was reduced from 10% to 4.9%, effective January 1, 1999 (the "Treaty
Rate") for certain holders that are residents of the United States (within the
meaning of the Tax Treaty) under certain circumstances contemplated therein.
Payments of interest made by the Company with respect to the fixed rate
notes to non-Mexican pension or retirement funds will be exempt from Mexican
withholding taxes, provided that (i) any such fund is duly incorporated
pursuant to the laws of its country of origin, is exempt from income tax in
such country and is registered with the Ministry of Finance for that purpose
and (ii) the relevant interest income is exempt from taxes in such country.
The Company has agreed, subject to specified exceptions and limitations,
to pay additional amounts to the holders of the fixed rate notes in respect of
the Mexican withholding taxes mentioned above. If the Company pays additional
amounts in respect of such Mexican withholding taxes, any refunds of, or
credits against, Mexican taxes received with respect to such additional amounts
will be for the account of the Company.
Holders or beneficial owners of fixed rate notes may be requested to
provide certain information or documentation necessary to enable the Company to
establish the appropriate Mexican withholding tax rate applicable to such
holders or beneficial owners. In the event that the specified information or
documentation concerning the holder or beneficial owner, if requested, is not
provided on a timely basis, the obligation of the Company to pay additional
amounts will be limited.
Under Mexican law and regulations, payments of principal on the fixed rate
notes to a Foreign Holder will not be subject to any Mexican taxes.
Taxation of Dispositions
Gains resulting from the sale or other disposition of the fixed rate notes
by a Foreign Holder may be subject to Mexican income taxes in certain limited
circumstances.
Transfer and Other Taxes
There are no Mexican stamp, registration, or similar taxes payable by a
Foreign Holder in connection with the purchase, ownership or disposition of the
fixed rate notes. A Foreign Holder of fixed rate notes will not be liable for
Mexican estate, gift, inheritance or similar tax with respect to the fixed rate
notes.
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U.S. Taxation
This
summary of material U.S. federal income tax considerations deals
principally with U.S. Holders (as defined below) that will hold fixed rate
notes as capital assets and whose functional currency is the U.S. dollar. This
summary generally does not address the tax treatment of U.S. Holders that may
be subject to special tax rules, such as banks, insurance companies, dealers in
securities, or persons that hold (or will hold) the fixed rate notes as a
position in a "straddle" for tax purposes or as part of a "synthetic security"
or a "conversion transaction" or other integrated investment composed of the
fixed rate notes and one or more other investments, nor does it address the tax
treatment of U.S. Holders that do not acquire fixed rate notes at their issue
price as part of the initial distribution. As used under this section, the term
"U.S. Holder" means a beneficial owner of a Note that is a citizen or resident
of the United States for U.S. federal income tax purposes, a corporation or
other entity taxable as a corporation created or organized under the laws of
the United States, any state thereof or the District of Columbia, a trust whose
administration is subject to the primary supervision of a United States court
and having one or more U.S. persons with the authority to control all of such
trust's substantial decisions, an estate that is subject to U.S. federal income
tax on its income regardless of the source thereof, or a person whose worldwide
income or gain is otherwise subject to U.S. federal income tax on a net income
basis.
Taxation of Interest
A U.S. Holder will treat the gross amount of interest and additional
amounts (i.e., without reduction for Mexican withholding taxes, determined
using the appropriate Mexican withholding tax rate applicable to the U.S.
Holder) as ordinary interest income in respect of the fixed rate notes. Mexican
withholding taxes paid at the appropriate rate applicable to the U.S. Holder
will be treated as foreign income taxes eligible for credit against such U.S.
Holder's U.S. federal income tax liability, subject to generally applicable
limitations and conditions, or, at the election of such U.S. Holder, for
deduction in computing such U.S. Holder's taxable income. Interest and
additional amounts will constitute income from sources without the United
States for foreign tax credit purposes. For purposes of applying the U.S.
foreign tax credit limitation, such income generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income"
unless the Mexican withholding tax rate applicable to the U.S. Holder is
imposed at a rate of at least 5%, in which case such income generally will
constitute "high withholding tax interest."
The calculation of foreign tax credits and, in the case of a U.S. Holder
that elects to deduct foreign taxes, the availability of deductions, involves
the application of rules that depend on a U.S. Holder's particular
circumstances. U.S. Holders should consult their own tax advisors regarding the
availability of foreign tax credits and the treatment of additional amounts.
Subject to the discussion below regarding backup withholding, a holder or
beneficial owner of fixed rate notes that is not a U.S. Holder (a "Non-U.S.
Holder") generally will not be subject to U.S. federal income or withholding
tax on interest income or additional amounts earned in respect of fixed rate
notes, unless such income is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business in the United States.
Taxation of Dispositions
Gain or loss realized by a U.S. Holder on the sale, redemption or other
disposition of fixed rate notes (less amounts attributable to accrued interest)
generally will be long-term capital gain or loss if, at the time of the
disposition, the fixed rate notes have been held for more than one year.
Generally, U.S. Holders that are individuals will be taxed at a preferential
rate with respect to long-term capital gains. There are limits on the
deductibility of capital losses. Gain or loss realized by a U.S. Holder
generally will be treated as U.S. source income or loss for U.S. foreign tax
credit purposes.
Subject to the discussion below regarding backup withholding, a Non-U.S.
Holder of fixed rate notes will not be subject to U.S. federal income or
withholding tax on gain realized on the sale or other disposition of fixed rate
notes unless (i) such gain is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business in the United States or (ii) in the case
of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is
present in the United States for 183 days or more in the taxable year of the
sale and certain other conditions are met.
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Backup Withholding and Information Reporting
In general, payments of interest and the proceeds of a sale, redemption or
other disposition of the fixed rate notes payable to a U.S. Holder by a U.S.
paying agent or other U.S. intermediary will be reported to the Internal
Revenue Service and to the U.S. Holder as may be required under applicable
regulations. Backup withholding at a current rate of 28% may apply to these
payments if the U.S. Holder fails to provide an accurate taxpayer
identification number or certification of foreign or other exempt status or
fails to report all interest and dividends required to be shown on its federal
income tax returns. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as credit against such holder's U.S.
federal income tax liability, provided that the required information is
provided to the IRS. Certain U.S. Holders (including, among others,
corporations) are not subject to backup withholding. U.S. Holders should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
REGULATION
Regulatory Framework
The Federal Telecommunications Law of Mexico (the "Communications Law"),
which provides the overall legal framework for the regulation of satellite
services in Mexico, became generally effective on June 7, 1995. Under the
Telecommunications Law, a provider of satellite services, such as us, must
operate under a concession granted by the
Secretaría de Comunicaciones y
Transportes
(the Ministry of Communications and Transportation or the "SCT"),
pursuant to an auction process. Such a concession may only be granted to a
Mexican corporation and may not be transferred or assigned without the approval
of the SCT. Foreign investors are permitted by law to hold up to 49% of the
voting stock of such a corporation.
In addition, our operations are mainly subject to the
Ley General de
Bienes Nacionales
(the General Law on National Assets), which regulates all
assets that fall within the public domain and the terms for the expropriation
(rescate)
of our concessions, the
Ley General del Equilibrio Ecológico y
Protección al Ambiente
(the General Law on Ecology and Protection of the
Environment or the "Environment Law") and other environmental laws, the
Ley
Federal de Competencia Económica
(the Federal Economic Competition Law), the
Ley de Vías Generales de Comunicación
(the Law of General Means of
Communication) and other international treaties, laws, rules and decrees.
Under the Telecommunications Law, the SCT is, among other things,
responsible for issuing concessions and permits related to telecommunications
and for formulating policies in the telecommunications area and otherwise
taking all other actions on behalf of the Mexican government in connection with
telecommunications. The Mexican Federal Telecommunications Commission (COFETEL)
is the telecommunications authority responsible for most day-to-day regulation
of satellite communications in Mexico. The Mexican Telecommunications
Commission's duties include, among other things: issuing administrative
regulations relating to telecommunications; recommending amendments to existing
laws and rules; making recommendations to the SCT on applications for the
grant, modification, renewal, transfer and revocation of concessions and
permits; administering the radio frequency spectrum; promoting and overseeing
interconnection of equipment and public telecommunications networks;
registering tariffs for telecommunications services and establishing specific
obligations relating to tariffs, quality of service and provision of
information by carriers with substantial market power; and ensuring that
carriers comply with the obligations set forth in concessions and permits.
Satellite control centers must be established within Mexico for satellites
authorized to use Mexican orbital slots. The Communications Law allows
satellites licensed to Mexican orbital positions to serve other countries
subject to the terms and conditions of treaties with Mexico and subject to the
laws of the foreign country. The SCT may grant concessions at any time to
foreign satellite systems to serve Mexico subject to applicable treaties and
Mexican law. On August 10, 2001, the Mexican government granted licenses to
provide satellite service in Mexico to PanAmSat, SES Global, Televisa and
Enlaces Integra. PanAmSat registered 11 satellites and SES Global registered
seven satellites to provide satellite service in Mexico.
The rules promulgated pursuant to the Communications Law require licensees
of satellites intending to provide
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telecommunications services through one or
more transmitting earth stations of their own to obtain a separate license to
construct and operate a public telecommunications network. Where the satellite
operator intends to provide services other than public telecommunications
services through its own earth stations, it must obtain a permit from the SCT.
Where a satellite operator intends to provide services other than the lease of
capacity by obtaining a separate license or permit, it may provide such
services only through an affiliate or subsidiary.
The Concessions
The Mexican government has awarded us the following concessions (one per
orbital slot): (i) the right to occupy each of three orbital positions and
exploit their respective C- and Ku-band frequencies (the "Orbital Concessions")
and (ii) the right to use the buildings and areas in which the control centers
are located (the "Property Concession"). The Orbital Concessions may be granted
as collateral to any party other than a foreign government or state.
The Orbital Concessions include the right to exploit the 113.0 degrees
W.L., 116.8 degrees W.L. and 109.2 degrees W.L. orbital slots. As part of the
Orbital Concessions, we may establish rates and terms for transponder leasing,
which must be registered in order to become effective. However, if the SCT
determines that we have substantial power in the Mexican market, the Mexican
Telecommunications Commission may determine tariffs and specify conditions
relating to service quality and information requirements. Additionally, we are
prohibited from establishing cross subsidies and using discriminatory
practices.
As part of the three Orbital Concessions, we are required to allocate 181
MHz C-band and 181 MHz Ku-band capacity to the Mexican government, free of
charge, for national security and certain public purposes. In addition, we were
required to operate two L-band transponders, one on each of the Solidaridad
satellites, which were owned by the Mexican government. After the failure of
Solidaridad 1, the capacity provided to the Government was 130 MHz C-band and
105 MHz Ku-band and one L-band transponder on Solidaridad 2. Upon the
commencement of commercial service of Satmex 6, we will be able to allocate the
required C-band and Ku-band capacity to the Mexican government. However, Satmex
6 will not have any L-band transponders.
Under the Orbital Concessions, we are required to: (i) carry out research
and development in Mexico, (ii) maintain the control centers within Mexico and
preferentially staff them with Mexican nationals, and (iii) maintain satellite
service continuously and efficiently. As security for the performance by us of
our obligations under each Orbital Concession, we were required to post and
must maintain during the term thereof, a surety bond in the amount of 10
million pesos payable to the Federal Treasury of Mexico with respect to each
Orbital Concession. This amount is adjusted each year to reflect the inflation
rate in Mexico. At December 31, 2002, the adjusted amount was approximately
16.4 million pesos per Orbital Concession. Under the terms of the surety bond,
we have paid to ING Fianzas Comercial America, a surety, a premium of 205,000
pesos per Orbital Concession, and the surety has agreed to pay to the Federal
Treasury of Mexico, in the event we breach the terms of the Orbital
Concessions, a sum of 16.4 million pesos per Orbital Concession. The Orbital
Concessions were finalized and published in the Official Gazette on December
30, 1997.
The Orbital Concessions have twenty-year terms expiring on October 22,
2017 and may, subject to certain conditions, be extended for an additional
twenty-year term, without the payment of any additional consideration to the
Mexican government.
Except in limited circumstances, we must notify the SCT prior to issuing
and selling any of the shares that represent 10% or more of our outstanding
capital stock, and must identify the potential purchaser. Within 30 days of
receipt of such notification the SCT may object to the sale. We may only
proceed with the proposed sale if no objection is raised by the SCT.
The Property Concession includes two plots of land, and buildings and
fixtures built thereon. The Property Concession includes the right to use only
the property for the purposes of exploiting the orbital slots and frequency
assignments. Additionally, we may not rent or otherwise sublease the property
without the prior permission of the SCT. Under the Property Concession, we are
required to: (i) pay an annual fee in an amount equal to 7.5% of the assessed
property value and (ii) maintain the premises in good condition.
The duration of the Property Concession is 40 years or for the length of
the Orbital Concessions. The Property
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Concession duration may be extended at the discretion of the SCT.
Concession Termination
The Orbital Concessions will terminate if (i) the term of any such Orbital
Concession expires, (ii) we resign our rights under any such Orbital
Concession, (iii) the Mexican government through the SCT, expropriates any of
the Orbital Concessions, (iv) we are liquidated or become bankrupt or (v) the
SCT revokes any of the Orbital Concessions. Our assets and rights under the
Orbital Concessions may also be temporarily seized by the SCT, as described
below.
The Communications Law provides that the SCT may revoke any of the Orbital
Concessions upon the occurrence of certain events, including: (i) failure by us
to exercise our rights under any of the Orbital Concessions for a period
greater than 180 days from the date the Orbital Concessions were granted; (ii)
unjustified interruption of the services that may be provided under the Orbital
Concessions; (iii) our undertaking any action or refraining from taking any
action that affects the rights of other licensees or concessionaires; (iv)
failure by us to satisfy the terms or conditions set forth in the Orbital
Concessions; (v) unjustified failure by us to interconnect other
concessionaires or licensees that have the right to provide telecommunications
services; (vi) change of our nationality and (vii) assignment or transfer of
rights granted under the Orbital Concessions in contravention of the terms of
the Communications Law. In the cases of items (i), (v), (vi) and (vii) above,
the SCT may immediately revoke any of the Orbital Concessions. In the cases of
items (ii), (iii) and (iv) above, the SCT may only revoke any of the Orbital
Concessions if it has imposed sanctions on us for the relevant breach on at
least three separate occasions. In the event any of the Orbital Concessions is
revoked by the SCT, no compensation shall be paid to us.
The SCT also has the right to terminate any of the Orbital Concessions
pursuant to an expropriation (
rescate
). As of the date of any such
expropriation, assets used in connection with the exploitation of the Orbital
Concessions would be subject to the ownership and management of the Mexican
government.
The SCT may also temporarily seize the Orbital Concessions in the event of
natural disaster, war, substantial breach of the public peace and order, or
imminent danger to national security, internal peace or the Mexican economy. In
the past, the Mexican government has used this power to ensure continued
service during labor disputes. Mexican law requires that the Mexican government
pay compensation to us if it effects an expropriation or a temporary seizure,
except in the case of a temporary seizure due to war. In respect of an
expropriation (
rescate
), the basis for any compensation to a concessionaire is
specified by decree of the Mexican government and is subject to judicial review
in the event of dispute. With respect to a temporary seizure, the
Communications Law provides that the Mexican government will indemnify the
affected concessionaire in an amount equal to damages and losses reflecting
their real value; in the event of a dispute regarding such matters, losses
shall be determined by appraisers mutually appointed by the parties and damages
shall be determined on the basis of the average net income generated by the
concessionaire in the year prior to the temporary seizure.
The Property Concession will terminate if: (i) the Property Concession
term expires; (ii) we resign our rights to the Property Concession; (iii) the
Orbital Concessions are terminated; (iv) the purpose for which the Property
Concession is granted no longer exists; (v) the Mexican government expropriates
the Property Concession for reasons of public interest or (vi) the Property
Concession is revoked. The Mexican government may revoke the Property
Concession for various reasons, including without limitation, the following:
(i) failure to use the Property Concession for the purpose for which it was
granted; (ii) failure to comply with the terms of the Property Concession;
(iii) activities, without prior permission of the SCT, which interfere with
satellite operations; and (iv) under terms and conditions generally applicable
to property concessions of this type under applicable Mexican law.
At the end of the concession term, the orbital positions and control
center land and buildings will revert to the state. The Mexican government will
then have preference to acquire the satellites, control centers and other
associated and necessary equipment for the continuation of satellite service.
Treaties and International Accords
Reciprocity Agreement Between the United States and Mexico
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In April 1996, Mexico and the United States (the "Parties") signed an
agreement (the "Reciprocity Agreement") concerning the transmission and
reception of signals from satellites for the provision of satellite services to
users in Mexico and the United States. The main aspects of this agreement are
(i) Mexican satellites are permitted to provide satellite service to, from and
within the United States (in conformance with applicable U.S. law), (ii) U.S.
satellites are permitted to provide satellite service to, from and within
Mexico (in conformance with applicable Mexican law), (iii) the conditions for
the transmission and reception of satellite signals will be as agreed to in
protocols to the agreement, (iv) the entities operating commercial satellites
and earth stations may be structured with either public or private
participation (in conformity with both Mexican and U.S. law), (v) neither
Mexico nor the United States shall require a satellite licensed by the other
government to obtain an additional license for the operation of the satellite
in order to provide the satellite services described in the protocols to the
Reciprocity Agreement, (vi) licenses for earth stations and satellite services
must comply with national laws and regulations, (vii) applicable foreign
ownership restrictions on satellite service providers and earth station
licenses continue to apply and (viii) both Mexico and the United States retain
the right to take actions that either government considers necessary for the
protection of our essential security interests.
The Reciprocity Agreement may be amended by agreement of the Parties.
Additional protocols or protocol amendments may be concluded by written
agreement of the Parties. The Reciprocity Agreement may be terminated by mutual
agreement of the Parties, or by either Party by written notice of termination
to the other Party through diplomatic channels. Such notice of termination will
enter into effect six months after receipt of the notice.
Direct-to-Home Protocol
In November 1996, Mexico and the United States signed a protocol (the "DTH
Protocol") to the Reciprocity Agreement concerning the transmission and
reception of signals from satellites for the provision of direct-to-home
satellite services. Direct-to-home satellite services are defined to include
direct-to-home fixed satellite service and broadcasting satellite service,
which include one-way, encrypted video or video/audio radiocommunication
signals transmitted by satellite for direct reception by subscribers who pay a
periodic fee, distribution of video/audio to cable television head-ends and
multipoint distribution service ("MDS") or wireless cable facilities. The DTH
Protocol addressed only a limited number of radiocommunication frequencies. The
United States and Mexico have each agreed to permit satellites licensed by the
other government to provide direct-to-home fixed satellite services and
broadcasting satellite services to, from, and within the other country's
territory. Entities seeking to transmit or receive direct-to-home fixed
satellite services or broadcasting satellite services signals via a satellite
licensed by the other administration (e.g., through an earth station in the
non-licensing jurisdiction) must still comply with the non-licensing
jurisdiction's other applicable laws (e.g., the earth station licensing
process). Both Mexico and the United States reserve the right to refuse to
accept signals originating from third countries. In addition, both countries
agree to permit direct-to-home fixed satellite service and broadcasting
satellite service signals to be delivered directly to subscribers without
requiring that they be retransmitted over an intermediary satellite system.
Mexico and the United States agree not to impose significant restrictions on
the amount or origin of advertising and program content. The DTH Protocol does
not apply to the transmission of any audio-only direct-to-home fixed satellite
service and broadcasting satellite service signals that do not contain solely
music. Service to cable television head-ends is permitted under the DTH
Protocol as of November 8, 1997.
The DTH Protocol may be amended by written agreement of the Parties. The
DTH Protocol may be terminated by agreement of the Parties, or by either Party
by written notice of termination to the other Party. Such notice of termination
shall enter into effect six months after receipt of the notice. The DTH
Protocol will remain in force until it is terminated in such manner or replaced
by a new protocol. Upon termination of the DTH Protocol, a Party may, at its
discretion, terminate any license that has been issued pursuant to the DTH
Protocol. In addition to the general provisions for termination, the DTH
Protocol may be terminated upon sixty days' written notice if a Party
determines that the other Party has failed to conform to the principles of the
DTH Protocol.
Fixed Satellite Services Protocol
In October 1997, Mexico and the United States signed another protocol (the
"FSS Protocol") to the Reciprocity Agreement, with respect to the transmission
and reception of signals from satellites for the provision of international and
domestic fixed satellite services. The definition of fixed satellite services
includes, but is not limited to, signals carrying video or video/audio distributed to cable television head-end and
multipoint distribution service (restricted
44
Table of Contents
microwave television service) facilities and excludes the direct-to-home fixed satellite services and
broadcasting satellite services governed by the DTH Protocol. Like the DTH
Protocol, the FSS Protocol addresses only a limited number of
radiocommunication frequencies. Subject to the terms of the FSS Protocol, the
United States and Mexico have agreed to permit satellites licensed by the other
to provide domestic and international fixed satellite services to, from, and
within the other country's territory. Satellites licensed by either Mexico or
the United States may be authorized to provide international service beginning
October 16, 1997. Satellites licensed by the United States were authorized to
provide domestic fixed satellite services in Mexico beginning in January 1999.
Satellites licensed by Mexico were authorized to provide domestic fixed
satellite services in the United States beginning on January 1, 1998. The FSS
Protocol also states that a satellite licensed by either Mexico or the United
States to provide direct-to-home fixed satellite services or broadcasting
satellite services shall be permitted to provide video or video-audio
distribution to cable television head-end and multipoint distribution service
(restricted microwave television services) facilities beginning November 8,
1997. Entities seeking to transmit or receive fixed satellite service signals
via a satellite licensed by the other Party (e.g., through an earth station in
the non-licensing jurisdiction) must still comply with the non-licensing
jurisdiction's other applicable laws (e.g., the earth station licensing
process). Unlike the DTH Protocol, the FSS Protocol permits communications to
or from third countries. However, similar to the DTH Protocol, under the FSS
Protocol, both countries agree to permit fixed satellite service signals to be
delivered directly to fixed-earth stations without requiring that they be
retransmitted over an intermediary satellite system.
The FSS Protocol may be amended by written agreement of the Parties. The
FSS Protocol may be terminated by agreement of the Parties, or by either Party
by written notice of termination to the other Party. Such notice of termination
shall enter into effect six months after receipt of the notice. Upon
termination of the FSS Protocol, a Party may, at its discretion, terminate any
license that has been issued pursuant to the FSS Protocol. The FSS Protocol
will remain in force until it is terminated in such manner or replaced by a new
protocol.
Reciprocity Agreement Between Canada and Mexico
In April 1999, Mexico and Canada signed an agreement similar to the
agreement between Mexico and the United States. In January, 2001, the FSS
Protocol between Canada and Mexico was signed.
Argentine Agreement
In November of 1997, the governments of Mexico and the Argentine Republic
entered into a bilateral agreement to afford reciprocal treatment for satellite
service providers licensed under the laws of each party. The agreement provides
that satellite service providers licensed in Mexico may transmit certain
direct-to-home fixed satellite services, broadcasting satellite services and
other fixed satellite service signals to satellite customers in Argentina, and
vice versa. The agreement, using the radiocommunication rules of the
International Telecommunication Union (the "ITU") as a base, sets forth the
terms and conditions for the technical coordination of each party's satellite
systems. The parties further agreed to cooperate in assuring compliance with
each party's applicable laws and regulations. Mexican satellite providers
operating in Argentina would remain subject to applicable Argentine law, and
vice versa. The parties agreed to apply their respective laws in a transparent
and non-discriminatory fashion. An agreement was entered into in June 2000, and
the mutual exchange of diplomatic notes has taken place. The direct-to-home
fixed satellite services agreement between Mexico and the Argentine Republic
was signed on July, 2002.
ANDESAT Agreement
On October 24, 1997, Mexico and Member Countries of the Andean Community
of Nations (the "Andean Community") entered into a five-year agreement
regarding coordination between the Mexican satellite system and the Simón
Bolívar Andean satellite system, which was amended on March 1, 1999 (the
"ANDESAT Agreement").
Under the ANDESAT Agreement, we agreed to provide the Andean Community
satellite capacity until January 2003 at certain preferred rates. The Andean
Community had the right to use, at no charge, one and one quarter transponders.
Under the ANDESAT Agreement, we agreed to pay to the Andesat Community an
annual fee of $850,000, in four quarterly payments, correspondent to the
downlink signals in the Andean region. On October 17, 2001, we reduced the
capacity provision not charged to one transponder and agreed to pay $212,500 as
a settlement payment for the ANDESAT Agreement obligations.
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In January 2003, the ANDESAT Agreement expired and we now operate directly
in Bolivia, Ecuador and Peru. We are in the process of negotiating direct
operating rights in Colombia and Venezuela.
The General Agreement on Trade in Services
Under the auspices of the World Trade Organization (the "WTO"), the
Negotiating Group for Basic Telecommunications concluded negotiations that
resulted in receipt of commitments from 69 governments. The commitments cover
basic telecommunications services including telephony, packet and circuit data
transmission, fax, private leased, circuit, cellular telephony, individual
localization telex and telegraph services. These services can be offered
through a variety of available medium, such as cable, wireless, radio or
satellite. The agreement itself imposes an obligation to afford
most-favored-nation treatment to all other members unless an exemption is
filed. Mexico did not file an exemption.
Mexico has adopted the regulatory reference paper which established
parameters relating to competition, interconnection, universal service, public
availability, criteria for awarding licenses, autonomy of the regulatory entity
and assignment and exploitation of available resources. Mexico has established
the following service parameters: (i) telex and telegraph services are not
included; (ii) cross-border traffic must be routed through a company licensed
by the SCT; (iii) license fees are imposed; (iv) licenses will only be awarded
to Mexican companies, in which foreign participation is limited to 49%, except
in cellular, where foreign participation may be higher; (v) services other than
international long-distance that require the use of satellites must employ
Mexican satellites until 2002; and (vi) there is no limit to foreign investment
in companies that offer services to third parties.
Government and Supra-Governmental Regulation
FCC Regulation of Satellite Services and Foreign Ownership of FCC Licenses
The U.S. satellite and telecommunications industries are highly regulated.
In addition to the international accords and protocols discussed above, the
Federal Communications Commission (the "FCC") regulates satellite providers
operating in the U.S. as well as the provision of satellite services,
generally. The FCC currently regulates access to the U.S. market by non-U.S.
licensed satellite systems.
In the Second Domestic International Satellite Consolidation rulemaking
("DISCO II"), the FCC adopted a framework under which it will consider requests
for the use of non-U.S. licensed satellites to provide services in the U.S. The
FCC will examine all requests to determine whether grant of authority is
consistent with the public interest, convenience and necessity. In doing so,
the FCC will consider factors such as the effect on competition in the U.S.
market, spectrum availability, eligibility requirements (such as foreign
ownership, legal, technical and financial qualifications), operating
requirements and national security, law enforcement, foreign policy and trade
concerns, as appropriate. Depending on the nature of the services offered in
the United States, these foreign-licensed satellites may be subject to a
variety of regulatory requirements. Petitions to reconsider certain aspects of
the DISCO II order have been filed with the FCC.
In determining the effect on competition, the order in DISCO II
establishes a presumption that competition will be promoted, and, therefore,
that no effective competitive opportunities ("ECO") test is required, in
evaluating whether to permit satellites licensed by WTO member countries to
provide services covered by the U.S. schedule of commitments under the World
Trade Organization Agreement on Basic Telecommunications (the "WTO Basic
Telecom Agreement"). Except that if Comsat Corporation seeks to provide
domestic services, it will be required to make an appropriate waiver of
immunity from suit and demonstrate that the service will enhance competition in
the U.S. market. For requests to serve the U.S. market by satellite operators
from non-WTO member countries, the FCC will examine the effective competitive
opportunities in the foreign markets for U.S. satellite operators to determine
if the non-U.S. satellite satisfies the competition component of the public
interest analysis.
The FCC will also apply the ECO tests to requests to serve the U.S. market
with services not covered by the WTO Agreement such as direct-to-home fixed
satellite services, direct broadcast satellite services, and digital audio
radio services. The U.S. schedule of commitments under the WTO Basic Telecom
Agreement excludes direct-to-home fixed satellite services, direct broadcast
satellite service and digital audio radio service, and the U.S. has taken
a most-favored-nation and national treatment exception for these services.
Thus, for those services the FCC will
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Table of Contents
continue to apply the ECO test to entities including WTO member countries seeking to provide these services. The
FCC, however, has created an exception to this general rule where the U.S. has
entered into bilateral agreements with the other country regarding specific
services, as the U.S. has done with Mexico. The FCC will review earth station
applications to access a satellite licensed in a country with which the U.S.
has a bilateral agreement based on a presumption that entry will promote
competition. The application will be subject to other public interest
requirements and must comply with FCC technical and service rules.
Once operational, a non-U.S. licensed satellite system serving the U.S.
will be subject to the same ongoing requirements that apply to U.S.-licensed
satellites. For instance, the FCC rules prohibit an international satellite
provider from entering into exclusionary arrangements with other countries for
satellite capacity for a particular service. The DISCO II process provides that
in order for non-U.S. satellite operators to bring before the FCC their
requests to serve the U.S. they may (i) participate in a U.S. space station
processing round, or (ii) have a U.S. earth station operator apply for
authority to communicate with the non-U.S. satellite or (iii) apply to be
listed on the "Permitted Space Station List" of non-U.S. licensed satellites
that any U.S.-authorized earth station with an "ALSAT" designation may
communicate with, subject to any condition the FCC may impose. The FCC does not
require space stations licensed by another country or administration to obtain
separate and duplicative U.S. space station licenses, but the FCC does require
compliance with the same technical requirements it imposes on U.S. satellites.
The FCC also places certain restrictions on the ownership by non-U.S.
citizens and corporations of FCC licenses. The Communications Act of 1934, as
amended (the "Communications Act"), provides that certain radio licenses,
including earth station licenses, cannot be granted to or held by any foreign
government or the representative thereof. In addition, under Section 310(b) of
the Communications Act, a non-U.S. citizen or a corporation organized under the
laws of any foreign government may not hold or vote more than 20% of the equity
of a common carrier, broadcast or aeronautical licensee directly. However,
under Section 310(b)(4), the FCC does permit non-U.S. citizens or foreign
corporations to own or vote 25% of the equity of a U.S. corporation which, in
turn, owns all or part of the equity of a common carrier, broadcast or
aeronautical licensee (i.e., a holding company) unless such ownership would be
contrary to the public interest. The FCC has the discretion to permit such
persons and corporations to exceed the 25% benchmark applicable to such
indirect ownership interests.
The FCC had applied an ECO test as part of its public interest analysis
for allowing non-U.S. citizens or foreign corporations to exceed the 25%
benchmark under Section 310(b)(4) for indirect interest in common carrier,
broadcast and aeronautical radio licensees. Recently the FCC eliminated the ECO
test for common carrier, broadcast and aeronautical licensees or applications
with indirect foreign ownership from WTO member countries. Instead, the FCC
adopted a rebuttable presumption that applications by investors from WTO member
countries to exceed the 25% foreign ownership benchmark under Section 310(b)(4)
will promote competition. The FCC will, however, consider other public interest
factors such as national security, law enforcement, foreign policy and trade
concerns, if raised by the Executive Branch of the U.S. government. Licensees
must seek FCC approval before they accept indirect foreign ownership that would
put them over the 25% benchmark. The FCC may deny applications that pose a very
high risk to competition that cannot be addressed by conditions that it may
impose on the license. Petitions to reconsider certain aspects of the FCC order
adopting the regime described above have been filed with the FCC.
On December 14, 1999, we requested that the FCC include our satellites in
the United States Permitted Space Station List. This request was approved by
the FCC on October 30, 2000, and our satellites, Solidaridad 2 and Satmex 5,
are now on the list. We are currently in the process of requesting the
necessary license for the Satmex 6 satellite, which we expect to be completed
by the end of this year.
Role of the International Telecommunication Union
Registration of orbital slots and international frequency coordination is
accomplished under the aegis of the ITU, an international body in which most of
the nations of the world are represented as member states. Representation at
the ITU for coordination purposes is limited to national governmental agencies;
private companies are not entitled to participate in their own right in
coordination activities.
All ITU filings are made through ITU member states. Therefore, companies
must work within the constraints set by the administration representing their interests and factors such as
national interests and foreign relations concerns
47
Table of Contents
often affect positions that an administration is willing to take on behalf of commercial entities.
Nations are required by treaty to give notice of their proposed use of
satellite orbital slots and frequencies with the Radiocommunication Bureau
("Bureau") of the ITU. After notification by the Bureau of the orbital slot
request, other nations are afforded the opportunity to apprise the Bureau of
any conflicts with their present or planned satellite systems. When a conflict
or potential conflict is noted, nations are obligated to negotiate in an effort
to coordinate the proposed uses and resolve any interference concerns. The ITU,
however, has no power to resolve disputes formally.
The process is ultimately subject to enforcement by national regulatory
authorities acting pursuant to international treaty obligations. The ITU has
limited power to enforce or police its rules; it relies on the goodwill and
cooperation of the individual members.
ITU rules grant coordination priority with respect to most frequency
assignments at most orbital locations on a "first to file, first in right"
basis, even though a filing entails no enforceable commitment to manufacture or
launch a satellite within any particular period of time. When coordination
consultations have been successfully completed, the Bureau is notified of that
fact by the sponsoring administration. Subsequently, the satellite
registrations are listed in the Bureau's Master International Frequency
Register ("MIFR"), which contains, for instance, the assigned frequency, the
date of its registration, and technical details. Once this information is
registered, the assignment is entitled to international recognition and
protection against harmful interference for the life of the satellite while it
is in operation.
The SCT and other Mexican governmental agencies are responsible for filing
and coordinating requests by Mexican companies to coordinate orbital slots and
frequency assignments with the Bureau and for resolving interference concerns.
Use of the orbital slots remains subject to the continuing oversight of the SCT
and to a variety of regulations generally applicable to all satellite and radio
licensees, including the international radio regulations.
Status of Our Satellites
The Mexican government notified the ITU on October 4, 1994 that
coordination for Solidaridad 1 had been completed and notified the ITU on April
25, 1995 that coordination for Solidaridad 2 had been completed.
The Satmex 5 request for coordination was published by the ITU on June 24,
1997. We have favorably concluded coordination discussions with the government
of Canada regarding Satmex 5 and are able to provide service in Canada.
Satmex 6 advance publication was published by the ITU on April 15, 2001
and the coordination request was filed on July 2001. In order to provide
expanded satellite services in the United States with the Satmex 6 satellite, a
new coordination agreement would need to be negotiated between the governments
of Mexico and Canada, as well as the affected satellite operators. New
coordination agreements are often negotiated to accommodate the operation of
new satellites. An existing coordination agreement between the governments of
Mexico and Canada, as well as the affected satellite operators, provides for
the operation of Mexican and Canadian satellites, including Satmex 6, in the
107.3 degrees W.L. to 118.7 degrees W.L. orbital arc. We have held discussions
with Canada regarding coordination of Satmex 6. The negotiation of a new
coordination agreement is in progress, with the active participation of the
governments of Mexico and Canada and the affected satellite operators. We
expect the new coordination agreement to be reached before the launch of Satmex
6, and the scheduled launch of Satmex 6 will proceed whether or not a new
coordination agreement has been negotiated. However, the inability to conclude
a satisfactory agreement may negatively impact our ability to provide expanded
services in the United States and could adversely affect our business.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in currency exchange
rates and change in interest rates. The Company from time to time assesses its
exposure and monitors opportunities to manage these risks.
Exchange Rate Risk
48
Table of Contents
During 2001 and 2002, the annual rates of inflation in Mexico, as measured
by changes in the National Consumer Price Index as provided by the Banco de
Mexico, were 4.4% and 5.7%, respectively. The Company's major expenditures,
including capital expenses and satellite insurance will not be affected by high
levels of inflation, because they are denominated in dollars. Customer
contracts are also denominated in dollars. However, high inflation rates would
affect peso denominated expenses such as payroll and rent and could result in
an increase in uncollectible accounts receivable and customer lease
cancellations. To the extent that the peso's devaluation against the U.S.
dollar is less than the inflation rate in Mexico, the Company will be adversely
affected by the effect of inflation in Mexico with respect to its peso
denominated expenses.
Interest Rate Risk
At December 31, 2002, the fair value, based on quoted market prices, of
the Company's fixed rate notes was approximately $126.4 million. The carrying
value of the Company's senior secured notes approximates their fair value
because their interest rates are based on floating rates. The carrying value of
the Company's fixed rate debt exceeded fair value by $193.6 million. Market
risk on the Company's variable rate debt is estimated as the potential increase
in annual interest expense resulting from a hypothetical one percent increase
in interest rates and amounts to $2.0 million.
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14.
Material Modifications to the Rights of Security Holders
Not applicable.
Item 15.
Controls and Procedures
Under
supervision and with the participation of our management, including
our principal executive officer and our principal financial officer,
we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934, as amended, within 90 days of the filing date of this
report (the "Evaluation Date"). Based on this evaluation,
our principal executive officer and our principal financial officer
concluded as of the Evaluation Date that our disclosure controls and
procedures were
effective such that the material information required to be included
in our Securities and Exchange Commission ("SEC") reports
is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms relating to Satmex.
In
addition, there were no significant changes in our internal controls
or in other factors that could significantly affect these controls subsequent to
the Evaluation Date. We have not identified any significant
deficiencies or material weaknesses in our internal controls, and
therefore we took no corrective actions.
PART IV
Item 18.
Financial Statements
49
Table of Contents
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report
F-2
Balance Sheets as of December 31, 2002 and
    2001
F-3
Statements of Operations for the years ended
    December 31, 2002, 2001 and 2000
F-4
Statements of Changes in Stockholders'
    Equity for the years ended December 31, 2002, 2001 and 2000
F-5
Statements of Cash Flows for the years ended
    December 31, 2002, 2001 and 2000
F-6
Notes to the Financial Statements
F-7
F-1
Table of Contents
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Paseo de la Reforma 505
Colonia Cuauhtémoc
06500 México, D.F.
México
Tel:+52(55) 5080 6000
Fax: +52 (55) 5080 6001
www.deloitte.com.mx
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of
Satélites Mexicanos, S.A. de C.V.
Mexico City, Mexico
We have audited the
accompanying balance sheets of Satélites Mexicanos, S.A. de C.V.
(a subsidiary of Servicios Corporativos Satelitales, S.A. de C.V.) as
of December 31, 2002 and 2001, and the related statements of
operations, stockholders' 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 these
financial statements based on our audits.
We conducted our
audits in accordance with auditing standards generally accepted in
the United States of America. These 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 Satélites Mexicanos, S.A. de C.V. as of
December 31, 2002 and 2001, and the results of its operations
and its 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.
/s/ Deloitte & Touche
Deloitte & Touche
April 21, 2003
F-2
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND
2001
(Amounts in thousands of U.S. dollars)
2002
2001
Assets
Current assets:
Cash and cash equivalents
$
26,822
$
26,194
Restricted and segregated cash
6,817
155,496
Accounts receivable, net
5,597
2,042
Prepaid insurance
6,440
7,414
Due from related parties
4,796
7,200
Deferred income taxes
1,385
2,161
Total current assets
51,857
200,507
Satellites and equipment, net
289,637
320,725
Construction in process — Satmex 6
    (Note 1)
214,903
95,092
Concessions, net
450,616
463,521
Prepaid insurance, non current
3,172
Deferred financing costs, net
3,671
5,929
Other assets
410
332
Total assets
$
1,011,094
$
1,089,278
Liabilities and Stockholders'
    Equity
Current liabilities:
Current maturities of long-term debt
$
1,000
$
13,626
Accounts payable
4,942
4,227
Accrued expenses (Note 1)
6,406
18,759
Interest payable
14,196
14,196
Due to related parties
2,231
4,370
Deferred revenue — customers
60
39
Deferred revenue — Mexican government
2,200
2,200
Total current liabilities
31,035
57,417
Accrued expenses, non current (Note 1)
3,276
4,337
Deferred revenue — Mexican government
74,535
76,735
Deferred income taxes
10,194
19,807
Long-term debt
523,374
542,374
Total liabilities
642,414
700,670
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock
385,054
383,547
Preferred stock
31,886
31,886
Accumulated deficit
(48,260
)
(26,825
)
Total stockholders' equity
368,680
388,608
Total liabilities and stockholders' equity
$
1,011,094
$
1,089,278
See notes to financial statements.
F-3
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000
(Amounts in thousands of U.S. dollars)
2002
2001
2000
Service revenue
$
85,011
$
128,044
$
136,441
Operating expenses:
Satellite operations
17,059
19,768
20,039
Selling and administrative expenses
20,824
22,638
20,263
License and management fees
1,148
3,291
5,149
Depreciation expense and amortization of
    concessions
47,429
47,252
56,675
86,460
92,949
102,126
Operating (loss) income
(1,449
)
35,095
34,315
Gain on in-orbit failure of Solidaridad 1
    (Note 1)
8,379
7,264
103,114
Interest income
2,001
9,269
1,517
Interest expense and amortization of deferred
    financing costs
(37,789
)
(55,917
)
(66,635
)
Net foreign exchange gain (loss)
93
28
(98
)
(Loss) income before income taxes
(28,765
)
(4,261
)
72,213
Deferred income tax benefit (expense)
8,837
1,149
(17,029
)
Net (loss) income
(19,928
)
(3,112
)
55,184
Preferred stock dividend requirement
(1,507
)
(1,507
)
(1,507
)
Net (loss) income applicable to common
    stockholders
$
(21,435
)
$
(4,619
)
$
53,677
See notes to financial statements.
F-4
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000
(Monetary amounts in thousands of U.S. dollars)
Common Stock
Preferred Stock
Accumulated
Shares
Amount
Shares
Amount
Deficit
Total
Balance January 1, 2000
10,000,000
$
380,533
606,730
$
31,886
$
(75,883
)
$
336,536
Net income
55,184
55,184
Preferred stock dividend requirement
1,507
(1,507
)
Balance December 31, 2000
10,000,000
382,040
606,730
31,886
(22,206
)
391,720
Net loss
(3,112
)
(3,112
)
Preferred stock dividend requirement
1,507
(1,507
)
Balance December 31, 2001
10,000,000
383,547
606,730
31,886
(26,825
)
388,608
Net loss
(19,928
)
(19,928
)
Preferred stock dividend requirement
1,507
(1,507
)
Balance December 31, 2002
10,000,000
$
385,054
606,730
$
31,886
$
(48,260
)
$
368,680
See notes to financial statements.
F-5
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001
AND 2000
(Amounts in thousands of U.S. dollars)
2002
2001
2000
Operating activities
Net (loss) income
$
(19,928
)
$
(3,112
)
$
55,184
Adjustments to reconcile net income (loss) to
    operating cash flow:
Depreciation expense and amortization of
    concessions
47,429
47,252
56,675
Amortization of deferred financing costs
2,315
2,302
2,180
Gain on in-orbit failure of Solidaridad 1
    (Note 1)
(5,277
)
(7,264
)
(103,114
)
Deferred revenue — customers
21
(3,918
)
(3,921
)
Deferred revenue — Mexican government
(2,200
)
(2,200
)
(2,200
)
Deferred income taxes
(8,837
)
(1,149
)
17,029
Interest income from restricted and segregated
    cash
(1,360
)
(7,440
)
Use of restricted and segregated cash for
    interest payments
15,400
Changes in assets and liabilities:
Accounts receivable
(3,555
)
5,860
(562
)
Prepaid insurance
4,146
3,323
7,571
Accounts payable and accrued expenses
(7,422
)
(3,345
)
3,642
Interest payable
9,062
1,110
Due from/to related parties
265
(10,233
)
8,015
Deferred financing costs and other assets
(135
)
(133
)
(782
)
Cash flow provided by operating activities
20,862
29,005
40,827
Investing activities
Use of restricted and segregated cash
108,013
83,806
Construction in progress — Satmex 6
(119,811
)
(91,920
)
(3,172
)
Acquisition of equipment
(3,436
)
(3,822
)
(3,480
)
Cash flow used in investing activities
(15,234
)
(11,936
)
(6,652
)
Financing activities
Use of restricted and segregated cash
26,626
500
Borrowings (repayments) under revolving credit
    facility
13,000
(15,000
)
(15,000
)
Repayment of revolving credit facility
(13,000
)
Repayment of senior secured notes
(31,626
)
(1,000
)
(1,000
)
Cash flow used in financing activities
(5,000
)
(15,500
)
(16,000
)
Increase in cash and cash equivalents
628
1,569
18,175
Cash and cash equivalents at beginning of year
26,194
24,625
6,450
Cash and cash equivalents at end of year
$
26,822
$
26,194
$
24,625
Supplemental disclosure
Interest paid
$
49,309
$
57,147
$
63,123
Non-cash activities
In 2001, the Company received $235.3 million
of insurance proceeds related to the in-orbit failure of
Solidaridad 1, which was recorded as restricted and
segregated cash.
See notes to financial statements.
F-6
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL STATEMENTS
(Monetary amounts expressed in U.S. dollars)
1.  THE COMPANY
Satélites Mexicanos, S.A. de C.V. (the
"Company" or "Satmex") owns and operates two
geosynchronous communications satellites, Solidaridad 2 and
Satmex 5. Satmex also owns another satellite,
Morelos 2, which is in an inclined orbit. Satmex operates
in one business segment and is the leading provider of fixed
satellite services ("FSS") to broadcasting and
telecommunications customers in Mexico. Satmex has landing
rights to provide broadcasting and telecommunications
transmission capacity in Mexico, the United States, Canada and
37 nations and territories in the Latin American region.
On November 17, 1997, Loral Space &
Communications Ltd. (together with its subsidiaries
"Loral") and Principia, S.A. de C.V.
("Principia"), through Firmamento Mexicano, S. de R.L.
de C.V. ("Firmamento"), acquired 75% of the issued and
outstanding capital stock of Satmex from the government of
Mexico for $646.8 million. Firmamento is owned 65% by Loral
and 35% by Principia. Principia holds 51% of Firmamento's
voting interests. The remaining 25% of Satmex's capital
stock was retained by the Mexican government.
In consideration of the debt incurred by Satmex
in connection with the acquisition, Servicios Corporativos
Satelitales, S.A. de C.V. ("Servicios"), a wholly
owned subsidiary of Firmamento, agreed to pay to the Mexican
government $125.1 million (the "Government
Obligation"). The Government Obligation accrues deferred
interest at the rate of 6.03% per annum, compounds annually and
matures in December 2004. Payment of the Government Obligation
is currently secured by Loral's and Principia's
interests in Firmamento.
In August 2000, Satmex's
Solidaridad 1 satellite, located at 109.2 degrees W.L.,
ceased operating and was considered irretrievably lost. The loss
was caused by the failure of the back-up control processor on
board the satellite. Solidaridad 1 was built by Hughes
Space and Communications and commenced service in January 1994.
Solidaridad 1 was insured for $250 million. At the date of
the loss, Solidaridad 1 had a net book value of approximately
$109.6 million. After deducting prepaid insurance of
$1.6 million, the unpaid insurance premiums of
$12.5 million and on-going monitoring costs and the excess
of the estimated cost over revenue for the currently committed
transponder capacity to be provided to customers of
$23.2 million, the net gain on the in-orbit failure of
Solidaridad 1 was approximately $103.1 million. In 2001,
Satmex reduced the liability for the cost over revenue for the
committed transponder capacity to be provided to customers by
$7.3 million. In 2002, the Company received
$3.3 million from the satellite manufacturer under the
Solidaridad 1 performance guarantee and Satmex reduced the
liability for the cost over revenue for the committed
transponder capacity to be provided to customers by $5.1
million. These transactions were recorded as additional gain on
the in-orbit failure of Solidaridad 1 in the applicable
periods. In January 2001, Satmex received insurance proceeds of
approximately $235.3 million, net of the unpaid insurance
premiums and related value added tax. Satmex is using the net
insurance proceeds towards the construction, launch and
insurance of a replacement satellite, Satmex 6, as well as
for debt service. Satmex has contracted with Space
Systems/Loral, Inc. ("SS/L"), a wholly owned
subsidiary of Loral, to build Satmex 6, designed to provide
broader coverage and higher power levels than any other
satellite currently in the Satmex fleet. Certain manufacturing
and testing procedures have resulted in the launch of
Satmex 6 being extended to the third quarter of 2003.
On August 10, 2001, the Mexican government
granted licenses to provide satellite service in Mexico to
PanAmSat, SES Global, Televisa and Enlaces Integra. PanAmSat
registered 11 satellites and SES Global registered seven
satellites to provide satellite service in Mexico.
F-7
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
2.  SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation
The Company's financial statements are
presented in U.S. dollars and have been prepared using
accounting principles generally accepted in the United States of
America.
Functional currency and
translation
The Company maintains its legal books and records
in Mexican pesos. The functional currency of the Company is
the U.S. dollar. Monetary assets and liabilities
denominated in pesos are translated into U.S. dollars using
current exchange rates. Non-monetary assets and liabilities
originally denominated in pesos are translated into
U.S. dollars using the historical exchange rate at the date
of the transaction. Capital stock is translated at historical
exchange rates.
The financial statements should not be construed
as representations that Mexican pesos have been, could have been
or may in the future be converted into U.S. dollars at such
rates or any other rates.
Relevant exchange rates used in the preparation
of the financial statements were as follows (Mexican pesos per
one U.S. dollar):
2002
2001
2000
Current exchange rate at December 31,
Ps.10.31
Ps.9.14
Ps.9.60
Weighted average exchange rate
9.66
9.34
9.46
Foreign currency
transactions
Transactions denominated in foreign currencies
are recorded at the rate of exchange in effect at the date of
the transactions. Monetary assets and liabilities denominated in
foreign currencies are converted into the Company's
functional currency at the rate of exchange in effect at the
balance sheet date. The effect of changes in exchange rates is
recorded in the results of operations.
Use of estimates
The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results could differ from these estimates. Significant estimates
include the estimated useful lives of the Company's
satellites and deferred income taxes.
Cash and cash
equivalents
Cash and cash equivalents represent investments
in short-term deposits and commercial paper with banks which
have original maturities of ninety days or less.
Restricted and segregated
cash
In accordance with the Company's debt
agreements, the insurance proceeds from the failure of
Solidaridad 1 are restricted to use for debt service on the
Company's senior secured notes and revolving credit
facility and for payments toward the construction and launch of
Satmex 6. Upon receipt of the net insurance proceeds of
$235.3 million, Satmex allocated $50.0 million of the
proceeds for debt service and the remainder of the proceeds
towards the construction and launch of Satmex 6. At
December 31, 2002, Satmex had $6.8 million of
restricted and segregated cash of which $170,000 is available
for debt service on the senior secured notes and
$6.6 million is available for the construction and launch
of Satmex 6.
F-8
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
Satellites and equipment
Satellites and equipment are stated at historical
cost. Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvements.
The estimated useful lives of the Company's
fixed assets are:
Solidaridad 2
14.5 years
Satmex 5
15 years
Equipment
9 years
Furniture and fixtures
10 years
Solidaridad 2 and Satmex 5 are being
depreciated over their estimated useful lives commencing on
their in-orbit service dates of November 11, 1994 and January
22, 1999, respectively. The estimated useful lives of the
satellites were determined by engineering analyses performed at
the in-orbit service dates. Morelos 2 was fully depreciated
at June 30, 1998.
Costs incurred in connection with the
construction and successful deployment of the Company's
satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch
costs, launch insurance, and construction period interest.
Capitalized interest related to the construction of
Satmex 6 was $14.2 million and $3.5 million for
the years ended December 31, 2002 and 2001, respectively.
Gains or losses from in-orbit satellite failures,
after consideration of insurance proceeds, are recorded in the
period the failure occurs.
Except for the Company's in-orbit
satellites, all the Company's long-lived assets are located
in Mexico.
Concessions
The Mexican government granted Satmex the rights
to three 20-year concession titles (the
"Concessions"), to operate in three orbital slots;
109.2 degrees W.L., 113.0 degrees W.L. and 116.8 degrees W.L.
The Concessions are renewable on certain conditions for an
additional 20 years at no additional cost. The Concessions
require Satmex to reserve certain capacity on each satellite for
use by the Mexican government. The Concessions are being
amortized over 40 years. Amortization expense totals
$12.9 million annually.
Deferred financing costs
Deferred financing costs are being amortized over
the period of the related debt (see Note 6). Amortization
expense for the years ended December 31, 2002, 2001 and
2000 was $2.3 million, $2.3 million and
$2.1 million, respectively.
Valuation of long-lived
assets
The carrying value of the Company's
long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that an asset may not be
recoverable. Assets are determined to be impaired when the
estimated undiscounted cash flows expected to result from the
use of the asset are less than the carrying value of the asset.
The Company measures impairment as the difference between the
carrying value and the fair value of the asset.
F-9
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
Labor benefits, indemnification
payments and other benefits plans
At December 31, 2002 and 2001 the Company
has no obligation for statutory seniority premiums and severance
costs because the Company uses external services from affiliated
companies to perform its activities. The Company has no
obligation for post-retirement health care insurance or other
benefits.
Deferred income tax
The Company recognizes deferred income tax assets
and liabilities for the future consequences of temporary
differences between the financial statement carrying amounts of
assets and liabilities and their respective income tax bases,
measured using enacted rates. The effects of changes in the
statutory rates are accounted for in the period that includes
the enactment date. Deferred income tax assets are also
recognized for the estimated future effects of tax loss
carryforwards and asset tax credit carryforwards. Deferred
income tax assets are reduced by any benefits that are not
expected to be realized.
Revenue recognition
Satmex provides satellite capacity under service
lease agreements for periods ranging from one year to ten years.
Some service lease agreements provide for cash advances from
customers with reduced rents. Such cash advances are recognized
as revenue on a straight-line method over the total lease term.
In the case of end-of-life leases, in which
Satmex collects the total rent in advance and provides no
insurance or warranty on the related transponders, Satmex
recognizes the total revenue and related cost as sales-type
leases.
Deferred revenue —
Mexican government
The Company is required to provide the Mexican
government, at no charge, approximately 7% of its available
transponder capacity for the duration of the Concessions. In
1997, the Company recorded $88 million as deferred revenue, as
the value of this obligation, and an increase in the value of
the Concessions by the same amount. This obligation is being
amortized over 40 years as an increase in revenue and a
corresponding increase in amortization expense. Amortization of
deferred revenue totals $2.2 million annually.
Financial instruments
The estimated fair value of the Company's
financial instruments has been determined using available market
information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to
develop estimates of fair value.
The carrying value of the Company's senior
secured notes approximate fair value because the interest rate
is based on floating rates. At December 31, 2002, the fair
value of the Company's fixed rate notes (with a nominal and
recorded amount of $320 million) based on quoted market prices
was $126.4 million.
Foreign
exchange forward contracts
The Company has used foreign exchange forward
contracts to hedge the Company's net monetary liabilities
in foreign currencies. Gains and losses from the contracts are
included in the component "Net foreign exchange gain
(loss)" in the Statements of Operations. No such contracts
were outstanding at December 31, 2002 and 2001.
F-10
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
Concentration
of credit risk and principal customers
Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally
of cash and cash equivalents and accounts receivable. The
Company's cash and cash equivalents are maintained with
high-credit-quality financial institutions. The Company's
customers are the Mexican government and large and mid-sized
corporations. The creditworthiness of such institutions is
generally substantial. As the Company expands its operations, it
has added customers in emerging markets or customers that are in
the development stage. Management believes that its credit
evaluation, approval and monitoring processes mitigate potential
credit risks.
Revenue from Innova, S. de R.L. de C.V.
("Innova"), an affiliate of Grupo Televisa,
represented 2%, 19% and 18% of service revenue for the years
ended December 31, 2002, 2001 and 2000, respectively.
Revenue from the Mexican government represented 5%, 8% and 7% of
service revenue for the years ended December 31, 2002, 2001
and 2000, respectively.
Approximately 49%, 55% and 53% of the
Company's service revenue for the years ended December 31,
2002, 2001 and 2000, respectively, was generated from customers
in Mexico.
Value
added tax
The Company collects value added tax based on
revenue from its customers. Value added taxes previously paid
for the acquisition of assets or operating expenses may be
offset against value added tax collected from customers.
Accounting
Pronouncements
In June 2001, the FASB issued Statement No. 141,
"Business Combinations" ("SFAS 141") and
Statement No. 142 "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 141 requires that all
business combinations initiated after June 30, 2001 be accounted
for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible
assets acquired in a business combination. SFAS 142 addresses
the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with
finite useful lives be amortized and that goodwill and
intangible assets with indefinite lives not be amortized, but
will rather be tested at least annually for impairment. The
adoption of SFAS 142 on January 1, 2002 did not have an effect on
the Company's financial position or results of operations.
In June 2001, the FASB issued Statement No. 143,
"Accounting for Asset Retirement Obligations"
("SFAS 143"). SFAS 143 addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the
acquisition, construction, development and the normal operation
of a long-lived asset, except for certain obligations of
lessees. The Company is required to adopt SFAS 143 on January 1,
2003. The adoption of SFAS 143 had no effect on the
Company's financial position or results of operations.
In August 2001, the FASB issued Statement No.
144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the impairment
of disposal of long-lived assets. It supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", and the accounting
and provisions of APB 30, "Reporting the Results of
Operation — Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the
disposal of a segment or
F-11
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
a business. The adoption of SFAS 144 on January
1, 2002 did not have an effect on the Company's financial
position or results of operations.
In April 2002, the FASB issued Statement No. 145,
Rescission of FASB Statement No. 4, 44, and 64, Amendment FASB
Statement No. 13, and Technical Corrections ("SFAS
145"). SFAS 145 generally requires that any gains or losses
on extinguishment of debt in current or prior periods be
classified as other income (expense) beginning in fiscal 2003,
with early adoption encouraged. This SFAS No. 145 is not expected to
have a material effect
in the financial statements of the Company.
In June 2002, FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities
("SFAS 146"), SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. Examples of costs covered by standard include
lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity.
Previous accounting guidance was provided by EITF Issue No.
94-3, Liability Recognition for Certain Employee Termination
Benefits and other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). SFAS 146 replaces EITF Issue
No. 94-3. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. This SFAS
No. 146 is not expected to have a material effect on the financial statements of the Company.
In November 2002, the FASB issued FASB
Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.". This interpretation
elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure requirements
of this interpretation are effective for interim and annual
periods after December 15, 2002. The initial recognition and
initial measurement requirements of this interpretation are
effective prospectively for guarantees issued or modified after
December 31, 2002. The interpretation's expanded
disclosures did not have a material impact on our financial
position or result of operations. We do not believe the adoption
of the recognition and initial measurement requirements of this
interpretation will have a material impact on our financial
position or results of operations.
In December 2002, the FASB issued Statement of
Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation — Transition and
Disclosure — an amendment to of FASB Statement
No. 123," ("SFAS No. 148"). SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim
financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The transition guidance and annual
disclosure provisions of SFAS No. 148 are effective for
financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are
effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. This SFAS
No. 148 has no effect in the financial statements of the Company.
In January 2003, the FASB issued FASB
Interpretation No. 46, "Consolidation of Variable Interest
Entities." This interpretation of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements,"
addresses consolidation by business enterprises of variable
interest entities. Under current practice, two enterprises
generally have been included in consolidated financial
statements because one enterprise controls the other through
voting interest. This interpretation defines the concept of
"variable interest" and requires existing
unconsolidated variable interest entities to be consolidated by
their primary beneficiaries if the entities
F-12
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
do not effectively disperse the risks among the
parties involved. This interpretation applies immediately to
variable interest entities created after January 31, 2003, and
to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. If it is
reasonably possible that an enterprise will consolidate or
disclose information about a variable interest entity when this
interpretation becomes effective, the enterprise shall disclose
information about those entities in all financial statements
issued after January 31, 2003.
3.  ACCOUNTS RECEIVABLE
December 31,
2002
2001
(in thousands)
Customers
$
6,770
$
3,827
Value added tax recoverable
526
Other
470
261
Allowance for uncollectible accounts
(2,169
)
(2,046
)
$
5,597
$
2,042
4.  SATELLITES AND
EQUIPMENT
December 31,
2002
2001
(in thousands)
Satellites (Note 1)
$
409,119
$
409,119
Equipment
30,677
25,647
Furniture and fixtures
6,664
6,321
Leasehold improvements
4,371
2,772
Construction in progress
455
4,245
451,286
448,104
Accumulated depreciation
(161,649
)
(127,379
)
$
289,637
$
320,725
Depreciation expense was $34.5 million,
$34.4 million and $43.8 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
F-13
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
5.  BALANCES AND TRANSACTIONS WITH
RELATED PARTIES
December 31,
2002
2001
(in thousands)
Amounts receivable:
Enlaces
$
2,900
$
3,672
Mexican government agencies
1,887
2,557
Loral
517
Principia
386
Service companies
9
68
$
4,796
$
7,200
Amounts payable:
Loral
$
314
$
768
Principia
109
Service companies
1,881
3,493
Enlaces
36
$
2,231
$
4,370
Transactions with related parties, not otherwise
disclosed, are as follows:
Enlaces
Enlaces Integra ("Enlaces") a company
owned by Principia and Loral leases transponder capacity from
Satmex. In 2002 and 2001, service revenue from this lease was
$421,000 and $350,000, respectively. Also, Satmex agreed to loan
Enlaces up to $5 million of which $3.4 million was outstanding
as of December 31, 2001. The loan to Enlaces matures
January 4, 2006 and accrues interest at a rate equal to
Satmex's weighted average interest cost plus 1%. Further, Enlaces uses services provided from
affiliated companies to perform its activities. In June 2002,
Satmex purchased approximately $718,000 of equipment from
Enlaces and in July 2002, Satmex purchased $1.6 million of
equipment and paid $2.9 million as an advance payment on
one of the concessions held by Enlaces. Furthermore, the
equipment was leased to Enlaces in the amount of $230,000 during
2002. Enlaces used the proceeds from the sale to repay its
outstanding loan from Satmex. At December 31, 2002, there
were no borrowings outstanding under the loan agreement.
Revenue
Service revenue from related parties, primarily
the Mexican government, amounted to $10.2 million,
$14.7 million and $13.8 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Satmex
leases transponder capacity to Loral affiliates. Service revenue
in 2002, 2001 and 2000 was $2.6 million, $4.7 million and
$3.5 million,
respectively.
Replacement
Capacity
Loral Skynet, a wholly owned subsidiary of Loral,
billed Satmex $4.2 million and $6.7 million for
providing capacity on Loral Skynet satellites in 2002 and 2001,
respectively.
F-14
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
Commissions
Loral Skynet billed Satmex $547,000 and $574,000
for sales commissions in 2002 and 2001, respectively.
Management
fee
Loral and Principia are responsible for managing
the Company. Loral and Principia receive a management fee, based
on a sliding scale, up to a maximum of 3.75% of the
Company's quarterly gross revenue, as defined. For the year
ended December 31, 2002, Loral and Principia waived the
management fee. For the years ended December 31, 2001 and 2000,
the management fee was $2.3 million and $3.2 million,
respectively, of which, $767,000 and $396,000, respectively, was
offset against accrued expenses.
License
fee
Loral has licensed certain intellectual property
to the Company for an annual fee of 1.5% of the Company's
gross revenue, as defined. For the years ended December 31,
2002, 2001 and 2000, the license fee was $1.2 million,
$1.8 million and $1.9 million, respectively, of which
$65,000, $106,000 and $41,000, was offset against accrued
expenses.
Rent
The equipment in the satellite control centers is
owned by the Company, while the buildings and land that house
these centers are property of the Mexican government. The
Company pays rent to the Mexican government for the use of the
buildings and land equal to 7.5% of appraised value. For the
years ended December 31, 2002, 2001 and 2000, the rent
expense under this agreement was $321,000, $317,000 and
$289,000, respectively.
Service
companies
Satmex uses external services from affiliated
companies to perform its activities. Satmex pays these companies
cost plus a fee. For the years ended December 31, 2002,
2001 and 2000, this fee was $524,000, $794,000 and $923,000,
respectively.
Guarantee
arrangements
In connection with the loan agreements (see Note
6), Firmamento and Servicios have provided and continue to
provide guarantees on behalf of the Company.
6.  LONG-TERM DEBT
December 31,
2002
2001
(in thousands)
Senior secured notes (5.88% and 6.58% at December
    31, 2002 and 2001, respectively)
$
204,374
$
236,000
Fixed rate notes
320,000
320,000
Total debt
524,374
556,000
Less, current maturities
1,000
13,626
$
523,374
$
542,374
F-15
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
On February 2, 1998, the Company issued
$320 million 10.125% fixed rate notes due November 1,
2004 (the "Fixed Rate Notes"). The Fixed Rate Notes
are unsecured and rank senior in right of payment to all
subordinated debt of the Company and
pari passu
in right
of payment to all senior debt of the Company, including the
Senior Secured Notes.
On March 2, 1998, the Company issued
$325 million of senior secured floating rate notes due
June 30, 2004 (the "Senior Secured Notes"). The
Senior Secured Notes rank senior in right of payment to all
subordinated debt of the Company and
pari passu
in right
of payment to all senior indebtedness of the Company including
the Fixed Rate Notes. The Senior Secured Notes bear interest, at
the Company's option, at rates based on LIBOR or the base
rate specified in the credit agreement, are redeemable at the
option of the Company and are secured by substantially all of
the assets of the Company. In addition, the Senior Secured Notes
are guaranteed by Firmamento and Servicios.
The Senior Secured Notes contain covenants which
require maintenance of certain quarterly financial and operating
ratio levels and impose limits on the Company's spending
for capital expenditures. In addition, the Senior Secured Notes
and the Fixed Rate Notes contain limitations on indebtedness,
investments, business combinations and other customary
restrictions. At December 31, 2002, Satmex was in
compliance with all covenants governing its debt
agreements.
At December 31, 2001, a technical default
existed with respect to the Company's Senior Secured Notes
due to the failure to make a principal prepayment from excess
cash flow for the year ended December 31, 2000, as defined
under the Senior Secured Note Indenture. On April 23, 2002,
the Company made the required principal prepayment of
$11.9 million, plus accrued interest of $228,000, as well
as a principal prepayment for 2001 excess cash flow of $749,000. At
December 31, 2001, the Company classified
$12.6 million, representing the 2001 and 2000 principal
repayments, as current portion of long-term debt.
The Company is required to make quarterly
redemption payments on the Senior Secured Notes of $250,000
through March 31, 2004, plus additional prepayment from
excess cash flow, as defined in the indenture, with the balance
due on June 29, 2004.
In February 2000, the Senior Secured Notes were
amended to permit the modification of certain covenants, in
exchange for the payment of a fee and an increase in the
applicable interest margin by up to 0.75%.
In November 2002, the Company amended the
insurance covenant in the Fixed Rate Note Indenture. The
indenture required the Company to maintain in-orbit insurance
coverage on certain terms that could not be obtained in the
market at commercially reasonable rates. In addition, the
Company received waivers from the holders of the Senior Secured
Notes of the provisions contained in the agreement governing
that debt obligation that obligates the Company not to amend the
terms of the Fixed Rate Notes.
The aggregate maturities of debt are as follows
(in thousands):
2003
$
1,000
2004
523,374
$
524,374
Funds available from the restricted and
segregated cash account allocated for the construction and
launch and cash flow from operations are not sufficient to fund
the in-orbit delivery of the Satmex 6 satellite. For that
reason, the Company pursued loans supported by export credit
agencies, the terms of which will likely require the Company to
extend the maturities of the Fixed Rate Notes.
F-16
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
In April 2003, Satmex received confirmation of
approval from Coface for its loan insurance program to support
85% of the cost of its launch services for the Satmex 6
satellite. Also in April, Satmex received confirmation of
approval from Ex-Im Bank for its loan guarantee program to
support 85% of eligible costs of the Satmex 6 satellite,
insurance, ground equipment and related investments. Each of the
Coface and Ex-Im Bank facilities is subject to negotiations of
final documentation. In order to complete the Ex-Im Bank and
Coface financing, Satmex will have to repay, refinance or
restructure its Senior Secured Notes and extend the maturity of
its Fixed Rate Notes. The Company has hired a financial advisor
to assist it in the restructuring of its indebtness. In
addition, Satmex is considering pursuing various alternatives to
cover the remaining costs of the Satmex 6 satellite project that
the Ex-Im Bank and Coface support does not cover. If the Company
is unable to obtain all the financing arrangements on
satisfactory terms, there can be no assurance that the Company
will be able to fulfill its financing strategy.
On March 18, 2003, holders of Satmex's Senior
Secured Notes agreed to modify certain financial covenants
required by the Senior Secured Notes Indenture, Satmex agreed to
pay the consenting holders a fee of 0.25% of the amount of the
debt. This fee was paid on March 20, 2003, solely to the holders
that gave consent. The total fee paid was US$494,877.50. The
modification of the financial covenants consisted of
substituting certain financial ratios for a minimum level of
cash flow to be maintained during the remaining life of the
Senior Secured Notes. In addition, a new covenant was
incorporated to require that the Ex-Im Bank and Coface
financings be closed on or prior to September 30, 2003.
7.  STOCKHOLDERS'
EQUITY
At December 31, 2002 and 2001 the
Company's issued and outstanding capital stock was
comprised of a fixed and variable portion, with the fixed
portion represented by 611,730 shares and the variable portion
by 9,995,000 shares, respectively in both years.
On March 12, 1999, at an extraordinary
general meeting of Satmex's stockholders it was agreed to
increase the fixed capital stock by $56.1 million through
the authorization of 1,068,000 shares of Series C preferred
stock. On March 30, 1999, the Company issued 606,730 shares
of preferred stock to Loral and Principia for a total purchase
price of approximately $31.9 million. The preferred stock
has limited voting rights and pays a cumulative dividend in
common stock of the Company equal to 0.138 shares of
Series N or Series B common stock for each share of
preferred stock. The preferred stock can be exchanged at the
Company's option into common stock of the Company, at an
exchange ratio of 1 share of preferred stock for 2.008
shares of Series N or Series B common stock, if the
exchange occurs before February 2, 2005, and at an exchange
ratio of 1 share of preferred stock for 4.016 shares of
Series N or Series B common stock on and after
February 2, 2005. As of December 31, 2002, Servicios
holds 70.71% of the outstanding capital stock of Satmex, Loral
holds 4.46%, Principia holds 1.26% and the Mexican government
holds 23.57%. Loral and Principia own 65% and 35% of Servicios,
respectively.
The issued and outstanding capital stock of the
Company consisted of the following:
December 31,
Series
2002
2001
A Common stock
2,601,000
2,601,000
B Common stock
2,499,000
2,499,000
N Common stock
4,900,000
4,900,000
C Preferred stock
606,730
606,730
10,606,730
10,606,730
F-17
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
At December 31, 2002 and 2001 the capital
stock and the notional value is as follows:
2002
2001
Description
Shares
Amount
Shares
Amount
(in thousands)
(in thousands)
Common stock:
Fixed portion
5,000
$
6
5,000
$
6
Variable portion
9,995,000
385,048
9,995,000
383,541
10,000,000
$
385,054
10,000,000
$
383,547
Preferred stock:
Fixed portion
606,730
$
31,886
606,730
$
31,886
Stockholder's equity except restated capital
paid by stockholders and net taxable retained earnings adjusted
for inflation in accordance with Mexican tax law, will be
subject to a 35% dividend tax in the event of distribution.
Restatement of capital paid and net tax retained earnings are
computed in accordance with certain tax procedures which is
approximately the accumulated effect of inflation on both items.
Series A shares have full voting rights and
can only be acquired by Mexican individuals, Mexican
corporations or irrevocable trusts. These shares are divided
into Class I (minimum fixed capital) and Class II
(variable capital) shares. Series B shares have full voting
rights and may be acquired by Mexican or foreign investors.
These shares are divided into Class I (minimum fixed
capital) and Class II (variable capital) shares.
Series N shares contain restricted voting and limited
corporate rights and may represent up to 80% of the total
capital of the Company. These shares may be acquired by Mexican
and foreign investors and currently represent variable capital.
8.  INCOME TAXES
The income tax (benefit) expense for the years
ended December 31, 2002, 2001 and 2000 is as follows:
2002
2001
2000
(in thousands)
Deferred
$
(8,837
)
$
(1,149
)
$
17,029
Net income tax (benefit) expense
$
(8,837
)
$
(1,149
)
$
17,029
F-18
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
The components of the net deferred income tax
asset and (liability) are as follows:
December 31,
2002
2001
(in thousands)
Tax loss carryforwards
$
89,006
$
83,010
Deferred revenue
19,232
23,937
Other, net
1,381
1,305
Satellites and equipment
(51,696
)
(64,145
)
Gain on in-orbit failure of Solidaridad 1
1,139
3,747
Concessions
(39,773
)
(49,143
)
Prepaid insurance
(1,523
)
(3,861
)
Deferred financing costs
(967
)
(1,775
)
Subtotal
16,799
(6,925
)
Valuation allowance
(25,608
)
(10,721
)
Net deferred tax liability
$
(8,809
)
$
(17,646
)
The net deferred income tax liability is
classified as follows:
2002
2001
(in thousands)
Current deferred income tax assets
$
1,385
$
2,161
Long-term deferred income tax liabilities
$
10,194
$
19,807
At December 31, 2002 the Company had tax
loss carryforwards of approximately $278 million which
expire from 2008 to 2012 and credits available against the asset
tax of approximately $38 million which expire in 2003. Due
to the uncertainties regarding the Company's ability to
realize the full benefit from these tax loss carryforwards,
Satmex established a valuation allowance of $25.6 million
at December 31, 2002 against the deferred tax assets.
The provision for income taxes, for the years
ended December 31, 2002, 2001 and 2000 differs from the
amount computed by applying the Mexican income tax rate because
of the effect of the following items:
2002
2001
2000
(in thousands)
Tax (benefit) expense at Mexican statutory
    income
tax rate (35%)
$
(10,068
)
$
(1,491
)
$
25,275
Inflation component and effect of remeasurement
(11,895
)
1,386
(3,409
)
Non deductible expenses
79
75
59
Change in valuation allowance
14,887
(1,119
)
(4,701
)
Effect of change in statutory tax rates
(1,840
)
Other
(195
)
Net income tax (benefit) expense
$
(8,837
)
$
(1,149
)
$
17,029
The Mexican asset tax law provides for a minimum
tax of 1.8% on average assets, as defined in the law, less
certain liabilities, which is payable to the extent it exceeds
amounts due for income taxes. During 2000, the Company received
a favorable ruling from the Mexican Supreme Court of Justice
allowing the deduction for foreign liabilities, including but
not limited to, financial liabilities, when computing the
taxable base for the asset tax. This ruling will have a
favorable effect to reduce the Company's asset tax in the
future. Any asset taxes paid may be used to offset future income
taxes payable if certain conditions are met. For the year ended
December 31, 2002, the Company had no asset tax liability.
F-19
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
On January 1, 2002, the Mexican government
enacted a new income tax law that reduces the statutory income
tax rate by 1% per year beginning January 1, 2003 through
January 1, 2005. The effect of this change on the deferred
tax assets and liabilities was recognized in 2002.
On January 1, 2002, the Mexican government
amended existing legislation to impose a fee on all satellite
service providers. The fee is based on megahertz used in the C-
and Ku-bands. At December 31, 2002 Satmex has sufficient credits
available under the amended law to offset this fee.
Further, the Mexican government amended the tax
law, on January 1, 2002, to broaden the scope of
telecommunications services subject to a 10% tax. The Company
believes, based on discussions with its external tax advisors and its internal legal
department that its services do not fall within the scope of
this tax. However, there is a risk that the tax authorities will
not agree with the Company's interpretation. Satmex has
presented its interpretation to the Mexican government and is
awaiting a resolution of the matter.
9.  COMMITMENTS AND
CONTINGENCIES
In November 2002, Satmex renewed the in-orbit
insurance policy on Solidaridad 2 through November 2003.
The renewal policy does not insure against an in-orbit failure
due to the loss of the satellite's control processor, the
same component that caused the loss of Solidaridad 1 and
other Hughes satellites, and increased the requirement for a
constructive total loss of the satellite to the loss of 75% of
the satellite's transponder capacity. An uninsured loss of
Solidaridad 2 would have a material effect on Satmex's
results of operations and financial condition.
In order to provide expanded satellite services
in the United States with the Satmex 6 satellite, a new
coordination agreement would need to be negotiated between the
governments of Mexico and Canada, as well as the affected
satellite operators. New coordination agreements are often
negotiated to accommodate the operation of new satellites. An
existing coordination agreement between the governments of
Mexico and Canada, as well as the affected satellite operators,
provides for the operation of Mexican and Canadian satellites,
including Satmex 6, in the 107.3 degrees W.L. to 118.7
degrees W.L. orbital arc. There can be no assurance that
negotiation of a new coordination agreement between the
governments of Mexico and Canada and the affected satellite
operators will be successful. The launch of
Satmex 6 will proceed whether or not a new coordination
agreement has been negotiated. However, the inability to
conclude a satisfactory agreement may negatively impact our
ability to provide expanded services in the United States and
could adversely affect our business.
The Company leases office space under a
noncancelable operating lease expiring in May 2005. The monthly
rent, including maintenance, is approximately $118,000. Rent
expense under this lease was $1.6 million,
$1.4 million and $1.3 million for the years ended
December 31, 2002, 2001 and 2000, respectively.
Management is not aware of any pending litigation
against the Company. Liability for all legal actions or other
claims against Satmex prior to October 15, 1997 has been
retained by the Mexican government.
F-20
Table of Contents
SATELITES MEXICANOS, S.A. de C.V.
(Subsidiary of Servicios Corporativos
Satelitales, S.A. de C.V.)
NOTES TO THE FINANCIAL
STATEMENTS—(Continued)
Future minimum lease receipts due from customers
under non-cancelable operating leases for transponder capacity
on satellites in-orbit as of December 31, 2002, are as
follows (in thousands):
2003
$
70,675
2004
61,312
2005
52,202
2006
32,768
2007
27,453
Thereafter
84,422
$
328,832
10.  REVENUE BY CUSTOMER
LOCATION
The following table presents revenue by country
based on customer location for the years ended December 31,
2002, 2001 and 2000:
2002
2001
2000
(in thousands)
Mexico
$
41,630
$
69,826
$
72,068
United States
37,619
50,992
58,094
Other
5,762
7,226
6,279
Total
$
85,011
$
128,044
$
136,441
F-21
Table of Contents
Item 19.
Exhibits
Exhibit No.
Description
1.1
Estatutos Sociales
(bylaws) of Satélites Mexicanos, S.A. de C.V.†
1.2
Estatutos Sociales
(bylaws) of Satélites Mexicanos, S.A. de C.V. (English translation).†
2.1
Indenture, dated as of February 2, 1998, between Satelites Mexicanos,
S.A. de C.V. and The Bank of New York, as trustee.†
2.2
Indenture, dated as of March 4, 1998, among, Satélites Mexicanos, S.A.
de C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and
Servicios Corporativos Satelitales, S.A. de C.V., as Guarantors, and
Citibank, N.A., as trustee.†
2.3
First Supplemental Indenture, dated as of June 30, 1998, Supplemental
to Indenture, dated as of March 4, 1998, among, Satélites Mexicanos,
S.A. de C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and
Servicios Corporativos Satelitales, S.A. de C.V., as Guarantors, and
Citibank, N.A., as trustee.†
2.4
Second Supplemental Indenture, dated as of February 16, 2000, to
Indenture, dated as of March 4, 1998, among, Satélites Mexicanos, S.A. de
C.V., as the Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios
Corporativos Satelitales, S.A. de C.V., as Guarantors, and Citibank,
N.A., as trustee.††
2.5
Supplemental Indenture, dated as of November 25, 2002, to Indenture,
dated as of February 2, 1998, between Satélites Mexicanos, S.A. de C.V.
and The Bank of New York, as trustee.*
2.6
Third Supplemental Indenture, dated as of March 18, 2003, to Indenture,
dated as of March 4, 1998, among, Satélites Mexicanos, S.A. de C.V., as
the Issuer, Firmamento Mexicano S. de R.L. de C.V. and Servicios
Corporativos Satelitales, S.A. de C.V., as Guarantors and Citibank, N.A.,
as trustee.*
4.1
Satellite Concession 116.8 degrees W.L.†
4.2
Satellite Concession 116.8 degrees W.L. (English Translation)†
4.3
Satellite Concession 113.0 degrees W.L.†
4.4
Satellite Concession 113.0 degrees W.L. (English Translation)†
4.5
Satellite Concession 109.2 degrees W.L.†
4.6
Satellite Concession 109.2 degrees W.L. (English Translation)†
4.7
Property Concession†
4.8
Property Concession (English Translation)†
4.9
Amended and Restated Membership Agreement, dated as of August 21, 1998
among Loral SatMex Ltd., Ediciones Enigma, S.A. de C.V. and Firmamento
Mexicano, S. de R.L. de C.V.†
7.1
Computation of Excess (Deficiency) of Earnings to Fixed Charges.*
10.1
Secion 302 Certification of Lauro González Moreno, Chief Executive Officer.*
10.2
Section 302 Certification of Cynthia Pelini, Chief Financial Officer.*
10.3
Section 906 Certification of Lauro González Moreno, Chief Executive Officer.*
10.4
Section 906 Certification of Cynthia Pelini, Chief Financial Officer.*
†
Incorporated by reference from the registrant's Registration Statement on Form F-4 filed on November 9, 1998 (File No. 333-8880).
††
Incorporated by reference from the registrant's Annual Report on Form 20-F for the year ended December 31, 1999.
*
Filed herewith.
51
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SATÉLITES MEXICANOS, S.A. de C.V.
By:
CYNTHIA PELINI
Cynthia Pelini
Chief Financial Officer
Date: June 30, 2003
52