##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934, or
 x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2003 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934.
 Commission file number 0-29338 APT SATELLITE HOLDINGS LIMITED 
  Bermuda 
  22 Dai Kwai Street, Tai Po Industrial Estate, Tai Po, New Territories, Hong Kong 
  Securities registered or to be registered pursuant to Section 12(b) of the Act: NONE Securities registered or to be registered pursuant to Section 12(g) of the Act: Title
    
    Name of Each Exchange on Which
QuotedOrdinary Shares
American Depositary Shares
    
    The Stock Exchange of Hong Kong Limited
New York Stock Exchange, Inc.
 Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: NONE Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: 413,265,000 Common Shares as of December 31, 2003. Indicate by check mark whether the Company: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO o Indicate by check mark which financial statement item the Company has elected to follow. Item 17o Item 18 x Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. NOT APPLICABLE




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TABLE OF CONTENTS PageGLOSSARY OF
CERTAIN TERMS

    
    iiiItem 1.
    
    Identity of Directors, Senior Management, and Advisers
    
    
    1Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    1Item 3.
    
    Key Information
    
    
    1Selected Consolidated Financial Information
    
    
    1Risk Factors
    
    
    4Item 4.
    
    Information on the Company
    
    
    12Item 5.
    
    Operating and Financial Review and Prospects
    
    
    32Overview
    
    
    32Application of
Critical Accounting Policies
    
    
    35Commitments and
Contingencies
    
    
    37Off-Balance Sheet Arrangements
    
    
    39Results of Operations
    
    
    39Liquidity and Capital Resources
    
    
    43Capital Expenditures
    
    
    45Forward Looking Statements
    
    
    46Other
    
    
    46Item 6.
    
    Directors and Officers of Registrant
    
    
    47Board Practices
    
    
    53Employees
    
    
    54Share Option Schemes
    
    
    54Share Ownership
    
    
    55Service Agreements
    
    
    55Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    56Major Shareholders
    
    
    56Related Party Transactions
    
    
    57Item 8.
    
    Financial Information
    
    
    60Item 9.
    
    The Offer and Listing
    
    
    61Item 10.
    
    Additional Information
    
    
    62Memorandum of Association and By-laws
    
    
    62Exchange Controls and Other Limitations Affecting Security Holders
    
    
    67Taxation
    
    
    68Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    72Item 12.
    
    Description of Securities Other Than Equity Securities
    
    
    73Item 13.
    
    Defaults, Dividend Arrearages, and Delinquencies
    
    
    73Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    73Item 15.
    
    Controls and Procedures
    
    
    73Item 16A.
    
    Audit Committee Financial Expert
    
    
    74Item 16B.
    
    Code of Ethics
    
    
    74Item 16C.
    
    Principal Accountant Fees and Services
    
    
    74Item 16D.
    
    Exemption from the Listing Standards for Audit Committees
    
    
    75Item 17.
    
    Financial Statements
    
    
    75Item 18.
    
    Financial Statements
    
    
    76Item 19.
    
    Exhibits
    
    
    77Ex-1.1 MEMO OF ASSOCIATION & BYE-LAWS OF APTEX-8.2 FINANCIAL STATEMENTS OF APT SATELLITEEX-12.1 CERTIFICATION OF EXECUTIVE DIRECTOR & PRESEX-12.2 CERTIFICATION OF DIRECTOR AND VICE PRESEX-12.3 CERT. TO 1350 EXECUTIVE DIRECTOR/PRESEX-12.4 CERT. TO 1350 EXEC DIRECTOR/VICE PRES.EX-14.1 CODE OF ETHICS FOR BUSINESS CONDUCTEX-14.2 SIGNFICANT DIFFERENCES IN CORP PRACTICES




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GLOSSARY OF CERTAIN TERMS In this Form 20-F, unless the context otherwise requires, the following
expressions have the following meanings: ADS
    
    An American Depositary Share representing ownership
of eight shares of the Companys Ordinary Shares,
evidenced by American Depositary Receipts.analog
    
    A method of storing, processing or transmitting
information through a continuously varied (rather
than pulsed) signal.APCN2
    
    Asia Pacific Cable Network 2, a submarine cable
project under a consortium of telecommunication
companies. The project provides additional telecom
capacity for designated Asian cities by the end of
2001.APSTAR System
    
    The Companys current and future satellites,
including APSTAR I, APSTAR IA, APSTAR IIR, APSTAR V,
APSTAR VI (formerly APSTAR VB), and any other
satellites to be launched by the Company in the
future.APT/APT HK
    
    APT Satellite Company Limited, a company incorporated
in the HKSAR and a wholly-owned indirect subsidiary
of the Company.APT BVI
    
    APT Satellite Investment Company Limited, a company
incorporated in the British Virgin Islands with
limited liability and a wholly-owned subsidiary of
the Company.APT Group
    
    The Company and its subsidiaries and affiliates.APT International
    
    APT Satellite International Company Limited, a
company incorporated in the British Virgin Islands
with limited liability and a shareholder of the
Company.APT Telecom
    
    APT Satellite Telecommunications Limited, a jointly
controlled entity of the Company which is
incorporated in the HKSAR and had been engaging in
the provision of telecommunication services.APT Telecom Lease
    
    The agreement for lease dated March 12, 2001 made
between APT Telecom and Science and Technology Parks
Corporation in respect of the Remaining Portion of
Section E of Tai Po Town Lot No. 13 and Extension
Thereto, Hong Kong.APTs Leases
    
    The Lease Agreement as supplemented and modified by
the Cancelled Agreement for Lease, the Deed of
Cancellation, the Second Supplemental Agreement, the
Fifth Modification of Lease and the Fifth
Modification Proposal.bandwidth
    
    A range of frequencies occupied by a modulated
carrier or the range of frequencies which can be
transmitted through a communications system.
Bandwidth is one measure of the information carrying
capacity of a transponder. The wider the bandwidth,
the more information can be transmitted.Basic Law
    
    The Basic Law of the Hong Kong Special Administrative
Region (HKSAR) of the Peoples Republic of China,
effective as of July 1, 1997, is the constitutional
document for the HKSAR.beam
    
    The directed electromagnetic rays emanating from a
spacecraft or ground station. With respect to
satellites, it typically refers to aggregates of
these rays such as a China (coverage) beam or global
(coverage) beam.Cancelled Agreement for Lease
    
    The agreement for lease dated June 19, 2000 made
between APT and the Science and Technology Parks
Corporation in respect of the original Remaining
Portion of Section E of Tai Po Town Lot No. 13 and
Extensions Thereto.C2C
    
    C2C Pte. Ltd., a cable network provider and under a
consortium of telecommunication companies led by
Singapore Telecommunications Ltd.CCTV
    
    China Central Television, a PRC state-owned
enterprise under the supervision and control of the
SARFT.
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CITV
    
    China International Television Corporation, a PRC
state-owned enterprise under the supervision and
control of the SARFT.CLTC
    
    China Satellite Launch and Tracking Control General,
a PRC state-owned enterprise subject to the
supervision and control of the Defense Commission.C-band
    
    In satellite communications (FSS) used to refer to
downlink frequencies between 3.4 GHz and 4.2 GHz and
uplink frequencies between 5.85 GHz and 7.075 GHz.
It is often referred to as 4/6 GHz.cellular
    
    Domestic public cellular radio telecommunications
service. Cellular systems are based on multiple base
stations, or ''cells, that permit efficient
frequency reuse and on software that permits the
system to band mobile calls from cell to cell as
subscribers move through the cellular service area.China Aerospace
    
    China Aerospace Science & Technology Corporation
(formerly China Aerospace Corporation or the PRC
Ministry of Aerospace Industry), a PRC state-owned
enterprise engaged in the research, design, testing
and manufacturing of launch vehicles and satellites.ChinaSat
    
    China Telecommunications Broadcast Satellite
Corporation, a PRC state-owned enterprise under the
supervision of the MII and which is the satellite
operation arm of the MII.DBS
    
    Direct broadcast satellite, a satellite capable of
transmitting direct-to-home television programming.dBW
    
    Decibel relative to one watt, a measure of a
satellites power (e.g., 50 dBW is 10 times more
powerful than 40 dBW).Deed of Cancellation
    
    The deed of cancellation and surrender dated March
12, 2001 in respect of cancellation of the Cancelled
Agreement for Lease made between APT and Science and
Technology Parks Corporation.digital
    
    Referring to a method of storing, processing, or
transmitting information through a pulsed (rather than continuously varied) signal.downlink
    
    The receiving portion of a satellite circuit
extending from the satellite to the earth.Director(s)
    
    Director(s) of the Company, including all executive
director(s), all non-executive director(s) and
independent non-executive directors.earth station
    
    The antennae, receivers, transmitters and other
equipment needed on the ground to transmit and
receive satellite communications signals.EIRP
    
    Equivalent isotropic radiated power, the product of
the power supplied to the antenna and the antenna
gain in a given direction relative to an isotropic
antenna (absolute or isotropic gain).Eligible Employee(s)
    
    Employee(s) (whether full time or part time
employee(s), including any executive director but not
any non-executive director) of the Company or its
subsidiaries.Eligible Grantee(s)
    
    Persons who are eligible to accept the offer of the
grant of an Option in accordance with the Scheme 2001
or Scheme 2002, as the context requires.Fifth Modification of Lease
    
    The fifth modification of agreement for lease dated
May 31, 2002 made between APT and Science and
Technology Parks Corporation in respect of
modification of user of the lease contained in the
Lease Agreement.Fifth Modification Proposal
    
    The fifth modification proposal dated May 31, 2002
made between APT and Science and Technology Parks
Corporation in respect of modification of user in the
proposal form in relation to the Lease Agreement.
 iv




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footprint
    
    The geographic area covered by a satellites downlink
or uplink beams, the outer edge of which is generally
defined as that area where the quality of
communication degrades below an acceptable commercial
level due to the spacecraft antenna pattern, power of
the signal or curvature of the earth.frequency
    
    Number of repetitions in a given time. Typically it
refers to the rate of variation per second of the
carrier wave or modulating signal. Communications
satellite RF signals are typically in the GHz
frequency range. See C-band and Ku-band.FTNS
    
    Fixed telecommunications network services, presently
known as Fixed Carrier Licence.GEO
    
    Geostationary orbit.geostationary orbit
    
    A geosynchronous orbit in which the orbital
inclination and eccentricity of a satellite are zero
such that the satellite appears to hover over a fixed
position on the earths equator.Global Offering
    
    The Companys initial world-wide public offering of
Ordinary Shares and American Depositary Shares, each
representing eight shares of the Companys Ordinary
Shares dated December 13, 1996.HDTV
    
    High definition television.HKSAR
    
    Hong Kong Special Administrative Region of the PRC.ISDN
    
    Integrated services data network.ITU or International
Telecommunication Union
    
    The International Telecommunication Union, the
telecommunications agency of the United Nations,
established to provide standardized communications
procedures and practices, including frequency
allocation and radio regulations, on a world-wide
basis.Joint Declaration
    
    The Joint Declaration of the Government of the United
Kingdom and the Government of the PRC on the Question
of Hong Kong with Annexes signed on 19 December 1984.Ku-band
    
    In satellite communications (FSS), it is used to
refer to downlink frequencies between 10.7 GHz and
12.75 GHz and uplink frequencies between 13.75 GHz
and 14.8 GHz. Often it is referred to as 11/14 or
12/14 GHz.Lease Agreements
    
    The agreement for lease dated February 26, 1993, made
between APT and the Science and Technology Parks
Corporation in respect of Subsection 1 of Section E
of Tai Po Town Lot No. 13 and Extension Thereto, Hong
Kong on which APTs satellite control center is
developed.LEO
    
    Low-earth orbit of up to 1,500 miles above the earth.Master Registry
    
    The Master International Frequency Register of the
ITU, which lists frequency assignments of orbital
slots upon notification.MEO
    
    Mid-earth orbit of up to 18,000 miles above the earth.megahertz (MHz)
    
    A measure of frequency, 1 million cycles per second.microwave
    
    Radio frequency carrier waves with wavelengths of
less than one meter- frequencies above 300 MHz.MII
    
    Ministry of Information Industry of the PRC.mobile satellite services
    
    Services transmitted via satellites to provide mobile
telephone, paging, messaging, facsimile, data, and
position location services directly to users.OFTA
    
    The Office of the Telecommunications Authority of
Hong Kong or, where the context requires, the
Telecommunications Authority of Hong Kong.
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operational life
    
    The time for which a satellite is capable of
operating in its allotted position. The expected end
of a satellites in-orbit operational life is mainly
based on the period during which the satellites
on-board fuel permits proper station-keeping
maneuvers for the satellite.Option(s)
    
    Options granted to the Eligible Grantees under the
Scheme 2001 or to the Participants under the Scheme
2002, as the context requires.paging
    
    A service designed to deliver a message to a person
whose location is unknown; messages may be received
via an alphanumeric or character display or small
speaker.Participant(s)
    
    Any person belonging to any of the following classes
of persons: (a) any Eligible Employee; and (b) any
non-executive directors (including independent
non-executive directors) of the Company or any of its
Subsidiaries, in accordance with the Scheme 2002PRC
    
    The Peoples Republic of China, other than HKSARPSTN
    
    Public switched telephone networks which comprise the
network infrastructure necessary for providing basic
telephone services.radio frequency
    
    A frequency that is higher than the audio frequencies
but below the infrared frequencies, usually above 20
KHz.Radio Regulations
    
    Radio Regulations of the ITU.Radio Regulatory Department
    
    Radio Regulatory Department of the MII.Radiocommunication Bureau
    
    Radiocommunication Bureau of the ITU.SARFT
    
    China State Administration of Radio Film and
Television, a government office responsible for the
management of the provision of Radio, Film and
Television in the PRC.Satellite Control Center
    
    The earth station of the Group for the TT&C of APSTAR
Systems and the provision of broadcasting
transmission and telecommunication services. It is
located in Tai Po, New Territories, Hong Kong.Science and Technology
Parks Corporation
    
    Hong Kong Science and Technology Parks Corporation
(formerly known as Hong Kong Industrial Science and
Technology Parks Corporation), the lessor of certain
Lease Agreements with the Company.scrambled programming
    
    Programming signals which require a decoder for
purposes of viewing.Second Supplemental Agreement
    
    The second supplemental agreement for lease and grant
of second extension area dated March 12, 2001 made
between APT and the Science and Technology Parks
Corporation in respect of Subsection 3 of Section E
of Tai Po Town Lot No. 13 and Extensions Thereto.signal
    
    A physical, time-dependent energy value used for the
purpose of conveying information through a
transmission line.switch
    
    A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of
information; switching is the process of
interconnecting circuits to form a transmission path
between users.teledensity
    
    Telephone access lines per 100 persons.telemetry
    
    Radio transmission of coded or analog data from a
satellite to a ground station.telephony
    
    Science of construction and operation of telephones
and telephonic systems.transponder
    
    A microwave repeater which provides a discrete path
to receive communications signals, translate and
amplify such signals and retransmit them to earth or
another satellite.
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TT&C
    
    Telemetry, tracking and command.TT&C Station
    
    Telemetry, tracking and command station, a land-based
facility that monitors and controls the positioning,uplink
    
    altitude and status of a satellite in orbit.
In satellite communications, the signal from the
earth station to the space station (satellite).VSAT
    
    Very small aperture terminal.
 vii




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PART I 
 Item 1. Identity of Directors, Senior Management, and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 
 Item 3. Key Information 
 Selected Consolidated Financial Information The following table presents selected consolidated financial information
for APT Satellite Holdings Limited (the Company or APT Holdings) as of and
for the five fiscal years ended December 31, 2003. The financial statement
information as of and for each of the years in the five-year period ended
December 31, 2003 has been derived from, and should be read in conjunction
with, and are qualified in their entirety by reference to, the Companys
Audited Consolidated Financial Statements (the Audited Consolidated Financial
Statements) and with Item 5. Operating and Financial Review and Prospects.
The Audited Consolidated Financial Statements are prepared in accordance with
Hong Kong GAAP, which differ in certain significant respects from US GAAP. For
a discussion of the nature and effect of principal differences between Hong
Kong GAAP and US GAAP, see Item 18 and Note 27 of the Notes to the Audited
Consolidated Financial Statements of the Company, which contains descriptions
of the significant differences between Hong Kong GAAP and US GAAP, a
reconciliation of net income/(loss) from Hong Kong GAAP to US GAAP for the
years ended December 31, 2001, 2002 and 2003, and reconciliation of
shareholders equity from Hong Kong GAAP to US GAAP as of December 31, 2002 and
2003. In addition, Note 27 to the Audited Consolidated Financial Statements of
the Company, which contains additional disclosures required under US GAAP,
which are not disclosed elsewhere in the Audited Consolidated Financial
Statements of the Company. 1




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Statement of Income Data: 1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    US$(in millions, except per share data)Hong Kong GAAP:Total revenues
    
    
    482.0
    
    
    
    341.5
    
    
    
    374.2
    
    
    
    351.4
    
    
    
    302.2
    
    
    
    38.7Total costs and expenses
    
    
    (439.9
    )
    
    
    (327.1
    )
    
    
    (337.9
    )
    
    
    (345.6
    )
    
    
    (355.2
    )
    
    
    (45.5
    )Other operating income
    
    
    436.0
    
    
    
    179.7
    
    
    
    78.4
    
    
    
    72.3
    
    
    
    33.0
    
    
    
    4.2Deficit arising on revaluation of
investment property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss recognized in respect
of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.2
    )
    
    
    (129.1
    )
    
    
    (16.5
    )Impairment loss recognized in respect
of goodwill arising on acquisition
of an interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    Profit/(loss) from operations
    
    
    478.1
    
    
    
    194.1
    
    
    
    114.7
    
    
    
    69.5
    
    
    
    (149.1
    )
    
    
    (19.1
    )Interest expenses
    
    
    (31.8
    )
    
    
    (15.3
    )
    
    
    (5.6
    )
    
    
    
    
    
    
    
    
    
    
    Share of losses of jointly controlled
entities
    
    
    
    
    
    
    (1.3
    )
    
    
    (5.1
    )
    
    
    (10.6
    )
    
    
    (64.8
    )
    
    
    (8.3
    )Income/(loss) before income taxes
    
    
    446.3
    
    
    
    177.5
    
    
    
    104.0
    
    
    
    58.9
    
    
    
    (213.9
    )
    
    
    (27.4
    )Provision for income taxes (1)
    
    
    (71.8
    )
    
    
    (34.5
    )
    
    
    (26.0
    )
    
    
    (36.8
    )
    
    
    (11.7
    )
    
    
    (1.5
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    0.9
    
    
    
    0.1Net income/(loss)
    
    
    374.5
    
    
    
    143.0
    
    
    
    78.0
    
    
    
    24.4
    
    
    
    (224.7
    )
    
    
    (28.8
    )Basic earnings/(loss) per share (cents)(2)
    
    
    89.2
    
    
    
    34.3
    
    
    
    18.9
    
    
    
    5.9
    
    
    
    (54.4
    )
    
    
    (7.0
    )Basic earnings/(loss) per ADS (cents)(2)
    
    
    713.4
    
    
    
    274.1
    
    
    
    151.2
    
    
    
    47.4
    
    
    
    (435.4
    )
    
    
    (55.8
    )Diluted earnings/(loss) per share
(cents) (2)
    
    
    
    
    
    
    
    
    
    
    18.9
    
    
    
    5.9
    
    
    
    (54.4
    )
    
    
    (7.0
    )Diluted earnings/(loss) per ADS (cents)(2)
    
    
    
    
    
    
    
    
    
    
    150.8
    
    
    
    47.4
    
    
    
    (435.4
    )
    
    
    (55.8
    )Weighted average number of shares
outstanding(2)  Basic
    
    
    420
    
    
    
    417
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Weighted average number of shares
outstanding(2)  Diluted
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    413
    
    
    
    413
    
    
    
    413Dividend per share (cents)
    
    
    35.0
    
    
    
    20.0
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    US GAAP:Net income/(loss)
    
    
    360.2
    
    
    
    139.9
    
    
    
    72.6
    
    
    
    13.8
    
    
    
    (225.3
    )
    
    
    (28.9
    )Basic earnings/(loss) per share (cents)(2)
    
    
    85.8
    
    
    
    33.5
    
    
    
    17.6
    
    
    
    3.3
    
    
    
    (54.6
    )
    
    
    (7.0
    )Basic earnings/(loss) per ADS (cents)(2)
    
    
    686.1
    
    
    
    268.2
    
    
    
    140.8
    
    
    
    26.7
    
    
    
    (436.5
    )
    
    
    (56.0
    )Diluted earnings/(loss) per share
(cents)(2)
    
    
    
    
    
    
    
    
    
    
    17.6
    
    
    
    3.3
    
    
    
    (54.6
    )
    
    
    (7.0
    )Diluted earnings/(loss) per ADS (cents)(2)
    
    
    
    
    
    
    
    
    
    
    140.4
    
    
    
    26.7
    
    
    
    (436.5
    )
    
    
    (56.0
    )Weighted average number of shares
outstanding(2)   Basic
    
    
    420
    
    
    
    417
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Weighted average number of shares
outstanding(2)   Diluted
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    413
    
    
    
    413
    
    
    
    413Balance Sheet Data:(in millions)Hong Kong GAAP:Working capital (deficiency)
    
    
    1,606.7
    
    
    
    1,582.4
    
    
    
    1,451.4
    
    
    
    739.5
    
    
    
    482.8
    
    
    
    61.9Property, plant and equipment, (net)
    
    
    1,285.1
    
    
    
    1,101.9
    
    
    
    1,150.0
    
    
    
    2,018.9
    
    
    
    2,445.4
    
    
    
    313.5Total assets
    
    
    3,792.8
    
    
    
    3,421.1
    
    
    
    3,280.7
    
    
    
    3,339.4
    
    
    
    3,305.6
    
    
    
    423.8Long-term liabilities (less current
portion)
    
    
    831.9
    
    
    
    643.2
    
    
    
    542.9
    
    
    
    377.7
    
    
    
    769.6
    
    
    
    98.7Total liabilities
    
    
    1,287.0
    
    
    
    972.4
    
    
    
    816.1
    
    
    
    864.2
    
    
    
    1,046.6
    
    
    
    134.2Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.8
    
    
    
    5.9
    
    
    
    0.7Capital stock-common stock
    
    
    42.0
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    5.3Total shareholders equity (net assets)
    
    
    2,505.8
    
    
    
    2,448.7
    
    
    
    2,464.6
    
    
    
    2,468.4
    
    
    
    2,253.1
    
    
    
    288.9US GAAP:Total assets
    
    
    3,802.0
    
    
    
    3,426.7
    
    
    
    3,284.8
    
    
    
    3,339.7
    
    
    
    3,297.3
    
    
    
    422.7Total liabilities
    
    
    1,288.4
    
    
    
    973.2
    
    
    
    816.7
    
    
    
    864.2
    
    
    
    1,046.6
    
    
    
    134.2Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.8
    
    
    
    5.9
    
    
    
    0.7Total shareholders equity
    
    
    2,513.6
    
    
    
    2,453.5
    
    
    
    2,468.1
    
    
    
    2,468.7
    
    
    
    2,244.8
    
    
    
    287.8
 2




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##### Table of Contents



(1)
    
    With effect from January 1, 2003, the Company adopted a new accounting
policy for the year ended December 31, 2003. The effect of this change in
accounting policy is not material and, therefore, the opening balances
have not been restated. For details, please see Item 18 and Note 22 of the
Notes to the Audited Consolidated Financial Statements of the Company.(2)
    
    Per share and per ADS data is derived from the weighted average number of
shares outstanding during the applicable period. No diluted earnings per
share have been presented for the two fiscal years ended December 31, 2000
as there were no potentially dilutive securities outstanding. Diluted
earnings per share was the same as the basic earnings per share as there
were no dilutive potential ordinary share in existence for the fiscal
years ended December 31, 2002 and 2003. The Hong Kong Dollar is freely convertible into other currencies
(including the US Dollar). Since October 17, 1983, the Hong Kong Dollar has
been linked to the US Dollar at the rate of HK$7.80 to US$1.00. The central
element in the arrangements which give effect to the link is an agreement
between the Government and the three Hong Kong banknote-issuing banks, The
Hongkong and Shanghai Banking Corporation Limited, Standard Chartered Bank and
Bank of China (Hong Kong) Limited. Under this agreement, the Government of the
Hong Kong SAR Exchange Fund issues certificates of its indebtedness to the
banknote-issuing banks against payment in US Dollars at the fixed exchange rate
of HK$7.80 to US$1.00. The banknote-issuing banks hold the certificates of
indebtedness to cover the issuances of banknotes. When the banknotes are
withdrawn from circulation, the banknote-issuing banks surrender the
certificates of indebtedness to the Government of the Hong Kong SAR Exchange
Fund and are paid the equivalent US Dollars at the fixed rate. The consolidated financial statements of the Group are expressed in Hong
Kong dollars (HK$). The translations of amounts from Hong Kong dollars into
United States dollars for convenience of the reader in this annual report have
been made at the rate on December 31, 2001, 2002 and 2003 of HK$7.80 = US$1.00.
No representation is made that the Hong Kong dollar amounts could have been,
or could be, converted into United States dollars at that rate or at any other
certain rate on December 31, 2001, 2002 and 2003, or any other certain date. The market exchange rate of the Hong Kong Dollar against the US Dollar
continues to be influenced by the forces of supply and demand in the foreign
exchange market. Exchange rates between the Hong Kong Dollar and other
currencies are influenced by the rate between the US Dollar and the Hong Kong
Dollar. The exchange rates of the Hong Kong Dollar to the United States Dollar as
of and during the years ended December 31, 1999, 2000, 2001, 2002, and 2003
were as follows: 1999
    
    2000
    
    2001
    
    2002
    
    2003Average(1)
    
    
    7.7586
    
    
    
    7.7933
    
    
    
    7.7994
    
    
    
    7.7997
    
    
    
    7.7875High
    
    
    7.7751
    
    
    
    7.8045
    
    
    
    7.8001
    
    
    
    7.8000
    
    
    
    7.8001Low
    
    
    7.7420
    
    
    
    7.7773
    
    
    
    7.7969
    
    
    
    7.7936
    
    
    
    7.7085End of Period
    
    
    7.7700
    
    
    
    7.7998
    
    
    
    7.7978
    
    
    
    7.7981
    
    
    
    7.7640
   (1)
    
    The rate of exchange means the noon buying rate in New York City for
cable transfer in foreign currencies as certified for customs purposes by
the Federal Reserve Bank of New York. The average rate means the average
of the exchange rates on the last day of each month during the period. The exchange rates of the Hong Kong Dollar to the United States Dollar for
each month during the previous six months were as follows: December 2003
    
    January 2004
    
    February 2004
    
    March 2004
    
    April 2004
    
    May 2004High
    
    7.7670
    
    7.7775
    
    7.7845
    
    7.7980
    
    7.8000
    
    7.8010Low
    
    7.7628
    
    7.7632
    
    7.7686
    
    7.7842
    
    7.7870
    
    7.7895
 3




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##### Table of Contents



Risk Factors Prior to making an investment decision, prospective investors should
carefully consider all of the information set forth in this annual report,
including the following risk factors. If any of the following risks actually
occur, the Companys business, financial condition and operating results could
be adversely affected. As a result, the trading price of the Companys
ordinary shares and ADSs could decline and all or part of a prospective
investors investment could be lost. Technical Risks Satellite programs involve inherent technical risks. Given the intense
competitiveness of Asian satellite markets, any launch or in-orbit failure
affecting any of the Companys present or future satellites would have a
material adverse effect on the Companys results of operations and financial
condition. Risk of Launch Failure or Delay There is significant risk in launching satellites. APSTAR V, which is
scheduled to be launched by Sea Launch Limited Partnership (Sea Launch) in
the second quarter of 2004. APSTAR V, is scheduled to be
launched by Sea Limited Partnership (Sea Launch) in the second
quarter of 2004. The LM-3B was developed from the Long March 3A Launch Vehicle and both employ
similar technology. While the actual failure rate varies by launch vehicle and
launch service provider, as at December 31, 2003, the success rate of Sea
Launch was approximately 91.7% and the success rates of Long March 3A and B
were 100% and 80% respectively, which are comparable to other international
launch service providers. While the Company maintains launch and initial in-orbit insurance to cover
the replacement value of the satellites and has limited protection in the form
of liquidated damages or penalties payable to the Company due to a delay by
either the satellite manufacturer and its affiliates or the launch service
provider, it is unlikely that such insurance, liquidated damages or penalties
would be adequate to compensate the Company for its entire loss in the event of
any launch failure or significant delay. Although the Company has obtained
launch insurance for APSTAR V, there can be no assurance that the insurers will
not require exclusions from coverage of certain potential events or additional
premiums based upon current developments in the satellite industry for the
launch insurance of APSTAR V. In the event of the launch failure or serious
delay in launching APSTAR V, while APT may be able to move some of its
customers to APSTAR IA or APSTAR VI, such failure or delay could adversely
affect the APTs transponder lease agreements for APSTAR V with customers such
as SingTel, and would be further adversely affected by the loss of customers of
APSTAR I, the useful life of which is expected to expire at the end of 2004. Risk of Satellite Defects or Failure Satellite defects as well as possible damage from electrostatic storms or
collisions with space debris or other external causes may result in a partial
or total loss of a satellites communication capacity. APSTAR I and APSTAR IA are HS-376 satellite models, APSTAR IIR and APSTAR
V are FS-1300 models, and APSTAR VI is a SB-4100 C1 model. Although these
models were chosen based on a number of factors, including risk management,
there can be no assurance that the Companys satellites will perform as
designed. Significant defects in or damage to any of the Companys satellites
would adversely affect the Companys results of operations and financial
condition. All satellites have limited operational lives, and the operational lives
of APSTAR I, APSTAR IA and APSTAR IIR are presently estimated to end in 2004,
2006 and 2013, respectively. A number of factors affect the operational lives
of satellites, including construction quality, component durability, fuel
usage, the launch vehicle used and the skill with which the satellite is
monitored and operated. There can be no assurance as to the actual operational
life of APSTAR I, APSTAR IA or APSTAR IIR. The Companys results of operations
would be adversely affected if the operational life of APSTAR I, APSTAR IA,
APSTAR IIR or any other satellite it may operate is significantly shorter than
expected. 4




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##### Table of Contents



Future Satellites The launch and operational risks of any of APTs future satellites,
including APSTAR V and APSTAR VI, are similar to those described above
affecting APSTAR I, APSTAR IA, and APSTAR IIR. In addition, contracts for the
design, construction, launch, insurance and commercial operation, of the
Companys future satellites (other than APSTAR V and APSTAR VI) have not yet
been entered into. In addition to the foregoing, the Company may incur
additional costs due to cost overruns, delays, disasters or other unanticipated
expenditures with respect to such satellites. Accordingly, no assurance can be
given as to the ultimate cost of these satellites or whether these new
satellites will be constructed and placed into service according to the
Companys current timetable, or at all. Changes in Technology Technology in the broadcasting and telecommunications industry is in a
rapid and continuing state of change, with new technological developments and
innovations constantly emerging. If such developments and innovations were to
decrease general commercial demand for the use of satellites of the type
operated by the Company, the Companys results of operations and financial
condition could be materially adversely affected. Further, while the Company
designs its satellites to incorporate state-of-the-art technology, there can be
no assurance that the technology used in the Companys satellites will continue
to be the most advanced throughout the entire operational life of each
satellite. Any technological lag which develops could result in lower rental
fees after the initial rental term for any given transponder, and could
therefore have a material adverse effect on the Companys results of operations
and financial condition. Regulatory Risks Regulatory Regime for Satellite Operations The business prospects of the Company (including the launch and the timing
of the launch of new satellites) could be adversely affected by laws, policies
or regulations that modify the present regulatory regime in HKSAR or elsewhere
applicable to APT or the launch, operation and commercial usage of its
satellites. Satellite services are subject to international space law. A country that
is a party to the International Outer Space Treaty or other treaties or
conventions regulating outer space activities is responsible for fulfilling its
own obligations under such treaties or conventions. This often results in the
adoption by a member country of domestic laws to regulate the activities of
their own citizens or corporations in order to enable the country concerned to
comply with its international obligations. APTs satellite operations are
principally regulated by the Outer Space Ordinance 1997 (the Outer Space
Ordinance). The Outer Space Ordinance prohibits any person from launching or
procuring the launch of a satellite, or operating a satellite, without
obtaining the appropriate license. The ultimate authority to grant licenses
and otherwise to administer the Outer Space Ordinance is vested in the Chief
Executive of HKSAR acting in consultation with the Executive Council of Hong
Kong (Chief Executive in Council). In practice, all relevant matters are
dealt with on a regular basis by and through the OFTA. Since July 1, 1997, HKSAR and its government and regulatory bodies have
been subject to its Basic Law and the principle of One country, two systems.
However, the Outer Space Ordinance states that where the Central Peoples
Government of the PRC issues an instruction to the Chief Executive in relation
to any license to be issued or revoked under the Outer Space Ordinance on the
ground that if the instruction were not complied with the national security or
the international obligations of the PRC would be significantly affected, the
Chief Executive shall comply with such instruction. Having granted the Space Station Carrier Licence for the TT&C operation of
APSTAR V to APT by OFTA on November 1, 2003, the Company currently has
licenses for the operation of APSTAR I, APSTAR IA, APSTAR IIR and APSTAR V.
Owing to the fact that APSTAR V is under the leasehold arrangement and will be
operated by Loral Skynet instead of the Company, there is no need for the
Company to obtain the Outer Space Licence for APSTAR V. APT is in the course
of application for the necessary licences for the operation of APSTAR VI with
OFTA. However, there can be no assurance that existing laws and regulations
affecting the Company will remain applicable in the future, or whether any such
applicable laws and regulations are likely to be amended. 5




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##### Table of Contents



Priority for Orbital Slots Satellites are entitled to protection from radio frequency interference by
other satellites and earth stations only upon the registration of the location,
frequency and use of such satellites with the Radiocommunication Bureau.
Registration requires the successful completion of a coordination process with
other existing and potential users of locations and frequencies who have
commented on the application for registration. The coordination process is
carried out in part at the government-to-government level, which is beyond the
control of the Company. The coordination process has become increasingly
complex and time-consuming in the Asia-Pacific region because a large number of
operators have registered new systems operating at high power levels with very
broad coverage. The coordination process may result in modifications of
proposed coverage areas or satellite design to eliminate or minimize
interference with other potential users. Under the Radio Regulations, during the coordination process a country may
request the Radiocommunication Bureau to assist it in resolving disputes in
connection with existing or proposed uses of frequencies and orbital locations.
However, should any such disputes remain unresolved, and the coordination
process therefore not be successfully completed, there is no formal dispute
resolution mechanism. Any country that nonetheless places a satellite or any
earth station into operation without coordination and notification may not be
entitled to seek the assistance of the Radiocommunication Bureau to resolve
complaints relating to interference. APT, through the PRC government, has requested the Radio Regulatory
Department of the PRC via OFTA of Hong Kong to file and coordinate applications
by APT for orbital slots with the Radiocommunication Bureau and for resolving
interference concerns. The Radio Regulatory Department has notified the
Radiocommunication Bureau by advance publication of the proposed use of
several orbital slots, namely 92.2 degrees East, 96 degrees East, 102.8 degrees
East, 131.8 degrees East, 138 degrees East, 140 degrees East, and 142 degrees
East, in addition to the renewals of 131 degrees East and 89.5 degrees East in
2001. Under ITU regulations, no assurance can be given as to whether
substantial modifications to satellite coverage or design may be required,
whether the coordination process with the ITU, with respect to the orbital slot
at 76.5 degrees East, where APSTAR IIR is currently positioned, or any other
orbital slot to be used by the Companys satellites will be completed or
whether the Company will have any priority for any such orbital slot. Possible Disputes Relating to Orbital Slots APSTAR I is utilizing certain designated C-band and extended C-band
frequencies in the orbital slot at 138 degrees East and APSTAR IA is utilizing
certain designated C-band and extended C-band frequencies in the orbital slot
at 134 degrees East. The right to use these frequencies at such orbital slots
has been licensed to the Company by the Kingdom of Tonga (Tonga), which,
through its agent namely Friendly Islands Satellite Communications Limited.
(TongaSat), has responsibility for the ITU coordination process with respect
to such orbital slots and the frequencies covered by the Companys license. APT and TongaSat entered into a licence agreement on July 8, 2003, under
which APT can utilize certain designated C-band, extended C-band and Ku-band
frequencies in the orbital slot at 138 degrees East for APSTAR V. APT and
TongaSat also entered into an operator agreement on December 19, 2003 for the
utilization of certain Ku-band frequencies in the same orbital slot for APSTAR
V, such operator agreement was approved by the corresponding administrations of
both HKSAR and Tonga on March 15, 2004. Tonga has confirmed to the Company that it has not granted rights to any
third party that would affect the Companys license or the Companys
entitlement to use the frequencies at such orbital slot covered by the license.
Disputes may arise with respect to these and other orbital slots used by or
contemplated for the Companys satellites. Any such disputes or interference
may have a material adverse effect on the Company s business. Regulatory Constraints on End-users Many of the Companys existing and potential customers who may wish to use
the APSTAR System to broadcast into or provide telecommunications services for
countries in Asia are subject to government licensing. The applicable
regulatory schemes in these countries vary considerably. While the Company
does not believe these regulatory schemes will prevent it from pursuing its
business, there can be no assurance that its customers licenses and approvals
are or will remain sufficient in the view of foreign regulatory authorities or
that these authorities will not discourage or prevent existing or potential
customers from utilizing transponders on the APSTAR System. 6




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##### Table of Contents



Many of APTs customers must also have authorization from the countries in
which they are located in order to uplink to and communicate by means of APTs
satellites. While obtaining such authorizations on behalf of its customers is
not the Companys responsibility, the Companys success may depend on the
ability of its potential customers to obtain required authorizations. Export Restrictions The United States government has imposed certain restrictions on
technology transfers to certain countries including the PRC. Export licenses
for the deliveries of TT&C Systems and satellites are required to be obtained
by Space Systems/Loral Inc. (SS/Loral), the manufacturer of APSTAR V, and
manufacturers of other satellites that the Company may launch in the future in
connection with launches in any country subject to restrictions on technology
transfers. In November 2001, the US government granted approval, valid until
the end of 2003, for the construction of APSTAR V. On September 20, 2002, APT
entered into a Term Sheet (the APT-Loral Term Sheet) with Loral Orion, Inc.
(Loral Orion), a subsidiary of Loral Space and Communications Limited and
subsequently entered into certain agreements. Under the APT-Loral Term Sheet
and the agreements, Loral Orion agreed to participate in the development of
APSTAR V by investing up to 50% of the capital necessary for the APSTAR V
project on a pro rata basis in order to obtain rights to 27 transponders at a
value of approximately US$115.0 million. In March 2003, the parties agreed to
lower the number of transponders to be purchased by Loral Orion to 25, but
Loral Orions capital commitment remains unchanged. APT selected Sea Launch to
launch APSTAR V, which was expected to take place in the third quarter of 2003,
but which was later postponed to June 2004. By selecting Sea Launchs launch
vehicle, the Company believes that the risk of export license delay will be
substantially reduced. Because of the failure of SS/L to obtain the export
license for the transfer of the title of APSTAR V in time for launching, which
had been scheduled in mid-November 2003, APT entered into a Satellite
Procurement Amendment Agreement, a Satellite Transponder Agreement and a
Satellite Agreement (collectively the Definitive Agreements) with SS/L and
Loral Orion on August 26, 2003 for the purpose of minimizing any further delay
in the launch of the satellite. Under the Definitive Agreements, the title of
APSTAR V will be transferred to Loral Orion, Inc. upon intentional ignition
rather than APT and simultaneously therewith APT will have an irrevocable lease
of forty-one and one-half (41 and 1/2) transponders for the lease term
commencing upon transfer of title from SS/L to Loral Orion until the end of
operational life of APSTAR V. Under the Satellite Agreement, APT will release
the leasehold interest of twelve and one-half (12 and 1/2) transponders to
Loral Orion in stages over a five years period from the in-service date of
APSTAR V subject to payment of installments by Loral Orion to APT. This will
result in the APT having 29 transponders. Under the leasehold arrangement,
Loral Orion has committed that it would continue to pursue for the necessary
export license for title transfer of APSTAR V. The Definitive Agreements were
approved by the United States Bankruptcy Court on October 28, 2003. The Company
believes that entering into the Definitive Agreements will allow for the timely
replacement of APSTAR I so that satellite transponder services of the Group can
be enhanced. The Definitive Agreements will not adversely impact the business
and future plans of the Group because the leasehold interests under the
Definitive Agreements will allow APT to carry on its business in a normal
commercial practice of leasing its transponders capacities to any third
parties. Owing to the failure by SS/L to obtain approval from the U.S. State
Department in a timely manner in order to commence the Congressional
Notification Period, the launch window for APSTAR V under the Launch Agreement
was missed and the launch has been delayed. To cope with the delay, APT
entered into a Settlement Agreement with Loral Orion Inc. and an Amended Launch
Agreement with SS/L and Sea Launch Limited Partnership on November 16, 2003.
The Settlement Agreement makes certain amendments to the Satellite Procurement
Amendment Agreement, the Satellite Transponder Agreement and the Satellite
Agreement and the Launch Agreement to allow for (i) a postponement of the date
of launch of APSTAR V to April 28, 2004 (later on, due to the partial failure
of deployment of north solar array of EdS, a SS/L made satellite that was
launched by Sea Launch in January 2004, the launch date of APSTAR V was further
postponed to the end of June 2004); and (ii) for Loral Orion to take an
additional 4.5 transponders as Initial Loral Orion Transponders, which are in
aggregate 17 transponders to be taken up upon the completion of in-orbit test
of APSTAR V, resulting in Loral Orion assuming the payment of US$20.4 million
that would otherwise to be paid by APT for the construction, launch and
insurance of APSTAR V. Such payment will significantly reduce the cash-flow
pressure of APT. The total number of 25 transponders of APSTAR V to be taken up
by Loral Orion will remain unchanged. Since the operational life of APSTAR I
will remain at least until end of 2004 or mid of 2005, the Company believes
that the delay in the launch of APSTAR V will not affect the replacement of
APSTAR I. 7




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##### Table of Contents



The Settlement Agreement and the Amended Launch Agreement were approved by
the United States Bankruptcy Court on December 4, 2003 and the export license
for launching of APSTAR V was issued by the United States government on
November 25, 2003. In March 2002, Alcatel Space Industries (Alcatel) informed APT that they
had received unconditional approval from the French government for the delivery
of the French-made satellite to the PRC for launching. However, there can be no assurance that the relevant vendor of satellite
will be able to obtain all the necessary licenses or that the licenses or such
other licenses will not be revoked by the relevant government or that the
relevant government will not impose additional restrictions or trade sanctions
against the PRC or other countries that would significantly delay the planned
launch of the satellite in question or other satellites that the Company or any
of its subsidiary or associated company may launch in the future. Business Risks Insurance The Company has in-orbit insurance coverage in respect of APSTAR IA and
IIR until December 31, 2004 and October 17, 2004, respectively. The in-orbit
insurance coverage for APSTAR I was operative until December 31, 2003 and
could not have been extended to cover its remaining design life because it was
less than one-year. The Company had also maintained third-party liability insurance for APSTAR
I, IA and IIR as required by the Outer Space Ordinance License until June 30,
2002. Having gone through discussions with OFTA in respect of obtaining a
waiver that would exempt the Company from compiling the requirement of
maintaining third-party liability insurance for in-orbit satellites under the
APSTAR Systems in accordance with the Outer Space Ordinance, on April 30, 2004
OFTA granted the Company such a waiver whereby the requirement of third party
liability insurance in respect of APSTAR I, IA and IIR respectively for
in-orbit operation is waived. There can be no assurance that the Company will
be subject to any claim for third-party liability in respect of satellites
under APSTAR System. After the World Trade Center event happened on September 11, 2001, the
insurance industry imposed unfavorable terms on the satellite insurance with
respect to both the launch insurance and in-orbit insurance. Such impositions
include a higher premium rate and additional exclusion clauses. The Companys
in-orbit insurance must be renewed annually. There can be no assurance that
the Company will be able to obtain future insurance on terms satisfactory to
the Company. The Companys launch insurance is unlikely to fully reimburse the Company
for its expenditures with respect to launching a replacement satellite, with
uninsured expenses comprising legal and other professional fees, interest and
certain other expenses. The Companys in-orbit insurance covers only the book
value, rather than the replacement cost, of a satellite. Further, the
Companys insurance coverage does not compensate the Company for business
interruption and similar losses (including, among other things, loss of market
share, loss of revenue and incidental and consequential damages). In addition,
the Companys insurance policies include customary exclusions including, among
other things, exclusions from losses resulting from (i) war or similar hostile
actions, (ii) anti-satellite, nuclear or laser or directed energy devices,
(iii) insurrection and similar acts or governmental action to prevent such
acts, (iv) governmental confiscation, (v) nuclear reaction or radiation
contamination, (vi) electromagnetic or radio frequency interference, except for
damage directly caused by such interference, or (vii) willful or intentional
acts of the Company or its contractors. Competitive Nature of the Industry The international satellite communications industry is highly competitive.
The Company faces competition from numerous international, regional and
domestic satellite companies and from other communications companies which
offer competing services using satellites or land-based facilities in the
Asia-Pacific region. Many of these competitors have substantially greater
financial resources than the Company. The Company expects that new satellites
will be launched covering all or part of the Asia-Pacific region in the future,
assuming announced plans for such launches are successfully implemented on
schedule, such launches are implemented on schedule, there would be an increase
of transponder capacity serving the region, the expanding supply of
international telecommunications 8




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##### Table of Contents



facilities, including those of the Company, exceeds the demand for such
services, such overcapacity could have a negative impact on the Companys
results of operations and financial condition. Technology developments, such
as the use of digital video compression technology, and the proliferation of
fiber optic cables in the form of land cables and submarine cables at
comparatively lower cost for point-to-point telecommunication services may also
result in reduced demand for transponder capacity as such advancements become
commercially viable. The laws of certain countries require domestic television broadcasters and
domestic satellite telecommunications operators providing services in their
home countries generally to use state-owned or locally-owned satellites to the
extent capacity is available. These legal requirements may prevent the Company
and other satellite companies from competing in the provision of transponder
capacity to these potential customers. There can be no assurance that other
countries in the Asia-Pacific or Middle East regions, including those countries
within the footprints of APSTAR System satellites and in which the Companys
customers currently provide programming or telecommunications services, will
not impose similar requirements to use state-owned or locally-owned satellites
in the future on domestic broadcasters or operators. The imposition of such
requirements could adversely affect the Company s results of operations and
financial condition. Additional Financing Requirements The satellite business is highly capital-intensive. The Company expects
total capital expenditures for the design, construction and launch of APSTAR V
and APSTAR VI to be approximately US$230 million and US$240 million,
respectively. Under the APT-Loral Term Sheet, Loral Orion agreed to
participate in the development of APSTAR V by investing up to 50% of the total
capital necessary for the APSTAR V, equivalent to an amount of approximately
US$115 million, correspondingly reducing the Companys investments in APSTAR V.
In addition, the Company expects that it will make substantial capital
expenditures in connection therewith and with respect to future satellite
projects over the coming years. APT may also need to make additional capital
expenditures for additional TT&C facilities related to future satellite
projects. On December 16, 2002, APT entered into a US$240 million secured term loan
facility (the Loan Facility), which is secured by the assignment of the
construction, launching, and related equipment contracts relating to APSTAR V
and APSTAR VI under construction and their related insurance claim proceeds,
assignment of all present and fixed charges over certain bank accounts which
will hold receipts of transponder income and termination payments under
construction, launching and related equipment contracts. The Loan Facility is divided into three tranches. Tranche A for APSTAR V
is for up to US$100 million and will mature on the earlier of December 31, 2009
or the sixth anniversary of the commencement of commercial operations of APSTAR
V. Tranche B for APSTAR VI is for up to US$120 million and will mature on the
earlier of March 31,2011 or the sixth anniversary of the commencement of
commercial operations of APSTAR VI. Tranche C for APSTAR VI back up, which is
for up to US$40 million, will be available beginning July 1, 2004 and will
mature on the earlier of June 30, 2012 or the sixth anniversary of the
commencement of commercial operations of APSTAR VI Backup. The Loan Facility
further provides that the aggregate amount under tranche A and tranche B may
not exceed US$200 million and the total aggregate amount under the three
tranches may not exceed US$240 million. In March 2004, APT obtained a confirmation letter from its lenders with
regard to the launch delay of APSTAR V. Pursuant to the confirmation letter,
the unutilized portion under Tranche A and Tranche C are cancelled due to the
availability period of drawing under Tranche A with respect to APSTAR V having
expired at year-end 2003. Accordingly, the aggregate loan facility under the
two tranches A and B was reduced to US$165 million, the repayment date of the
first installment under Tranche A was extended to six months after the
successful launch and in orbit testing of APSTAR V, and certain financial
covenants were amended. As of December 31, 2002 and 2003, the aggregate outstanding borrowing
amount under the Loan Facility was US$21 million and US$90 million,
respectively. The Loan Facility contains financial covenants, including maintenance of
collateral coverage ratio, minimum net worth and minimum EBITDA. The Loan
Facility also contains customary limitations, including those on dividend,
investments, capital expenditures, change of controlling shareholders, creating
liens and transactions with affiliates. No assurance can be given that APT
will be able to meet any financial performance covenant. 9




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The actual amount of any capital expenditures may vary as a result of a
variety of factors, including cost overruns, delays or other unanticipated
expenditures. The Company expects that APT will fund such capital expenditures
with the Loan Facility, operating cash flow and the Companys existing internal
resources. While the Company believes that such sources will be sufficient to
fund APTs planned expenditures, there can be no assurance that this will be
the case. Restrictions on Real Property Use APT Telecom entered into the APT Telecom Lease on March 12, 2001 for the
lease of a piece of land known as The Remaining Portion of Section E of Tai Po
Town Lot No. 13 and Extension Thereto of approximately 6,903.29 square meters
(equivalent to approximately 74,309 square feet (Site 3A) adjacent to the
Satellite Control Center for the development of an integrated teleport (the
Teleport) for telecommunication services. Pursuant to the APT Telecom Lease,
APT Telecom has completed the construction of the Teleport and commencing
operations within 24 months from March 12, 2001. APT Telecom is required under
the APT Telecom Lease to make additional capital expenditures of not less than
HK$200 million with respect to the development of this property. As at
December 31, 2003, APT Telecom still has HK$38.0 million (US$4.9 million)
capital commitment in respect of the property in which the Company shared
HK$20.9 million (US$2.7 million). APT entered into the Second Supplemental Agreement on March 12, 2001 for
the lease of property known as Subsection 3 of Section E of Tai Po Town Lot No.
13 and Extensions Thereto of approximately 2,016 square meters (equivalent to
approximately 21,701 square feet) (Site 3B) adjacent to the Satellite Control
Center, which was then merged with the lands leased under the Lease Agreement,
the occupied land (Site 1) for the TT&C facility and the adjacent land (Site
2), where Phase II of the Satellite Control Center is located, in order to
manage the additional needs for the operation and control of APSTAR V and
APSTAR VI, as well as the provision of broadcasting and telecommunication
services. APT has committed to completing the construction and commencing
operations on the new site within 24 and 30 months, respectively, of March 12,
2001. The Second Supplemental Agreement required APT to make additional
capital expenditures of not less than HK$100 million with respect to the
development of this property and APT had completed the commitment at the end
of December 2003. APT completed the construction of the Satellite Control
Center Phase II and obtained the occupation permit with respect to the property
on February 2, 2002. APT entered into the Fifth Modification of Lease and Fifth Modification
Proposal in May 2002 according to which APT is allowed to extend its services
to broadcasting transmission services and telecommunication services, including
Internet data centers, teleport services and other telecommunication facilities
and services. Pursuant to the APT Telecom Lease and the Second Supplemental Agreement,
each of APT Telecom and APT has procured Bank of China (Hong Kong) Limited to
provide two bank guarantees in the respective amounts of HK$1.3 million (for
Site 3A mentioned above) and HK$670 thousand (for Site 3B mentioned above) in
favor of the Science and Technology Parks Corporation, enforceable by the
Science and Technology Parks Corporation against Bank of China (Hong Kong) in
the event of either companys failure to perform or comply with its respective
obligations and undertakings on the above-mentioned development schedules and
capital expenditures commitments. The bank guarantees expired on March 5,
2004. APT Group is still in the process to discuss with the Science and
Technology Parks Corporation in respect of the fulfillments of obligations and
undertakings on the above-mentioned development schedules and capital
expenditures commitments. As at the latest practicable date of this submission,
APT Group has not yet obtained the confirmation or waiver with respect to the
above-mentioned development schedules and capital expenditures commitments.
There can be no assurance that APT Group can obtain the wavier. If such wavier
cannot be obtained, APT Telecom may make further capital expenditure as at
December 31, 2003 in the amount of HK$38.0 million (US$4.9 million) in respect
of the above-mentioned development. Dependence on Key Customers Revenues from the Companys five largest customers for the years ended
December 31, 2001, 2002, and 2003 were, HK$207.5 million, HK$198.9 million and
HK$119.2 million (US$15.3 million), respectively, which represented 55.5%,
56.6% and 39.4%, respectively, of total revenues. Revenues from the Companys
largest customer represented 29.0%, 22.9% and 12.6%, respectively, of total
revenues during such periods. The 10




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Companys results of operations could be
materially and adversely affect by the loss of one or more of its key
customers. Political and Economic Risks Substantially all of the Companys revenues are derived from its
operations conducted in the Asia-Pacific region, including the PRC and Hong
Kong. As a result, the Companys results of operations and financial condition
may be influenced by the political situation in the PRC, Hong Kong and
elsewhere in the Asia-Pacific region and by the general state of the various
Asian economies. For the years ended December 31, 2001, 2002 and 2003,
approximately 72.2%, 72.5% and 74.7%, respectively, of the Companys revenues
were derived from customers based in the PRC. In addition, due to the
geographic coverage of the Companys satellites, the most significant market
for the Companys customers (whether or not such customers are based in the
PRC) has been, and is expected to continue to be, the PRC. The PRC The economy of the PRC differs from the economies of most countries
belonging to the Organization for Economic Co-operation and Development in such
respects as structure, government involvement, level of development, growth
rate, capital reinvestment, allocation of resources, rate of inflation and
balance of payments position. For over 50 years, the economy of the PRC has
been a planned economy subject to five-year state plans adopted by central PRC
government authorities and implemented, to a large extent, by provincial and
local authorities, which set production and development targets. Although the
majority of productive assets in the PRC are still owned by the government, in
the past several years emphasis has been placed on decentralization and the
utilization of market mechanisms in the development of the PRC economy. Since the late 1970s, the PRC government has been reforming its economic
systems. Many of the reforms are unprecedented or experimental, and are
expected to be refined and improved. Other political, economic and social
factors could also lead to further readjustment of the reform measures. This
refining and readjustment process may not always have a positive effect on the
operations of the Company and its PRC customers. The Company and its PRC
customers may be adversely affected by changes in the PRCs political, economic
and social conditions and by changes in policies of the PRC government, such as
changes in laws and regulations (or the interpretation thereof), measures which
may be introduced to control inflation or imposition of additional restrictions
on currency conversion. Subsequent to the accession of the PRC into the World Trade Organization
in November 2001, there has been no immediate adverse impact on the satellite
industry in the PRC market. However, its long-term implications are uncertain. The PRC government has mandated that international satellite channels must
distribute their channels in the PRC using a unified satellite platform
different from the APSTAR System. The implications of this requirement are not
yet certain, but since over 70% of APTs revenue is derived from China, there
may be an adverse impact on APTs business. Most of the payments under the Companys transponder lease agreements are
required to be made in US Dollars. The PRC currently has extensive foreign
exchange controls. The ability of the Companys PRC customers to convert
Renminbi (the currency of the PRC) into foreign currency and to purchase
foreign currency is subject to various PRC laws and regulations. There can be
no assurance that in the future the PRCs foreign exchange controls will not
adversely affect the ability of the Companys PRC customers to make payments to
the Company in US Dollars. The SARS Outbreak In the first half of 2003, there was the out-break of a highly infectious
deadly flu-like disease known as Severe Acute Respiratory Syndrome (SARS) in
the Asia Pacific region, including the PRC. The SARS outbreak had severely
affected the economic environment of most of Asia. No vaccine yet been
successfully developed, and therefore another outbreak of SARS could adversely
affect the economies of the region. 11




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Item 4. Information on the Company History and Development of the Company APT Satellite Holdings Limited (the Company or APT Holdings) is a
Bermuda company incorporated on October 17, 1996 with its principal place of
business originally at Rooms 3111-3112, 31st Floor, One Pacific Place, 88
Queensway, Hong Kong (Telephone: 852 2526-2281) and subsequently removed to 22
Dai Kwai Street, Tai Po Industrial Estate, Tai Po, New Territories, Hong Kong
on December 8, 2003 (Telephone: 852 2600-2100). The Companys registered
office is at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda. APT
is a Hong Kong company and a wholly-owned indirect subsidiary of the Company.
References herein to the Company include APT Holdings and its subsidiaries,
except where the context otherwise requires. Business Overview The Company, through its subsidiary, APT, is a leading provider of high
quality satellite services throughout the PRC and elsewhere in the Asia-Pacific
region. APSTAR System broadcasts satellite TV channels of many prominent
international broadcasters (including HBO, Sony Pictures Entertainment and
Hallmark Entertainment), as well as prominent PRC, Taiwan and Hong Kong
broadcasters (including CCTV, CETV-1 and CSTV). The Companys strategy is to
serve as a preferred operator for these and other international and PRC,
Taiwan, and Hong Kong broadcasters. The Company also provides
telecommunications services to, among others, the China Telecom Corp. and
China United Telecommunications Corp. (China Unicom), China Netcom, the main
telecommunication service providers in China. APTs first satellite, APSTAR I, was launched in July 1994 and commenced
commercial service on September 15, 1994. APSTAR IA was launched in July 1996
and commenced commercial service on September 1, 1996. As at December 31,
2003, the utilization rates of APSTAR I and APSTAR IA were 53.9% and 60.7%,
respectively (in 2002, the utilization rates of these satellites were 55.6% and
65.7% , respectively). The Company launched a third satellite, APSTAR IIR, in October 1997, and
it commenced commercial service on January 1, 1998 for the provision of high
quality and high power transponder capacity in the Asia-Pacific region.
Moreover, APSTAR IIR provides a wider coverage and higher power in comparison
to APSTAR I and APSTAR IA. On August 18, 1999, APT entered into a lease agreement with Loral Asia
Pacific Satellite (HK) Ltd. (Loral Asia), a wholly-owned subsidiary of Loral
Space and Communications Limited, for the lease of 43 of the 44 transponders of
APSTAR IIR. According to the lease agreement, Loral Asia is entitled to use
the capacities of these transponders until their service spans expire. The
lease price was approximately US$298 million, payable by eighteen installments
in United States Dollars within four years. Loral Asia later proposed to
advance the date of payment and, as a result, the lease price was revised to
approximately US$273 million, payable in three installments, with the last
installment of approximately US$181 million paid on March 27, 2000. According
to the lease agreement and all relevant operating licenses, APT is responsible
for the operational control of the satellite under the satellite service
agreement with Loral Asia. According to the satellite service agreement,
operational control of the services are provided until the end of life of the
satellite, unless terminated by Loral Asia. As of December 31, 2003, 100% of
the transponders capacities of APSTAR IIR was leased. In order to take advantage of the demand in the PRC and elsewhere in Asia
for varied television programming with superior picture and sound quality, the
Company has commissioned to launch a high power satellite, APSTAR V, in the
second quarter of 2004. APSTAR V is intended to satisfy demand in both Asia
and Australia for transponder capacity. It is also intended to further expand
the APSTAR System as APSTAR I approaches the end of its expected operational
life. In December 2001, the Company also commissioned APSTAR VI to serve as
the backup to APSTAR V as well as the replacement satellite of APSTAR IA. On April 11, 2003, APT and SingTel (also referred hereafter as the
Lessee) entered into a new lease agreement (the New Agreement), which
supercedes the original lease agreement with SingTel on January 8, 2001, for
the lease of 15 C-band transponders out of the total of 38 C-band and 16
Ku-band transponders of APSTAR V at an aggregate lease price of approximately
US$112 million. Under the New Agreement, SingTel will lease 6, instead of 15,
of APSTAR Vs transponders of through its expected operational life, expected
to be not less than 13 years, 12




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and at the fixed aggregate lease price for the
six transponders will be US$33.6 million (approximately HK$262.5 million).
Under the New Agreement, APT also granted SingTel the right to lease up to five
additional transponders upon the written request of SingTel made within three
years from the date APSTAR V commences operation at a
fixed aggregate lease price of US$22.2 million (approximately HK$172.8
million). Subject to the provisions of the New Agreement, the maximum amount
of the lease price for 11 transponders payable to APT will be US$55.8 million
(approximately HK$435.4 million). Subject to the provisions of the New Agreement, APT has also agreed to
provide operational and maintenance services to the Lessee through APSTAR Vs
useful life for the annual management fee which will cover all costs associated
with operations and management of the transponders as well as tracking,
telemetry and command services, and all necessary insurance including in-orbit
insurance and third-party liability insurance and maintenance. The fixed
aggregate value of the management fees for the six transponders amounts to
US$16.3 million (approximately HK$127.1 million); the annual amounts of the
management fees will range from US$0.8 million (approximately HK$6.6 million)
to US$1.4 million (approximately HK$11.0 million). If the Lessee exercises its
rights to lease five additional transponders, the fixed aggregate amount of the
management fees for those additional transponders will amount to US$13.6
million (approximately HK$105.9 million). The Company has focused its marketing efforts on developing a customer
base of international and PRC broadcasters and telecommunications providers.
The Company has established close relationships with its existing customers and
believes that it is well-positioned to continue to lease capacity on future
satellites to its existing customers as well as to expand its customer base to
include other prominent broadcasting and telecommunications customers. The Companys broadcasting customers generated approximately 47.8%, 49.0%
and 49.5%, and telecommunications customers generated approximately 49.9%,
46.4% and 46.8% of the Companys total revenues for the years ended December
31, 2001, 2002 and 2003, respectively, with the remaining revenues in those
periods having been derived from the provision of services in respect of
satellite television uplink, telemetry, tracking and control and marketing
services for APSTAR IIR customers. In the years ended December 31, 2001, 2002
and 2003, approximately 72.2%, 72.5% and 74.7%, respectively, of the Companys
revenues were derived from customers in the PRC. Satellite Telecommunication and Broadcasting Services In order to fully tap the business potential arising from the
telecommunications field in the Asia Pacific region, including the PRC, APT
Telecom Services Limited provides telecommunication services such as Fixed
Carrier Licence (formerly known as external satellite-based fixed
telecommunication network services) under the FTNS license issued by OFTA on
June 19, 2000. These FTNS include VSAT, Teleport and uplink service, wholesale
voice,Internet POP gateway services, and the Teleport service. The Teleport
is built to be adjacent to the Companys Satellite Control Center, with a site
area of 74,000 square feet, and total floor area of 180,000 square feet,
including a data center of approximately 120,000 square feet. The Teleport
provides customers a one-stop service for various kinds of advanced
telecommunications services through satellite and cable, as well as linking the
Asia Pacific region, including the PRC, to North America and Europe. On September 10, 2003, APTT entered into a master agreement with the
Companys wholly-owned subsidiary, APT Telecom Services Limited (APTTS),
Skywork and Singasat whereby the business of APTT was being reorganized through
transferring APTTs Fixed Carrier License (FCL) business together with the
FCL to APTTS and transferring APTTs cable interests related to FCL including
the APCN and C2C interests to SingTel. The former transfer was done pursuant to
a transfer of business agreement between APTT and APTTS at consideration of
HK$6,800,000 together with compensation of HK$13,500,000 payable in 5 equal
annual installments commencing on February 1, 2005 by APTT to APTTSs holding
company, APT Satellite Company Limited, for the surrender by APTT of the
remaining term of a services and facilities lease agreement in respect of a
premises in Tai Po Industrial Estate. The latter transfer was done pursuant to
a cable interests transfer agreement between APTT and Singasat, which
subsequently assigned it to its holding company SingTel, at considerations of
HK$2,986,000 and HK$2,574,000 in respect of the APCN interest and C2C interest
respectively. This reorganization was completed on October 10, 2003. The
Company believes that the reorganization will allow the APT Group to
concentrate on the satellite-related telecom services business, which is in
line with the Groups core business in providing satellite transponder
services. 13




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APT Satellite TV Development Limited (APT TV) established a satellite TV
broadcasting platform based on the Satellite Television Uplink and Downlink
License granted by the Government of HKSAR in 1999 and was
broadened to other satellites in addition to APSTAR System in November
2003. During the first half of 2002, APT increased investments in uplinks and
downlinks, and TV-program transmission and broadcasting facilities. APT TVs
program-transmission capacity is up to 20 channels to accommodate the future
demand for satellite TV program services, enhancing the capacity of the APT
TVs satellite TV broadcasting platform and further developing the Companys
satellite broadcasting business. Furthermore, in April 2002, APT TV established an associate venture with
Eurosport, Societe Anonyme (Eurosport). Through this association, APT TV and
Eurosport have been providing the Chinese market with satellite TV broadcasting
services, and commenced operation of the first sports news channel in the PRC
in July 2002. In December 2002, the associate venture signed an agreement with
China International TV Corporation and obtained a permit for limited
broadcasting in PRC. Owing to the change in business strategy of the associate
such that APSTAR system could not be used by the associate in establishing its
business, APT TV transferred 33% interests of and the amount due from the
associate to Eurosport at a consideration of HK$634 thousand (US$81 thousand).
Although APT TV transferred 33% interests in that associates total share
capital to Eurosport in December 2003, the Company will continue to pursue the
establishment of the satellite TV platform as a overall strategy. In April 2002, the Group acquired an additional 20% interest in CTIA VSAT
Network Limited (CTIA), in which it previously had a 40% ownership interest.
CTIA indirectly owns 21% of a PRC company that provides data broadcasting
services for the PRC market, Beijing Zhong Guang Xin Da Data Broadcast
Technology Co, Ltd. (Beijing Zhong Guang Xin Da). After the acquisition,
the Company indirectly holds a 12.6% effective interest in Beijing Zhong Guang
Xin Da. The Companys acquisition of an additional ownership interest in CTIA
is in line with its strategic development plan of shifting towards end-users in
the value-chain of the broadcasting businesses. Industry and Market Overview Satellites The global communications market for video, data and voice transmissions
is served primarily through terrestrial and submarine optical fiber and coaxial
cable, microwave systems and satellites. Ground-based microwave systems disseminate signals in the form of radio
waves from an antenna on top of a building or a transmission tower. Microwave
systems are well suited for use by local television stations and cellular
telephone systems because the reach of the transmission signal typically is
limited to one discrete area. Microwave systems are not suitable for long
distance communication or broadcasting, since transmission over long distances
requires the construction of a number of microwave relay stations to relay a
signal, and repeated transmission can distort a signal. Satellite systems
require only two stations to cover long distances, one uplink station and one
downlink station. Most importantly, satellites can provide point to multipoint
transmissions while simultaneously transmitting signals over the entire region
covered within the satellites footprint. Satellite
systems generally operate in three main orbits - low-earth orbit
(LEO), mid-earth orbit (MEO) and geostationary orbit (GEO). LEO systems
operate in orbits at distances of from between just a few hundred miles up to
1,000 miles from earth, whereas MEO systems operate from 1,000 up to 20,000
miles from earth, although they will typically be in the range of 6,000 to
15,000 miles high. Satellites in these systems are not geostationary, that is,
they do not constantly overlook the same area on earth. The inability to cover
the same area on earth continuously makes these systems impractical for
broadcasting and traditional telecommunications usage. In general, LEO and MEO
systems comprise of a series of satellites that are used commercially primarily
for mobile satellite services. By contrast, GEO satellites, such as APSTAR I,
APSTAR IA and APSTAR IIR, are located in orbit approximately 22,300 miles above
earth and can blanket large geographic areas with signal coverage. GEO satellites can be accessed through an uplink station virtually
anywhere within the satellites footprint. With broad coverage capability, GEO
satellites have commonly been used for (i) television broadcasting, principally
to cable operators for redistribution and also to households equipped with
direct reception antennae as well as for supplementary terrestrial transmission
networks in remote areas, (ii) international and domestic trunk telephony 14




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complementing optical fiber and coaxial cable and microwave backbone networks
and (iii) business services, principally for voice, data and video
transmissions to private networks such as VSAT networks and program exchanges
between television broadcasters, including satellite news gathering. Communications satellites typically are evaluated on (i) their coverage
area or footprint, (ii) the quality of the signal transmitted to the coverage
area and (iii) the availability of the transponders. Footprint is a
measurement of the breadth of a satellites coverage. A key measurement of
signal quality is the intensity of transmission power in the coverage area.
Higher power signal enables a customer to use smaller, lower-cost antennae on
the ground. Availability is determined by considering a satellites
operational lifetime as well as the number of transponders capable of
providing service. The Company considers all three factors in determining
whether a particular satellite is appropriate for its needs. Commercial telecommunications and broadcast satellites typically transmit
signals using either C-band or Ku-band. C-band is used worldwide for satellite
communications to transmit signals with less interference from atmospheric
conditions. C-band frequencies are also used by ground-based microwave
systems. In certain parts of the world, C-band satellite transmission antennae
must be located far from centers of population to avoid interference with
ground-based systems. Since there are fewer Ku-band systems in existence than
C-band systems, more powerful Ku-band transponders can be used in urban areas
without similar interference concerns. Because of higher available
transmission power, Ku-band frequencies can be used in conjunction with
antennae that are smaller than antennae that are used in conjunction with
C-band frequencies. Ku-band is generally used for the same purposes as C-band
as well as for satellite news-gathering (transportable antennae) and in some
VSAT applications. The combination of high power transmitters and small antennae also makes
Ku-band suitable for direct-to-home television. Direct-to-home television did not become commercially viable until
recently because available satellite technology did not have the power to
transmit to receivers and digital compression technology had not been
adequately developed. Today, DBS provides an efficient point-to-multipoint
delivery of video and audio transmissions. The advent of high-powered
satellites allows for dishes as small as 18 inches and digital compression
technology permits the broadcast of up to 10 channels of programming per
transponder. In the United States, Europe and Japan, DBS operators have had
success in penetrating their respective markets. Satellite operators such as APT provide satellite transponder capacity.
For television programming distribution, these services may consist of
arranging satellite capacity and providing teleport transmission facilities and
other value-added services. Services for other broadcasting applications, such
as live news and sports reporting, may include the arrangement of satellite
capacity, the provision of trucks equipped for live news and sports broadcasts,
transmission scheduling and signal monitoring. Services for business
communications networks are generally more extensive and may include arranging
satellite capacity, procurement and installation of on-site antennae and
network design, integration, management, operation and maintenance. Satellite
operators either provide these services or provide satellite capacity to other
companies which provide these services. The Company has chosen to focus on the
provision of satellite transponder capacity, through the establishment of the
APSTAR System, in order to maximize the efficient use of its resources so as to
provide the highest quality service. Broadcasting and Telecommunications Markets in Asia Increased Distribution of Television Programming Until the recent financial crisis and general economic downturn, the
television market in Asia had been experiencing significant growth, both in
terms of the number of broadcasters creating programming and the number of
channels available to viewers. In particular, the number of television
broadcast networks has grown substantially since 1991. International
television programmers have been seeking to provide entertainment in Asia.
Satellites are ideally suited for broadcasting to international, regional, and
national audiences and for delivering television programming to cable operators
or microwave transmission stations for local redistribution. The television markets in Asia are not uniform, and among the nations of
Asia, there are numerous regional differences in language, culture, and
ideology as well as in income levels and income distribution. Programmers who
wish to take full advantage of the entire Asian television market must tailor
their programming to be responsive 15




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to these regional differences. Access to
satellite transponder capacity from satellite operators provides opportunities
to television broadcasters to tailor programming for particular audiences. The
Company believes that this will stimulate demand for transponder capacity on
its satellites. Liberalization of the Television and Telecommunications Industries Liberalization of the television industry in a number of countries in Asia
has increased the portion of programming on satellites that is broadcast by
private television networks and programmers which complement or compete with
state-owned or state-sponsored broadcasters. Most countries in Asia have been liberalizing their telecommunications
markets to some degree or another in order to permit private service providers,
in addition to the traditional state-sponsored telephone monopolies, to provide
facilities and services. The PRC has begun to liberalize its
telecommunications markets by breaking the monopoly status of China Telecom as
the countrys sole telecommunications services provider and by allowing limited
numbers of domestic service providers in various service areas (such as mobile
services, internet telephony and other services). New telecommunications
service providers stimulate demand for satellite capacity such as that offered
by the Company. Continuing Technological Advancements The Company believes that technological advances will increase information
carrying capacity and reduce transmission and equipment costs which may, in
turn, stimulate demand for satellite communications services. Such advances
include the following: High-powered Satellites.New satellites, which are of higher power, can
deliver improved quality signals to antennae that are generally smaller and
less expensive (and are therefore more convenient for private and commercial
use) and can cover a larger area than those used with earlier-generation
satellites. The increasing use of these smaller, less expensive antennae is
expanding the markets for public and private communications networks and video
distribution services. Digital Communications.Analog telephone systems carry relatively low
volumes of information. Globally, telephone companies are rebuilding their
infrastructure to carry high-speed digital communications, which permit new and
enhanced business communications and consumer services. Examples include video
phones, video conferencing, video-on-demand, wide-area networks, telecommuting
and interactive TV. Many of these services use satellite transponder capacity
within their transmission circuits and, because of their high transmission
rates, will require significant transponder capacity. Furthermore,
developments in digital technology for VSATs, which reduce terminal size and
increase transmission throughput, are encouraging the development of new,
cost-effective business and rural communications applications. Compressed Digital Video.Digital video compression technology is
designed to compress multiple high-quality video channels into the same
transponder capacity that previously carried one analog channel. This
technology facilitates a significant increase in the number of available video
channels with improved transmission quality and allows satellite operators to
provide satellite transmission services using less bandwidth. Digital video
compression technology is expected to lower the costs of delivering programming
via satellite and cable television systems, thereby permitting more programming
options to be provided to niche markets. Digital video compression technology
may also permit broadcasters, by lowering per channel costs, to offer local
broadcasting platforms including programming designed for particular national
audiences and particular cultures and languages. The Company believes that
digital video compression technology may facilitate the efforts of broadcasters
to distribute their programming regionally to multiple audiences. Digital video compression technology may also in the future facilitate the
introduction of HDTV. Digital video compression technology is expected to
permit HDTV signal with superior picture quality to use an amount of bandwidth
comparable to that used by a current analog channel with a far inferior image
since analog form typically consumes large amounts of bandwidth. 16




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Increased Spending on Telecommunications Projects Many countries in Asia lack basic telephone services as well as the
sophisticated optical fiber and digital switching infrastructure required for
large bandwidth, high speed data applications for businesses. The governments
of many of the developing countries in Asia have recognized the effect of
shortages of telecommunications services
in their countries and are responding by setting goals aimed at
significantly increasing teledensity (measured in main telephone lines per 100
inhabitants) in their countries. The Company believes that government
organizations in such countries and other less developed regions in Asia will
depend significantly on wireless communications, including satellites, to serve
their communications needs because the development of land-based infrastructure
is more costly and time-consuming. Growth of Information Services Markets The Company believes that the market in Asia for information services
still has the potential to grow, both in terms of the numbers of providers and
users of such services and the types of services available. Satellite
distribution is ideally suited for the provision of information services
supplied by global service providers. Customers and Services For the years ended December 31, 2001, 2002 and 2003, the Companys
revenues were derived from the following businesses: Year Ended December 31,2001
    
    2002
    
    2003Broadcasting
    
    
    47.8
    %
    
    
    49.0
    %
    
    
    49.5
    %Telecommunications
    
    
    49.9
    %
    
    
    46.4
    %
    
    
    46.8
    %Service Income
    
    
    2.3
    %
    
    
    4.6
    %
    
    
    3.7
    %
 Revenues from the Companys five largest customers for the years ended
December 31, 2001, 2002 and 2003 were HK$207.5 million, HK$198.9 million and
HK$119.2 million (US$15.3 million) respectively, which represented 55.5%, 56.6%
and 39.4%, respectively, of total revenues. Revenues from the Companys
largest customer represented 29.0%, 22.9% and 12.6%, respectively, of total
revenues during such periods. Broadcasting Local, national and international broadcasters use satellite transponder
capacity for (i) television programming distribution, (ii) contribution or
backhaul operations (the transmission of video feeds from one location to
another) and (iii) ad hoc or spot services such as the transmission of
special events and live news reports from the scene of the event. At present,
most of APTs broadcasting customers lease transponder capacity for
distributing programming to television stations, local cable operators and
master antenna systems. On July 6, 1999, the Company was granted the Satellite Television Uplink
and Downlink License (the STVUD License) by the HKSAR government. According
to the STVUD License, the Company is able to use the newly acquired uplink
platform and downlink system, together with certain encryption and digital
compression technologies, to provide satellite television uplink and downlink
services through the Companys APSTAR I, APSTAR IA, APSTAR IIR and other
satellites. Television Programming Distribution.The Companys strategy is to
position the APSTAR System as a preferred provider of satellite capacity
covering the PRC and the Asia-Pacific region. This strategy has been
implemented by targeting both international and domestic broadcasters as
customers for services on the APSTAR System. Local cable television operators and over-the-air local broadcasters
install and position their downlink antennae to receive programming from
programmers using a satellite in the APSTAR System. Once such antennae have
been installed and positioned to receive signals from a particular programming
provider on the relevant APSTAR System satellite, cable operators and local
broadcasters can receive programming using the same antenna from other
providers using such satellite. As a result, new programmers may seek to lease
transponder capacity on a 17




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satellite with an established audience rather than
leasing transponder capacity on a satellite with a less-established audience. For domestic Asian broadcasters, the APSTAR System offers the ability to
create national networks where, due to difficult terrain and the high costs of
building the required infrastructure, none was possible before. For
example, China Broadcast Film Television Satellite Co. Ltd. uses capacity
on APSTAR IA to distribute a variety of CCTV channels, its national television
network, to audiences throughout the PRC, including remote areas. The APSTAR System also offers a number of other benefits for domestic
broadcasters. By using one of the satellites in the APSTAR System, domestic
broadcasters may, for example, purchase certain segments of an international
programmers feed using the same satellite for broadcast as part of their own
programming, without incurring the cost of adding a separate earth station to
receive the international programmers segments. In addition, domestic
broadcasters can sell their own programming regionally or internationally
because the APSTAR System allows them to use the same transmission antennae to
relay their programming internationally as well as domestically to others using
the same satellite. Local cable and television station operators also benefit
from using the APSTAR System for television programming distribution because
they need only one earth station pointed at an APSTAR satellite to receive
programming from both domestic and regional broadcasters using the same
satellite. The following chart lists APTs typical broadcasting customers and the
nature of their programming: Customer
    
    ProgrammingChina Central Television (CCTV)
    
    National television in the PRC including
CCTV-1 to 12, CCTV News except CCTV-4 and
CCTV-9China Education Television (CETV)
    
    Educational television in the PRCChina Broadcasting Film Television
    
    Provisional television in the PRC, includingSatellite Co., Ltd. (CBFTV)
    
    Yunnan, Xinjiang, Tibet and HainanChinese Satellite Television (CSTV)*
    
    Financial news, general entertainment in TaiwanHallmark Entertainment*
    
    Movies and special eventsHBO*
    
    Movies and special eventsSony Picture*
    
    Movies and special events
   *
    
    Customers who are using APSTAR IIR transponder capacities. Backhaul Services.Broadcasters can use satellite capacity for backhaul
operations, such as transporting programming from a broadcasters foreign news
bureau to its broadcast center for simultaneous or later transmission. Ad Hoc Services.Broadcasters can also use satellites to transmit
coverage of live scheduled special events to programmers on a short-term ad hoc
basis as well as to relay live news coverage, short duration video feeds and
syndicated programming for broadcasters on a scheduled or ad hoc basis. Telecommunications The Companys telecommunications services include the provision of
transponder capacity for private communications networks for data and voice
communications and the provision of PSTN carrier services including the
wholesale voice to telecom network operators and other communications service
providers in Asia. Private Networks.Many businesses and organizations utilize satellites
rather than ground-based transmission media for a variety of reasons, including
(i) cost savings for large, geographically dispersed networks, (ii)
independence from telephone companies, (iii) predictability of costs over a
long period, (iv) flexibility in changing and adding remote locations to a
network, (v) integrated network management and control of remote locations and
(vi) increased network availability and lower transmission error rates. 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 to numerous locations
and paging 18




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operators use satellite networks to distribute paging information
from a central switch to multiple remote transmitters for retransmission to
pagers. The Company believes that there will continue to be opportunities in
Asia to market transponder capacity to certain end users which, due to
inadequate telecommunications infrastructure or high costs of local public
networks, desire to operate their own private networks for data and voice
transmission. The Company offers satellite services for private business communications
networks, including VSAT networks. VSAT networks consist of small rooftop
antennae and are utilized by customers that need to send short bursts of data
over a network for relatively short periods of time. Through the use of VSAT
technology and sophisticated software, these networks can be served with a
relatively small amount of satellite capacity. Networks using VSATs have been
growing rapidly to meet the specialized data requirements of particular
industries. Carrier services.A portion of the Companys revenues in the
telecommunications market is derived from the provision of satellite capacity
to domestic and regional communications carriers in Asia, including telecom
network operators in the PRC that use the capacity as part of their
communications network on a national or international basis. China Telecom currently leases transponders on APSTAR I and APSTAR IA to
provide carrier services in the PRC, and ChinaSat currently leases transponders
on APSTAR I. In addition, China Unicom leases transponder on APSTAR IA to
provide carrier services in the PRC. Service Income On August 18, 1999, APT entered into a marketing services agreement and
satellite services agreement with Loral Asia. Under the marketing services
agreement, Loral Asia engaged APT as an independent contractor, on a
non-exclusive basis, solely in the China market including Hong Kong for certain
marketing and sales activities in respect of the leasing of transponder
capacity of APSTAR IIR. In consideration of the services provided, APT
received from Loral Asia a non-refundable monthly retainer fee and a commission
based on gross lease fee derived by Loral Asia from contracts executed between
Loral Asia and customers of APSTAR IIR who were identified and referred to
Loral Asia by APT. This agreement had an initial term of five years to be
automatically renewed for another year thereafter. Effective from February 25,
2001, the marketing services agreement was amended so that payment would be
solely commission-based. Under the satellite services agreement, APT provides the necessary
satellite control services for APSTAR IIR to Loral Asia. This agreement will
continue throughout the useful life of APSTAR IIR unless terminated by Loral
Asia with at least 120 days prior written notice. In consideration of the
services provided, APT receives a payment of approximately US$1 million per
year from Loral Asia. Transponder Lease Agreements The Companys typical transponder lease agreement allows for lease of the
capacity of a transponder, either in whole or in part, on the APSTAR System.
These agreements require service fees to be paid in advance and provide for
renewal options. All of APTs transponder lease agreements require payment of
all amounts due in US Dollars. Generally, upon a fixed number of months
notice, a customer may terminate its transponder lease agreement without cause.
In such a case, however, the customer is obligated to pay to APT specified
liquidated damages based on the terms of the transponder lease agreement. In
addition, the transponder lease agreements, in general, provide for a specified
reduction in the service fees if transponder service is interrupted for reasons
not caused by the customer or beyond the control of APT (such as mechanical
transponder failure). If such service interruptions continue without
correction (within an acceptable period of time) and APT is unable to provide a
suitable alternative capacity within an agreed period thereafter, the customer
is entitled to terminate the transponder lease agreement without further
obligation to APT. Under the terms of the transponder lease agreements, APT is
not liable for the lost profits or other indirect or consequential damages of
its customers. APT has also entered into several transponder lease agreements under which
its customers have obtained the right to use transponder capacity on APSTAR I,
APSTAR IA or APSTAR IIR for the life of the transponder. Most of the
commercial terms of such transponder lease agreements are substantially the
same as those found in the typical transponder lease agreements, except that
payment for the entire period of use is to be completed by the end of the
second year of the term of the agreement and APT provides a limited warranty
for a period of 60 months for 19




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APSTAR I and APSTAR IA and a limited warranty for
a period of 96 months in the case of one transponder on APSTAR IIR commencing
on the date the transponder is made available for the customers use. There is
no warranty period for the 43 out of 44 of the transponders on APSTAR IIR that
are leased to Loral Asia. Direct Broadcast Satellites DBS service allows for the transmission of television programming directly
to homes through the use by the consumer of relatively inexpensive 18-inch
dishes. DBS services can provide more varied television programming with
picture and sound quality superior to that of current analog cable or
terrestrial television services. The Company has conducted a preliminary
feasibility study with respect to the provision of DBS services in the PRC. DBS services are not currently available in the PRC and the private
ownership of antennas is currently prohibited by the PRC government, although
certain tourist grade hotels and apartments and other specified entities are
permitted to operate dishes upon application to the relevant authorities.
Since television is a highly regulated industry in the PRC, the provision of
DBS services by the Company will require a number of regulatory approvals.
There can be no assurance that the Company will be able to obtain all the
approvals necessary for it to provide DBS services in the PRC. Sales and Marketing Marketing activities include customer visits, trade show, advertisement,
customer training, event sponsorship, joint marketing programs and
presentations at industry conferences. APTs current sales and marketing
efforts are focused on new business development so as to solicit customers for
unused or underutilized transponder capacity on APSTAR satellites. In
addition, APTs sales and marketing also focus on the creation of awareness
resulting in lead generation of APSTAR V and APSTAR VI, which are scheduled to
be launched in the second quarter of 2004 and end of 2004/early of 2005,
respectively. APTs sales and marketing staff maintain regular contact with
customers even after they have decided to lease transponder capacity in order
to ensure continuing customer satisfaction. Operation of the APSTAR System The APSTAR System is an integrated satellite system that covers more than
100 countries from Japan to South Africa and from Germany to Australia,
encompassing approximately 75% of the worlds population. The APSTAR System is the product of an extensive strategic planning
process. This planning has been both internal to APT, such as the analysis and
evaluation of satellite make-up, platform choice and launch vehicle choice, and
external, in the sense of designing the APSTAR System to meet the practical and
strategic needs of its customers. The APSTAR System offers its customers the ability to relocate from one
satellite to another for strategic reasons of their own (e.g., from APSTAR I to
APSTAR IA). The compatibility of the satellites in the APSTAR System also
permits APT to move customers programming from one transponder to another,
intra-satellite, or from one satellite to another, for technical reasons or to
ensure continuity of service in the event of any difficulties. The APSTAR System is structured to provide flexibility for customers,
which is a benefit that the Company believes, is attractive to customers and
provides APT with a competitive advantage. Intra-satellite back-up capacity is
manifested by the preemptible transponders located on APSTAR IA. These
transponders are intended, in the ordinary course, to be leased to customers on
a preemptible basis (at reduced cost), under the understanding that the
customers use will be pre-empted if the transponder is needed by another
customer as a result of a technical problem. Additional back-up capacity will also be available to APSTAR System
customers on an inter-satellite basis. Preemptible transponder capacity on
APSTAR IA enables customers on such satellite, and also on APSTAR I, to be
re-routed on an as-needed basis to another satellite. Similar back-up
capacity is available not only from satellite to satellite, but also from use
to use. 20




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The Companys TT&C facility, which enables the Company to monitor the
status of its satellites and respond to the technical demands of its customers,
is an important part of the APSTAR System. See Satellite Control Center. SUMMARY OF SATELLITE DATA Total APSTARAPSTAR I
    
    APSTAR IA
    
    APSTAR IIR
    
    SYSTEMRegion covered
    
    North and Southeast
Asia
    
    North and Southeast
Asia
    
    Europe, Asia,
Middle East, Africa
    
    Europe, Asia,
Middle East, AfricaStatus
    
    Operational
    
    Operational
    
    OperationalModel
    
    HS 376
    
    HS 376
    
    FS 1300Manufacturers
    
    Hughes
    
    Hughes
    
    SS/LoralTransponders15@54 MHz
    
    16 Ku-bandKu-band
    
    
    
    
    
    
    
    1 @ 36 MHz4 @ 72 MHz
    
    4 @ 72 MHz
    
    27 @ 36 MHz
    
    76 C-bandC-band
    
    20 @ 36 MHz
    
    20 @ 36 MHz
    
    1 @ 30 MHzUsable bandwidth
    
    1,008 MHz
    
    1,008 MHz
    
    1,848 MHz
    
    3,864 MHzOutput PowerKu-band
    
    
    
    
    
    
    
    16 @ 110 WattsC-band
    
    24 @ 15 Watts
    
    24 @ 16 Watts
    
    28 @ 60 WattsTotal output power
    
    360 Watts
    
    384 Watts
    
    3,440 Watts
    
    4,184 WattsExpected end of
operational life
    
    2004 / 2005
    
    
    2007
    
    
    
    2013Approximate
percentage of world
population covered
by the APSTAR
System
    
    
    
    
    
    
    
    
    
    
    
    
    75
    %
 APSTAR Satellites APSTAR I APSTAR I, a Hughes HS-376 model satellite, was launched in July 1994 by a
Long March 3 launch vehicle from Xichang in the PRC. APSTAR I was placed into
a geostationary orbit at 138 degrees East and has a footprint that covers the
PRC, Japan and Southeast Asia, reaching as far south as Papua New Guinea and
Indonesia. The total cost for the construction and launch of APSTAR I,
including launch insurance, ground facilities, related expenses and capitalized
interest, was approximately US$132.4 million, which was financed through a
combination of shareholders loans and a syndicated term loan. On May 31,
2001, the Company fully repaid the amount outstanding under the syndicated term
loan. APSTAR I started commercial operations on September 15, 1994. It has an
expected operational life of at least 10 years. To date, APSTAR I has not
experienced any anomalies that have affected its operation. APSTAR I carries 24 C-band transponders, 20 of which have a bandwidth of
36 MHz (suitable for television broadcasting and telecommunications purposes)
and four of which have a bandwidth of 72 MHz (suitable for telecommunications
purposes). The transponders have a maximum EIRP value of 38.5 dBW. As of December 31, 2003, of the 24 available transponders, approximately
53.9% of the transponders capacities were utilized. The Companys
telecommunications major customers include ChinaSat, Singapore Telecom, China
Mobile and BTN Access. 21




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APSTAR Is design life is expected to expire in mid-2004. The design life
is the length of time that the satellites hardware is guaranteed by the
manufacturer under normal operating conditions. As of December 31, 2003, the
Company reviewed the estimated useful life (also known as operational life) of
APSTAR I based on current engineering data and projects that the estimated
useful life of APSTAR I will last at least until end of 2004 or mid of 2005.
As APSTAR V is expected to be launched in the second quarter of 2004 to replace
APSTAR I, the end of APSTAR Is operational life is expected to occur at end of
2004 or mid of 2005. After being replaced by APSTAR
V which is expected to be launched in the second quarter of 2004, APSTAR I
will be allocated to another orbital slot for the remainder of its useful life
after the completion of in orbital test of APSTAR V. See Future Satellites
for further information on the replacement of APSTAR I. APSTAR IA APSTAR IA, also a Hughes HS-376 satellite, was launched in July 1996 on a
Long March 3 launch vehicle from Xichang into a geostationary orbit at 134
degrees East. The cost for the construction and launch of APSTAR IA, including
launch insurance, ground facilities, related expenses and capitalized interest,
was approximately US$128.6 million, which was financed through a combination of
shareholders loans, a syndicated term loan and internally generated funds. As
of December 23, 1996, the total amount due under the syndicated term loan was
fully repaid using the proceeds from the Global Offering. APSTAR IA started commercial operations on September 1, 1996. Like APSTAR
I, it has an expected operational life of at least 10 years. To date, APSTAR
IA has not experienced any anomalies that have affected its operation. The specifications of APSTAR IA are virtually identical to those of APSTAR
I, except that APSTAR IA provides enhanced coverage of India. As with APSTAR
I, APSTAR IA carries 24 C-band transponders with a maximum EIRP value of 39
dBW. As of December 31, 2003, of the 24 available transponders on APSTAR IA,
approximately 60.7% of the transponders capacities were utilized. The
Companys broadcasting customers on APSTAR IA include the China Broadcasting
Film Television Satellite Co., Ltd., CCTV and CETV. The Companys
telecommunications customers include China Telecom and China Unicom. APSTAR IAs design life is expected to expire at the end of 2007. As of
December 31, 2003, the Company reviewed the estimated useful life of APSTAR IA
using current engineering data. The Company believes that the estimated
operational life of APSTAR IA will not expire before the end of 2007. See
Future Satellites herein below. APSTAR IIR APSTAR IIR, an SS/Loral FS-1300 satellite, was successfully launched into
its designated orbital slot at 76.5 degrees East on October 17, 1997. The
total cost for construction and launch of APSTAR IIR, including launch
insurance, ground facilities, related expenses and capitalized interest, was
approximately US$233.5 million. APSTAR IIR commenced commercial operation on
January 1, 1998. On August 18, 1999, APT entered into a lease agreement with Loral Asia for
the lease of 43 out of the 44 transponders of APSTAR IIR. According to the
agreement, Loral Asia is entitled to use the capacities of these transponders
until their service span expires. The lease price was approximately US$298
million, payable by eighteen installments in US Dollars within four years.
Loral Asia later proposed to advance the date of payment and, as a result, the
lease price was revised to approximately US$273 million, payable in three
installments, with the last installment of approximately US$181 million paid on
March 27, 2000. According to the lease agreement and all relevant operating
licenses, APT continues to be the legal owner of APSTAR IIR and is responsible
for the operational control of the satellite under the satellite service
agreement with Loral Asia. As of December 31, 2003, the utilization of APSTAR
IIR stood at 100%. 22




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Future Satellites APSTAR V APT together with Space Systems/Loral, Inc., of the United States
(SS/Loral), and China Great Wall Industry Corporation respectively signed the
Procurement and the Launch Agreements of APSTAR V satellite on January 8, 2001,
to confirm the commissioning of the satellite which will replace the APSTAR I
as it would retire at the end of 2004 or mid of 2005. On October 23, 2002, the
launch services to be provided by China Great Wall Industry Corporation
originally for APSTAR V were transferred to APSTAR VI. In March 2003, APT
selected Sea Launch for the launch of APSTAR V. APSTAR V, a high powered
satellite based on an FS 1300 model satellite manufactured by SS/Loral, will
comprise 38 C-band and 16 Ku-band transponders and its expected operational
life would be over 13 years. The satellite will be located at the
geostationary orbital slot of 138 degrees East, and the footprints of C-band
transponders will cover a majority of the Asian countries in the Asia Pacific
region, including China, India, South East Asia, Australia, New Zealand, and
the Hawaiian Islands in the United States for provision of high quality and
reliable broadcasting and telecommunications services. The footprints of
Ku-band transponders are spanning across China (Beam One), China and India
(Beam Two). At present, satellite construction of APSTAR V has completed and the
pre-shipment review has been conducted successfully. APSTAR V is scheduled to
be launched by Sea Launch Limited Partnership in the second quarter of 2004.
APSTAR V involves a total project cost of approximately US$230 million, which
has been funded by internal resources and bank loans. On September 20, 2002, APT entered into the APT-Loral Term Sheet and
subsequently entered into certain agreements. Under the APT-Loral Term Sheet
and the agreements, Loral Orion agreed to participate in the development of
APSTAR V by investing up to 50% of the capital necessary for the APSTAR V
project on a pro rata basis in order to obtain rights to 27 transponders at a
value of approximately US$115 million, which is 50% of the initial projected
costs of approximately US$230 million for the construction, insuring and launch
of APSTAR V. This amount will be adjusted to reflect 50% of the actual costs
of construction, insuring and launch of APSTAR V, exclusive of the costs of
certain function modifications required by Loral Orion, which will be borne
solely by Loral Orion. Loral Orion will pay 25 % of the project costs prior to
launch of the satellite. The other 25% of the project costs will be paid to
APT in four installments over a period of five years from the in-service date
of APSTAR V. The amount of the installments making up the remaining balance
range between US$10.7 million and US$17.1 million and no interest is payable on
such amounts. Title to the transponders attributable to Loral Orion and 25% of
the common portions of the satellite will pass to Loral Orion in installments
corresponding to the payments made by it under the term sheet and the
agreements. As a result of discussions regarding a matter related to the
launch vehicle, the parties have agreed to reduce the number of transponders
attributable to Loral Orion from 27 to 25 in March 2003. The delay in obtaining the Export License has caused the postponement of
the launch of APSTAR V. To cope with the delay, APT HK entered into a
Settlement Agreement with Loral Orion Inc. and the Amended Launch Agreement
with SS/L and Sea Launch Limited Partnership on November 16, 2003. The
Settlement Agreement makes certain amendments to the Satellite Procurement
Amendment Agreement, the Satellite Transponder Agreement and the Satellite
Agreement and the Launch Agreement to allow for (i) a postponement of the date
of launch of APSTAR V to April 28, 2004 (later on, due to the partial failure
of deployment of north solar array of EdS, a SS/L-made satellite that was
launched by Sea Launch in January 2004, the launch date of APSTAR V was further
postponed to June 26, 2004); and (ii) for Loral Orion to take an additional 4.5
transponders as Initial Loral Orion Transponders, which are in aggregate 17
transponders to be taken up upon the completion of in-orbit test of APSTAR V,
resulting in Loral Orion assuming the payment of US$20,398,950 that would
otherwise to be paid by APT HK for the construction, launch and insurance of
APSTAR V. Such payment will significantly reduce the cash-flow pressure of APT
HK. The total number of 25 transponders of APSTAR V to be taken up by Loral
Orion will remain unchanged. Since the operational life of APSTAR I will last
at least until end of 2004 or mid of 2005, the Company believes that the delay
in the launch of APSTAR V will not affect the replacement of APSTAR I. The Settlement Agreement and the Amended Launch Agreement were approved by
the United States Bankruptcy Court on December 4, 2003 and the Export License
of APSTAR V was issued by United States government on November 25, 2003. 23




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APSTAR V1(formerly APSTAR VB) On December 11, 2001, APT entered into a Satellite Procurement Agreement
with Alcatel chiefly for the design, construction, tests and delivery of APSTAR
VI, at a fixed price of US$118 million. APSTAR VI, is scheduled to be launched
on board the Long March 3B (LM-3B) launch vehicle of China Great Wall
Industry Corporation (Great Wall) at end of 2004/early 2005. Total capital
expenditures for the design, construction and launch of APSTAR VI are expected
to be US$240 million. As APSTAR VI will be launched to replace APSTAR IA, the
end of the operational life of APSTAR IA is currently expected to occur in end
of 2007. APSTAR VI is a high powered satellite and it is based on a SB-4100 C
1 model satellite of Alcatel with 38 C-band and 12 Ku-band transponders. The
footprints of its C-band will cover substantially all of the Asian countries in
the Asia Pacific region including China, India, Southeast Asia, Australia,
Hawaii, Guam, and the South Pacific Islands, whereas its Ku-band will cover
China including Hong Kong, Macau and Taiwan and provide effective and reliable
broadcasting and telecommunications services. In March 2002, Alcatel informed
APT that it had received approval from the French government for the delivery
APSTAR VI to the PRC for launching on board the LM-3B launch vehicle. The construction of APSTAR VI has been progressing as planned. The
Critical Design Review of the satellite, Telemetry, Tracking and Control System
and Baseband System were completed in early July 2003. The AIT Sequence
(Assembly, Integration and Test) was commenced in mid-December 2003 and APSTAR
VI is scheduled to be delivered in the 4th quarter of 2004. APSTAR VI will be launched on board Long March 3B launch vehicle and the
implementation of the launch service contract of APSTAR VI was on course. The
satellite supplier has conducted a number of discussions on the technology
related to the interface between satellite and launch vehicle, as well as the
joint operation arrangement relating to the satellite and the launch vehicle at
the launch site. Preparation for the launch has been in active progress. APT believes that the procurement of APSTAR V and APSTAR VI are in line
with the future development needs of APTs satellite broadcasting, TV uplink
and downlink and telecommunications businesses. Existing Orbital Slots APSTAR I and APSTAR IA are respectively utilizing certain designated
C-band and part of extended C-band frequencies in the orbital slots at 138
degrees East and 134 degrees East. The right to use these frequencies at such
orbital slots has been licensed to the Company by the Kingdom of Tonga
(Tonga), through TongaSat, which has responsibility for the ITU coordination
process for the orbital slots at 138 degrees East and 134 degrees East with
respect to such orbital slots and the frequencies covered by the Companys
license. The license agreements for the orbital slots at 138 degrees East and
134 degrees East each cover a period of 10 years (approximately coterminous
with the expected operational life of the satellite), after which Tonga has
agreed for an additional period of 20 years not to offer the use of the C-band
frequencies at 138 degrees East and 134 degrees East to a third party without
first offering such use to the Company on the same terms and conditions as are
offered to the third party. APT HK and TongaSat entered into a license
agreement on July 8, 2003, under which APT HK can utilize certain designated
C-band and extended C-band frequencies in the orbital slot at 138 degree East
for 15 years for APSTAR V. APT HK and TongaSat also entered into an operator
agreement on December 19, 2003 for the utilization of certain Ku-band
frequencies in the same orbital slot for APSTAR V. The operator agreement was
approved by the administrations of both HKSAR and the Kingdom of Tonga on March
17, 2004. APT has obtained a priority position in the ITU filing process for the use
of the orbital slot located at 76.5 degrees East, where APSTAR IIR is currently
positioned. The Company is still in the process of completing frequency
coordination for this slot. The Company has filed to the ITU to upgrade its
status from the coordination stage to final stage and is still awaiting the
final result. Insurance APT maintains in-orbit insurance for APSTAR IA and one transponder for
APSTAR IIR. The Company is not aware of any reason why it will not be able to
renew the existing insurance for APSTAR IA and APSTAR IIR. The Companys
insurance policies have standard provisions and customary exclusions. For 2001
and 2002 , the Company spent HK$10.4 million, HK$7.0 million respectively on
in-orbit and third party liability insurance. For 2003, the Company only spent
HK$5.0 million (US$644 thousand), on in-orbit insurance. 24




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In-orbit Insurance.Satellite in-orbit insurance is purchased on an
annual basis. Satellite in-orbit insurance premiums are less than 2.5% of the
current book value for APSTAR I and APSTAR IA, and one transponder for APSTAR
IIR. Such insurance provides protection only against the total loss,
destruction or failure of the satellite. Total loss is defined as the loss of
more than 75% of the satellites communications capacity for APSTAR I, APSTAR
IA and APSTAR IIR, respectively. In-orbit insurance only covers the book value
of the satellite, rather than the replacement cost. The Company renewed its
annual in-orbit insurance from February 4, 2004 for APSTAR IA and November 5,
2003 for APSTAR IIR. Third-Party Liability Insurance.APT also maintains third-party liability
insurance for all three satellites. Third-party liability insurance offers
protection against liability to third parties for damage arising out of a
particular launch and the operation of the satellite. APT has obtained
satellite in-orbit third-party liability insurance for APSTAR I and APSTAR IA,
and APSTAR IIR in an aggregate amount of US$150 million until June 30, 2002.
On April 30, 2004, OFTA granted the Company a waiver exempting the Company from
complying with the requirement of maintaining third-party liability insurance
with respect to APSTAR I, IA and IIR for in-orbit operation. Satellite and Ground Operation Facility APT operates a 77,000 square feet facility consisting of the Satellite
Control Center, Network Operation Center and TV uplink Center on a 85,000
square feet property at the Tai Po Industrial Estate, Tai Po, Hong Kong. APT
employs approximately 31 experienced satellite and communications specialists
and engineers to control and monitor continuously APTs satellites in
geostationary orbit, as well as to operate ground teleport and satellite TV
uplink services. To prepare for the operation of the future satellites including APSTAR V
and APSTAR VI as well as the satellite television uplink services, the Company
has expanding its operating facilities since year 2000 such as purchasing
antennae, radio frequency and baseband equipment . The Company currently
operates nine antennae and transmission facilities as well as the related
equipment and facilities, such as radio frequency equipment, baseband units,
ground monitoring systems, data processing systems and communication traffic
monitoring systems. Each antenna is capable of controlling any of the
Companys satellites and is designed to withstand winds of up to 150 miles per
hour. The Company maintains its own power generator and uninterrupted power
supply to provide continuous electricity supply in case of a power outage. Satellite TT&C operations with the APT satellites are carried out at our
Satellite Control Center. Once a satellite is placed at its orbital location,
it is controlled by the TT&C facility on a 24-hour basis until the end of its
in-orbit life. The Companys engineers at the Satellite Control Center
periodically correct each satellites attitude and conduct east-west and
north-south station keeping maneuvers, thus ensuring that the Companys
satellites maintain their proper orientation and orbital position. In
addition, commands from the Satellite Control Center can switch transponders in
and out of service, control the charging and discharging of the batteries,
activate back-up equipment and engage other control functions. APT has leased one ISDN line and two data lines in order to provide a
direct data and voice communications link between the Satellite Control Center
and the Boeing mission control center in Los Angeles. If required, Boeing can
quickly review and analyze the status of both APSTAR I and APSTAR IA in real
time and assist APT personnel in taking corrective steps to control the
satellites, including adjusting the geostationary orbit of both satellites.
For APSTAR IIR, one ISDN line has been established between APTs Satellite
Control Center and SS/Lorals mission control center in the United States. The customer carrier monitoring and teleport service are carried out at
our Network Operation Center, it provides 24-hour basis operation and supports
to customer via Carrier Monitoring System. The Company also provides external
satellite-based FTNS such as VSAT, Wholesale Telecom Services, and Internet POP
Gateway under the external satellite-based FTNS license issued by OFTA on June
19, 2000. The Company has completed the installation of satellite broadcasting
facilities in Satellite TV uplink Center, under the Satellite Television Uplink
and Downlink License issued on July 6, 1999, the Satellite TV uplink Center
provides one stop solution service to customer such as playout, digital video
broadcasting compression, turn 25




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around and radio frequency uplink transmission service. The Center have a
capacity of provision of 6 channels TV playout and 20 channels digital video
broadcasting compressions and uplink services. Customer Technical Qualifications and Support Before uplink communication by a customers equipment with a satellite is
permitted, the Company ensures that each customer can meet the Companys strict
performance and operations specifications so that the customers equipment does
not interfere with other customers on the same satellite or users of
neighboring satellites. The Companys engineers advise customers on any
adjustments required to the customers equipment in order to minimize
interference. The Company provides extensive technical support to its customers. It
helps customers determine and evaluate their equipment configurations, carrier
modulations, bandwidths and power requirements, design their networks and
calculate link budgets. Additional Orbital Slots OFTA, on behalf of the PRC government, is responsible for the coordination
of a number of orbital slots for APT including the orbital slot at 76.5 degrees
East in which APSTAR IIR is located, the company has also filed the application
for the orbital slot at 131 East, 89.5 East, 92.2 degrees East, 96 degrees
East, 102.8 degrees East, 131.8 degrees East, 138 degrees East, 140 degrees
East and 142 degrees East. Those orbital slots could be used by future
satellite which the design should meet the coordination requirement for each
slot. Employees Including the executive directors and senior management of the Company, as
of December 31, 2003, the Company had 157 full-time employees, of which 30
employees were in management, 127 were in engineering and operations,
marketing, accounting and administration. The directors of the Company will
continue to closely monitor the number of employees, ensuring that the number
is in line with the needs and corporate strategies of the APT Group. The
Company believes that its relations with its employees are good. A majority of
APTs technical and engineering staff employed at the Satellite Control Center
were originally seconded from affiliates of ChinaSat and China Aerospace. APT emphasizes the training of its technical personnel. During 2003, to
prepare for the control and operation of APSTAR V and VI, and at the same time
to provide satellite broadcasting and telecommunications service, APT organized
several different training programs for new employees and existing staff. The
Companys in-house training programs cover a broad spectrum of topics including
theories, operational techniques, and new technological development in
satellite telemetry and control, transponder management, satellite
communications, TT&C equipment operation and computer systems. A series of course and on job training was conducted to let the satellite
operator to be familiar with the various procedure like satellite carrier
line-up-test, satellite traffic monitoring, satellite interference check, this
training results in highly qualified satellite operators who provide quick
response to meet the customers need. APT provides satellite uplink service for various customer, and operates
its own satellite television broadcasting platform. Each year APT has been
holding regular technical training courses to cover all aspects of satellite
broadcasting technology. Course tutors use modern multimedia presentations and
each participant is provided with comprehensive course notes. Practical
courses include a hands on session for testing and fault diagnosis. APT also developed an in-house training program to train new personnel.
In order to provide training opportunities for satellite controllers, APT
purchased a Hughes HS-376 dynamic satellite simulator which simulates the
in-orbit flight status of APSTAR I and APSTAR IA and ordered an SS/Loral
dynamic satellite simulator for APSTAR IIR. The Company employs this satellite
dynamic simulator and other equipment and facilities for its in-house training
programs. 26




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In December 2000, the Company changed its then existing
defined-contributory retirement benefits scheme to Mandatory Provident Fund
(MPF). In compliance with the MPF Legislation regulated by the Mandatory
Provident Fund Schemes Authority in Hong Kong, with effect from December 1,
2000, the Company is required to participate in the MPF Scheme operated by
approved trustees in Hong Kong and to make contributions for its eligible
employees. Share Option Scheme The Company adopted a new share option scheme (Scheme 2002) at its 2002
annual general meeting in response to new rules governing the listing of
securities on The Stock Exchange of Hong Kong Limited (the Listing Rules)
that took effect in September 2001. New options after the adoption of Scheme
2002 will be granted by the Company only pursuant to such scheme. Since the
adoption of Scheme 2002, no further options have been granted under the
previous share option scheme, which was adopted on May 22, 2001 (Scheme 2001)
which itself replaced the old Share Option Scheme (See Item 6 below for a more
detailed description of the old Share Option Scheme.). All of the options
granted on June 19, 2001, a total of 14,650,000 share options, under Scheme
2001 to Eligible Employees will, however, remain valid until their the
expiration of their terms. By their terms, all of the options granted on June
19, 2001 are exercisable from May 22, 2003 to May 21, 2011 for a nominal
consideration of HK$1 per grantee. During 2002 and 2003, the Company did not
grant any options. The total number of outstanding options under the existing
share option schemes (including Scheme 2001 and Scheme 2002) that have been
granted and not yet exercised equals 9,670,000 which represents 2.34% of the
issued share capital of the Company as at December 31, 2003. Competition APT currently serves the satellite communications market in Asia. A
number of international and domestic satellite operators also compete in this
market. The Companys primary focus is Asian intra-regional broadcasting, TV
uplink and downlink, IP broadband and telecommunications, with special emphasis
on the PRC. The Company has not attempted to enter the international PSTN
trunk route market, which is dominated by the International Telecommunications
Satellite Organization (Intelsat). In providing satellite capacity, the Company competes with major
established companies and organizations. The Companys competitors include
government-owned and privately-owned international, regional and domestic
satellite companies. Many of these competitors have long-standing customer
relationships and are substantially larger and have financial resources that
are substantially greater than those of the Company. The Company believes that
its ability to compete with these organizations depends on its existing
customer relationships and the quality of its customer service, its reputation
as a reliable operator of commercial satellites, flexible and value pricing
policy, and the technical advantages of its advance and powerful satellites. The Company faces competition in all its markets from one or more
satellite systems. Other than domestic satellite companies, the Company is
currently aware of five other international or regional satellite companies
with coverage of the PRC: Intelsat, Asia Satellite Telecommunications Holdings
Limited (AsiaSat), PanAmSat Corporation (PanAmSat), Satelindo-PT Satelit
Palapa Indonesia (Palapa) and Sino Satellite Communications Company Limited
(SinoSat). Due to the economic slowdown in many Asian countries, many
satellite-related projects have been delayed or cancelled and the current
supply of transponders is still greater than the demand. For such reasons, APT
has faced fierce market competition resulting in price-cutting and pressure on
utilization rates. Digital video compression technology may have the effect of increasing the
overall supply of transponder capacity in the satellite industry. Such
technology permits programmers to use less transponder capacity than is
currently required to transmit the same amount of programming. At present,
however, digital integrated receivers-decoders which are necessary to
unscramble digitally compressed transmissions are not generally available
outside the more developed markets, and the Company believes that it may be
some time before they are commonplace in the developing markets of Asia.
Customers who make significant financial commitments to the use of satellites
for broadcasting and telecommunications applications often seek to secure
back-up transponder capacity in order to protect their investment. The Company
believes that potential customers in Asia may, at some future point, prefer to
use those satellites that can provide backup capacity to help reduce customer
risk. 27




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International Satellites The market for international satellite communications capacity has been
dominated by Intelsat for 30 years, and Intelsat can be expected to continue to
dominate it for the foreseeable future. Intelsat, established by international
treaty in 1964, owns and operates the largest fleet of commercial
geosynchronous satellites in the world (20 satellites), and now comprises a
consortium of 143 countries. Intelsat has been operating communications
satellites in the Asia-Pacific region since the 1960s. Although the number
varies depending upon the exact criteria used to define Asia-Pacific, Intelsat
has several satellites in the region. At present, however, Intelsat primarily
uses beams which have a much lower EIRP than the Companys satellites and
therefore require larger diameter antennae for its transmission to be received.
Intelsat is traditionally seen as a long-haul carrier for PSTNs. Intelsat
has substantially completed a planned transition to a fully privatized entity
during 2002 that may strengthen Intelsats capabilities and competitive
position. The television distribution and VSAT operations of Intelsat could
potentially compete directly with the Company. PanAmSat was started in the 1980s to compete with the Intelsat monopoly.
It currently operates four satellites providing coverage over the Atlantic,
Pacific and Indian Oceans and is one of the Companys principal competitors in
the Asia-Pacific region. PanAmSats PAS-4 has some features similar to those
of APTs satellites, including coverage of certain of the same geographic
areas. PanAmSat has announced that it intends to launch additional satellites
to provide further global coverage. The Galaxy Satellites Services Division,
an affiliate of Boeing, is the manufacturer of APSTAR I and APSTAR IA. Regional Satellites Coverage, service and target customers of AsiaSat are very similar to
those of APT. AsiaSat 2s footprint is smaller than that of APSTAR IIR, but
AsiaSat 3S, which was successfully launched in March 1999, has a footprint very
similar to APSTAR IIRs footprint. AsiaSat 4 was also successfully launched in
April 2003 and provides footprints coverage across Asia and Australia. The
Company believes AsiaSat is and will continue to be a major competitor of APT
in the Asia-Pacific market, including the PRC market. Satelindos Palapa system began operations in the mid-to-late 1970s to
support communications in Indonesia and Southeast Asia. Satelindo is currently
implementing its third generation of communications satellites. Palapa has
been successful in attracting international broadcasters to its satellites and
is planning to increase the coverage of its satellites to cover the entire
Asia-Pacific region and to compete with Intelsat across the Pacific Ocean.
Palapa is already servicing a number of international broadcasting companies,
and it is a major competitor of APT outside the PRC market. The ST-1 satellite system, which is partly owned and operated by Singapore
Telecom, was successfully launched in September 1998. Its C-band coverage will
stretch from the Middle East to Japan and Southeast Asia. Its Ku-band coverage
is expected to focus on the Indian subcontinent and Southeast Asia. Due to the
satellite design and coverage area, the ST-1 satellite system only has the
ability to compete with the Company in C-band segment of the Asia-Pacific
market. SinoSat, which was established in May 1994, has four major shareholders
including China Aerospace Science & Technology Corporation, State Development
and Investment Corporation, China Financial Computerization Company, and
Shanghai Alliance Investment Limited. Its first satellite, SinoSat-1, was
launched on July 18, 1998 carrying 24 C-band and 14 Ku-band transponders with
footprints including China and Asia Pacific regions for providing
telecommunication, data transmission and TV broadcasting whereas its SinoSat-2
is still in the planning and development stage. Because of its coverage and
transponder capacity, SinoSat-1 is one of APTs competitors in the China
region. Domestic Satellites A number of companies located in various countries in the region have
launched or are planning to launch domestic satellites. These include ChinaSat
(which is also a Principal Shareholder), Chinastar (merged with ChinaSat) and
SinoSat of the PRC, INSAT of India, JSAT and NSTAR of Japan, Koreasat of Korea,
Measat of Malaysia, Optus of Australia, Thaicom of Thailand, Mabuhay of the
Philippines, and GE-1A of the United States. Although these satellites may be
focused on their respective domestic markets, such companies may have the
ability, due to satellite design and coverage areas, to compete with the
Company in segments of the Asia-Pacific market. In 28




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certain of these countries, domestic television broadcasters and domestic
satellite telecommunication operators providing services in their home
countries are generally required to use a state-owned or locally-owned
satellite system to the extent capacity is available and therefore may not use
APTs satellites. In addition, many of the domestic systems are planning to
add at least some regional transponders with substantial beam coverage to their
next generation of satellites, and therefore may in the future become
competitors of APT in the regional market. Other Satellites Other existing and proposed organizations have considered or might
consider competing in the Asian regional market. These include Russian
systems, TongaSat, and others. Some of the existing potential competitors
offer low-cost, low-performance transponders, which do not compete directly
with the Companys high-performance transponders. New organizations face
significant competitive barriers including scarcity of orbital slots and high
costs of entry. Optical Fiber Systems Optical fiber systems have been widely installed for point-to-point
trans-oceanic communications. In addition, point-to-point optical fiber
connections between major cities in Asia are common. Optical fiber is being
used in more developed markets for cable TV networks, and can also be used for
telephony services. Regulation The international telecommunications industry is highly regulated.
Satellite services are subject to international space law, and the principal
body of international law relating to the use of outer space is the Outer Space
Treaty. Countries which are party to the Outer Space Treaty or to other
treaties or conventions regulating outer space activities are responsible for
fulfilling their own obligations under such treaties or conventions. This
often results in the adoption by such member countries of domestic laws to
regulate the activities of their own subjects in order to enable the country
concerned to comply with its international obligations. As an operator of privately-owned satellites in Hong Kong, APT is subject
to the regulatory authority of APTs principal regulator, OFTA. Many of the Companys existing and potential customers who may wish to use
the APSTAR System to broadcast into or provide telecommunications services for
countries in Asia are subject to government licensing. The applicable
regulatory schemes in these countries vary considerably. While the Company
does not believe these regulatory schemes will prevent it from pursuing its
business, there can be no assurance that its customers licenses and approvals
are or will remain sufficient in the view of foreign regulatory authorities and
that these authorities will not discourage or prevent existing or potential
customers from utilizing transponders on the APSTAR System. Many of APTs customers must have authorization from the countries in
which they are located in order to uplink to and communicate by means of APTs
satellites. While obtaining such authorizations on behalf of its customers is
not the Companys responsibility, the Companys success may depend on the
ability of its customers to obtain the required authorizations. International Telecommunication Union Member nations are required by treaty to give notice of, coordinate and
register radio frequency assignments and any associated orbital locations in
the geosynchronous satellite orbit with the Radiocommunication Bureau. The
purpose of such notice, coordination and registration is to eliminate harmful
interference between earth and space-based stations of different countries, to
improve the use of the radio frequency spectrum and the geosynchronous
satellite orbit and to accommodate, to the extent possible, a countrys needs.
Pursuant to the Radio Regulations, after a country gives notice to the
Radiocommunication Bureau of its intent to use given frequencies in connection
with given orbital locations and for a particular type of service, the advance
publication stage commences during which other countries are afforded the
opportunity to apprise the Radiocommunication Bureau of any conflicts with any
existing or intended satellite systems. When a present or potential conflict
is noted, countries are then obligated to negotiate (during the coordination
process) in an effort to coordinate the proposed uses and resolve any
interference concerns. 29




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An orbital slot is a function of intended use, orbital location and
frequency band. As international coordinations vary in complexity, the time
for their completion is uncertain and depends on the number of countries
involved and the extent to which there are competing uses for the frequency
bands that are the subject of the coordination. The coordination process may
result in modification of proposed coverage areas or satellite design to
eliminate or minimize interference with other potential users. When coordination is completed and conflicts are resolved, the proposed
users achieve notification status with the Radiocommunication Bureau. The
frequency assignments are then recorded in the Master Registry, and such users
are thereafter entitled under international law to protection from interference
from subsequent or nonconforming uses from other countries. The failure to use
an orbital slot within six years of advance publication (extendable for a
further three years) could result in loss of priority in the coordination
process. Under the Radio Regulations, during the coordination process, a country
may request the Radiocommunication Bureau to assist it in resolving disputes in
connection with existing or proposed uses of frequencies and orbital locations.
However, should any such disputes remain unresolved, and the coordination
process therefore not be successfully completed, there is no formal dispute
resolution mechanism and any country that nonetheless places a satellite or any
earth station into operation may not be entitled to seek the assistance of the
Radiocommunication Bureau to resolve complaints relating to any interference. Export Regulation The United States government has imposed certain restrictions on transfers
of US technology to the PRC and certain other countries, such as Russia. The
launch site for each of the existing APSTAR satellites was located in the PRC
and the launch provider was an entity licensed by the PRC government. The
launch sites for other satellites that the Company may launch in the future may
also be located in the PRC or other countries subject to such restrictions. As
a result, export licenses are required to be obtained by manufacturers of
satellites that the Company may launch in the future which contain US
technology in connection with launches in any country subject to such
restrictions on technology transfers. The export of US-origin commercial
communications satellite equipment also requires a Presidential waiver of the
restrictions contained in the US Foreign Relations Authorization Act relating
to such exports to the PRC and of sanctions imposed under the US Arms Export
Control Act which are effective for a two-year period from September 1, 2001. Hong Kong Regulation The Companys satellite operations are principally regulated by the Outer
Space Ordinance. The Outer Space Ordinance prohibits any person from launching
or procuring the launch of a satellite, or operating a satellite, without
obtaining an appropriate license. The Outer Space Ordinance further stipulates
that any such license shall describe the activities authorized by it and also
provides that licenses may be granted subject to conditions specified therein.
The conditions may include basic orbital parameters and requirements to avoid
interference with the activities of other users of outer space. Breach of any
such conditions can give rise to a right of revocation of the relevant license. The ultimate authority to grant licenses and otherwise to administer the
Outer Space Ordinance is vested in the Chief Executive. In practice, all
relevant matters are dealt with on a regular basis by OFTA. Effective July 1,
1997, the regulation of satellite launch and operation by Hong Kong companies
has remained under the authority of OFTA. APT had previously been granted
licenses under the Outer Space Act 1986 (Hong Kong) Order 1990 (the Outer
Space Order) by the Chief Executive covering current and future operation of
each of APSTAR I, APSTAR IA and APSTAR IIR, subject to the conditions of the
respective licenses and under the Outer Space Ordinance, such licenses are
valid and effective as if granted, maintained or made under the Outer Space
Ordinance. Each of these licenses requires the approval of the Hong Kong
government for any transfer of a beneficial interest in the satellite. The Companys earth station operations involve the operation and use of
telecommunications apparatus at and from its earth station at Tai Po, Hong
Kong. Establishment, possession and use of such telecommunication apparatus in
Hong Kong is regulated by the Telecommunication Ordinance and the orders and
regulations thereunder. APT has the benefit of licenses granted under the
Telecommunication Ordinance for each of APSTAR I, 30




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APSTAR IA, APSTAR IIR and APSTAR V covering all of its TT&C operations, as
well as monitoring and testing functions, subject to the terms and conditions
of the respective licenses. Such licenses have terms of 20 years, commencing
on July 19, 1994, June 11, 1996, October 13, 1997 and November 1, 2003,
respectively. The licenses require APT (among other things) to avoid harmful
interference with other telecommunication apparatus operating within or outside
Hong Kong and to ensure compliance with all relevant requirements of the
International Telecommunication Convention, a complementary document to the
ITUs constitution document, and any other international telecommunication
agreements which may from time to time be acceded to by or on behalf of, or
applied to Hong Kong. These licenses were formally granted with the grant of
the licenses under the Outer Space Order referred to above. The Telecommunication Ordinance also contains provisions for (i) the
taking of possession by the Hong Kong government of telecommunications stations
where the Chief Executive in Council is of the opinion that an emergency has
arisen in which it is expedient for the public service that the Hong Kong
government should have control over telecommunications stations and (ii) the
payment of compensation should such taking of possession occur. Overseas National Telecommunications Authorities The laws and regulatory requirements regulating access to satellite
systems vary from country to country. Some countries have substantially
deregulated satellite communications, making customer access to the Companys
satellites a relatively simple procedure, while other countries have maintained
strict monopoly regimes. The application procedure for access to satellite
systems can be time-consuming and costly, and the terms of the licenses vary
among different countries. Direct reception of satellite television is currently illegal in a number
of countries in Asia and the Middle East, and is subject to stringent
restrictions in certain other countries in those regions. Private ownership of
dishes is currently prohibited in the PRC, although certain tourist-grade
hotels and apartments and other specified entities are permitted to operate
dishes upon application to the relevant authorities. In addition, regulations
regarding content of advertisements and advertising vary from country to
country, making it difficult for broadcasters to address advertisements to Asia
and the Middle East as a whole. Organizational Structure The parent company of the APT Group is APT Satellite International Company
Limited (APT International), which directly controls approximately 51.83 % of
the interest of the Company. APT International is in turn jointly 100% owned
by five principal shareholders. More information on major shareholders is set
forth in Item 7. Major Shareholders and Related Party Transactions. The Company, through APT BVI, indirectly owns 100% of APT. The full list
of subsidiaries of APT Group is set forth in Note 1 to the Audited Consolidated
Financial Statements. Property, Plant and Equipment The Companys executive offices are located in the Satellite Control
Center in Tai Po Industrial Estate, Hong Kong. Upon the removal of the
Companys business office to its Satellite Control Center in Tai Po on December
8, 2004, the lease of the Companys business office space originally in Room
3111-3112, 31/F One Pacific Place, 88 Queensway, Hong Kong was ceased on
February 29, 2004. The rental amount (excluding rates and management charges)
under the lease was approximately HK$3.2 million for 2003. The TT&C operations of APSTAR Systems are conducted through the Companys
Satellite Control Center. The 45,000 square feet site (Site 1) where the TT&C
facility is located and the adjacent 40,000 square feet site (Site 2) where
Phase II of the Satellite Control Center is located, are held by the Company
pursuant to a lease between APT and the Science and Technology Parks
Corporation. In early 2000, APT had leased from the Science and Technology
Parks Corporation property originally designated as The Remaining Portion of
Section E of Tai Po Town Lot No. 13 and Extensions Thereto approximately
8,919.29 square meters (equivalent to 96,010 square feet) adjacent to its Tai
Po Satellite Control Center site for a term expiring June 30, 2047 for the TT&C
of APSTAR V and APSTAR VI, satellite television uplink and downlink services,
and telecommunication services. On March 21, 31




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2001, APT with the Science and Technology Parks Corporation entered into
the Cancelled Agreement, which divided the interest of the property originally
designated as The Remaining Portion of Section E of Tai Po Town Lot No. 13 and
Extensions Thereto between APT and APT Telecom., On March 21, 2001, the Science
and Technology Parks Corporation lease the majority portion of that piece of
property, totaling 6,903.29 square meters (approximately 74,309 square feet)
(Site 3A) (newly designated as the Remaining Portion of Section E of Tai Po
Town Lot No. 13 and Extension thereto), to APT Telecom for telecommunications
services, and granted a lease of the remaining portion of the property,
totaling 2,016 square meters (approximately 21,701 square feet) (Site 3B)
(newly designated as Subsection 3 of Section E of Tai Po Town Lot No. 13 and
Extensions thereto) to APT by the Second Supplemental Agreement and this piece
of property was merged with the property originally leased, Site 1 and Site 2.
In order to expand the Companys satellite operations and control capabilities
in preparation for the launch of APSTAR V and APSTAR VI, as well as expand its
capabilities with respect to broadcasting and telecommunication services, the
Group completed the construction of Phase II of the Satellite Control Center
(Phase II) for APSTAR V and APSTAR VI on Site 3B and Site 2. The Company
commenced operation of Phase II in February 2002. Phase II, which has a total
floor area of approximately 58,000 square feet, is specially designed for
providing satellite TV broadcasting platform, telemetry, tracking and command
facilities, as well as for APSTAR V and APSTAR VI. Phase II includes a new
data center (approximately 14,700 square feet) for the telecommunications
services. As of December 31, 2003, the Company has paid HK$99.0 million
(US$12.7 million) and has no capital commitment in respect of the construction
of Sites 2 and 3B. The Company is funding the construction of these sites
through its internal resources and operating cash flow. Under the satellite TV broadcasting license granted by the Government of
HKSAR, the Companys wholly-owned subsidiary, APT Satellite TV Development
Limited, has developed a satellite television broadcasting platform as part of
Phase II. The Groups investments in uplinks and downlinks, and satellite TV
program transmission and broadcasting facilities, total US$2.75 million. As at
December 31, 2003, the Company has invested HK$20.1 million (US$2.6 million) in
the facilities. As a result, the Companys program transmission capacity is
increased to 20 channels, strengthening its capacity to meet future demand for
satellite TV services. 
 Item 5. Operating and Financial Review and Prospects The following discussion and analysis should be read in conjunction with
the Audited Consolidated Financial Statements of the Company. The Audited
Consolidated Financial Statements have been prepared in accordance with Hong
Kong GAAP, which differs in certain respects from US GAAP. For a summary of
significant differences between Hong Kong GAAP and US GAAP, see Item 18 and
Note 27 of the Notes to the Consolidated Financial Statements and US GAAP
Reconciliation of the Company below. 
 Overview The Companys existing satellites, APSTAR I, APSTAR IA and APSTAR IIR,
provide commercial service to broadcasting and telecommunications customers in
the Asia-Pacific region (virtually all of which is covered by the footprints of
the three satellites), with particular emphasis on the PRC. APSTAR I began
commercial service on September 15, 1994, APSTAR IA began commercial service on
September 1, 1996, and APSTAR IIR began commercial service on January 1, 1998.
APSTAR I and APSTAR IA satellites are Hughes (presently known as Boeing)
HS-376 communications satellites and each is equipped with 24 C-band
transponders, 20 at 36 MHz and four at 72 MHz. APSTAR IIR is an SS/Loral
FS-1300 communications satellite and is equipped with 16 Ku-band transponders,
15 at 54 MHz and 1 at 36 MHz, and 28 C-band transponders, 27 at 36 MHz and 1 at
30 MHz. APTs transponder lease agreements typically require the payment of a
deposit of one calendar quarters rental upon signing of the contract, provide
for an escalation of service fees during the agreement term according to an
agreed schedule, require service fees to be paid in advance and provide for
renewal options. In addition, three of the 36 MHz transponders on APSTAR I and
all of the 44 transponders on APSTAR IIR have been committed for the life of
the satellite. Certain aspects of the business of the Company are subject to governmental
regulation, including the coordination of orbital slots under the regulations
of the ITU and the licensing of the Companys satellite-related activities in
Hong Kong by the HKSAR under the Outer Space Ordinance. Licenses from the
HKSAR must be obtained to launch or operate a satellite. APT has obtained
licenses covering current and future operation of each of
APSTAR I, APSTAR IA and APSTAR IIR. The licenses each require the
approval of the HKSAR for any transfer 32




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of a beneficial interest in the
satellite. Fees with respect to each of these licenses are payable annually at
fixed rates. The Company paid aggregate license fees with respect to its
satellites of HK$364 thousand (US$47 thousand) to the HKSAR in 2003. Although
neither the Joint Declaration nor the Basic Law makes express provision with
respect to the Outer Space Ordinance or the regulation of satellite launch and
operation or other outer space activities, the Basic Law provides that the laws
previously in force in Hong Kong shall be maintained, except for any laws that
contravene the Basic Law, and subject to any amendment by the legislature of
the HKSAR. The Company believes that the market for satellite communications will not
improve significantly in the coming year due to the uncertain economic outlook
of the Asia Pacific region and increased competition in the transponder market,
which the Company believes will grow increasingly intense. To maintain its
competitive advantage, the Company believes that it is important that the
launch of both APSTAR V and APSTAR VI go according to schedule in order to
complete the replacement of the Companys satellites approaching the end of
their useful lives. The Company intends to leverage additional transponder
capacities as these new satellites become operational in order to strengthen
its competitive position. At the same time, the Company plans to develop new
satellite broadcasting and telecommunications businesses, with a view to
maintaining business growth. The Company is currently focusing its sales and
marketing efforts on:  
    
    leasing transponder capacity to broadcast customers for the
distribution of programming to television audiences in the PRC and Asia
Pacific region;  
    
    providing telecommunications networks for data and voice communications; and  
    
    providing satellite television uplink and downlink service through the APSTAR system. The Companys future revenues will be depend upon the success of the above
business strategies, and it cannot provide any assurances that it will be
successful in implementing its strategies or meeting its projections. The Groups three in-orbit satellites, together with their corresponding
telemetry, tracking and control systems, have been operating under normal
condition since the beginning of 2003. The Groups core business remains the
provision of transponder services, broadcasting services and satellite-based
telecommunication services in the Asia Pacific region. In the first half of
2003, the economic conditions in the Companys markets continued to be sluggish
due to SARS, which exacerbated an already weakened economic environment.
Market competition in the satellite broadcasting business was extremely fierce
in 2003 as demand for transponder capacities remained weak. In the second half
of 2003, the economic outlook improved in the Asia Pacific region as the SARS
outbreak was brought under control and the economy in the PRC continued to grow
at an increased pace. However, the market for satellite communications in the
Asia Pacific region remained highly competitive because of the following
reasons: (i) there was still a significant oversupply in transponder capacities
with respect to transponders operating on both the C-band and Ku-band; (ii)
there was an over-supply in submarine cable capacities, particularly with
respect to telecommunication services; (iii) the fact that APSTAR I and APSTAR
IA are comparatively lower in transmission power and are close to retirement,
thereby making them less attractive to potential customers compared to the
newer satellites available. As of December 31, 2003, the utilization rates of
APSTAR I, IA and IIR stood at 53.9%, 60.7% and 100%, respectively. The Company intends to continue focusing on its core-businesses of
providing transponder services, broadcasting services and satellite-based
telecommunication services in the Asia Pacific region in the near term. While
there is no current indication that the over-supply in transponder capacities
and submarine cable capacities in the region will be reduced in the near term,
the transponder markets as well as the broadcasting and telecommunication
services market began a limited recovering at the end of 2003. APT intends to
aggressively market the services of its new, state-of-the-art satellites,
APSTAR V and APSTAR VI, which are scheduled to be launched in the end of June
and in December 2004 in an attempt to gain market share as the economy
improves. The Company believes that the advantages of these two satellites
include (i) higher power; (ii) broadened footprints; (iii) smooth customer
migration; (iv) linking northern and southern hemispheres and bridging major
cities between North America and Asia; (v) anti-jamming features (APSTAR VI
only); and (vi) the potential for strong neighborhood effects with such
customers as CCTV and other renowned broadcasters, which enjoy over 300 million
TV-households. Upon the completion of the Companys satellite replacement
program following the launch of APSTAR V and APSTAR VI, the Company believes
that its market competitiveness should be significantly strengthened. 33




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##### Table of Contents



APT Satellite TV Development Limited has established its satellite TV
uplink and broadcasting services platform (the Satellite TV Platform) for the
provision of broadcasting services under a Satellite TV Broadcasting Licence
granted by HKSAR. The Company believes that the Satellite TV Platform will help
establish a neighborhood effect, whereby the APSTAR System will stimulate more
demand for transponder capacities for the APSTAR System. APT Telecom was
re-organized on September 10, 2003 in response to the continued downturn in the
market for telecommunication services and the oversupply of submarine cable
capacities,. After the reorganization, APT Telecom Services Limited continued
to provide telecommunication services under the Fixed Carrier License approved
by OFTA in October 2003. The Company believes that the provision of
broadcasting service and telecommunication service offerings to its customers
provides an important competitive advantage with respect to customers who
desire a one-stop shop in communications services. The Company projects that the broadcasting and telecommunication
businesses in the Asia Pacific region will see limited growth during 2004. The
transponder service market will likely still be highly competitive due to
excess capacity in the transponder lease market in the region. While the
Company believes that the business climate in the next year will remain
challenging, the successful launch of APSTAR V and APSTAR VI will enhance its
competitiveness in the transponder services market. APT intends to continue
focusing on its core business and seeking to further develop new
satellite-related businesses prudently for business expansion and enterprise
value growth. The following table sets forth, for the periods indicated, the percentage
of revenues from continuing operations represented by certain revenue and
expense items in the Companys statements of income. 2001
    
    2002
    
    2003Statement of Income Data:Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Cost of services (excluding depreciation
and amortization)
    
    
    13.1
    %
    
    
    11.9
    %
    
    
    14.6
    %Depreciation and amortization
    
    
    58.0
    %
    
    
    66.5
    %
    
    
    78.1
    %Selling, general and administrative
(excluding depreciation and amortization)
    
    
    19.2
    %
    
    
    19.9
    %
    
    
    24.8
    %Total costs and expenses
    
    
    90.3
    %
    
    
    98.3
    %
    
    
    117.5
    %9.7
    %
    
    
    1.7
    %
    
    
    (17.5
    %)Income/(loss) before income taxes
    
    
    27.8
    %
    
    
    16.7
    %
    
    
    (70.8
    %)Net income/(loss)
    
    
    20.8
    %
    
    
    7.0
    %
    
    
    (74.4
    %)
 An analysis of the source of the Companys revenues by geographical area
for the years ended December 31, 2001, 2002 and 2003 is as follows: Year Ended December 31,2001
    
    2002
    
    2003(HK$ in millions)% of Total
    
    
    
    
    
    % of Total
    
    
    
    
    
    % of TotalAmount
    
    Revenues
    
    Amount
    
    Revenues
    
    Amount
    
    RevenuesThe Peoples
Republic of China:Hong Kong
    
    
    40.5
    
    
    
    10.8
    %
    
    
    47.2
    
    
    
    13.4
    %
    
    
    25.1
    
    
    
    8.3
    %Elsewhere
    
    
    270.0
    
    
    
    72.2
    %
    
    
    254.9
    
    
    
    72.5
    %
    
    
    225.8
    
    
    
    74.7
    %Others
    
    
    63.7
    
    
    
    17
    %
    
    
    49.3
    
    
    
    14.1
    %
    
    
    51.3
    
    
    
    17.0
    %374.2
    
    
    
    100.0
    %
    
    
    351.4
    
    
    
    100.0
    %
    
    
    302.2
    
    
    
    100
    %
 34




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For the years ended December 31, 2001, 2002, and 2003, the Company wrote
off accounts receivable in the amounts of HK$7.6 million (US$1.0 million),
HK$11.5 million (US$1.5 million), and HK$nil, respectively. For the years
ended December 31, 2001, 2002, and 2003, the Company made allowance for
doubtful receivables in the amounts of HK$nil, HK$5.3 million (US$679 thousand)
and HK$8.4 million (US$1.1 million), respectively. If the financial condition
of the Companys customers were to deteriorate, additional allowances may be
required. The Company has not incurred any research and development expenditure for
the years ended December 31, 2001, 2002 or 2003. 
 Application of Critical Accounting Policies The financial statements are based on the selection and application of
significant accounting policies, which require management to make significant
estimates and assumptions that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of the financial statements. Actual results may
differ from these estimates under different assumptions or conditions. The
following are some of the more critical judgment areas in the application of
the Companys accounting policies that currently affect the Companys financial
condition and results of operations. Depreciation Depreciation of satellite assets is provided for on the straight-line
method over the estimated useful life of the satellite, which is determined by
engineering analysis performed at the in-services date and re-evaluated
periodically, to residual value. A number of factors affect the operational
lives of satellites, including construction quality, component durability, fuel
usage, the launch vehicle used and the skill with which the satellite is
monitored and operated. As the telecommunication industry is subject to rapid
technological change and the Companys satellites have been subjected to
certain operational lives, the Company may be required to revise the estimated
useful lives of its satellites and communication equipment or to adjust their
carrying amounts periodically. Accordingly, the estimated useful lives of the
Companys satellites are reviewed using current engineering data. If a
significant change in the estimated useful lives of our satellites is
identified, the Company accounts for the effects of such change on depreciation
expenses on a prospective basis. As the replacement of the Companys current satellites is expected to take
place in 2004/2005, any unamortized depreciation will be taken into account
with respect to gain/loss on disposal of these satellites. Depreciation for
future satellites will depend on in-orbit testing on their estimated useful
lives after successful launch and, as the cost of the future satellites is
greater than the carrying value of the current satellites, the depreciation
charge is expected to increase in the coming years. Accounts receivables and other receivables The management of the Company estimates the provision of allowances
required for the potential non-collectability of receivables at each balance
sheet date based on the aging of its customer accounts and its historical
write-off experience, net of recoveries. The Company performs ongoing credit
evaluations of its customers and adjusts credit limits based upon payment
history and the customers current credit worthiness. The Company does not
make a general provision on its accounts receivables and other receivables, but
instead, makes a specific provision on its accounts receivables and other
receivables. Hence, the Company continuously monitors collections and payments
from customers and maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the customers of the Company were to
deteriorate, actual write-offs would be higher than estimated. Impairment of tangible and intangible assets Property, plant and equipment The Company periodically reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If the recoverable amount of an asset
is estimated to be less than its carrying amount, the carrying amount of the
asset is reduced to its recoverable 35




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amount. In assessing the recoverable
amount of these assets, the Company is required to make assumptions regarding
estimated future cash flows and other factors to determine the net realizable
value. If these estimates or their related assumptions change in the future,
the Company may be required to adjust the impairment charges previously
recorded. Under HK GAAP, the estimated future cash flows are discounted at a
discount rate when assessing the recoverable amount of the assets. Under US
GAAP, recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amounts of the assets exceed the fair value of the assets. The Company continually applies the foregoing analysis in determining the
timing of the impairment test, the estimated useful lives of the individual
assets, the discount rate, future cash flows used to assess impairments and the
fair value of impaired assets. It is difficult to precisely estimate the price
of the transponder capacities and related satellite services and residual
values because the market prices for our assets are not readily available. The
estimates of future cash flows are based on the terms of existing transponder
capacity and service agreements. The dynamic economic environment in which the
Company operates and the resulting assumptions used in setting depreciable
lives on assets and judgment relating to the utilization rate of the assets,
price and amount of operating costs to estimate future cash flows impact the
outcome of all of these impairment tests. If these estimates or their related
assumptions change in the future, the Company may be required to record
impairment loss for these assets not previously recorded. The Company periodically reviews the carrying amounts of its property,
plant and equipment through reference to its use value and fair market value as
assessed both by the Company and by an independent professional property
appraiser. If the use value or fair market value of the property, plant and
equipment are lower than their carrying amount, the Company may be required to
record additional impairment loss not previously recognized. During the year
ended December 31, 2003, the Company conducted a review of the property, plant
and equipment and determined that certain communication satellites were
impaired, as the recoverable amount of these assets is estimated to be less
than their carrying amount. The Company recognized an impairment loss of
HK$129.1 million (US$16.5 million) related to one of its communication
satellites for the year ended December 31, 2003 after reassessing (i) the
expected future revenues which the Company had already taken into account, due
to the economic recession and over supply of transponder capacity in Asia
Pacific region and the lower transmission power of the Companys satellites as
compared to those of competitors, resulting in downward pressure on pricing and
lower customer growth than previously expected and (ii) the expected sales
proceeds from the disposal of one of its satellites, which the Company expects
to retire one year earlier than originally projected. For the year ended December 31, 2003, in respect of the current
satellites, the Company would have been required to recognize an additional
impairment loss of approximately HK$2.0 million (US$256 thousand) in its
consolidated statements of income, assuming the discount rate used to estimate
future cash flows from the Companys transponder capacity agreements had
increased by 1% , all other factors remaining constant. Assuming the sales
proceeds on the Companys satellites had decreased by 10%, the Company would
have been required to recognize an additional impairment loss of approximately
HK$8.0 million (US$1.0 million). In assessing whether any impairment loss for
the year ended December 31, 2003 should be recognized in respect of satellites
under construction, the Company determined that its estimates of future cash
flows from those satellites remained valid, and therefore no impairment loss
was recognized on satellites under construction. Once those satellites are
launched and commence operations, the Company will project a new estimated
future cash flows to assess whether any impairment loss should be recognized. Valuation of investment properties Investment properties are stated at their fair market value based on
independent professional appraisal at each balance sheet date. In assessing
the fair market value of investment properties, the appraiser makes assumptions
regarding the property market condition and the future rental trend. The assumptions upon which the appraisal is made include that the property
is sold on the open market for cash consideration, and that no arrangement that
would serve to increase the value of the property such as a deferred
term contract, leaseback, joint venture, management agreement or any
similar arrangement is used. Furthermore, the appraisal assumes that no
account has been taken of any option or right of pre-emption concerning or
affecting the 36




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sale of the property and no forced sale situation in any manner
is assumed in the valuation. If these estimates or their related assumptions
change in the future, the fair market value may differ from the previous
estimate. Contingencies and provisions Contingencies, representing an obligation that are neither probable nor
certain at the date of the financial statements, or a probable obligation for
which the cash outflow is not probable, are not recorded. Provisions are recorded when, at the end of period, there is an obligation
of the Group to a third party which is probable or certain to create an outflow
of resources to the third party, without at least an equivalent return expected
from the third party. This obligation may be legal, regulatory or contractual
in nature. To estimate the expenditure that the Company is likely to bear in order to
settle an obligation, the management of the Company takes into consideration of
all of the available information at the closing date for its consolidated
financial statements. If no reliable estimate of the amount can be made, no
provision is recorded. 
 Commitments and Contingencies In the ordinary course of its business, the Company enters into commercial
commitments for various aspects of operations, such as repair and maintenance.
However, the Company believes that those commitments will not have a material
effect on the Companys financial condition, results of operations or cash
flows. The following tables aggregate the contractual obligations and other
commercial commitments of the Company as of December 31, 2003 (HK$ in
millions): Contractual Obligations: Payments due by periodTotal
    
    Less than1 year
    
    13 years
    
    45 years
    
    After 5yearsUS$240 million term
loan facility(1)
    
    
    702.0
    
    
    
    17.6
    
    
    
    96.5
    
    
    
    214.1
    
    
    
    373.8Purchase obligations- the Company (2)
    
    
    677.9
    
    
    
    537.1
    
    
    
    140.8
    
    
    
    
    
    
    
    - share of jointly
controlled entities
(3)
    
    
    20.9
    
    
    
    20.9
    
    
    
    
    
    
    
    
    
    
    
    Other obligations
(4)
    
    
    2.9
    
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
(5)
    
    
    9.3
    
    
    
    7.1
    
    
    
    2.2
    
    
    
    
    
    
    
    Total contractual
obligations
    
    
    1,413.0
    
    
    
    585.6
    
    
    
    239.5
    
    
    
    214.1
    
    
    
    373.8
 Other Commercial Commitments: Amount of commitment expiration per periodTotalamounts
    
    Less than
    
    1  3
    
    4  5
    
    After 5committed
    
    1 year
    
    years
    
    years
    
    yearsOther commercial
commitments- the Company
(6)
    
    
    417.9
    
    
    
    417.9
    
    
    
    
    
    
    
    
    
    
    
    Total commercial
commitments
    
    
    417.9
    
    
    
    417.9
    
    
    
    
    
    
    
    
    
    
    
    
 37




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(1)
    
    This line item represents the cash obligations for principal
payments of the Loan Facility. The Loan Facility was secured by the
assignment of the construction, launching and related equipment
contracts relating to satellites under construction and their
related insurance claim proceeds, assignment of all present and
future lease agreements of their transponders of satellites under
construction, launching and related equipment contracts.  (2)
    
    This line item represents various purchase commitments
entered into with the Companys suppliers due to the long lead times
required before the satellites become operational.  (3)
    
    This line item represents the Companys share of the purchase
obligations of its jointly controlled entities that have entered
into various purchase commitments with suppliers.  (4)
    
    This line item represents various service commitments entered
into with suppliers.(5)
    
    This line item represents future minimum payments under
operating leases with remaining terms of one year or more.(6)
    
    This line item represents various purchase commitments
authorized by the Company with its suppliers but not contracted at
the balance sheet date. Contingencies: APTs overseas withholding tax charged on certain transponder lease
income in respect of 1998 and before, calculated at the applicable rates
based on the relevant transponder lease income earned in the those years,
and not provided for in the financial statements, amounted to approximately
HK$75.9 million (US$9.7 million). (See Note 13 of the Companys Consolidated
Financial Statements). APT did not recognize liabilities as the Companys
position is that the new tax rules are effective from 1999 onwards. If such
tax charge is claimed for the period from 1998 and before, it could result
in a significant adverse effect on the Companys financial condition. In 2003, APT received a letter from the Hong Kong Inland Revenue
Department (IRD) in connection with the Profits Tax Return that IRD disagreed
that APT has claim the capital gain of HK$389.7 million (US$50.0 million) in
1999 in relation to the transfer of substantially all of the satellite
transponder capacities of APSTAR IIR for the rest of its useful life. APT has
claimed the gain as a non-taxable capital gain in its 1999/2000 Profits Tax
Return. The non-taxable claim is under review by the IRD which has proposed to
treat the proceeds received as taxable income to this subsidiary with a
corresponding entitlement to statutory depreciation allowance in respect of
APSTAR IIR. For the year ended December 31, 2003, the tax effect of this event
to APT is estimated to be HK$56.0 million (US$ 7.2 million). Having taken into consideration an independent professional advice, the
Company believes it has a reasonable likelihood of success in defending its
position that the gain derived from the above mentioned transaction should be
treated as non-taxable. If the Company is unsuccessful with respect to its
position, this tax liability could be offset against current tax loss brought
forward under APT. In addition, certain potential losses of a satellite or the satellites
functionality may not be fully covered by the Groups launch or in-orbit
insurance policies. For example, the Groups launch insurance would probably
not fully reimburse the Group for its expenditures with respect to launching a
replacement satellite, because some expenses such as legal and other
professional fees, interest and certain other expenses, would not be insured.
The Groups in-orbit insurance covers only the book value, and not the
replacement cost, of a satellite. Further, the Groups insurance coverage
would not compensate the Group for business interruption and similar losses
(including, among other things, loss of market share, loss of revenue and
incidental and consequential damages). In the event that the insurance
proceeds exceed the carrying amount of the satellites, the excess of the
proceeds over the carrying value of the satellite would be recognized as
income. Any shortfall between the insurance proceeds and the carrying amount
of the satellites would be recognized in the statements of income as expense. 38




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##### Table of Contents



Off-Balance Sheet Arrangements At December 31, 2002 and December 31, 2003, the Company has two jointly
controlled entities, Beijing Zhong Guang Xin Da and APT Telecom. Beijing Zhong
Guang Xin Da is considered a jointly controlled entity because the Company and
the other shareholder exercise joint control over the company pursuant to a
shareholders resolution. APT Telecom is also considered as a jointly
controlled entity because the Company and the other shareholder both have the
right to appoint an equal number of directors to APT Telecoms board of
directors. For details of the interest in jointly controlled entities, see
Item 18 and Note 6 to the Audited Consolidated Financial Statements of the
Company. Other than as disclosed above, the Company does not have any
off-balance sheet arrangements. 
 Results of Operations Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Total Revenues.Total revenues for the year ended December 31, 2003 were
HK$302.2 million (US$38.7 million), a decrease of HK$49.2 million (US$6.3
million), or 14.0%, as compared to total revenues of HK$351.4 million (US$45.1
million) for the same period in 2002. This decrease was due primarily to the
weakening of demand for transponder capacity in the Asia Pacific region and
intense market competition that continued to exert downward pressure on the
utilization rates of transponders during the year. The decrease in demand for
transponder capacity was due to the sluggishness of the economy in the region,
especially in the first half of 2003. The weakening of demand further worsened
the problem of excess transponder capacity in the region. In the second half of
2003, while there were indications that the regional economic environment was
improving, the market in the region remained highly competitive due to a number
of factors: (i) there continued to be a significant excess capacity in
transponder capacities with respect to transponders operating on both C-band
and Ku-band in the region; (ii) there continued to be excess capacity in
submarine cable capacities, particularly with respect to telecommunication
services; (iii) the fact that APSTAR I and APSTAR IA are comparatively lower in
transmission power and are close to retirement thereby making them less
attractive to potential customers compared to the newer satellites available.
Intense market competition during 2003 forced transponder lease pricing down,
eroding the Companys profit margins. The Company believes that the
commencement of operations of APSTAR V and APSTAR VI will enhance the
competitive position of the APSTAR System. By bundling broadcasting services
and telecommunication services into a one-stop shop for communications
services, the Company aims to further strengthen the utilization rates of its
satellites as the regional economic outlook improves, in an effort to increase
its profit margins. Total Costs and Expenses.The major components of total costs and
expenses consist of cost of services, depreciation and amortization, and
selling, general and administrative expenses. Total costs and expenses for
the year ended December 31, 2003 were HK$355.2 million (US$45.5 million), an
increase of HK$9.6 million (US$1.2 million), or 2.8%, as compared to the same
period in 2002. This increase was primarily due to increases of HK$4.6 million
(US$590 thousand) and HK$5.0 million (US$641 thousand), respectively, in cost
of services and selling, general and administrative expenses. Total costs and
expenses as a percentage of revenues were 117.5% in the year ended December 31,
2003, as compared to 98.3% in the year ended December 31, 2002, as further
discussed as below. Cost of Services, including Depreciation and Amortization. The major
components of cost of services include depreciation and amortization, license
fees, orbital slot management fees, in-orbit insurance and satellite operations
services charges. The cost of services, including depreciation and amortization
for the year ended
December 31, 2003 was HK$280.3 million (US$35.9 million), an increase of
HK$4.6 million (US$590 thousand) or 1.7% when compared to the cost for the year
ended December 31, 2002. The increase was due to the increase in depreciation
and amortization and the cost of services incurred in running the business
acquired from a jointly controlled entity as further discussed as below. Cost of Services, excluding Depreciation and Amortization. Cost of
services excluding depreciation and amortization for the year ended December
31, 2003 was HK$44.0 million (US$5.6 million), an increase of HK$2.3 million
(US$295 thousand) or 5.5% as compared to cost of services of HK$41.7 million
(US$5.3 million) for the year ended December 31, 2002. The increased cost of
services is mainly due to the Companys acquisition of the satellite-based
external telecommunications business of a jointly controlled entity on October
10, 2003, with the cost of services incurred in running the business increasing
accordingly. 39




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Depreciation and Amortization.Depreciation and amortization for the year
ended December 31, 2003 was HK$236.3 million (US$30.3 million), an increase of
HK$2.3 million (US$295 thousand) or 1.0% as compared to depreciation and
amortization of HK$234.0 million (US$30.0 million) for the year ended December
31, 2002. This increase was mainly due to full year depreciation charge on
uplink equipment for the year ended December 31, 2003 while only half year
depreciation charge on the uplink equipment for the year ended December 31,
2002. Selling, General and Administrative Expenses.The major components of
selling, general and administrative expenses include staff costs, office rental
expenses, office general expenses, provision for bad and doubtful receivables,
and marketing and promotion expenses. Selling, general and administrative
expenses for the year ended December 31, 2003 were HK$74.9 million (US$9.6
million), an increase of HK$5.0 million (US$641 thousand), or 7.2%, as compared
to selling, general and administrative expenses of HK$69.9 million (US$9.0
million) for the year ended December 31, 2002. This increase was largely due
to increase in receivable allowance and office expenses. Other Operating Income.The major components of other operating income
consist of interest income and other income. Aggregate non-operating items
resulted in income of HK$33.0 million (US$4.2 million) in the year ended
December 31, 2003, a decrease of HK$39.3 million (US$5.0 million), as compared
to the year ended December 31, 2002. Interest Income  Net.Interest income  net was HK$7.1 million (US$910
thousand) in the year ended December 31, 2003, a decrease of HK$15.1 million
(US$1.9 million), or 68.0%, as compared to the year ended December 31, 2002,
largely as a result of decreased interest income from short-term deposits at
banks, which was due to both decreases in interest rates on bank deposits and
in bank balances available for earning interest during 2003 due to increased
capital expenditures for the year. Other Income.Other income was HK$25.9 million (US$3.3 million) in the
year ended December 31, 2003, decrease of HK$24.2 million (US$3.1 million), or
48.3%, as compared to other income of HK$50.1 million (US$6.4 million) in the
year ended December 31, 2002. The decrease was mainly due to reversal of
provision on regulatory matters previously recognized in the life lease of
transponder of APSTAR IIR of HK$47.2 million (US$6.1 million) for the year
ended December 31, 2002, while no such amount was recognized in the year ended
December 31, 2003. The regulatory matter concerned the requirement to retrofit
satellite dishes under the terms of an agreement with an independent third
party, which the Company determined it would not likely be required to do. For
details of the reversal, see Note 21a to the Companys audited Consolidated
Financial Statements in the section entitled Item 18. Financial Statements
of this Annual Report. In addition, a compensation payment of HK$13.5 million
(US$1.7 million) from a jointly controlled entity for the early termination of
services and a facilities lease as the result of the jointly controlled
entitys reorganization in October 2003 was recognized for the year ended
December 31, 2003. Impairment Loss Recognized In Respect to Property, Plant and Equipment.
Impairment loss recognized in respect to property, plant and equipment of
HK$129.1 million (US$16.5 million) was recognized for the year ended December
31, 2003 with respect to the Companys communication satellites as compared to
impairment loss recognized in respect to property, plant and equipment of
HK$5.2 million (US$667 thousand) for the year ended December 31, 2002.
Impairment loss on land and buildings was recognized for the excess of their
carrying amount over their fair market value while the impairment loss on
communication satellites and goodwill was recognized for the excess of the
carrying value over the expected future cash flow to be generated by the
assets. For
the year ended December 31, 2003, the Company re-assessed the expected
future revenues and the expected sales proceeds from disposal of one of the
satellites, which the Company expects to retire one year earlier than
originally projected. Impairment Loss Recognized In Respect of Goodwill Arising on Acquisition
of Interest in a Subsidiary.No impairment loss recognized in respect of
goodwill arising on acquisition of interest in a subsidiary was recognized for
the year ended December 31, 2003 as compared to impairment loss recognized of
goodwill arising on acquisition of interest in a subsidiary of HK$3.4 million
(US$436 thousand) that was recognized for the year ended December 31, 2002 with
respect to goodwill arising on acquisition of an interest in a subsidiary,
CTIA. Interest Expenses. No interest expenses were recorded for either year
ended December 31, 2002 or 2003 because the interest expenses incurred under
the US$240 million Loan Facility were capitalized as part of satellite 40




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construction costs. The interest expenses of HK$6.6 million (US$846 thousand)
and other related cost of HK$1.2 million (US$154 thousand) incurred in
obtaining the loans were capitalized for the year ended December 31, 2003 while
interest expenses of HK$117 thousand (US$15 thousand) and other related cost of
HK$2.1 million (US$269 thousand) were capitalized for the year ended December
31, 2002. Share of Losses of Jointly Controlled Entities.Share of losses of
jointly controlled entities was HK$64.8 million (US$8.3 million) for the year
ended December 31, 2003, an increase of HK$54.2 million (US$6.9 million) or
511.3% as compared to the share of losses of jointly controlled entities of
HK$10.6 million (US$1.4 million) for the year ended December 31, 2002. The
increase was mainly due to the share of impairment loss from one of the
jointly controlled entities in respect of cables and satellite-based
telecommunication equipment and property and compensation expense for early
termination of services and facilities lease for the year ended December 31,
2003 while no such expenses were recognized for the year ended December 31,
2002. The impairment loss recognized on cable and satellite-based
telecommunications equipment and property resulted primarily from excess
capacities in the cable and satellite-based communications services markets
during the continued downturn in the regional telecommunications sector, which
exerted a downward pressure on pricing and the ability of the jointly
controlled entity to grow its customer base, and partially due to write-downs
in obsolete telecommunications equipment. As a result, projected cash flow was
lower than the carrying value of the property and equipment and the shortfall
was recognized as an impairment loss. Share of the impairment loss was HK$49.0
million (US$6.3 million) and share of the compensation expense was HK$7.4
million (US$949 thousand). For results of operations and financial position of
the jointly controlled entity, please refer to Exhibit 8.2 Audited Financial
Statements of APT Satellite Telecommunications Limited. Provision for Income Taxes.Provision for income taxes was HK$11.7
million (US$1.5 million) in the year ended December 31, 2003, a decrease of
HK$25.1 million (US$3.2 million) or 68.2%, as compared to provision for income
taxes of HK$36.8 million (US$4.7 million) for the year ended December 31,
2002. The decrease was mainly due to the Company incurring a loss during the
year as the result of decreased revenue from overseas customers and the
adoption by the Company effective January 1, 2003 of a new accounting policy
under Hong Kong GAAP, which allowed for the recognition of deferred tax in the
balance sheet. During the year ended December 31, 2003, the Company
recognized HK$9.4 million (US$1.2 million) in deferred taxes to comply with
this new accounting policy. On the other hand, the change in Hong Kong Profits
Tax rate from 16% to 17.5% with effect from March, 2003 has led to an increase
in deferred tax liabilities of the Company. The net effect has led to a
decrease in provision for income tax. Net Loss.Net loss for the year ended December 31, 2003 was HK$224.7
million (US$28.8 million), an increase of HK$249.1 million (US$31.9 million),
or 1020.9%, as compared to the net income of HK$24.4 (US$3.1 million) for the
year ended December 31, 2002. This decrease of net income was due to all of
the factors discussed above. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Total Revenues.Total revenues for the year ended December 31, 2002 were
HK$351.4 million (US$45.1 million), a decrease of HK$22.8 million (US$2.9
million), or 6.1%, as compared to total revenues of HK$374.2 million (US$48.0
million) for the same period in 2001. This decrease was due primarily to the
sluggish worldwide economy during the year, which led to the weakening of
demand for transponders in the Asia-Pacific region. Also,
intense market competition continued to exert downward pressure on the
lease rate of transponders, leading to a further decrease in revenues. Total Costs and Expenses.Total costs and expenses were HK$345.6 million
(US$44.3 million) for the year ended December 31, 2002, an increase of HK$7.7
million (US$1.0 million), or 2.3%, as compared to the year ended December 31,
2001. This increase was primarily the result of net effect of an increase of
depreciation, a decrease in the cost of services and a decrease in selling,
general and administrative expenses. Total costs and expenses as a percentage
of revenues were 98.3% in the year ended December 31, 2002, as compared to
90.3% in the year ended December 31, 2001, as further discussed below. Cost of Services, including Depreciation and Amortization. The cost of
services, including depreciation and amortization for the year ended December
31, 2002 was HK$275.7 (US$35.3 million), an increase of HK$9.7 41




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million (US$1.2
million) or 3.6% when compared to the cost for the year ended December 31,
2001. The increase was due to a decrease in cost of service excluding
depreciation and amortization and partly offset by an increase in depreciation
and amortization. Details of the movement were discussed under the respective
paragraphs. Cost of Services, excluding Depreciation and Amortization. Cost of
services excluding depreciation and amortization for the year ended December
31, 2002 was HK$41.7 million (US$5.3 million), decrease of HK$7.3 million
(US$936 thousand) or 14.9% as compared to cost of services of HK$49.0 million
(US$6.3 million) for the year ended December 31, 2001. The decreased cost of
services is mainly due to decrease in in-orbit insurance by HK$3.3 million
(US$423 thousand) and in technical support service fee by HK$4.5 million
(US$577 thousand), so the cost of services incurred in running the business
decreased accordingly. Costs and expenses as a percentage of revenues were
98.3% in the year ended December 31, 2002, as compared to 90.3% in 2001. Depreciation and Amortization.Depreciation and amortization for the year
ended December 31, 2002 was HK$234.0 million (US$30.0 million), an increase of
HK$17.0 million (US$2.2 million) or 7.8% as compared to depreciation and
amortization of HK$217.0 million (US$27.8 million) for the year ended December
31, 2001. This increase was mainly due to a change in the estimate of the
remaining lives of the assets and their residual values. This change
ultimately led to an increase in depreciation of assets of HK$9.8 million
(US$1.3 million) and an increase of HK$8.5 million (US$1.1 million) in
depreciation on equipment of provision for satellite television uplinks and on
the Satellite Control Center Phase II. Selling, General and Administrative Expenses.Selling, general and
administrative expenses for the year ended December 31, 2002 were HK$69.9
million (US$9.0 million), a decrease of HK$2.0 million (US$256 thousand), or
2.8%, as compared to selling, general and administrative expenses of HK$71.9
million (US$9.2 million) for the year ended December 31, 2001. The decrease
was largely due to decrease in directors remuneration as a result of decrease
in the payment of remuneration to executive directors. Other Operating Income.Aggregate non-operating items resulted in income
of HK$72.3 million (US$9.2 million) in the year ended December 31, 2002, a
decrease of HK$6.2 million (US$795 thousand), as compared to the year ended
December 31, 2001. Interest Income  Net.Interest income  net was HK$22.2 million (US$2.8
million) in the year ended December 31, 2002, a decrease of HK$48.0 million
(US$6.1 million), or 68.4%, as compared to interest income  net of HK$70.2
million (US$9.0 million) in the year ended December 31, 2001, largely as a
result of decreased interest income from short-term deposits at banks, which
was due to both decreases in interest rates on bank deposits and in bank
balances available for earning interest during 2002. Other income.Other income was HK$50.1 million (US$6.4 million) in the
year ended December 31, 2002, an increase of HK$41.9 million (US$5.4 million),
or 510.9%, as compared to other income of HK$8.2 million (US$1.1 million) in
the year ended December 31, 2001. The increase was mainly due to reversal of
provision on regulatory matters described above that had been previously
recognized in the life lease of transponder of APSTAR IIR of HK$47.2 million
(US$6.1 million) for the year ended December 31, 2002, while no such amount was
recognized in the year ended December 31, 2001. For details of the reversal,
see Note 21a to the Companys audited Consolidated Financial Statements in the
section entitled Item 18. Financial Statements of this Annual Report. Impairment Loss Recognized In Respect to Property, Plant and Equipment.
Impairment loss recognized in respect to property, plant and equipment of
HK$5.2 million (US$667 thousand) was recognized for the year ended December 31,
2002 with respect to the Companys land and buildings as the result of
reappraisal of certain land and buildings held by the Company. Impairment loss
on land and buildings was recognized for the excess of their carrying amount
over their fair market value. For the year ended December 31, 2001, no such
impairment loss was recognized. Impairment Loss Recognized In Respect of Goodwill Arising on Acquisition
of Interest in a Subsidiary.Impairment loss of HK$3.4 million (US$436
thousand) in respect to goodwill arising on acquisition of interest in a
subsidiary, CTIA was recognized for the year ended December 31, 2002 as the
carrying amount of it was in excess of the expected future cash flow generated
by it. For the year ended December 31, 2001, no such impairment loss was
recognized. 42




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Interest Expenses.No borrowing cost was recorded for the year ended
December 31, 2002 as compared to interest expenses of HK$5.6 million for the
year ended December 31, 2001 because the Companys interest bearing bank loans
were fully repaid at the end of May 2001. With regard to the Companys US$240
million secured term loan facility, the interest expense of HK$117 thousand and
other related cost of HK$2.1 million (US$269 thousand) incurred in obtaining
the loans were capitalized as part of satellite construction costs for the year
ended December 31, 2002. Share of Losses of Jointly Controlled Entities.Share of losses of
jointly controlled entities was HK$10.6 million (US$1.4 million) for the year
ended December 31, 2002, an increase of HK$5.5 million (US$705 thousand), or
107.8%, as compared to the share of losses of HK$5.1 million (US$654 thousand)
for the year ended December 31, 2001. The increase in share of losses of
jointly controlled entities was mainly due to the fact that one of the
Companys jointly controlled entities had a full year operations for the year
ended December 31, 2002 while only a half year of operations for the year ended
December 31, 2001. The increase in share of losses of jointly controlled
entities was mainly comprise of increase in share of depreciation charge of
HK$2.1 million (US$269 thousand), selling, general and administrative expenses
of HK$2.1 million (US$269 thousand) and decrease in interest income of HK$733
thousand (US$94 thousand) of the jointly controlled entity. Provision for Income Taxes.Provision for income taxes was HK$36.8
million (US$4.7 million) in the year ended December 31, 2002, an increase of
HK$10.9 million (US$1.4 million), or 42.1%, as compared to provision for income
taxes of HK$25.9 million (US$3.3 million) for the year ended December 31, 2001.
The increase was mainly due to commencement of operations during 2001 of a
newly set up subsidiary of the Group in the PRC, and income tax for the year
associated with the operations of this subsidiary in the PRC. As such, a full
year of income tax was provided for in the year ended December 31, 2002 while
only a half year of income tax was provided for in the year ended December 31,
2001. Net Income.Net income for the year ended December 31, 2002 was HK$24.4
million (US$3.1 million), a decrease of HK$53.6 million (US$6.9 million), or
68.7%, as compared net income of HK$78.0 million (US$10.0 million) to the year
ended December 31, 2001. This decrease was due to all of the factors discussed
above. 
 Liquidity and Capital Resources Since the Companys initial public offering, it has financed its
operations primarily through cash flows from operations. On August 18, 1999,
APT entered into a lease agreement with Loral Asia Pacific Satellite (HK) Ltd.
(Loral Asia), a wholly-owned subsidiary of Loral Space and Communications
Limited, for the lease of 43 of the 44 transponders of APSTAR IIR. The
Company has received a total of approximately US$273 million from Loral Asia.
This greatly increased the Companys cash on hand. The Companys principal use of the cash in the last five years has been
capital expenditures related to the construction and launch of APSTAR V and
APSTAR VI, construction of Phase II of Satellite Control Centre and investments
in its satellite TV broadcasting platform. The Company expects total capital expenditures for the design,
construction and launch of APSTAR V and APSTAR VI to be approximately US$230
million and US$240 million, respectively. Under the APT-Loral Term Sheet,
Loral Orion agreed to participate in the development of APSTAR V by investing
up to 50% of the total
expenditures on the construction and launch of the satellite, equivalent
to approximately US$115 million, correspondingly reducing the Companys
expenditures on APSTAR V. The Company projects that its portion of the capital
expenditures for the construction and launch of APSTAR V and APSTAR VI are
estimated to be approximately US$355 million, which to date has been funded by
internal resources and borrowings under the Loan Facility. Cash Flow Items As at December 31, 2003, the Company had cash and cash equivalents of
HK$546.9 million (US$70.1 million), a decrease of HK$279.4 million (US$35.8
million) or 33.8% compared to cash and cash equivalents of HK$826.3 million
(US$105.9 million) as at December 31, 2002. The decrease in cash and cash
equivalents over the period was primarily the result of the increased level of
net cash used in investing activities of HK$589.3 million 43




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(US$75.5 million)
which was offset by net cash provided from financing activities of US$218.9
million (US$28.1 million) and net cash provided from operating activities of
HK$91.3 million (US$11.7 million). Net cash provided by operating activities amounted to HK$91.3 million
(US$11.7 million) for the year ended December 31, 2003, a decrease of HK$71.5
million (US$9.2 million), or 43.9%, compared to net cash provided by operating
activities of HK$162.8 million (US$20.9 million) for the years ended December
31, 2002. The decrease in net cash provided by operating activities over the
period generally reflected the decrease in revenue due to the weakening of
demand for transponder capacity in the Asia Pacific region and intensified
market competition. Net cash used in investing activities was HK$589.3 million (US$75.5
million) for the year ended December 31, 2003, a decrease of HK$447.9 million
(US$57.4 million), or 43.2%, compared to net cash used in investing activities
of HK$1,037.2 million (US$133.0 million) for the year ended December 31, 2002.
The decrease in net cash used in investing activities over the period was
mainly due to the decrease in the amount payable during reducing the progress
payment for the construction of APSTAR V and APSTAR VI. Net cash provided by financing activities was HK$218.9 million (US$28.1
million) for the year ended December 31, 2003, an increase of HK$138.0 million
(US$17.7 million), or 170.6%, compared to net cash provided by financing
activities of HK$80.9 million (US$10.4 million) for the year ended December 31,
2002. The increase in net cash provided by financing activities over the
period was primarily the result of new borrowings under the secured bank loans
for APSTAR V and APSTAR VI of HK$538.2 million (US$69.0 million) and the
increase in bank borrowings was offset by repayment of bank borrowings for
APSTAR I of HK$317.7 million (US$40.7 million). Long-Term Debt and Other Liabilities On December 29, 1994, the Companys subsidiaries entered into an
arrangement for the leasing of a communication satellite with 138 Leasing
Partnership (Partnership), which became a wholly-owned subsidiary of the
Company in 1997. The bank loans in respect of the arrangement were repaid at
December 29, 2003. As at December 31, 2002 and 2003, the bank loans borrowed
by the Partnership of HK$317.7 million (US$40.7 million) and HK$nil,
respectively, included above are secured by time deposits of an equivalent
amount. Of this amount, HK$317.7 million (US$40.7 million) and HK$nil are
included as part of current pledged bank deposits as of December 31, 2002 and
2003, respectively. On December 16, 2002, APT entered into a US$240 million secured term loan
facility (the Loan Facility). As of December 31, 2002 and December 31, 2003,
the aggregate borrowings under the Loan Facility were HK$163.8 million (US$21
million) and HK$702 million (US$90 million), respectively. The Loan Facility is divided into three tranches. Tranche A (for APSTAR V)
is for up to US$100 million and will mature on the earlier of December 31, 2009
or the sixth anniversary of the commencement of commercial operations of APSTAR
V. Tranche B (for APSTAR VI) is for up to US$120 million and will mature on
the earlier of March 31, 2011 or the sixth anniversary of the commencement of
commercial operations of APSTAR VI. Tranche C (for APSTAR VI back up), which
is for up to US$40 million, will be available beginning July 1, 2004
and will mature on the earlier of June 30, 2012 or the sixth anniversary of the
commencement of commercial operations of APSTAR VI. The Loan Facility further
provides that the aggregate amount under Tranche A and Tranche B may not exceed
US$200 million and the total aggregate amount under three tranches may not
exceed US$240 million. As of December 31, 2003, the Company complied with all the financial
covenants in the most recently completed twelve-month period. Due to the delay
in the launch of APSTAR V, the Company obtained a confirmation letter from its
Lenders in March 2004. Pursuant to the confirmation letter, the unutilized
portion under Tranche A and Tranche C were cancelled due to the availability
period of drawing under Tranche A with respect to APSTAR V having expired at
the end of 2003. Accordingly, the aggregate loan facility under the two
tranches was reduced to US$165 million, the repayment date of the first
installment under Tranche A was extended to six months after the successful
launch and in orbit testing of APSTAR V, and certain financial covenants were
amended. The Company is currently negotiating with its Lenders to amend the
related terms of Loan Facility for the purpose of 44




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reflecting the agreed terms
in the confirmation letter. There can be no assurance that its Lenders will
grant future waivers for the delay launch of ASPTAR VI. The Company currently
does not foresee any event that would cause to cancel the Facility of Tranche B
as the availability period of drawing under Tranche B to be expired on March
31, 2005. In the event that the Company is unable to consummate the Loan Facility,
the Company will consider possible alternative sources of financing such as
entering a new secured term loan credit facility with guarantees by the
Principal Shareholders to repay in full the existing Loan Facility and
available to finance the construction of APSTAR V and APSTAR VI and other
capital expenditure requirements. There can be no assurance that alternative
sources of financing will be available at all or that, if available, will be
obtained at terms as favorable as the terms contained in the Loan Facility. The Loan Facility is secured by the assignment of the construction,
launching and related equipment contracts relating to APSTAR V, APSTAR VI under
construction and their related insurance claim proceeds, assignment of all
present and future lease agreements of the transponders of satellites under
construction, assignment of all present and fixed charges over certain bank
accounts which will hold receipts of the transponder income and the termination
payment under construction, launching and related equipment contracts.
Pursuant to the Loan Facility, any insurance claim proceeds and contract
termination payments must be deposited in a designated account; withdrawal of
any amount from this designated account may only occur in accordance with the
terms of the Loan Facility. The Loan Facility limits the amount of annual dividends that the Company
may pay its shareholders to in accordance with certain EBITDA and cash to debt
service ratios contained therein. The Loan Facility includes covenants
customary for agreements of this type, including restrictions on the Companys
and its subsidiaries ability to incur indebtedness, certain ownership
restrictions, certain restrictions on the Companys ability to pay dividends,
restrictions on affiliated transactions, certain financial covenants, covenants
with respect of compliance with laws, maintenance of licenses and permits
required for APTs business and a requirement that all future transponder
utilization agreements be entered into on an arms-length basis. Among other
things, APT undertakes to ensure that APT International directly owns at least
50.01% of the voting rights in the Company. The Loan Facility also contains
financial covenants, including maintenance of collateral coverage ratio,
minimum net worth and minimum EBITDA. The Loan Facility also contains
customary limitations, including those on dividend, investments, capital
expenditures, change of controlling shareholders, creating liens and
transactions with affiliates. No assurance can be given that APT will be able
to meet any of the financial performance covenant contained in the Loan
Facility. 
 Capital Expenditures APTs principal use of capital in the last several years has been (and
will for the foreseeable future be) capital expenditures related to the
construction and launch of its satellites, construction of Phase II of the
Satellite Control Centre and investment in its satellite TV broadcasting
platform. The Companys business is capital-intensive, requiring substantial
capital outlays before any given satellite is commissioned for commercial
service and can begin providing a return on capital. The Company makes periodic satellite project progress payment relating to
construction of satellites, launching and related services, insurance costs and
finance costs on amounts borrowed to finance such expenses. Upon the
commencement of commercial service of an APT satellite, satellite project
progress payments relating to the satellite are transferred in full to
property, plant and equipment. For capital commitments in respect of capital
expenditures, see Item 5. Contractual Obligations and Commercial
Commitments. The Company expects total capital expenditures for the design,
construction and launch of APSTAR V and APSTAR VI to be approximately US$230
million and US$240 million, respectively. Under the term sheet, which was
entered into on September 20, 2002 between a subsidiary of the Company and a
subsidiary of Loral Space and Communications Ltd, (Loral Orion), Loral Orion
agreed to participate in the development of APSTAR V by investing up to 50% of
the total expenditures for APSTAR V, equivalent to an amount of US$115 million,
correspondingly reducing the Companys investments in APSTAR V. 45




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The Company estimates that cash outflow for capital expenditures in 2004
relating to expenditures for the construction, launch service and launch
insurance for APSTAR V and APSTAR VI will be approximately HK$1,126.2 million
(US$144.4 million) . The Company expects that financing for both of APSTAR V
and APSTAR VI will be provided by internal resources, future cash flow from
operations and amounts borrowed under the Loan Facility As of December
31,2003, the Company had HK$546.9 million (US$70.1 million) of cash and
HK$585.0 million (US$75.0 million) available credit from the Loan Facility.
The Company believes that it will have sufficient funds to meet all of its
capital expenditures . There can be no assurance, however, that the Companys
assumptions with respect to costs for future construction and launch of its
satellites will be correct, or that funds available to it from the sources
discussed above will be sufficient to cover any shortfall in funding for
additional launches caused by launch failures, cost overruns, delays, capacity
shortages or other unanticipated expenses. In addition, if the Company was to consummate any strategic transactions
or undertake any other project requiring significant capital expenditures, it
may be required to seek additional financing. There can be no assurance that
additional funds will be available at all or that, if available, will be
obtained at terms favorable to the Company. 
 Forward Looking Statements Many statements contained, or incorporated by reference, in this Form 20-F
are forward looking. Examples of such statements include Companys
expectations about (i) its operations, (ii) its revenues, (iii) its markets,
(iv) the technical capabilities of the Companys APSTAR System, (v) its funding
needs, (vi) its funding sources, (vii) its prospects, (viii) regulatory
matters, (ix) the pricing of its services, (x) its competitors and their
services and (xi) actions of Companys suppliers, vendors, and service
providers. Forward looking statements are inherently predictive and speculative and
Company cannot assure you that any forward looking statements will prove to be
correct. Actual results are likely to be materially different from those
expressed or implied by forward looking statements. In particular, forward
looking statements are based on a number of assumptions about future events,
including the assumption that there will be a sufficient number of customers
for, and continued demand for usage of, the Company satellites transponders to
generate revenues in the amounts and at the times anticipated by Company. In reviewing the information contained in this Form 20-F (including the
forward looking statements) you should recognize that factors which may cause
Companys results of operation to differ materially from those expressed or
implied by such forward looking statements include, but are not limited to, (i)
Companys capital structure and its need to use external funding sources, (ii)
customers demand for services of Company satellites transponders, (iii)
delays and cost overruns related to the construction, deployment and
maintenance of Companys APSTAR System, (iv) technological risks related to the
development, operation and maintenance of various components of the APSTAR
System, (v) risks related to the upcoming launch, and the operation and
maintenance of the Companys new satellites, APSTAR V and APSTAR VI, and (vi)
competition from other satellite operators and a number of existing satellite
systems that provide similar services in various markets. These and other
factors discussed elsewhere herein, including under the heading Risk Factors
above, could result in the forward looking statements proving to be inaccurate
may materially affect Companys operations. 
 Other Exchange Rates Substantially all of APTs historical revenues from transponder leasing,
premiums for satellite launch and in-orbit insurance coverage, debt service and
capital expenditures have been denominated in US Dollars. The remaining
revenues and expenses have been primarily denominated in Hong Kong Dollars,
which are fully convertible into US Dollars, and the exchange rates for that
currency against the US Dollar have been pegged since 1983. As the exchange
rate between the Hong Kong Dollar and the US Dollar has been pegged, the
Company does not engage in or plan to engage in hedging activities to offset
risks of exchange rate fluctuations. There can be no assurance that the
exchange rates will remain stabilized in the future. See Exchange Rate
Information. On December 31, 2003, all of the Companys material contracts
and obligations were denominated in US Dollars. 46




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Inflation Inflation has not materially affected the Companys operations during its
operating history. Taxation The Companys profits/(loss) for the years ended December 31, 2001, 2002
and 2003, which are deemed to be Hong Kong-sourced are subject to Hong Kong
profits tax, which was levied at the rate of 16%, 16% and 17.5%, respectively.
Offshore interest income derived by the Company is not subject to Hong Kong
profits tax. The overseas withholding tax is currently charged at the rate of 10% on
rental income in 2001, 2002 and 2003, respectively. A subsidiary of the Company in the PRC is currently subject to PRC income
tax and charged at the rate of 15% in Shenzhen in 2001, 2002 and 2003. US GAAP Reconciliation The Companys financial statements are prepared in accordance with Hong
Kong GAAP, which differ in certain significant respects from US GAAP.
Differences which have a significant effect on the consolidated net income and
shareholders equity are set forth in Note 27 to the Audited Consolidated
Financial Statements of the Company. 
 Item 6. Directors and Officers of Registrant A majority of the Companys current executive officers were originally
seconded from affiliates of the Principal Shareholders, principally affiliates
of ChinaSat, SingaSat and China Aerospace. A majority of APTs technical and
engineering staff employed at the Satellite Control Center in Tai Po were
seconded from affiliates of ChinaSat, and China Aerospace and became employees
of the Company. The directors and executive officers of APT Holdings are set forth below. Date FirstElected orName
    
    Age
    
    Position
    
    AppointedExecutive DirectorsChen Zhaobin
    
    
    48
    
    
    Director and President
    
    
    2001Tong Xudong
    
    
    40
    
    
    Director and Vice President (appointed
March 29, 2004 and April 20, 2004
respectively)
    
    
    2004Cui XinzhengNon-executive Directors
    
    
    50
    
    
    Director and Vice President
    
    
    2001Liu Ji Yuan
    
    
    70
    
    
    Chairman
    
    
    1998Zhang Hainan
    
    
    59
    
    
    Deputy Chairman (appointed March 29, 2004)
    
    
    2004Wong Hung Khim
    
    
    65
    
    
    Director
    
    
    1993Lim Toon
    
    
    61
    
    
    Director
    
    
    1993Wu Zhen Mu
    
    
    58
    
    
    Director
    
    
    1998Wu Jinfeng
    
    
    43
    
    
    Director (appointed February 10, 2001)
    
    
    2001Lim Shyong
    
    
    53
    
    
    Director (appointed March 21, 2001)
    
    
    2001Tay Chek Khoon
    
    
    53
    
    
    Director (appointed March 21, 2001)
    
    
    2001Wu Hongju
    
    
    42
    
    
    Director
    
    
    2002Yin Yen-liang
    
    
    53
    
    
    Director (appointed January 16, 2003)
    
    
    2003Tseng Ta-mon
    
    
    46
    
    
    Director (appointed July 8, 2003)
    
    
    2003Chen Chi-chuan
    
    
    46
    
    
    Alternate to Yin Yen-liang (appointed as
alternate director to Yin Yen-liang on
January 16, 2003)
    
    
    2003
 47




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Date FirstElected orName
    
    Age
    
    Position
    
    AppointedLim Wee Seng
    
    
    50
    
    
    Alternate to Lim Shyong (appointed
September 4, 2003)
    
    
    2003Independent
Non-executive directorsYuen Pak Yiu, Philip
    
    
    68
    
    
    Director
    
    
    1996Huan Guocang
    
    
    54
    
    
    Director (appointed August 27, 2002)
    
    
    2002Executive
OfficersKwok Kah Wai, Victor
    
    
    48
    
    
    Vice President
    
    
    2001Lo Kin Hang, Brian
    
    
    47
    
    
    Vice President & Company Secretary
    
    
    2002/1996Wu Shou Kang
    
    
    64
    
    
    Chief Engineer
    
    
    2001
 Executive Directors Mr. CHEN Zhaobin, aged 48, was appointed as the Executive Director and
President of the Company in February 2001. He is responsible for the overall
management of the Company. He graduated with a Bachelors Degree in Engineering
from the Beijing University of Posts and Telecommunications in 1982 and
accredited as a Senior Engineer. He held the posts of Deputy General Manager of
China Telecommunications Broadcast Satellite Corporation (ChinaSat),
Vice-Chairman and President of China Telecom (Hong Kong) Limited (presently
known as China Mobile (Hong Kong) Limited) and China Telecom (Hong Kong) Group
Limited, Director and Deputy President of Telpo Communications (Group) Limited,
and the Deputy Director of the Office of Coordination Production of the
Ministry of Posts and Telecommunications of the PRC (presently known as
Ministry of Information Industry (MII)). Mr. Chen has many years of
experience in post and telecommunication fields and in corporate management. Mr. TONG Xudong, aged 40, was appointed as the Executive Director and
Vice President of the Company in March and April 2004, respectively. Mr. Tong,
graduated from Nanjing Aeronautic Institute in 1985 and obtained a master
degree from Beijing Institute of Space Mechanics and Electricity, Chinese
Academy of Space Technology in 1988. Immediately after his graduation, he
served for the Beijing Institute of Space Mechanics and Electricity. In 1993,
he further pursued his studies in Samara University of Aeronautics and
Astronautics, Russia. From May 1995 to June 2000, he served as the
Vice-Director of Beijing Institute of Space Mechanics and Electricity and was
appointed as professor in 1998. From June 2000 to December 2003, he was the
Director of the same Institute. During this period of his service, Mr. Tong, on
the one hand, expanded its markets in response to the vast development of the
astronautics industry and the strong market demands; while on the other, he
implemented
modification and reform in the Institute and as a result, the technical
and economic capabilities of the Institute was greatly strengthened. In 2003,
he was appointed as the Vice-President of Chinese Academy of Space Technology.
He was accredited as an academic and technological leader across the centuries
of China Aerospace Corporation. Mr. Tong is a standing committee member of
Chinese Society of Space Research and Chairman of the Committee of Recovery and
Reentry, Chinese Society of Astronautics. Mr. CUI Xinzheng, aged 50,
was appointed as the Executive Director and Vice President of the Company in
February 2001. He is responsible for the daily management and administrative
issues of the Company. He had served as the Director of General Office, Deputy
Director of ChinaSat; the Deputy Director of Research Division of Beijing
Micro-Electronics Technology Institute. He graduated from Graduate School of
Chinese of Social Sciences Academy. He has 30-year experience in economics
management and has much experience of the operation of satellite
telecommunication. 48




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Non-Executive Directors Mr. LIU Ji Yuan, aged 70, was appointed as the Chairman of the Company in
June 1998. Mr. Liu graduated from Bowman Polytechnic University, Moscow,
Russia, majoring in automatic and remote control, and obtained a Masters
degree in 1960. After graduation, he was appointed consecutively as a Deputy
Director and Director of the Twelfth Research Institute of the Seventh Ministry
of Machinery Industry, Vice President of the China Academy of Launch Vehicle
Technology under the Ministry of Astronautics and accredited as a Senior
Engineer from May 1983 to March 1984, the Vice Minister of the Ministry of
Astronautics and accredited as a Research Fellow from April 1984 to March 1988,
and the Vice Minister of the PRC Ministry of Aerospace Industry (later known as
China Aerospace Corporation) from April 1988 to April 1993. In April 1993, Mr.
Liu was appointed as the Administrator (Ministerial) of China National Space
Administration (CNSA), as well as the President of China Aerospace Corporation.
In 1988, Mr. Liu was granted the award of National Outstanding Young and
Middle-aged Expert in the PRC. In the same year, he was appointed as a visiting
professor of Harbin Institute of Technology, Beijing University of Aeronautics
and Astronautics, and Beijing Information Control Institute. After 1993, Mr.
Liu was also appointed as the President of the Chinese Society of Astronautics.
Member of International Academy of Astronautics, President (third-term) of
China Automatic Measurement and Control Association, Honorary Chairman of China
Aerospace Industrial and Entrepreneurial Management Association, and Honorary
Chairman of China Aerospace International Holdings Limited. Mr.
ZHANG Hainan, aged 59, was appointed as Non-executive Director and Deputy
Chairman of the Company in March 2004. Mr. Zhang graduated from the
Northwestern Polytechnical University in 1968 and was accredited as a senior
engineer. Since 1984, he has been deputy director of Factory Number 782 and
762, the Ministry of Electronics Industry of China; deputy head and head of the
Bureau of Electronics Industry, Shanxi Province; deputy head and head of Shanxi
Economic and Trade Commission; and assistant to the governor of the Shanxi
Province government, among others. In 2001, he was transferred to China
Satellite Communications Corporation as deputy general manager and general
manager. Mr. Zhang has many years experience in government and corporate
management. Mr. WONG Hung Khim, aged 65, has been a Director of
APT Satellite Company Limited since February 1993 and was appointed as a
Director of the Company in October 1996. He graduated from the University of
Singapore with Honours in Physics and attended the Advanced Management
Programme at Harvard Business School. He spent two years in teaching before
joining the Administrative Service of Singapore in 1966. Mr. Wong began his
service in the then Ministry of Social Affairs (MSA) and later became the
Deputy Secretary of the Ministry of Labour. In 1974, he served first as a
General Manager and then Executive Director of Singapore Bus Service Ltd. He
was the Executive Director of the Port of Singapore Authority from 1979 to
1987. From 1984 to 1987, Mr. Wong was Permanent Secretary of MSA, which
subsequently became the Ministry of Community Development. From July 1987, he
was appointed the President and CEO of the Telecommunication Authority of
Singapore and oversaw its privatization into Singapore Telecommunications
Limited (Singapore Telecom) in October 1993. Mr. Wong was appointed President
and CEO of Singapore Telecom in March 1992. From May 1995 to September 2000, he
served as the Deputy Chairman of Singapore Telecom. From 3 November 1993 to 31
December 1997, Mr. Wong served as Chairman of Jurong Town Corporation. In
recognition of his services, Mr. Wong was awarded a Public Administration
Meritorious Services Medal in 1992. Mr. Wong is currently the Group Chairman
and Chief Executive Officer of Delgro Corporation Limited (formerly known as
Singapore Bus Service (1978) Ltd.). Mr. LIM Toon, aged 61, has been a Director of APT Satellite Company
Limited since February 1993 and was appointed as a Director of the Company in
October 1996. In 1966, Mr. Lim graduated from the University of Canterbury in
New Zealand, with a first class honors degree in Engineering. In 1975, Mr. Lim
obtained a Postgraduate Diploma in Business Administration from the University
of Singapore. He attended the Advanced Management Program at Harvard Business
School in 1992. He has been the Chief Operating Officer of SingTel since April
1999 and has worked for Singapore Telecom since 1970, serving in various
appointments of engineering, radio services, traffic operations, personnel,
training and information systems departments. He was appointed Executive Vice
President of Network Services in April 1989 and Executive Vice President of
International Services in April 1994. He was awarded the Efficiency Medal in
1978 and the Public Administration Medal (Gold) in 1991 by the Singapore
government. He is presently a Director of a number of overseas companies. Mr. WU Zhen Mu, aged 58, was appointed as a Director of the Company in
June 1998. Mr. Wu 49




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graduated in Manufacturing Engineering of the Beijing
Institute of Aeronautics in 1969 and obtained a Masters degree in
Electro-Mechanical Automation in the same institute in 1981. He was a lecturer
in Zhengzhou Institute of Aeronautics from 1970 and 1979 and had been a
lecturer, associate Professor and Professor in Beijing University of
Aeronautics and Aerospace from 1982 to 1993. Since then, he has been appointed
as a Professor of the Commission of Science and Technology of China Aerospace
Corporation. Mr. WU Jinfeng, aged 43, was appointed as Director of the Company in
February 2001. He graduated from University of Science & Technology of China in
1983 and from Guanghua School of Management, Beijing University in 2000. He
possesses a Masters degree in Business Administration, and Senior Engineer. He
is the Deputy General Manager of ChinaSat and is responsible for the
development of and control of satellite systems and business and market
development of satellite telecommunications. He had been the General Manager of
Satellite Business Division and the Deputy Director of Telecommunications
Division of ChinaSat. He also taught at University of Science & Technology of
China. He has much experience of the operation of satellite telecommunication
and corporate management. Mr. LIM Shyong, aged 53, was appointed as Director of
the Company in March 2001. Mr. Lim joined SingTel in 1972, after graduating
from the University of Singapore with an Electrical Engineering Degree. Mr.
Lims experience in SingTel has extended widely ranging from domestic
telecommunication network engineering, national wireless services sales to
international telecommunication businesses. In the International Carrier
business, he had established relations with important foreign partners and
carriers to introduce SingTels voice and data services globally as well as
establishing SingTels own voice nodes in the liberalised markets. He was also
responsible in setting up SingTels network of oversea offices in Asia, Europe
and North America. In the last 3 years, Mr. Lim established SingTels wholly
owned and controlled Global Network Infrastructure for voice and data services
as well as deploying it for IP peering in Asia, Europe and the USA. He was also
involved in the successful launch of Singapores first satellite, ST-1 in
August 1998. In 1981, Mr. Lim was awarded the French Government Scholarship to
pursue the MBA program at INSEAD (European Institute of Business
Administration). In 1991, he was awarded the Public Administration Medal by the
Singapore Government for his contributions to the development of Singapores
telecommunications industry. He is currently Executive Vice President of Global
Business in SingTel and the Chairman of the Board of C2C Private Limited. Mr. TAY Chek Khoon, aged 53, was appointed as Director of the Company in March
2001. Mr. Tay joined SingTel in 1975, after graduating from the University of
Liverpool, United Kingdom with an Engineering Degree. After an extensive
training program in Pulse Code Modulation projects and satellite communication
work, he was posted to Washington DC USA in 1982 to represent the Intelsat
ASEAN Group as the Resident Alternate Governor. Mr. Tays extensive
telecommunication experience in SingTel ranged from media planning for both
international submarine cable and satellite network systems to international
carrier business. He was Director of International Carrier Business from 1995
where he also obtained the Certificate of International Management from INSEAD.
In 1997, he was the Managing Director of International Operations responsible
for set-up and management of SingTels 18 overseas offices to provide regional
support for SingTels corporate clients. In 2000, he was the Vice President of
Wholesale Account Management, responsible for managing SingTels relations with
other telecommunication carriers and also managing international and domestic
wholesale business. He is now the Vice President of Satellite Business and
Global Management responsible for all the satellite business and infrastructure
in SingTel including the international gateways and global voice network. Mr. WU Hongju, aged 42, was appointed as Director of the Company in
November 2002. After graduation with the major in radio technology from Beijing
Polytechnic University in 1984, he started his career in R&D in No. 502
Research Institute of the then Ministry of Aerospace Industry of China. From
1991 onward, he held such posts as Office Assistant of the Aerospace Foreign
Trade Coordination Team of the former Ministry of Aviation & Aerospace of
China, Assistant of General Planning & Development Bureau of the former China
Aerospace Corporation, Vice President of China APMT Company, Vice President of
Singapore APMT Company, Division Director of Investment Management Division of
Business Investment Bureau of China Aerospace Science & Technology Corporation,
and Vice President of Beijing Aerospace Satellite Application Company. He has
acquired abundant experience in business trading, capital management and radio
technology through his career. Dr. YIN Yen-liang, aged 53, was appointed as a
Director of the Company in January 2003. Dr. Yin graduated with an MBA Degree
from National Taiwan University in 1983 and received the PhD Degree in Business 50




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Administration from National Chengchi University in 1987. He has been President
of the Ruentex Group since 1994 and concurrently holding the position of
Executive Director of SinoPac Holdings Co., Ltd., Executive Director of Bank
SinoPac, Director of Acer Incorporate, Chairman of Aetna SinoPac Credit Card
Company Limited. Mr. TSENG Ta-mon, aged 46, was appointed as a Director of the
Company in July 2003. Mr. Tseng graduated with an LL.B. Degree from National
Chengchi University in 1980 and subsequently received the LL.M. Degree from
University College London in 1982 and the LL.B. Degree from B.A. at University
of Cambridge in 1984 respectively. He also graduated from the Inns of Court
School of Law of Middle Temple in 1985 and became Barrister-at-Law in the same
year. He was the Specialist of the Board of International Trade from 1985 to
1987. He was also the Partner of Dong & Lee from 1987 to 1992. He has been the
Counsel of the Ruentex Group since 1992. Mr. CHEN Chi-chuan, aged 46, was
appointed as an Alternate Director to Dr. Yin Yen-liang, the director of the
Company, in January 2003. Mr. Chen graduated with an MBA Degree from National
Taiwan University in 1982. Having been in the securities investment sector for
a long time, he had been Deputy Director of Yong Foong Yu Paper Manufacturing
Co., Ltd. and Deputy General Manager of Kwang Hua Securities Investment & Trust
Co., Ltd. At present, Mr. Chen is the Managing Director of China Development
Financial Holdings Corporation and China Development Industrial Bank. Mr. LIM
Wee Seng, aged 50, was appointed as an Alternate Director to Mr. Lim Shyong,
the director of the Company, in September 2003. Mr. Lim graduated from the
University of Singapore with a First Class Honours Degree in Bachelor of
Engineering (Electrical and Electronics) in 1979 and subsequently obtained a
Master of Science (Electrical Engineering) Degree in 1985. He has been with
SingTel since 1979 and has held management positions in various areas including
engineering, radio services, network and carrier wholesale business. From 1998
to 2000, he was the Managing Director of SingTels subsidiary company in UK,
responsible for the setting up and running of SingTels voice and data business
in Europe. He was also a member of the Singapore ST-1 satellite planning team
in 1991 to 1993. Mr. Lim is currently Director of Strategic Investment in
SingTel and is responsible for mergers, acquisitions and monitoring of
SingTels joint venture companies, as well as management of SingTels venture
capital funds. Independent Non-Executive Directors Mr. YUEN Pak Yiu, Philip, aged 68, was appointed as an Independent
Non-executive Director of the Company in October 1996. He graduated from Law
School in England in 1961 and commenced the practice of law in Hong Kong in
1962. In 1965, he established his solicitors firm, Yung, Yu, Yuen & Co., and
now is the principal partner in the firm. Mr. Yuen has over 30 years
experience in the legal field and has been a Director of a number of listed
companies including Henderson Investment Limited, Henderson China Holdings
Limited, Melbourne Enterprises Limited, Cheerful Holdings Limited, Tsingtao
Brewery Company Limited, Guangzhou Shipyard International Company Limited and
Oriental Metals (Holdings) Company Limited. He is a Director of the China
Appointed Attesting Officers Association in Hong Kong, a Standing Committee
Member of the China Chamber of Commerce of Hong Kong, a Member of the National
Committee of Chinese Peoples Political Consultative Conference, an Arbitrator
at the China International Economic & Trade Arbitration Commission and an
Adviser of Hong Kong Affairs to the PRC government. Dr. HUAN Guocang, aged 54, was appointed as an Independent Non-executive
Director of the Company in August 2002. He is the Head of Investment Banking,
Asia Pacific of The Hongkong and Shanghai Banking Corporation Limited (HSBC).
Before joining HSBC, he was Managing Director and Co-Head of Investment
Banking, Asia Pacific of Salomon Smith Barney. Dr. Huan has more than 15 years
of investment banking experience and has held senior positions at the Brookings
Institution, the Atlantic Council of the U.S., J.P. Morgan & Co., BZW Asia
Limited, and Columbia University. Dr. Huan holds a Ph.D. degree in
International Political Economy from Princeton University, Master of Arts in
International Relations from Columbia University and Master of Arts in
International Economics from the University of Denver. Senior Management Mr. KWOK Kah Wai, Victor, aged 48, joined the Company in March 2001. Mr.
Kwok is responsible for Marketing and Sales division of the Group. Prior to
joining the Company, Mr. Kwok was the Managing Director of 51




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Global Services
Development in SingTel, Mr. Kwok established the SingTels global communication
network and services, ConnectPlus, as well as SingTels global internet
backbone to US and the Asian region, SingTel IX. Mr. Kwok has also been active
in the alliance development works during this period. Mr. Kwok has been with
SingTel for the last twenty years and has held management positions in
Corporate Product Marketing and Corporate Account Management. Mr. Kwok has been
seconded to be the Managing Director of STI Svenska in 1995 and Acting CEO of
SingCom, Australia in 1994. Mr. Kwok graduated from National University of
Singapore with an Honors Degree in Electrical Engineering and an MBA degree in
1981 and 1987 respectively. Mr. Kwok also attended the Harvard Business
Schools International Senior Management Program in May, 1993. Dr. LO Kin Hang,
Brian, aged 47, has been the Vice President of the Group since April 2002 and
Company Secretary (since October 1996) of the Company. Dr. Lo joined the
Company in September 1996 and was the Assistant to the President (since
December 1997). He graduated with an Associateship in Production and Industrial
Engineering and an M.Sc. Degree in Information Technology from Hong Kong
Polytechnic University, a MBA Degree from the University of Wales, UK, and a
Doctor Degree of Business Administration from the University of Hull, UK. He
has attained several professional qualifications including Chartered Engineer,
Member of the Institute of Electrical Engineers and is a Fellow of the
Institute of Chartered Secretaries and Administrators in the United Kingdom and
a Fellow of the Hong Kong Institute of Company Secretaries. Prior to joining
the Group, he was a Director and senior management executive responsible for
financial and investment management and the company secretary of a publicly
listed company in Hong Kong. Dr. Lo has over 15 years experience in corporate
and project management. Mr. WU Shou Kang, aged 64, has been the Chief Engineer
of the Group since February 2001. He joined the Group in 1993. Mr. Wu graduated
from Beijing Institute of Post & Telecommunications in 1963 and served for the
First Institute of Research of Ministry of Post and Telecommunications of the
PRC in the same year. Since 1972, he had organized and participated in
satellite telecommunication researches in various topics such as transmission,
equipment development, the design of satellite telecommunication network of the
PRC, commissioning and technical support. During that period, he was designated
as senior engineer and he was also awarded the Government Special Incentive and
the Certificate from the State Council of PRC for his contributions to the
development of science and technology in PRC. He had been the tutor of the
research students of Professional Master of Satellite Telecommunication
network. Compensation In the annual general meeting of the Company held on May 22, 2001, a
resolution was adopted, terminating the Share Option Scheme which was
originally adopted on December 3, 1996 ( Scheme 1996). No options had ever
been granted under Scheme 1996. At the same annual general meeting, the
Company approved and adopted a new share option scheme (Scheme 2001). In
compliance with the new requirements of the Listing Rules in September 2001,
the Company adopted another new share option scheme (Scheme 2002) at its 2002
annual general shareholders meeting, whereupon Directors shall only grant new
options under Scheme 2002. Since then, no further options were granted under
Scheme 2001 and all the options granted under Scheme 2001 shall however remain
valid until their expiry. Under Scheme 2001, on June 19, 2001, the Company granted a total of
14,650,000 share options, exercisable within the period from May 22, 2003 to
May 21, 2011 and all at an exercise price of HK$2.765. The
grantees paid a nominal consideration of HK$1 each. No options have been
granted under Scheme 2002 since its adoption. Since the adoption of Scheme
2002, no options have been granted under Scheme 2001, nor does the Company plan
to grant any more options under such plan. As at December 31, 2003, the total
number of outstanding options under the existing share option schemes
(including Scheme 2001 and Scheme 2002) that have been granted and not yet
exercised equals 9,670,000, which represents 2.34% of the issued share capital
of the Company. Furthermore, under Scheme 2002, save for a substantial
shareholder or an independent non-executive director of the Company, or any of
their respective associates according to the Listing Rules, the total number of
shares (the Shares) to be issued upon exercise of the options granted to each
eligible person (including both exercised and outstanding options) in any
12-month period shall not exceed 1% of the Shares in issue. The exercise price
(subscription price) shall be such price as determined by the Board of
directors in its absolute discretion at the time of the making of the offer but
in any case the exercise price shall not be lower than the highest of (i) the
closing price of the shares as stated in The Stock Exchange of Hong Kong
Limiteds (Stock Exchange) daily quotations sheet on the date of the offer of
grant, which must be a trading day; (ii) the average closing price of the
shares as stated in the 52




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Stock Exchanges daily quotations sheets for the five
trading days immediately preceding the date of the offer of grant; and (iii)
the nominal value of a share. Whereas under Scheme 2001, the maximum
entitlement of each eligible person was that the Shares issued or issuable
under all options granted to such eligible person (including both exercised and
outstanding options) upon such grant being made shall not exceed 25% of the
Shares of the Company for the time being issued and issuable under Scheme 2001.
In addition, the subscription price was determined by the Board of Directors on
a case-by-case basis and will not be less than the nominal value of the Shares
nor at a discount of more than 20% below the average closing price of the
Shares on the Stock Exchange as stated in the Stock Exchanges daily quotation
sheets on the five dealing days immediately preceding the date on which the
invitation to apply for an option under Scheme 2001. In an effort to continue to provide incentives or rewards to the employees
of the Company and in compliance with the new requirements in respect of the
share option scheme of the Listing Rules of the Stock Exchange, which took
effect on September 1, 2001, the Company proposed to the shareholders the
adoption of Scheme 2002. Scheme 2002 was approved at the annual general
shareholders meeting. Since its adoption, options are to be granted only
Scheme 2002 and no longer under Scheme 2001. Nevertheless, Scheme 2001 will
remain effective and the options granted on June 19, 2001 under Scheme 2001
will remain valid. Scheme 2002, the detail of which was contained in the circular dispatched
to the shareholders of the Company and which was adopted in the annual general
meeting on May 22, 2002, is substantially similar to the Scheme 2001 except for
certain significant and important difference, which are described in the Item 6
of the Companys Annual Report on Form 20-F for the year ended December 31,
2001 and incorporated herein by reference. Scheme 2002 will remain in force for a period of 10 years commencing from
May 22, 2002 until May 21, 2012. The shares allotted upon the exercise of
options under Scheme 2002 will be subject to all the provisions of the Bye-laws
of the Company and will rank pari passu in all respects with all the fully paid
shares in issue. There was no compensation paid by the Company to directors for the year
ended December 31, 2003. None of the Companys directors and officers or affiliate of such person
is or has been indebted to the Company or any of its subsidiaries at any time
since the beginning of the last completed fiscal year. 
 Board Practices Mr. Chen Zhaobin, Mr. Cui Xinzheng and Mr. Tong Xudong have entered into
service contracts with the Company for an initial term of three years,
commencing February 10, 2001, February 1, 2001 and April 20, 2004 respectively,
and continuing thereafter until terminated by either party giving to the other
not less than six months notice. Except as disclosed above, no Director has a service contract with the
Company or its subsidiaries, which is not determinable by the Group within one
year without payment of compensation (other than statutory compensation).
The term of office of all directors except the Chairman of the Board, Mr.
Liu Ji Yuan, and the President, Mr. Chen Zhaobin, is the period up to their
retirement in accordance with Article 86(2) and 87 of the Companys Bye-laws. The Audit Committee was formed by the Company on July 31, 1999. The Listing Rules of the Stock Exchange were amended effective as of March
31, 2004 and the amended rules require, among other things, that all issuers
listed of the Stock Exchange have an audit committee comprised of a minimum of
three members with a majority of independent non-executive directors. The
Listing Rules further require that at least one independent non-executive
director have appropriate professional qualifications or accounting or related
financial management expertise and that the audit committee be chaired by an
independent non-executive director. The Stock Exchange, however, has given
those listed issuers, including the Company, whose securities were admitted to
listing on or before March 31, 2004, a transitional period of six months from
March 31, 2004 to comply to the foregoing requirements. As of the report date,
the Board of Directors is still actively seeking a 53




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qualified person to fill
this additional vacancy. The Audit Committee currently consists of two
independent non-executive directors, Mr. Yuen Pak Yiu, Philip (the Chairman of
the Audit Committee) and Mr. Huan Guocang. Under its terms of reference, the Audit Committee is required to be
composed of directors who are independent of the management of the Company and
are free of any relationship that, in the opinion of the Companys Board of
Directors, would interfere with their exercise of independent judgment as
Committee members. The Audit Committee is authorized by the Board of
Directors to investigate any activity within its terms of reference and to seek
any information it requires from any employee and all employees are directed to
co-operate with any request made by the Audit Committee. It can also obtain
support from outside legal or other independent professional advisors and
experts. The Audit Committee shall meet at least twice a year and its duties
are summarized as below: to consider the appointment of the external auditor; to review the half-year and annual financial statements to discuss problems and reservations arising from the interim and final
audits; to consider the major findings and internal investigations and
managements response; to review the Companys statement on internal control system
(where one is included in the annual report) prior to endorsement
by the Board of Directors; to review the nature and scope of other professional services
provided to the Company by the external auditor and consider the
relationship to the auditors independence; to review accounting and financial human resources and succession
planning within the Company; to review periodically Company policy statements to determine
their adherence to the Companys codes of conduct; to investigate any matter brought to its attention within the
scope of its duties, and to retain outside legal counsel or other
professional advice for this purpose if, in its judgment, that is
appropriate; and to consider other topics, as determined by the Board. 
 Employees Including the executive directors and senior management of the Company, as
of December 31, 2003, the Company had 157 full-time employees, of which 30
employees were in management, 127 were in engineering and operations,
marketing, accounting and administration. The management of the Company will
continue to closely monitor the number of employees ensuring that it is
compatible and in line with the development and needs in the corporate
strategies of the APT Group. The Company believes that its relations with its
employees are good. A majority of APTs technical and engineering staff
employed at the satellite control center in Tai Po were originally seconded
from affiliates of ChinaSat and China Aerospace. APT emphasizes the training of its technical personnel. In December 2000, the Company changed its retirement benefits scheme to a
Mandatory Provident Fund (MPF) pursuant to the MPF Legislation regulated by
the Mandatory Provident Fund Schemes Authority in Hong Kong, effective from
December 1, 2000. In compliance with the MPF Legislation, the Company is
required to participate in the MPF Scheme operated by approved trustees in Hong
Kong and to make contributions for its eligible employees. 
 Share Option Schemes On May 22, 2002, the Company adopted Scheme 2002 and, from the date of
such adoption, no further options are to be granted under Scheme 2001. Under
Scheme 2001, on June 19, 2001, a total of 14,650,000 share options granted by
the Company to the Eligible Employees, exercisable during the vesting period
from May 22, 2003 to May 21, 2011, shall however remain valid until the
expiration of their terms. During 2003, no options were granted under Scheme
2002. 54




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Share Ownership As at December 31, 2003, Dr. Lo Kin Hang, Brian, Vice President and
Company Secretary of the Company, had personal interests in 5,000 ordinary
shares of the Company. As at December 31, 2003, the options granted under Scheme 2001 to
directors and chief executive were as follows: Chen Zhaobin
    
    (Executive Director & President)
    
    
    2,200,000Cui Xinzheng
    
    (Executive Director & Vice President)
    
    
    1,200,000Lo Kin Hang, Brian
    
    (Vice President & Company Secretary)
    
    
    800,000
 All of the options indicated above, exercisable within the period from May
22, 2003 to May 21, 2011, were granted for a nominal consideration of HK$1 per
grantee with an exercise price of HK$2.765 per share for the ordinary shares of
the Company. On June 19, 2001, under Scheme 2001, the Company granted a total of
14,650,000 options to its employees in order to provide incentives to employees
for their contribution to the Group. The terms such as the exercise price and
the expiration date of options are the same as the terms of the options being
granted to directors and senior management indicated above. 
 Service Agreements Mr. Chen Zhaobin, Mr. Cui Xinzheng and Mr. Tong Xudong entered into
service contracts with the Company for an initial term of three years,
commencing February 10, 2001, February 1, 2001 and April 20, 2004 respectively,
and continuing thereafter until terminated by either party giving to the other
not less than six months notice. Under the service contracts, Mr. Chen, Mr. Cui and Mr. Tong (the
Contracted Directors) are each entitled to a basic salary payable monthly in
arrears by the Company, with such basic salary subject to annual review by the
Companys board of directors. In addition, only one of Contracted Directors is
entitled to receive an annual discretionary bonus of such amount as determined
by the board of directors, provided that the amount of discretionary bonus
payable that the Contracted Directors by the Company in respect of any
financial year shall not exceed an agreed percentage of the audited
consolidated net income after taxation and minority interests but before
extraordinary items of the Company for the relevant financial year. Each of
the Contracted Directors is provided with housing allowance subject to an
agreed maximum amount, which maximum amount may be revised from time to time by
the board of directors. Each of the Contracted Directors is also entitled to
receive certain other benefits such as the use a motor car, the provision of
recreation club memberships and medical and personal accident insurance, and
participation in the Companys retirement scheme and any share option scheme
for its employees. Other than the directors of the Company, the service contracts of senior
executives has an indefinite term of office except one of the executives
entered into a service contract with the Company for an initial fixed term of
three years. The service contracts of executives may be terminated by either
party giving not less than 4 months to 6 months notice or payment in lieu of
notice. Under the service contracts, each of the executives is each entitled
to a basic salary together with a housing allowance payable monthly in arrears
by the Company and 1 month double pay at the end of the calendar year, with
such basic salary subject to annual review by the Company. In addition, each
of the executives is entitled to a discretionary annual bonus based upon the
Companys performance. Each of the executives is also entitled to receive
certain other benefits such as the provision of medical and personal accident
insurance and participation in the Companys retirement scheme and any share
option scheme for its employees. The Company entered into a secondment agreement with a holding company of
a principal shareholder of the Company for an Officer for an initial fixed term
of two years, and continuing thereafter until terminated by either party giving
to the other a notice. Under the secondment agreement, the Company shall pay a
fixed fee to that holding company for reimbursement of cost of services
provided to the Company. 55




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions 
 Major Shareholders Certain principal shareholders of the Company (Principal Shareholders)
have provided substantial financial support since APT was founded, funding the
design, construction and launch of APSTAR I, APSTAR IA and APSTAR IIR through
equity contributions, shareholders loans and shareholder guarantees of bank
loans used to finance or refinance the costs of satellite design, construction
and launch. The Principal Shareholders have also provided significant human
resources, technical and marketing support. When the Company was listed in
December 1996, the Principal Shareholders of the Company were: CLTC, ChinaSat,
China Aerospace, CASIL Satellite (formerly known as Chia Tai International
Company Limited), China Travel (Macau), SingaSat, and Kwang Hua. Each
Principal Shareholder held one-seventh of the total issued shares of APT
International in pursuance of the corporate restructuring for its initial
public offering in December 1996. The entire issued share capital of APT
International comprises 700 shares at US$1.00 each. China Travel (Macau) and
CLTC disposed their entire interest in APT International to ChinaSat on
November 30, 1999, and SingaSat on May 30, 2000, respectively. The remaining
Principal Shareholders that continue to hold Ordinary Shares are tabulated in
footnote 2 to the following table. The following table describes the ownership of our Ordinary Shares as of
March 31, 2004 by (i) each person or company known by us to own more than 5% of
our Ordinary Shares, and (ii) all of our directors and officers as a group. Title of
    
    Identity of Person
    
    Number of
    
    Percent ofClass
    
    or Groups
    
    Shares
    
    Class (1)Ordinary Shares
    
    China Telecommunications Broadcast
Satellite Corporation (2) (3)
    
    
    67,200,000
    
    
    
    16.26
    %Ordinary Shares
    
    China Aerospace Science & Technology
Corporation (2) (4)
    
    
    36,600,000
    
    
    
    8.86
    %Ordinary Shares
    
    CASIL Satellite Holdings Limited (2)
(5)
    
    
    45,000,000
    
    
    
    10.89
    %Ordinary Shares
    
    SingaSat PTE Ltd. (2) (6)
    
    
    84,000,000
    
    
    
    20.33
    %Ordinary Shares
    
    Kwang Hua Development and Investment
Limited (2) (7)
    
    
    30,600,000
    
    
    
    7.40
    %Ordinary Shares
    
    Sinolike Investments Limited
(5)
    
    
    16,800,000
    
    
    
    4.07
    %Ordinary Shares
    
    APT Satellite International Company Limited
(2)
    
    
    214,200,000
    
    
    
    51.83
    %Ordinary Shares
    
    All Directors and Officers as a Group (21
persons)
    
    
    11,000
    
    
    
    *
      (1)
    
    As of March 31, 2004, the total number of issued Ordinary Shares is
413,265,000.(2)
    
    The Principal Shareholders collectively hold in aggregate underlying
ownership interests of 51.83% indirectly through APT Satellite
International Company Limited (APT International), which holds
214,200,000 Ordinary Shares. The interest of each Principal Shareholder
in APT International as of December 31, 2003 is: ChinaSat
    
    200 shares
    
    
    28.57
    %China Aerospace Science & Technology Corporation
    
    100 shares
    
    
    14.28
    %CASIL Satellite Holdings Ltd.
    
    100 shares
    
    
    14.28
    %SingaSat Pte. Ltd.
    
    200 shares
    
    
    28.57
    %Kwang Hua Development and Investment Ltd.
    
    100 shares
    
    
    14.28
    %
  (3)
    
    China Telecommunications Broadcast Satellite Corporation (ChinaSat) is
a PRC state-owned enterprise under the supervision of the MII. ChinaSat
is the satellite operation arm of the MII. ChinaSat directly owns
6,000,000 Shares and indirectly owns, through its shareholdings in APT
International, 61,200,000 Shares.(4)
    
    China Aerospace Science & Technology Corporation (China Aerospace),
formerly China Aerospace Corporation or the PRC Ministry of Aerospace
Industry, is a PRC state-owned enterprise. China Aerospace is engaged in
the research, design, testing and manufacturing of launch vehicles and
satellites. China Aerospace 56




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##### Table of Contents



also supervises and controls China Great Wall
Industry Corporation, which is responsible for the sale to foreign
customers of commercial launch services effected by Long March launch
vehicles. China Aerospace directly owns 6,000,000 Shares and indirectly
owns, through its shareholdings in APT International, 30,600,000 Shares.(5)
    
    Chia Tai International Telecommunication Company Limited (Chia Tai) was
wholly-owned by Telecom Holding Company Limited (Telecom Holding) which
managed the investment in the Company of Telecom Asia Corporation Public
Company Limited (TelecomAsia), a publicly listed company in Thailand.
Telecom Holding disposed the entire issued shares of Chia Tai to Sinolike
Investment Limited (Sinolike) by a share transaction agreement on
October 16, 1997. Chia Tai was renamed as CASIL Satellite Holdings
Limited (CASIL Satellite) on May 6, 1998. Sinolike is a wholly owned
subsidiary of China Aerospace International Holdings Limited (CASIL),
which is a conglomerate listed in Hong Kong and is a 41.86% owned
subsidiary of China Aerospace. CASIL Satellite directly owns 14,400,000
Shares and indirectly owns, through its shareholdings in APT
International, 30,600,000 Shares. Sinolike also directly owns 16,800,000
Shares.(6)
    
    SingaSat PTE Ltd. (SingaSat) is wholly-owned by Singapore
Telecommunications Limited (SingTel). SingTel is a telecommunications
operating company and a holding company for over forty subsidiaries which
provide a wide range of domestic, international and mobile
telecommunications as well as postal services. SingTel is a publicly listed
company in Singapore. SingaSat directly owns 22,800,000 Shares and
indirectly owns, through its shareholdings in APT International, 61,200,000
Shares.(7)
    
    Kwang Hua Development and Investment Limited (Kwang Hua) is a Hong Kong
incorporated venture capital company owned jointly by the Ruentex Group,
one of the largest Taiwanese conglomerates, and China Development, a
prominent financial and investment company in Taiwan. China Development
is also an affiliate of the Ruentex Group. Kwang Hua indirectly owns,
through its shareholdings in APT International, 30,600,000 Shares. The Principal Shareholders have entered into an agreement (the
Shareholders Agreement), which governs their respective rights and
obligations with respect to, among other things, their shareholdings in APT
International. The Shareholders Agreement contains (among other things)
provisions restricting the transfer or other disposal or encumbrance by any
Principal Shareholder of the Shares in APT International, and granting mutual
rights of pre-emption among the Principal Shareholders in the event of any
proposed transfer by a Principal Shareholder of any share(s) in APT
International. Except as disclosed above and to the knowledge of the Company, there are
no persons or entities that beneficially own, directly or indirectly, more than
5% of the Companys outstanding Ordinary Shares or American Depositary
Receipts. 
 Related Party Transactions The Company has used China Great Wall Industry Corporations Long March
launch vehicles to launch all of its satellites to date except the launch of
APSTAR V which is to be launched by Sea Launch in the second quarter of 2004.
The Company may enter into further launch services contracts with China Great
Wall Industry Corporation (or other affiliates of China Aerospace) in respect
of the Companys future satellites. Negotiations for each of the launch
services contracts with China Great Wall Industry Corporation have been
conducted on an arms length basis and any future negotiations with China Great
Wall Industry Corporation would be similarly conducted. Two of the Principal Shareholders or their affiliates are currently
customers of APT. ChinaSat and SingTel have leased several transponders for
the transmission of television programming, private networks and PSTN services
on APSTAR I whereas SingTel entered into a new lease agreement with APT on
April 11, 2003 for the lease of six transponders of APSTAR V through its useful
life supersedes the original lease agreement dated January 8, 2001 for the
lease of fifteen transponders for the remaining life of APSTAR V. Negotiations
for transponder leases with these Principal Shareholders and their affiliates
have been conducted on an arms length basis and any future negotiations would
be similarly conducted. The value attributed to the transponder for the
purposes of determining the portion of the aggregate contract price to be
satisfied by the provision of such transponder is within the range
representative of the Companys pricing for its other customers. In addition, as announced on August 28, 2003, the APT Group and the
Companys non wholly-owned subsidiary namely APT Satellite Telecommunications
Limited (APTT), which was owned as to 55% and 45% by Skywork Corporation
(Skywork), a wholly-owned subsidiary of the Company, and by Singasat Private
Limited 57




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##### Table of Contents



(Singasat), a wholly-owned subsidiary of SingTel, respectively, had
in their ordinary course of business entered into various transactions with
SingTel and its subsidiaries (collectively SingTel Group) for (a) provision
of transponder leasing; (b) provision or purchase of telecommunication
services; and (c) secondment of executive from SingTel Group with the APT Group
and APTT. These various transactions have been reviewed by the independent
non-executive directors of the Company and confirmed that they were (i) entered
into in the ordinary and usual course of business of the APT Group; (ii)
conducted on normal commercial terms; (iii) conducted on terms that were fair
and reasonable so far as the shareholders of the Company are concerned; (iv)
carried out in accordance with the terms of the agreements governing these
transactions; and (v) the aggregate value of each type of these transactions
entered into during the year of 2003 was not exceeding the threshold subject to
the Stock Exchange with reference to its latest published financial statements. Further, on September 10, 2003, APTT entered into a master agreement with
the Companys wholly-owned subsidiary, APT Telecom Services Limited (APTTS),
Skywork and Singasat whereby the business of APTT was being reorganized through
transferring APTTs Fixed Carrier License (FCL) business together with the
FCL to
APTTS and transferring APTTs cable interests related to FCL including the APCN
and C2C interests to SingTel. The former transfer was done pursuant to a
transfer of business agreement between APTT and APTTS at consideration of
HK$6,800,000 together with a compensation of HK$13,500,000 payable in 5 equal
annual installments commencing on February 1, 2005 by APTT to APTTSs holding
company, APT Satellite Company Limited, for the surrender by APTT of the
remaining term of a services and facilities lease agreement in respect of a
premises in Tai Po Industrial Estate. The latter transfer was done pursuant to
a cable interests transfer agreement between APTT and Singasat, which
subsequently assigned it to its holding company SingTel, at considerations of
HK$2,986,000 and HK$2,574,000 in respect of the APCN interest and C2C interest
respectively. This reorganization was completed on October 10, 2003. The
Company believes that the reorganization will allow the APT Group to
concentrate on the satellite-related telecom services business, which is in
line with the Groups core business in providing satellite transponder
services. The Company is aware that ChinaSat intends to operate a PRC domestic
satellite network. ChinaSat merged with OrientSat to form ChinaSat Group, which
owns ChinaStar 1 and ChinaSat 6. In addition, China Aerospace holds a
substantial interest in SinoSat, which owns a satellite, SinoSat-1, that is
devoted largely to providing telecommunications services, data transmission and
TV broadcasting. Singapore Telecom, the parent company of SingaSat, has
holdings in a number of other satellite companies. As a result of satellite
design and coverage, the Company does not believe such satellite companies
compete with the Company, other than the ST-1 satellite system which Singapore
Telecom operates and in which it has an ownership interest. The ST-1 satellite
system only has the ability to compete with the Company in C-band segments of
the Asia-Pacific market. Through the Telecommunications Authority of
Singapore, a signatory to the Intelsat treaty, Singapore Telecom also has an
interest in Intelsat. Other than as described above, none of the directors, their associates (as
defined in the Rules Governing the Listing of Securities on the Hong Kong Stock
Exchange (the Listing Rules)) or any shareholder of the Company which to the
knowledge of the directors owns more than 5% of the issued share capital of the
Company has any interest in any of the Companys five largest suppliers or five
largest customers. Related party transactions carried out during the years ended December 31,
2001, 2002 and 2003 with shareholders and affiliates (HK$ in thousands): Years ended December 31,Note
    
    2001
    
    2002
    
    2003Income from leasing of transponders
to certain shareholders of the Company
    
    
    (i
    )
    
    
    20,809
    
    
    
    34,551
    
    
    
    35,921Income from leasing of transponders
and providing telecommunication services
to a holding company and its subsidiaries
of a shareholder of the Company
    
    
    (i
    )
    
    
    19,500
    
    
    
    18,594
    
    
    
    19,741Income from leasing of transponders to
a jointly controlled entity
    
    
    (i
    )
    
    
    6,282
    
    
    
    8,245
    
    
    
    6,160
 58




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##### Table of Contents



Years ended December 31,Note
    
    2001
    
    2002
    
    2003Management fee income from a jointly
controlled entity
    
    (ii)
    
    
    1,500
    
    
    
    1,500
    
    
    
    1,121Management fee income from an
associate
    
    (iii)
    
    
    
    
    
    
    189
    
    
    
    65Facilities management services
income from a jointly controlled entity
    
    (iv)
    
    
    
    
    
    
    8,311
    
    
    
    3,386Interest income from jointly
controlled entities
    
    
    (v
    )
    
    
    2,820
    
    
    
    
    
    
    
    Interest income from a subsidiary
of a shareholder
    
    (vi)
    
    
    995
    
    
    
    
    
    
    
    Rental expenses in connection with
the leasing of transponders from a
shareholder of the Company
    
    (vii)
    
    
    3,510
    
    
    
    2,574
    
    
    
    Technical support services expenses
to a shareholder of the Company
    
    (viii)
    
    
    4,490
    
    
    
    
    
    
    
    75Management fee expenses to a holding
company of a shareholder of the Company
    
    (ix)
    
    
    1,802
    
    
    
    2,280
    
    
    
    2,280Land and buildings transferred to a
jointly controlled entity
    
    
    (x
    )
    
    
    13,657
    
    
    
    
    
    
    
    Payments in connection with
APSTAR V project to a shareholder
of the Company
- services fees
    
    (xi)
    
    
    1,560
    
    
    
    
    
    
    
    Payments of service fee in connection
with the satellite project to a fellow
subsidiary of a shareholder of the Company
    
    (xi)
    
    
    140,166
    
    
    
    12,324
    
    
    
    87,604Compensation income from a jointly
controlled entity in connection with the
early termination of services and facilities
lease
    
    (xii)
    
    
    
    
    
    
    
    
    
    
    13,500Purchase of certain fixed assets from a
jointly controlled entity
    
    (xiii)
    
    
    
    
    
    
    
    
    
    
    6,800
 Notes:  (i)
    
    The terms and conditions of these transponder lease
agreements are similar to those contracted with other customers of
the Group.  (ii)
    
    Management fee income arose from a reimbursement of cost of
service provided to a jointly controlled entity under the agreement.  (iii)
    
    Management fee income from an associate arose from the
reimbursement of expenses paid on behalf of an associate.  (iv)
    
    The Directors consider that the facilities management service
income is charged according to the terms and conditions similar to
those offered to other customers. 59




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##### Table of Contents



(v)
    
    The interest income from a jointly controlled entity arose
from loans made to the entity, further details of which are
disclosed in Note 6 to the Audited Consolidated Financial
Statements.  (vi)
    
    The interest income was calculated at 4.25% per annum on the
outstanding principal.  (vii)
    
    The Directors consider that the terms and conditions of
these transponders lease agreements were similar to those offered to
other customers by the lessor.  (viii)
    
    The Directors consider that the technical support services
expenses were charged according to prices and conditions similar to
those offered to other customers by the service provider.  (ix)
    
    Management fee expenses arose from a reimbursement of cost of
services provided from the holding company of a shareholder of the
Company.  (x)
    
    The land and buildings were transferred at the then net book
value at the date of transfer.  (xi)
    
    The Directors consider that the service fee is charged
according to prices and conditions similar to those offered to other
customers by the launch service provider.  (xii)
    
    As a result of the reorganization of a jointly controlled
entity, the jointly controlled entity terminated the services and
facilities lease agreement and the Group received a compensation for
the early termination of the agreement. The Directors consider that
the compensation is charged according to prices and conditions
similar to those offered to other customers by the termination.  (xiii)
    
    As a result of the reorganization of a jointly controlled entity,
certain fixed assets are purchased from the jointly controlled
entity. The Directors consider that the purchase consideration is
arrived after arms length negotiation with reference to the
valuation conducted by an independent valuation company. At the balance sheet date, the Group had the following amounts included in
the consolidated balance sheet in respect of amounts owing by and to related
parties (in HK$ thousands). Deposits,
    
    
    
    
    
    
    
    
    
    Rentals receivedTrade
    
    prepayments and
    
    Payables and
    
    in advancereceivables
    
    other receivables
    
    accrued charges
    
    and deferred income2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003Jointly controlled entities
    
    
    101
    
    
    
    
    
    
    
    52,215
    
    
    
    70,723
    
    
    
    1,590
    
    
    
    921
    
    
    
    
    
    
    
    Certain shareholders of the Company
    
    
    53
    
    
    
    7,496
    
    
    
    
    
    
    
    3,120
    
    
    
    4,665
    
    
    
    3,750
    
    
    
    12,638
    
    
    
    3,524Holding company and its subsidiaries of a
shareholder of the Company
    
    
    
    
    
    
    2,518
    
    
    
    
    
    
    
    
    
    
    
    31,862
    
    
    
    31,910
    
    
    
    1,113
    
    
    
    2,907Shareholder of a jointly controlled entity
    
    
    
    
    
    
    
    
    
    
    4,673
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 During t he year ended December 31, 2003, a shareholder of the Company
advanced RMB3.3 million, equivalent to US$400 thousand, to the Group. In return
the Group advanced US$400 thousand to that shareholder. The items of such
advance are interest-free and repayable within one year. In addition, at December 31, 2002 and 2003, the Group had an outstanding
commitment to pay launch service fee to a fellow subsidiary of a shareholder of
the Company amounting to HK$317.9 million and HK$230.2 million, respectively . 
 Item 8. Financial Information See Item 18 for presentation of the financial statements of the Company.
See Exhibit 8.2 for financial statements of APT Satellite
Telecommunications Limited. 
 60




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##### Table of Contents



Item 9. The Offer and Listing The Companys Ordinary Shares are listed on The Stock Exchange of Hong
Kong Limited (the Hong Kong Stock Exchange). The Hong Kong Stock Exchange is
the principal non-United States trading market for the Companys Ordinary
Shares. The table below details, for the periods indicated, the high and low
market prices of the Ordinary Shares on the Hong Kong Stock Exchange. High (HK$)
    
    Low (HK$)1999
    
    
    
    
    7.200
    
    
    
    2.3752000
    
    
    
    
    9.000
    
    
    
    2.9002001
    
    
    
    
    4.600
    
    
    
    2.2002002Quarter ended March 31
    
    
    3.600
    
    
    
    3.000Quarter ended June 30
    
    
    3.175
    
    
    
    2.800Quarter ended September 30
    
    
    3.025
    
    
    
    1.680Quarter ended December 31
    
    
    1.750
    
    
    
    1.3902003Quarter ended March 31
    
    
    1.830
    
    
    
    1.250Quarter ended June 30
    
    
    3.000
    
    
    
    1.020Quarter ended September 30
    
    
    3.925
    
    
    
    2.200Quarter ended December 31
    
    
    2.550
    
    
    
    1.950December
    
    
    2.550
    
    
    
    2.2252004January
    
    
    2.825
    
    
    
    2.375February
    
    
    2.750
    
    
    
    2.350March
    
    
    2.475
    
    
    
    2.000April
    
    
    2.100
    
    
    
    1.650May
    
    
    2.300
    
    
    
    1.700
 In addition, the Companys ADSs are listed on the New York Stock Exchange
(NYSE) under the symbol ATS. Each ADS represents eight Ordinary Shares. The
Bank of New York serves as depositary (the Depositary) with respect to the
ADSs trading on the NYSE. According to information furnished to the Company by
the Depositary, as of March 31, 2004, there were 47 holders of records of ADSs
with addresses in the United States and such holders owned an aggregate of
9,371,764 ADSs. The table below are the details for the periods indicated
the high and low market prices of the ADSs on the NYSE. High (US$)
    
    Low (US$)1999
    
    
    
    
    7.1250
    
    
    
    2.37502000
    
    
    
    
    9.2500
    
    
    
    2.62502001
    
    
    
    
    4.3500
    
    
    
    2.15002002Quarter ended March 31
    
    
    3.6000
    
    
    
    3.1000Quarter ended June 30
    
    
    3.1900
    
    
    
    2.8000Quarter ended September 30
    
    
    3.0000
    
    
    
    1.7600Quarter ended December 31
    
    
    2.0000
    
    
    
    1.1500December
    
    
    2.0000
    
    
    
    1.50002003Quarter ended March 31
    
    
    2.0500
    
    
    
    1.3800Quarter ended June 30
    
    
    3.3600
    
    
    
    1.1000Quarter ended September 30
    
    
    4.6000
    
    
    
    2.0500Quarter ended December 31
    
    
    2.8500
    
    
    
    1.8900December
    
    
    2.7400
    
    
    
    2.2500
 61




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##### Table of Contents



High (US$)
    
    Low (US$)2004January
    
    
    3.5000
    
    
    
    2.4500February
    
    
    2.7300
    
    
    
    2.3000March
    
    
    2.5200
    
    
    
    1.9300April
    
    
    2.1500
    
    
    
    1.6500May
    
    
    2.1200
    
    
    
    1.5900
 
 Item 10. Additional Information 
 Memorandum of
Association and Bye-laws In compliance with the newly amended listing rules of the Stock Exchange
which came into force on March 30, 2004, certain provisions of the Memorandum
of Association and Bye-laws of the Company were therefore amended and adopted at
the annual general meeting of the Company on May 20, 2004. Organization and Register The Company was incorporated in Bermuda on the 17th Day
of October, 1996 in accordance with The Companies Act. The Register of the
Company is maintained by the Bermuda Register of Companies with registration
number EC 22483. Objects and Purposes The objects for which the Company is formed and incorporated as provided
for in Clause 6 of the Memorandum of Association are to:  1)
    
    to act and to perform all the functions of a holding company
in all its branches and to co-ordinate the policy and administration
of any subsidiary company or companies wherever incorporated or
carrying on business or of any group of companies of which the
Company or any subsidiary company is a member or which are in any
manner controlled directly or indirectly by the Company;2)
    
    to act as an investment company and for that purpose to
acquire and hold upon any terms and, either in the name of the
Company or that of any nominee, shares, stock, debentures, debenture
stock, annuities, notes, mortgages, bonds, obligations and
securities, foreign exchange, foreign currency deposits and
commodities, issued or guaranteed by any company wherever
incorporated or carrying on business, or by any government,
sovereign, ruler, commissioners, public body or authority, supreme,
municipal, local or otherwise, by original subscription, tender,
purchase, exchange, underwriting, participation in syndicates or in
any other manner and whether or not fully paid up, and to make
payments thereon as called up or in advance of calls or otherwise
and to subscribe for the same, whether conditionally or absolutely,
and to hold the same with a view to investment, but with the power
to vary any investments, and to exercise and enforce all rights and
powers conferred by or incident to the ownership thereof, and to
invest and deal with the moneys of the Company not immediately
required upon such securities and in such manner as may be from time
to time determined;3)
    
    as set out in paragraphs (b) to (n) and (p) to (u) inclusive
of the Second Schedule to The Companies Act 1981. Directors When a Director who to his knowledge is in any way, whether directly or
indirectly, interested in a contract or arrangement or proposed contract or
arrangement with the Company shall declare the nature of his interest at the
meeting of the Board of the Company (the Board) at which the question of
entering into the contract or arrangement is first considered, if he knows his
interest then exists, or in any case at the first meeting of the Board after he
knows that he is or has become so interested. A Director shall not vote nor be
counted in the quorum on any resolution of the Board in respect of any contract
or arrangement or any other proposal in which he or any of his associate(s) is
materially interested, and if he shall do so his vote shall not be counted nor
is he to be counted in the quorum for the resolution. But this prohibition
shall not apply to any of the following matters namely: 62




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(i)
    
    any contract or arrangement for the giving by the Company or
any of its subsidiaries of any security or indemnity to the Director
or his associate(s) in respect of money lent by him or any of his
associates or obligations incurred or undertaken by him or any of
them at the request of or for the benefit of the Company or any of
its subsidiaries;(ii)
    
    any contract or arrangement for the giving by the Company or
any of its subsidiaries of any security or indemnity to a third
party in respect of a debt or obligation of the Company or any of
its subsidiaries for which the Director or his associate(s) has/have
himself/themselves assumed responsibility in whole or in part
whether alone or jointly under a guarantee or indemnity or by the
giving of security;(iii)
    
    any contract or arrangement by a Director or his
associate(s) to subscribe for shares or debentures or other
securities of the Company or any of its subsidiaries to be issued
pursuant to any offer or
invitation to the members or debenture holders or to the public
which does not provide the Director or his associate(s) any
privilege not accorded to any other members or debenture holders or
to the public;(iv)
    
    any contract, arrangement or proposal concerning an offer of
the shares or debentures or other securities of or by the Company or
any other company which the Company may promote or be interested in
for subscription or purchase where the Director or his associate(s)
is/are or is/are to be interested as a participant in the
underwriting or sub-underwriting of the offer;(v)
    
    any contract or arrangement in which the Director or his
associate(s) is/are interested in the same manner as other holders
of shares or debentures or other securities of the Company by virtue
only of his/their interest in shares or debentures or other
securities of the Company;(vi)
    
    any contract, arrangement or proposal concerning any company
in which the Director or his associate(s) is/are interested only,
whether directly or indirectly, as an officer or executive or a
shareholder or in which the Director and any of his associate(s)
are not in aggregate beneficially interested in five (5) per cent or
more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his
interest or that of any of his associates is derived);(vii)
    
    any proposal or arrangement for the benefit of employees of
the Company or its subsidiaries including the adoption, modification
or operation of a pension fund or retirement, death or disability
benefit scheme which relates both to directors, his associates and
employees of the Company or of any of its subsidiaries and does not
give the Director, or his associate(s), as such any privilege or
advantage not accorded generally to the class of persons to whom
such scheme or fund relates; or(viii)
    
    any proposal concerning the adoption, modification or operation of
any share scheme involving the issue or grant of options over shares
or other securities by the Company to, or for the benefit of the
employees of the Company or its subsidiaries under which the
Director or his associate(s) may benefit. A company shall be deemed to be a company in which a Director and/or his
associate(s) has/have an interest of five(5) per cent or more if and so long as
(but only if and so long as) he and /or his associate(s) (either directly or
indirectly) is/are the holders of or beneficially interested in five (5) per
cent or more of any class of the equity share capital of such company or of the
voting rights available to members of such company (or of any third company
through which his interest or that of any of his associate(s) is derived). For
the purpose of this paragraph there shall be disregarded any shares held by a
Director or his associate(s) as bare or custodian trustee and in which he or
any of them has no beneficial interest, any shares comprised in a trust in
which the interest of the Director and/or his associate(s) is/are in reversion
or remainder if and so long as some other person is entitled to receive the
income thereof and any shares comprised in an authorized unit trust scheme in
which the Director and/or his associate(s) is/are interested only as a unit
holder. 63




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Where a company in which a Director and/or his
associate(s) has/have an interest of five (5) per cent or more is materially
interested in a transaction, then that Director and/or his associate(s) shall
also be deemed materially interested in such transaction. As to the question of
the materiality of the interest of a Director (other than the chairman of the
meeting) or as to the entitlement of any Director (other than such chairman) to
vote or be counted in the quorum and such question is not resolved by his
voluntarily agreeing to abstain from voting or not to be counted in the quorum,
such question shall be referred to the chairman of the meeting and his ruling
in relation to such other Director shall be final and conclusive except in a
case where the nature or extent of the interest of the Director concerned as
known to such Director has not been fairly disclosed to the Board. If any
question as aforesaid shall arise in respect of the chairman of the meeting
such question shall be decided by a resolution of the Board (for which purpose
such chairman shall not vote thereon) and such resolution shall be final and
conclusive except in a case where the nature or extent of the interest of such
chairman as known to such chairman has not been fairly disclosed to the Board. The Company may by ordinary resolution ratify any transaction not duly
authorized by reason of a contravention of this Bye-Law provided that no
Director and/or his associate(s) who is /are materially interested in such
transaction shall vote upon such ordinary resolution in respect of any shares
in the Company in which they are interested. The ordinary remuneration of the Directors shall from time to time be
determined by the Company in general meeting. Each Director shall be entitled
to be prepaid or repaid all traveling, hotel and incidental expenses reasonably
expected to be incurred or reasonably incurred by him in attending meetings of
the Board or committees of the Board or general meeting or separate meetings of
any class of shares of the Company or otherwise in connection with the
discharge of his duties as a Director. The Board shall obtain the approval of
the Company in general meeting before making any payment to any Director or
past Director of the Company by way of compensation for loss of office, or as
consideration for or in connection with his retirement from office. The Board may exercise all the powers of the Company to raise or borrow
money or to secure the payment or repayment of any sum or sums of money and to
mortgage or charge all or any part of the undertaking, property and assets and
uncalled capital of the Company subject to The Companies Act, in such manner
and upon such terms and conditions in all respects as it thinks fit and in
particular by the issue of debentures, bonds and other securities, whether
outright or as collateral security for any debt, liability or obligation of the
Company or of any third party. Neither a Director nor an alternate Director shall be required to vacate
office or become ineligible for re-election as Director of being beyond any age
limitation. Neither a Director nor an alternate Director shall be required to hold any
shares of the Company by way of qualification. Shareholders Rights Currently, the Companys authorized share capital consists of ordinary
class of share only. Subject to any special rights conferred on the holders of
any shares or class of shares, any share in the Company may be issued with or
have attached such rights or restrictions whether in regard to dividend,
voting, return of capital, distribution of assets or otherwise as the Company
may by ordinary resolution determine or, if there has not been any such
determination or so far as the same shall not make specific provision, as the
Board may determine. The Board may from time to time pay to the shareholders such interim
dividends as appear to the Board to be justified to do so. Subject to The
Companies Act, the Company in general meeting may from time to time declare
dividends in any currency to be paid to the shareholders, but no dividend shall
be declared in excess of the amount recommended by the Board. The Company in
general meeting may also make a distribution to the shareholders out of any
contributed surplus in accordance with The Companies Act. But, no dividend
shall be paid or distribution made out of contributed surplus if to do so would
render the Company unable to pay its liabilities as they become due or the
realizable value of its assets would thereby become less than the aggregate of
its liabilities and its issued share capital and share premium accounts. All
dividends or bonuses unclaimed for one year after having been declared may be
invested or otherwise made use of by the Board for the benefit of the Company
until claimed. Any 64




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dividend or bonuses unclaimed after a period of six years
from the date of declaration shall be forfeited and shall revert to the
Company. At any general meeting, subject to any special rights or restrictions
attached to any shares by or in accordance with the Bye-laws of the Company,
every shareholder of the Company present in person or by proxy, on a show of
hands shall have one vote and on a poll shall have one vote, for every share
which is fully paid or credited as fully paid of which he is the holder. A
shareholder entitled to attend and vote at the general meeting of the Company
is entitled to appoint another person as his proxy to attend and vote instead
of him. A proxy need not be a member of the Company. A resolution put to the
vote of a general meeting shall be decided on a show of hands unless a poll is
demanded in accordance with the Bye-laws. No business shall be transacted at any general meeting unless a required
quorum is present. All business shall be deemed special that is transacted at
a special general meeting, and also all business that is transacted at an
annual general meeting, with the exception of sanctioning dividends, the
reading, considering and adopting of the accounts and balance sheet and the
reports of the Directors and Auditors and other documents required to be
annexed to the balance sheet, the election of Directors and appointment of
Auditors and other officers in the place of those retiring, the determination
of the remuneration of the Auditors and of the Directors of the Company. The Company in general meeting may from time to time declare dividends to
the shareholders of the Company and may also make a distribution to the
shareholders of the Company out of any contributed surplus in accordance with
The Companies Act. In the event of the Company being wound up, the surplus assets remaining
after payment to all creditors shall be divided among the Shareholders of the
Company in proportion to the capital paid up on the shares held by them
respectively. But, if such surplus assets shall be insufficient to repay the
whole of the paid up capital, they shall be distributed subject to the rights
of any shares which may be issued on special terms and conditions, so that, as
nearly as may be, the losses shall be borne by the Shareholders of the Company
in proportion to the capital paid up on the shares held by them respectively. The Bye-laws of the Company does not include any provisions in relation to
redemption, sinking fund, liability to further capital calls by the Company nor
any provisions discriminating against any existing or prospective holder of
such securities as a result of such shareholder owning a substantial number of
shares. Actions Necessary to Change Shareholders Rights Subject to the Companies Act and without prejudice to other provisions of
the Bye-laws, all or any of the special rights for the time being attached to
the shares or any class of shares may, unless otherwise provided by the terms
of issue of the shares of that class, from time to time (whether or not the
Company is being would up) be varied, modified or abrogated either with the
consent in writing of the holders of not less than three-fourths of the issued
shares of that class or with the sanction of a special resolution passed at a
separate general meeting of the holders of the shares of that class. To every
such separate general meeting all the provisions of these Bye-laws relating to
general meetings of the Company shall, mutatis mutandis, apply, but so that:  (a)
    
    the necessary quorum (other than at an adjourned meeting) shall
be at least two persons holding or representing by proxy or authorized
representative not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting of such holders, two
holders present in person or by proxy (whatever the number of shares
held by them) shall be a quorum:(b)
    
    every holder of shares of the class shall be entitled on a poll
to one vote for every such share held by him/her; and(c)
    
    any holder of shares of the class present in person or by proxy
or authorized representative may demand a poll. The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise expressly provided in the rights attaching
to or the terms of issue of such shares, be deemed to be varied, modified or
abrogated by the creation or issue of further shares ranking pari passu
therewith. 65




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General Meetings of Shareholders An annual general meeting of the Company shall be held in each year other
than the year in which its statutory meeting is convened at such time and place
as may be determined by the Board. Each general meeting, other than an annual
general meeting, shall be called a special general meeting. General meetings
may be held in any part of the world as may be determined by the Board. The
Board may whenever it thinks fit call special general meetings, and Members
holding at the date of deposit of the requisition not less than one-tenth of
the paid up capital of the Company carrying the right of voting at general
meetings of the Company shall at all times have the right, by written
requisition to the Board or the Secretary of the Company, to require a special
general meeting to be called by the Board for the transaction of any business
specified in such requisition; and such meeting shall be held within two (2)
months after the deposit of such requisition. An annual general meeting and any
special general meeting at which the passing of a special resolution is to be
considered shall be called by not less than twenty-one (21) clear days Notice. All other special general meetings may be called by not less than fourteen
(14) clear days Notice but a general meeting may be called by shorter notice
if it is so agreed by the shareholders. Notice of every general
meeting shall be given to all shareholders of the Company other than to such
shareholders as, under the provisions of these Bye-laws or the terms of issue
of the shares they hold, are not entitled to receive such notices from the
Company, to all persons entitled to a share in consequence of the death or
bankruptcy or winding-up of a shareholder and toe ach of the Directors and the
Auditor. Limitation on Foreign Ownership There is no limitation on the rights to own securities, including the
rights of non-resident or foreign shareholders to hold or exercise voting
rights on the securities imposed by foreign law or by the Bye-laws of the
Company. Change in Control The Bye-laws of the Company do not contain any specific provision that may
have an effect of delaying, deferring or preventing a change in control of the
company in the event of merger, acquisition or corporate restructuring of the
Company except APT Telecom, a joint-venture company formed by a wholly-owned
subsidiary of the Company, APT TV and SingaSat Private Limited on an equity
ratio of 55 to 45. The shareholders agreement of APT Telecom requires that any
merger, consolidation or amalgamation of the Company shall be approved by all
the shareholders of APT Telecom. Subject to the Bye-laws of the Company, any
shareholder may transfer all or any of his/her shares by an instrument of
transfer in the usual or common form or in any other form approved by the Board
and which may be under hand or , if the transferor or transferee is a clearing
house or its nominee(s), by hand or by machine imprinted signature or by such
other manner of execution as the Board may approve from time to time. The Board
may, in its absolute discretion, and without giving any reason therefore,
refuse to register a transfer of any share under certain conditions such as,
among the others, not being a fully paid up share. The Board may also refuse
to register a transfer for such not fully paid up share. The Board may also
decline to recognize any instrument of transfer unless, among the others, the
following conditions have been satisfied:-  (a)
    
    the instrument of transfer is lodged at the Office or such
other place in Bermuda at which the Register is kept in accordance
with the Act or the Registration Office (as the case may be)
accompanies by the relevant share certificate(s) and such other
evidence as the Board may reasonably require to show the right of
the transferor to make the transfer; and(b)
    
    if applicable, the instrument of transfer is duly and
properly stamped. Ownership Threshold Disclosure The Bye-laws of the Company does not provide any ownership threshold above
which a shareholder has to disclose such ownership. Significant Differences in Applicable Law With respect to items 2 through 8 of the Exchange Act Forms, the law
applicable to the Company in these areas is not significantly different from
that in Hong Kong. 66




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Changes in Capital The Bye-laws of the Company governing changes in the capital does not
contain any condition, which are more stringent than is required by law. Material Contracts On January 8, 2001, APT, together with Space Systems/Loral, of the United
States (SS/L), and China Great Wall Industry Corporation respectively signed
the Procurement and the Launch Agreements of APSTAR V satellite, to confirm the
commissioning of the APSTAR V which would have to replace the APSTAR I as it
would have been retired at the end of 2004 or in the middle of 2005. The
APSTAR V satellite involves a total project cost of approximately US$230
million, which is expected to be funded by internal resources and/or bank loan
of the APT Group. For latest development, please refer to Future satellites 
APSTAR V. On December 11, 2001, to ensure the timely replacement of APSTAR I in the
second half of 2004, APT signed a procurement agreement for construction and
delivery of APSTAR VI for an amount of US$118 million with Alcatel Space
Industries (Alcatel). The delivery of APSTAR VI was re-scheduled in December
2004. This satellite will serve as a backup to APSTAR V in the event of any
delay in the delivery and launch of the latter. If APSTAR V is delivered on
schedule and successfully launched into its designated orbital slot, APSTAR VI
will replace APSTAR 1A, which was expected due to expire at the end of 2007.
For latest development, please refer to Future satellites  APSTAR VI. 
 Exchange Controls and Other Limitations Affecting Security Holders The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority. The transfer of Ordinary Shares of the Company (Shares) between persons
regarded as resident outside Bermuda for exchange control purposes and the
issue of Shares within the current authorized share capital of the Company to
or by such persons may be effected without specific consent under the Exchange
Control Act 1972 and regulations thereunder subject to such Shares being listed
on the Hong Kong Stock Exchange or the New York Stock Exchange. Issues and
transfers of Shares involving any person regarded as resident in Bermuda for
exchange control purposes require specific prior approval under the Exchange
Control Act 1972. There are no limitations on the rights of holders of the Shares who are
non-resident of Bermuda for exchange control purposes to hold or vote their
shares. Because the Company has been designated as a non-resident for Bermuda
exchange control purposes, there are no restrictions on its ability to transfer
funds, including remittance of interest or payment to non-resident holders of
shares, if any, in and out of Bermuda or to pay dividends to United States
residents who are holders of the Shares, other than in respect of local Bermuda
currency. In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships, or individuals. In the case of an
applicant acting in a special capacity (for example, as trustee), certificates
may, at the request of the applicant, record the capacity in which the
applicant is acting. Notwithstanding the recording of any such special
capacity, the Company is not bound to investigate or incur any responsibility
in respect of the proper administration of any such trust. The Company will take no notice of any trust applicable to any of its
Shares whether or not it has notice of such trust. As an exempted company, the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians,
but as an exempted company, the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 50 years or, with the consent of the Minister of
Finance, land by way of lease or tenancy agreement for a term not exceeding 21
years in order to provide accommodation or recreational facilities for its
officers and employees), (2) the taking of mortgages on land in Bermuda to
secure an amount in excess of 50,000 Bermuda Dollars without the consent of the
Minister of Finance of 67




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Bermuda, (3) the acquisition of any bonds or debentures
secured on any land in Bermuda except bonds or debentures issued by the Bermuda
government or a public authority or (4) the carrying on of business of any kind
in Bermuda, except in furtherance of the business of the Company carried on
outside Bermuda or under a license by the Minister of Finance of Bermuda. 
 Taxation The following discussion is a summary of the material Bermuda, Hong Kong,
and United States federal income tax considerations relevant to an investment
decision with respect to the Companys American Depositary Shares (ADSs) and
Shares. This discussion does not purport to deal with the tax consequences of
owning ADSs and Shares to all categories of investors, some of which (such as,
dealers in securities, banks, tax-exempt organizations, certain insurance
companies, investors liable for alternative minimum tax, investors that
actually or constructively own 10% or more of the voting stock of the Company,
investors who do not hold the Shares or ADSs
as capital assets, investors who hold ADSs or Shares that are part of a
hedging, straddle, or conversion transaction or US Holders whose functional
currency is not the US Dollar) may be subject to special rules. This
discussion is not exhaustive of all possible tax considerations, including,
specifically, the consequences under United States federal, state, local, and
other laws, of the acquisition, ownership, and disposition of ADSs and the
disposition of Shares. Bermuda Taxation The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to
its shareholders. Furthermore, the Company has received from the Minister of
Finance of Bermuda under the Exempted Undertakings Tax Protection Act of 1966
an assurance that, in the event that Bermuda enacts any legislation imposing
any tax computed on profits or income or on any capital asset, gain or
appreciation, or any tax in the nature of an estate duty or inheritance tax,
the imposition of such tax shall not be applicable to the Company or any of its
operations, nor to the shares, debentures, or other obligations of the Company,
until March 28, 2016. This assurance does not, however, prevent the imposition
of any Bermuda tax payable in relation to any land in Bermuda leased to the
Company or to persons ordinarily resident in Bermuda. Hong Kong Taxation Tax on Dividends Under the current law and practice of Hong Kong, no tax is payable in Hong
Kong in respect of dividends paid by the Company. Profits Tax No tax is imposed in Hong Kong in respect of capital gains from the sale
of property (such as the ADSs or Shares). Trading gains from the sale of
property by persons carrying on a trade, profession, or business in Hong Kong
where such gains are derived from or arise in Hong Kong from such trade,
profession, or business will be chargeable to Hong Kong profits tax which is
currently imposed at the rate of 16% for 2002, 2001 and 2000 on corporations
and at a maximum rate of 15% on individuals. In March 2003, HKSAR announced
that the rate for Hong Kong profits tax on corporation will be increased to
17.5%. For individuals, the tax will be increased to a maximum rate of 16%
with effect from the 2004/2005 year of assessment. Gains from sales of the
Shares effected on the Stock Exchange of Hong Kong Limited will be considered
to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax
would thus arise in respect of trading gains from sales of Shares realized by
persons carrying on a business in Hong Kong of trading or dealing in
securities. Gains from sales of the ADSs effected on the New York Stock
Exchange will usually be considered to be derived from or arise outside Hong
Kong, and therefore, liability for Hong Kong profits tax would not ordinarily
arise in respect of trading gains from sales of ADSs. United States Federal Income Taxation The following summary describes certain United States federal income tax
consequences of the purchase, ownership, and disposition of Shares and ADSs
(evidenced by American Depositary Receipts (ADRs)), but it does 68




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not purport
to be a comprehensive description of all of the tax considerations that may be
relevant to a decision to purchase, own, or dispose of Shares or ADSs. In
particular, this summary of United States federal income tax matters deals only
with holders that will hold Shares or ADSs as capital assets and does not
address special tax situations, such as the United States tax treatment of
holders who are financial institutions, tax exempt organizations, pension
funds, insurance companies or securities dealers, who are holding Shares or
ADSs as part of a hedging or larger integrated financial or conversion
transaction, who are citizens or residents of a possession or territory of the
United States, who are United States holders (as defined below) with a currency
other than the US Dollar as their functional currency or who own, directly or
indirectly, 10% or more of the voting stock of the Company. For this purpose,
the Shares and ADSs will constitute voting stock of the Company. This summary is based upon (i) the income tax laws of the United States as
currently in effect, which are subject to change, possibly with retroactive
effect, and (ii) in part, on representations of The Bank of New York, as the
Companys depositary (the Depositary) and on the assumption that each
obligation in the Deposit Agreement
and any related agreement will be performed in accordance with its terms. The
Company has not sought any ruling from the United States Internal Revenue
Service (the IRS) with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions. This discussion is not exhaustive of the consequences of the purchase,
ownership, and disposition of Shares or ADSs, including the effect of any state
or local tax laws or the laws of any jurisdiction other than the United States,
nor does it address the United States federal estate, gift or alternative
minimum tax consequences, if any, to an investor. The Company The Shares and Shares represented by ADSs are characterized as equity
interests in the Company, and the Company will so characterize all such Shares
for all United States federal income tax purposes. The Company will be subject to United States federal income tax only to
the extent that it derives certain United States source income or income
effectively connected with the conduct of a trade or business within the United
States. Currently, the Company does not have, intends and anticipates that it
will not have, and will conduct its affairs in a manner so that it will not
have, any United States source income subject to United States federal income
or withholding tax or income effectively connected with the conduct of a trade
or business within the United States. Thus, the Company intends and
anticipates that it will not be subject to any United States federal tax. Taxation of InvestorsUnited States Holders As used herein, a United States holder means a beneficial owner of
Shares or ADSs that is an individual who is a citizen or resident of the United
States; a corporation, partnership or other entity created or organized in or
under the laws of the United States or any State thereof; an estate the income
of which is subject to United States federal income tax regardless of its
source, or a trust subject to control of a United States person and the primary
supervision of a United States court, or a trust in existence on August 20,
1996 that has elected to continue to be treated as a United States trust. A
resident of the United States includes an individual that (i) is lawfully
admitted for permanent residence in the United States, or (ii) (a) is present
in the United States for 31 days or more during the calendar year, (b) is
present in the United States for an aggregate of 183 days or more, on a
weighted basis, over a 3-year period ending in such calendar year, and (c) is
present in the United States for less than 183 days during the calendar year
and does not have a closer connection to a tax home that is located outside
the United States. A non-United States holder means a beneficial owner of Shares or ADSs
that is not a United States holder. It should be noted that certain single
member entities are disregarded for United States federal income tax purposes.
Thus, the income, gain, loss and deductions of such entity are attributed to
the owner of such single member entity for United States federal income tax
purposes. The discussion below for United States holders may not apply to
certain single member noncorporate entities that are treated as owned by a
non-United States holder. Investors which are single member noncorporate
entities should consult with their own tax advisors to determine the United
States federal, state, local and other tax consequences that may be relevant to
them. 69




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Ownership of ADSs and Shares For United States federal income tax purposes, a United States holder of
ADRs is generally treated as the owner of the ADSs evidenced thereby and of the
Shares represented by such ADSs. Accordingly, no gain or loss will be
recognized by a United States holder upon the exchange of ADRs or the ADSs
evidenced thereby for the Shares represented by such ADSs. A United States
holders tax basis in the Shares received will be the same as its tax basis in
the surrendered ADSs and the holding period for Shares received will include
the period during which the holder held such ADSs. Taxation of Dividends Subject to the passive foreign investment company rules discussed below
and to the extent provided below, a United States holder will be required to
include in gross income when paid, actually or constructively, to the holder
or, in the case of ADSs, to the Depositary, as a dividend any cash or the fair
market value of any property distributed
by the Company out of its current or accumulated earnings and profits (as
determined for United States federal income tax purposes). Distributions paid
in any currency other than the US Dollar will be translated into US Dollars at
the spot rate on the date the dividends are paid, regardless of whether the
dividends are in fact converted on that date. Distributions in excess of the
Companys current or accumulated earnings and profits (as determined for United
States federal income tax purposes) will be treated as a non-taxable return of
capital to the extent of the holders basis in the Shares or ADSs, and
thereafter, as a taxable capital gain. Dividends paid by the Company will not be eligible for the dividends
received deduction generally allowed to United States corporations in respect
of dividends received from other United States corporations under the United
States Internal Revenue Code of 1986, as amended (the Code). For purposes of
the United States foreign tax credit limitation, dividends paid by the Company
generally will constitute foreign source passive income (or, in the case of a
holder who is a financial services entity as defined in regulations under the
Code, financial services income). The rules relating to foreign tax credits
are extremely complex and the availability of a foreign tax credit depends on
numerous factors. All investors that are United States holders should consult
with their own tax advisors concerning the application of the United States
foreign tax credit rules to their particular circumstances. Taxation of Dispositions of Shares or ADSs Subject to the passive foreign investment company rules discussed below, a
gain or loss realized by a United States holder on the sale or other
disposition of a Share or an ADS will be subject to United States federal
income tax, as a capital gain or loss, in an amount equal to the difference
between such United States holders adjusted tax basis in the Share or ADS and
the amount realized on its disposition. Such capital gain or loss will be
long-term if the United States holders holding period for the Share or ADS is
more than one year and will be short-term if the holding period is equal to or
less than one year. Long-term capital gain of a non-corporate United States
holder is generally taxed at preferential rates. The deductibility of capital
losses is subject to limitations. For purposes of the United States foreign tax credit limitation, a
recognized gain or loss arising on the disposition of a Share or ADS generally
will be United States source gain. There is a risk, however, that a recognized
loss may, however, be allocated against foreign source income by reference to
the source of income received under the Share or ADS based on, among other
things, whether or not the Share or ADS is attributable to a foreign office or
other fixed place of business of the holder. The IRS has issued Regulations on
the sourcing of losses and holders of Shares or ADSs should consult with their
tax advisors regarding the application of such Regulations to their specific
situation. Passive Foreign Investment Company Rules The foregoing discussion assumes that the Company is not currently, and
will not in the future be, classified as a passive foreign investment company
(PFIC) under the Code. Special United States federal income tax rules apply to holders of equity
interests in a PFIC. A foreign corporation will constitute a PFIC for United
States federal income tax purposes if 75% or more of its gross income for a
taxable year consist of passive income, or, on average, 50% or more of the
value of its assets held during a taxable year consist of assets that give
rise, or that reasonably could give rise during the reasonably foreseeable
future, to passive income. Passive income generally includes (i) rent and
lease income (not including rent and lease 70




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income derived from persons other
than related persons and from the active conduct of a rental or leasing trade
or business), (ii) interest, (iii) dividends from shares of stock in a
corporation in which the foreign corporation directly or indirectly owns less
than 25% of the value of the stock in the corporation and (iv) gains from the
sale of any (a) property that gives rise to passive income, (b) partnership
interests, or (c) shares of stock. Based on the Companys existing and anticipated future operations, as well
as the existing and anticipated future operations of APT and APT BVI, the
Company believes that it, APT and APT BVI are not, and intends and anticipates
that they will not become in the future, PFICs. However, it is possible that
certain lease income derived by the Company (or APT or APT BVI) might be viewed
by the IRS as passive income. In addition, because of the nature of the
leasing business, and because the determination of whether or not the Company,
APT or APT BVI is a PFIC is a factual determination based upon the composition
of the annual income and assets of the entity, there can be no assurance that
the Company, APT or APT BVI will not be considered a PFIC for the current or
for any subsequent taxable year. Because the Companys sole asset is its stock interest in APT BVI, and APT
BVIs sole asset, in turn, is its stock interest in APT, if APT is or becomes a
PFIC, both the Company and APT BVI will also be or become PFICs. If the
Company, APT and APT BVI are or become PFICs, a United States holder (whether
direct, indirect or constructive) would be required to allocate to each day in
its holding period with respect to the Shares or ADSs a pro rata portion of any
distribution received, or deemed received under certain attribution rules, from
the Company, APT or APT BVI that is treated as an excess distribution.
Generally, an excess distribution is that portion of the total annual
distributions (including the proceeds from a redemption of Shares or ADSs that
is treated as a distribution) from the Company, APT or APT BVI that exceeds
125% of the per share average annual amount distributed (as measured in the
currency of such distributions) by that entity during the three preceding years
(or such shorter period as the United States holder may have held the Shares or
ADSs). In addition, the full amount of any gain recognized on a disposition or
deemed disposition (including a liquidation, a redemption that is treated as an
exchange, or a pledge) of (i) Shares or ADSs by the United States holder, (ii)
attributable shares of APT by APT BVI, or (iii) attributable shares of APT BVI
by the Company will be treated as an excess distribution. The amount of any excess distribution is allocated ratably over the United
States holders entire holding period. The amount allocated to the current
taxable year and to any period prior to the first taxable year during which the
Company, APT and APT BVI were PFICs is taxed as ordinary income. Any amount of
the excess distribution allocable to a prior taxable year during which the
Company, APT and APT BVI were PFICs or after the first taxable year they were
PFICs will be subject to a deferred United States federal income tax charge,
calculated as the sum of the amount of tax imposed on the allocable excess
distribution at the highest applicable rate in effect for each such year plus
the accumulated interest on the determined amount of tax. Given the
distribution and investment policies of the Company, if the Company, APT and
APT BVI are or become PFICs, there is a substantial risk that any distribution
by the Company will be treated as an excess distribution. (See Item 5.
Operating and Financial Review and ProspectsLiquidity and Capital Resources). For purposes of the PFIC rules, under certain circumstances, Shares or
ADSs held by a non-United States holder may be attributed to a United States
person (as defined in Section 7701(a)(30) of the Code) owning an interest,
directly or indirectly, in that non-United States holder. In such event,
dividends and other transactions in respect of the Shares or ADSs held by the
non-United States holder would be attributed to such United States person for
purposes of applying the above PFIC rules. If the Company is a PFIC, a United States holder must file Internal
Revenue Service Form 8621 regarding distributions received with respect to
Shares or ADSs and any gain realized on the disposition or deemed disposition
of Shares or ADSs for each taxable year in which the United States holder owns
Shares or ADSs. If the Company, APT and APT BVI are or become PFICs, an investment in
Shares or ADSs by a United States holder could subject the holder to
substantial, adverse United States federal income tax consequences. Investors
who are United States holders should consult their own tax advisers regarding
the potential application of the PFIC regime. 71




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Taxation of InvestorsNon-United States Holders Subject to the discussion of United States backup withholding tax below, a
non-United States holder will not be subject to United States federal income or
withholding tax on income derived by the Company, dividends paid to a holder by
the Company or gains realized on the sale of Shares or ADSs, provided that (i)
such income is not effectively connected with the conduct by the non-United
States holder of a trade or business within the United States, (ii) the
non-United States holder is not or was not present in the United States in
excess of statutorily established time periods, or does not have or did not
have a permanent establishment in the United States, (iii) there has not been a
present or former connection between the non-United States holder and the
United States, including, without limitation, such non-United States holders
status as a citizen or former citizen thereof or resident or former resident
thereof, subject to certain exceptions, or (iv) in the case of a gain from the
sale or disposition of Shares or ADSs by an individual, the non-United States
holder is not present in the United States for 183 days or more during the
taxable year of the sale or certain other conditions are met. In addition, the
provisions of certain bi-lateral income tax treaties to which the United States
is a party may shield a non-United States holder from the imposition of United
States federal income tax on income from Shares or ADSs or reduce the
applicable tax rate, even if such
income or such holder falls in one of the categories listed above. Investors
who are non-United States holders should consult their tax advisors regarding
the taxability of income in respect of the Shares or ADSs. United States Backup Withholding Tax and Information Reporting For a United States holder, a 28% backup withholding federal income tax
and certain information reporting requirements may apply to certain payments
made on Shares or ADSs and to the proceeds from the disposition of Shares or
ADSs unless such holder (i) is a corporation or comes within certain other
exempt categories, provided the exemption from backup withholding is properly
established, or (ii) provides a correct taxpayer identification number,
certifies that it is not subject to backup withholding, and otherwise complies
with applicable requirements of the backup withholding rules. Non-United States holders are generally exempt from backup withholding,
provided such holders certify in writing as to their non-United States holder
status under penalties of perjury or otherwise establish an exemption (provided
neither the Company nor the Companys agent has actual knowledge that the
holder is a United States person (as defined in Section 7701(a)(30) of the
Code) or that the conditions of any other exemption are not in fact satisfied). Holders should consult their tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such
exemption if applicable. Any amounts withheld under the backup withholding tax rules from a payment
to a holder will be allowed as a refund or a credit against such holders
United States federal income tax, provided that the required information is
furnished to the IRS. 
 Item 11. Quantitative and Qualitative Disclosures about Market Risk The Companys primary market risk exposures are interest rate risk and
foreign currency risk. Interest Rate Risk The Company is subject to interest rate risk due to fluctuation in
interest rates. As of December 31, 2003, the Companys outstanding bank loans
consist of variable interest rate loans only. From time to time, the Company
may enter into interest rate swap agreements designed to mitigate our exposure
to interest rate risks, although the Company did not consider it necessary to
do so in 2003. Upward fluctuations in interest rates increase the cost of new
bank loans and the interest cost of outstanding bank loans. As a result, a
significant increase in interest rates could have a material adverse effect on
the financial position of the Company. 72




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The following table contains information about the Companys bank loans
that are sensitive to changes in interest rates, as of December 31, 2003. Expected Maturity Date2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter(HK$ in million, except interest rates)Variable rate bank loan
    
    
    17.6
    
    
    
    35.1
    
    
    
    61.4
    
    
    
    96.5
    
    
    
    117.6
    
    
    
    373.8Average interest rate (1)
    
    
    2.34
    %
    
    
    3.75
    %
    
    
    4.88
    %
    
    
    5.55
    %
    
    
    5.98
    %
    
    
    5.98
    %
   (1)
    
    The interest rates are the implied future LIBOR rates calculated from US
swap as proxy. For the year ended December 31, 2003, if the average interest rate for the
variable rate bank loan had increased by 10%, the additional interest expenses
of HK$394 thousand (US$51 thousand) would have incurred. Exchange rate sensitivity The Companys reporting currency is the Hong Kong Dollar. The Companys
revenues, premiums for satellite insurance coverage and debt service and
substantially all capital expenditures were denominated in U.S. Dollars. The
Companys remaining expenses were primarily denominated in Hong Kong Dollars.
The Company does not hedge its exposure to foreign exchange risk. Gains and
losses resulting from the effects of changes in the U.S. Dollar to Hong Kong
Dollar exchange rate are recorded in the statements of income. The Company does not utilize derivative financial instruments to hedge its
interest rate or foreign currency rate risks. Limitations The above discussion includes only those exposures that exist as of
December 31, 2003 and as a result, does not consider exposures or positions
that could arise after that date. The Companys ultimate realized gain or loss
with respect to interest rate and exchange rate fluctuations would depend on
the exposures that arise during the period, the Companys hedging strategies at
the time, and interest and foreign exchange rates. 
 Item 12. Description of Securities Other Than Equity Securities Not applicable. Part II 
 Item 13. Defaults, Dividend Arrearages, and Delinquencies Not applicable. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds Not applicable. 
 Item 15. Controls and Procedures Disclosure Controls and Procedures.The Companys Chief Executive
Officer, or CEO, and Chief Financial Officer, or CFO, are responsible for
establishing and maintaining its disclosure controls and procedures. These
controls and procedures were designed to ensure that information required to be
disclosed in the reports that 73




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we file under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC. The Company evaluated
these disclosure controls and procedures under the supervision of its CEO and
CFO as of December 31, 2003. Based on this evaluation, our CEO and CFO
concluded that the Companys disclosure controls and procedures are effective
in timely alerting them to information required to be disclosed in our periodic
reports to the SEC. Internal Control Over Financial Reporting.There were no changes in the
Companys internal control over financial reporting that occurred during the
year ended December 31, 2003 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. 
 Item 16A. Audit Committee Financial Expert The Companys Board of Directors has determined that it does not have a
member of its Audit Committee that qualifies as an audit committee financial
expert as defined in Item 401(e) of Regulation S-K, and is independent as
the term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities
Exchange Act of 1934, as amended. 
 Item 16B. Code of Ethics The
Company currently has a Code of Ethical Business Conduct for
Directors and Officers, that is applicable to its directors and
officers, including its principal executive and financial officers.
The Companys Code of Ethical Business Conduct for Directors and
Officers is made available at the Companys website:
www.apstar.com. 
 Item 16C. Principal Accountant Fees and Services Aggregate fee billed to the Group for the fiscal years ended December 31,
2002 and 2003 by our principal accounting firm, Deloitte Touche Tohmatsu and
KPMG, respectively and their respective affiliates are as follows: Years ended December 31,(in US$ thousands)
    
    2002
    
    2003Audit fees
    
    
    56
    
    
    
    69Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total
    
    
    56
    
    
    
    69
 Audit Fees are the aggregate fees billed (for the year) for the audit of
the Companys annual financial statements, reviews of interim financial
statements and attestation services that are normally provided in connection
with statutory and regulatory filings or engagements. Audit-Related Fees are the aggregate fees billed (for the year) for
assurance and related services that are reasonably related to the performance
of the audit or review of the Companys financial statements and are not
reported under Audit Fees. Tax Fees are the aggregate fees billed (in the year) for professional
services rendered for tax compliance, tax advice on actual or contemplated
transactions and tax planning. KPMG does not provide us with tax services such
as PFIC evaluation and tax planning. 74




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The Companys Audit Committee oversees our independent auditors. See also
the description under the heading Board Practices in Item 6. Directors,
Senior Management and Employees. The Companys Audit Committees policy is to
approve any audit or permitted non-audit services proposed to be provided by
its independent auditors before engaging its independent auditors to provide
such services. Pursuant to this policy, which is designed to assure that such
engagements do not impair the independence of the Companys auditors, the
Chairperson of the Companys Audit Committee is authorized to approve any such
services between meetings of the Audit Committee, subject to ratification by
the Audit Committee, and to report any such approvals to the Audit Committee at
its next meeting. 
 Item 16D. Exemption from the Listing Standards for Audit Committees Not applicable. Part III 
 Item 17. Financial Statements Not Applicable. [Remainder of this page intentionally left blank] 75




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Item 18. Financial Statements APT SATELLITE HOLDINGS LIMITED Consolidated Financial Statements
Years ended December 31, 2001, 2002 and 2003
and Report of Independent Registered Public Accounting Firm 76




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APT SATELLITE HOLDINGS LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm
    
    
    F - 2 & 3Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    
    F - 4 & 5Consolidated Statements of Income for the years ended
December 31, 2001, 2002 and 2003
    
    
    F - 6Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2001, 2002 and 2003
    
    
    F - 7Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2002 and 2003
    
    
    F - 8 & 9Notes on the Consolidated Financial Statements
    
    
    F - 10 - 58
 F - 1




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(KPMG LOGO) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and
Shareholders of
APT Satellite Holdings Limited: We have audited the accompanying consolidated balance sheet of APT Satellite
Holdings Limited and subsidiaries (the Group) as of December 31, 2003 and the
related consolidated statements of income, changes in shareholders equity and
cash flows for the year ended December 31, 2003, all expressed in Hong Kong
dollars. These consolidated financial statements are the responsibility of the
Groups management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and auditing standards generally
accepted in Hong Kong. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of APT Satellite
Holdings Limited and subsidiaries as of December 31, 2003, and the results of
their operations and their cash flows for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in Hong Kong. Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of
such differences is presented in Note 27 to the consolidated financial
statements. The accompanying consolidated financial statements as of and for the year ended
December 31, 2003 have been translated into United States dollars solely for
the convenience of the reader. We have audited the translation, and in our
opinion, the consolidated financial statements expressed in Hong Kong dollars
have been translated into United States dollars on the basis set forth in Note
2 to the consolidated financial statements. KPMG
Hong Kong April 13, 2004 F - 2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of APT Satellite Holdings Limited We have audited the consolidated balance sheet of APT Satellite Holdings
Limited and its subsidiaries as of December 31, 2002 and the accompanying
consolidated statements of operations, shareholders equity and comprehensive
income, and cash flows for the years ended December 31, 2001 and 2002 (all
expressed in Hong Kong dollars). These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and auditing standards general
accepted in Hong Kong. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of APT Satellite Holdings Limited
and its subsidiaries as of December 31, 2002 and the consolidated results of
their operations and their cash flows for the years ended December 31, 2001 and
2002, in conformity with accounting principles generally accepted in Hong Kong. Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The applications of the latter would have affected
the determination of net income for the years ended December 31, 2001 and 2002,
and the determination of shareholders equity and financial position as of
December 31, 2002, to the extent summarized in note 27. Deloitte Touche Tohmatsu
Hong Kong
April 7, 2003 (July 1, 2003 as to note 13 c (ii)) (June 28, 2004 as to note 18 (b)) F - 3




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APT SATELLITE HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2003
(Amounts stated in thousands, except share data) December 31,Note
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    US$ASSETSCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    826,257
    
    
    
    546,864
    
    
    
    70,111Pledged bank deposits
    
    
    9
    
    
    
    317,686
    
    
    
    111,863
    
    
    
    14,341Trade receivables, less allowance of HK$1,548
in 2002 and HK$4,220 in 2003
    
    
    
    
    
    
    23,981
    
    
    
    68,364
    
    
    
    8,765Amount due from immediate holding company
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    3Amount due from an associate
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    Deposits, prepayments and other receivables, less
allowance of HK$4,489 in 2002 and HK$10,219
in 2003
    
    
    
    
    
    
    57,878
    
    
    
    32,662
    
    
    
    4,187Total current assets
    
    
    
    
    
    
    1,226,011
    
    
    
    759,773
    
    
    
    97,407Property, plant and equipment, net
    
    
    4
    
    
    
    2,018,873
    
    
    
    2,445,360
    
    
    
    313,508Investment property
    
    
    5
    
    
    
    2,332
    
    
    
    2,262
    
    
    
    290Goodwill
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Interest in jointly controlled entities
    
    
    6Share of net assets
    
    
    
    
    
    
    34,047
    
    
    
    12,935
    
    
    
    1,658Amounts due from jointly controlled entities
    
    
    
    
    
    
    52,216
    
    
    
    69,846
    
    
    
    8,955Interest in an associate
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Other assets
    
    
    
    
    
    
    5,890
    
    
    
    5,977
    
    
    
    766Deferred tax assets
    
    
    19
    
    
    
    
    
    
    
    9,416
    
    
    
    1,207TOTAL ASSETS
    
    
    
    
    
    
    3,339,369
    
    
    
    3,305,569
    
    
    
    423,791
 See accompanying notes to the consolidated financial statements. F - 4




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APT SATELLITE HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS (continued)
AS OF DECEMBER 31, 2002 AND 2003
(Amounts stated in thousands, except share data) December 31,Note
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    US$LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesPayables and accrued charges
    
    
    12
    
    
    
    44,048
    
    
    
    50,237
    
    
    
    6,441Rentals received in advance
    
    
    
    
    
    
    43,482
    
    
    
    20,961
    
    
    
    2,687Income taxes payable
    
    
    19
    
    
    
    81,279
    
    
    
    188,231
    
    
    
    24,132Bank loans - current portion
    
    
    9
    
    
    
    317,682
    
    
    
    17,550
    
    
    
    2,250Total current liabilities
    
    
    
    
    
    
    486,491
    
    
    
    276,979
    
    
    
    35,510Loan from a minority shareholder
    
    
    
    
    
    
    7,488
    
    
    
    7,488
    
    
    
    960Deposits received
    
    
    10
    
    
    
    39,542
    
    
    
    37,960
    
    
    
    4,867Bank loans - non-current portion
    
    
    9
    
    
    
    163,800
    
    
    
    684,450
    
    
    
    87,750Deferred income
    
    
    11
    
    
    
    41,436
    
    
    
    27,881
    
    
    
    3,575Deferred tax liabilities
    
    
    19
    
    
    
    125,463
    
    
    
    11,866
    
    
    
    1,521TOTAL LIABILITIES
    
    
    
    
    
    
    864,220
    
    
    
    1,046,624
    
    
    
    134,183Contingencies and commitments
    
    
    13Minority interests
    
    
    
    
    
    
    6,838
    
    
    
    5,915
    
    
    
    758Shareholders equityCapital
stock - Common stock
    
    
    15
    
    
    
    41,254
    
    
    
    41,327
    
    
    
    5,299Additional paid-in capital
    
    
    16
    
    
    
    1,794,520
    
    
    
    1,796,466
    
    
    
    230,316Revaluation reserve
    
    
    
    
    
    
    
    
    
    
    7,700
    
    
    
    987Translation reserve
    
    
    
    
    
    
    182
    
    
    
    (100
    )
    
    
    (13
    )Other reserves
    
    
    16
    
    
    
    94
    
    
    
    102
    
    
    
    13Retained earnings
    
    
    
    
    
    
    632,261
    
    
    
    407,535
    
    
    
    52,248Total shareholders equity
    
    
    
    
    
    
    2,468,311
    
    
    
    2,253,030
    
    
    
    288,850TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    
    
    
    
    
    3,339,369
    
    
    
    3,305,569
    
    
    
    423,791
 See accompanying notes to the consolidated financial statements. F - 5




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Amounts stated in thousands, except share data) Years ended December 31,Note
    
    2001
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    HK$
    
    US$Operating revenuesLeasing of satellite transponder capacity to:Unaffiliated customers
    
    
    
    
    
    
    312,891
    
    
    
    262,571
    
    
    
    212,830
    
    
    
    27,286Related parties
    
    
    20
    
    
    
    46,591
    
    
    
    61,390
    
    
    
    61,822
    
    
    
    7,926Service income received from:Unaffiliated customers
    
    
    
    
    
    
    13,176
    
    
    
    17,464
    
    
    
    23,017
    
    
    
    2,951Related parties
    
    
    20
    
    
    
    1,500
    
    
    
    10,000
    
    
    
    4,572
    
    
    
    586Total revenues
    
    
    
    
    
    
    374,158
    
    
    
    351,425
    
    
    
    302,241
    
    
    
    38,749Costs and expensesCost of service including depreciation
and amortization of 2001: HK$217,021,
2002: HK$233,971 and 2003: HK$236,322
    
    
    
    
    
    
    (266,015
    )
    
    
    (275,717
    )
    
    
    (280,319
    )
    
    
    (35,938
    )Selling, general and administrative
    
    
    
    
    
    
    (71,922
    )
    
    
    (69,886
    )
    
    
    (74,892
    )
    
    
    (9,602
    )Total costs and expenses
    
    
    
    
    
    
    (337,937
    )
    
    
    (345,603
    )
    
    
    (355,211
    )
    
    
    (45,540
    )36,221
    
    
    
    5,822
    
    
    
    (52,970
    )
    
    
    (6,791
    )Other operating revenuesInterest
income - net
    
    
    
    
    
    
    70,221
    
    
    
    22,189
    
    
    
    7,111
    
    
    
    912Reversal of provision on regulatory
matters previously recognized in the
life lease of transponders of
APSTAR IIR
    
    
    
    
    
    
    
    
    
    
    47,212
    
    
    
    
    
    
    
    Other income
    
    
    
    
    
    
    8,270
    
    
    
    2,926
    
    
    
    25,928
    
    
    
    3,324Deficit arising on revaluation of
investment property
    
    
    5
    
    
    
    (45
    )
    
    
    (70
    )
    
    
    (70
    )
    
    
    (9
    )Impairment loss recognized in respect
of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    (5,218
    )
    
    
    (129,098
    )
    
    
    (16,551
    )Impairment loss recognized in respect
of goodwill arising on acquisition
of interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    (3,376
    )
    
    
    
    
    
    
    Gain on partial disposal of an associate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    2Profit/(loss) from operations
    
    
    21
    (d)
    
    
    114,667
    
    
    
    69,485
    
    
    
    (149,087
    )
    
    
    (19,113
    )Interest expenses
    
    
    
    
    
    
    (5,644
    )
    
    
    
    
    
    
    
    
    
    
    Share of losses of jointly controlled
entities
    
    
    
    
    
    
    (5,067
    )
    
    
    (10,624
    )
    
    
    (64,833
    )
    
    
    (8,312
    )Income/(loss) before income taxes
and minority interests
    
    
    
    
    
    
    103,956
    
    
    
    58,861
    
    
    
    (213,920
    )
    
    
    (27,425
    )Provision for income taxes
    
    
    18
    
    
    
    (25,947
    )
    
    
    (36,814
    )
    
    
    (11,721
    )
    
    
    (1,503
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    2,388
    
    
    
    923
    
    
    
    118Net income/(loss)
    
    
    
    
    
    
    78,009
    
    
    
    24,435
    
    
    
    (224,718
    )
    
    
    (28,810
    )Earnings/(loss) per share- Basic
    
    
    
    
    
    19 cents
    
    6 cents
    
    (54 cents)
    
    (7 cents)- Diluted
    
    
    
    
    
    19 cents
    
    6 cents
    
    (54 cents)
    
    (7 cents)
 See accompanying notes to the consolidated financial statements. F - 6




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Amounts stated in thousands) AdditionalCapital
    
    paid-in
    
    Revaluation
    
    Translation
    
    Other
    
    Retainedstock
    
    capital
    
    reserve
    
    reserve
    
    reserves
    
    earnings
    
    TotalHK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Balance at January 1, 2001
    
    
    41,280
    
    
    
    1,794,993
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    612,467
    
    
    
    2,448,740Repurchase of shares
    
    
    (8
    )
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192
    )Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    (64
    )
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,920
    )
    
    
    (61,920
    )Net profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,009
    
    
    
    78,009At January 1, 2002
    
    
    41,272
    
    
    
    1,794,809
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    628,492
    
    
    
    2,464,637Repurchase of shares
    
    
    (18
    )
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307
    )Translation differences not recognized
in the consolidated statements of income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    182Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (30
    )
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,636
    )
    
    
    (20,636
    )Net profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,435
    
    
    
    24,435At January 1, 2003
    
    
    41,254
    
    
    
    1,794,520
    
    
    
    
    
    
    
    182
    
    
    
    94
    
    
    
    632,261
    
    
    
    2,468,311Shares issued under the share option scheme
    
    
    73
    
    
    
    1,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,019Translation differences not recognized
in the consolidated statements of income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    
    
    
    
    
    
    
    
    (282
    )Share of a jointly controlled entitys reserve
    
    
    
    
    
    
    
    
    
    
    7,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,700Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224,718
    )
    
    
    (224,718
    )At December 31, 2003
    
    
    41,327
    
    
    
    1,796,466
    
    
    
    7,700
    
    
    
    (100
    )
    
    
    102
    
    
    
    407,535
    
    
    
    2,253,030At December 31, 2003 (in US$)
    
    
    5,299
    
    
    
    230,316
    
    
    
    987
    
    
    
    (13
    )
    
    
    13
    
    
    
    52,248
    
    
    
    288,850Attributable to jointly controlled entitiesAt December 31, 2003
    
    
    
    
    
    
    
    
    
    
    7,700
    
    
    
    
    
    
    
    
    
    
    
    (79,861
    )
    
    
    (72,161
    )At December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,028
    )
    
    
    (15,028
    )At December 31, 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,402
    )
    
    
    (6,402
    )
 See accompanying notes to the consolidated financial statements. F - 7




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Amounts stated in thousands) Years ended December 31,2001
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    HK$
    
    US$Operating activitiesIncome/(loss) before income taxes and minority interests
    
    
    103,956
    
    
    
    58,861
    
    
    
    (213,920
    )
    
    
    (27,425
    )Adjustments for:Depreciation
    
    
    217,021
    
    
    
    233,971
    
    
    
    236,322
    
    
    
    30,298Amortization of goodwill
    
    
    
    
    
    
    660
    
    
    
    
    
    
    
    Impairment losses recognized
    
    
    
    
    
    
    8,594
    
    
    
    129,098
    
    
    
    16,551Gain on partial disposal of an associate
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (2
    )Interest income
    
    
    (70,221
    )
    
    
    (22,189
    )
    
    
    (7,111
    )
    
    
    (912
    )Interest expenses
    
    
    5,644
    
    
    
    
    
    
    
    
    
    
    
    Loss on disposal of property, plant and equipment
    
    
    37
    
    
    
    30
    
    
    
    
    
    
    
    Deficit arising on revaluation of investment property
    
    
    45
    
    
    
    70
    
    
    
    70
    
    
    
    9Share of losses of jointly controlled entities
    
    
    5,067
    
    
    
    10,624
    
    
    
    64,833
    
    
    
    8,312Reversal of provision on regulatory matters
    
    
    
    
    
    
    (47,212
    )
    
    
    
    
    
    
    Allowance for doubtful receivables
    
    
    
    
    
    
    5,207
    
    
    
    8,402
    
    
    
    1,077Operating profit before changes in working capital
    
    
    261,549
    
    
    
    248,616
    
    
    
    217,682
    
    
    
    27,908Decrease/(increase) in trade receivables
    
    
    34,422
    
    
    
    1,659
    
    
    
    (47,055
    )
    
    
    (6,033
    )Increase in transponder lease deposits
    
    
    (101
    )
    
    
    (252
    )
    
    
    (87
    )
    
    
    (11
    )(Increase)/decrease in amount due from immediate
holding company
    
    
    (20
    )
    
    
    20
    
    
    
    (20
    )
    
    
    (3
    )Increase in deposits, prepayments and other
receivables
    
    
    (833
    )
    
    
    (30,175
    )
    
    
    (240
    )
    
    
    (31
    )Increase/(decrease) in payables and accrued charges
    
    
    13,450
    
    
    
    (5,534
    )
    
    
    (955
    )
    
    
    (122
    )Increase/(decrease) in rentals received in advance
    
    
    9,464
    
    
    
    (8,379
    )
    
    
    (13,789
    )
    
    
    (1,768
    )Decrease in amount due to a related company
    
    
    (1,709
    )
    
    
    
    
    
    
    
    
    
    
    (Increase)/decrease in amounts due from jointly controlled
entities
    
    
    (218
    )
    
    
    198
    
    
    
    (12,731
    )
    
    
    (1,632
    )(Increase)/decrease in amount due from an associate
    
    
    
    
    
    
    (209
    )
    
    
    209
    
    
    
    27Decrease in deferred income
    
    
    (28,104
    )
    
    
    (22,286
    )
    
    
    (22,286
    )
    
    
    (2,857
    )Increase/(decrease) in deposits received
    
    
    17,799
    
    
    
    (4,109
    )
    
    
    (1,582
    )
    
    
    (203
    )Cash generated from operations
    
    
    305,699
    
    
    
    179,549
    
    
    
    119,146
    
    
    
    15,275Interest paid
    
    
    (6,461
    )
    
    
    
    
    
    
    
    
    
    
    Hong Kong profits tax paid
    
    
    (5,704
    )
    
    
    (7,422
    )
    
    
    (9,541
    )
    
    
    (1,223
    )Overseas tax paid
    
    
    (12,128
    )
    
    
    (9,364
    )
    
    
    (18,313
    )
    
    
    (2,348
    )Net cash from operating activities
    
    
    281,406
    
    
    
    162,763
    
    
    
    91,292
    
    
    
    11,704Investing activitiesPayment for purchase of property, plant and equipment
    
    
    (230,227
    )
    
    
    (1,091,362
    )
    
    
    (763,454
    )
    
    
    (97,879
    )Payment for acquisition of a subsidiary, net of cash acquired
    
    
    
    
    
    
    (4,421
    )
    
    
    
    
    
    
    Proceeds from partial disposal of an associate
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    2Capital contribution to a jointly controlled entity
    
    
    (48,565
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from disposal of property, plant and equipment
    
    
    13,659
    
    
    
    5
    
    
    
    1
    
    
    
    Advances/loans to jointly controlled entities
    
    
    (14,264
    )
    
    
    (23,650
    )
    
    
    (40,920
    )
    
    
    (5,246
    )Interest received
    
    
    87,262
    
    
    
    20,254
    
    
    
    9,279
    
    
    
    1,190Decrease in pledged bank deposits
    
    
    65,641
    
    
    
    61,982
    
    
    
    205,823
    
    
    
    26,388Net cash used in investing activities
    
    
    (126,494
    )
    
    
    (1,037,192
    )
    
    
    (589,259
    )
    
    
    (75,545
    )
 See accompanying notes to the consolidated financial statements. F - 8




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED CONSOLIDATED STATEMENTS
OF CASH FLOWS - continued
FOR THE YEARS ENDED DECEMBER 31, 2001 2002 AND 2003
(Amounts stated in thousands) Years ended December 31,2001
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    HK$
    
    US$Financing activitiesInterest paid
    
    
    
    
    
    
    
    
    
    
    (3,681
    )
    
    
    (472
    )New bank borrowings
    
    
    
    
    
    
    163,800
    
    
    
    538,200
    
    
    
    69,000Repayment of bank borrowings
    
    
    (175,320
    )
    
    
    (61,986
    )
    
    
    (317,682
    )
    
    
    (40,729
    )Dividends paid
    
    
    (64,320
    )
    
    
    (20,636
    )
    
    
    
    
    
    
    Repurchase of shares
    
    
    (192
    )
    
    
    (307
    )
    
    
    
    
    
    
    Proceeds from shares issued under the share option scheme
    
    
    
    
    
    
    
    
    
    
    2,019
    
    
    
    259Net cash (used in)/from financing activities
    
    
    (239,832
    )
    
    
    80,871
    
    
    
    218,856
    
    
    
    28,058Net decrease in cash and cash equivalents
    
    
    (84,920
    )
    
    
    (793,558
    )
    
    
    (279,111
    )
    
    
    (35,783
    )Cash and cash equivalents at January 1,
    
    
    1,704,606
    
    
    
    1,619,686
    
    
    
    826,257
    
    
    
    105,930Effect of foreign exchange rate changes
    
    
    
    
    
    
    129
    
    
    
    (282
    )
    
    
    (36
    )Cash and cash equivalents at December 31,
    
    
    1,619,686
    
    
    
    826,257
    
    
    
    546,864
    
    
    
    70,111Analysis of the balance of cash and cash equivalents:Deposits with banks
    
    
    1,608,381
    
    
    
    812,709
    
    
    
    539,916
    
    
    
    69,220Cash at bank and in hand
    
    
    11,305
    
    
    
    13,548
    
    
    
    6,948
    
    
    
    891Cash and cash equivalents at December 31,
    
    
    1,619,686
    
    
    
    826,257
    
    
    
    546,864
    
    
    
    70,111
 See accompanying notes to the consolidated financial statements. F - 9




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIESAPT Satellite Holdings Limited (the Company) was incorporated under the
laws of Bermuda on October 17, 1996 with limited liability. The Company
owns all the issued shares of APT Satellite Investment Company Limited,
which, in turn, holds all the issued voting shares of APT Satellite
Company Limited.The Company and its subsidiaries (hereafter collectively referred to as
the Group) currently operate three satellites. The Companys first
satellite, APSTAR I, was launched in July 1994 and commenced commercial
service in September 1994. The Companys second satellite, APSTAR IA, was
launched in July 1996 and commenced commercial service in September 1996.
The Companys third satellite, APSTAR IIR, was launched in October 1997
and commenced commercial service in January 1998. In August 1999, the
Company leased substantially all of the transponders of APSTAR IIR to a
third party for the rest of its life. During the year ended December 31,
2001, the Company signed agreements in respect of the procurement and
launch of new satellites, APSTAR V and APSTAR VI. During the year ended
December 31, 2003, the construction of APSTAR V and APSTAR VI was
proceeding as planned and they are scheduled for delivery in the second
and fourth quarter of 2004, respectively, to replace APSTAR I and APSTAR
IA.The following list contains only the particulars of subsidiaries which
principally affected the results, assets or liabilities of the Group. The
class of shares held is ordinary unless otherwise stated.All of these are controlled subsidiaries and have been consolidated into
the Group financial statements. F - 10




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES (continued) Proportion of ownership interestParticulars ofPlace of
    
    issued and paid up
    
    Groupsincorporation and
    
    capital and debt
    
    effective
    
    held by the
    
    held byName of Company
    
    operation*
    
    securities
    
    interest
    
    Company
    
    subsidiary
    
    Principal activitiesAPT Satellite Investment
Company Limited
    
    British Virgin Islands
    
    US$1,400
    
    
    100
    %
    
    
    100
    %
    
    
    
    
    
    Investment holdingAcme Star Investment Limited
    
    Hong Kong
    
    HK$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Investment holdingAPT Satellite Company Limited
(APT)
    
    Hong Kong
    
    Ordinary Class A
HK$100; Non-voting
Deferred Class B
HK$542,500,000
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Satellite
transponder leasingAPT Satellite Enterprise Limited
    
    Cayman Islands
    
    US$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Satellite
transponder leasingAPT Satellite Global Company
Limited
    
    Cayman Islands
    
    US$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Investment holdingAPT Satellite Link Limited
    
    Cayman Islands
    
    US$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Satellite
transponder leasingAPT Satellite Telewell Limited
(formerly Telewell Investment
Limited)
    
    Hong Kong
    
    HK$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Investment holdingAPT Satellite TV Development
Limited
    
    Hong Kong
    
    HK$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Provision of
satellite
television uplink
and downlink
servicesAPT Satellite Vision Limited
    
    Hong Kong
    
    HK$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Satellite leasingAPT Telecom Services Limited
(formerly APT Satellite (Apstar
V) Limited)
    
    Hong Kong
    
    HK$2
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Provision of
telecommunication
servicesHaslett Investments Limited
    
    British Virgin Islands
    
    US$1
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    InvestmentSkywork Corporation
    
    British Virgin
Islands
    
    US$1
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Investment holdingThe 138 Leasing Partnership
(Partnership)
    
    Hong Kong
    
    Partners capital
HK$329,128,857
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    Satellite leasingYing Fai Realty (China) Limited
    
    Hong Kong/ Peoples
Republic of China
(PRC)
    
    HK$20
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Property holdingAPT Communication Technology
Development (Shenzhen) Co.,
Ltd.
    
    Wholly-owned foreign
enterprises, PRC
    
    Registered capital
HK$5,000,000
    
    
    100
    %
    
    
    
    
    
    
    100
    %
    
    Satellite
transponder leasingCTIA VSAT Network Limited
(CTIA)
    
    Hong Kong
    
    HK$5,000,000
    
    
    60
    %
    
    
    
    
    
    
    60
    %
    
    Investment holdingBeijing Asia Pacific East
Communication Network Limited
(BAPE)
    
    Joint venture, PRC
    
    Registered capital
US$4,000,000
    
    
    36
    %
    
    
    
    
    
    
    60
    %
    
    Provision of data
transmission
services
 * The place of operation is the place of incorporation/establishment
unless otherwise stated. No loan capital has been issued by any of the subsidiaries. F - 11




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  2.
    
    BASIS OF PRESENTATIONThe consolidated financial statements have been prepared in accordance
with all applicable Hong Kong Financial Reporting Standards (which
includes all applicable Statements of Standard Accounting Practice and
Interpretations) issued by the Hong Kong Society of Accountants,
accounting principles generally accepted in Hong Kong (HK GAAP) which
differ in certain significant respects from accounting principles
generally accepted in the United States of America (US GAAP). The
significant differences between HK GAAP and US GAAP are summarized in note
27.The measurement basis used in the preparation of the consolidated
financial statements is historical cost modified by the revaluation
of investment properties as explained in the accounting policies set
out below.The consolidated financial statements of the Group are expressed in Hong
Kong dollars (HK$). The translations of amounts from Hong Kong dollars
into United States dollars for convenience of the reader have been made at
the rate on December 31, 2003 of HK$7.80 = US$1.00. No representation is
made that the Hong Kong dollar amounts could have been, or could be,
converted into United States dollars at that rate or at any other certain
rate on December 31, 2003, or any other certain date.3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (a)
    
    Basis of consolidationThe consolidated financial statements include the financial
statements of the Company and its subsidiaries. A subsidiary is an
enterprise controlled by the Company. Control exists when the
Company has the power, directly or indirectly, to govern the
financial and operating policies of an enterprise, so as to obtain
benefits from their activities.All significant intra-group balances and transactions,
and any unrealized profits arising from intra-group
transactions, are eliminated in full in preparing the
consolidated financial statements. Unrealized losses resulting
from intra-group transactions are eliminated in the same way as
unrealized profits, but only to the extent that there is no
evidence of impairment.Minority interests at the balance sheet date, being the portion of
the net assets of subsidiaries attributable to equity interests
that are not owned by the Company, whether directly or
indirectly through subsidiaries, are presented in the
consolidated balance sheet separately from liabilities and the
shareholders equity. Minority interests in the results of the
Group for the year are also separately presented in the
consolidated statements of income.The particulars of the Groups principal subsidiaries
are set out in note 1. F - 12




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (b)
    
    Associates and jointly controlled entitiesAn associate is an entity in which the Group or Company has
significant influence, but not control or joint control, over its
management, including participation in the financial and operating
policy decisions.A jointly controlled entity is an entity which operates under a
contractual arrangement between the Group or Company and other
parties, where the contractual arrangement establishes that the
Group or Company and one or more of the other parties share joint
control over the economic activity of the entity.An investment in an associate or a jointly controlled entity is
accounted for in the consolidated financial statements under the
equity method and is initially recorded at cost and adjusted
thereafter for the post acquisition change in the Groups share of
the associates or the jointly controlled entitys net assets. The
consolidated statements of income reflect the Groups share of the
post-acquisition results of the associates and jointly controlled
entities for the year. When the Groups share of losses exceeds the
carrying amount of the associate, the carrying amount is reduced to
nil and recognition of further losses is discontinued except to the
extent that the Group has incurred obligations in respect of the
associate or made payable on behalf of the associate to satisfy
obligation of the associate that the Group has guaranteed or
otherwise committed.Unrealized profits and losses resulting from transactions between
the Group and its associates and jointly controlled entities are
eliminated to the extent of the Groups interest in the associate or
jointly controlled entity, except where unrealized losses provide
evidence of an impairment of the asset transferred, in which case
they are recognized immediately in the consolidated statements of
income. F - 13




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (c)
    
    GoodwillPositive goodwill arising on consolidation represents the excess of
the cost of the acquisition over the Groups share of the fair value
of the identifiable assets acquired and liabilities assumed. In
respect of controlled subsidiaries for acquisitions on or after
January 1, 2001, positive goodwill is amortized to the consolidated
statements of income on a straight-line basis over its estimated
useful life. Positive goodwill is stated in the consolidated
balance sheet at cost less any accumulated amortization and any
impairment losses (see note 3(g)).In respect of acquisitions of associates and jointly controlled
entities, positive goodwill is amortized to the consolidated
statements of income on a straight-line basis over its estimated
useful life. The cost of positive goodwill less any accumulated
amortization and any impairment losses (see note 3(g)) is included
in the carrying amount of the interest in associates or jointly
controlled entities.On disposal of a controlled subsidiary, an associate or a jointly
controlled entity during the year, any attributable amount of
purchased goodwill not previously amortized through the consolidated
statements of income or which has previously been dealt with as a
movement on Group reserves is included in the calculation of the
profit or loss on disposal.(d)
    
    Property, plant and equipment, and investment property  (i)
    
    Fixed assets are carried in the balance sheets on
the following bases:  
    
    property, plant, and equipment, other than
construction in progress, are stated in the balance sheet
at cost less accumulated depreciation (see note 3(f)) and
impairment losses (see note 3(g)); and
    
    construction in progress is stated at
specifically identified cost, including borrowing costs
capitalized, aggregate cost of development, materials and
supplies, wages and other direct expenses, less impairment
losses (see note 3(g)); and
    
    investment properties with an unexpired lease
term of more than 20 years are stated in the balance sheet
at their open market value which is assessed annually by
external qualified valuers; and  (ii)
    
    Changes arising on the revaluation of investment
properties are generally dealt with in reserves. The only
exceptions are as follows:  
    
    when a deficit arises on revaluation, it
will be charged to the consolidated statements of income,
if and to the extent that it exceeds the amount held in the
reserve in respect of the portfolio of investment
properties immediately prior to the revaluation; and F - 14




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (d)
    
    Property, plant and equipment, and investment property (continued)  
    
    when a surplus arises on revaluation, it will
be credited to the consolidated statements of income, if and
to the extent that a deficit on revaluation in respect of
the portfolio of investment properties had previously been
charged to the consolidated statements of income.  (iii)
    
    Subsequent expenditure relating to a fixed asset
that has already been recognized is added to the carrying
amount of the asset when it is probable that future economic
benefits, in excess of the originally assessed standard of
performance of the existing asset, will flow to the enterprise.
All other subsequent expenditure is recognized as an expense in
the period in which it is incurred.(iv)
    
    Gains or losses arising from the retirement or
disposal of a fixed asset are determined as the difference
between the estimated net disposal proceeds and the carrying
amount of the asset and are recognized in the consolidated
statements of income on the date of retirement or disposal. On
disposal of an investment property, the related portion of
surpluses or deficits previously taken to the investment
properties revaluation reserve is also transferred to the
consolidated statements of income for the year.  (e)
    
    Leased assetsLeases of assets under which the lessor has not transferred all the
risks and benefits of ownership are classified as operating leases.  (i)
    
    Assets held for use in operating leasesWhere the Group leases out assets under operating leases, the
assets are included in the consolidated balance sheet according
to their nature and, where applicable, are depreciated in
accordance with the Groups depreciation policies, as set out in
note 3(f). Impairment losses are accounted for in accordance
with the accounting policy as set out in note 3(g). Revenue
arising from operating leases is recognized in accordance with
the Groups revenue recognition policies, as set out in note
3(l)(i).(ii)
    
    Operating lease chargesWhere the Group has the use of assets under operating leases,
payments made under the leases are charged to the consolidated
statements of income in equal instalments over the accounting
periods covered by the lease term, except where an alternative
basis is more representative of the pattern of benefits to be
derived from the leased asset. Lease incentives received are
recognized in the consolidated statements of income as an
integral part of the aggregate net lease payments made.
Contingent rentals are charged to the consolidated statements of
income in the accounting period in which they are incurred. F - 15




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (f)
    
    Amortization and depreciation  (i)
    
    No depreciation is provided on investment
properties with an unexpired lease term of over 20 years or on
freehold land.(ii)
    
    No depreciation is provided on construction in
progress until such time as the relevant assets are completed
and ready for its intended use.(iii)
    
    Depreciation is calculated to write off the cost
of property, plant and equipment on a straight-line basis over
their estimated useful lives, to residual values, as follows: Leasehold land
    
    45 to 50 yearsLeasehold buildings
    
    50 yearsLeasehold improvements
    
    45 to 50 yearsFurniture and equipment, motor vehicles, and computer
equipment
    
    5 yearsCommunication satellite equipment
    
    5 to 15 yearsCommunication station
    
    5 yearsCommunication satellites
    
    9 to 16 years
  (g)
    
    Impairment of assetsInternal and external sources of information are reviewed at each
balance sheet date to identify indications that the following assets
may be impaired or an impairment loss previously recognized no
longer exists or may have decreased:  
    
    property, plant and equipment (other than
properties carried at revalued amounts);
    
    investments in subsidiaries, associates and joint
ventures (except for those accounted for at fair value under
notes 3 (b));
    
    intangible assets; and
    
    positive goodwill (whether taken initially to reserves or recognized as an asset).  If any such indication exists, the assets recoverable amount is
estimated. An impairment loss is recognized in the consolidated
statements of income whenever the carrying amount of such an asset
(including positive goodwill taken directly to reserves) exceeds its
recoverable amount.  (i)
    
    Calculation of recoverable amountThe recoverable amount of an asset is the greater of its net
selling price and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of time value of money and the risks specific to the
asset. Where an asset does not generate cash inflows largely
independent of those from other assets, the recoverable amount
is determined for the smallest group of assets that generates
cash inflows independently (i.e. a cash-generating unit). F - 16




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (g)
    
    Impairment of assets (continued)  (ii)
    
    Reversals of impairment lossesIn respect of assets other than positive goodwill, an impairment
loss is reversed if there has been a favourable change in the
estimates used to determine the recoverable amount. An
impairment loss in respect of positive goodwill is reversed only
if the loss was caused by a specific external event of an
exceptional nature that is not expected to recur, and the
increase in recoverable amount relates clearly to the reversal
of the effect of that specific event.A reversal of impairment losses is limited to the assets
carrying amount that would have been determined had no
impairment loss been recognized in prior years. Reversals of
impairment losses are credited to the consolidated statements of
income in the year in which the reversals are recognized.  (h)
    
    Cash equivalentsCash and cash equivalents comprise cash at bank and on hand, demand
deposits with banks and short-term, highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value, having been
within three months of maturity at acquisition. None of the Groups
cash and cash equivalents is restricted as to withdrawal.  (i)
    
    Employee benefits  (i)
    
    Salaries, annual bonuses, paid annual leave,
leave passage and the cost to the Group of non-monetary
benefits are accrued in the year in which the associated
services are rendered by employees of the Group. Where
payment or settlement is deferred and the effect would be
material, these amounts are stated at their present values.(ii)
    
    Contributions to Mandatory Provident Funds as
required under the Hong Kong Mandatory Provident Fund Schemes
Ordinance, are recognized as an expense in the consolidated
statements of income as incurred.(iii)
    
    The employees of the Group in the PRC
participate in retirement plans managed by respective local
governments of the municipalities in which the Group
operates. The Groups contributions to the plan are
calculated based on fixed rates of the employees salary
costs and charged to the consolidated statements of income
when incurred. The Group has no other obligation for the
payment of retirement and other post-retirement benefits of
employees other than the contributions described above.(iv)
    
    When the Group grants employees options to
acquire shares of the Company at nil consideration, no
employee benefit cost or obligation is recognized at the date
of grant. When the options are exercised, equity is increased
by the amount of the proceeds received. F - 17




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (j)
    
    Income tax  (i)
    
    Income tax for the year comprises current tax and
movements in deferred tax assets and liabilities. Current tax
and movements in deferred tax assets and liabilities are
recognized in the consolidated statements of income except to
the extent that they relate to items recognized directly in
equity, in which case they are recognized in equity.(ii)
    
    Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous years.(iii)
    
    Deferred tax assets and liabilities arise from
deductible and taxable temporary differences respectively,
being the differences between the carrying amounts of assets
and liabilities for financial reporting purposes and their tax
bases. Deferred tax assets also arise from unused tax losses
and unused tax credits.Apart from certain limited exceptions, all deferred tax
liabilities, and all deferred tax assets to the extent that it
is probable that future taxable profits will be available
against which the asset can be utilised, are recognized. Future
taxable profits that may support the recognition of deferred tax
assets arising from deductible temporary differences include
those that will arise from the reversal of existing taxable
temporary differences, provided those differences relate to the
same taxation authority and the same taxable entity, and are
expected to reverse either in the same period as the expected
reversal of the deductible temporary difference or in periods
into which a tax loss arising from the deferred tax asset can be
carried back or forward. The same criteria are adopted when
determining whether existing taxable temporary differences
support the recognition of deferred tax assets arising from
unused tax losses and credits, that is, those differences are
taken into account if they relate to the same taxation authority
and the same taxable entity, and are expected to reverse in a
period, or periods, in which the tax loss or credit can be
utilised.The limited exceptions to recognition of deferred tax assets and
liabilities are those temporary differences arising from
positive goodwill not deductible for tax purposes, negative
goodwill treated as deferred income, the initial recognition of
assets or liabilities that affect neither accounting nor taxable
profit (provided they are not part of a business combination),
and temporary differences relating to investments in
subsidiaries to the extent that, in the case of taxable
differences, the Group controls the timing of the reversal and
it is probable that the differences will not reverse in the
foreseeable future, or in the case of deductible differences,
unless it is probable that they will reverse in the future.The amount of deferred tax recognized is measured based on the
expected manner of realization or settlement of the carrying
amount of the assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date. Deferred tax
assets and liabilities are not discounted. F - 18




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (j)
    
    Income tax (continued)  The carrying amount of a deferred tax asset is reviewed at each
balance sheet date and is reduced to the extent that it is no
longer probable that sufficient taxable profit will be available
to allow the related tax benefit to be utilised. Any such
reduction is reversed to the extent that it becomes probable
that sufficient taxable profit will be available.Additional income taxes that arise from the distribution of
dividends are recognized when the liability to pay the related
dividends is recognized.(iv)
    
    Current tax balances and deferred tax balances, and
movements therein, are presented separately from each other and
are not offset. Current tax assets are offset against current
tax liabilities, and deferred tax assets against deferred tax
liabilities if, and only if, the Company or the Group has the
legally enforceable right to set off current tax assets against
current tax liabilities and the following additional conditions
are met:  
    
    in the case of current tax assets and
liabilities, the Company or the Group intends either to
settle on a net basis, or to realize the asset and settle
the liability simultaneously; or
    
    in the case of deferred tax assets and
liabilities, if they relate to income taxes levied by the
same taxation authority on either:  
    
    the same taxable entity; or
    
    different taxable entities, which, in
each future period in which significant amounts of
deferred tax liabilities or assets are expected to be
settled or recovered, intend to realize the current tax
assets and settle the current tax liabilities on a net
basis or realize and settle simultaneously.  (k)
    
    Provisions and contingent liabilitiesProvisions are recognized for liabilities of uncertain timing or
amount when the Company or Group has a legal or constructive
obligation arising as a result of a past event, it is probable that
an outflow of economic benefits will be required to settle the
obligation and a reliable estimate can be made. Where the time value
of money is material, provisions are stated at the present value of
the expenditures expected to settle the obligation.Where it is not probable that an outflow of economic benefits will
be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future events are also
disclosed as contingent liabilities unless the probability of
outflow of economic benefits is remote. F - 19




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (l)
    
    Revenue recognitionProvided it is probable that the economic benefits will flow to the
Group and the revenue and costs, if applicable, can be measured
reliably, revenue is recognized in the consolidated statements of
income as follows:  (i)
    
    Transponder lease incomeRental income from leasing of satellite transponder capacity is
recognized in the consolidated statements of income on a
straight line basis over the lease term.Lease incentives granted are recognized in the consolidated
statements of income as an integral part of the aggregate net
lease payments receivable.(ii)
    
    Service income in respect of satellite control and
providing satellite telecommunications and related service is
recognized when services are provided.(iii)
    
    Interest income from bank deposits is accrued on a
time-apportioned basis by reference to the principal
outstanding and the rate applicable.  (m)
    
    Translation of foreign currenciesForeign currency transactions during the year are translated
at the exchange rates ruling at the transaction dates. Monetary
assets and liabilities denominated in foreign currencies are
translated at the exchange rates ruling at the balance sheet date.
Foreign currency assets, being equity investments or other long-term
non-monetary assets, the holding or the use or the subsequent
disposal of which will generate receipts in a foreign currency,
hedged by foreign currency borrowings, are translated at the
exchange rates ruling at the balance sheet date.Exchange gains and losses are dealt with in the consolidated
statements of income, except those arising from the translation at
closing rates of foreign currency assets hedged by foreign currency
borrowings, and the gains and losses on those foreign currency
borrowings (to the extent of exchange differences arising on the
foreign currency assets), which are taken directly to reserves.The results of foreign enterprises are translated into Hong Kong
dollars at the average exchange rates for the year; balance sheet
items are translated into Hong Kong dollars at the rates of exchange
ruling at the balance sheet date. The resulting exchange differences
are dealt with as a movement in reserves.On disposal of a foreign enterprise, the cumulative amount of the
exchange differences which relate to that foreign enterprise is
included in the calculation of the profit or loss on disposal. F - 20




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (n)
    
    Borrowing costsBorrowing costs are expensed in the consolidated statements of
income in the period in which they are incurred, except to the
extent that they are capitalized as being directly attributable to
the acquisition or construction of an asset which necessarily takes
a substantial period of time to get ready for its intended use or
sale.The capitalization of borrowing costs as part of the cost of a
qualifying asset commences when expenditures for the asset are being
incurred, borrowing costs are being incurred and activities that are
necessary to prepare the asset for its intended use or sale are in
progress. Capitalization of borrowing costs is suspended or ceases
when substantially all the activities necessary to prepare the
qualifying asset for its intended use or sale are interrupted or
complete.(o)
    
    Related partiesFor the purposes of these financial statements, parties are
considered to be related to the Group if the Group has the ability,
directly or indirectly, to control the party or exercise significant
influence over the party in making financial and operating
decisions, or vice versa, or where the Group and the party are
subject to common control or common significant influence. Related
parties may be individuals or other entities.(p)
    
    Segment reportingA segment is a distinguishable component of the Group that is
engaged either in providing products or services (business segment),
or in providing products or services within a particular economic
environment (geographical segment), which is subject to risks and
rewards that are different from those of other segments.Segment revenue, expenses, results, assets and liabilities include
items directly attributable to a segment as well as those that can
be allocated on a reasonable basis to that segment. For example,
segment assets may include inventories, trade receivables and
property, plant and equipment. Segment revenue, expenses, assets,
and liabilities are determined before intra-group balances and
intra-group transactions are eliminated as part of the consolidation
process, except to the extent that such intra-group balances and
transactions are between Group enterprises within a single segment.
Inter-segment pricing is based on similar terms as those available
to other external parties.Segment capital expenditure is the total cost incurred during the
period to acquire segment assets (both tangible and intangible) that
are expected to be used for more than one period.Corporate items mainly comprise financial and corporate assets,
interest-bearing loans, borrowings, corporate and financing
expenses and minority interests.(q)
    
    Use of estimatesThe preparation of financial statements in conformity with HK GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those assumptions. F - 21




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  (r)
    
    Earnings/(loss) per shareThe calculation of the basic and diluted earnings/(loss) per share
is based on the following data: 2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Earnings/(loss)Earnings for the purposes of calculating
basic and diluted earnings/(loss) per share
(net income/(loss) for the year)
    
    
    78,009
    
    
    
    24,435
    
    
    
    (224,718
    )Number of shares000
    
    
    
    000
    
    
    
    000Weighted average number of ordinary shares
for the purposes of calculating basic earnings/(loss)
per share
    
    
    412,773
    
    
    
    412,675
    
    
    
    412,892Effect of dilutive share options
    
    
    1,117
    
    
    
    
    
    
    
    Weighted average number of ordinary shares for
the purposes of calculating diluted earnings/(loss)
per share
    
    
    413,890
    
    
    
    412,675
    
    
    
    412,892
  Options to purchase 13,410,000 shares and 9,670,000 shares of common
stock at HK$2.765 per share were outstanding during the year 2002
and 2003, respectively, but were not included in the computation of
diluted EPS because the options exercise price was greater than the
average market price of the common shares for the period. The
options, which expire on May 21, 2011, were still outstanding at the
end of year 2003.  4.
    
    PROPERTY, PLANT AND EQUIPMENT Furniture andequipment, motor
    
    Commun-vehicles, and
    
    ication
    
    Commun-
    
    Commun-Land and
    
    Leasehold
    
    computer
    
    satellite
    
    ication
    
    ication
    
    Constructionbuildings
    
    improvements
    
    equipment
    
    equipment
    
    station
    
    satellites
    
    in progress
    
    TotalHK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Cost:At January 1,2003
    
    
    118,770
    
    
    
    6,910
    
    
    
    56,721
    
    
    
    94,892
    
    
    
    5,179
    
    
    
    2,100,129
    
    
    
    1,266,614
    
    
    
    3,649,215Additions
    
    
    
    
    
    
    2,341
    
    
    
    1,466
    
    
    
    29,567
    
    
    
    
    
    
    
    
    
    
    
    758,534
    
    
    
    791,908Disposals
    
    
    
    
    
    
    
    
    
    
    (16,509
    )
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,546
    )Transfer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,178
    
    
    
    3,246
    
    
    
    
    
    
    
    (4,424
    )
    
    
    At December 31, 2003
    
    
    118,770
    
    
    
    9,251
    
    
    
    41,678
    
    
    
    125,600
    
    
    
    8,425
    
    
    
    2,100,129
    
    
    
    2,020,724
    
    
    
    4,424,577Accumulated depreciation:At January 1,2003
    
    
    13,148
    
    
    
    4,759
    
    
    
    28,156
    
    
    
    52,367
    
    
    
    291
    
    
    
    1,531,621
    
    
    
    
    
    
    
    1,630,342Charge for the year
    
    
    2,439
    
    
    
    744
    
    
    
    7,325
    
    
    
    11,100
    
    
    
    1,152
    
    
    
    213,562
    
    
    
    
    
    
    
    236,322Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129,098
    
    
    
    
    
    
    
    129,098Written back on disposal
    
    
    
    
    
    
    
    
    
    
    (16,508
    )
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,545
    )At December 31, 2003
    
    
    15,587
    
    
    
    5,503
    
    
    
    18,973
    
    
    
    63,430
    
    
    
    1,443
    
    
    
    1,874,281
    
    
    
    
    
    
    
    1,979,217Net book value:At December 31, 2003
    
    
    103,183
    
    
    
    3,748
    
    
    
    22,705
    
    
    
    62,170
    
    
    
    6,982
    
    
    
    225,848
    
    
    
    2,020,724
    
    
    
    2,445,360At December 31, 2002
    
    
    105,622
    
    
    
    2,151
    
    
    
    28,565
    
    
    
    42,525
    
    
    
    4,888
    
    
    
    568,508
    
    
    
    1,266,614
    
    
    
    2,018,873
 F - 22




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  4.
    
    PROPERTY, PLANT AND EQUIPMENT (continued)Interest expense of HK$117 and HK$6,553 and other related cost of HK$2,125
and HK$1,162 incurred for obtaining the loans were capitalized and
included in satellite project progress payments during the years
ended December 31, 2002 and 2003, respectively.Impairment lossDuring the years ended December 31, 2002 and 2003, the Directors of the
Company conducted a review of the Groups property, plant and equipment
and determined that certain land and buildings and communication
satellites were impaired, respectively, due to the recoverable amount of
these assets is estimated to be less than their carrying amount.
Accordingly, an impairment loss of HK$5,218 in respect of land and
buildings and HK$129,098 in respect of communication satellites has been
recognized and charged to the consolidated statements of income for the
years ended December 31, 2002 and 2003, respectively.The analysis of net book value of land and buildings held by the Group is
as follows : 2002
    
    2003HK$
    
    HK$Medium-term leases outside Hong Kong
    
    
    2,718
    
    
    
    2,651Medium-term leases in Hong Kong
    
    
    102,904
    
    
    
    100,532105,622
    
    
    
    103,183
  5.
    
    INVESTMENT PROPERTYThe investment property was revalued at December 31, 2002 and 2003 at
HK$2,332 and HK$2,262, respectively, by Chesterton Petty Limited, an
independent professional property valuer, on an open market value basis by
reference to net rental income allowing for reversionary income potential.
This valuation gave rise to a revaluation deficit of HK$70 and HK$70
which has been charged to the consolidated statements of income for the
years ended December 31, 2002 and 2003, respectively.The investment property, which is situated in the PRC under a medium-term
lease, is rented out under an operating lease and the rental income earned
from the investment property for the years ended December 31, 2002 and
2003 was HK$257 and HK$245, respectively.6.
    
    INTEREST IN JOINTLY CONTROLLED ENTITIES 2002
    
    2003HK$
    
    HK$Share of net assets
    
    
    34,047
    
    
    
    12,935Amounts due from jointly controlled entities
    
    
    52,216
    
    
    
    69,84686,263
    
    
    
    82,781
 F - 23




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  6.
    
    INTEREST IN JOINTLY CONTROLLED ENTITIES (continued)Details of the jointly controlled entities of the Group as at 31
December 2003 are set out below: Proportion of ownership interestForm of
    
    Place of
    
    Particulars of
    
    Groups
    
    held bybusiness
    
    incorporation
    
    issued and paid
    
    effective
    
    the
    
    held by the
    
    PrincipalName of joint venture
    
    structure
    
    and operation
    
    up capital
    
    interest
    
    Company
    
    subsidiary
    
    activityAPT Satellite
Telecommunications
Limited (APT
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PropertyTelecom)
    
    Incorporated
    
    Hong Kong
    
    HK$153,791,900
    
    
    55
    %
    
    
    
    
    
    
    55
    %
    
    holdingBeijing Zhong Guang
Xin Da Data Broadcast
Technology Co.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision of dataLimited
    
    Joint venture,
    
    
    
    
    
    Registered capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    transmission(Zhong Guang Xin Da)
    
    Incorporated
    
    PRC
    
    RMB11,000,000
    
    
    12.6
    %
    
    
    
    
    
    
    35
    %
    
    services
  APT Telecom is considered as a jointly controlled entity as the Group and
the other shareholder of APT Telecom both have the right to appoint an
equal number of directors to the board of directors.APT Telecom completed the reorganization on October 10, 2003, whereby its
entire cable interests were sold to its shareholder at HK$5,560; while
the Fixed Carrier Licence and all its related business were sold to APT
Telecom Services Limited, a subsidiary of the Group at HK$6,800,
respectively. A surrender of service and facilities leasing agreement
between APT Telecom and APT Satellite Company Limited, the subsidiary of
the Group, was executed on the same date in respect of early termination
of services and facilities lease for a compensation of HK$13,500. The
summarized information of APT Telecom is set out in note 27 (j).The amounts due from jointly controlled entities are unsecured and
interest-free. Except for amount of HK$nil and HK$13,500 as at
December 31, 2002 and 2003, respectively, the amounts have no fixed
repayment terms. The Group has agreed not to demand for repayment
within the next twelve months from the balance sheet date and
accordingly, the amounts are classified as non-current.In 2002, the Group acquired an additional 20% interest in CTIA, previously
was a 40% owned jointly controlled entity, for a consideration of
HK$7,180. CTIA became a subsidiary and its assets, liabilities, and
results of operation have been consolidated after the acquisition.7.
    
    INTEREST IN AN ASSOCIATE 2002
    
    2003HK$
    
    HK$Share of net assets
    
    
    
    
    
    
    
  In 2002, the Group had a 35% interest in the issued ordinary shares
capital of APT Eurosportnews Distribution Limited, a company incorporated
in Hong Kong which is engaged in the provision of satellite television
broadcasting services. Owing to the change in business strategy of the F - 24




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  7.
    
    INTEREST IN AN ASSOCIATE (continued)associate such that APSTAR system could not be used by the associate in
establishing its business, the Group disposed of a 33% interest of the
associate on December 23, 2003.8.
    
    ACQUISITION OF A SUBSIDIARYOn April 11, 2002, the Group had completed the acquisition of an
additional 20% interest in CTIA, previously was a 40% owned jointly
controlled entity and a loan originally owed to a former shareholder by
CTIA amounting to HK$3,744, for cash consideration of HK$7,180.A summary of the estimated fair values of the assets acquired and
liabilities assumed as of the date of the acquisition and purchase
price allocation is as follows: HK$ASSETSCash and cash equivalents
    
    
    2,759Trade receivables
    
    
    848Prepayments, deposits and other receivables
    
    
    13,473Property, plant and equipment
    
    
    11,079Goodwill
    
    
    4,036Interest in a jointly controlled entity
    
    
    509Total assets acquired
    
    
    32,704LIABILITIESPayables and accrued charges
    
    
    3,135Amounts due to shareholders
    
    
    16,902Total liabilities assumed
    
    
    20,037Minority interests
    
    
    9,231Net assets acquired
    
    
    3,436Shareholders loan acquired
    
    
    3,744Purchase price
    
    
    7,180
 2002
    
    2003HK$
    
    HK$GoodwillCost:At January 1,
    
    
    
    
    
    
    4,036Addition through acquisition of a subsidiary
    
    
    4,036
    
    
    
    At December 31,
    
    
    4,036
    
    
    
    4,036Accumulated amortization and impairment:At January 1,
    
    
    
    
    
    
    4,036Charge for the year
    
    
    660
    
    
    
    Impairment loss
    
    
    3,376
    
    
    
    At December 31,
    
    
    4,036
    
    
    
    4,036Carrying amount:At December 31,
    
    
    
    
    
    
    
 The amortization period adopted for goodwill was 55 months. F - 25




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  8.
    
    ACQUISITION OF A SUBSIDIARY (continued)In 2002, the Directors of the Group reviewed the impairment of the
goodwill by comparing the Groups share of the recoverable amount of the
subsidiary concerned as a whole to the Groups share of the carrying value
of assets together with the goodwill. In view of the net liabilities
position of the subsidiary and based on the projected future operating
cash flow, it was expected that the remaining unamortized balance will not
be recovered and therefore, an impairment loss was recognized.9.
    
    BANK LOANS December 31, 2002
    
    December 31, 2003Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    averageinterest
    
    
    
    
    
    interestNote
    
    Interest rate
    
    rate
    
    
    
    
    
    rateHK$
    
    
    
    
    
    HK$Bank loans denominated in
HK Dollars:Payable semi-annually through
2003 (secured)
    
    
    a
    
    
    
    12.00
    %
    
    
    12.00
    %
    
    
    317,682
    
    
    
    12.00
    %
    
    
    Bank loans denominated
in US Dollars:Payable semi-annually with
the first instalment falling
due on six months
after the successful launch
and in orbit testing of
APSTAR V (secured)
    
    
    b
    
    
    LIBOR+0.73%
    
    
    
    
    
    
    
    
    
    
    1.97
    %
    
    
    351,000Payable semi-annually with
the first instalment falling
due on the earlier of
September 30, 2005 or six months
after the date of commencement
of commercial operations of
APSTAR VI (secured)
    
    
    b
    
    
    LIBOR+0.73%
    
    
    2.15
    %
    
    
    163,800
    
    
    
    1.97
    %
    
    
    351,000481,482
    
    
    
    
    
    
    
    702,000Current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (317,682
    )
    
    
    
    
    
    
    (17,550
    )Non-current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,800
    
    
    
    
    
    
    
    684,450
 Notes:  (a)
    
    At December 31, 2002 and 2003, certain of the Groups banking
facilities were secured by the Groups land and buildings with a net
book value of HK$5,120 and HK$5,004, respectively and bank deposit of
approximately HK$nil and HK$390, respectively.On December 29, 1994, the Companys subsidiaries entered into
an arrangement for the leasing of a communication satellite with the
Partnership, which became a wholly-owned subsidiary of the Company
in 1997. The bank loans in respect of the arrangement borrowed by
the Partnership were repaid at December 29, 2003. As at December
31, 2002 and 2003, the bank loans borrowed by the Partnership of
HK$317,682 and HK$nil, F - 26




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)



|9. |  | BANK LOANS (continued)
|-- |  | ----------------------



|    |  | respectively, included above were secured by the same amounts of
time deposits. The amounts of bank loans and time deposits are
separately presented in the balance sheet. The
corresponding interest income and interest expense amounted to
HK$50,511, HK$43,685 and HK$35,771 are set-off in the consolidated
statements of income for the years ended December 31, 2001, 2002 and
2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | In December 2002, the Group entered into a US$240 million
term loan facility (Loan Facility), which is secured by the
assignment of the construction, launching and related equipment
contracts relating to satellites under construction and their
related insurance claim proceeds, assignment of the proceeds of all
present and future lease agreements of their transponders of
satellites under construction, first fixed charge over certain bank
accounts which will hold receipts of the transponder income and the
termination payments under construction, launching and related
equipment contracts. In March 2004, the Group obtained a
confirmation letter from the lenders with regard to the launch delay
of APSTAR V. In accordance with the loan facility agreement entered
in December 2002, the availability period for the facility with
respect to APSTAR V expired at year-end 2003, and the aggregate loan
facility was reduced to US$165 million. Pursuant to the
confirmation letter, the loan repayment date of the first instalment
for the facility with respect to APSTAR V was extended to six months
after the successful launch and in orbit testing of the satellite.
In addition, certain financial covenants were amended. At December
31, 2002 and 2003, the assets under fixed charge are the satellites
under construction with carrying value of approximately HK$1,259,513
and HK$2,015,276, respectively and bank deposits of approximately
HK$4 and HK$111,473, respectively.
|   
|    |  | This loan facility agreement contains the following covenants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Restricted Distributions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Loan Facility provides that the Company may make annual
dividend payments only when Projected EBITDA (as defined in the
Loan Facility) plus Free Cash (as defined in the Loan Facility)
less capital expenditure for that year is less than (i) 130% of
Project Debt Service (as defined in the Loan Facility) of that
year before the release of certain pledged assets and (ii) 180% of
Project Debt Service after the release of certain pledged assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Financial Covenants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Loan Facility provides that certain earnings and cash flow
ratios of APT and the Group must be measured over various periods
during its term. APT and the Group undertakes to ensure that (i)
it maintains its aggregate Consolidated Net Worth (as defined in
the Loan Facility) at not less than US$230 million, (ii) the
aggregate of Consolidated Total Liabilities (as defined in the
Loan Facility) shall not exceed 120% of Consolidated Net Worth,
(iii) Consolidated EBITDA (as defined in the Loan Facility) shall
not be less than US$25 million, (iv) the ratio of the aggregate
outstanding principal under each tranche to the value of the
satellite financed by such tranche shall not exceed 50% and (v)
after the release of certain pledged assets, Borrower EBITDA (as
defined in the Loan Facility) shall be at least 180% of Debt
Service (as defined in the Loan Facility).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 27



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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  9.
    
    BANK LOANS (continued)  Block Account/Withdrawal ConditionsUnder the Loan Facility, (i) insurance proceeds obtained as a result
of Total or Material
Partial Loss (as defined in the Loan Facility) relating to APSTAR V
and APSTAR VI and (ii) Termination sum of related construction
contracts must be deposited in a designated account. The withdrawal
of deposited amounts in such accounts may only occur in accordance
with provision contained in the Loan Facility.OthersThe Loan Facility includes covenants customary for agreements of
this type, including restrictions on APT and the Companys ability
to incur indebtedness, certain ownership restrictions, restrictions
on affiliated transactions, covenants with respect of compliance
with laws, maintenance of licenses and permits required for the
Groups business and a requirement that all future transponder
utilization agreements be entered into on an arms-length basis.
Among others, APT undertakes to ensure that its ultimate holding
company, APT Satellite International Company Limited, directly owns
at least 50.01% of the voting rights in the Group.For the years presented, the Group complied with all the above
covenants.The aggregate annual repayments of bank loans as at the balance
sheet dates are as follows: 2002
    
    2003HK$
    
    HK$2003
    
    
    317,682
    
    
    
    2004
    
    
    
    
    
    
    17,5502005
    
    
    85,800
    
    
    
    35,1002006
    
    
    78,000
    
    
    
    61,4252007
    
    
    
    
    
    
    96,5252008
    
    
    
    
    
    
    117,585Thereafter
    
    
    
    
    
    
    373,815Total
    
    
    481,482
    
    
    
    702,000
  10.
    
    DEPOSITS RECEIVEDThe amount represents deposits received in respect of leasing of satellite
transponders.11.
    
    DEFERRED INCOMEDeferred income represents unrecognized revenue received in respect of
transponder leases under which customers have obtained the right to use
the transponder capacity for future periods. F - 28




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   12.
    
    PAYABLES AND ACCRUED CHARGES 2002
    
    2003HK$
    
    HK$Provision for employee benefits
    
    
    4,500
    
    
    
    4,880Other accrued expenses
    
    
    39,548
    
    
    
    45,35744,048
    
    
    
    50,237
  13.
    
    CONTINGENCIES AND COMMITMENTS  (a)
    
    Capital commitments:At December 31, 2002 and 2003, the Group had the following
outstanding capital commitments not provided for in the Groups
financial statements, mainly in respect of the procurement and
launch of new satellites, APSTAR V and APSTAR VI: 2002
    
    2003HK$
    
    HK$Contracted for
    
    
    1,095,129
    
    
    
    677,876Authorized but not contracted for
    
    
    868,997
    
    
    
    417,887Total commitments
    
    
    1,964,126
    
    
    
    1,095,763
  Also, the Groups share of the capital commitments of jointly
controlled entities not included in the above are as follows: 2002
    
    2003HK$
    
    HK$Contracted but not provided for in the
financial statements
    
    
    69,407
    
    
    
    20,896
  (b)
    
    Leasing arrangements - operating lease:  (i)
    
    The Group as lesseeAt the balance sheet date, the Group had commitments for future
minimum lease payments under non-cancellable operating leases
which fall due as follows: 2002
    
    2003HK$
    
    HK$Land and buildings:2003
    
    
    3,452
    
    
    
    2004
    
    
    670
    
    
    
    1,2292005
    
    
    
    
    
    
    4762006
    
    
    
    
    
    
    31Total
    
    
    4,122
    
    
    
    1,736
 F - 29




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 13. CONTINGENCIES AND COMMITMENTS (continued)  Operating lease rental expenses were HK$3,259, HK$3,597 and
HK$3,650 for the years ended December 31, 2001, 2002 and 2003,
respectively. 2002
    
    2003HK$
    
    HK$Satellite transponders:2003
    
    
    3,037
    
    
    
    2004
    
    
    2,863
    
    
    
    5,8572005
    
    
    1,702
    
    
    
    1,683Total
    
    
    7,602
    
    
    
    7,540
  Operating lease rental expenses were HK$33, HK$1,474 and
HK$3,228 for the years ended December 31, 2001, 2002 and 2003,
respectively.  (ii)
    
    The Group as lessorProperty rental income was HK$349, HK$448 and HK$452 for the
years ended December 31, 2001, 2002 and 2003, respectively. At
December 31, 2002 and 2003, certain properties with an
aggregate carrying value of HK$6,327 and HK$9,137,
respectively, were held for rental purpose. Depreciation
charges relating to these properties were HK$149, HK$149 and
HK$160 for the years ended December 31, 2001, 2002 and 2003,
respectively. At the balance sheet date, the Group had
contracted with tenants for the future minimum lease payments
under non-cancellable operating leases in respect of properties
which fall due as follows: 2002
    
    2003HK$
    
    HK$2003
    
    
    291
    
    
    
    2004
    
    
    129
    
    
    
    236Total
    
    
    420
    
    
    
    236
  Service income was HK$ nil, HK$ nil and HK$293 for the years
ended December 31, 2001, 2002 and 2003, respectively. At the
balance sheet date, the Group had contracted with customers for
the future minimum lease payments under non-cancellable
operating lease which fall due as follows: 2002
    
    2003HK$
    
    HK$2003
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    1,1832005
    
    
    
    
    
    
    618Total
    
    
    
    
    
    
    1,801
 F - 30




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 13. CONTINGENCIES AND COMMITMENTS (continued)  At the balance sheet date, the Group contracted with a jointly
controlled entity in respect of rented premises and facilities
management services under non-cancellable operating leases.
The future minimum lease payments are calculated based on the
terms of the respective operating lease agreement that have
been revised subsequently after December 31, 2002 and are fall
due as follows: 2002
    
    2003HK$
    
    HK$2003
    
    
    4,330
    
    
    
    2004
    
    
    4,110
    
    
    
    2005
    
    
    4,110
    
    
    
    2006
    
    
    4,110
    
    
    
    2007
    
    
    4,110
    
    
    
    Thereafter
    
    
    16,794
    
    
    
    Total
    
    
    37,564
    
    
    
    
  In addition, the Group had contracted with customers in respect
of transponder leasing, details of which are set out in note
14.  (c)
    (i)
    In the years before 1999, overseas withholding tax was
not charged in respect of the Groups transponder lease income
derived from the overseas lessees. From 1999, overseas
withholding tax has been charged on certain transponder lease
income of the Group and full provision for such withholding tax
for the years from 1999 onwards has been made in the financial
statements. The Directors of the Group are of the opinion that
the new tax rules should take effect from 1999 onwards and,
accordingly, no provision for the withholding tax in respect of
the years before 1999 is necessary. The Groups withholding tax
in respect of 1998 and before, calculated at the applicable rates
based on the relevant transponder lease income earned in the those
years, not provided for in the financial statements amounted to
approximately HK$75,864.(ii)
    The Hong Kong Profits Tax returns of a subsidiary of the
Company for the years of assessment 1999/2000 and 2000/2001 are
currently under dispute with the Hong Kong Inland Revenue
Department (IRD). This subsidiary recognized a gain of
HK$$389,744 in 1999 in relation to the transfer of substantially
all of the satellite transponder capacities of APSTAR IIR for
the rest of its useful life. This subsidiary has claimed the
gain as a non-taxable capital gain in its 1999/2000 Profits Tax
return. The non-taxable claim is under review by the IRD which
has proposed to treat the proceeds received as taxable income to
this subsidiary with a corresponding entitlement to statutory
depreciation allowance in respect of APSTAR IIR. F - 31




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 13. CONTINGENCIES AND COMMITMENTS (continued)  Having taken into consideration an independent professional
advice, the Company believes it has a reasonable likelihood of
success in defending its position that the gain derived from the
abovementioned transaction should be treated as non-taxable.
Accordingly, no provision for additional taxation is required. In
the event that the Company is unsuccessful in the capital gains
claim, the estimated tax exposure is HK$56,000. 14. TRANSPONDER LEASE AGREEMENTS  Communication satellites with an aggregate net book value of HK$568,508
and HK$225,848 as at December 31, 2002 and 2003, respectively, were held
for use, or intended for use, under transponder lease agreements.
Depreciation charges were HK$208,458, HK$215,570 and HK$213,562 for the
years ended December 31, 2001, 2002 and 2003, respectively. Generally,
these transponder lease agreements may be terminated by the customer by
giving not less than ninety days notice. Upon termination, the customer
is obligated to pay the Group specified liquidated damages based on the
contracts.At balance sheet date, future minimum transponder rental receivable (after
adjustment for termination and renegotiation subsequent to the year end)
under transponder lease agreements relating to these communication
satellites are as follows: 2002
    
    2003HK$
    
    HK$2003
    
    
    196,242
    
    
    
    2004
    
    
    83,370
    
    
    
    127,4122005
    
    
    49,516
    
    
    
    47,7942006
    
    
    11,094
    
    
    
    15,5752007
    
    
    
    
    
    
    4,443Total
    
    
    340,222
    
    
    
    195,224
 15. COMMON STOCK Issued andNumber
    
    fully paidof shares
    
    capital stock000
    
    HK$Ordinary shares of HK$0.10 eachBalance at January 1, 2002
    
    
    412,720
    
    
    
    41,272Repurchase of shares
    
    
    (185
    )
    
    
    (18
    )Balance at December 31, 2002 and at January 1, 2003
    
    
    412,535
    
    
    
    41,254New shares issued under the share option scheme
    
    
    730
    
    
    
    73Balance at December 31, 2003
    
    
    413,265
    
    
    
    41,327
 F - 32




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 15. COMMON STOCK (continued)  The Companys authorised share capital is 1,000,000,000 shares of
HK$0.10 each. There were no changes in the Companys authorised
share capital during either year.The shares repurchased by the Company have been cancelled upon
repurchase and accordingly the issued share capital of the Company
was reduced by the nominal value of these shares. The premium on
repurchase was charged against share premium. 16. ADDITIONAL PAID-IN CAPITAL/OTHER RESERVES  The additional paid-in capital of the Group arose as a result of the Group
reorganization in 1996 and represented the excess of the par value of
the shares of the subsidiaries which the Company acquired over the par value
of the Companys shares issued in consideration thereof.Other reserves represent Enterprise Expansion Fund and General Reserve
Fund set aside by a subsidiary in accordance with the relevant laws and
regulations of the PRC, which are not available for distribution. 17. RETIREMENT BENEFIT SCHEMES  The Group operates a Mandatory Provident Fund Scheme under the Hong Kong
Mandatory Provident Fund Schemes Ordinance for all qualified employees in
Hong Kong under the jurisdiction of the Hong Kong Employment Ordinance.
Under the scheme, the employer and its employees are each required to make
contributions to the scheme at 5% of the employees relevant income,
subject to a cap of monthly relevant income of HK$20. Contributions to the
scheme vest immediately. The assets of the scheme are held separately
from those of the Group, in funds under the control of trustees.The Group also joins the retirement insurance scheme operated by the local
government under the law of the PRC for all employees in the PRC. Under
the scheme, both the Group and employees are required to contribute 8% and
5% of the monthly salary, respectively, to the retirement insurance
scheme.The only obligation of the Group with respect to the Mandatory Provident
Fund Scheme and the retirement insurance scheme is to make the specific
contributions.The Groups contributions to retirement benefit schemes during the years
ended December 31, 2001, 2002 and 2003 amounted to HK$967, HK$1,266 and
HK$1,203, respectively. F - 33




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 18. INCOME TAXES IN THE STATEMENT OF INCOME  (a)
    
    The income taxes charged to the consolidated statements of income are
as follows: Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Current tax  Provision for Hong Kong Profits TaxTax for the year
    
    
    6,283
    
    
    
    7,744
    
    
    
    114,487Under-provision in respect of prior years
    
    
    1,388
    
    
    
    
    
    
    
    Current
tax - OverseasTax for the year
    
    
    18,127
    
    
    
    23,551
    
    
    
    20,247Under-provision in respect of prior years
    
    
    
    
    
    
    3,731
    
    
    
    25,798
    
    
    
    35,026
    
    
    
    134,734Deferred
tax - Hong KongOrigination and reversal of temporary differences
    
    
    149
    
    
    
    1,788
    
    
    
    (134,775
    )Effect of increase in tax rate on deferred tax
balance at January 1,
    
    
    
    
    
    
    
    
    
    
    11,762149
    
    
    
    1,788
    
    
    
    (123,013
    )25,947
    
    
    
    36,814
    
    
    
    11,721
  Hong Kong Profits Tax Provision for the years ended December 31, 2001 and
2002 were made by applying the tax rate of 16% to the estimated assessable
profits earned in Hong Kong.In March 2003, the Hong Kong government announced an increase in Profits
Tax rate applicable to the Groups operations in Hong Kong from 16% to
17.5%. This increase is taken into account in the preparation of the
Groups 2003 financial statements. Accordingly, the provision for Hong
Kong Profits Tax for 2003 is calculated at 17.5% of the estimated
assessable profits for the year. Taxation for overseas subsidiaries is
charged at the appropriate current rates of taxation ruling in the
relevant countries.Overseas tax includes the withholding tax paid or payable in respect of
Groups transponder lease income derived from the lessees which are
located outside Hong Kong. The provision for the years ended December 31,
2001, 2002 and 2003 were made by applying tax rates prevailing in
respective jurisdictions. F - 34




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 18. INCOME TAXES IN THE STATEMENT OF INCOME (continued)  (b)
    
    Reconciliation between tax expense and accounting (loss)/profit
at the applicable tax rates: Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Profit/(loss) before tax
    
    
    103,956
    
    
    
    58,861
    
    
    
    (213,920
    )Notional tax on profit/(loss) before tax, calculated
at the rates applicable to profits/(losses) in the
countries concerned
    
    
    16,633
    
    
    
    9,353
    
    
    
    (37,455
    )Overseas withholding tax
    
    
    18,052
    
    
    
    23,516
    
    
    
    20,237Tax effect of non-deductible expenses
    
    
    4,544
    
    
    
    9,592
    
    
    
    7,616Tax effect of non-taxable revenue
    
    
    (15,481
    )
    
    
    (11,992
    )
    
    
    (3,099
    )Tax effect of unused tax losses not recognized
    
    
    811
    
    
    
    2,614
    
    
    
    12,660Effect on opening deferred tax balances resulting
from an increase in tax rate during the year
    
    
    
    
    
    
    
    
    
    
    11,762Under-provision in prior years
    
    
    1,388
    
    
    
    3,731
    
    
    
    Actual tax expenses
    
    
    25,947
    
    
    
    36,814
    
    
    
    11,721
 19. INCOME TAXES IN THE BALANCE SHEET  (a)
    
    Income taxes payable in the balance sheet represents: 2002
    
    2003HK$
    
    HK$Provision for Hong Kong Profits Tax for the year
    
    
    7,744
    
    
    
    114,487Provisional Hong Kong Profits Tax paid
    
    
    (4,576
    )
    
    
    (6,352
    )Overseas tax payable
    
    
    17,992
    
    
    
    1,93821,160
    
    
    
    110,073Balance of overseas tax provision relating to prior years
    
    
    59,999
    
    
    
    78,059Balance of Hong Kong Profits tax provision relating to prior years
    
    
    120
    
    
    
    9981,279
    
    
    
    188,231
 F - 35




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 19. INCOME TAXES IN THE BALANCE SHEET (continued)  (b)  The components of deferred tax (assets)/liabilities recognized
in the consolidated balance sheet and the movements during the years
ended December 31, 2002 and 2003 are as follows: Depreciationallowances in
    
    Other
    
    
    
    
    
    Certainexcess of related
    
    temporary
    
    
    
    
    
    leasingdepreciation
    
    differences
    
    Losses
    
    arrangements
    
    TotalDeferred tax arising from:
    
    $000
    
    $000
    
    $000
    
    $000
    
    $000At January 1, 2002
    
    
    77,499
    
    
    
    162
    
    
    
    (64,873
    )
    
    
    110,887
    
    
    
    123,675Charged/(credited) to consolidated statements of income
    
    
    (10,862
    )
    
    
    (162
    )
    
    
    13,758
    
    
    
    (946
    )
    
    
    1,788At December 31, 2002
    
    
    66,637
    
    
    
    
    
    
    
    (51,115
    )
    
    
    109,941
    
    
    
    125,463At January 1, 2003
    
    
    66,637
    
    
    
    
    
    
    
    (51,115
    )
    
    
    109,941
    
    
    
    125,463Charged/(credited) to consolidated statements of income
    
    
    (29,051
    )
    
    
    (281
    )
    
    
    16,260
    
    
    
    (109,941
    )
    
    
    (123,013
    )At December 31, 2003
    
    
    37,586
    
    
    
    (281
    )
    
    
    (34,855
    )
    
    
    
    
    
    
    2,450
  In 1994, certain leasing arrangements provided the Group with an initial
cash inflow in return for being responsible for the future obligations to
make payments of taxation under the leasing arrangements. Any
differences between the initial benefit and the eventual tax liability
were provided for over the lives to the relevant leases. The arrangement
was completed in December 2003. 2002
    
    2003HK$
    
    HK$Net deferred tax assets recognized in the
consolidated balance sheet
    
    
    
    
    
    
    (9,416
    )Net deferred tax liabilities recognized in the
consolidated balance sheet
    
    
    125,463
    
    
    
    11,866125,463
    
    
    
    2,450
  (c)  Deferred tax assets not recognized:The Group has not recognized deferred tax assets in respect of tax losses
of HK$10,493 and HK$62,594 due to the unpredictability of future profit
streams as at December 31, 2002 and 2003, respectively. The tax losses do
not expire under current tax legislation. F - 36




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 20. MATERIAL RELATED PARTY TRANSACTIONS  (a)
    
    During the years ended December 31, 2001, 2002 and 2003, the
Group entered into the following transactions with related parties: Years ended December 31,Note
    
    2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Income from leasing of transponders
to certain shareholders of the Company
    
    
    (i
    )
    
    
    20,809
    
    
    
    34,551
    
    
    
    35,921Income from leasing of transponders
and providing telecommunication services
to a holding company and its subsidiaries
of a shareholder of the Company
    
    
    (i
    )
    
    
    19,500
    
    
    
    18,594
    
    
    
    19,741Income from leasing of transponders to
a jointly controlled entity
    
    
    (i
    )
    
    
    6,282
    
    
    
    8,245
    
    
    
    6,160Management fee income from a jointly
controlled entity
    
    
    (ii
    )
    
    
    1,500
    
    
    
    1,500
    
    
    
    1,121Management fee income from an
associate
    
    
    (iii
    )
    
    
    
    
    
    
    189
    
    
    
    65Facilities management services
income from a jointly controlled entity
    
    
    (iv
    )
    
    
    
    
    
    
    8,311
    
    
    
    3,386Interest income from jointly
controlled entities
    
    
    (v
    )
    
    
    2,820
    
    
    
    
    
    
    
    Interest income from a subsidiary
of a shareholder
    
    
    (vi
    )
    
    
    995
    
    
    
    
    
    
    
    Rental expenses in connection with
the leasing of transponders from a
shareholder of the Company
    
    
    (vii
    )

    
    
    3,510
    
    
    
    2,574
    
    
    
    Technical support services expenses
to a shareholder of the Company
    
    
    (viii
    )


    
    
    4,490
    
    
    
    
    
    
    
    75Management fee expenses to a holding
company of a shareholder of the Company
    
    
    (ix
   )

    
    
    1,802
    
    
    
    2,280
    
    
    
    2,280Land and buildings transferred to a
jointly controlled entity
    
    
    (x
    )
    
    
    13,657
    
    
    
    
    
    
    
    Payments in connection with
APSTAR V project to a shareholder
of the Company
- services fees
    
    
    (xi
    )
    
    
    1,560
    
    
    
    
    
    
    
    
 F - 37




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  20. MATERIAL RELATED PARTY TRANSACTIONS (continued)  (a)
    
    - continued Years ended December 31,Note
    
    2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Payments of service fee in connection
with the satellite project to a fellowsubsidiary of a shareholder of the Company
    
    (xi)
    
    
    140,166
    
    
    
    12,324
    
    
    
    87,604Compensation income from a jointly
controlled entity in connection with the
early termination of services and facilities
lease
    
    (xii)
    
    
    
    
    
    
    
    
    
    
    13,500Purchase of certain fixed assets from a
jointly controlled entity
    
    (xiii)
    
    
    
    
    
    
    
    
    
    
    6,800
  (b)
    
    At December 31, 2002 and 2003, the Group had the following
amounts included in the consolidated balance sheet in respect of
amounts owing by and to related parties: Deposits,prepayments
    
    
    
    Rentals receivedTrade
    
    and other
    
    Payables and
    
    in advance andreceivables
    
    receivables
    
    accrued charges
    
    deferred income2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Jointly controlled entities
    
    
    101
    
    
    
    
    
    
    
    52,215
    
    
    
    70,723
    
    
    
    1,590
    
    
    
    921
    
    
    
    
    
    
    
    Certain shareholders of the Company
    
    
    53
    
    
    
    7,496
    
    
    
    
    
    
    
    3,120
    
    
    
    4,665
    
    
    
    3,750
    
    
    
    12,638
    
    
    
    3,524Holding company and its subsidiaries
of a shareholder of the Company
    
    
    
    
    
    
    2,518
    
    
    
    
    
    
    
    
    
    
    
    31,862
    
    
    
    31,910
    
    
    
    1,113
    
    
    
    2,907Shareholder of a jointly controlled entity
    
    
    
    
    
    
    
    
    
    
    4,673
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  During the year ended December 31, 2003, a shareholder of the
Company advanced RMB3,300, equivalent to US$400, to the Group. In
return the Group advanced US$400 to that shareholder. The items of
such advance are interest-free and repayable within one year.(c)
    
    In addition, at December 31, 2002 and 2003, the Group had an
outstanding commitment to pay launch service fees to a fellow
subsidiary of a shareholder of the Company amounting to HK$317,850
and HK$230,246, respectively.Notes:(i)
    
    The terms and conditions of these transponder lease agreements
are similar to those contracted with other customers of the Group.(ii)
    
    Management fee income arose from a reimbursement of cost of
service provided to a jointly controlled entity under the agreement.(iii)
    
    Management fee income from an associate arose from the
reimbursement of expenses paid on behalf of an associate. F - 38




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 20. MATERIAL RELATED PARTY TRANSACTIONS (continued)  Notes 
continued(iv)
    
    The Directors consider that the facilities management service
income is charged according to the terms and conditions similar to
those offered to other customers.(v)
    
    The interest income from a jointly controlled entity arose from
loans made to the entity.(vi)
    
    The interest income was calculated at 4.25% per annum on the
outstanding principal.(vii)
    
    The Directors consider that the terms and conditions of these
transponders lease agreements were similar to those offered to other
customers by the lessor.(viii)
    
    The Directors consider that the technical support services expenses
were charged according to prices and conditions similar to those
offered to other customers by the service provider.(ix)
    
    Management fee expenses arose from a reimbursement of cost of
services provided from the holding company of a shareholder of the
Company.(x)
    
    The land and buildings were transferred at the then net book
value at the date of transfer.(xi)
    
    The Directors consider that the service fee is charged
according to prices and conditions similar to those offered to other
customers by the launch service provider.(xii)
    
    As a result of the reorganization of a jointly controlled
entity, the jointly controlled entity early terminated the services
and facilities lease agreement and the Group received a compensation
for the early termination of the agreement. The Directors consider
that the compensation is charged according to prices and conditions
similar to those offered to other customers by the termination.(xiii)
    
    As a result of the reorganization of a jointly controlled entity,
certain fixed assets are purchased from the jointly controlled
entity. The Directors consider that the purchase consideration is
arrived after arms length negotiation with reference to the
valuation conducted by an independent valuation company. F - 39




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 21. SUPPLEMENTAL INFORMATION  (a)
    
    Other operating revenuesOther operating revenues include the following: Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Compensation income for early termination
of lease agreements in respect of
satellite transponders
    
    
    364
    
    
    
    53
    
    
    
    550Compensation income from a jointly
controlled entity for early termination of
services and facilities lease
    
    
    
    
    
    
    
    
    
    
    13,500Reversal of provision on regulatory
matters previously recognized in the
life lease of transponders of APSTAR
IIR (note)
    
    
    
    
    
    
    47,212
    
    
    
    Reversal of allowance for doubtful
receivables
    
    
    5,182
    
    
    
    130
    
    
    
    
  Note : Under the terms of an agreement made with an independent
third party dated August 18, 1999 in relation to the leasing of
substantially all of the transponder capacities of APSTAR IIR, the
directors of the Group agreed to bear the cost of retrofitting the
dishes of affected customers of APSTAR IIR as a result of increase
in dish size. Provision was therefore made for the best estimate of
the potential cash outflow under the agreement based on the
estimated cost of retrofitting the dishes. In 2000, as the number
of transponders that had been identified as probable cause of the
interference decreased, an amount of HK$45,788 related to this
provision was reversed and the provision was HK$47,212 at December
31, 2000 and 2001.In 2002, the directors of the Group reassessed the probability of
the need to increase the dish size of affected customers of APSTAR
IIR. Based on information from the lessee of the transponders in
APSTAR IIR (lessee) received in December 2002, the transponders
are no longer used in providing FM/TV carrier services and this
greatly alleviated the probability of the need to retrofit the
dishes. The lessee and potentially affected customers have not
requested the Group to retrofit the dishes as of December 31, 2002.
In addition, the lessee is not aware of any interference caused by
APSTAR IIR which requires the Group to bear the cost of retrofitting
the dishes of affected customers. The lessee had also not requested
the Group to reimburse the lessee for such amount, to the extent
they undertake the retrofitting efforts under APSTAR IIR customer
contracts with such affected customers as a result of increase in
dish size. Accordingly, the directors of the Group are of the
opinion that the probability of the need to retrofit the dishes is
remote and hence, no provision on regulatory matters is considered
necessary. An amount of HK$47,212 has been reversed to income in
2002. F - 40




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  21. SUPPLEMENTAL INFORMATION (continued)  (b)
    
    Borrowing costs Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Interest on bank borrowings wholly
repayable within five years
    
    
    5,644
    
    
    
    117
    
    
    
    6,553Other borrowing costs
    
    
    
    
    
    
    2,125
    
    
    
    1,162Less: Amount capitalized into construction
in progress*
    
    
    
    
    
    
    (2,242
    )
    
    
    (7,715
    )5,644
    
    
    
    
    
    
    
    
  * The borrowing costs have been capitalized at a rate of 1.97% per
annum (2002 : 2.15%).  Borrowing costs capitalized during the years ended December 31, 2002
and 2003 arose on bank loans borrowed for the purpose of
financing the construction and launching of satellites.  (c)
    
    Staff costs Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Staff costs (including directors emoluments)Pension contributions
    
    
    1,219
    
    
    
    1,294
    
    
    
    1,370Less: Forfeited contributions
    
    
    (252
    )
    
    
    (28
    )
    
    
    (167
    )Net pension contributions
    
    
    967
    
    
    
    1,266
    
    
    
    1,203Salaries, wages and other benefits
    
    
    38,444
    
    
    
    35,900
    
    
    
    36,76439,411
    
    
    
    37,166
    
    
    
    37,967Less: Capitalized into construction in progress
    
    
    
    
    
    
    (1,108
    )
    
    
    (1,326
    )39,411
    
    
    
    36,058
    
    
    
    36,641
  (d)
    
    Profit/(loss) from operations Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Profit/(loss) from operations has been arrived
at after charging:Amortization of goodwill (included in
administrative expenses)
    
    
    
    
    
    
    660
    
    
    
    Bad debt written off
    
    
    
    
    
    
    107
    
    
    
    153Depreciation
    
    
    217,021
    
    
    
    233,971
    
    
    
    236,322Exchange loss
    
    
    312
    
    
    
    16
    
    
    
    Loss on disposal of property, plant and
equipment
    
    
    37
    
    
    
    30
    
    
    
    Allowance for doubtful receivables
    
    
    
    
    
    
    5,207
    
    
    
    8,402
 F - 41




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 21. SUPPLEMENTAL INFORMATION (continued)  (e)
    
    Valuation and qualifying accounts Years ended December 31,2001
    
    2002
    
    2003Allowance for doubtful receivables
    
    HK$
    
    HK$
    
    HK$Balance at beginning of the year
    
    
    25,088
    
    
    
    12,305
    
    
    
    6,037Charged to cost and expenses
    
    
    
    
    
    
    5,337
    
    
    
    8,402Reductions
    
    
    (5,182
    )
    
    
    (130
    )
    
    
    Written off
    
    
    (7,601
    )
    
    
    (11,475
    )
    
    
    Balance at end of the year
    
    
    12,305
    
    
    
    6,037
    
    
    
    14,439
 22. CHANGE IN ACCOUNTING POLICY  In prior years, deferred tax liabilities were provided using the
liability method in respect of the taxation effect arising from all
material timing differences between the accounting and tax treatment of
income and expenditure, which were expected with reasonable probability
to crystallize in the foreseeable future. Deferred tax assets were not
recognized unless their realization was assured beyond reasonable
doubt. With effect from January 1, 2003, in order to comply with
Statement of Standard Accounting Practice 12 (revised) issued by the
Hong Kong Society of Accountants, the Group adopted a new policy for
deferred tax as set out in note 3(j). The effect of this change in
accounting policy is not material and, therefore, the opening balances
have not been restated. F - 42




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 23. SEGMENTAL REPORTING  The Group only has one business segment, namely the maintenance,
operation and leasing of satellite telecommunication systems.The Groups geographical segment analysis of revenue and contribution
to profit/(loss) from operations by location of customers, is as
follows: 2001
    
    2002
    
    2003Contribution
    
    
    
    
    
    Contribution to
    
    
    
    
    
    Contributionto profit from
    
    
    
    
    
    profit from
    
    
    
    
    
    to loss fromRevenue
    
    operations
    
    Revenue
    
    operations
    
    Revenue
    
    operationsHK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Hong Kong
    
    
    40,459
    
    
    
    11,694
    
    
    
    47,178
    
    
    
    10,164
    
    
    
    25,082
    
    
    
    1,819Other regions in
the PRC
    
    
    270,009
    
    
    
    78,041
    
    
    
    254,901
    
    
    
    54,914
    
    
    
    225,786
    
    
    
    16,377Others
    
    
    63,690
    
    
    
    18,408
    
    
    
    49,346
    
    
    
    10,630
    
    
    
    51,373
    
    
    
    3,726374,158
    
    
    
    108,143
    
    
    
    351,425
    
    
    
    75,708
    
    
    
    302,241
    
    
    
    21,922Other operating
income
    
    
    
    
    
    
    78,491
    
    
    
    
    
    
    
    72,327
    
    
    
    
    
    
    
    33,051Impairment loss on
property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,218
    )
    
    
    
    
    
    
    (129,098
    )Corporate expenses
    
    
    
    
    
    
    (71,967
    )
    
    
    
    
    
    
    (73,332
    )
    
    
    
    
    
    
    (74,962
    )Profit/(loss) from
operations
    
    
    
    
    
    
    114,667
    
    
    
    
    
    
    
    69,485
    
    
    
    
    
    
    
    (149,087
    )
  The Groups operating assets consist primarily of its satellites which are
used, or are intended for use, for transmission to multiple countries but
not located at a specific geographical area. Accordingly, no segment
analysis of the carrying amount of segment assets by location of assets is
presented. F - 43




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 23. SEGMENTAL REPORTING (continued)  The Groups analysis of the total carrying amount of segment assets and
segment liabilities by location of customers is as follows: 2002
    
    2003Segment
    
    
    
    
    
    SegmentSegment assets
    
    liabilities
    
    Segment assets
    
    liabilitiesHK$
    
    HK$
    
    HK$
    
    HK$Hong Kong
    
    
    206
    
    
    
    17,970
    
    
    
    3,548
    
    
    
    6,655Other regions in the PRC
    
    
    42,077
    
    
    
    69,935
    
    
    
    75,673
    
    
    
    49,117Others
    
    
    934
    
    
    
    38,347
    
    
    
    8,718
    
    
    
    35,46643,217
    
    
    
    126,252
    
    
    
    87,939
    
    
    
    91,238Corporate assets/liabilities
    
    
    3,296,152
    
    
    
    737,968
    
    
    
    3,217,630
    
    
    
    955,3863,339,369
    
    
    
    864,220
    
    
    
    3,305,569
    
    
    
    1,046,624
 24. SHARE OPTION PLAN  At the annual general meeting on May 22, 2001, the Company adopted a share
option scheme (Scheme 2001) and granted options to its employees on June
19, 2001. On May 22, 2002, the Company adopted a new share option scheme
(Scheme 2002) at its 2002 annual general meeting. Thereafter, no future
options can be granted under the Scheme 2001. The options granted on June
19, 2001 shall continue to be valid until their expiry.The total number of shares which may be issued upon exercise of all
options to be granted under Scheme 2001 and Scheme 2002 shall not in
aggregate exceed 10% of the total number of shares of the Company in issue
on the adoption date of the Scheme 2002 (i.e. 412,720,000 shares). As at
the date of report, 413,265,000 shares of the Company were in issue.Under Scheme 2002, the total number of shares to be issued upon exercise
of the options granted to each eligible person (including both exercised
and outstanding options) in any 12-month period shall not exceed 1% of the
total number of shares in issue. The exercise price (subscription price)
shall be such price as determined by the Board of Directors in its
absolute discretion at the time of the making of the offer but in any case
the exercise price shall not be lower than the highest of (i) the closing
price of the shares as stated in The Stock Exchange of Hong Kong Limiteds
(the Exchanges) daily quotations sheet on the date of the offer of
grant, which must be a trading day; (ii) the average closing
price of the shares as stated in the Exchanges daily quotations sheets for the five
trading days immediately preceding the date of the offer of grant; and
(iii) the nominal value of a share.During the year, no options were granted under the Scheme 2002. F - 44




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 24. SHARE OPTION PLAN (continued)  Under the Scheme 2001, the maximum entitlement of each eligible
person was that the total number of shares issued or issuable under
all options granted to such eligible person (including both exercised
and outstanding options) upon such grant being made shall not exceed
25% of the total number of the shares for the time being issued and
issuable under the Scheme 2001. In addition, the subscription price
was determined by the Board of Directors on a case-by-case basis and
would not be less than the nominal value of the shares nor at a
discount of more than 20% below the average closing price of the shares as stated in the Exchanges daily quotation sheets on the five
dealing days immediately preceding the date on which the invitation
to apply for an option under Scheme 2001.  (a)
    Movements in share optionsThe particulars of the share options granted under the Scheme 2001
outstanding during the years ended December 31, 2002 and 2003 are as
follows: Number ofshare optionsAt January 1, 2002
    
    
    13,450,000Cancelled during the year
    
    
    (40,000
    )At December 31, 2002 and January 1, 2003
    
    
    13,410,000Cancelled during the year
    
    
    (3,010,000
    )Exercised
    
    
    (730,000
    )At December 31, 2003
    
    
    9,670,000
  The above granted options have an exercise price of HK$2.765 per
share and are exercisable within the period from May 22, 2003 to May
21, 2011. At December 31, 2003, the weighted average remaining
contractual life of outstanding options was 7.39 years.The financial impact of share options granted is not recorded
in the consolidated financial statements until such time as the
options are exercised, and no charge is recognized in the
consolidated statements of income in respect of the value of options
granted in the year. Upon the exercise of the share options, the
resulting shares issued are recorded by the Company as additional
share capital at the nominal value of the shares, and the excess of
the exercise price per share over the nominal value of the shares is
recorded by the Company in the share premium account. Options which
lapse or are cancelled prior to their exercise date are deleted from
the register of outstanding options. F - 45




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 24.
    
    SHARE OPTION PLAN (continued)   (b)  Details of share options exercised during the year ended
December 31, 2003: Market value pershare at exerciseExercise period
    
    Exercise price
    
    date
    
    Proceeds received
    
    NumberJuly 16, 2003 to
    
    
    
    Range from HK$2.944September 8, 2003
    
    HK$2.765
    
    to HK$3.782
    
    HK$2,019
    
    
    730,000
  25.
    
    FAIR VALUE OF FINANCIAL INSTRUMENTSThe carrying amounts of the Groups financial instruments as at December
31, 2002, approximate fair value with the exception of the fixed rate time
deposits and bank loans of HK$317,682. The fixed rate time deposits and
bank loans of an equivalent amount bear same interest rate which is higher
than the market interest rate and their fair value as at December 31, 2002
are estimated to be HK$349,487 and HK$349,102, respectively. The fixed
rate time deposits and bank loans were fully repaid at December 29, 2003.26.
    
    CONCENTRATION AND OTHER RISKSFinancial instruments that potentially subject the Group significant
concentrations of credit risk consist principally of cash investments and
trade receivables.The Group maintains cash and cash equivalents with various financial
institutions. These financial institutions are located both in Hong Kong
and overseas. The Company policy is designed to limit exposure to any one
institution.Two customers accounted for 29% and 10% each of the total transponder
leasing revenues in the year ended December 31, 2001. Two customers
accounted for 23% and 13% each of the total transponder leasing revenues
in the year ended December 31, 2002. Two customers accounted for 13% and
12% each of the total transponder leasing revenues in the year ended
December 31, 2003.Revenues from the Groups five largest customers for the years ended
December 31, 2001, 2002 and 2003 were HK$207,477, HK$198,920 and
HK$119,188 (US$15,281), respectively, which represented 55.5%, 56.6% and39.4%, respectively, of total revenues. Revenues from the Groups largest
customer are derived from PRC and represented 29.0%, 22.9% and 12.6%,
respectively, of total revenues during the year ended December 31, 2001,
2002 and 2003.Substantially all of the Groups trade receivables are due from prominent
broadcasters and telecommunication services providers. Furthermore, as of
December 31, 2002 and 2003, the three largest trade receivables amounted
to HK$16,031 and HK$32,878, respectively. The Group performs periodic
credit evaluations of its customers financial condition and generally
does not require collateral because it usually receives trade deposits
which represent a quarter of rental payable to the Group. The transponder
lease agreements are subject to termination by the Group if lease payments
are not made on a timely basis. F - 46




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  26.
    
    CONCENTRATION AND OTHER RISKS (continued)Technology in the satellite broadcasting and telecommunication industry is
in a rapid and continuing state of change, with technological developments
and innovations constantly emerging. Any technological lag in the designs
of the existing satellites could result in lower rental fees after the
expiration of the initial rental terms for the leased transponders.The Groups launch insurance is unlikely to fully reimburse the Group for
its expenditures with respect to launching a replacement satellite, with
uninsured expenses comprising legal and other professional fees, interest
and certain other expenses. The Groups in-orbit insurance covers only
the book value, rather than the replacement cost, of a satellite.
Further, the Companys insurance coverage does not compensate the Group
for business interruption and similar losses (including, among other
things, loss of market share, loss of revenue and incidental and
consequential damages).24.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP  (a)
    
    Summary of Significant Differences Between HK GAAP and US GAAPThe Groups accounting policies conform with generally accepted
accounting principles in Hong Kong (HK GAAP) which differ in
certain material respects from those applicable generally accepted
accounting principles in the United States of America (US GAAP).The significant differences relate principally to the following
items and the adjustments considered necessary to present the net
profit/(loss) and shareholders equity in accordance with US GAAP
are set out below.  (i)
    
    Revenue recognitionCertain of the Groups transponder lease agreements for
transponder capacity contain pre-determined escalations over
the terms of the agreements. Prior to 2002, revenue was
recognized on an accrual basis under the contract terms under
HK GAAP. For US GAAP, revenue is recognized on a straight-line
basis over the relevant lease term. Effective from January 1,
2002, revenue is recognized on a straight-line basis over the
relevant lease terms under HK GAAP. As such, US GAAP
adjustments were made in 2002 to reverse the accumulated
difference as at December 31, 2001 between revenue recognized
on an accrual basis and on a straight-line basis under HK GAAP,
and its corresponding tax effect. F - 47




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (ii)
    
    Investment properties revaluation and depreciationUnder HK GAAP, investment properties are stated at
appraised values and are not depreciated. Changes in the value
of investment properties are dealt with as movements in the
investment properties revaluation reserve in the shareholders
equity. If the total of this reserve is insufficient to cover
a deficit, on a portfolio basis, the excess of the deficit is
charged to the consolidated statements of income. Under US
GAAP, investment properties are stated at cost and depreciated
over the lease terms. Accordingly, the investment properties
of the Group and its jointly controlled entity, which are
stated at open market value under HKGAAP, have been restated
at historical cost less accumulated depreciation.Depreciation has been based on the historical cost of the
properties held by the Group and its jointly controlled entity
and the useful lives of such properties which range from 44 to
50 years. The gross historical cost of properties held by the
Group and a jointly controlled entity subject to depreciation
under US GAAP which are not depreciated under HK GAAP at
December 31, 2003 amounted to HK$3,821 (2002: HK$3,821) and
HK$140,000 (2002: HK$nil), respectively. The adjustments
represent the effects of reversal of revaluation and the
depreciation charged under US GAAP.(iii)
    
    Share optionsUnder HK GAAP, no compensation expense is recognized.Under US GAAP, in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees (APB
25), compensation expense is recognized for options granted to
employees over the vesting period of the options concerned to
the extent that the fair value of the equity instrument exceeds
the exercise price of the option granted at a defined
measurement date, which is generally the grant date unless
certain conditions apply. Under Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, an entity may alternatively compute
compensation expense based on the fair value of the options
granted. The Company has adopted APB 25 for purpose of
accounting for its fixed plan stock options issued to
employees.When the eligible employees have resigned and
their corresponding share options will be cancelled,
adjustment is made to reverse any previous years
recognized compensation expenses of those employees under
US GAAP. F - 48




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (iv)
    
    GoodwillUnder HK GAAP, the Group adopted the acquisition method
to account for the purchase of subsidiaries from the holding
company. Under the acquisition method, the acquired results
are included in the results of operations from the date of
their acquisition. For acquisitions before January 1, 2001,
goodwill arising on the acquisition, being the excess of the
cost over the fair value of the Groups share of the separable
net assets acquired, is eliminated against reserves
immediately on acquisition. For acquisitions on or after
January 1, 2001, goodwill arising on the acquisition is
amortized to the consolidated statements of income on a
straight-line basis over its estimated useful life.Under US GAAP effective January 1, 2002, SFAS No. 142,
Goodwill and Other Intangible Assets, requires that goodwill
and other indefinite life assets acquired in a business
combination no longer be amortized, instead, these assets must
be tested for impairment at least annually. The excess fair
value of net assets acquired over the purchase price (negative
goodwill) shall be allocated as a pro rata reduction of the
amounts that otherwise would have been assigned to all of
theacquired assets except financial assets other than
investments accounted for by the equity method, assets to be
disposed of by sale, deferred tax assets, prepaid assets
relating to pension or other postretirement benefit plans, and
any other current assets. If any excess remains after reducing
to zero the amounts that otherwise would have been assigned to
those assets, that remaining excess shall be recognized as an
extraordinary gain. The extraordinary gain shall be recognized
in the period in which the business combination is completed
unless the acquisition involves contingent consideration that,
if paid or issued, would be recognized as an additional
element of cost of the acquired entity. F - 49




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (b)
    
    Net income/(loss)The effect on net income/(loss) of significant differences between
HK GAAP and US GAAP is as follows: Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Net income/(loss) as reported
under HK GAAP
    
    
    78,009
    
    
    
    24,435
    
    
    
    (224,718
    )Adjustments:Recognition of revenue
    
    
    (1,476
    )
    
    
    (3,697
    )
    
    
    Investment properties
    
    
    (66
    )
    
    
    (13
    )
    
    
    (888
    )Tax effect of reconciling items
    
    
    236
    
    
    
    591
    
    
    
    Compensation expense of share options
granted
    
    
    (4,074
    )
    
    
    (7,553
    )
    
    
    344Approximate net income/(loss) as reported
under US GAAP
    
    
    72,629
    
    
    
    13,763
    
    
    
    (225,262
    )Weighted average shares, outstanding- basic
    
    
    412,773,000
    
    
    
    412,675,000
    
    
    
    412,892,000- diluted
    
    
    413,890,000
    
    
    
    412,675,000
    
    
    
    412,892,000Earnings/(loss) per share under US GAAP- basic
    
    
    18 cents
    
    
    
    3 cents
    
    
    
    (55 cents)- diluted
    
    
    18 cents
    
    
    
    3 cents
    
    
    
    (55 cents)
  Options to purchase 13,410,000 shares and 9,670,000 shares of common
stock at HK$2.765 per share were outstanding during the year 2002
and 2003, respectively, but were not included in the computation of
diluted EPS because the options exercise price was greater than the
average market price of the common shares for the period. The
options, which expire on May 21, 2011, were still outstanding at the
end of year 2003.Under US GAAP effective from January 1, 2002, goodwill
is no longer amortized but is subject to annual impairment
review. Hence, amortization of goodwill of approximately
HK$660 which has been provided under HK GAAP during 2002 was
reversed under US GAAP. However, as a result of the Groups
impairment assessment, a provision was recorded to reduce
goodwill to its estimated fair value for both HK GAAP and US
GAAP. The impairment provision recorded under US GAAP was
HK$660 higher than that recorded under HK GAAP. No goodwill
was recorded under HK GAAP or US GAAP for the years ended
December 31, 2002 and 2003. F - 50




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (c)
    
    Shareholders equityThe effect on shareholders equity of significant differences
between HK GAAP and US GAAP is as follows: December 31,2002
    
    2003HK$
    
    HK$Shareholders equity as reported under
HK GAAP
    
    
    2,468,311
    
    
    
    2,253,030Adjustments:Accumulated depreciation on investment
properties
    
    
    368
    
    
    
    (520
    )Revaluation reserve
    
    
    
    
    
    
    (7,700
    )Shareholders equity as reported under
US GAAP
    
    
    2,468,679
    
    
    
    2,244,810
 The changes in shareholders equity in accordance with US GAAP is as follows: Capital
    
    Additional
    
    Other
    
    Retainedstock
    
    paid-in capital
    
    reserves
    
    earningsHK$
    
    HK$
    
    HK$
    
    HK$Balance at January 1, 2002
    
    
    41,272
    
    
    
    1,798,883
    
    
    
    64
    
    
    
    627,905Repurchase of shares
    
    
    (18
    )
    
    
    (289
    )
    
    
    
    
    
    
    Translation differences not recognized in
the consolidated statements of income
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,636
    )Compensation expense of share
options granted
    
    
    
    
    
    
    7,553
    
    
    
    
    
    
    
    Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (30
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,763Balance at December 31, 2002
    
    
    41,254
    
    
    
    1,806,147
    
    
    
    276
    
    
    
    621,002New shares issued under the share
option scheme
    
    
    73
    
    
    
    1,946
    
    
    
    
    
    
    
    Translation differences not recognized in
the consolidated statements of income
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    Compensation expense of share
options granted
    
    
    
    
    
    
    (344
    )
    
    
    
    
    
    
    Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    (8
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225,262
    )Balance at December 31, 2003
    
    
    41,327
    
    
    
    1,807,749
    
    
    
    2
    
    
    
    395,732
 F - 51




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (d)
    
    Comprehensive income under US GAAPFor the year ended December 31, 2001, comprehensive income equalled
net income.The comprehensive income for the year ended December 31, 2002 was
HK$13,945, comprised of net income of HK$13,763 and translation gain
of HK$182.The comprehensive loss for the year ended December 31, 2003 was
HK$225,544, comprised of net loss of HK$225,262 and translation loss
of HK$282.(e)
    
    Consolidated statements of income and consolidated balance
sheets under US GAAPThe compensations received from cancellation of transponder lease
agreements and from early termination of services and facilities
lease are classified as revenues under US GAAP. In addition, the
reversals of the allowance for doubtful receivables and provision
for regulatory matters, and the impairment loss on goodwill and
property, plant and equipment are presented as part of costs and
expenses under US GAAP.Under US GAAP, the interest expense on the loan borrowed by the
Partnership and the matching interest income on the deposit by a
fellow subsidiary are not offset.The consolidated statements of income under US GAAP is
as follows: Years ended December 31,2001
    
    2002
    
    2003
    
    2003HK$
    
    HK$
    
    HK$
    
    US$Total revenues
    
    
    373,046
    
    
    
    347,781
    
    
    
    316,291
    
    
    
    40,552Total costs and expenses
    
    
    (342,122
    )
    
    
    (314,621
    )
    
    
    (484,036
    )
    
    
    (62,056
    )Income/(loss) from operations
    
    
    30,924
    
    
    
    33,160
    
    
    
    (167,745
    )
    
    
    (21,504
    )Other income/(expenses)Interest expense
    
    
    (56,155
    )
    
    
    (43,685
    )
    
    
    (35,771
    )
    
    
    (4,586
    )Interest income
    
    
    120,732
    
    
    
    65,874
    
    
    
    42,882
    
    
    
    5,498Others-net
    
    
    7,906
    
    
    
    2,873
    
    
    
    11,878
    
    
    
    1,522Share of losses of jointly controlled
entities
    
    
    (5,067
    )
    
    
    (10,624
    )
    
    
    (65,708
    )
    
    
    (8,424
    )Income/(loss) before income taxes and
minority interests
    
    
    98,340
    
    
    
    47,598
    
    
    
    (214,464
    )
    
    
    (27,494
    )Provision for income taxes
    
    
    (25,711
    )
    
    
    (36,223
    )
    
    
    (11,721
    )
    
    
    (1,503
    )Minority interests
    
    
    
    
    
    
    2,388
    
    
    
    923
    
    
    
    118Net income/(loss)
    
    
    72,629
    
    
    
    13,763
    
    
    
    (225,262
    )
    
    
    (28,879
    )
  Under US GAAP, the Companys consolidated total assets
were HK$3,339,737 and HK$3,297,349 at December 31, 2002 and
2003, respectively, and consolidated total liabilities were
HK$864,220 and HK$1,046,624 at December 31, 2002 and 2003,
respectively. F - 52




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (f)
    
    Consolidated statements of cash flowA reconciliation of the major captions in the consolidated
statements of cash flow under HK GAAP and US GAAP is as follows: Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Net cash from/(used in) operating activities:Amount under HK GAAP
    
    
    281,406
    
    
    
    162,763
    
    
    
    91,292US GAAP adjustment - interest received
    
    
    87,262
    
    
    
    20,254
    
    
    
    9,279- interest paid
    
    
    
    
    
    
    
    
    
    
    (3,681
    )Amount under US GAAP
    
    
    368,668
    
    
    
    183,017
    
    
    
    96,890Net cash used in investing activities:Amount under HK GAAP
    
    
    (126,494
    )
    
    
    (1,037,192
    )
    
    
    (589,259
    )US GAAP adjustment - interest received
    
    
    (87,262
    )
    
    
    (20,254
    )
    
    
    (9,279
    )Amount under US GAAP
    
    
    (213,756
    )
    
    
    (1,057,446
    )
    
    
    (598,538
    )Net cash (used in)/from financing activities:Amount under HK GAAP
    
    
    (239,832
    )
    
    
    80,871
    
    
    
    218,856US GAAP adjustment - interest paid
    
    
    
    
    
    
    
    
    
    
    3,681Amount under US GAAP
    
    
    (239,832
    )
    
    
    80,871
    
    
    
    222,537
 F - 53




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (g)
    
    Income taxesA reconciliation of the expected income taxes with the actual income
taxes expense under US GAAP is as follows: Year ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Profit/(loss) before tax
    
    
    98,340
    
    
    
    47,598
    
    
    
    (214,464
    )Notional tax on profit/(loss) before tax,
calculated at the rates applicable to profits/(losses) in the countries concerned
    
    
    15,734
    
    
    
    7,551
    
    
    
    (37,550
    )Overseas withholding tax
    
    
    18,052
    
    
    
    23,516
    
    
    
    20,237Tax effect of non-deductible expenses
    
    
    5,207
    
    
    
    10,803
    
    
    
    7,618Tax effect of non-taxable revenue
    
    
    (15,481
    )
    
    
    (11,992
    )
    
    
    (3,159
    )Tax effect of unused tax losses not recognized
    
    
    811
    
    
    
    2,614
    
    
    
    12,813Effect on opening deferred tax balances resulting
from an increase in tax rate during the year
    
    
    
    
    
    
    
    
    
    
    11,762Under-provision in prior years
    
    
    1,388
    
    
    
    3,731
    
    
    
    Actual tax expenses
    
    
    25,711
    
    
    
    36,223
    
    
    
    11,721
  All but an insignificant amount of loss was generated from Hong Kong
sources.Income/expense not taxable/deductible includes losses incurred by
several subsidiaries which do not produce any taxable income and as
such, the losses are not deductible against future profits.As at December 31, 2003, the Group had net operating loss
carryforwards of approximately HK$262 million that it can
carryforward indefinitely.
The income taxes expense under US GAAP is presented below: Years ended December 31,2001
    
    2002
    
    2003HK$
    
    HK$
    
    HK$Current
    
    
    25,798
    
    
    
    35,026
    
    
    
    134,734Deferred
    
    
    (87
    )
    
    
    1,197
    
    
    
    (123,013
    )25,711
    
    
    
    36,223
    
    
    
    11,721
 F - 54




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (g)
    
    Income taxes (continued)The principal components of the deferred tax liabilities/(assets)
under US GAAP are as follows: December 31,2002
    
    2003HK$
    
    HK$Deferred tax assets:Tax losses
    
    
    (52,794
    )
    
    
    (45,809
    )Other temporary differences
    
    
    
    
    
    
    (281
    )Total deferred tax assets
    
    
    (52,794
    )
    
    
    (46,090
    )Valuation allowance
    
    
    1,679
    
    
    
    10,954Net deferred tax assets
    
    
    (51,115
    )
    
    
    (35,136
    )Deferred tax liabilitiesCertain leasing arrangements
    
    
    109,941
    
    
    
    Accelerated depreciation
    
    
    66,637
    
    
    
    37,586Total deferred tax liabilities
    
    
    176,578
    
    
    
    37,586Net deferred tax liabilities
    
    
    125,463
    
    
    
    2,450
  At January 1, 2001, the valuation allowance was HK$1,077. During
2001, the valuation allowance increased by HK$451. In 2002, the
valuation allowance increased by HK$151. In 2003, the valuation
allowance increased by HK$9,275.(h)
    
    Pro forma information of net income/(loss) and
earnings/(loss) per share under SFAS No. 123 and 148Pro forma information regarding net income/(loss) and
earnings/(loss) per share is required by SFAS No. 123 and 148, and
has been determined as if the Group had accounted for its employee
stock options under the fair value method of SFAS No. 123. The fair
value of share option at date of grant is HK$2.82 per option which
is estimated using the Black-Scholes option pricing model with the
following assumptions:  (1)
    
    an expected volatility of 47%(2)
    
    no expected annual dividend(3)
    
    an expected life of the options of 119
months; and(4)
    
    a risk free interest rate of 6%  The Black-Scholes option pricing model requires the
input of highly subjective assumptions, including the expected
volatility of share price. Because changes in subjective input
assumptions can materially affect the fair value estimate, in
managements opinion, the existing model does not necessarily
provide a reliable single measure of the fair value of the
share options. F - 55




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (h)
    
    Pro forma information of net income/(loss) and earnings/(loss)
per share under SFAS No. 123 and 148 (continued)If the Company had accounted for its share option plan
by recording compensation expense based on the fair value at
grant date for such awards consistent with the method of SFAS
No. 123, the Companys net income/(loss) as reported under US
GAAP and earnings/(loss) per share for the years ended December
31, 2002 and 2003 would have been adjusted to the pro forma
amounts as follows: 2002
    
    2003HK$
    
    HK$Net income/(loss)
    
    As reported
    
    
    13,763
    
    
    
    (225,262
    )Add: Stock-based employee
compensation expense
included in reported net
income/(loss)
    
    
    
    
    7,553
    
    
    
    (344
    )Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
    
    
    
    
    (19,631
    )
    
    
    892Net income/(loss)
    
    Pro forma
    
    
    1,685
    
    
    
    (224,714
    )Basic
earnings/(loss) per share
    
    As reported
    
    
    3 cents
    
    
    
    (55) centsPro forma
    
    
    1 cent
    
    
    
    (54) centsDiluted
earnings/(loss) per share
    
    As reported
    
    
    3 cents
    
    
    
    (55) centsPro forma
    
    
    1 cent
    
    
    
    (54) cents
  (i)
    
    Acquisition of a subsidiaryThe results of CTIA have been included in the consolidated financial
statements from the date of acquisition of the additional 20%
interest (i.e. April 11, 2002). CTIA has established a joint
venture in the PRC which primarily engages in provision of data
transmission services.The Groups acquisition of an additional ownership interest in CTIA
is in line with the Groups strategic development plan of shifting
towards end-users in the value-chain of the telecommunications and
broadcasting businesses.Goodwill is recorded when the consideration paid for the acquisition
of additional 20% interest in CTIA exceeds the fair value of
identifiable net tangible assets. Details of goodwill are set out
in note 8. F - 56




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (i)
    
    Acquisition of a subsidiary (continued)Pro Forma Financial InformationThe unaudited pro forma US GAAP financial information shown below
has been prepared on the basis that the additional 20% interest in
CTIA had been acquired at the beginning of 2001. This pro forma
financial information is presented as supplemental information and
is not necessarily indicative of the results of operations that
would have been achieved had the said acquisition taken place at the
beginning of 2001. Pro forma information is as follows: 2001
    
    2002HK$
    
    HK$Total revenues
    
    
    373,046
    
    
    
    347,781Net income
    
    
    71,994
    
    
    
    13,089Basic earnings per share
    
    17 cents
    
    3 centsDiluted earnings per share
    
    17 cents
    
    3 cents
  The pro forma revenue for 2001 and 2002 included the 2001 revenues
of CTIA of HK$1,170 and revenues of CTIA from January 1, 2002 to
date of acquisition of HK$1,438, respectively. The pro forma net
income for 2001 included adjustment for 20% of the net loss of CTIA
for the same period and the 2002 pro forma net income included
adjustment for 20% of the net loss of CTIA from January 1, 2002 to
date of acquisition. The goodwill arising from the acquisition was
not amortized in 2001 and through the date of acquisition.(j)
    
    Summarized information on APT Telecom, a material jointly
controlled entityUnder US GAAP, APT Telecoms net losses were HK$6,819,
HK$18,261 and HK$119,469 for the years ended December 31, 2001,
2002 and 2003, respectively, total assets were HK$174,738 and
HK$157,636 as at December 31, 2002 and 2003, respectively, and
total liabilities were HK$113,761 and HK$150,636 as at December
31, 2002 and 2003, respectively.During 2003, the directors of APT Telecom conducted a review of the
companys fixed assets and determined that property, plant and
equipment, and other assets were impaired due to the
recoverable amount of these assets is estimated to be less than
their carrying amount. Accordingly, impairment loss of
HK$89,018 has been recognized and charged to the statements of
income for the year ended December 31, 2003. APT Telecom did
not have any impairment in 2002. F - 57




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APT SATELLITE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  27.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)  (k)
    
    New pronouncementsIn December 2003, the FASB issued FASB Interpretation No. 46
(revised December 2003), Consolidation of Variable Interest Entities
(VIEs), which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate
the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which was issued in
January 2003. The Company will adopt FIN 46R to variable interests
in VIEs created after December 31, 2003. For variable interests in
VIEs created before January 1, 2004, the Interpretation will be
applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004,
the assets, liabilities and noncontrolling interests of the VIE
initially would be measured at their carrying amounts with any
difference between the net amount added to the balance sheet and any
previously recognized interest being recognized as the cumulative
effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may
be used to measure the assets, liabilities and noncontrolling
interest of the VIE. The Company does not believe the adoption of
such interpretation will have a material impact on its results of
operations or financial position.FASB Statement No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity,was issued in
May 2003.This Statement establishes standards for the
classification and measurement of certain financial instruments with
characteristics of both liabilities and equity. The Statement also
includes required disclosures for financial instruments within its
scope. The Statement applies for instruments entered into or
modified after May 31, 2003 and otherwise will be effective as of
January 1, 2004, except for mandatorily redeemable financial
instruments. For certain mandatorily redeemable financial
instruments, the Statement will be effective for the Company on
January 1, 2005. The effective date has been deferred indefinitely
for certain other types of mandatorily redeemable financial
instruments. The Company does not believe the adoption of such
statement will have a material impact on its results of operations
or financial position. F - 58




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Item 19. Exhibits. Exhibit No.
    
    Description of Exhibit1.1**
    
    The amended Memorandum of Association and Bye-Laws of APT Satellite
Holdings Ltd. which were adopted at the Companys annual general meeting
on May 20, 2004.4.1
    
    Satellite Procurement Agreement by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and Contractor, an
independent third party not associated with the Directors, chief executive
officer and major shareholders of the Company or any of its subsidiaries,
dated January 8, 2001 (incorporated by reference to the Companys 6-K
filed with the Commission on January 9, 2001).4.2
    
    Launch Agreement by and between APT Satellite Company Limited, a wholly
owned subsidiary of the Company, and the Launch Contractor, a subsidiary
of China Aerospace Science & Technology Corporation, dated January 8, 2001
(incorporated by reference to the Companys 6-K filed with the Commission
on January 9, 2001).4.3
    
    Satellite Procurement Agreement by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and Contractor, an
independent third party not associated with the Directors, chief executive
officer and major shareholders of the Company or any of its subsidiaries,
dated December 11, 2001 (incorporated by reference to the Companys 6-K
filed with the Commission on December 18, 2001).4.4
    
    Term Sheet executed by and between APT Satellite Company Limited, a
wholly owned subsidiary of the Company, Contractor and Loral Orion, Inc.,
both of which are independent third party not associated with the
Directors, chief executive officer and major shareholders of the Company
or any of its subsidiaries, dated September 20, 2002 (incorporated by
reference to the Companys 6-K filed with the Commission on September 30,
2002).4.5
    
    Transponder Lease Agreement by and between APT Satellite Company Limited,
a wholly owned subsidiary of the Company, and Lessee, a connected person
under the rules governing the listing of securities on The Stock Exchange
of Hong Kong Limited, dated April 11, 2003 (incorporated by reference to
the Companys 6-K filed with the Commission on April 16, 2003).4.6
    
    Change of Auditors of the Company KPMG with effect from July 15, 2003
(incorporated by reference to the Companys 6-K filed with the Commission
on July 17, 2003).4.7
    
    Satellite Procurement Amendment Agreement by and between APT Satellite
Company Limited, a wholly owned subsidiary of the Company, and the
Contractor, a party independent of the Director, chief executive officer
and substantial shareholder of the Company and its subsidiaries and their
respective associates, dated August 26, 2003. The Satellite Transponder
Agreement and Satellite Agreement by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and the lessor, a party
independent of the Director, chief executive officer and substantial
shareholder of the Company and its subsidiaries and their respective
associates, dated August 26, 2003 (incorporated by reference to the
Companys 6-K filed with the Commission on September 2, 2003).4.8
    
    Various on-going transactions in their ordinary course of business had
entered into between the Group of the Company and APT Telecom, a
non-wholly owned subsidiary of the Company, and the contracting party, a
connected person under the rules governing the listing of securities on
The Stock Exchange of Hong Kong Limited, as announced August 28, 2003
(incorporated by reference to the Companys 6-K filed with the Commission
on September 2, 2003).4.9
    
    Master Agreement by and between APT Satellite Telecommunications Limited,
a non-wholly owned subsidiary of the Company, Skywork Corporation, a
wholly owned subsidiary of the
 77




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Exhibit No.
    
    Description of ExhibitCompany, APT Telecom Services Limited, a wholly owned subsidiary of
the Company, and a connected person under the rules governing the
listing of securities on The Stock Exchange of Hong Kong Limited,
dated September 10, 2003 whereby the business of APT Satellite
Telecommunications Limited was being reorganized (incorporated by
reference to the Companys 6-K filed with the Commission on
September 15, 2003).4.10
    
    The Agreement and the Amended Launch Agreement by and between APT
Satellite Company Limited, a wholly owned subsidiary of the Company, and
the Contractor of APSTAR V, dated November 16, 2003 (incorporated by
reference to the Companys 6-K filed with the Commission on September 17,
2003).8.1
    
    List of subsidiaries and the jurisdictions under which each does business
(contained in Note 1 to the Consolidated Financial Statements in Item 18
herein).8.2**
    
    Financial statements of APT Satellite Telecommunications Limited.12.1**
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2**
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.3**
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.12.4**
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.14.1**
    
    Code of Ethical Business Conduct for Directors and Senior Officers.14.2**
    
    Significant Differences in Corporate Governance Practices.
   ** Filed herewith. 78




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SIGNATURES Pursuant to the requirement of Section 12 of the Securities Exchange Act
of 1934, the Company certifies that it meets all of the requirements for filing
an Annual Report on Form 20-F and has duly caused and authorized the
undersigned to sign this Annual Report on its behalf. APT SATELLITE HOLDINGS LIMITED /s/ Chen ZhaobinChen ZhaobinExecutive Director and President
 Date: June 28, 2004 79




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EXHIBIT LIST ExhibitNumber
    
    Name of Exhibit1.1**
    
    The amended Memorandum of
Association and Bye-laws of APT Satellite Holdings Ltd., which were
adopted at the Companys annual general meeting on May 20, 2004.4.1
    
    Satellite Procurement Agreement by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and Contractor, an
independent third party not associated with the Directors, chief executive
officer and major shareholders of the Company or any of its subsidiaries, dated
January 8, 2001 (incorporated by reference to the Companys 6-K filed with the
Commission on January 9, 2001).4.2
    
    Launch Agreement by and between APT Satellite Company Limited, a wholly
owned subsidiary of the Company, and the Launch Contractor, a subsidiary of
China Aerospace Science & Technology Corporation, dated January 8, 2001
(incorporated by reference to the Companys 6-K filed with the Commission on
January 9, 2001).4.3
    
    Satellite Procurement Agreement by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and Contractor, an
independent third party not associated with the Directors, chief executive
officer and major shareholders of the Company or any of its subsidiaries, dated
December 11, 2001 (incorporated by reference to the Companys 6-K filed with
the Commission on December 18, 2001).4.4
    
    Term Sheet executed by and between APT Satellite Company Limited, a wholly
owned subsidiary of the Company, Contractor and Loral Orion, Inc., both of
which are independent third party not associated with the Directors, chief
executive officer and major shareholders of the Company or any of its
subsidiaries, dated September 20, 2002 (incorporated by reference to the
Companys 6-K filed with the Commission on September 30, 2002).4.5
    
    Transponder Lease Agreement by and between APT Satellite Company Limited, a
wholly owned subsidiary of the Company, and Lessee, a connected person under
the rules governing the listing of securities on The Stock Exchange of Hong
Kong Limited, dated April 11, 2003 (incorporated by reference to the Companys
6-K filed with the Commission on April 16, 2003).4.6
    
    Auditors of the Company was changed to Messrs. KPMG with effect from July
15, 2003 (incorporated by reference to the Companys 6-K filed with the
Commission on July 17, 2003).4.7
    
    Satellite Procurement Amendment Agreement by and between APT Satellite
Company Limited, a wholly owned subsidiary of the Company, and the Contractor,
a party independent of the Director, chief executive officer and substantial
shareholder of the Company and its subsidiaries and their respective
associates, dated August 26, 2003. The Satellite Transponder Agreement and
Satellite Agreement by and between APT Satellite Company Limited, a wholly
owned subsidiary of the Company, and the lessor, a party independent of the
Director, chief executive officer and substantial shareholder of the Company
and its subsidiaries and their respective associates, dated August 26, 2003
(incorporated by reference to the Companys 6-K filed with the Commission on
September 2, 2003).




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##### Table of Contents



ExhibitNumber
    
    Name of Exhibit4.8
    
    Various on-going transactions in their ordinary course of business had
entered into between the Group of the Company and APT Telecom, a non-wholly
owned subsidiary of the Company, and the contracting party, a connected person
under the rules governing the listing of securities on The Stock Exchange of
Hong Kong Limited, as announced August 28, 2003 (incorporated by reference to
the Companys 6-K filed with the Commission on September 2, 2003).4.9
    
    Master Agreement by and between APT Satellite Telecommunications Limited, a
non-wholly owned subsidiary of the Company, Skywork Corporation, a wholly owned
subsidiary of the Company, APT Telecom Services Limited, a wholly owned
subsidiary of the Company, and a connected person under the rules governing the
listing of securities on The Stock Exchange of Hong Kong Limited, dated
September 10, 2003 whereby the business of APT Satellite Telecommunications
Limited was being reorganized (incorporated by reference to the Companys 6-K
filed with the Commission on September 15, 2003).4.10
    
    The Agreement and the Amended Launch Agreement by and between APT Satellite
Company Limited, a wholly owned subsidiary of the Company, and the Contractor
of APSTAR V, dated November 16, 2003 (incorporated by reference to the
Companys 6-K filed with the Commission on September 17, 2003).8.1
    
    List of subsidiaries and the jurisdictions under which each does business
(contained in Note 1 to the Consolidated Financial Statements in Item 18
herein).8.2**
    
    Financial statements of APT Satellite Telecommunications Limited.12.1**
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2**
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.3**
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.12.4**
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.14.1**
    
    Code of Ethical Business Conduct for Directors and Senior Officers.14.2**
    
    Significant Differences in Corporate Governance Practices.
 Notes: **       Filed herewith.