##### 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 ENDEDDECEMBER 31, 2002
|                                           |  |                                                                                                     
|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

---

(Exact Name of the Registrant Specified in its Charter)


Bermuda

---

(Jurisdiction of Incorporation or Organization)


Room 3111-3112, 31/F, One Pacific Place, 88 Queensway, Hong Kong

---

(Address of Principal Executive Offices)


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 Quoted                                
|                                           |  |                                                                      
|Ordinary 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:

412,535,000 Common Shares as of December 31, 2002.

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 17 o
      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





---

TABLE OF CONTENTS



|                                                                                      |                                                                    |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------ |  |  |  |  |  |  | 
|GLOSSARY OF CERTAIN TERMS                                                            
|Item 1. Identity of Directors, Senior Management, and Advisers                       
|Item 2. Offer Statistics and Expected Timetable                                      
|Item 3. Key Information                                                              
|                                                                                      | Selected Consolidated Financial Information                       
|                                                                                      | Risk Factors                                                      
|                                                                                      | Business Risks                                                    
|                                                                                      | Political and Economic Risks                                      
|Item 4. Information on the Company                                                   
|                                                                                      | History and Development of the Company                            
|                                                                                      | Business Overview                                                 
|                                                                                      | Industry and Market Overview                                      
|                                                                                      | Broadcasting and Telecommunications Markets in Asia               
|                                                                                      | Operation of the APSTAR System                                    
|                                                                                      | SUMMARY OF SATELLITE DATA                                         
|                                                                                      | Competition                                                       
|                                                                                      | Regulation                                                        
|                                                                                      | Organizational Structure                                          
|                                                                                      | Property, Plant and Equipment                                     
|Item 5. Operating and Financial Review and Prospects                                 
|                                                                                      | Overview                                                          
|                                                                                      | Application of Critical Accounting Matters                        
|                                                                                      | Contractual Obligations and Commercial Commitments                
|                                                                                      | Commitments and Contingencies                                     
|                                                                                      | Off-balance Sheet Arrangements                                    
|                                                                                      | Results of Operations                                             
|                                                                                      | Liquidity and Capital Resources                                   
|                                                                                      | Capital Expenditure                                               
|                                                                                      | Forward Looking Statements                                        
|                                                                                      | Other                                                             
|Item 6. Directors and Officers of Registrant                                         
|                                                                                      | Compensation                                                      
|                                                                                      | Board Practices                                                   
|                                                                                      | Employees                                                         
|                                                                                      | Share Option Schemes                                              
|                                                                                      | Share Ownership                                                   
|                                                                                      | Service Agreements                                                
|Item 7. Major Shareholders and Related Party Transactions                            
|                                                                                      | Major Shareholders                                                
|                                                                                      | Related Party Transactions                                        
|Item 8. Financial Information                                                        
|Item 9. The Offer and Listing                                                        
|Item 10. Additional Information                                                      
|                                                                                      | Memorandum of Association and By-laws                             
|                                                                                      | Exchange Controls and Other Limitations Affecting Security Holders
|                                                                                      | Taxation                                                          
|Item 11. Quantitative and Qualitative Disclosures about Market Risk                  
|                                                                                      | Interest Rate Risk                                                
|                                                                                      | Exchange Rate Sensitivity                                         
|                                                                                      | Limitations                                                       
|Item 12. Description of Securities Other Than Equity Securities                      
|Item 13. Defaults, Dividend Arrearages, and Delinquencies                            
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|Item 15. Control and Procedures                                                      
|Item 16. [Reserved.]                                                                 
|Item 17. Financial Statements                                                        
|Item 18. Financial Statements                                                        
|Item 19. Exhibits.                                                                   
|Certification of CEO                                                                 
|Certification of CFO                                                                 



---



##### Table of Contents



TABLE OF CONTENTS

|                          |  |                                                                    |  |     
|------------------------- |  | ------------------------------------------------------------------ |  | ----
|                          |  |                                                                    |  | Page
|                          |  |                                                                    |  |     
|GLOSSARY OF CERTAIN TERMS |  | iii                                                               
|Item 1.                   |  | Identity of Directors, Senior Management, and Advisers             |  | 1   
|Item 2.                   |  | Offer Statistics and Expected Timetable                            |  | 1   
|Item 3.                   |  | Key Information                                                    |  | 1   
|                          |  | Selected Consolidated Financial Information                        |  | 1   
|                          |  | Risk Factors                                                       |  | 3   
|                          |  | Business Risks                                                     |  | 7   
|                          |  | Political and Economic Risks                                       |  | 9   
|Item 4.                   |  | Information on the Company                                         |  | 10  
|                          |  | History and Development of the Company                             |  | 10  
|                          |  | Business Overview                                                  |  | 10  
|                          |  | Industry and Market Overview                                       |  | 13  
|                          |  | Broadcasting and Telecommunications Markets in Asia                |  | 14  
|                          |  | Operation of the APSTAR System                                     |  | 19  
|                          |  | Summary of Satellite Data                                          |  | 20  
|                          |  | Competition                                                        |  | 26  
|                          |  | Regulation                                                         |  | 28  
|                          |  | Organizational Structure                                           |  | 31  
|                          |  | Property, Plants and Equipment                                     |  | 31  
|Item 5.                   |  | Operating and Financial Review and Prospects                       |  | 32  
|                          |  | Overview                                                           |  | 32  
|                          |  | Application of Critical Accounting Matters                         |  | 34  
|                          |  | Contractual Obligations and Commercial Commitments                 |  | 37  
|                          |  | Commitments and Contingencies                                      |  | 38  
|                          |  | Off-balance Sheet Arrangements                                     |  | 39  
|                          |  | Results of Operations                                              |  | 39  
|                          |  | Liquidity and Capital Resources                                    |  | 42  
|                          |  | Capital Expenditure                                                |  | 43  
|                          |  | Forward Looking Statements                                         |  | 44  
|                          |  | Other                                                              |  | 44  
|Item 6.                   |  | Directors and Officers of Registrant                               |  | 45  
|                          |  | Compensation                                                       |  | 51  
|                          |  | Board Practices                                                    |  | 52  
|                          |  | Employees                                                          |  | 52  
|                          |  | Share Option Schemes                                               |  | 53  
|                          |  | Share Ownership                                                    |  | 53  
|                          |  | Service Agreements                                                 |  | 54  
|Item 7.                   |  | Major Shareholders and Related Party Transactions                  |  | 54  
|                          |  | Major Shareholders                                                 |  | 54  
|                          |  | Related Party Transactions                                         |  | 56  
|Item 8.                   |  | Financial Information                                              |  | 59  
|Item 9.                   |  | The Offer and Listing                                              |  | 59  
|Item 10.                  |  | Additional Information                                             |  | 60  
|                          |  | Memorandum of Association and By-laws                              |  | 60  
|                          |  | Exchange Controls and Other Limitations Affecting Security Holders |  | 65  
|                          |  | Taxation                                                           |  | 66  

i



---



##### Table of Contents



|         |  |                                                                              |  |     
|-------- |  | ---------------------------------------------------------------------------- |  | ----
|         |  |                                                                              |  | Page
|         |  |                                                                              |  |     
|Item 11. |  | Quantitative and Qualitative Disclosures about Market Risk                   |  | 70  
|         |  | Interest Rate Risk                                                           |  | 71  
|         |  | Exchange Rate Sensitivity                                                    |  | 71  
|         |  | Limitations                                                                  |  | 71  
|Item 12. |  | Description of Securities Other Than Equity Securities                       |  | 71  
|Item 13. |  | Defaults, Dividend Arrearages, and Delinquencies                             |  | 73  
|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 73  
|Item 15. |  | Control and Procedures                                                       |  | 73  
|Item 16. |  | [Reserved.]                                                                  |  | 73  
|Item 17. |  | Financial Statements                                                         |  | 73  
|Item 18. |  | Financial Statements                                                         |  | 74  
|Item 19. |  | Exhibits                                                                     |  | 77  

ii



---



##### Table of Contents






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 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 is engaged 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.                                                                                                                                                        

iii



---



##### Table of Contents



|                     |  |                                                                                                                                                                                                                                                                                                                                                          
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CCTV                 |  | China Central Television, a PRC state-owned enterprise under the supervision and control of the
SARFT.                                                                                                                                                                                                                                                   
|                     |  |                                                                                                                                                                                                                                                                                                                                                          
|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).                                                                                                                                                           

iv



---



##### Table of Contents



|                                             |  |                                                                                                                                                                                                                                                                                                        
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                           
|                                             |  |                                                                                                                                                                                                                                                                                                        
|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.                                                                                                                                                                                                                                                             
|                                             |  |                                                                                                                                                                                                                                                                                                        
|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.                                                                                                                                                                                                                                                  

v



---



##### Table of Contents



|                                         |  |                                                                                                                                                                                                                                                                                  
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                       
|                                         |  |                                                                                                                                                                                                                                                                                  
|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 2002                    
|                                         |  |                                                                                                                                                                                                                                                                                  
|PRC                                      |  | The Peoples Republic of China, other than HKSAR                                                                                                                                                                                                                                 
|                                         |  |                                                                                                                                                                                                                                                                                  
|PSTN                                     |  | 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.                                                                                                                                                                                                             

vi



---



##### Table of Contents



|                              |  |                                                                                                                                                                                                                                                                
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                   
|                              |  |                                                                                                                                                                                                                                                                
|TT&C                          |  | Telemetry, tracking and command.                                                                                                                                                                                                                               
|                              |  |                                                                                                                                                                                                                                                                
|TT&C Station                  |  | Telemetry, tracking and command station, a land-based facility that monitors and controls the
positioning, altitude and status of a satellite in orbit.                                                                                                        
|                              |  |                                                                                                                                                                                                                                                                
|uplink                        |  | In satellite communications, the signal from the earth station to the space station (satellite).                                                                                                                                                               
|                              |  |                                                                                                                                                                                                                                                                
|VSAT                          |  | Very small aperture terminal.                                                                                                                                                                                                                                  

vii



---



##### Table of Contents



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, 2002. The financial statement
information as of and for each of the years in the five-year period ended
December 31, 2002 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 (defined below), which differ in certain significant respects
from US GAAP (defined below). For a discussion of the principal differences
between Hong Kong GAAP and US GAAP, see Item 18 and Note 26 of the Notes to
the Audited Consolidated Financial Statements, which contains descriptions of
the significant differences between Hong Kong GAAP and US GAAP, a
reconciliation of net income from Hong Kong GAAP to US GAAP for the years ended
December 31, 2000, 2001 and 2002, and reconciliation of shareholders equity
from Hong Kong GAAP to US GAAP as of December 31, 2001 and 2002. In addition,
Note 26 to the Audited Consolidated Financial Statements, which contains
additional disclosures required under US GAAP, which are not disclosed
elsewhere in the Audited Consolidated Financial Statements.

1



---



##### Table of Contents



|                                                              |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  |  |       |   | 
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  |  | ------- | - | ---- |  | ------- | - | ---- |  | ------- | ---- |  |  | ------- | - |  |  | ------- | - |  |  | ----- | - | 
|                                                              |  |                                                                                                         |  |  | 1998    |   | 1999 |  | 2000    |   | 2001 |  | 2002    | 2002
|                                                              |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |     
|                                                              |  |                                                                                                         |  |  | HK$     |   | HK$  |  | HK$     |   | HK$  |  | HK$     | US$ 
|Statement of Income Data:(in millions, except per share data) |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|Hong Kong GAAP:                                               |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|                                                              |  | Total revenues                                                                                          |  |  | 587.8   |   |      |  | 482.0   |   |      |  | 341.5   |      |  |  | 374.2   |   |  |  | 351.4   |   |  |  | 45.1  |  
|                                                              |  | Total costs and expenses                                                                                |  |  | (473.9  | ) |      |  | (439.9  | ) |      |  | (327.1  | )    |  |  | (337.9  | ) |  |  | (345.6  | ) |  |  | (44.3 | )
|                                                              |  | Other operating income                                                                                  |  |  | 14.6    |   |      |  | 436.0   |   |      |  | 179.7   |      |  |  | 78.4    |   |  |  | 72.3    |   |  |  | 9.2   |  
|                                                              |  | Deficit arising on revaluation of investment property                                                   |  |  |        |   |      |  |        |   |      |  |        |      |  |  |        |   |  |  |        |   |  |  |      |  
|                                                              |  | Impairment loss recognized in respect of land and
buildings                                             |  |  |        |   |      |  |        |   |      |  |        |      |  |  |        |   |  |  | (5.2    | ) |  |  | (0.7  | )
|                                                              |  | Impairment loss recognized in respect of goodwill
arising
on acquisition of an interest in a subsidiary |  |  |        |   |      |  |        |   |      |  |        |      |  |  |        |   |  |  | (3.4    | ) |  |  | (0.4  | )
|                                                              |  | Profit from operations                                                                                  |  |  | 128.5   |   |      |  | 478.1   |   |      |  | 194.1   |      |  |  | 114.7   |   |  |  | 69.5    |   |  |  | 8.9   |  
|                                                              |  | Interest expense                                                                                        |  |  | (57.3   | ) |      |  | (31.8   | ) |      |  | (15.3   | )    |  |  | (5.6    | ) |  |  |        |   |  |  |      |  
|                                                              |  | Share of losses of jointly controlled entities                                                          |  |  |        |   |      |  |        |   |      |  | (1.3    | )    |  |  | (5.1    | ) |  |  | (10.6   | ) |  |  | (1.4  | )
|                                                              |  | Income before income taxes                                                                              |  |  | 71.2    |   |      |  | 446.3   |   |      |  | 177.5   |      |  |  | 104.0   |   |  |  | 58.9    |   |  |  | 7.5   |  
|                                                              |  | Provision for income taxes                                                                              |  |  | (12.0   | ) |      |  | (71.8   | ) |      |  | (34.5   | )    |  |  | (26.0   | ) |  |  | (36.8   | ) |  |  | (4.7  | )
|                                                              |  | Minority interests                                                                                      |  |  |        |   |      |  |        |   |      |  |        |      |  |  |        |   |  |  | 2.3     |   |  |  | 0.3   |  
|                                                              |  | Net income                                                                                              |  |  | 59.2    |   |      |  | 374.5   |   |      |  | 143.0   |      |  |  | 78.0    |   |  |  | 24.4    |   |  |  | 3.1   |  
|                                                              |  | Basic earnings per share (cents)(1)                                                                     |  |  | 14.1    |   |      |  | 89.2    |   |      |  | 34.3    |      |  |  | 18.9    |   |  |  | 5.9     |   |  |  | 0.8   |  
|                                                              |  | Basic earnings per ADS (cents)(1)                                                                       |  |  | 112.8   |   |      |  | 713.4   |   |      |  | 274.1   |      |  |  | 151.2   |   |  |  | 47.4    |   |  |  | 6.1   |  
|                                                              |  | Diluted earnings per share (cents)(1)                                                                   |  |  |        |   |      |  |        |   |      |  |        |      |  |  | 18.9    |   |  |  | 5.9     |   |  |  | 0.8   |  
|                                                              |  | Diluted earnings per ADS (cents)(1)                                                                     |  |  |        |   |      |  |        |   |      |  |        |      |  |  | 150.8   |   |  |  | 47.4    |   |  |  | 6.1   |  
|                                                              |  | Weighted average number of shares outstanding(1)  Basic                                                |  |  | 420     |   |      |  | 420     |   |      |  | 417     |      |  |  | 413     |   |  |  | 413     |   |  |  | 413   |  
|                                                              |  | Weighted average number of shares outstanding(1) 
Diluted                                              |  |  |        |   |      |  |        |   |      |  |        |      |  |  | 414     |   |  |  | 413     |   |  |  | 413   |  
|                                                              |  | Dividend per share (cents)                                                                              |  |  |        |   |      |  | 35.0    |   |      |  | 20.0    |      |  |  | 5.0     |   |  |  |        |   |  |  |      |  
|US GAAP:                                                      |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|                                                              |  | Net income                                                                                              |  |  | 57.9    |   |      |  | 360.2   |   |      |  | 139.9   |      |  |  | 72.6    |   |  |  | 13.8    |   |  |  | 1.8   |  
|                                                              |  | Basic earnings per share (cents)(1)                                                                     |  |  | 13.8    |   |      |  | 85.8    |   |      |  | 33.5    |      |  |  | 17.6    |   |  |  | 3.3     |   |  |  | 0.4   |  
|                                                              |  | Basic earnings per ADS (cents)(1)                                                                       |  |  | 110.3   |   |      |  | 686.1   |   |      |  | 268.2   |      |  |  | 140.8   |   |  |  | 26.7    |   |  |  | 3.4   |  
|                                                              |  | Diluted earnings per share (cents)(1)                                                                   |  |  |        |   |      |  |        |   |      |  |        |      |  |  | 17.6    |   |  |  | 3.3     |   |  |  | 0.4   |  
|                                                              |  | Diluted earnings per ADS (cents)(1)                                                                     |  |  |        |   |      |  |        |   |      |  |        |      |  |  | 140.4   |   |  |  | 26.7    |   |  |  | 3.4   |  
|                                                              |  | Weighted average number of shares outstanding(1)  Basic                                                |  |  | 420     |   |      |  | 420     |   |      |  | 417     |      |  |  | 413     |   |  |  | 413     |   |  |  | 413   |  
|                                                              |  | Weighted average number of shares outstanding(1)  Diluted                                              |  |  |        |   |      |  |        |   |      |  |        |      |  |  | 414     |   |  |  | 413     |   |  |  | 413   |  
|Balance Sheet Data:(in thousands)                             |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|Hong Kong GAAP:                                               |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|                                                              |  | Working capital (deficiency)                                                                            |  |  | (218.7  | ) |      |  | 1,606.7 |   |      |  | 1,582.4 |      |  |  | 1,451.4 |   |  |  | 739.5   |   |  |  | 94.8  |  
|                                                              |  | Property, plant and equipment, (net)                                                                    |  |  | 3,123.5 |   |      |  | 1,285.1 |   |      |  | 1,101.9 |      |  |  | 1,150.0 |   |  |  | 2,018.9 |   |  |  | 258.8 |  
|                                                              |  | Total assets                                                                                            |  |  | 3,923.9 |   |      |  | 3,792.8 |   |      |  | 3,421.1 |      |  |  | 3,280.7 |   |  |  | 3,339.4 |   |  |  | 428.1 |  
|                                                              |  | Long-term liabilities (less current portion)                                                            |  |  | 1,265.4 |   |      |  | 831.9   |   |      |  | 643.2   |      |  |  | 542.9   |   |  |  | 377.7   |   |  |  | 48.4  |  
|                                                              |  | Total liabilities                                                                                       |  |  | 1,792.7 |   |      |  | 1,287.0 |   |      |  | 972.4   |      |  |  | 816.1   |   |  |  | 864.2   |   |  |  | 110.8 |  
|                                                              |  | Minority interests                                                                                      |  |  |        |   |      |  |        |   |      |  |        |      |  |  |        |   |  |  | 6.8     |   |  |  | 0.9   |  
|                                                              |  | Total shareholders equity (net assets)                                                                 |  |  | 2,131.2 |   |      |  | 2,505.8 |   |      |  | 2,448.7 |      |  |  | 2,464.6 |   |  |  | 2,468.4 |   |  |  | 316.4 |  
|US GAAP:                                                      |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|                                                              |  | Total assets                                                                                            |  |  | 3,950.4 |   |      |  | 3,802.0 |   |      |  | 3,426.7 |      |  |  | 3,284.8 |   |  |  | 3,339.7 |   |  |  | 428.2 |  
|                                                              |  | Total liabilities                                                                                       |  |  | 1,797.0 |   |      |  | 1,288.4 |   |      |  | 973.2   |      |  |  | 816.7   |   |  |  | 864.2   |   |  |  | 110.8 |  
|                                                              |  | Minority interests                                                                                      |  |  |        |   |      |  |        |   |      |  |        |      |  |  |        |   |  |  | 6.8     |   |  |  | 0.9   |  
|                                                              |  | Total shareholders equity                                                                              |  |  | 2,153.4 |   |      |  | 2,513.6 |   |      |  | 2,453.5 |      |  |  | 2,468.1 |   |  |  | 2,468.7 |   |  |  | 316.5 |  
|Other Data:                                                   |  |                                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  | 
|                                                              |  | Hong Kong GAAP:                                                                                         |  |  |         |   |      |  |         |   |      |  |         |      |  |  |         |   |  |  |         |   |  |  |       |  
|                                                              |  | EBITDA(2)                                                                                               |  |  | 446.9   |   |      |  | 342.6   |   |      |  | 229.9   |      |  |  | 248.2   |   |  |  | 221.3   |   |  |  | 28.4  |  
|                                                              |  | EBITDA margin(3)                                                                                        |  |  | 76.0    | % |      |  | 71.1    | % |      |  | 67.3    | %    |  |  | 66.3    | % |  |  | 63.0    | % |  |  | 63.0  | %

2



---



##### Table of Contents





---

|(1) |  | 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 three fiscal years ended December 31,
2000 as there were no potentially dilutive securities outstanding.                                                                                                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | EBITDA, as defined, represents earnings after share of losses of jointly
controlled entities and impairment loss and before interest income,
interest expense, other income(expenses), income taxes, depreciation and
amortization and exceptional items from continuing operations. EBITDA is
not a recognized US GAAP or Hong Kong GAAP measurement. EBITDA is not
intended to represent cash flow for the period nor has it been presented
as an alternative to net income as an indicator of operating performance.
This EBITDA may not be comparable to similarly titled measures reported by
other companies.
|   
|(3) |  | EBITDA margin represents EBITDA as a percentage of the Companys
revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

The exchange rates of the Hong Kong dollar to the United States dollar as
of and during the years ended December 31, 1998, 1999, 2000, 2001, and 2002
were as follows:

|              |  |      |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|              |  | 1998 |        | 1999 |  | 2000 |        | 2001 |  | 2002
|              |  |      |        |      |  |      |        |      |  |     
|Average(1)    |  |      | 7.7463 |      |  |      | 7.7586 |      |  |      | 7.7933 |  |  |  | 7.7994 |  |  |  | 7.7997 | 
|High          |  |      | 7.7505 |      |  |      | 7.7751 |      |  |      | 7.8045 |  |  |  | 7.8001 |  |  |  | 7.8000 | 
|Low           |  |      | 7.7350 |      |  |      | 7.7420 |      |  |      | 7.7773 |  |  |  | 7.7969 |  |  |  | 7.7936 | 
|End of Period |  |      | 7.7460 |      |  |      | 7.7700 |      |  |      | 7.7998 |  |  |  | 7.7978 |  |  |  | 7.7981 | 



---

|(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 a year.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 2002 |        | January 2003 |  | February 2003 |        | March 2003 |  | April 2003 |        | May 2003
|     |  |               |        |              |  |               |        |            |  |            |        |         
|High |  |               | 7.7993 |              |  |               | 7.7998 |            |  |            | 7.8000 |          |  |  | 7.7996 |  |  |  | 7.8005 |  |  |  | 7.7996 | 
|Low  |  |               | 7.7977 |              |  |               | 7.7984 |            |  |            | 7.7987 |          |  |  | 7.7983 |  |  |  | 7.7990 |  |  |  | 7.7983 | 




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 the launching of satellites. APSTAR V, which
is scheduled for delivery in July 2003, is expected to be launched by Sea
Launch Limited Partnership (Sea Launch) in the third quarter of 2003. APSTAR
VI (formerly APSTAR VB), is scheduled to be launched on board the Long March 3B
(LM-3B) launch vehicle of China Great Wall Industry Corporation (Great
Wall) in 2005. The LM-3B was developed from the Long March 3A Launch Vehicle
and both employ similar technology. While the actual failure rate varies by

3



---



##### Table of Contents



launch vehicle and launch service provider, as at December 31, 2002, the
success rate of Sea Launch was approximately 87.5% 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. 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
effect the APTs transponder lease agreements for APSTAR V with customers such
as SingTel, and would be further adversely effected by the loss of APSTAR I,
the useful life of which is expected to expire in late 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.

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 and insurance, or the 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.

4



---



##### Table of Contents



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.

The Company currently has licenses for the operation of APSTAR I , APSTAR
IA and APSTAR IIR. 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.

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

5



---



##### Table of Contents



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 Islands Satellite Communications Ltd.
(TongaSat), has
responsibility for the ITU coordination process with respect to such orbital
slots and the frequencies covered by the Companys license.

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.

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 the 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,
which will be 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 an agreement. Under the
APT-Loral Term Sheet and the agreement, 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 is expected to take place in the
third quarter of 2003. APT and Loral Orion are in the process of amending the
agreement accordingly. By selecting Sea Launchs launch vehicle, the Company
believes that the risk of export license delay will be substantially reduced.
However, there can be no assurance that SS/Loral will be able to obtain all the
necessary licenses or that the SS/Loral licenses or such other licenses will
not be revoked by the US government or that the US government will not impose
additional restrictions or trade sanctions against the PRC or other countries
that would significantly delay the planned launch of APSTAR V or other
satellites that the Company may launch in the future.

6



---



##### Table of Contents



In March 2002, Alcatel Space Industries (Alcatel) informed the Company
that they had received unconditional approval from the French government for
the delivery of the French-made satellite to the PRC for launching.




Business Risks

Insurance

The Company has in-orbit insurance coverage in respect of APSTAR I, IA and
IIR. The Company maintained third-party liability insurance for APSTAR I, IA
and IIR as required by the Outer Space Ordinance License until June 30, 2002.
The Company has been discussing with OFTA regarding obtaining a waiver that
would exempt the APSTAR Systems from the requirement to maintain third-party
liability insurance. As of the date of this Annual Report, OFTA has not yet
made a final determination. There can be no assurance that the Company will be
able to obtain the waiver in respect of the third-party liability insurance for
APSTAR I, IA and IIR. 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. If such launches are implemented on schedule, there would be an
increase of transponder capacity serving the region. If the expanding supply
of international telecommunications 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

7



---



##### Table of Contents



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
that APT will be required to make capital expenditures for the design,
construction and launch of APSTAR V of approximately US$230 million between
January 2001 and the scheduled launch of the satellite in the third quarter of
2003. For the replacement of APSTAR IA and as a back up plan for APSTAR V, APT
signed a procurement agreement for the construction of APSTAR VI in December
2001. The total capital expenditures for the design, construction and launch of
APSTAR VI are expected to be US$240 million. 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 Phase II of the Satellite
Control Center 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. The Loan Agreement 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, 2002, the aggregate outstanding
borrowing amount under the Loan Facility was US$21 million.

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.

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, a jointly controlled entity of the Company, 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 74,309 square
feet) (Site 3A) adjacent to the Satellite Control Center for the development of
a an integrated telepark (the Telepark) for telecommunication services.
Pursuant to the APT Telecom Lease, APT Telecom has committed to completing the
construction of the Telepark and commencing operations within,
respectively, 24 and 30 months
of 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. The construction of the Telepark is expected
to be completed in the third quarter of 2003.

8



---



##### Table of Contents



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
21,701 square feet) adjacent to the Satellite Control Center (Site 3B), 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 Telecom to make additional capital
expenditures of not less than HK$100 million with respect to the development of
this property. 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 April 2002 according to which APT is allowed to extend its services
to broadcasting transmission services and telecommunication services, including
Internet data centers, telepark 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$1,330,000 (for Site
3A mentioned above) and HK$670,000 (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 will expire on March 5, 2004.

Dependence on Key Customers

Revenues from the Companys five largest customers for the years ended
December 31, 2000, 2001, and 2002 were HK$254.6 million, HK$207.5 million, and
HK$198.9 million (US$25.5 million), respectively, which represented 74.6%,
55.5%, and 56.6%, respectively, of total revenues. Revenues from the Companys
largest customer represented 35.7%, 29.0%, and 22.9%, respectively, of total
revenues during such periods. The 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, 2000, 2001 and 2002,
approximately 77.3%, 72.2%, and 72.5%, 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.

9



---



##### Table of Contents



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 foreign 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, an
adverse impact on APTs business cannot be ruled out.

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.




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 at Rooms 3111-3112, 31st Floor, One Pacific Place, 88 Queensway, Hong
Kong (Telephone: 852 2526-2281). 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. The Companys customers include many prominent international
broadcasters (including Disney, HBO, Sony Pictures Entertainment, Hallmark
Entertainment, Galaxy MCI Worldcom, and Viacom), as well as prominent PRC,
Taiwan and Hong Kong broadcasters (including CCTV, One Leader, and i-Cable).
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), the two 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,
2002, the utilization rates of APSTAR I and APSTAR IA were 55.6% and 65.7 %,
respectively (in 2001, the utilization rates of these satellites were 59.0% and
66.3%, 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

10



---



##### Table of Contents



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 the US
company Loral Space and Communications Limited, for the lease of 43 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 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 services will be provided by APT until the end
of the operational life of the satellite, unless these services are earlier
terminated by Loral Asia.As of December 31, 2002, 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
third quarter of 2003. 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 six, instead of
15, of APSTAR Vs transponders of through its expected operational life,
expected to be not less than 13 years, and at the fixed aggregate lease price
for the six transponders will be US$33,657,000 (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$22,157,525 (approximately HK$172.8 million).
Subject to the provisions of the new lease agreement, the maximum amount of the
lease price for 11 transponders payable to APT will be US$55,814,525
(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$16,289,000 (approximately HK$127.1 million); the annual amounts of the
management fees will range from US$846,000 (approximately HK$6.6 million) to
US$1,413,000 (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$13,574,167
(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 52.8%, 47.8%
and 49.0%, and telecommunications customers generated approximately 43.8%,
49.9% and 46.4% of the Companys total revenues for the years ended December
31, 2000, 2001 and 2002, 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

11



---



##### Table of Contents



control and marketing services for APSTAR IIR customers. In the years ended
December 31, 2000, 2001 and 2002, approximately 77.3%, 72.2% and 72.5%,
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
Satellite TV Development Limited (APT TV) (formerly known as APT Satellite
Glory Limited) formed a jointly controlled entity, APT Satellite
Telecommunications Limited (APT Telecom), with SingaSat, a wholly-owned
subsidiary of SingTel. APT TV and SingaSat hold ownership interests in APT
Telecom, respectively, of 55% and 45%. APT Telecom was incorporated on
February 9, 2000 to provide telecommunication services such as external
satellite-based fixed telecommunication network services (FTNS) under the
FTNS license issued by OFTA on June 19, 2000. These FTNS include VSAT,
wholesale telecommunication and Internet POP gateway services, which were
rolled-out in the fourth quarter of 2000. In addition, APT Telecom was granted
a cable-based external FTNS license at the end of 2000 and has made investments
in telecommunications infrastructure projects through APT Telecom for providing
comprehensive telecommunications services including investments in submarine
cable capacities, APCN2 and C2C as well as the development of the Telepark.
The Telepark is planned 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
Telepark as planned will provide 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. The Company believes that the Telepark will further develop the
Companys telecommunications business and generate new profit sources. APT
Telecom plans to provide facilities-management and high-technology
telecommunication services as well. The total investment by APT Telecom for
the development of the Telepark amounts to approximately HK$400 million, HK$200
million of which APT Telecom has committed to invest over a 30-month period,
beginning March 2001. In an effort to rationalize the corporate structure and
in line with corporate strategic development, on June 12, 2003, APT TV
transferred, all of its interests in APT Telecom to Skywork Corporation, a
company incorporated in the British Virgin Islands and an indirect wholly-owned
subsidiary of the Company.

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. During the first half of 2002, APT increased investments in
uplinks and downlinks, and TV-program transmission and broadcasting facilities.
As a result, APT TVs program-transmission capacity was increased to 18
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. This project is in line with the Groups overall strategy
to further develop its satellite TV platform and increase the Groups overall
revenue in the future.

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 Chinese company that provides data broadcasting
services for the Chinese 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 telecommunications and broadcasting businesses.

12



---



##### Table of Contents






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.

Optical fiber is well suited for relaying large amounts of bulk traffic,
such as long-distance telephone calls between major geographic locations, for
example, from New York to London. Bulk traffic is transmitted by submarine
optical fiber which is then passed on, usually by fiber, to its final
destination. 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
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 minimum 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.

13



---



##### Table of Contents



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 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.

14



---



##### Table of Contents



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. The latest generation of satellites, such as
APSTAR IIR, generally has more power than satellites launched in the 1980s.
These new satellites 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.

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.

15



---



##### Table of Contents



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, 2000, 2001 and 2002, the Companys
revenues were derived from the following businesses:

|                   |  |                         |      |      |  |      |      |   |  |  |      |  
|------------------ |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                   |  | Year Ended December 31,
|                   |  |                        
|                   |  | 2000                    |      | 2001 |  | 2002
|                   |  |                         |      |      |  |     
|Broadcasting       |  |                         | 52.8 | %    |  |      | 47.8 | % |  |  | 49.0 | %
|Telecommunications |  |                         | 43.8 | %    |  |      | 49.9 | % |  |  | 46.4 | %
|Service Income     |  |                         | 3.4  | %    |  |      | 2.3  | % |  |  | 4.6  | %

Revenues from the Companys five largest customers for the years ended
December 31, 2000, 2001 and 2002 were HK$254.6 million, HK$207.5 million and
HK$198.9 million (US$25.5 million) respectively, which represented 74.6%, 55.5%
and 56.6% respectively, of total revenues. Revenues from the Companys largest
customer represented 35.7%, 29.0% and 22.9%, 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 and APSTAR IIR 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 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.

16



---



##### Table of Contents



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                                      |  | Programming                                                                              
|                                             
|China Central Television (CCTV)             |  | National television in the PRC including CCTV-1to 12, CCTV News except CCTV-4 and
CCTV-9,
|                                              |  |                                                                                          
|China Education Television (CETV)           |  | Educational television in the PRC                                                        
|                                              |  |                                                                                          
|China Broadcasting Film Television            |  | Provincial television in the PRC, including                                              
|Satellite Co., Ltd. (CBFTV)                 |  | Yunnan, Xinjiang, Tibet and Hunnan                                                       
|                                              |  |                                                                                          
|One Leader Communication Inc. (One
Leader)* |  | Financial news, general entertainment in Taiwan                                          
|                                              |  |                                                                                          
|Hallmark Entertainment*                       |  | Movies and special events                                                                
|                                              |  |                                                                                          
|HBO*                                          |  | Movies and special events                                                                
|                                              |  |                                                                                          
|Sony Picture*                                 |  | Movies and special events                                                                
|                                              |  |                                                                                          
|Galaxy (TVB)*                                 |  | Movies and special events                                                                
|                                              |  |                                                                                          
|Viacom International Inc. (Viacom)          |  | Music videos and entertainment (MTV)                                                     



---

|* |  | 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 to telephone
companies 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

17



---



##### Table of Contents



computers. News agencies use satellite networks to distribute information to
numerous locations and paging operators use satellite networks to distribute
paging information from a central switch to multiple remote transmitters for
retransmission to pagers. 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 telephone
companies 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 (usually for a period of 30 days) 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
or APSTAR IIR for the life of the transponder. Most of the

18



---



##### Table of Contents



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 APSTAR I 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 advertising, and
presentations at industry conferences. APTs current sales and marketing
efforts are focused on obtaining customers for unused or underutilized
transponder capacity on APSTAR satellites. 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.

19



---



##### Table of Contents



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 APSTAR                        
|                                                                        |  | APSTAR I                 |  | APSTAR IA                          |  | APSTAR IIR                       |  | SYSTEM                              
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Region covered                                                          |  | North and Southeast
Asia |  | North and Southeast
Asia and India |  | Europe, Asia,
Middle East,Africa |  | Europe, Asia,
Middle East and
Africa
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Status                                                                  |  | Operational              |  | Operational                        |  | Operational                      |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Model                                                                   |  | HS 376                   |  | HS 376                             |  | FS 1300                          |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Manufacturers                                                           |  | Hughes                   |  | Hughes                             |  | SS/Loral                         |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Transponders                                                            |  |                          |  |                                    |  |                                  |  |                                     
|Ku-band                                                                 |  |                          |  |                                    |  | 15@54 MHz                        |  | 16 Ku-band                          
|                                                                        |  |                          |  |                                    |  | 1@36MHz                          |  |                                     
|C-band                                                                  |  | 4@72 MHz                 |  | 4@72 MHz                           |  | 27@36 MHz                        |  | 76 C-band                           
|                                                                        |  | 20@36 MHz                |  | 20@36 MHz                          |  | 1@30MHz                          |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Usable bandwidth                                                        |  | 1,008 MHz                |  | 1,008 MHz                          |  | 1,848MHz                         |  | 3,864 MHz                           
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Output power                                                            |  |                          |  |                                    |  |                                  |  |                                     
|Ku-band                                                                 |  |                          |  |                                    |  | 16@110 Watts                     |  |                                     
|C-band                                                                  |  | 24@15 Watts              |  | 24@16 Watts                        |  | 28@60 Watts                      |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Total output power                                                      |  | 360 Watts                |  | 384 Watts                          |  | 3,440 Watts                      |  | 4,184 Watts                         
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Expected end of operational life                                        |  | 2004                     |  | 2006                               |  | 2013                             |  |                                     
|                                                                        |  |                          |  |                                    |  |                                  |  |                                     
|Approximate 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 about 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
36MHz (suitable for television broadcasting and telecommunications purposes)
and four of which have a bandwidth of 72MHz (suitable for telecommunications
purposes). The transponders have a maximum EIRP value of 38.5dBW.

20



---



##### Table of Contents



As of December 31, 2002, of the 24 available transponders, approximately
55.6%of the transponders capacities were utilized. The Companys
broadcasting customers on APSTAR I include Viacom. The Companys
telecommunications customers include ChinaSat, Singapore Telecom, Reach
Networks Hong Kong Limited and Pacific Asia Commerce and Technology (CI)
Limited.

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, 2002, 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 mid-2004. As APSTAR V is
expected to be launched in the third quarter of 2003 to replace APSTAR I, the
end of APSTAR Is operational life is expected to occur in late 2003. After
being replaced by APSTAR V, APSTAR I will be allocated to another orbital slot
for the remainder of its useful life. 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 39dBW.

As of December 31, 2002, of the 24 available transponders on APSTAR IA,
approximately 65.7% 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 2006. As of
December 31, 2002, 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 2006. 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

21



---



##### Table of Contents



operational control of the satellite under the satellite service agreement with
Loral Asia. As of December 31, 2002, all of the 44 available transponders on
APSTAR IIR were leased.

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 in the middle of 2004. 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 14 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 entered the final
stage. APT will continue to monitor the progress of construction, which has
remained on schedule. APSTAR V is scheduled for delivery in July 2003, and
will be launched by Sea Launch Limited Partnership in the third quarter of
2003. 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 a definitive agreement. Under the APT-Loral Term
Sheet and the definitive agreement, 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 definitive agreement. 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.

APSTAR VI(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) in late 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 early 2006.
APSTAR VI is a high powered satellite and it is based on a SB-4100 C1 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.

22



---



##### Table of Contents



APT believes that the procurement of APSTAR V and APSTAR VI are in line
with the future development needs of APTs satellite broadcasting and
telecommunications businesses.

Satellite for DBS services

The PRC government has not yet determined whether the DBS services will be
adopted or implemented in the China market. The necessary approvals for the
implementation of DBS services have not yet been received and no assurance can
be given as to whether such approvals will be obtained.

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. The Company is scheduled to discuss the renewal of
the licensing of 138 degrees orbital slot for the use of the C-band frequency
and Extended C-band frequencies, and the cooperation of Ku-band frequency with
TongaSat in June 2003.

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 I, 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 I, APSTAR IA and APSTAR
IIR. The Companys insurance policies have standard provisions and customary
exclusions. For the years 2000, 2001 and 2002, the Company spent HK$12.7
million, HK$10.4 million, and HK$7.0 million (US$0.9 million), respectively, on
in-orbit and third-party liability insurance.

In-orbit Insurance. Satellite in-orbit insurance is purchased on an
annual basis. Satellite in-orbit insurance premiums are less than 2% 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 50% and 65% of the satellites communications capacity for APSTAR I
and 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 January 28, 2003 for APSTAR I and
APSTAR IA and December 4, 2002 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.
The Company has been discussing with OFTA about obtaining a waiver that would
exempt the APSTAR Systems from the requirement to maintain third-party
liability insurance. As of the date of this Annual Report, no final
determination from OFTA has been made.

23



---



##### Table of Contents



Satellite Control Center

APT operates a 19,600 square foot Satellite Control Center on a 45,000
square foot property at the Tai Po Industrial Estate, Tai Po, Hong Kong. APT
employs approximately 32 experienced satellite and communications specialists
and engineers to control and monitor continuously APTs satellites in a
geostationary orbit. TT&C operations with the APT satellites are carried out
at the 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.

The Satellite Control Center currently operates seven antennae and nine
transmission facilities as well as associated 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 Satellite Control Center
maintains its own power generator and UPS to provide a continuous supply of
electricity in the case of a power outage, and its air conditioning and
ventilation systems back each other up.

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 USA.

The Satellite Control Center currently has the capability to control and
monitor the satellites of the APSTAR System. As additional satellites are
brought into the APSTAR System, the Company will be required to expand its TT&C
operations. In this regard, the Company has leased an approximately 40,000
square feet of land adjacent to the Satellite Control Center which can be used
for the installation of additional antennae and related equipment or the
construction of other types of TT&C facilities as the need arises. Pursuant to
the Cancelled Agreement for Lease, 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 of
approximately 8,919.29 square meters (equivalent to 96,010 square feet)
adjacent to its Tai Po Satellite Control Center site for a long term expiring
on June 30, 2047 for part of the TT&C of APSTAR V and APSTAR VI, satellite
television uplink and downlink services under the Satellite Television Uplink
and Downlink License issued on July 6, 1999 and extended on January 1, 2000 and
for telecommunication projects, including the provision of 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 Cancelled Agreement for Lease and other related documents were
entered into by APT with the Science and Technology Parks Corporation on June
19, 2000.

For the purpose of dividing the interest in 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, APT surrendered the property
to the Science and Technology Parks Corporation on March 12, 2001 by the Deed
of Cancellation and, in return, the Science and Technology Parks Corporation
granted a lease of the majority of the property of 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 List No. 13 and Extensions thereto) to APT
Telecom for the development of the Telepark and the provision of one-stop
telecommunications services. The Science and Technology Parks Corporation on
the same date granted a lease of the remaining portion of the property of 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 Extension thereto) to
APT by the Second Supplemental Agreement and this property was merged with the
originally leased lands, the occupied land (Site 1) and the unoccupied land
(Site 2). In order to expand the operation and control infrastructure

24



---



##### Table of Contents



with respect to APSTAR V and APSTAR VI, the Company began the construction
of Phase II of the Satellite Control Center (Phase II) for APSTAR V and
APSTAR VI on Site 3B and Site 2 on January 9, 2001. Phase II, which will have
a total floor area of approximately 58,000 square feet, was specially designed
for providing TT&C, as well as accommodating three large satellite antennae for
APSTAR V and APSTAR VI. It will also include a new data center (approximately
14,700 square feet) for telecommunications services. APT completed the
construction of Phase II and obtained the occupation permit for the property in
February 2002. The Satellite Control Centers 14,700 square feet data center
has begun commercial operation and generating revenue. In addition, the
Company has completed the installation of satellite broadcasting facilities in
the Satellite Control Center for the development of its satellite TV
broadcasting platform.

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 renewed the application
of the orbital slot at 89.5 degrees East. In addition, the Company has also
applied for additional orbital slots at, 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.

Employees

Including the executive directors and senior management of the Company, as
of December 31, 2002, the Company had 156 full-time employees, of which 30
employees were in management, 126 were in engineering and operations,
marketing, accounting and administration. The significant increase in the
number of full-time employees in 2002 was due to the consolidation of CTIA
pursuant to the increase of the Companys interest in CTIA from 40% to 60%
during the year, whereby CTIA became a subsidiary of the Company. 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 2002, 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.
Further, a significant number of its engineers received training at either
Boeing Satellite Systems (formerly known as Hughes Space and Communications
Company) or SS/Loral in the United States for periods ranging from two weeks to
a year or receive on-site training from Boeing Satellite Systems or SS/Loral in
Hong Kong. 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.

25



---



##### Table of Contents



The Company is also sending relevant staff members to receive training in
digital TV broadcasting services at various vendors facilities in the United
States. The Company also held digital TV broadcasting services training
courses, in association with these vendors, for employees of its Satellite
Control Center in Tai Po on site.

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 granted by the Company after
the adoption of Scheme 2002 will be grant 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, 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 14,650,000 which represents 3.55% of the issued
share capital of the Company as at December 31, 2002.




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 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 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

26



---



##### Table of Contents



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.

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.

27



---



##### Table of Contents



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 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 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.

28



---



##### Table of Contents



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.

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.

29



---



##### Table of Contents



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, APSTAR IA and APSTAR IIR
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 and October 13, 1997, 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.

30



---



##### Table of Contents






Organizational Structure

The parent company of the APT Group is APT Satellite International Company
Limited (APT International), which directly controls approximately 51.92% 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 on leased premises in Hong
Kong. As of January 18, 2000, the lease covering the Companys office space in
Hong Kong was extended to February 29, 2004. The rental amount (excluding
rates and management charges) under the lease was approximately HK$3.6 million
for 2002.

The TT&C operations of APSTAR Systems are conducted through the Companys
Satellite Control Center. The 45,000 square foot site (Site 1) where the TT&C
facility is located and the adjacent 40,000 square foot 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. Pursuant to the Cancelled Agreement for Lease, 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. The
Cancelled Agreement for Lease and other related documents were entered into by
APT with the Science and Technology Parks Corporation on June 19, 2000. For
the purpose of dividing 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, APT surrendered this piece of property to
the Science and Technology Parks Corporation on March 12, 2001 by the Deed of
Cancellation and in return, the Science and Technology Parks Corporation
simultaneously on such surrender granted a lease of most of this 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 by the APT Telecom Lease for
telecommunications services. The Science and Technology Parks Corporation on
the same date 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, the occupied land
(Site 1) and the unoccupied land (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, 2002, the Company has paid HK$95.1 million (US$12.2 million) and
has a capital commitment of HK$7.8 million (US$1.0 million) 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 a result, the Companys program transmission capacity has
increased to 18 channels, strengthening its capacity to meet future demand for
satellite TV services.

31



---



##### Table of Contents






Item 5. Operating and Financial Review and Prospects

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements. 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 material differences
between Hong Kong GAAP and US GAAP, see Item 18 and Note 26 of the Notes to the
Consolidated Financial Statements and US GAAP Reconciliation below.




Overview

APSTAR I, APSTAR IA and APSTAR IIR are in geostationary orbit at 138
degrees East, 134 degrees East and 76.5 degrees East, respectively, providing
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 was launched
from Xichang on July 21, 1994, and began commercial service on September 15,
1994. APSTAR IA was launched from Xichang on July 3, 1996, and commenced
commercial service on September 1, 1996. APSTAR IIR was launched, also from
Xichang, on October 17, 1997, and commenced 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 the benefit
of existing licenses covering current and future operation of each of APSTAR I,
APSTAR IA and APSTAR IIR. Each of these licenses requires the approval of the
HKSAR for any transfer of a beneficial interest in the satellite. The Company
has obtained these approvals. The Company paid HK$400 thousand in licensing
fees to the HKSAR in 2002. 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.

32



---



##### Table of Contents



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.

|                          |                            |                                                                               |     |       |      |      |     |       |      |   |     |       |      |  
|------------------------- | -------------------------- | ----------------------------------------------------------------------------- | --- | ----- | ---- | ---- | --- | ----- | ---- | - | --- | ----- | ---- | -
|                          |                            |                                                                               |     | 2000  |      | 2001 |     | 2002 
|                          |                            |                                                                               |     |       |      |      |     |      
|Statement of Income Data: |                            |                                                                               |     |       |      |      |     |       |      |   |     |      
|                          | Revenues                   |                                                                               |     | 100.0 | %    |      |     | 100.0 | %    |   |     | 100.0 | %   
|                          | Costs and expenses:        |                                                                               |     |       |      |      |     |       |      |   |     |       |     
|                          |                            | Cost of service (excluding depreciation
and amortization)                     |     |       | 13.1 | %    |     |       | 13.1 | % |     |       | 11.9 | %
|                          |                            | Depreciation and amortization                                                 |     |       | 63.5 | %    |     |       | 58.0 | % |     |       | 66.5 | %
|                          |                            | Selling, general and administrative
(excluding depreciation and amortization) |     |       | 19.2 | %    |     |       | 19.2 | % |     |       | 19.9 | %
|                          |                            |                                                                               |     |       |      |      |     |       |      |   |     |       |     
|                          | Total costs and expenses   |                                                                               |     | 95.8  | %    |      |     | 90.3  | %    |   |     | 98.3  | %   
|                          |                            |                                                                               |     |       |      |      |     |       |      |   |     |       |     
|                          |                            |                                                                               | 4.2 | %     |      |      | 9.7 | %     |      |   | 1.7 | %    
|                          |                            |                                                                               |     |       |      |      |     |       |      |   |     |       |     
|                          | Income before income taxes |                                                                               |     | 52.0  | %    |      |     | 27.8  | %    |   |     | 16.7  | %   
|                          | Net income                 |                                                                               |     | 41.9  | %    |      |     | 20.8  | %    |   |     | 7.0   | %   

An analysis of the reconciliation of the Companys EBITDA for the years
ended December 31, 2000, 2001 and 2002 is as follows:

|                                                                                     |  |                         |        |      |  |      |       |   |  |  |       |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                     |  | Year ended December 31,
|                                                                                     |  |                        
|                                                                                     |  | 2000                    |        | 2001 |  | 2002
|                                                                                     |  |                         |        |      |  |     
|                                                                                     |  | (HK$ in millions)      
|Income before income taxes and minority interests                                    |  |                         | 177.5  |      |  |      | 104.0 |   |  |  | 58.9  |  
|Other operating income                                                               |  |                         | (179.7 | )    |  |      | (78.4 | ) |  |  | (72.3 | )
|Depreciation and amortization                                                        |  |                         | 216.8  |      |  |      | 217.0 |   |  |  | 234.0 |  
|Amortization of goodwill (including in Selling,
general and administrative expenses) |  |                         |       |      |  |      |      |   |  |  | 0.7   |  
|Deficit arising on revaluation of investment
property                                |  |                         |       |      |  |      |      |   |  |  |      |  
|Interest expense                                                                     |  |                         | 15.3   |      |  |      | 5.6   |   |  |  |      |  
|                                                                                     |  |                         |        |      |  |      |       |   |  |  |       |  
|EBITDA(1)                                                                            |  |                         | 229.9  |      |  |      | 248.2 |   |  |  | 221.3 |  
|                                                                                     |  |                         |        |      |  |      |       |   |  |  |       |  



---

|(1) |  | EBITDA, as defined, represents earnings after share of losses of jointly
controlled entities and impairment loss and before interest income,
interest expense, other income(expenses), income taxes, depreciations and
amortization and exceptional items from continuing operations. EBITDA is
not a recognized US GAAP or Hong Kong GAAP measurement. EBITDA is not
intended to represent cash flow for the period nor has it been presented
as an alternative to net income as an indicator of operating performance.
This EBITDA may not be comparable to similarly titled measures reported by
other companies.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33



---



##### Table of Contents



An analysis of the source of the Companys revenues by geographical area
for the years ended December 31, 2000, 2001 and 2002 is as follows:

|                                |           |  |                         |       |          |  |            |      |          |  |                   |       |            |  |       |      |   |  |            |       |  |  |       |      |  
|------------------------------- | --------- |  | ----------------------- | ----- | -------- |  | ---------- | ---- | -------- |  | ----------------- | ----- | ---------- |  | ----- | ---- | - |  | ---------- | ----- |  |  | ----- | ---- | -
|                                |           |  | Year Ended December 31,
|                                |           |  |                        
|                                |           |  | 2000                    |       | 2001     |  | 2002      
|                                |           |  |                         |       |          |  |           
|                                |           |  |                         |       |          |  |            |      |          |  | (HK$ in millions) |       |            |  |       |      |   |  |           
|                                |           |  |                         |       |          |  | % of Total |      |          |  |                   |       | % of Total |  |       |      |   |  | % of Total
|                                |           |  | Amount                  |       | Revenues |  | Amount     |      | Revenues |  | Amount            |       | Revenues  
|                                |           |  |                         |       |          |  |            |      |          |  |                   |       |           
|The Peoples
Republic of China: |           |  |                         |       |          |  |            |      |          |  |                   |       |            |  |       |      |   |  |            |       |  |  |       |     
|                                | Hong Kong |  |                         | 20.3  |          |  |            | 6.0  | %        |  |                   | 40.5  |            |  |       | 10.8 | % |  |            | 47.2  |  |  |       | 13.4 | %
|                                | Elsewhere |  |                         | 264.2 |          |  |            | 77.3 | %        |  |                   | 270.0 |            |  |       | 72.2 | % |  |            | 254.9 |  |  |       | 72.5 | %
|Others                          |           |  | 57.0                    |       |          |  | 16.7       | %    |          |  | 63.7              |       |            |  | 17    | %    |   |  | 49.3       |       |  |  | 14.1  | %   
|                                |           |  |                         |       |          |  |            |      |          |  |                   |       |            |  |       |      |   |  |            |       |  |  |       |     
|                                |           |  | 341.5                   |       |          |  | 100.0      | %    |          |  | 374.2             |       |            |  | 100.0 | %    |   |  | 351.4      |       |  |  | 100.0 | %   
|                                |           |  |                         |       |          |  |            |      |          |  |                   |       |            |  |       |      |   |  |            |       |  |  |       |     

For the years ended December 31, 2000, 2001, and 2002, the Company wrote
off accounts receivable in the amounts of Nil, HK$7.6 million (US$1.0 million),
and HK$11.5 million (US$1.5 million), respectively. For the years ended
December 31, 2000, 2001, and 2002, the Company made allowance for doubtful
receivables in the amounts of HK$200 thousand (US$30 thousand), Nil, and HK$5.3
million (US$700 thousand) respectively.

The Company has not incurred any research and development expenditure for
the years ended December 31, 2000, 2001 and 2002, respectively.




Application of Critical Accounting Matters

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. 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. 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. During the year
ended December 31, 2002, the estimated lives of APSTAR I and APSTAR IA were
determined to be shorter than previously estimated as those satellites are
expected to be replaced earlier than expected by APSTAR V and APSTAR VI. The
Company also estimated residual values for APSTAR I and APSTAR IA based on
their remaining operational lives after their replacement as determined by
their remaining fuel levels and consumption rates. As a result, as of December
31, 2002, the change in depreciation rate increased the depreciation charge of
HK$9.8 million (US$1.3 million) and decreased net income by approximately
HK$8.2 million (US$1.1 million). There is no significant impact on future net
income as a result of the change in the estimate.

34



---



##### Table of Contents



Depreciation of property, plant and equipment is provided to write off the
cost of these assets over their estimated useful lives and after taking into
account their estimated residual value, using the straight-line method.

Accounts receivable

The management of the Company estimates and makes judgments periodically
with respect to the provision of allowances required for the potential
non-collectability of receivables. 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 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 were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.

As of December 31, 2002, the Company had aggregate gross receivables of
HK$24.0 million (US$3.1 million). With respect to the amount, the Company
maintained an aggregated allowance for doubtful receivables of approximately
HK$1.5 million (US$200 thousand) in 2002.

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 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. 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, the discounted future cash flows used
to assess impairments and the fair value of impaired assets. The estimates of
discounted future cash flows are based on the terms of existing transponder
lease and service agreements. The dynamic economic environment in which the
Company operates and the resulting assumptions used 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 land and
buildings 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 properties are lower than the
carrying amount of the property, the Company may be required to record
additional impairment loss not previously recognized. During the year ended
December 31, 2002, the Company recognized an impairment loss of HK$5.2 million
(US$700 thousand) related to the land and buildings under Hong Kong GAAP.

Valuation of investment properties

Investment properties are stated at their open market value based on
independent professional appraisal at each balance sheet date. In assessing
the fair market value of the investment properties, the appraiser must make
assumptions regarding the property market condition and the future rental
trend. If these estimates or their related assumptions change in the future,
the fair market value may differ from the previous estimate.

The investment property was valued at its fair market value at December
31, 2002 and 2001 of approximately HK$2.3 million (US$300 thousand) and HK$2.4
million, respectively, by Chesterton Petty Limited, an independent professional
property appraiser. This valuation gave rise to a revaluation deficit of
HK$70,000 and

35



---



##### Table of Contents



HK$45,000 for the years ended December 31, 2002 and 2001, respectively,
which have been charged to the statements of income.

Contingencies and provisions

Contingencies, representing an obligation, which 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. Information about
such contingencies is presented in the notes to the financial statements.

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 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 to settle
an obligation, APTs directors take into consideration 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;
information is then presented in the notes to financial statements.

In 1999, the Company entered into certain agreements with Loral Asia in
respect of the leasing of substantially all of the satellite transponder
capacities of APSTAR IIR for the rest of its useful life. Under the terms of
the agreements, the Company agreed to coordinate with an adjacent satellite
operator of APSTAR IIR to avoid any material interference and bear the costs of
retrofitting the dishes of affected customers in rectifying the interference.
Such material interference was mainly caused by using the same band of
frequencies between APSTAR IIR and the adjacent satellite. Provision was
therefore made for the best estimate of the potential cash outflow under the
agreements based on the estimated cost of retrofitting the dishes of affected
customers of APSTAR IIR as a result of an increase in dish size. An amount of
HK$93 million (US$12 million) has been provided for in the financial statements
with respect to this contingency.

In October 2000, the Company entered into operating arrangement with an
adjacent satellite operator for the operation of the satellite networks APSTAR
IIR. Certain technical and operational information was exchanged in a satellite
coordination meeting by the Company and the operator of the adjacent satellite
in order to match transponder loading and minimize interference between the
satellites. Based on the information exchanged, the material interference of
APSTAR IIR was found to result largely from both satellites having FM/TV
carrier services and the number of affected transponders was fewer than as
originally estimated . After review, the Company considered that the potential
cash outflow to increase the dish size of affected customers of APSTAR IIR was
less than that which was originally estimated. An amount of HK$45.8 million
(US$5.9 million) related to this provision was therefore reversed at December
31, 2000.

As of December 31, 2001, the Company had not received any claims from
Loral Asia . The balance of a provision of HK$47.2 million (US$6.1 million)
were included in the Companys Consolidated Financial Statements for the year
ended December 31, 2001.

In 2002, the Company 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 of 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 would require 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 it undertakes the retrofitting efforts under APSTAR IIR customer
contracts with such affected customers as a result of increase in dish size.
Accordingly, the Company believes that the probability of the need to retrofit
the dishes is remote and therefore no provision with respect thereto is
necessary. An amount of HK$47.2 million (US$6.1 million) was reversed to
income for the year ended December 31, 2002. The most important contingencies
impacting our financial statements are discussed below under Commitments and
Contingencies.

36



---



##### Table of Contents






Contractual Obligations and Commercial Commitments

As of December 31, 2002, the Company had various contractual obligations
and commitments which are more fully disclosed in the notes to the Audited
Consolidated Financial Statements.

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, 2002 (HK$ in
millions):

Contractual Obligations:

|                                          |  |                        |         |        |  |       |         |       |  |         |       |  |  |  |      |  |  |  |   | 
|----------------------------------------- |  | ---------------------- | ------- | ------ |  | ----- | ------- | ----- |  | ------- | ----- |  |  |  | ---- |  |  |  | - | 
|                                          |  | Payments due by period
|                                          |  |                       
|                                          |  | Less than              |         | 1-3    |  | 4-5   |         | After
|                                          |  | Total                  |         | 1 year |  | years |         | years |  | 5 years
|                                          |  |                        |         |        |  |       |         |       |  |        
|Pledged bank loan(1)                      |  |                        | 317.7   |        |  |       | 317.7   |       |  |         |      |  |  |  |     |  |  |  |  | 
|US$240 million term
loan facility(2)      |  |                        | 163.8   |        |  |       |        |       |  |         | 85.8  |  |  |  | 78.0 |  |  |  |   | 
|Purchase obligations                     
| the Company(3)                          |  |                        | 1,095.1 |        |  |       | 677.5   |       |  |         | 417.6 |  |  |  |     |  |  |  |  | 
| share of jointly controlled entities(4) |  |                        | 69.4    |        |  |       | 69.4    |       |  |         |      |  |  |  |     |  |  |  |  | 
|Other obligations(5)                      |  |                        | 4.7     |        |  |       | 4.7     |       |  |         |      |  |  |  |     |  |  |  |  | 
|Operating leases(6)                       |  |                        | 11.7    |        |  |       | 6.5     |       |  |         | 5.2   |  |  |  |     |  |  |  |  | 
|                                          |  |                        |         |        |  |       |         |       |  |         |       |  |  |  |      |  |  |  |   | 
|Total contractual
obligations             |  |                        | 1,662.4 |        |  |       | 1,075.8 |       |  |         | 508.6 |  |  |  | 78.0 |  |  |  |  | 
|                                          |  |                        |         |        |  |       |         |       |  |         |       |  |  |  |      |  |  |  |   | 

Other Commercial Commitments:

|                                          |  |                                            |       |           |  |       |       |       |  |         |   |  |  |  |   |  |  |  |   | 
|----------------------------------------- |  | ------------------------------------------ | ----- | --------- |  | ----- | ----- | ----- |  | ------- | - |  |  |  | - |  |  |  | - | 
|                                          |  | Amount of commitment expiration per period
|                                          |  |                                           
|                                          |  | Total amounts                              |       | Less than |  | 1 - 3 |       | 4 - 5 |  | After  
|                                          |  | committed                                  |       | 1 year    |  | years |       | years |  | 5 years
|                                          |  |                                            |       |           |  |       |       |       |  |        
|Other commercial
commitments             
| the Company(7)                          |  |                                            | 869.0 |           |  |       | 869.0 |       |  |         |  |  |  |  |  |  |  |  |  | 
| share of jointly
controlled entities(8) |  |                                            |      |           |  |       |      |       |  |         |  |  |  |  |  |  |  |  |  | 
|                                          |  |                                            |       |           |  |       |       |       |  |         |   |  |  |  |   |  |  |  |   | 
|Total commercial
commitments              |  |                                            | 869.0 |           |  |       | 869.0 |       |  |         |  |  |  |  |  |  |  |  |  | 
|                                          |  |                                            |       |           |  |       |       |       |  |         |   |  |  |  |   |  |  |  |   | 



---

|(1) |  | This line item represents the cash obligations for principal
payments of the bank loan. The bank loan was arranged under certain
lease arrangements which are secured by time deposits of an
equivalent amount.                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | This line item represents the cash obligations for principal
payments of the bank loan. The bank loan 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

37



---



##### Table of Contents



|    |  | all present and future lease agreements of their transponders of
satellites under construction, launching and related equipment
contracts.                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | This line item represents various purchase commitments
entered into with suppliers due to the long lead times required to
produce the assets.                                    
|   
|(4) |  | This line item represents the Companys share of the purchase
obligations of its jointly controlled entities which have entered
into various purchase commitments with suppliers.
|   
|(5) |  | This line item represents various service commitments entered
into with suppliers.                                                                                               
|   
|(6) |  | This line item represents future minimum payments under
operating leases with the remaining terms of one year or more.                                                           
|   
|(7) |  | This line item represents various purchase commitments
authorized by the Company to enter into with suppliers but not
contracted at the balance sheet date.                      
|   
|(8) |  | This line item represents the Companys share of various
purchase commitments of its jointly controlled entities with
suppliers but not contracted at the balance sheet date.    




Commitments and Contingencies

Prior to January 1, 1999, overseas withholding tax was not charged in
respect of the Groups transponder lease income derived from overseas lessees.
However, at the end of 1998, the tax authorities of the country concerned
clarified that transponder lease income paid by lessees in their country is
subject to overseas withholding tax. From January 1, 1999 onwards, overseas
withholding tax has been charged on certain transponder lease income of the
Group and full provision for such withholding tax has been made in the
financial statements. The Company believes that the overseas tax authorities
clarification should take effect from January 1, 1999 and, accordingly, no
provision for the overseas withholding tax in respect of the previous years is
necessary. The Groups overseas withholding tax in respect of 1998 and before,
calculated at the applicable rates based on the relevant transponder lease
income earned in the previous years, not provided for in the financial
statements amounted to approximately HK$75.9 million (US$9.7 million).

At December 31, 2002, certain of the Companys banking facilities were
secured by the Companys land and buildings with a net book value of HK$5.1
million (US$700 thousand). Furthermore, the Company had outstanding bank loans
of approximately HK$317.7 million (US$40.7 million) arranged under certain lease
arrangements which are secured by time deposits of an equivalent amount. Of
this amount, HK$317.7 million (US$40.7 million) is included as part of current
pledged bank deposits in the Audited Consolidated Financial Statements. The
Company also entered into a US$240 million secured term loan facility
specifically relating to APSTAR V, APSTAR VI and APSTAR VI backup satellite,
which is secured by the assignment of the construction, launch and related
equipment contracts relating to the Companys satellites under construction and
the related insurance claim proceeds, assignment of all present and future
lease agreements of the 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, launch and
related equipment contracts. At December 31, 2002, the assets under fixed
charge are the satellites under construction with carrying value of
approximately HK$1,259.5 million (US$161.5 million) and bank deposits of
approximately HK$4,000.

In 1999, the Company entered into certain agreements with Loral Asia in
respect of the leasing of substantially all of the satellite transponder
capacities of APSTAR IIR for the rest of its useful life. Under the terms of
the agreements, the Company agreed to bear the cost of retrofitting the dishes
of affected customers of APSTAR IIR as a result of an increase in dish size.
Such interferences were mainly caused by FM/TV carrier services. However,
there are currently no FM/TV carrier services according to information from
Loral Asia. As such, in 2002, the Company determined that the probability of
retrofitting being required was remote owing to the fact that the FM/TV is
being phased out and therefore the Company made no provision for such
contingency in its financial

38



---



##### Table of Contents



statements. Furthermore, as there are currently no FM/TV carrier services,
the maximum potential liability that the Company might be subject to is not
determinable.

On May 5, 2003, APT received a letter from the Hong Kong Inland Revenue
Department (IRD) in connection with the Profits Tax Returns filed for the
years of assessment 1999/2000 and 2000/2001. APT recognized a gain of
approximately 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 IRD disagreed with the
capital gain claim in their letter of May 5, 2003 and proposed to treat the
proceeds received as taxable income to APT with a corresponding entitlement to
statutory depreciation allowances in respect of APSTAR IIR. The tax effect of
this event to APT is estimated to be HK$47.0 million (US$6.0 million).

The Company believes that the transaction in respect of APSTAR IIR are in
substance outright sales and represent a capital transaction. The gain derived
from the transaction should be regarded as capital receipts of APT and
therefore non-taxable. A letter disagreeing with the IRD proposal will be
filed to pursue the non-taxable capital gain argument. Having taken into
consideration independent professional advice, the Company believes it has a
reasonable likelihood of success in defending its position. Accordingly, no
additional provision has been recognized in the financial statements.




Off-balance Sheet Arrangements

At December 31, 2002, 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, pursuant to a shareholders resolution, exercise joint control
over the company. APT Telecom is also considered as a jointly controlled
entity as the Company and the other shareholder of APT Telecom both have the
right to appoint an equal number of directors to the board of directors. For
details of the interest in jointly controlled entities, see Item 18 and Note
7 to the Audited Consolidated Financial Statements. Other than as disclosed
above, the Company does not have any material off-balance sheet arrangements.




Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues.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 revenues of HK$374.2 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.
In the year ended December 31, 2002, 49.0% of revenues was related to
broadcasting services, 46.4% of revenues was related to telecommunications
services and 4.6% of revenues was derived from the provision of services in
respect of satellite uplink, satellite control, facilities management and
leasing of satellite transponders, as opposed to 47.8%, 49.9% and 2.3%,
respectively, for the year ended December 31, 2001.

Costs and Expenses.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 a result of an increase of HK$9.7 million (US$1.2
million) in the cost of service and a decrease of HK$2.0 million (US$300
thousand) in selling, general and administrative expenses. The increased cost
of service mainly resulted from 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). The
decreased selling, general and administrative expenses were largely due to a
decrease in directors remuneration as a result of a decrease in the payment
for remuneration to executive directors. 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.

39



---



##### Table of Contents



EBITDA.EBITDA, as defined in Footnote 2 in Item 3. Key Information 
Selected Consolidated Financial Information of this Annual Report, for the
year ended December 31, 2002 was HK$221.3 million (US$28.4 million), a
decrease of HK$ 26.9 million (US$3.5 million) or 10.8% as compared to the year
ended December 31, 2001. This decrease was due to the factors discussed above
under Revenues and Costs and Expenses. The EBITDA margin was equal to
63.0% of revenues for the year ended December 31, 2002, as compared to 66.3%
for 2001. EBITDA is not a recognized US GAAP or Hong Kong GAAP measurement.
For reconciliation, see Item 5. Statement of Income Data.

Depreciation and Amortization.Depreciation and amortization for the year
ended December 31, 2002 was HK$234.6 million (US$30.1 million), an increase of
HK$17.6 million (US$2.3 million) 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 change in the estimate of the remaining useful
lives of the assets and their residual values 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.

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$800 thousand), as compared to the year ended
December 31, 2001.

Interest income 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 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 to
earn interest during 2002.

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) as compared
to other income of HK$8.2 million in the year ended December 31, 2001. The
increase was mainly due to reversal of provision on regulating 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, 2001. For details of the
reversal, see Note 20a to the Companys audited Consolidated Financial
Statements in the section entitled Item 18. Financial Statements of this
Annual Report.

Impairment Loss.Impairment losses recognized for the year in respect of
land and buildings and goodwill arising on acquisition of an interest in a
subsidiary, CTIA, were HK$5.2 million (US$0.7 million) and HK$3.4 million
(US$0.4 million), respectively. 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 goodwill was recognized for the excess of the
carrying value over the expected future cash flow to be generated by CTIA. No
such impairment loss was recognized in 2001.

Interest Expense. No interest expense 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 interest bearing bank loans were fully
repaid at the end of May 2001. With regard to the US$240 million secured term
loan facility, the interest expense of HK$100 thousand and other related cost
of HK$2.1 million (US$300 thousand) incurred in obtaining the loans were
capitalized as part of satellite construction costs for the year ended
December 31, 2002.

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$10.8 million (US$1.4 million) as compared to the year ended December 31,
2001. The increase was mainly due to the formation of a subsidiary by the
Group in the second half year of 2001 in the PRC, with which the Group had
transacted business and thereby incurred PRC tax. As such, a full year of
income tax was provided for in the year ended December 31, 2002 while only half
year of income tax was provided for in the year ended December 31, 2001.

40



---



##### Table of Contents



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), as
compared to the year ended December 31, 2001. This decrease was due to all of
the factors discussed above.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues.Revenues for the year ended December 31, 2001 were HK$374.2
million (US$48.0 million), an increase of HK$32.7 million (US$4.2 million), or
9.6%, as compared to revenues of HK$341.5 million for the same period in 2000.
This increase was due to a full year of revenues from certain transponders in
2001 that accounted for revenues for only a few months in 2000. Also
contributing to increased revenue was an increase in revenue from the provision
of satellite television uplink services. In the year ended December 31, 2001,
47.8% of revenues was related to broadcast services, 49.9% of revenues was
related to telecommunications services and 2.3% of revenues was derived from
the provision of services in respect of satellite uplink, satellite control and
leasing of satellite transponders as opposed to 52.8% and 43.8% and 3.4%,
respectively, for the year ended December 31, 2000.

Costs and Expenses.Costs and expenses were HK$337.9 million (US$43.3
million) for the year ended December 31, 2001, an increase of HK$10.8 million
(US$1.4 million), or 3.3%, as compared to the year ended December 31, 2000.
This increase was primarily a result of an increase of HK$4.5 million (US$600
thousand) in the cost of service from expansion in the provision of satellite
television uplink service and an increase of HK$6.4 million (US$800 thousand)
in selling, general and administrative expenses. The increased selling, general
and administrative expenses was largely due to an increase in directors
remuneration as a result of an increase in the number of executive director and
payment for the retirement and termination of employment contract for the
office to an executive director. Costs and expenses as a percentage of
revenues was 90.3% in the year ended December 31, 2001, as compared to 95.8% in
2000.

EBITDA.EBITDA, as defined in Note 2 of Item 3. Key Information 
Selected Consolidated Financial Information, for the year ended December 31,
2001 was HK$248.2 million (US$31.8 million), an increase of HK$ 18.3 million
(US$2.3 million) or 7.9% as compared to the year ended December 31, 2000. Such
increase was due to the factors discussed under Revenues and Costs and
Expenses. The EBITDA margin was equal to 66.3% of revenues for the year ended
December 31, 2001, as compared to 67.3% for 2000. EBITDA is not a recognized
US GAAP or Hong Kong GAAP measurement. For reconciliation, see Item 5.
Statement of Income Data.

Depreciation and Amortization.Depreciation and amortization for the year
ended December 31, 2001 was HK$217.0 million (US$27.8 million), an increase of
HK$200 thousand (US$30 thousand) as compared to depreciation and amortization
of HK$216.8 million (US$27.8 million) for the year ended December 31, 2000.
This slightly increase was mainly due to increase in depreciation on equipment
of provision for satellite television uplink. Both periods reflected
amortization of APSTAR I and APSTAR IA for a full year.

Other Income.Aggregate non-operating items resulted in an income of
HK$78.4 million (US$10.1 million) in the year ended December 31, 2001, a
decrease of HK$101.3 million (US$13.0 million), or 56.4%, as compared to the
year ended December 31, 2000. Interest income was HK$70.2 million (US$9.0
million) in the year ended December 31, 2001, a decrease of HK$36.3 million
(US$4.7 million), or 34.1%, as compared to the year ended December 31, 2000,
largely as a result of decreased interest income from short-term deposits at
banks which was contributed by both decrease in bank deposits interest rates
and bank balances available to earn interest during the year 2001. Other income
was HK$8.2 million in the year ended December 31, 2001, a decrease of HK$65.0
million (US$8.3 million) as compared to other income of HK$73.2 million in the
year ended December 31, 2000. The decrease was mainly due to reversal of
provision on regulating matters previously recognized in the life lease of
transponder of APSTAR IIR of HK$45.8 million and recognition of exchange gain
of HK$10.4 million in the year ended December 31, 2000. There were no such
provision and exchange gain recognized in the year ended December 31, 2001.

Interest Expense. Interest expense was HK$5.6 million (US$700 thousand)
for the year ended December 31, 2001, a decrease of HK$ 9.7 million (US$1.2
million) as compared to the year ended December 31, 2000 because the related
bank loans were fully repaid at the end of May 2001.

41



---



##### Table of Contents



Provision for Income Taxes.Provision for income taxes was HK$26.0
million (US$3.3 million) in the year ended December 31, 2001, a decrease of
HK$8.5 million (US$1.1 million) as compared to the year ended December 31,
2000. The decrease was mainly due to a decrease in the amount of net income in
2001.

Net Income.Net income for the year ended December 31, 2001 was HK$78.0
million (US$10.0 million), a decrease of HK$65.0 million (US$8.3 million), as
compared to the year ended December 31, 2000. This decrease was due to all the
factors discussed above.




Liquidity and Capital Resources

The Companys most significant funding requirements arise from capital
expenditures related to the construction of APSTAR V and APSTAR VI and the
related ground infrastructure, and the payment of operating expenses related to
its satellites. Other liquidity requirements arise in connection with
expanding the business, meeting working capital requirements and servicing debt
obligations. In addition, the Company may have liquidity requirements in
connection with financing any potential strategic transactions.

Cash Flow Items

The Company had cash and cash equivalents of HK$826.3 million (US$105.9
million), HK$1,619.7 million, and HK$1,704.6 million, as at December 31, 2002,
2001 and 2000, respectively.

Net cash provided by operating activities amounted to HK$162.8 million
(US$20.9 million) in the year ended December 31, 2002. In 2001, APTs net cash
provided by operating activities was HK$281.4 million. Net cash provided by
operating activities was HK$1,577.4 million in 2000.

Net cash used in investing activities was HK$1,037.2 million (US$133.0
million) in the year ended December 31, 2002, due to the payment of HK$1,091.4
million (US$139.9 million) for the purchase of property, plant and equipment,
construction of communication satellites and a new Satellite Control Center,
the purchase of a subsidiary for HK$4.4 million (US$0.6 million),
advances/loans of HK$23.7 million (US$3.0 million) to APT Telecom and a
decrease in pledged bank deposits of HK$62.0 million (US$7.9 million). In
2001, APT had net cash used in investing activities of HK$126.5 million
(US$16.2 million) due to the payment of HK$230.2 million (US$29.5 million) for
the purchase of property, plant and equipment, construction of communication
satellites and a new Satellite Control Center, the payment of HK$48.6 million
(US$6.2 million) for the capital contribution to APT Telecom and a decrease in
pledged bank balances of HK$65.6 million (US$8.4 million). Net cash provided by
investing activities was HK$44.9 million in 2000.

Net cash provided by financing activities was HK$80.9 million (US$10.4
million) in the year ended December 31, 2002, mainly due to borrowings under
new secured bank loans of HK$163.8 million (US$21.0 million), repayment of bank
loans of HK$62.0 million (US$7.9 million) and dividend payment of HK$20.6
million (US$2.6 million). Net cash used in financing activities was HK$239.8
million (US$30.7 million) in the year ended December 31, 2001 due to bank loan
repayments of HK$175.3 million (US$22.5 million) and dividend payment of
HK$64.3 million (US$8.2 million). Net cash used in financing activities was
HK$431.5 million in 2000.

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. At December 31, 2002, the Company had an outstanding bank loan of
HK$317.7 million (approximately US$40.7 million) secured by time deposits of an
equivalent amount of HK$317.7 million (approximately US$40.7 million). Although
the term loans impose restrictions on cash, there are no other legal or
economic restrictions on the ability of subsidiaries to transfer funds to the
Company in the form of cash dividends or advances. The amount of cash
restricted as at December 31, 2002 amounted to HK$317.7 million (US$40.7
million).

42



---



##### Table of Contents



On April 14 2000, the Company entered into an agreement with a bank to
provide an unsecured credit facility of US$10.0 million for one year for
additional working capital. The facility bore interest at 0.95% per annum over
the LIBOR interest rate. On April 14, 2001, the Company renewed this credit
facility for one year. The Company did not draw on this facility and it
expired on April 13, 2002.

On December 16, 2002, APT entered into a US$240 million secured term loan
facility (the Loan Facility). 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 Agreement 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, 2002,
the aggregate outstanding borrowing amount under the Loan Facility was US$21
million.

The Loan Facility is secured by the assignment of the construction,
launching and related equipment contracts relating to APSTAR V, APSTAR VI and
APSTAR VI backup satellite 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 the
others, APT undertakes to ensure that APT International directly own 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 financial performance covenant.




Capital Expenditure

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 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. The Company expects that financing
for both of these projects will be provided by internal resources, future cash
flow from operations and amounts borrowed under the Loan Facility. The Company
believes that it will have sufficient funds to meet all of its

43



---



##### Table of Contents



commitments. There can be no assurance, however, that the Companys assumptions
with respect to costs for future construction and launch of our 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 and maintenance of various components of the Company APSTAR System,
(v) satellite launch, operation and maintenance risks, 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, 2002, all of the Companys material contracts
and obligations were denominated in US Dollars.

44



---



##### Table of Contents



Inflation

Inflation has not materially affected the Companys operations during its
operating history.

Taxation

The Companys profits for the year ended December 31, 2002, which are
deemed to be Hong Kong-sourced are subject to Hong Kong profits tax, which was
levied at the rate of 16% in 2002, 2001 and 2000. 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 2002, 2001 and 2000, 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 2002 and 2001.

US GAAP Reconciliation

The Companys financial statements are prepared in accordance with Hong
Kong GAAP, which differ in certain material respects from US GAAP. Differences
which have a significant effect on the consolidated net income and
shareholders equity are set forth in Note 26 to the Audited Consolidated
Financial Statements.




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.

45



---



##### Table of Contents



The directors and executive officers of APT Holdings are set forth below.

|                                    |  |     |  |                                                                                                    |  |           
|----------------------------------- |  | --- |  | -------------------------------------------------------------------------------------------------- |  | ----------
|                                    |  |     |  |                                                                                                    |  | Date First
|                                    |  |     |  |                                                                                                    |  | Elected or
|Name                                |  | Age |  | Position                                                                                           |  | Appointed 
|                                    |  |     |  |                                                                                                    |  |           
|Executive Directors                 |  |     |  |                                                                                                    |  |           
|Chen Zhaobin                        |  | 47  |  | Director and President                                                                             |  | 2001      
|He Dongfeng                         |  | 37  |  | Director (appointed
July 5, 2002) and Vice
President (appointed August 13, 2002)                   |  | 2002      
|Cui Xinzheng                        |  | 49  |  | Director and Vice President                                                                        |  | 2001      
|Non-executive Directors             |  |     |  |                                                                                                    |  |           
|Liu Ji Yuan                         |  | 69  |  | Chairman                                                                                           |  | 1998      
|Zhou Ze He                          |  | 61  |  | Vice Chairman                                                                                      |  | 1998      
|Wong Hung Khim                      |  | 64  |  | Director                                                                                           |  | 1993      
|Lim Toon                            |  | 60  |  | Director                                                                                           |  | 1993      
|Hsu Chih Chang                      |  | 44  |  | Director                                                                                           |  | 1996      
|Wu Zhen Mu                          |  | 57  |  | Director                                                                                           |  | 1998      
|Wu Jinfeng                          |  | 42  |  | Director (appointed February 10, 2001)                                                             |  | 2001      
|Lim Shyong                          |  | 52  |  | Director (appointed March 21, 2001)                                                                |  | 2001      
|Tay Chek Khoon                      |  | 52  |  | Director (appointed March 21, 2001)                                                                |  | 2001      
|Wu Hongju                           |  | 41  |  | Director (appointed November 15, 2002)                                                             |  | 2002      
|Yin Yen-liang                       |  | 52  |  | Director (appointed January 16, 2003)                                                              |  | 2003      
|Lim Bee Ling                        |  | 38  |  | Alternate to Tay Chek Khoon (appointed as
alternate director to Tay Chek Khoon on
March 21, 2001). |  | 2000      
|Chen Chi-chuan                      |  | 45  |  | Alternate to Yin Yen-liang (appointed as
alternate director to Yin Yen-liang on
January 16, 2003)  |  | 2003      
|Independent Non-executive
directors |  |     |  |                                                                                                    |  |           
|Yuen Pak Yiu, Philip                |  | 67  |  | Director                                                                                           |  | 1996      
|Huan Guocang                        |  | 53  |  | Director (appointed August 27, 2002)                                                               |  | 2002      
|Executive Officers                  |  |     |  |                                                                                                    |  |           
|Kwok Kah Wai, Victor                |  | 47  |  | Vice President                                                                                     |  | 2001      
|Lo Kin Hang, Brian                  |  | 46  |  | Vice President & Company Secretary                                                                 |  | 2002/1996 
|Wu Shou Kang                        |  | 63  |  | Chief Engineer                                                                                     |  | 2001      

Executive Directors

Mr. CHEN Zhaobin,aged 47, 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

46



---



##### Table of Contents



Production of the Ministry of Posts and Telecommunications of the PRC
(presently known as Ministry of Information Industry (MII)). Mr. Chen has
many years experience in the post and telecommunication fields and in
corporate management.

Mr. HE Dongfeng,aged 37, was appointed as Executive Director and Vice
President of the Company in July 2002. He graduated with double Bachelors
Degrees in Engineering from Jilin University of Technology. He then graduated
with a Masters Degree in Engineering from Beijing Institute of Technology. He
is now studying in Beijing Normal University for a Ph.d. in Economics. He has
served for the China Aerospace Corporation (presently known as China Aerospace
Science & Technology Corporation) since 1989. At various times, he has served
as Deputy Section Head, Section Head, Branch Factory Head, Deputy General
Manager & General Manager of Capital Aerospace Machinery Corporation. In
January 2002, he was appointed as the Vice President of China Academy of Launch
Vehicle Technology.

Mr. CUI Xinzheng,aged 49, 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 has served as
the Director of General Office, Deputy Director of ChinaSat and 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 years experience in economics management and has much experience in the
operation of satellite telecommunications.

Non-Executive Directors

Mr. LIU Ji Yuan,aged 69, was appointed as the Chairman of the Company in
June 1998. Mr. Liu graduated from Bowman Polytechnic University, Moscow, USSR
(presently known as 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. ZHOU Ze He,aged 61, was appointed as the Vice Chairman of the Company
in June 1998. Mr. Zhou graduated from Chongqing University of Posts &
Telecommunications in 1964. Then he participated in education and scientific
research in telecommunication. In 1972, he was appointed as Deputy Director
and Deputy Director General of MII of the PRC. In 1988, he was appointed as
the Deputy Director General of the Beijing Telecommunications Administration in
charging of development, planning, construction and management of Beijings
telecommunication. He also acted concurrently as a director of Beijing
International Exchange Systems Inc. In 1993, he was appointed as the President
of China National Posts & Telecommunications Industry Corporation. During this
period, he promoted the rapid development and enterprises reformation in
telecommunication industry. He successfully established joint ventures with
international renowned telecommunication companies and completed the
reformation of Shanghai Posts & Telecommunications Appliances Factory and
Chengdu Cable Factory of MII and listed their shares on foreign stock market.
He was also the first Chairman of the Chengdu Cable Company Limited, the first
company of MII that successfully listed on foreign stock market. In March
1995, he was transferred to ChinaSat as President, endeavoring to the
development of Chinese space segment resources and the planning of new
projects, such as satellite mobile telecommunications and high speed digital
satellite telecommunications. In May 1998, Mr. Zhou was appointed as Chairman
(first term) of Asia

47



---



##### Table of Contents



Pacific Mobile Telecommunications (APMT).

Mr. WONG Hung Khim,aged 64, was appointed as a Director of the Company in
October 1996 and has been a Director of APT since February 1993. He graduated
from the University of Singapore with Honors in Physics and attended the
Advanced Management Program 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 Labor. 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 November 3, 1993 to
December 31, 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 60, was appointed as a Director of the Company in
October 1996 and has been a Director of APT since February 1993. 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 Singapore Telecom 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. HSU Chih Chang,aged 44, was appointed as a Director of the Company in
October 1996 and has been a Director of APT since September 1996. Mr. Hsu
graduated with a Masters degree in Business Administration from National
Taiwan University in 1983 and a Doctoral Degree in Managerial Economics and
Decision Sciences from Northwestern University in 1989. Mr. Hsu was a
part-time Associate Professor in the Department of Financial Administration,
National Chengchi University, Taiwan in 1989. From 1989 to 1991, Mr. Hsu
served as a Special Assistant to the President of the Ruentex Industries Ltd.
From 1991 to 1995, he was the General Auditor of the Ruentex Industries Ltd.
Mr. Hsu is now a Special Assistant to the Chief Executive Officer of the
Ruentex Group (Ruentex Construction & Development Company Limited and its
affiliates), a Managing Director of the China Development Corporation and an
Associate Director of the Yin Shu Tien Memorial Hospital Shu-Tien Urology &
Ophthalmology Clinic in Taiwan.

Mr. WU Zhen Mu,aged 57, was appointed as a Director of the Company in
June 1998. Mr. Wu 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 42, 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 was previously the General
Manager of the Satellite Business Division and the Deputy Director of the
Telecommunications Division of ChinaSat. He also taught at the University of
Science & Technology of China. He has significant experience in the operation
of

48



---



##### Table of Contents



satellite telecommunication and corporate management.

Mr. LIM Shyong,aged 52, was appointed as Director of the Company on March
21, 2001. Mr. Lim joined Singapore Telecom in 1972, after graduating from the
University of Singapore with an Electrical Engineering Degree. Mr. Lims
experience in Singapore Telecom 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 Singapore Telecoms own voice nodes in the liberalized markets.
He was also responsible in setting up Singapore Telecoms network of oversea
offices in Asia, Europe and North America. In the last three years, Mr. Lim
established Singapore Telecom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 US. 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 of Singapore
Telecom and the Chairman of the Board of C2C Private Limited.

Mr. TAY Chek Khoon,aged 52, was appointed as Director of the Company on
March 21, 2001. Mr. Tay joined Singapore Telecom 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, in 1982 to
represent the Intelsat ASEAN Group as the Resident Alternate Governor. Mr.
Tays extensive telecommunication experience in Singapore Telecom 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 Singapore
Telecoms 18 overseas offices to provide regional support for Singapore
Telecoms corporate clients. In 2000, he was the Vice President of Wholesale
Account Management, responsible for managing Singapore Telecom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 Singapore Telecom including the international gateways and global voice
network.

Mr. WU Hongju,aged 41, was appointed as Director of the Company in
November 2002. After graduation with a 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 significant experience in business trading, capital management and
radio technology throughout his career.

Mr. YIN Yen-liang,aged 52, was appointed as a Director of the Company in
January 2003. Mr. Yin graduated with an MBA Degree from National Taiwan
University in 1983 and received a Ph.D. in Business 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.

Ms. LIM Bee Ling,aged 38, was appointed as an Alternate Director of the
Company to Tay Chek Khoon in March 2001. She was a Director of the Company
from November 2000 to March 2001. Ms. Lim graduated from the National
University of Singapore in 1987 with a Second Class Honors Degree in
Accountancy. She was with the Monetary Authority of Singapore before joining
Singapore Telecom in 1991. She obtained her Chartered Financial Analyst
qualification in 1995. Ms. Lim is now the Treasury Director of Singapore
Telecom, in charge of cash and

49



---



##### Table of Contents



investment management, financing, foreign exchange, insurance and risk
management for the Singapore Telecom Group.

Mr. CHEN Chi-chuan,aged 45, was appointed as an Alternate Director to Mr.
Yin Yen-liang, the director of the Company, in January 2003. Mr. Chen graduated
with an MBA Degree from National Taiwan University in 1982. He has substantial
experience in the securities investment sector, having held the positions of
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.

Independent Non-Executive Directors

Mr. YUEN Pak Yiu, Philip,aged 67, 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.

Mr. HUAN Guocang,aged 53, 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. Huang 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. 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 47, joined the Company on March 17, 2001.
Mr. Kwok is responsible for Marketing and Sales division of the Company. Prior
to joining APT, Mr. Kwok was the Managing Director of Global Services
Development in Singapore Telecom, Mr. Kwok established the Singapore Telecoms
global communication network and services, ConnectPlus, as well as Singapore
Telecom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 Singapore Telecom 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 Harvard Business Schools International Senior Management
Program in May, 1993.

Mr. LO Kin Hang, Brian,aged 46, has been the Vice President of the
Company since April 2002 and Company Secretary since October 1996. Prior to
that he was the Assistant to the President (since December 1997). Mr. Lo
joined the Company in September 1996. He graduated with an Associateship in
Production and Industrial Engineering and a M.Sc. Degree in Information
Technology from Hong Kong Polytechnic University, and an MBA Degree from the
University of Wales, 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 Company, he was a Director and senior
management executive responsible for financial and investment

50



---



##### Table of Contents



management and the company secretary of a publicly listed company in Hong
Kong. Mr. Lo has over 15 years experience in corporate and project management,
including telecommunication projects.

Mr. WU Shou Kang,aged 63, has been the Chief Engineer of the Company
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 research 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 has 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, 2002, 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
14,650,000, which represents 3.55% 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 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

51



---



##### Table of Contents



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 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 By-laws
of the Company and will rank pari passu in all respects with all the fully paid
shares in issue.

The aggregate compensation paid by the Company to all directors and
officers for the year ended December 31, 2002 was approximately HK$15.6
million, which includes payment of HK$2.3 million to a holding company of a
shareholder of the Company, HK$0.5 million for retirement benefits
contributions and HK$100 thousand for performance related incentive payments.

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. He Dongfeng have entered into
service contracts with the Company for an initial term of three years,
commencing February 10, 2001, February 1, 2001 and August 13, 2002
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 by-laws.

The Audit Committee was formed by the Company on July 31, 1999. The Audit
Committee 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 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; and  
| 
| |  | to consider the major findings and internal investigations and
managements response.




Employees

Including the executive directors and senior management of the Company, as
of December 31, 2002, the Company had 156 full-time employees, of which 30
employees were in management, 126 were in engineering and operations,
marketing, accounting and administration. The significant increases in the
number of full-time employees in the year 2002 due to the consolidation of CTIA
VSAT Network Limited (CTIA) pursuant to the

52



---



##### Table of Contents



increase of the Companys interest in CTIA from 40% to 60% in the year 2002,
such that CTIA became a subsidiary of the Company 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. During 2002, APT
organized several different training programs for new employees and existing
staff. The 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. Further, a
significant number of its engineers received training at either Boeing
Satellite Systems (formerly known as Hughes Space and Communications Company)
or SS/Loral in the United States for periods ranging from two weeks to a year
or receive on-site training from Boeing Satellite Systems or SS/Loral in Hong
Kong. 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.

The Company is also sending relevant staff members to receive training in
digital TV broadcasting services at various vendors facilities in the United
States . The Company also held digital TV broadcasting services training
courses, in association with these vendors, for employees of its Satellite
Control Center in Tai Po on site.

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 2002, no options were granted under Scheme
2002.




Share Ownership

As at December 31, 2002, Mr. Leng Yi Shun, Vice President of the Company,
and Mr. Lo Kin Hang, Brian, Vice President and Company Secretary of the
Company, had personal interests in 500 and 27,000 ordinary shares of the
Company respectively.

As at December 31, 2002, the options granted under Scheme 2001 to
directors and chief executive were as follows:

|                   |  |                                       |  |  |           | 
|------------------ |  | ------------------------------------- |  |  | --------- | 
|Chen Zhaobin       |  | (Executive Director & President)      |  |  | 2,200,000 | 
|Cui Xinzheng       |  | (Executive Director & Vice President) |  |  | 1,200,000 | 
|Leng Yi Shun*      |  | (Vice President)                      |  |  | 1,500,000 | 
|Lo Kin Hang, Brian |  | (Vice President & Company Secretary)  |  |  | 800,000   | 



|* |  | Mr. Leng Yi Shun resigned on January 7, 2003.
|- |  | ---------------------------------------------

53



---



##### Table of Contents



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 has 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. He Dongfeng entered into
service contracts with the Company for an initial term of three years,
commencing February 10, 2001 February 1, 2001 and August 13, 2002 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. He (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 to
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 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 of
an automobile, the provision of club memberships and medical and life
insurance, and participation in the Companys retirement scheme and any share
option scheme for its employees.

The service contracts of the Companys executive officers have indefinite
terms, except that one of the executive officers entered into service contract
with the Company for an initial fixed term of three years, commencing April 8,
2002. Most of the service contracts with the Companys executive officers may
be terminated by either party giving not less than four to six months notice
or payment in lieu of notice. Under these service contracts, each of the
executive Officers is each entitled to a basic salary together with a housing
allowance payable monthly in arrears by the Company and one 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 executive officers is entitled to a
discretionary annual bonus based upon the Companys performance. Each of the
executives officers is also entitled to receive certain other benefits such as
the provision of medical and life insurance and participation in the Companys
retirement scheme and any share option scheme for employees.

The Company entered into a secondment agreement with a holding company of
a shareholder of the Company for an officer for an initial fixed term of two
years commencing March 17, 2001, and continuing thereafter until terminated by
either party giving notice to the other. Under the secondment agreement, the
Company shall pay a fixed fee to a holding company of a shareholder of the
Company for reimbursement of cost of services provided to the Company.




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

54



---



##### Table of Contents



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, 2003 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 of
|Class           |  | or Groups                                                     |  | Shares    |             | Class(1)  
|                |  |                                                               |  |           |             |           
|Ordinary Shares |  | China TelecommunicationsBroadcast Satellite
Corporation(2)(3) |  |           | 67,200,000  |            |  |  | 16.29 | %
|Ordinary Shares |  | China Aerospace Science & Technology Corporation(2)(4)        |  |           | 36,600,000  |            |  |  | 8.87  | %
|Ordinary Shares |  | CASIL Satellite Holdings Limited(2)(5)                        |  |           | 45,000,000  |            |  |  | 10.91 | %
|Ordinary Shares |  | SingaSat PTE Ltd.(2)(6)                                       |  |           | 84,000,000  |            |  |  | 20.36 | %
|Ordinary Shares |  | Kwang Hua Development and Investment Limited(2)(7)            |  |           | 30,600,000  |            |  |  | 7.42  | %
|Ordinary Shares |  | Sinolike Investments Limited(5)                               |  |           | 16,800,000  |            |  |  | 4.07  | %
|Ordinary Shares |  | APT Satellite International Company Limited(2)                |  |           | 214,200,000 |            |  |  | 51.92 | %
|Ordinary Shares |  | All Directors and Officers as a Group (21 persons)            |  |           | 33,000      |            |  |  | *     |  



---

|*   |  | Less than 1%                                                                                                                                                                                                                                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | As of March 31, 2003, the total number of issued Ordinary Shares is
412,535,000.                                                                                                                                                                                                                                             
|   
|(2) |  | The Principal Shareholders collectively hold in aggregate underlying
ownership interests of 51.90% 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, 2002 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 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 TelecomAsia Corporation Public
Company Limited (TelecomAsia), a publicly listed company in Thailand.                                                                                                                                                                                                                                                                                                                                                            

55



---



##### Table of Contents





|    |  | 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.

Save as the above disclosed information 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. 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.

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

56



---



##### Table of Contents



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,
2000, 2001 and 2002 with shareholders and affiliates ( HK$ in thousands):

|                                                                                                 |  |  |       |   |      |  |                         |  |      |  |        |  |  |  |        |  | 
|------------------------------------------------------------------------------------------------ |  |  | ----- | - | ---- |  | ----------------------- |  | ---- |  | ------ |  |  |  | ------ |  | 
|                                                                                                 |  |  |       |   |      |  | Year ended December 31,
|                                                                                                 |  |  |       |   |      |  |                        
|                                                                                                 |  |  | Notes |   | 2000 |  | 2001                    |  | 2002
|                                                                                                 |  |  |       |   |      |  |                         |  |     
|Income from leasing of transponders
to certain shareholders of the Company                       |  |  | (i    | ) |      |  | 6,558                   |  |      |  | 20,809 |  |  |  | 34,551 | 
|Income from leasing of transponders
to a holding company of a shareholder
of the Company         |  |  | (i    | ) |      |  | 6,431                   |  |      |  | 19,500 |  |  |  | 18,594 | 
|Income from leasing of transponders to
a jointly controlled entity                               |  |  | (i    | ) |      |  | 1,808                   |  |      |  | 6,282  |  |  |  | 8,245  | 
|Management fee income from a jointly
controlled entity                                           |  |  | (ii   | ) |      |  | 500                     |  |      |  | 1,500  |  |  |  | 1,500  | 
|Management fee income from an
associate                                                          |  |  | (iii  | ) |      |  |                        |  |      |  |       |  |  |  | 189    | 
|Facilities management services
income from a jointly controlled entity                           |  |  | (iv   | ) |      |  |                        |  |      |  |       |  |  |  | 8,311  | 
|Interest income from jointly
controlled entities                                                 |  |  | (v    | ) |      |  | 277                     |  |      |  | 2,820  |  |  |  |       | 
|Interest income from certain
shareholders of the Company                                         |  |  | (vi   | ) |      |  | 6,099                   |  |      |  |       |  |  |  |       | 
|Interest income from a subsidiary
of a shareholder                                               |  |  | (vii  | ) |      |  | 1,790                   |  |      |  | 995    |  |  |  |       | 
|Rental expenses in connection with
the leasing of transponders from a
shareholder of the Company |  |  | (viii | ) |      |  | 819                     |  |      |  | 3,510  |  |  |  | 2,574  | 
|Interest paid to shareholders                                                                    |  |  | (ix   | ) |      |  | 11                      |  |      |  |       |  |  |  |       | 
|Technical support services expenses
paid to a shareholder of the Company                         |  |  | (x    | ) |      |  |                        |  |      |  | 4,490  |  |  |  |       | 
|Management fee expenses to a holding
company of a shareholder of the Company                     |  |  | (xi   | ) |      |  |                        |  |      |  | 1,802  |  |  |  | 2,280  | 

57



---



##### Table of Contents



|                                                                                                        |                 |  |       |   |      |  |                         |       |      |  |        |         |  |  |   |        | 
|------------------------------------------------------------------------------------------------------- | --------------- |  | ----- | - | ---- |  | ----------------------- | ----- | ---- |  | ------ | ------- |  |  | - | ------ | 
|                                                                                                        |                 |  |       |   |      |  | Year ended December 31,
|                                                                                                        |                 |  |       |   |      |  |                        
|                                                                                                        |                 |  | Notes |   | 2000 |  | 2001                    |       | 2002
|                                                                                                        |                 |  |       |   |      |  |                         |       |     
|Land and buildings transferred to a
jointly controlled entity                                           |                 |  | (xii  | ) |      |  |                        |       |      |  | 13,657 |         |  |  |  |       
|Payments in connection with the
APSTAR V project to a shareholder
of the Company                        |                 |  | (xiii | ) |      |  |                         |       |      |  |        |         |  |  |   |       
|                                                                                                        |  services fees |  |       |   |      |  |                         | 2,340 |      |  |        | 1,560   |  |  |   |       | 
|                                                                                                        |  deposit       |  |       |   |      |  |                         | 7,800 |      |  |        |        |  |  |   |       | 
|Payments in connection with the
APSTAR V project to a fellow subsidiary
of a shareholder of the Company |                 |  | (xiii | ) |      |  |                         |       |      |  |        |         |  |  |   |       
|                                                                                                        |  service fee   |  |       |   |      |  |                         |      |      |  |        | 140,166 |  |  |   | 12,324 | 

Notes:



|(i)    |  | The terms and conditions of these transponder lease
agreements are similar to those contracted with other customers of
the Company.                                                                                
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|(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.                                                 
|      
|(v)    |  | The interest income from a jointly controlled entity arose
from loans made to the entity, further details of which are
disclosed in Item 18 and note 7 of the Notes to Audited
Consolidated Financial Statements.
|      
|(vi)   |  | The interest income arose from interest charged on overdue
trade receivables under terms and conditions of transponder lease
agreements which are similar to those contracted with other
customers of the Company. 
|      
|(vii)  |  | The interest income is calculated at 4.25% per annum on the
outstanding principal.                                                                                                                                 
|      
|(viii) |  | The directors consider that the terms and conditions of these
transponders lease agreements are similar to those offered to other
customers by the lessor.                                                         
|      
|(ix)   |  | The interest paid to shareholders is calculated at six months
LIBOR.                                                                                                                                               
|      
|(x)    |  | 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.                           
|      
|(xi)   |  | Management fee expenses arose from a reimbursement of cost of
services provided from the holding company of a shareholder of the
Company.                                                                          
|      
|(xii)  |  | The land and buildings were transferred at the net book
value at the date of transfer.                                                                                                                             
|      
|(xiii) |  | The directors consider that the service fee was charged according
to prices and conditions similar to those offered to other customers
by the launch service provider.                                             

At the balance sheet date, the Group had the following amounts included in
the balance sheet in respect of amounts owing by and to related parties (in HK$
thousands).

58



---



##### Table of Contents



|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|----------------------------------------------- |  | ----------- | ------ | --------------------- |  | --------------- | --- | ------------------- |  | --------- | ------ | ----- |  | ---------------- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                |  |             |        |                       |  |                 |     |                     |  | Deposits, |        | Other |  | Rentals received
|                                                |  | Trade       |        | prepayments           |  | payables and    |     | in advance         
|                                                |  | receivables |        | and other receivables |  | accrued charges |     | and deferred income
|                                                |  |             |        |                       |  |                 |     |                    
|                                                |  | 2001        |        | 2002                  |  | 2001            |     | 2002                |  | 2001      |        | 2002  |  | 2001             |        | 2002
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |     
|Jointly controlled entities                     |  |             |       |                       |  |                 | 101 |                     |  |           | 36,471 |       |  |                  | 52,215 |      |  |  | 3,329  |  |  |  | 1,590  |  |  |  |       |  |  |  |       | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Certain shareholders of the Company             |  |             | 11,098 |                       |  |                 | 53  |                     |  |           | 956    |       |  |                  |       |      |  |  | 4,594  |  |  |  | 4,665  |  |  |  | 21,309 |  |  |  | 12,638 | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Holding company of a shareholder
of the Company |  |             |       |                       |  |                 |    |                     |  |           |       |       |  |                  |       |      |  |  | 35,112 |  |  |  | 31,862 |  |  |  |       |  |  |  | 1,113  | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Shareholder of a jointly controlled entity      |  |             |       |                       |  |                 |    |                     |  |           | 4,673  |       |  |                  | 4,673  |      |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 

At December 31, 2001 and 2002, the Company had an outstanding commitment to pay
an additional service fee to a fellow subsidiary of a shareholder of the
Company amounting to HK$330.2 million and HK$317.9 million (US$40.8 million),
respectively.




Item 8. Financial Information

See Item 18 for presentation of the Companys financial statements.




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$) |       | Low (HK$)
|     |                             |  |            |       |          
|1998 |                             |  | 12.800     |       |           |  | 2.300 |      
|1999 |                             |  | 6.800      |       |           |  | 2.380 |      
|2000 |                             |  | 8.450      |       |           |  | 4.250 |      
|2001 |                             |  |            |       |           |  |       |      
|     | Quarter ended March 31     |  |            | 3.750 |           |  |       | 2.800 | 
|     | Quarter ended June 30      |  |            | 4.600 |           |  |       | 2.875 | 
|     | Quarter ended September 30 |  |            | 3.850 |           |  |       | 2.200 | 
|     | Quarter ended December 31  |  |            | 4.000 |           |  |       | 2.375 | 
|2002 |                             |  |            |       |           |  |       |      
|     | 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 |           |  |       | 1.390 | 
|     | December                   |  |            | 1.650 |           |  |       | 1.390 | 
|2003 |                             |  |            |       |           |  |       |      
|     | January                    |  |            | 1.830 |           |  |       | 1.420 | 
|     | February                   |  |            | 1.620 |           |  |       | 1.500 | 
|     | March                      |  |            | 1.550 |           |  |       | 1.250 | 
|     | April                      |  |            | 1.400 |           |  |       | 1.020 | 
|     | May                        |  |            | 1.800 |           |  |       | 1.080 | 

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, 2003, there were 43 holders of records of ADSs
with addresses in the United States and

59



---



##### Table of Contents



such holders owned an aggregate of
4,972,164 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$) |        | Low (US$)
|     |                             |  |            |        |          
|1998 |                             |  | 14.0000    |        |           |  | 2.0000 |       
|1999 |                             |  | 7.1250     |        |           |  | 2.4375 |       
|2000 |                             |  | 9.2500     |        |           |  | 4.3750 |       
|2001 |                             |  |            |        |           |  |        |       
|     | Quarter ended March 31     |  |            | 4.0400 |           |  |        | 2.7000 | 
|     | Quarter ended June 30      |  |            | 4.3500 |           |  |        | 2.8000 | 
|     | Quarter ended September 30 |  |            | 3.9900 |           |  |        | 2.1500 | 
|     | Quarter ended December 31  |  |            | 3.7300 |           |  |        | 2.3000 | 
|2002 |                             |  |            |        |           |  |        |       
|     | Quarter ended March 31     |  |            | 3.6000 |           |  |        | 3.1000 | 
|     | Quarter ended June 30      |  |            | 3.1900 |           |  |        | 2.8000 | 
|     | Quarter ended September 30 |  |            | 2.9700 |           |  |        | 1.7600 | 
|     | Quarter ended December 31  |  |            | 2.0000 |           |  |        | 1.1500 | 
|     | December                   |  |            | 2.0000 |           |  |        | 1.5000 | 
|2003 |                             |  |            |        |           |  |        |       
|     | January                    |  |            | 2.0500 |           |  |        | 1.6100 | 
|     | February                   |  |            | 1.8000 |           |  |        | 1.5300 | 
|     | March                      |  |            | 1.6000 |           |  |        | 1.3800 | 
|     | April                      |  |            | 1.5900 |           |  |        | 1.1000 | 
|     | May                        |  |            | 2.2400 |           |  |        | 1.2100 | 




Item 10. Additional Information




Memorandum of Association and By-laws

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

60



---



##### Table of Contents





| |    |  | 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 is materially interested, and
if he shall do so his vote shall not be counted and he shall not be counted in
the quorum of such resolution of the Board. But this prohibition shall not
apply to any of the following matters:



| | (i)   |  | any contract or arrangement for the giving by the Company or
any of its subsidiaries of any security or indemnity to the Director
in respect of money lent by him or obligations incurred or
undertaken by him 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 has himself 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 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 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 of its subsidiaries for subscription or purchase where the
Director is or is to be interested as a participant in the
underwriting or sub-underwriting of the offer;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (v)   |  | any contract or arrangement in which the Director is
interested in the same manner as other holders of shares or
debentures or other securities of the Company or any of its
subsidiaries by virtue only of his interest in shares or debentures
or other securities of the Company or any of its subsidiaries;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (vi)  |  | any contract, arrangement or proposal concerning any company
in which he is interested only, whether directly or indirectly, as
an officer or executive or a shareholder or in which he is
beneficially interested in shares of that company provided that the
Director together with any of his associates (a company shall be
deemed to be a company in which a Director together with any of his
associates has an interest of 5% or more if any so long as he and
his associates are the holders of or beneficially interested in 5%
or more of the issued shares of any class of the equity capital of
the Company except shares held by a Director as bare or custodian
trustee and in which he has no beneficial interest) is not
beneficially interested in 5% or more of the issued shares or of the
voting rights of any class of shares of the Company; or
|
| | (vii) |  | any proposal or arrangement for the benefit of employees of
the Company or its subsidiaries or its associated companies
including the adoption, modification or operation of a pension fund
or retirement, death or disability benefit scheme which relates both
the directors and employees of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

61



---



##### Table of Contents





| |        |  | Company or of any of its subsidiaries or its associated companies
and does not give the Director any privilege or advantage not
accorded to the employees 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 or its associated
companies under which the Director may benefit it.

As to the question of the materiality of the interest of a Director or as
to the entitlement of any Director 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.

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 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 By-laws of the Company,
every shareholder of the Company present in person or by proxy, on

62



---



##### Table of Contents



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 By-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 By-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 By-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 By-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.

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,

63



---



##### Table of Contents



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 By-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 By-laws of the
Company.

Change in Control

The By-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 By-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 By-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.

64



---



##### Table of Contents



Changes in Capital

The By-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 will replace the APSTAR I as it would
retire in the middle of 2004. 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.

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 is scheduled in July 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 is due to expire at the end of 2006.

In order to cope with the operations and control of APSTAR V and APSTAR VI
satellites, the Company, since the ground breaking ceremony of the new
Satellite Control Center Phase II (Phase II) held on January 9, 2001, has
committed a total of approximately HK$100 million (approximately US$12.8
million) for the Phase II which is located adjacent to its existing Satellite
Control Center and such investment will be financed by its internal resources
and/or bank loan.




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

65



---



##### Table of Contents



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 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. 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.

66



---



##### Table of Contents



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 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

67



---



##### Table of Contents



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.

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.

68



---



##### Table of Contents



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 includes (i) rent and lease income
(not including rent and lease 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 Managements
Discussion and Analysis of Financial Condition and Results of
Operations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 770(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.

69



---



##### Table of Contents



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.

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 31% 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.

70



---



##### Table of Contents






Interest Rate Risk

The Company is subject to interest rate risk due to fluctuation in
interest rates. As of December 31, 2002, the Companys outstanding bank loans
consist of fixed and variable interest rate loans. 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 2002. 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.

The following table contains information about the Companys bank loans
that are sensitive to changes in interest rates, as of December 31, 2002:

|                         |  |                                          |       |      |  |      |   |      |  |      |      |            |  |  |      |   |  |  |   |  |  |  |   | 
|------------------------ |  | ---------------------------------------- | ----- | ---- |  | ---- | - | ---- |  | ---- | ---- | ---------- |  |  | ---- | - |  |  | - |  |  |  | - | 
|                         |  | Expected Maturity Date                  
|                         |  |                                         
|                         |  | 2003                                     |       | 2004 |  | 2005 |   | 2006 |  | 2007 |      | Thereafter
|                         |  |                                          |       |      |  |      |   |      |  |      |      |           
|                         |  | (HK$ in millions, except interest rates)
|Fixed rate bank loan     |  |                                          | 317.7 |      |  |      |  |      |  |      |     |            |  |  |     |   |  |  |  |  |  |  |  | 
|Average interest rate    |  |                                          | 12.00 | %    |  |      |  |      |  |      |     |            |  |  |     |   |  |  |  |  |  |  |  | 
|Variable rate bank loan  |  |                                          |      |      |  |      |  |      |  |      | 85.8 |            |  |  | 78.0 |   |  |  |  |  |  |  |  | 
|Average
interest rate(1) |  |                                          |      |      |  |      |  |      |  |      | 2.67 | %          |  |  | 3.01 | % |  |  |  |  |  |  |  | 



---

|(1) |  | The interest rates are the implied future LIBOR rates calculated from US
swap as proxy.
|--- |  | ---------------------------------------------------------------------------------------

For the year ended December 31, 2002, if the average interest rate for the
variable rate bank loan had increased by 10%, the additional interest expenses
of HK$8 thousand would have been 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, 2002 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.

71



---



##### Table of Contents



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. Control and Procedures

Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer of the Company, of the
effectiveness of the design and operation of our disclosure controls. Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in timely alerting them to material information required to be included in the
Companys periodic SEC reports. It should be noted that the design of any
system of control is based in part on certain assumptions about the likelihood
of future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.

In addition, the Company reviewed its internal controls, and there were no
significant changes in the Companys internal controls or in other factors that
could significantly affect those controls subsequent to the date of their last
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.




Item 16. [Reserved.]

Not applicable.

Part III




Item 17. Financial Statements

Not Applicable.

[Remainder of this page intentionally left blank]

72



---



##### Table of Contents






Item 18. Financial Statements



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | APT SATELLITE HOLDINGS LIMITED                                                                                
| | Consolidated Financial Statements
Years ended December 31, 2000 2001 and 2002
and Independent Auditors Report

73



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

INDEX TO FINANCIAL STATEMENTS

|                                                                                                                |  |  |            | 
|--------------------------------------------------------------------------------------------------------------- |  |  | ---------- | 
|Independent Auditors Report                                                                                    |  |  | F - 2      | 
|Consolidated Balance Sheets as of December 31, 2001 and 2002                                                    |  |  | F - 3 & 4  | 
|Consolidated Statements of Income for the years ended
December 31, 2000, 2001 and 2002                          |  |  | F - 5      | 
|Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2000, 2001 and 2002 |  |  | F - 6      | 
|Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002                      |  |  | F - 7 & 8  | 
|Notes to Consolidated Financial Statements                                                                      |  |  | F - 9 - 47 | 

F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Shareholders of
APT Satellite Holdings Limited

We have audited the accompanying consolidated balance sheets of APT
Satellite Holdings Limited and subsidiaries as of December 31, 2001 and
2002 and the related consolidated statements of income, changes in
shareholders equity and cash flows for the years ended December 31, 2000,
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 audits.

We conducted our audits in accordance with auditing standards generally
accepted in Hong Kong and the United States of America. Those standards
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in
all material respects, the consolidated financial position of APT
Satellite Holdings Limited and subsidiaries as of December 31, 2001 and
2002, and the consolidated results of their operations and their cash
flows for the years ended December 31, 2000, 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 application of the latter would have
affected the determination of net income for the years ended December 31,
2000, 2001 and 2002, and the determination of shareholders equity and
financial position as of December 31, 2001 and 2002, to the extent
summarised in Note 26.

Our audits also comprehended the translation of Hong Kong dollar amounts
into U.S. dollar amounts and, in our opinion, such translation has been
made in conformity with the basis stated in Note 2. Such U.S. dollar
amounts are presented solely for the convenience of readers in the United
States of America.

Deloitte Touche Tohmatsu
Hong Kong
April 7, 2003 (July 1, 2003 as to note 25)

F-2



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS

(Amounts stated in thousands, except share data)

|                |                                                                                 |                                                  |                                              |           |              |           |           |           |       |           |         |         |     |         | 
|--------------- | ------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------- | --------- | ------------ | --------- | --------- | --------- | ----- | --------- | ------- | ------- | --- | ------- | 
|                |                                                                                 |                                                  |                                              |           | December 31,
|                |                                                                                 |                                                  |                                              |           |             
|                |                                                                                 |                                                  |                                              |           | 2001         |           | 2002      |           | 2002 
|                |                                                                                 |                                                  |                                              |           |              |           |           |           |      
|                |                                                                                 |                                                  |                                              |           | HK$          |           | HK$       |           | US$  
|ASSETS          |                                                                                 |                                                  |                                              |           |              |           |           |           |       |           |         |        
|Current assets: |                                                                                 |                                                  |                                              |           |              |           |           |           |       |           |         |        
|                | Cash and cash equivalents                                                       |                                                  |                                              | 1,619,686 |              |           |           | 826,257   |       |           |         | 105,930 |    
|                | Pledged bank deposits (note 10)                                                 |                                                  |                                              | 61,986    |              |           |           | 317,686   |       |           |         | 40,729  |    
|                | Accounts receivable, less allowance of HK$12,305
in 2001 and HK$1,548 in 2002   |                                                  |                                              | 25,506    |              |           |           | 23,981    |       |           |         | 3,075   |    
|                | Amount due from an immediate holding company                                    |                                                  |                                              | 20        |              |           |           |          |       |           |         |        |    
|                | Amount due from an associate                                                    |                                                  |                                              |          |              |           |           | 209       |       |           |         | 27      |    
|                | Deposits, prepayments and other receivables, less
allowance of HK$4,489 in 2002 |                                                  |                                              | 17,343    |              |           |           | 57,878    |       |           |         | 7,420   |    
|                |                                                                                 |                                                  |                                              |           |              |           |           |           |       |           |         |         |    
|                |                                                                                 |                                                  | Total current assets                         |           |              | 1,724,541 |           |           |       | 1,226,011 |         |         |     | 157,181 | 
|                | Property, plant and equipment, net (note 5)                                     |                                                  |                                              | 1,150,027 |              |           |           | 2,018,873 |       |           |         | 258,830 |    
|                | Investment property (note 6)                                                    |                                                  |                                              | 2,402     |              |           |           | 2,332     |       |           |         | 299     |    
|                | Other assets:                                                                   |                                                  |                                              |           |              |           |           |           |       |           |         |         |    
|                |                                                                                 | Goodwill (note 9)                                |                                              |           |             |           |           |           |      |           |         |         |    |        
|                |                                                                                 | Interest in jointly controlled entities (note 7) |                                              |           |              |           |           |           |       |           |         |         |     |        
|                |                                                                                 |                                                  | Share of net assets                          |           |              | 44,163    |           |           |       | 34,047    |         |         |     | 4,365   | 
|                |                                                                                 |                                                  | Amounts due from jointly controlled entities |           |              | 36,245    |           |           |       | 52,216    |         |         |     | 6,694   | 
|                |                                                                                 | Interest in an associate (note 8)                |                                              |           |             |           |           |           |      |           |         |         |    |        
|                |                                                                                 | Pledged bank deposits (note 10)                  |                                              |           | 317,682      |           |           |           |      |           |         |         |    |        
|                |                                                                                 | Others                                           |                                              |           | 5,638        |           |           |           | 5,890 |           |         |         | 755 |        
|                |                                                                                 |                                                  |                                              |           |              |           |           |           |       |           |         |         |    
|TOTAL ASSETS    |                                                                                 |                                                  | 3,280,698                                    |           |              |           | 3,339,369 |           |       |           | 428,124 |        
|                |                                                                                 |                                                  |                                              |           |              |           |           |           |       |           |         |         |    

F-3



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEETS (continued)

(Amounts stated in thousands, except share data)

|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |         | 
|------------------------------------------ | ------------------------------------------ | -------------------------- | --------- | ------------ | --------- | ---- | --------- | --------- | --------- |  | ------- | ------- | ------- | 
|                                           |                                            |                            |           | December 31,
|                                           |                                            |                            |           |             
|                                           |                                            |                            |           | 2001         |           | 2002 |           | 2002     
|                                           |                                            |                            |           |              |           |      |           |          
|                                           |                                            |                            |           | HK$          |           | HK$  |           | US$      
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                            |                            |           |              |           |      |           |           |           |  |         |        
|Current liabilities:                       |                                            |                            |           |              |           |      |           |           |           |  |         |        
|                                           | Accrued expenses (note 11)                 |                            |           | 90,517       |           |      |           | 44,048    |           |  |         | 5,647   |        
|                                           | Rentals received in advance                |                            |           | 57,679       |           |      |           | 43,482    |           |  |         | 5,575   |        
|                                           | Income taxes payable                       |                            |           | 62,967       |           |      |           | 81,279    |           |  |         | 10,420  |        
|                                           | Bank loans  current portion (note 10)     |                            |           | 61,986       |           |      |           | 317,682   |           |  |         | 40,729  |        
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        
|                                           |                                            | Total current liabilities  |           |              | 273,149   |      |           |           | 486,491   |  |         |         | 62,371  | 
|                                           | Loan from a minority shareholder           |                            |           |             |           |      |           | 7,488     |           |  |         | 960     |        
|                                           | Deposits received                          |                            |           | 43,651       |           |      |           | 39,542    |           |  |         | 5,069   |        
|                                           | Bank loans  non current portion (note 10) |                            |           | 317,682      |           |      |           | 163,800   |           |  |         | 21,000  |        
|                                           | Deferred income                            |                            |           | 57,904       |           |      |           | 41,436    |           |  |         | 5,312   |        
|                                           | Deferred taxation (note 18)                |                            |           | 123,675      |           |      |           | 125,463   |           |  |         | 16,085  |        
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        
|                                           |                                            | Total liabilities          |           |              | 816,061   |      |           |           | 864,220   |  |         |         | 110,797 | 
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        
|Contingencies and commitments (note 12)    |                                            |                            |           |              |           |      |           |           |           |  |         |        
|Minority interests                         |                                            |                            |          |              |           |      | 6,838     |           |           |  | 877     |        
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        
|Shareholders equity:                      |                                            |                            |           |              |           |      |           |           |           |  |         |        
|                                           | Capital stock  Common stock (note 14)     |                            |           | 41,272       |           |      |           | 41,254    |           |  |         | 5,289   |        
|                                           | Additional paid-in capital (note 15)       |                            |           | 1,794,809    |           |      |           | 1,794,520 |           |  |         | 230,067 |        
|                                           | Translation reserve                        |                            |           |             |           |      |           | 182       |           |  |         | 23      |        
|                                           | Other reserves (note 15)                   |                            |           | 64           |           |      |           | 94        |           |  |         | 12      |        
|                                           | Retained earnings                          |                            |           | 628,492      |           |      |           | 632,261   |           |  |         | 81,059  |        
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        
|                                           |                                            | Total shareholders equity |           |              | 2,464,637 |      |           |           | 2,468,311 |  |         |         | 316,450 | 
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        
|TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY |                                            |                            | 3,280,698 |              |           |      | 3,339,369 |           |           |  | 428,124 |        
|                                           |                                            |                            |           |              |           |      |           |           |           |  |         |         |        

The accompanying notes are an integral part of these consolidated financial statements.

F-4



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF INCOME

(Amounts stated in thousands, except share data)

|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------- | -------- | ---- | ----------- | ----------- | -------- | ---------- | ---------- | -------- | --------- | --------- |  | ------- | ------- | -
|                                                                                                        |                                                                                                                    |  | For the years ended December 31, 2000, 2001 and 2002
|                                                                                                        |                                                                                                                    |  |                                                     
|                                                                                                        |                                                                                                                    |  | 2000                                                 |          | 2001 |             | 2002        |          | 2002      
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |           
|                                                                                                        |                                                                                                                    |  | HK$                                                  |          | HK$  |             | HK$         |          | US$       
|Revenues:                                                                                               |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |        
|Leasing of satellite transponders to:                                                                   |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |        
|                                                                                                        | Unaffiliated customers                                                                                             |  |                                                      | 315,179  |      |             |             | 312,891  |            |            |          | 262,571   |           |  |         | 33,663  |  
|                                                                                                        | Related parties (note 19)                                                                                          |  |                                                      | 14,797   |      |             |             | 46,591   |            |            |          | 61,390    |           |  |         | 7,871   |  
|Service income received from:                                                                           |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |        
|                                                                                                        | Unaffiliated customers                                                                                             |  |                                                      | 11,020   |      |             |             | 13,176   |            |            |          | 17,464    |           |  |         | 2,239   |  
|                                                                                                        | Related parties (note 19)                                                                                          |  |                                                      | 500      |      |             |             | 1,500    |            |            |          | 10,000    |           |  |         | 1,282   |  
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Total revenues                                                                                          |                                                                                                                    |  | 341,496                                              |          |      |             | 374,158     |          |            |            | 351,425  |           |           |  | 45,055  |        
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Costs and expenses:                                                                                     |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |        
|                                                                                                        | Cost of service including depreciation and
amortization of 2000: HK$216,808,
2001: HK$217,021 and
2002: HK$233,971 |  |                                                      | (261,518 | )    |             |             | (266,015 | )          |            |          | (275,717  | )         |  |         | (35,348 | )
|                                                                                                        | Selling, general and administrative                                                                                |  |                                                      | (65,540  | )    |             |             | (71,922  | )          |            |          | (69,886   | )         |  |         | (8,960  | )
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Total costs and expenses                                                                                |                                                                                                                    |  | (327,058                                             | )        |      |             | (337,937    | )        |            |            | (345,603 | )         |           |  | (44,308 | )      
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|                                                                                                        |                                                                                                                    |  | 14,438                                               |          |      |             | 36,221      |          |            |            | 5,822    |           |           |  | 747     |        
|Other operating income:                                                                                 |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |        
|                                                                                                        | Interest income  net                                                                                              |  |                                                      | 106,502  |      |             |             | 70,221   |            |            |          | 22,189    |           |  |         | 2,845   |  
|                                                                                                        | Reversal of provision on regulatory
matters previously recognised in the life
lease of transponders of APSTAR IIR  |  |                                                      | 45,788   |      |             |             |         |            |            |          | 47,212    |           |  |         | 6,053   |  
|                                                                                                        | Other income                                                                                                       |  |                                                      | 27,452   |      |             |             | 8,270    |            |            |          | 2,926     |           |  |         | 375     |  
|Deficit arising on revaluation of
investment property (note 6)                                          |                                                                                                                    |  |                                                     |          |      |             | (45         | )        |            |            | (70      | )         |           |  | (9      | )      
|Impairment loss recognised in respect
of land and buildings                                             |                                                                                                                    |  |                                                     |          |      |             |            |          |            |            | (5,218   | )         |           |  | (669    | )      
|Impairment loss recognised in respect
of goodwill arising on acquisition
of an interest in a subsidiary |                                                                                                                    |  |                                                     |          |      |             |            |          |            |            | (3,376   | )         |           |  | (433    | )      
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Profit from operations (note 20(a))                                                                     |                                                                                                                    |  | 194,180                                              |          |      |             | 114,667     |          |            |            | 69,485   |           |           |  | 8,909   |        
|Interest expense                                                                                        |                                                                                                                    |  | (15,338                                              | )        |      |             | (5,644      | )        |            |            |         |           |           |  |        |        
|Share of losses of jointly controlled entities                                                          |                                                                                                                    |  | (1,335                                               | )        |      |             | (5,067      | )        |            |            | (10,624  | )         |           |  | (1,362  | )      
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Income before income taxes and minority
interests                                                       |                                                                                                                    |  | 177,507                                              |          |      |             | 103,956     |          |            |            | 58,861   |           |           |  | 7,547   |        
|Provision for income taxes (note 17)                                                                    |                                                                                                                    |  | (34,511                                              | )        |      |             | (25,947     | )        |            |            | (36,814  | )         |           |  | (4,720  | )      
|Minority interests                                                                                      |                                                                                                                    |  |                                                     |          |      |             |            |          |            |            | 2,388    |           |           |  | 306     |        
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Net income                                                                                              |                                                                                                                    |  | 142,996                                              |          |      |             | 78,009      |          |            |            | 24,435   |           |           |  | 3,133   |        
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|Earnings per share                                                                                      |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |          
|                                                                                                        | - Basic                                                                                                            |  | 34.26 cents                                          |          |      | 18.90 cents |             |          | 5.92 cents |            |          | 0.76cents |          
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  
|                                                                                                        | - Diluted                                                                                                          |  |                                                      | N/A      |      |             | 18.85 cents |          |            | 5.92 cents |          |           | 0.76cents | 
|                                                                                                        |                                                                                                                    |  |                                                      |          |      |             |             |          |            |            |          |           |           |  |         |         |  

The accompanying notes are an integral part of these consolidated financial statements.

F-5



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

For the years ended December 31, 2000, 2001 and 2002
(Amounts stated in thousands)

|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|------------------------------------------------------------------------------ |  | ------- | ------ | ------- |  | ----------- | --------- | -------- |  | -------- | --- | ----- |  |  | -- |  |  |  | -------- | - |  |  | --------- | -
|                                                                               |  |         |        |         |  | Additional  |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  | 
|                                                                               |  | Capital |        | paid-in |  | Translation |           | Other    |  | Retained |     |       |  | 
|                                                                               |  | stock   |        | capital |  | reserve     |           | reserves |  | earnings |     | Total
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |      
|                                                                               |  | HK$     |        | HK$     |  | HK$         |           | HK$      |  | HK$      |     | HK$  
|Balance at January 1, 2000                                                     |  |         | 42,000 |         |  |             | 1,826,522 |          |  |          |    |       |  |  |   |  |  |  | 637,276  |   |  |  | 2,505,798 |  
|Repurchase of shares                                                           |  |         | (720   | )       |  |             | (31,529   | )        |  |          |    |       |  |  |   |  |  |  |         |   |  |  | (32,249   | )
|Dividends declared                                                             |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | (167,805 | ) |  |  | (167,805  | )
|Net profit for the year                                                        |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | 142,996  |   |  |  | 142,996   |  
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|Balance at January 1, 2001                                                     |  |         | 41,280 |         |  |             | 1,794,993 |          |  |          |    |       |  |  |   |  |  |  | 612,467  |   |  |  | 2,448,740 |  
|Repurchase of shares                                                           |  |         | (8     | )       |  |             | (184      | )        |  |          |    |       |  |  |   |  |  |  |         |   |  |  | (192      | )
|Transfer to other reserves                                                     |  |         |       |         |  |             |          |          |  |          |    |       |  |  | 64 |  |  |  | (64      | ) |  |  |          |  
|Dividends declared                                                             |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | (61,920  | ) |  |  | (61,920   | )
|Net profit for the year                                                        |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | 78,009   |   |  |  | 78,009    |  
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|At January 1, 2002                                                             |  |         | 41,272 |         |  |             | 1,794,809 |          |  |          |    |       |  |  | 64 |  |  |  | 628,492  |   |  |  | 2,464,637 |  
|Repurchase of shares                                                           |  |         | (18    | )       |  |             | (289      | )        |  |          |    |       |  |  |   |  |  |  |         |   |  |  | (307      | )
|Translation difference not recognised
in the consolidated statements of income |  |         |       |         |  |             |          |          |  |          | 182 |       |  |  |   |  |  |  |         |   |  |  | 182       |  
|Transfer to other reserves                                                     |  |         |       |         |  |             |          |          |  |          |    |       |  |  | 30 |  |  |  | (30      | ) |  |  |          |  
|Dividends declared                                                             |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | (20,636  | ) |  |  | (20,636   | )
|Net profit for the year                                                        |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | 24,435   |   |  |  | 24,435    |  
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|At December 31, 2002                                                           |  |         | 41,254 |         |  |             | 1,794,520 |          |  |          | 182 |       |  |  | 94 |  |  |  | 632,261  |   |  |  | 2,468,311 |  
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|At December 31, 2002 (in US$)                                                  |  |         | 5,289  |         |  |             | 230,067   |          |  |          | 23  |       |  |  | 12 |  |  |  | 81,059   |   |  |  | 316,450   |  
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|Attributable to jointly controlled entities                                    |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|At December 31, 2002                                                           |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | (15,028  | ) |  |  | (15,028   | )
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  
|At December 31, 2001                                                           |  |         |       |         |  |             |          |          |  |          |    |       |  |  |   |  |  |  | (6,402   | ) |  |  | (6,402    | )
|                                                                               |  |         |        |         |  |             |           |          |  |          |     |       |  |  |    |  |  |  |          |   |  |  |           |  

F-6



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts stated in thousands)

|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|--------------------------------------------------- | ------------------------------------------------------------------------------- |  | ---------------------------------------------------- | --------- | ---- |  | -------- | -------- | ---- |  | ---------- | ---------- | - |  | -------- | -------- | -
|                                                    |                                                                                 |  | For the years ended December 31, 2000, 2001 and 2002
|                                                    |                                                                                 |  |                                                     
|                                                    |                                                                                 |  | 2000                                                 |           | 2001 |  | 2002     |          | 2002
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |     
|                                                    |                                                                                 |  | HK$                                                  |           | HK$  |  | HK$      |          | US$ 
|Cash flow from operating activities                 |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |         
|                                                    | Income before income taxes                                                      |  |                                                      | 177,507   |      |  |          | 103,956  |      |  |            | 58,861     |   |  |          | 7,547    |  
|                                                    | Adjustments for:                                                                |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|                                                    | Depreciation                                                                    |  |                                                      | 216,808   |      |  |          | 217,021  |      |  |            | 233,971    |   |  |          | 29,996   |  
|                                                    | Amortisation of goodwill                                                        |  |                                                      |          |      |  |          |         |      |  |            | 660        |   |  |          | 85       |  
|                                                    | Impairment losses                                                               |  |                                                      |          |      |  |          |         |      |  |            | 8,594      |   |  |          | 1,102    |  
|                                                    | Interest income                                                                 |  |                                                      | (106,502  | )    |  |          | (70,221  | )    |  |            | (22,189    | ) |  |          | (2,845   | )
|                                                    | Interest expense                                                                |  |                                                      | 15,338    |      |  |          | 5,644    |      |  |            |           |   |  |          |         |  
|                                                    | (Gain) loss on disposal of property, plant and equipment                        |  |                                                      | (498      | )    |  |          | 37       |      |  |            | 30         |   |  |          | 4        |  
|                                                    | Deficit arising on the revaluation of investment property                       |  |                                                      |          |      |  |          | 45       |      |  |            | 70         |   |  |          | 9        |  
|                                                    | Share of losses of jointly controlled entities                                  |  |                                                      | 1,335     |      |  |          | 5,067    |      |  |            | 10,624     |   |  |          | 1,362    |  
|                                                    | Reversal of provision on regulatory matters                                     |  |                                                      | (45,788   | )    |  |          |         |      |  |            | (47,212    | ) |  |          | (6,053   | )
|                                                    | Allowance for doubtful receivables                                              |  |                                                      |          |      |  |          |         |      |  |            | 5,207      |   |  |          | 668      |  
|                                                    | Gain on disposal of a portion of an interest in a jointly
controlled entity     |  |                                                      | (2,500    | )    |  |          |         |      |  |            |           |   |  |          |         |  
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|                                                    | Operating profit before working capital changes                                 |  |                                                      | 255,700   |      |  |          | 261,549  |      |  |            | 248,616    |   |  |          | 31,875   |  
|                                                    | Decrease in trade receivables                                                   |  |                                                      | 2,378     |      |  |          | 34,422   |      |  |            | 1,659      |   |  |          | 213      |  
|                                                    | Increase in transponder lease deposits                                          |  |                                                      |          |      |  |          | (101     | )    |  |            | (252       | ) |  |          | (33      | )
|                                                    | (Increase) decrease in amount due from an immediate
holding company             |  |                                                      |          |      |  |          | (20      | )    |  |            | 20         |   |  |          | 3        |  
|                                                    | Decrease (increase) in deposits, prepayments and other
receivables              |  |                                                      | 1,407,904 |      |  |          | (833     | )    |  |            | (30,175    | ) |  |          | (3,869   | )
|                                                    | (Decrease) increase in other payables and accrued charges                       |  |                                                      | (3,051    | )    |  |          | 13,450   |      |  |            | (5,534     | ) |  |          | (710     | )
|                                                    | (Decrease) increase in rentals received in advance                              |  |                                                      | (1,159    | )    |  |          | 9,464    |      |  |            | (8,379     | ) |  |          | (1,074   | )
|                                                    | Decrease in amount due to a related company                                     |  |                                                      | (140      | )    |  |          | (1,709   | )    |  |            |           |   |  |          |         |  
|                                                    | (Increase) decrease in amounts due from jointly controlled
entities             |  |                                                      |          |      |  |          | (218     | )    |  |            | 198        |   |  |          | 25       |  
|                                                    | Increase in amount due from an associate                                        |  |                                                      |          |      |  |          |         |      |  |            | (209       | ) |  |          | (27      | )
|                                                    | Decrease in deferred income                                                     |  |                                                      | (20,682   | )    |  |          | (28,104  | )    |  |            | (22,286    | ) |  |          | (2,857   | )
|                                                    | Increase (decrease) in deposits received                                        |  |                                                      | 779       |      |  |          | 17,799   |      |  |            | (4,109     | ) |  |          | (527     | )
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|                                                    | Cash generated from operations                                                  |  |                                                      | 1,641,729 |      |  |          | 305,699  |      |  |            | 179,549    |   |  |          | 23,019   |  
|                                                    | Interest paid                                                                   |  |                                                      | (24,768   | )    |  |          | (6,461   | )    |  |            |           |   |  |          |         |  
|                                                    | Hong Kong profits tax paid                                                      |  |                                                      | (26,292   | )    |  |          | (5,704   | )    |  |            | (7,422     | ) |  |          | (951     | )
|                                                    | Overseas tax paid                                                               |  |                                                      | (13,299   | )    |  |          | (12,128  | )    |  |            | (9,364     | ) |  |          | (1,201   | )
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|Net cash inflow from operating activities           |                                                                                 |  | 1,577,370                                            |           |      |  | 281,406  |          |      |  | 162,763    |            |   |  | 20,867   |         
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|Investing activities                                |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |         
|                                                    | Additions to property, plant and equipment                                      |  |                                                      | (35,228   | )    |  |          | (230,227 | )    |  |            | (1,091,362 | ) |  |          | (139,918 | )
|                                                    | Acquisition of a subsidiary                                                     |  |                                                      |          |      |  |          |         |      |  |            | (4,421     | ) |  |          | (567     | )
|                                                    | Proceeds on disposal of a portion of an interest in a jointly
controlled entity |  |                                                      | 3,000     |      |  |          |         |      |  |            |           |   |  |          |         |  
|                                                    | Capital contribution to a jointly controlled entity                             |  |                                                      |          |      |  |          | (48,565  | )    |  |            |           |   |  |          |         |  
|                                                    | Proceeds on disposal of property, plant and equipment                           |  |                                                      | 2,126     |      |  |          | 13,659   |      |  |            | 5          |   |  |          | 1        |  
|                                                    | Increase in advances/loans to jointly controlled entities                       |  |                                                      | (65,141   | )    |  |          | (14,264  | )    |  |            | (23,650    | ) |  |          | (3,032   | )
|                                                    | Interest received                                                               |  |                                                      | 90,051    |      |  |          | 87,262   |      |  |            | 20,254     |   |  |          | 2,597    |  
|                                                    | Decrease in pledged bank deposits                                               |  |                                                      | 50,053    |      |  |          | 65,641   |      |  |            | 61,982     |   |  |          | 7,946    |  
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  
|Net cash inflow (outflow) from investing activities |                                                                                 |  | 44,861                                               |           |      |  | (126,494 | )        |      |  | (1,037,192 | )          |   |  | (132,973 | )       
|                                                    |                                                                                 |  |                                                      |           |      |  |          |          |      |  |            |            |   |  |          |          |  

F-7



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS- continued

(Amounts stated in thousands)

|                                                                                        |                                      |  |                                                      |          |      |  |           |          |      |  |           |         |   |  |          |        |  
|--------------------------------------------------------------------------------------- | ------------------------------------ |  | ---------------------------------------------------- | -------- | ---- |  | --------- | -------- | ---- |  | --------- | ------- | - |  | -------- | ------ | -
|                                                                                        |                                      |  | For the years ended December 31, 2000, 2001 and 2002
|                                                                                        |                                      |  |                                                     
|                                                                                        |                                      |  | 2000                                                 |          | 2001 |  | 2002      |          | 2002
|                                                                                        |                                      |  |                                                      |          |      |  |           |          |     
|                                                                                        |                                      |  | HK$                                                  |          | HK$  |  | HK$       |          | US$ 
|Financing activities                                                                    |                                      |  |                                                      |          |      |  |           |          |      |  |           |         |   |  |          |       
|                                                                                        | New bank borrowings                  |  |                                                      |         |      |  |           |         |      |  |           | 163,800 |   |  |          | 21,000 |  
|                                                                                        | Repayment of loans from shareholders |  |                                                      | (3,875   | )    |  |           |         |      |  |           |        |   |  |          |       |  
|                                                                                        | Repayment of bank borrowings         |  |                                                      | (229,940 | )    |  |           | (175,320 | )    |  |           | (61,986 | ) |  |          | (7,947 | )
|                                                                                        | Dividends paid                       |  |                                                      | (165,405 | )    |  |           | (64,320  | )    |  |           | (20,636 | ) |  |          | (2,646 | )
|                                                                                        | Repurchase of shares                 |  |                                                      | (32,249  | )    |  |           | (192     | )    |  |           | (307    | ) |  |          | (39    | )
|                                                                                        |                                      |  |                                                      |          |      |  |           |          |      |  |           |         |   |  |          |        |  
|Net cash (outflow) inflow from financing activities                                     |                                      |  | (431,469                                             | )        |      |  | (239,832  | )        |      |  | 80,871    |         |   |  | 10,368   |       
|                                                                                        |                                      |  |                                                      |          |      |  |           |          |      |  |           |         |   |  |          |        |  
|Net increase (decrease) in cash and cash equivalents                                    |                                      |  | 1,190,762                                            |          |      |  | (84,920   | )        |      |  | (793,558  | )       |   |  | (101,738 | )     
|Cash and cash equivalents at beginning of the year                                      |                                      |  | 513,844                                              |          |      |  | 1,704,606 |          |      |  | 1,619,686 |         |   |  | 207,652  |       
|Effect of foreign exchange rate changes                                                 |                                      |  |                                                     |          |      |  |          |          |      |  | 129       |         |   |  | 16       |       
|                                                                                        |                                      |  |                                                      |          |      |  |           |          |      |  |           |         |   |  |          |        |  
|Cash and cash equivalents at the end of the year,
represented by bank balances and cash |                                      |  | 1,704,606                                            |          |      |  | 1,619,686 |          |      |  | 826,257   |         |   |  | 105,930  |       
|                                                                                        |                                      |  |                                                      |          |      |  |           |          |      |  |           |         |   |  |          |        |  

The accompanying notes are an integral part of these consolidated financial statements.

F-8



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|1. |  | ORGANIZATION AND PRINCIPAL ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | APT 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, 2002, the construction of APSTAR V and APSTAR VI is
proceeding as planned and they are scheduled for delivery in July 2003 and
in the fourth quarter of 2004, respectively, to replace APSTAR I and
APSTAR IA.
|  
|   |  | Details of the Companys subsidiaries, two jointly controlled entities and an associate at December
31, 2002 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                                            |  |                        |  |                                                |  |                                                               
|--------------------------------------------------------------------------- |  | ---------------------- |  | ---------------------------------------------- |  | --------------------------------------------------------------
|                                                                            |  | Place of               |  | Class of                                       |  |                                                               
|Name                                                                        |  | incorporation          |  | shares held                                    |  | Principal activities                                          
|                                                                            |  |                        |  |                                                |  |                                                               
|Subsidiaries:                                                               |  |                        |  |                                                |  |                                                               
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite Investment Company
Limited                                    |  | British Virgin
Islands |  | Ordinary shares                                |  | Investment holding                                            
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite Company Limited
(APT)                                       |  | Hong Kong              |  | Ordinary shares
and non-voting
deferred shares |  | Satellite transponder
leasing                                 
|                                                                            |  |                        |  |                                                |  |                                                               
|Acme Star Investment Limited                                                |  | Hong Kong              |  | Ordinary shares                                |  | Investment holding                                            
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite Enterprise Limited                                            |  | Cayman Islands         |  | Ordinary shares                                |  | Satellite transponder
leasing                                 
|APT Satellite Global Company
Limited                                        |  | Cayman Islands         |  | Ordinary shares                                |  | Investment holding                                            
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite TV Development
Limited
(formerly APT Satellite Glory
Limited) |  | Hong Kong              |  | Ordinary shares                                |  | Provision of
satellite television
uplink and
downlink services
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite Link Limited                                                  |  | Cayman Islands         |  | Ordinary shares                                |  | Satellite transponder
leasing                                 
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite Vision Limited                                                |  | Hong Kong              |  | Ordinary shares                                |  | Satellite leasing                                             
|                                                                            |  |                        |  |                                                |  |                                                               
|APT Satellite (APSTAR V)
Limited                                            |  | Hong Kong              |  | Ordinary shares                                |  | Not yet commence
business                                     

F-9



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|1. |  | ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
|-- |  | -------------------------------------------------

|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ |  | ------------------ |  | -------------------------------------------------------
|                                                                                                                                                                                                        |  | Country of                                 |  |                    |  |                                                        
|                                                                                                                                                                                                        |  | incorporation/                             |  | Class of           |  |                                                        
|Name                                                                                                                                                                                                    |  | establishment                              |  | shares held        |  | Principal activities                                   
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Subsidiaries(continued):                                                                                                                                                                                |  |                                            |  |                    |  |                                                        
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Haslett Investments Limited                                                                                                                                                                             |  | British Virgin
Islands                     |  | Ordinary shares    |  | Investment                                             
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Telewell Investment Limited                                                                                                                                                                             |  | Hong Kong                                  |  | Ordinary shares    |  | Investment holding                                     
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|The 138 Leasing Partnership
(Partnership)                                                                                                                                                             |  | Hong Kong                                  |  | Partners capital  |  | Satellite leasing                                      
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Ying Fai Realty (China) Limited                                                                                                                                                                         |  | Hong Kong                                  |  | Ordinary shares    |  | Property holding                                       
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|APT Communication Technology
Development (Shenzhen) Co., Ltd.                                                                                                                                           |  | The Peoples
Republic of
China (the PRC) |  | Registered capital |  | Satellite transponder
leasing                          
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|CTIA VSAT Network Limited
(CTIA)                                                                                                                                                                      |  | Hong Kong                                  |  | Ordinary shares    |  | Investment holding                                     
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Beijing Asia Pacific East
Communication Network
Limited (BAPE)                                                                                                                                        |  | PRC                                        |  | Registered capital |  | Provision of data
transmission services                
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|All the above subsidiaries are wholly-owned by the Company except for CTIA and BAPE of which the Company holds 60% and 36% effective interest in them.                                                 
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Jointly controlled entities:                                                                                                                                                                            |  |                                            |  |                    |  |                                                        
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|APT Satellite Telecommunications
Limited (APT Telecom)                                                                                                                                                |  | Hong Kong                                  |  | Ordinary shares    |  | Provision of
telecommunication
services                
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Beijing Zhong Guang Xin Da Data
Broadcast Technology Co. Limited
(Zhong Guang Xin Da)                                                                                                                 |  | PRC                                        |  | Registered capital |  | Provision of data
transmission services                
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|The Company indirectly holds 55% and 12.6% effective interest in APT Telecom and Zhong Guang Xin Da respectively.                                                                                      
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|APT Telecom is considered as a jointly controlled entity as the Company and the other shareholder of APT Telecom both have the right to appoint an
equal number of directors to the board of directors.
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|Associate:                                                                                                                                                                                              |  |                                            |  |                    |  |                                                        
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|APT Eurosportnews Distribution
Limited                                                                                                                                                                  |  | Hong Kong                                  |  | Ordinary shares    |  | Provision of satellite
television broadcasting
services
|                                                                                                                                                                                                        |  |                                            |  |                    |  |                                                        
|At December 31, 2002, the Group has a 35% interest in the issued ordinary shares capital of APT Eurosportnews Distribution Limited.                                                                    

F-10



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|2. |  | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Hong Kong (HK GAAP)
which differ in certain material 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
26.                                                                                                             
|  
|   |  | The consolidated financial statements of the Company 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, 2002 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 on December 31, 2002 or
any other rate.            
|  
|3. |  | ADOPTION OF NEW STATEMENT OF STANDARD ACCOUNTING PRACTICE                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | In 2002, the Group has adopted, for the first time, Statement of Standard
Accounting Practice No. 34 Employee Benefits (SSAP 34) issued by the
Hong Kong Society of Accountants (HKSA). The standard introduces
measurement rules for employee benefits, including retirement benefit
plans. Because the Group participates only in defined contribution
retirement benefit schemes, the adoption of SSAP 34 has not had any
significant impact on the financial statements.
|  
|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                        



| | (a) |  | Consolidation principles                                                                                                                                                                                  
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries (collectively refer
to as the Group) made up to December 31 each year.                   
|
| |     |  | The results of subsidiaries acquired and disposed of during the year
are included in the consolidated statements of income from and up to
their effective dates of acquisition and disposal, respectively.
|
| |     |  | All significant intercompany transactions and balances within the
Group are eliminated on consolidation.                                                                                                  

F-11



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (b) |  | Goodwill                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Goodwill arising on consolidation represents the excess of the cost
of acquisition over the Groups interest in the fair value of the
identifiable assets and liabilities at the date of acquisition of a
subsidiary. Goodwill arising on consolidation is capitalised and
amortised on a straight line basis over its estimated useful life
less impairment loss (if any).
|
| |     |  | Goodwill arising on the acquisitions of subsidiaries is presented
separately in the consolidated balance sheets.                                                                                                                                                                                                                                                           
|
| |     |  | On the disposal of an investment in a subsidiary, the attributable
amount of unamortised goodwill is included in the determination of
the profit or loss on disposal.                                                                                                                                                                                                      
|
| | (c) |  | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | Property, plant and equipment, other than construction in progress,
are stated at cost less accumulated depreciation and impairment
losses (if any).                                                                                                                                                                                                                       
|
| |     |  | Depreciation of property, plant and equipment is calculated on a
straight line basis to write off the cost of the assets over their
estimated useful lives and after taking into account their estimated
residual value, at the following rates per annum:                                                                                                                 

|                                  |  |                     
|--------------------------------- |  | --------------------
|Leasehold land                    |  | Over the lease terms
|Leasehold buildings               |  | 2%                  
|Leasehold improvements            |  | Over the lease terms
|Furniture and equipment           |  | 18%  20%           
|Motor vehicles                    |  | 18%  20%           
|Computer equipment                |  | 18%  20%           
|Communication satellite equipment |  | 6 2/3%  20%        
|Communication stations            |  | 18%                 
|Communication satellites          |  | 5.94%  10.27%      



| |  |  | Construction in progress is stated at cost. Cost includes all
development expenditure and other direct costs attributable to such
project. Construction in progress is not depreciated until
completion of construction. On completion of construction, the
assets are transferred to other categories of property, plant and
equipment.                                                                                                                                                                                                                                 
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In previous years, communication satellites were depreciated at
6 1/4%  10% per annum. With effect from July 1, 2002,
communication satellites other than those where had been fully
depreciated, are to be depreciated at 5.94%  10.27% per annum,
which reflects the Groups re-estimation of the remaining useful
lives of the assets and their residual value. The change in
depreciation rate has increased the depreciation charge for the year
by approximately HK$9,764 and decreased the profit for the year by
approximately HK$8,202 or 2.0 cents per share.
|
| |  |  | The gain or loss arising from disposal or retirement of an asset is
determined as the difference between the sale proceeds and the
carrying amount of the asset and is recognised in the consolidated
statements of income.                                                                                                                                                                                                                                                                                                                                              

F-12



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (d) |  | Investments in jointly controlled entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | A joint venture is a contractual arrangement whereby the Group and
other parties undertake an economic activity which is subject to
joint control and over which none of the participating parties has
unilateral control.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     |  | Joint venture arrangements which involve the establishment of a
separate entity in which the Group and other parties have an
interest are referred to as jointly controlled entities.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |     |  | The Groups interests in jointly controlled entities are included in
the consolidated balance sheets at the Groups share of the net
assets of the jointly controlled entities less any identified
impairment loss. The Groups share of results of jointly controlled
entities for the year is included in the consolidated statements of
income.                                                                                                                                                                                                                                                                               
|
| |     |  | When the Group transacts with its jointly controlled entities,
unrealised profits and losses are eliminated to the extent of the
Groups interest in the joint venture, except where unrealisable
losses provide evidence of an impairment of the asset transferred.                                                                                                                                                                                                                                                                                                                                                             
|
| | (e) |  | Interest in associates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | The consolidated statements of income includes the Groups share of
the post-acquisition results of its associates for the year. In the
consolidated balance sheets, interests in associates are stated at
the Groups share of the net assets of the associates, less any
identified impairment loss.                                                                                                                                                                                                                                                                                                                           
|
| | (f) |  | Impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     |  | At each balance sheet date, the Group 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 amount. Impairment losses are recognised as an
expense immediately, unless the relevant asset is carried at a
revalued amount under another accounting standard, in which the
impairment loss is treated as revaluation decrease under that
accounting standard.
|
| |     |  | Where an impairment loss subsequently reverses, the carrying amount
of the asset is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no
impairment loss been recognised for the asset in prior years. A
reversal of an impairment loss is recognised as income immediately,
unless the relevant asset is carried at a revalued amount under
another accounting standard, in which case the reversal of the
impairment loss is treated as revaluation increase under that
accounting standard.      

F-13



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------
|  

| | (g) |  | Investment properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Investment properties are completed properties which are held for
their investment potential, any rental income being negotiated at
arms length.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | Investment properties are stated at their open market value based on
independent professional valuation at each balance sheet date. Any
surplus or deficit arising on the revaluation of investment
properties is credited or charged to the investment property
revaluation reserve unless the balance on this reserve is
insufficient to cover a deficit, in which case the excess of deficit
over the balance on the investment property revaluation reserve is
charged to the consolidated statements of income. Where a deficit
has previously been charged to the consolidated statements of income
and a surplus subsequently arises, this surplus is credited to the
consolidated statements of income to the extent of the deficit
previously charged.
|
| |     |  | On disposal of an investment property, the balance on the investment
property revaluation reserve attributable to that property is
transferred to the consolidated statements of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |     |  | No depreciation is provided on investment properties except which
are held on leases with an unexpired term of 20 years or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|

| | (h) |  | Deposits received                                                                                                                                                                                                                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The amount represents deposits received in respect of leasing of
satellite transponders.                                                                                                                                                                                                                 
|
| | (i) |  | Deferred income                                                                                                                                                                                                                                                                                          
|
| |     |  | Deferred income represents cash received in respect of transponder
leases under which customers have obtained the right to use the
transponder capacity for future periods.                                                                                                                              
|
| | (j) |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                
|
| |     |  | Cash and cash equivalents include cash on hand, unrestricted
deposits with banks and short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value with maturity
of three months or less when purchased.
|
| | (k) |  | Use of estimates                                                                                                                                                                                                                                                                                         
|
| |     |  | The 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-14



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

F-15



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|4. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- |  | ------------------------------------------------------



| | (p) |  | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, are capitalised as
part of the cost of those assets. Capitalisation of such borrowing
costs ceases when the assets are substantially ready for their
intended use or sale.                                                                                                                                                                                                                                                                                     
|
| |     |  | All other borrowing costs are recognised as an expense in the period
in which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (q) |  | Retirement benefits cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | Payments to defined contribution retirement benefits schemes are
charged as expenses as they fall due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (r) |  | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |     |  | The charge for taxation is based on the results for the year after
adjusting for items which are non-assessable or disallowed. Certain
items of income and expense are recognised for tax purposes in a
different accounting period from that in which they are recognised
in the financial statements. The tax effect of the resulting timing
differences, computed under the liability method, is recognised as
deferred taxation in the financial statements to the extent that it
is probable that a liability or an asset will crystallise in the
foreseeable future.
|
| | (s) |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | The calculation of the basic and diluted earnings per share is based
on the following data:                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                                                                        |  |  |         |  |      |  |         |  |  |  |         |  | 
|------------------------------------------------------------------------------------------------------- |  |  | ------- |  | ---- |  | ------- |  |  |  | ------- |  | 
|                                                                                                        |  |  | 2000    |  | 2001 |  | 2002   
|                                                                                                        |  |  |         |  |      |  |        
|                                                                                                        |  |  | HK$     |  | HK$  |  | HK$    
|Earnings                                                                                                |  |  |         |  |      |  |         |  |  |  |         | 
|Earnings for the purposes of calculating
basic and diluted earnings per share (net income for the year) |  |  | 142,996 |  |      |  | 78,009  |  |  |  | 24,435  | 
|                                                                                                        |  |  |         |  |      |  |         |  |  |  |         |  | 
|                                                                                                        |  |  | 000    |  |      |  | 000    |  |  |  | 000    | 
|Number of shares                                                                                        |  |  |         |  |      |  |         |  |  |  |         | 
|Weighted average number of ordinary shares
for the purposes of calculating basic earnings
per share     |  |  | 417,433 |  |      |  | 412,773 |  |  |  | 412,675 | 
|Effect of dilutive share options                                                                        |  |  | N/A     |  |      |  | 1,117   |  |  |  |        | 
|                                                                                                        |  |  |         |  |      |  |         |  |  |  |         |  | 
|Weighted average number of ordinary shares for
the purposes of calculating diluted earnings
per share   |  |  | N/A     |  |      |  | 413,890 |  |  |  | 412,675 | 
|                                                                                                        |  |  |         |  |      |  |         |  |  |  |         |  | 

F-16



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|5. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|-------------------------- |  | --------- | ------- | ------------ |  | --------- | ----- | --------- |  | --------- | ------ | --------- |  | ------- | ----- | ---------- |  | ------------ | ----- | ------- |  | ------- | ------ | - |  |  | ----- |  |  |  | --------- |  |  |  | --------- | - |  |  | --------- | -
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  | Commun- |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  | 
|                           |  | Land      |         |              |  |           |       | Furniture |  |           |        |           |  |         |       |            |  | ication      |       | Commun- |  | Commun- |        |   |  |  |       |  |  | 
|                           |  | and       |         | Leasehold    |  | and       |       | Motor     |  | Computer  |        | satellite |  | ication |       | ication    |  | Construction |       |         |  |        
|                           |  | buildings |         | improvements |  | equipment |       | vehicles  |  | equipment |        | equipment |  | station |       | satellites |  | in progress  |       | Total  
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |        
|                           |  | HK$       |         | HK$          |  | HK$       |       | HK$       |  | HK$       |        | HK$       |  | HK$     |       | HK$        |  | HK$          |       | HK$    
|COST                       |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|At 1 January 2002          |  |           | 49,419  |              |  |           | 5,523 |           |  |           | 18,520 |           |  |         | 4,708 |            |  |              | 1,940 |         |  |         | 73,816 |   |  |  |      |  |  |  | 2,100,129 |  |  |  | 288,514   |   |  |  | 2,542,569 |  
|Acquisition of
subsidiary  |  |           |        |              |  |           | 580   |           |  |           | 638    |           |  |         | 490   |            |  |              |      |         |  |         | 2,651  |   |  |  |      |  |  |  |          |  |  |  | 6,720     |   |  |  | 11,079    |  
|Additions                  |  |           | 23      |              |  |           | 269   |           |  |           | 308    |           |  |         | 253   |            |  |              | 97    |         |  |         | 15,953 |   |  |  |      |  |  |  |          |  |  |  | 1,080,091 |   |  |  | 1,096,994 |  
|Disposals                  |  |           |        |              |  |           |      |           |  |           | (262   | )         |  |         | (712  | )          |  |              | (450  | )       |  |         |       |   |  |  |      |  |  |  |          |  |  |  |          |   |  |  | (1,424    | )
|Transfer                   |  |           | 69,328  |              |  |           | 538   |           |  |           | 31,191 |           |  |         |      |            |  |              |      |         |  |         | 2,473  |   |  |  | 5,179 |  |  |  |          |  |  |  | (108,709  | ) |  |  |          |  
|Exchange adjustments       |  |           |        |              |  |           |      |           |  |           |       |           |  |         |      |            |  |              |      |         |  |         | (1     | ) |  |  |      |  |  |  |          |  |  |  | (2        | ) |  |  | (3        | )
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|At 31 December 2002        |  |           | 118,770 |              |  |           | 6,910 |           |  |           | 50,395 |           |  |         | 4,739 |            |  |              | 1,587 |         |  |         | 94,892 |   |  |  | 5,179 |  |  |  | 2,100,129 |  |  |  | 1,266,614 |   |  |  | 3,649,215 |  
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|DEPRECIATION               |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|At 1 January 2002          |  |           | 5,412   |              |  |           | 3,982 |           |  |           | 17,844 |           |  |         | 4,009 |            |  |              | 1,105 |         |  |         | 44,139 |   |  |  |      |  |  |  | 1,316,051 |  |  |  |          |   |  |  | 1,392,542 |  
|Provided for the year      |  |           | 2,518   |              |  |           | 777   |           |  |           | 5,942  |           |  |         | 393   |            |  |              | 252   |         |  |         | 8,228  |   |  |  | 291   |  |  |  | 215,570   |  |  |  |          |   |  |  | 233,971   |  
|Impairment loss
recognised |  |           | 5,218   |              |  |           |      |           |  |           |       |           |  |         |      |            |  |              |      |         |  |         |       |   |  |  |      |  |  |  |          |  |  |  |          |   |  |  | 5,218     |  
|Disposals                  |  |           |        |              |  |           |      |           |  |           | (255   | )         |  |         | (712  | )          |  |              | (422  | )       |  |         |       |   |  |  |      |  |  |  |          |  |  |  |          |   |  |  | (1,389    | )
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|At 31 December 2002        |  |           | 13,148  |              |  |           | 4,759 |           |  |           | 23,531 |           |  |         | 3,690 |            |  |              | 935   |         |  |         | 52,367 |   |  |  | 291   |  |  |  | 1,531,621 |  |  |  |          |   |  |  | 1,630,342 |  
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|NET BOOK VALUE             |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|At 31 December 2001        |  |           | 44,007  |              |  |           | 1,541 |           |  |           | 676    |           |  |         | 699   |            |  |              | 835   |         |  |         | 29,677 |   |  |  |      |  |  |  | 784,078   |  |  |  | 288,514   |   |  |  | 1,150,027 |  
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  
|At 31 December 2002        |  |           | 105,622 |              |  |           | 2,151 |           |  |           | 26,864 |           |  |         | 1,049 |            |  |              | 652   |         |  |         | 42,525 |   |  |  | 4,888 |  |  |  | 568,508   |  |  |  | 1,266,614 |   |  |  | 2,018,873 |  
|                           |  |           |         |              |  |           |       |           |  |           |        |           |  |         |       |            |  |              |       |         |  |         |        |   |  |  |       |  |  |  |           |  |  |  |           |   |  |  |           |  



| |  | During the year, the directors of the Company have conducted a review of
the Groups land and buildings and determined that certain properties were
impaired due to the recoverable amount of the assets is estimated to be
less than its carrying amount. Accordingly, impairment loss of
approximately HK$5,218 in respect of land and buildings has been
recognised and charged to the consolidated statements of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Included in the construction in progress is an amount of approximately
HK$619,039 representing the costs incurred for constructing a new
satellite that has 54 transponders. On September 20, 2002, APT entered
into a term sheet with Loral Orion, Inc (Loral Orion) and subsequently
entered into an agreement. Under the term sheet and the agreement, 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 in order to
obtain rights up 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 construction, insuring and launching of APSTAR V. Such
amount shall be adjusted to reflect 50% of the actual costs of
construction, insuring and launching 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 the launch of the satellite. The other 25% of the project
costs will be paid to APT in four instalments over a period of five years
from the in-service date of APSTAR V. The amount of the instalments
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 instalments corresponding to the
payments made by it under the term sheet and the agreement. As a result
of discussion on 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.
|
| |  | Interest expense of HK$117 and other related cost of HK$2,125 incurred for
obtaining the loans were capitalised and included in satellite project
progress payments during the year ended December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-17



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 



|5. |  | PROPERTY, PLANT AND EQUIPMENT  continued                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | At the balance sheet date, the Groups
leasehold land and buildings, which are held
under medium-term leases, are situated in:

|                  |  |                |        |      |  |  |         | 
|----------------- |  | -------------- | ------ | ---- |  |  | ------- | 
|                  |  | Net book value
|                  |  |               
|                  |  | 2001           |        | 2002
|                  |  |                |        |     
|                  |  | HK$            |        | HK$ 
|Outside Hong Kong |  |                | 3,812  |      |  |  | 2,718   | 
|Hong Kong         |  |                | 40,195 |      |  |  | 102,904 | 
|                  |  |                |        |      |  |  |         | 
|                  |  |                | 44,007 |      |  |  | 105,622 | 
|                  |  |                |        |      |  |  |         | 



|6. |  | INVESTMENT PROPERTY                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The investment property was valued at its open market value at December
31, 2001 and 2002 of approximately HK$2,402 and HK$2,332, respectively, by
Chesterton Petty Limited, an independent professional property valuer, on
an open market value basis. This valuation gave rise to a revaluation
deficit of HK$45 and HK$70 which has been charged to the consolidated
statements of income for the years ended December 31, 2001 and 2002
respectively.
|  
|   |  | The investment property, which is situated in the PRC under 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, 2001 and
2002 was HK$129 and HK$257 respectively.                                                                                                                                                                                        
|  
|7. |  | INTEREST IN JOINTLY CONTROLLED ENTITIES                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                             |  |      |        |      |  |  |        | 
|-------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                             |  | 2001 |        | 2002
|                                             |  |      |        |     
|                                             |  | HK$  |        | HK$ 
|Share of net assets                          |  |      | 44,163 |      |  |  | 34,047 | 
|Amounts due from jointly controlled entities |  |      | 28,805 |      |  |  | 52,216 | 
|Loans to a jointly controlled entity         |  |      | 7,440  |      |  |  |       | 
|                                             |  |      |        |      |  |  |        | 
|                                             |  |      | 80,408 |      |  |  | 86,263 | 
|                                             |  |      |        |      |  |  |        | 



|   |  | The amounts due from jointly controlled entities are unsecured,
interest-free and 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.      
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The loans granted to a jointly controlled entity in 2001 were unsecured.
An outstanding loan balance of HK$1,240 was interest free for the first
six months from the date of the advance and thereafter bears interest at
6% per annum. Another loan amounting to HK$6,200 was interest-free.
|  
|   |  | In April 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 operations have been consolidated after the acquisition.    
|  
|8. |  | INTEREST IN AN ASSOCIATE                                                                                                                                                                                                                                                                     

|                   |  |      |   |      |  |  |   | 
|------------------ |  | ---- | - | ---- |  |  | - | 
|                   |  | 2001 |   | 2002
|                   |  |      |   |     
|                   |  | HK$  |   | HK$ 
|Share of net asset |  |      |  |      |  |  |  | 
|                   |  |      |   |      |  |  |   | 

F-18



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|9. |  | ACQUISITION OF A SUBSIDIARY                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On April 11, 2002, the Group acquired an additional 20% interest in CTIA,
which previously was a 40% owned jointly controlled entity, for cash
consideration of HK$7,180. Also, through the acquisition, the Group has
acquired a loan originally owed to a former shareholder by CTIA amounting
to HK$3,744 without additional consideration.
|  
|   |  | 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$
|ASSETS                                      |  |     |        | 
|Cash and cash equivalents                   |  |     | 2,759  | 
|Accounts receivables                        |  |     | 848    | 
|Prepayments, deposits and other receivables |  |     | 13,473 | 
|Property, plant and equipment               |  |     | 11,079 | 
|Goodwill                                    |  |     | 4,036  | 
|Interest in jointly controlled entity       |  |     | 509    | 
|                                            |  |     |        | 
|Total assets acquired                       |  |     | 32,704 | 
|                                            |  |     |        | 
|LIABILITIES                                 |  |     |        | 
|Other payables and accrued charges          |  |     | 3,135  | 
|Amounts due to shareholders                 |  |     | 16,902 | 
|                                            |  |     |        | 
|Total liabilities assumed                   |  |     | 20,037 | 
|                                            |  |     |        | 
|Minority interests                          |  |     | 9,231  | 
|                                            |  |     |        | 
|Net assets acquired                         |  |     | 3,436  | 
|Shareholders loan acquired                 |  |     | 3,744  | 
|                                            |  |     |        | 
|Purchase price                              |  |     | 7,180  | 
|                                            |  |     |        | 

|                                                                                            |  |     |       | 
|------------------------------------------------------------------------------------------- |  | --- | ----- | 
|Goodwill                                                                                    |  | HK$
|                                                                                            |  |    
|COST                                                                                        |  |     |       | 
|Arising on acquisition of interest in a subsidiary
during the year and at December 31, 2002 |  |     | 4,036 | 
|                                                                                            |  |     |       | 
|AMORTISATION AND IMPAIRMENT                                                                 |  |     |       | 
|Charge for the year                                                                         |  |     | 660   | 
|Impairment loss recognised during the year                                                  |  |     | 3,376 | 
|                                                                                            |  |     |       | 
|At December 31, 2002                                                                        |  |     | 4,036 | 
|                                                                                            |  |     |       | 
|NET BOOK VALUE                                                                              |  |     |       | 
|At December 31, 2002                                                                        |  |     |      | 
|                                                                                            |  |     |       | 



| |  | The amortisation period adopted for goodwill is 55 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At December 31, 2002, the directors of the Group have 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 is expected that the remaining
unamortised balance will not be recovered and therefore, an impairment
loss is recognised.

F-19



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|10. |  | BANK LOANS
|--- |  | ----------

|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |          |      |   |       |   |         |  |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | - | ------------- |  | ----------- | ------- |  | --- | ----------------- | ----- | ----------------- | - |  | ------- | -------- | ---- | - | ----- | - | ------- |  | -------- | -
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     | December 31, 2001 |       | December 31, 2002
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                  
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     | Weighted          |       |                   |   |  |         | Weighted |      |   |       |  
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     | average           |       |                   |   |  |         | average  |      |   |       |  
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     | interest          |       |                   |   |  |         | interest |      |   |       |  
|                                                                                                                                                                                             |  | Notes |   | Interest rate |  | rate        |         |  |     |                   |       | rate              |   |  |         |         
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |         
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  | HK$ |                   |       |                   |   |  | HK$     |          |      |  
|Bank loan denominated in
HK Dollars:                                                                                                                                                         |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |          |      |   |       |   |         |  |          |  
|Payable semi-annually through
2003 (secured)                                                                                                                                                 |  |       | a |               |  |             | 12% p.a |  |     |                   | 12.00 | %                 |   |  | 379,668 |          |      |   | 12.00 | % |         |  | 317,682  |  
|Bank loans denominated
in US Dollars:                                                                                                                                                        |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |          |      |   |       |   |         |  |          |  
|Payable semi-annually with
the first instalment falling
due on the earlier of
30 September 2005 or six months
after the date of commencement
of commercial operations of
APSTAR VI (secured) |  |       | b |               |  | LIBOR+0.73% |         |  |    |                   |       |                   |  |  |         |          | 2.15 | % |       |   | 163,800 | 
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |          |      |   |       |   |         |  |          |  
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  | 379,668 |          |      |   |       |   |         |  | 481,482  |  
|Current portion                                                                                                                                                                              |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  | (61,986 | )        |      |   |       |   |         |  | (317,682 | )
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |          |      |   |       |   |         |  |          |  
|Long term portion                                                                                                                                                                            |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  | 317,682 |          |      |   |       |   |         |  | 163,800  |  
|                                                                                                                                                                                             |  |       |   |               |  |             |         |  |     |                   |       |                   |   |  |         |          |      |   |       |   |         |  |          |  

Notes:



|(a) |  | The Group has pledged certain land and buildings with net book
value of HK$8,035 and HK$5,120 as at December 31, 2001 and 2002,
respectively, to secure certain of the Groups banking facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 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. At December 31, 2001 and 2002, the bank loans borrowed by
the Partnership of HK$379,668 and HK$317,682, respectively, which
are shown as above are secured by time deposits of an equivalent
amount. Of this amount, HK$61,986 and HK$317,682 are included as
part of current pledged bank deposits as of December 31, 2001 and
2002, respectively. The corresponding interest income and interest
expense amounted to HK$56,734, HK$50,511 and HK$43,685 has been
set-off in the consolidated statements of income for the years ended
December 31, 2000, 2001 and 2002, respectively.

F-20



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|10. |  | BANK LOANS (continued)
|--- |  | ----------------------

|
|
|
|
|
|
|
|
|
|
|
|
|

F-21



---



##### Table of Contents



|                               | 
|------------------------------ | 
|APT SATELLITE HOLDINGS LIMITED | 

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



|10. |  | BANK LOANS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Block Account/Withdrawal Conditions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Under 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, APSTAR VI and APSTAR VI backup satellite 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.                                                                                                                                                                                                                
|   
|    |  | Others                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The 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 Groups
business and a requirement that all future transponder utilization
agreements be entered into on an arms-length basis. Among the
others, APT undertakes to ensure that its ultimate holding company,
APT Satellite International Company Limited, directly own at least
50.01% of the voting rights in the Group.
|   
|    |  | The aggregate annual repayments of bank loans as at the balance sheet
dates are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|      |  |      |         |      |  |  |         | 
|----- |  | ---- | ------- | ---- |  |  | ------- | 
|      |  | 2001 |         | 2002
|      |  |      |         |     
|      |  | HK$  |         | HK$ 
|2002  |  |      | 61,986  |      |  |  |        | 
|2003  |  |      | 317,682 |      |  |  | 317,682 | 
|2004  |  |      |        |      |  |  |        | 
|2005  |  |      |        |      |  |  | 85,800  | 
|2006  |  |      |        |      |  |  | 78,000  | 
|      |  |      |         |      |  |  |         | 
|Total |  |      | 379,668 |      |  |  | 481,482 | 
|      |  |      |         |      |  |  |         | 



|11. |  | ACCRUED EXPENSES
|--- |  | ----------------

|                                          |  |      |        |      |  |  |        | 
|----------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                          |  | 2001 |        | 2002
|                                          |  |      |        |     
|                                          |  | HK$  |        | HK$ 
|Provision on regulatory matters (note 20) |  |      | 47,212 |      |  |  |       | 
|Provision for employee benefits           |  |      | 3,831  |      |  |  | 4,500  | 
|Other accrued expenses                    |  |      | 39,474 |      |  |  | 39,548 | 
|                                          |  |      |        |      |  |  |        | 
|                                          |  |      | 90,517 |      |  |  | 44,048 | 
|                                          |  |      |        |      |  |  |        | 

F-22



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|12. |  | CONTINGENCIES AND COMMITMENTS
|--- |  | -----------------------------



| | (a) |  | Capital commitments:                                                                                                                                                                                                                                                                                                                  
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | At December 31, 2001 and 2002, the Group had authorised but not
contracted capital commitments of HK$295,937 and HK$868,997,
respectively, and contracted but not provided for capital
commitments of HK$2,230,257 and HK$1,095,129, respectively, in
respect of the procurement and launch of new satellites, APSTAR V
and APSTAR VI.



| |  | Also, the Groups share of the capital commitments of jointly
controlled entities not included in the above are as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------

|                                                            |  |      |        |      |  |  |        | 
|----------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                                            |  | 2001 |        | 2002
|                                                            |  |      |        |     
|                                                            |  | HK$  |        | HK$ 
|Authorised but not contracted                               |  |      | 48,975 |      |  |  |       | 
|Contracted but not provided for in the
financial statements |  |      | 40,252 |      |  |  | 69,407 | 
|                                                            |  |      |        |      |  |  |        | 
|Total commitments                                           |  |      | 89,227 |      |  |  | 69,407 | 
|                                                            |  |      |        |      |  |  |        | 



| | (b) |     | Leasing arrangements  operating lease:                                                                                                                                                  
| | --- | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | (i) | The Group as lessee                                                                                                                                                                      
|
| |     |     | At the balance sheet date, the Group had commitments for future
minimum lease payments in respect of land and buildings under
non-cancellable operating leases which fall due as follows:

|                    |  |      |       |      |  |  |       | 
|------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                    |  | 2001 |       | 2002
|                    |  |      |       |     
|                    |  | HK$  |       | HK$ 
|Land and buildings: |  |      |       |      |  |  |       | 
|2002                |  |      | 3,440 |      |  |  |      | 
|2003                |  |      | 3,395 |      |  |  | 3,452 | 
|2004                |  |      | 669   |      |  |  | 670   | 
|                    |  |      |       |      |  |  |       | 
|Total               |  |      | 7,504 |      |  |  | 4,122 | 
|                    |  |      |       |      |  |  |       | 



| |  |  | Operating lease rental expenses were HK$3,108, HK$3,259 and
HK$3,597 for the years ended December 31, 2000, 2001 and 2002,
respectively.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------

|                        |  |      |       |      |  |  |       | 
|----------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                        |  | 2001 |       | 2002
|                        |  |      |       |     
|                        |  | HK$  |       | HK$ 
|Satellite transponders: |  |      |       |      |  |  |       | 
|2002                    |  |      | 402   |      |  |  |      | 
|2003                    |  |      | 1,206 |      |  |  | 3,037 | 
|2004                    |  |      |      |      |  |  | 2,863 | 
|2005                    |  |      |      |      |  |  | 1,702 | 
|                        |  |      |       |      |  |  |       | 
|Total                   |  |      | 1,608 |      |  |  | 7,602 | 
|                        |  |      |       |      |  |  |       | 



| |  |  | Operating lease rental expenses were nil, HK$33 and HK$1,474
for the years ended December 31, 2000, 2001 and 2002,
respectively.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------

F-23



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|12. |  | CONTINGENCIES AND COMMITMENTS (continued)
|--- |  | -----------------------------------------



| | (ii) |  | The Group as lessor                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Property rental income was HK$298, HK$349 and HK$448 for the
years ended December 31, 2000, 2001 and 2002, respectively. At
December 31, 2002, properties with an aggregate carrying value
of HK$6,327 were held for rental purpose. Depreciation charges
relating to these properties were HK$241, HK$149 and HK$149 for
the years ended December 31, 2000, 2001 and 2002, 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:

|      |  |      |     |      |  |  |     | 
|----- |  | ---- | --- | ---- |  |  | --- | 
|      |  | 2001 |     | 2002
|      |  |      |     |     
|      |  | HK$  |     | HK$ 
|2002  |  |      | 404 |      |  |  |    | 
|2003  |  |      | 129 |      |  |  | 291 | 
|2004  |  |      |    |      |  |  | 129 | 
|      |  |      |     |      |  |  |     | 
|Total |  |      | 533 |      |  |  | 420 | 
|      |  |      |     |      |  |  |     | 



| |  |  | At the balance sheet date, the Group also contracted with a
jointly controlled entity under non-cancellable operating
leases in respect of rented premises and facilities management
services. The future minimum lease payments are calculated
based on the terms of the respective operating lease agreement
that have been revised subsequently after the balance sheet
date and are fall due as follows:
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|           |  |      |        |      |  |  |        | 
|---------- |  | ---- | ------ | ---- |  |  | ------ | 
|           |  | 2001 |        | 2002
|           |  |      |        |     
|           |  | HK$  |        | HK$ 
|2002       |  |      | 8,110  |      |  |  |       | 
|2003       |  |      | 8,818  |      |  |  | 4,330  | 
|2004       |  |      | 8,819  |      |  |  | 4,110  | 
|2005       |  |      | 8,819  |      |  |  | 4,110  | 
|2006       |  |      | 8,819  |      |  |  | 4,110  | 
|2007       |  |      | 8,819  |      |  |  | 4,110  | 
|Thereafter |  |      | 36,035 |      |  |  | 16,794 | 
|           |  |      |        |      |  |  |        | 
|Total      |  |      | 88,239 |      |  |  | 37,564 | 
|           |  |      |        |      |  |  |        | 



| |  |  | In addition, the Group had contracted with customers in respect
of transponder leasing, details of which are set out in note
13.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------

F-24



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|12. |  | CONTINGENCIES AND COMMITMENTS (continued)
|--- |  | -----------------------------------------



| | (c) |  | Prior to January 1, 1999, overseas withholding tax was not
charged in respect of the Groups transponder lease income derived
from the overseas lessees. However, at the end of 1998, the tax
authorities of the country concerned clarified that transponder lease
income paid by lessees in their country is subject to overseas
withholding tax. From January 1, 1999 onwards, overseas withholding
tax has been charged on certain transponder lease income of the Group
and full provision for such withholding tax has been made in the
financial statements. The directors of the Group are of the opinion
that the overseas tax authorities clarification should take effect
from January 1, 1999 and, accordingly, no provision for the overseas
withholding tax in respect of the previous years is necessary. The
Groups overseas withholding tax in respect of 1998 and before,
calculated at the applicable rates based on the relevant transponder
lease income earned in the previous years, not provided for in the
financial statements amounted to approximately HK$75,864.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|13. |  | TRANSPONDER LEASE AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Communication satellites with an aggregate net book value of HK$784,078
and HK$568,508 as at December 31, 2001 and 2002, respectively, were held
for use, or intended for use, under transponder lease agreements.
Depreciation charges were HK$208,457, HK$208,458 and HK$215,570 for the
years ended December 31, 2000, 2001 and 2002, 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:                                                                                                                                                                                                                                                                                                                                                   

|      |  |      |         |      |  |  |         | 
|----- |  | ---- | ------- | ---- |  |  | ------- | 
|      |  | 2001 |         | 2002
|      |  |      |         |     
|      |  | HK$  |         | HK$ 
|2002  |  |      | 268,970 |      |  |  |        | 
|2003  |  |      | 144,723 |      |  |  | 196,242 | 
|2004  |  |      | 81,084  |      |  |  | 83,370  | 
|2005  |  |      | 41,090  |      |  |  | 49,516  | 
|2006  |  |      | 11,094  |      |  |  | 11,094  | 
|      |  |      |         |      |  |  |         | 
|Total |  |      | 546,961 |      |  |  | 340,222 | 
|      |  |      |         |      |  |  |         | 

F-25



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|14. |  | COMMON STOCK
|--- |  | ------------

|                                |                                                     |  |           |         |               |  |            |        |  
|------------------------------- | --------------------------------------------------- |  | --------- | ------- | ------------- |  | ---------- | ------ | -
|                                |                                                     |  |           |         |               |  | Issued and
|                                |                                                     |  | Number    |         | fully paid   
|                                |                                                     |  | of shares |         | capital stock
|                                |                                                     |  |           |         |              
|                                |                                                     |  | 000      |         | HK$          
|Ordinary shares of HK$0.10 each |                                                     |  |           |         |               |  |            |       
|                                | Balance January 1, 2001                             |  |           | 412,800 |               |  |            | 41,280 |  
|                                | Repurchase of shares                                |  |           | (80     | )             |  |            | (8     | )
|                                |                                                     |  |           |         |               |  |            |        |  
|                                | Balance at December 31, 2001 and at January 1, 2002 |  |           | 412,720 |               |  |            | 41,272 |  
|                                | Repurchase of shares                                |  |           | (185    | )             |  |            | (18    | )
|                                |                                                     |  |           |         |               |  |            |        |  
|                                | Balance at December 31, 2002                        |  |           | 412,535 |               |  |            | 41,254 |  
|                                |                                                     |  |           |         |               |  |            |        |  



|    |  | 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.                                      
|   
|15. |  | ADDITIONAL PAID IN CAPITAL/OTHER RESERVES                                                                                                                                                                                                                                             
|   
|    |  | The additional paid in capital of the Group arose as a result of the Group
reorganisation 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.                                                                      

F-26



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|16. |  | RETIREMENT BENEFIT SCHEMES                                                                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Group operates a Mandatory Provident Fund Scheme for all qualified
employees in Hong Kong. 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 contributes 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 contribution to retirement benefit schemes during the years
ended December 31, 2000, 2001 and 2002 amounted to HK$713, HK$967 and
HK$1,266, respectively.                                                                                                                     
|   
|17. |  | INCOME TAXES                                                                                                                                                                                                                                                                              
|   
|    |  | The income taxes charged to the consolidated statements of income are as
follows:                                                                                                                                                                                                         

|                            |  |                         |        |      |  |      |        |  |  |  |        | 
|--------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                            |  | Year ended December 31,
|                            |  |                        
|                            |  | 2000                    |        | 2001 |  | 2002
|                            |  |                         |        |      |  |     
|                            |  | HK$                     |        | HK$  |  | HK$ 
|Current year provision:     |  |                         |        |      |  |      |        |  |  |  |        | 
|Hong Kong                   |  |                         | 4,495  |      |  |      | 6,283  |  |  |  | 7,744  | 
|Overseas                    |  |                         | 24,349 |      |  |      | 18,127 |  |  |  | 23,551 | 
|Prior year underprovision   |  |                         |        |      |  |      |        |  |  |  |        | 
|Hong Kong                   |  |                         |       |      |  |      | 1,388  |  |  |  |       | 
|Overseas                    |  |                         |       |      |  |      |       |  |  |  | 3,731  | 
|                            |  |                         |        |      |  |      |        |  |  |  |        | 
|                            |  |                         | 28,844 |      |  |      | 25,798 |  |  |  | 35,026 | 
|Deferred taxation (note 18) |  |                         | 5,667  |      |  |      | 149    |  |  |  | 1,788  | 
|                            |  |                         |        |      |  |      |        |  |  |  |        | 
|                            |  |                         | 34,511 |      |  |      | 25,947 |  |  |  | 36,814 | 
|                            |  |                         |        |      |  |      |        |  |  |  |        | 

F-27



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|17. |  | INCOME TAXES (continued)                                                                                                                                                                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Hong Kong Profits Tax provision for the years ended December 31, 2000,
2001 and 2002 were made by applying the tax rate of 16% to the
estimated assessable profits earned in Hong Kong.                                                                                                                         
|   
|    |  | In March 2003, Hong Kong government announced that the rate for Hong
Kong Profits Tax will be increased to 17.5% with effect from the
2003/2004 year of assessment. No adjustment has been made in the
financial statements for this post balance sheet date change in tax
rate.                                
|   
|    |  | Overseas tax includes the withholding tax paid or payable in respect
of Groups transponder lease income derived from the lessee which are
located outside Hong Kong. The provision for the years ended December
31, 2000, 2001 and 2002 were made by applying tax rates prevailing in
respective jurisdictions.
|   
|18. |  | DEFERRED TAXATION                                                                                                                                                                                                                                                                                               

|                              |  |      |         |      |  |  |         | 
|----------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                              |  | 2001 |         | 2002
|                              |  |      |         |     
|                              |  | HK$  |         | HK$ 
|Balance at beginning of year  |  |      | 123,526 |      |  |  | 123,675 | 
|Charge for the year (note 17) |  |      | 149     |      |  |  | 1,788   | 
|                              |  |      |         |      |  |  |         | 
|Balance at end of the year    |  |      | 123,675 |      |  |  | 125,463 | 
|                              |  |      |         |      |  |  |         | 



| |  | The principal components of the deferred tax liabilities (assets) are as follows:
| |  | ---------------------------------------------------------------------------------

|                                                     |  |              |         |      |  |  |         |  
|---------------------------------------------------- |  | ------------ | ------- | ---- |  |  | ------- | -
|                                                     |  | December 31,
|                                                     |  |             
|                                                     |  | 2001         |         | 2002
|                                                     |  |              |         |     
|                                                     |  | HK$          |         | HK$ 
|Tax effect of temporary differences attributable to: |  |              |         |      |  |  |         |  
|Certain leasing arrangements                         |  |              | 110,887 |      |  |  | 109,941 |  
|Accelerated depreciation                             |  |              | 77,499  |      |  |  | 66,637  |  
|Tax losses                                           |  |              | (64,873 | )    |  |  | (51,115 | )
|Other timing differences                             |  |              | 162     |      |  |  |        |  
|                                                     |  |              |         |      |  |  |         |  
|                                                     |  |              | 123,675 |      |  |  | 125,463 |  
|                                                     |  |              |         |      |  |  |         |  



| |  | Certain leasing arrangements provide 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 are provided
for over the lives to the relevant leases.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-28



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|18. |  | DEFERRED TAXATION  continued                                                                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | At the balance sheet date, the components of the cumulative balance of the
net potential deferred tax (asset) liability not provided for in the
financial statements are as follows:

|                                                  |  |      |        |      |  |  |        |  
|------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | -
|                                                  |  | 2001 |        | 2002
|                                                  |  |      |        |     
|                                                  |  | HK$  |        | HK$ 
|Tax effect of timing differences attributable to: |  |      |        |      |  |  |        |  
|Accelerated depreciation                          |  |      | 11     |      |  |  |       |  
|Unutilised tax losses carried forward             |  |      | (1,539 | )    |  |  | (1,679 | )
|                                                  |  |      |        |      |  |  |        |  
|                                                  |  |      | (1,528 | )    |  |  | (1,679 | )
|                                                  |  |      |        |      |  |  |        |  



|    |  | A deferred tax asset has not been recognised in the financial statements
in respect of tax losses available to offset future profits as it is not
certain that the tax losses will be utilised in the foreseeable future.                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Deferred tax has not been provided on the deficit arising on the
revaluation of the Groups properties because gain/loss on the disposal of
these assets would not be subject to taxation. Accordingly, the deficit
arising on revaluation does not constitute a timing difference.
|   
|19. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                         



| | (a) |  | Related party transactions carried out during the years ended
December 31, 2000, 2001 and 2002 with shareholders and affiliates:
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------

|                                                                                         |  |       |    |      |     |                         |       |      |       |     |        |  |       |  |        | 
|---------------------------------------------------------------------------------------- |  | ----- | -- | ---- | --- | ----------------------- | ----- | ---- | ----- | --- | ------ |  | ----- |  | ------ | 
|                                                                                         |  |       |    |      |     | Year ended December 31,
|                                                                                         |  |       |    |      |     |                        
|                                                                                         |  | Notes |    | 2000 |     | 2001                    |       | 2002
|                                                                                         |  |       |    |      |     |                         |       |     
|                                                                                         |  |       |    |      |     | HK$                     |       | HK$  |       | HK$
|Income from leasing of transponders
to certain shareholders of the Company               |  |       | (i | )    |     |                         | 6,558 |      |       |     | 20,809 |  |       |  | 34,551 | 
|Income from leasing of transponders
to a holding company of a shareholder
of the Company |  |       | (i | )    |     |                         | 6,431 |      |       |     | 19,500 |  |       |  | 18,594 | 
|Income from leasing of transponders to
a jointly controlled entity                       |  |       | (i | )    |     |                         | 1,808 |      |       |     | 6,282  |  |       |  | 8,245  | 
|Management fee income from a jointly
controlled entity                                   |  | (ii)  |    |      | 500 |                         |       |      | 1,500 |     |        |  | 1,500 | 
|Management fee income from an
associate                                                  |  | (iii) |    |      |    |                         |       |      |      |     |        |  | 189   | 

F-29



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|19. |  | RELATED PARTY TRANSACTIONS (continued)
|--- |  | --------------------------------------



| | (a) |  | - continued
| | --- |  | -----------

|                                                                                                    |                 |        |       |   |       |  |                         |       |        |  |       |         |       |  |   |        | 
|--------------------------------------------------------------------------------------------------- | --------------- | ------ | ----- | - | ----- |  | ----------------------- | ----- | ------ |  | ----- | ------- | ----- |  | - | ------ | 
|                                                                                                    |                 |        |       |   |       |  | Year ended December 31,
|                                                                                                    |                 |        |       |   |       |  |                        
|                                                                                                    |                 |        | Notes |   | 2000  |  | 2001                    |       | 2002  
|                                                                                                    |                 |        |       |   |       |  |                         |       |       
|                                                                                                    |                 |        |       |   |       |  | HK$                     |       | HK$    |  | HK$  
|Facilities management services
income from a jointly controlled entity                              |                 | (iv)   |       |   |      |  |                         |       |       |  |       |         | 8,311 | 
|Interest income from jointly
controlled entities                                                    |                 |        | (v    | ) |       |  | 277                     |       |        |  | 2,820 |         |       |  |  |       
|Interest income from certain
shareholders of the Company                                            |                 | (vi)   |       |   | 6,099 |  |                         |       |       |  |       |         |      | 
|Interest income from a subsidiary
of a shareholder                                                  |                 | (vii)  |       |   | 1,790 |  |                         |       | 995    |  |       |         |      | 
|Rental expenses in connection with
the leasing of transponders from a
shareholder of the Company    |                 | (viii) |       |   | 819   |  |                         |       | 3,510  |  |       |         | 2,574 | 
|Interest paid to shareholders                                                                       |                 | (ix)   |       |   | 11    |  |                         |       |       |  |       |         |      | 
|Technical support services expenses
paid to a shareholder of the Company                            |                 |        | (x    | ) |       |  |                        |       |        |  | 4,490 |         |       |  |  |       
|Management fee expenses to a holding
company of a shareholder of the Company                        |                 | (xi)   |       |   |      |  |                         |       | 1,802  |  |       |         | 2,280 | 
|Land and buildings transferred to a
jointly controlled entity                                       |                 | (xii)  |       |   |      |  |                         |       | 13,657 |  |       |         |      | 
|Payments in connection with
APSTAR V project to a shareholder
of the Company                        |                 | (xiii) |       |   |       |  |                         |       |        |  |       |         |       | 
|                                                                                                    | - services fees |        |       |   |       |  |                         | 2,340 |        |  |       | 1,560   |       |  |   |       | 
|                                                                                                    | - deposit       |        |       |   |       |  |                         | 7,800 |        |  |       |        |       |  |   |       | 
|Payments in connection with APSTAR V
project to a fellow subsidiary of a
shareholder of the Company |                 | (xiii) |       |   |       |  |                         |       |        |  |       |         |       | 
|                                                                                                    | - service fee   |        |       |   |       |  |                         |      |        |  |       | 140,166 |       |  |   | 12,324 | 



| | (b) |  | At December 31, 2001 and 2002, the Group had the following
amounts included in the balance sheet in respect of amounts owing by
and to related parties:
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|----------------------------------------------- |  | ----------- | ------ | --------------------- |  | --------------- | --- | ------------------- |  | --------- | ------ | ----- |  | ---------------- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                                |  |             |        |                       |  |                 |     |                     |  | Deposits, |        | Other |  | Rentals received
|                                                |  | Trade       |        | prepayments           |  | payables and    |     | in advance         
|                                                |  | receivables |        | and other receivables |  | accrued charges |     | and deferred income
|                                                |  |             |        |                       |  |                 |     |                    
|                                                |  | 2001        |        | 2002                  |  | 2001            |     | 2002                |  | 2001      |        | 2002  |  | 2001             |        | 2002
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |     
|                                                |  | HK$         |        | HK$                   |  | HK$             |     | HK$                 |  | HK$       |        | HK$   |  | HK$              |        | HK$ 
|Jointly controlled entities                     |  |             |       |                       |  |                 | 101 |                     |  |           | 36,471 |       |  |                  | 52,215 |      |  |  | 3,329  |  |  |  | 1,590  |  |  |  |       |  |  |  |       | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Certain shareholders of
the Company             |  |             | 11,098 |                       |  |                 | 53  |                     |  |           | 956    |       |  |                  |       |      |  |  | 4,594  |  |  |  | 4,665  |  |  |  | 21,309 |  |  |  | 12,638 | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Holding company of a
shareholder of the Company |  |             |       |                       |  |                 |    |                     |  |           |       |       |  |                  |       |      |  |  | 35,112 |  |  |  | 31,862 |  |  |  |       |  |  |  | 1,113  | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 
|Shareholder of a jointly
controlled entity      |  |             |       |                       |  |                 |    |                     |  |           | 4,673  |       |  |                  | 4,673  |      |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       | 
|                                                |  |             |        |                       |  |                 |     |                     |  |           |        |       |  |                  |        |      |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        | 

F-30



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|19. |  | RELATED PARTY TRANSACTIONS (continued)
|--- |  | --------------------------------------



| | (c)    |  | At December 31, 2001 and 2002, the Group had an outstanding
commitment to pay an additional service fee to a fellow subsidiary of
a shareholder of the Company amounting to HK$330,174 and HK$317,850,
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.                                                                                                     
|
| | (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, further details of which are disclosed in
note 7.                                                                          
|
| | (vi)   |  | The interest income arose from interest charged on overdue
trade receivables under terms and conditions of transponder lease
agreements which are similar to those contracted with other customers
of the Group.     
|
| | (vii)  |  | The interest income is calculated at 4.25% per annum on the
outstanding principal.                                                                                                                                   
|
| | (viii) |  | The directors consider that the terms and conditions of these
transponders lease agreements are similar to those offered to other
customers by the lessor.                                                           
|
| | (ix)   |  | The interest paid to shareholders is calculated at six months
LIBOR.                                                                                                                                                 
|
| | (x)    |  | 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.                             
|
| | (xi)   |  | Management fee expenses arose from a reimbursement of cost of
services provided from the holding company of a shareholder of the
Company.                                                                            
|
| | (xii)  |  | The land and buildings were transferred at the then net book
value at the date of transfer.                                                                                                                          
|
| | (xiii) |  | The directors consider that the service fees were charged according
to prices and conditions similar to those offered to other customers
by the launch service provider.                                             

F-31



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|20. |  | SUPPLEMENTAL INFORMATION
|--- |  | ------------------------



| | (a) |  | Profit from operations
| | --- |  | ----------------------

|                                                                                                                         |                               |  |                         |        |      |  |         |        |   |  |         |        |  
|------------------------------------------------------------------------------------------------------------------------ | ----------------------------- |  | ----------------------- | ------ | ---- |  | ------- | ------ | - |  | ------- | ------ | -
|                                                                                                                         |                               |  | Year ended December 31,
|                                                                                                                         |                               |  |                        
|                                                                                                                         |                               |  | 2000                    |        | 2001 |  | 2002   
|                                                                                                                         |                               |  |                         |        |      |  |        
|                                                                                                                         |                               |  | HK$                     |        | HK$  |  | HK$    
|Profit from operations has been arrived at
after charging:                                                               |                               |  |                         |        |      |  |         |        |   |  |         |       
|Amortisation of goodwill (included in
administrative expenses)                                                           |                               |  |                        |        |      |  |        |        |   |  | 660     |       
|Bad debt written off                                                                                                     |                               |  |                        |        |      |  |        |        |   |  | 107     |       
|Depreciation                                                                                                             |                               |  | 216,808                 |        |      |  | 217,021 |        |   |  | 233,971 |       
|Exchange loss                                                                                                            |                               |  |                        |        |      |  | 312     |        |   |  | 16      |       
|Loss on disposal of property, plant and
equipment                                                                        |                               |  |                        |        |      |  | 37      |        |   |  | 30      |       
|Allowance for doubtful receivables                                                                                       |                               |  |                        |        |      |  |        |        |   |  | 5,207   |       
|Staff costs (including directors emoluments)                                                                            |                               |  |                         |        |      |  |         |        |   |  |         |       
|                                                                                                                         | Pension contributions         |  |                         | 980    |      |  |         | 1,219  |   |  |         | 1,294  |  
|                                                                                                                         | Less: Forfeited contributions |  |                         | (267   | )    |  |         | (252   | ) |  |         | (28    | )
|                                                                                                                         |                               |  |                         |        |      |  |         |        |   |  |         |       
|                                                                                                                         | Net pension contributions     |  |                         | 713    |      |  |         | 967    |   |  |         | 1,266  |  
|                                                                                                                         | Wages, salaries and bonuses   |  |                         | 32,101 |      |  |         | 38,444 |   |  |         | 35,900 |  
|                                                                                                                         |                               |  |                         |        |      |  |         |        |   |  |         |       
|                                                                                                                         |                               |  | 32,814                  |        |      |  | 39,411  |        |   |  | 37,166  |       
|Less: capitalised in construction in progress                                                                            |                               |  |                        |        |      |  |        |        |   |  | (1,108  | )     
|                                                                                                                         |                               |  |                         |        |      |  |         |        |   |  |         |       
|                                                                                                                         |                               |  | 32,814                  |        |      |  | 39,411  |        |   |  | 36,058  |       
|and after crediting:                                                                                                     |                               |  |                         |        |      |  |         |        |   |  |         |       
|Compensation income for early termination
of lease agreements in respect of
satellite transponders                       |                               |  | 440                     |        |      |  | 364     |        |   |  | 53      |       
|Exchange gain                                                                                                            |                               |  | 10,407                  |        |      |  |        |        |   |  |        |       
|Gain on disposal of property, plant and
equipment                                                                        |                               |  | 498                     |        |      |  |        |        |   |  |        |       
|Gain on disposal of partial interest in a
jointly controlled entity                                                      |                               |  | 2,500                   |        |      |  |        |        |   |  |        |       
|Reversal of provision on regulatory
matters previously recognised in the
life lease of transponders of APSTAR
IIR (note) |                               |  | 45,788                  |        |      |  |        |        |   |  | 47,212  |       
|Reversal of allowance for doubtful
receivables                                                                           |                               |  | 11,970                  |        |      |  | 5,182   |        |   |  | 130     |       
|                                                                                                                         |                               |  |                         |        |      |  |         |        |   |  |         |       

F-32



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|20. |  | SUPPLEMENTAL INFORMATION (continued)
|--- |  | ------------------------------------



| | (a) |  | Profit from operations  continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 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 at December 31, 2000 and 2001, the
provision was HK$47,212 as disclosed in note 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | 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.
|
| | (b) |  | Valuation and qualifying accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                   |  |                         |         |      |  |      |        |   |  |  |         |  
|---------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------ | - |  |  | ------- | -
|                                   |  | Year ended December 31,
|                                   |  |                        
|Allowance for doubtful receivables |  | 2000                    |         | 2001 |  | 2002
|                                   |  |                         |         |      |  |     
|                                   |  | HK$                     |         | HK$  |  | HK$ 
|Balance at beginning of the year   |  |                         | 36,897  |      |  |      | 25,088 |   |  |  | 12,305  |  
|Charged to cost and expenses       |  |                         | 161     |      |  |      |       |   |  |  | 5,337   |  
|Reductions                         |  |                         | (11,970 | )    |  |      | (5,182 | ) |  |  | (130    | )
|Written off                        |  |                         |        |      |  |      | (7,601 | ) |  |  | (11,475 | )
|                                   |  |                         |         |      |  |      |        |   |  |  |         |  
|Balance at end of the year         |  |                         | 25,088  |      |  |      | 12,305 |   |  |  | 6,037   |  
|                                   |  |                         |         |      |  |      |        |   |  |  |         |  



| | (c) |  | Finance costs
| | --- |  | -------------

|                                                               |  |                         |        |      |  |      |       |  |  |  |        |  
|-------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ----- |  |  |  | ------ | -
|                                                               |  | Year ended December 31,
|                                                               |  |                        
|                                                               |  | 2000                    |        | 2001 |  | 2002
|                                                               |  |                         |        |      |  |     
|                                                               |  | HK$                     |        | HK$  |  | HK$ 
|Interest on bank borrowings wholly
repayable within five years |  |                         | 15,338 |      |  |      | 5,644 |  |  |  | 117    |  
|Other borrowing costs                                          |  |                         |       |      |  |      |      |  |  |  | 2,125  |  
|Less: Amount capitalised in construction
in progress           |  |                         |       |      |  |      |      |  |  |  | (2,242 | )
|                                                               |  |                         |        |      |  |      |       |  |  |  |        |  
|                                                               |  |                         | 15,338 |      |  |      | 5,644 |  |  |  |       |  
|                                                               |  |                         |        |      |  |      |       |  |  |  |        |  



| |  |  | Borrowing costs capitalised during the year arose on a bank loans
borrowed for the purpose of financing the construction and launching
of satellites.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

F-33



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|21. |  | SEGMENTAL INFORMATION                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 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 operating income by location of customers, is as
follows:            

|                               |  |         |         |        |  |           |         |        |  |         |         |           |  |  |         |   |  |           |         |  |  |  |         |  
|------------------------------ |  | ------- | ------- | ------ |  | --------- | ------- | ------ |  | ------- | ------- | --------- |  |  | ------- | - |  | --------- | ------- |  |  |  | ------- | -
|                               |  | 2000    |         | 2001   |  | 2002     
|                               |  |         |         |        |  |          
|                               |  |         |         |        |  | Operating |         |        |  |         |         | Operating |  |  |         |   |  | Operating
|                               |  | Revenue |         | income |  | Revenue   |         | income |  | Revenue |         | income   
|                               |  |         |         |        |  |           |         |        |  |         |         |          
|                               |  | HK$     |         | HK$    |  | HK$       |         | HK$    |  | HK$     |         | HK$      
|Hong Kong                      |  |         | 20,347  |        |  |           | 4,765   |        |  |         | 40,459  |           |  |  | 11,694  |   |  |           | 47,178  |  |  |  | 10,164  |  
|Other regions in the PRC       |  |         | 264,247 |        |  |           | 61,886  |        |  |         | 270,009 |           |  |  | 78,041  |   |  |           | 254,901 |  |  |  | 54,914  |  
|Others                         |  |         | 56,902  |        |  |           | 13,327  |        |  |         | 63,690  |           |  |  | 18,408  |   |  |           | 49,346  |  |  |  | 10,630  |  
|                               |  |         |         |        |  |           |         |        |  |         |         |           |  |  |         |   |  |           |         |  |  |  |         |  
|                               |  |         | 341,496 |        |  |           | 79,978  |        |  |         | 374,158 |           |  |  | 108,143 |   |  |           | 351,425 |  |  |  | 75,708  |  
|                               |  |         |         |        |  |           |         |        |  |         |         |           |  |  |         |   |  |           |         |  |  |  |         |  
|Other operating income         |  |         |         |        |  |           | 179,742 |        |  |         |         |           |  |  | 78,491  |   |  |           |         |  |  |  | 72,327  |  
|Unallocated corporate expenses |  |         |         |        |  |           | (65,540 | )      |  |         |         |           |  |  | (71,967 | ) |  |           |         |  |  |  | (78,550 | )
|                               |  |         |         |        |  |           |         |        |  |         |         |           |  |  |         |   |  |           |         |  |  |  |         |  
|Profit from operations         |  |         |         |        |  |           | 194,180 |        |  |         |         |           |  |  | 114,667 |   |  |           |         |  |  |  | 69,485  |  
|                               |  |         |         |        |  |           |         |        |  |         |         |           |  |  |         |   |  |           |         |  |  |  |         |  



| |  | The Groups analysis of the total carrying amount of segment assets and segment liabilities by location of
customers is as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------

|                                         |  |         |           |             |  |         |         |             |  |  |           |  |  |  |         | 
|---------------------------------------- |  | ------- | --------- | ----------- |  | ------- | ------- | ----------- |  |  | --------- |  |  |  | ------- | 
|                                         |  | 2001    |           | 2002       
|                                         |  |         |           |            
|                                         |  | Segment |           | Segment     |  | Segment |         | Segment    
|                                         |  | assets  |           | liabilities |  | assets  |         | liabilities
|                                         |  |         |           |             |  |         |         |            
|                                         |  | HK$     |           | HK$         |  | HK$     |         | HK$        
|Hong Kong                                |  |         | 23        |             |  |         | 27,028  |             |  |  | 206       |  |  |  | 17,970  | 
|Other regions in the PRC                 |  |         | 23,646    |             |  |         | 92,543  |             |  |  | 42,077    |  |  |  | 69,935  | 
|Others                                   |  |         | 1,837     |             |  |         | 39,663  |             |  |  | 934       |  |  |  | 38,347  | 
|                                         |  |         |           |             |  |         |         |             |  |  |           |  |  |  |         | 
|                                         |  |         | 25,506    |             |  |         | 159,234 |             |  |  | 43,217    |  |  |  | 126,252 | 
|Unallocated corporate assets/liabilities |  |         | 3,255,192 |             |  |         | 656,827 |             |  |  | 3,296,152 |  |  |  | 737,968 | 
|                                         |  |         |           |             |  |         |         |             |  |  |           |  |  |  |         | 
|                                         |  |         | 3,280,698 |             |  |         | 816,061 |             |  |  | 3,339,369 |  |  |  | 864,220 | 
|                                         |  |         |           |             |  |         |         |             |  |  |           |  |  |  |         | 



| |  | 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-34



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|22. |  | 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 the Groups 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
(Shares) in issue on the adoption date of the Scheme 2002 (i.e.
412,720,000 shares). As at the date of report, the shares of the Company
in issue was 412,535,000 shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | 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 (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 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 had been granted under the Scheme 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | 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.                                                                                                                     
|   
|    |  | The particulars of the outstanding share options granted under the Scheme 2001 during the year ended December 31, 2002 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                    |  |  |               |   | 
|----------------------------------- |  |  | ------------- | - | 
|                                    |  |  | Number of    
|                                    |  |  | share options
|                                    |  |  |              
|Outstanding as at January 1, 2002   |  |  | 13,450,000    |  
|Cancelled during the year           |  |  | (40,000       | )
|                                    |  |  |               |   | 
|Outstanding as at December 31, 2002 |  |  | 13,410,000    |  
|                                    |  |  |               |   | 

F-35



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|22. |  | SHARE OPTION PLAN (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | All the above 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The financial impact of share options granted is not recorded in the
consolidated balance sheet until such time as the options are exercised,
and no charge is recognised in the consolidated statements of income in
respect of the value of options granted. 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.
|   
|23. |  | FAIR VALUE OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The 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.                                                                                                                                                                                                                                                     
|   
|24. |  | CONCENTRATION AND OTHER RISKS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Financial instruments that potentially subject the Group significant
concentrations of credit risk consist principally of cash investments and
accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | 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 36% and 21% each of the total transponder
leasing revenues in the year ended December 31, 2000. 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.                                                                                                                                                                                                                                                                                                                
|   
|    |  | Revenues from the Groups five largest customers for the years ended
December 31, 2000, 2001 and 2002 were HK$254.6 million, HK$207.5 million
and HK$198.9 million (US$25.5 million) respectively, which represented
74.6%, 55.5% and 56.6% respectively, of total revenues. Revenues from the
Groups largest customer represented 35.7%, 29.0% and 22.9% respectively,
of total revenues during such periods.                                                                                                                                                                                                                                                                                    

F-36



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|24. |  | CONCENTRATION AND OTHER RISKS  CONTINUED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Substantially all of the Groups accounts receivable are due from
prominent broadcasters and telecommunication services providers.
Furthermore, as of December 31, 2001 and 2002, the three largest accounts
receivable amounted to HK$17,190 and HK$16,031, 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.                                                                                                                                                                                       
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|25. |  | POST BALANCE SHEET EVENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | On May 5, 2003, APT received a letter from the Hong Kong Inland Revenue
Department (IRD) in connection with the Profits Tax Returns filed for
the years of assessment 1999/2000 and 2000/2001. APT recognised a gain of
approximately 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. APT has claimed the gain as a
non-taxable capital gain in its 1999/2000 Profits Tax Return. The IRD
disagreed with the capital gain claim in their letter of May 5, 2003 and
proposed to treat the proceeds received as taxable income to APT with a
corresponding entitlement to statutory depreciation allowances in respect
of APSTAR IIR. The tax effect of this event to APT is estimated to be
approximately HK$47,000.
|   
|    |  | The Directors of the Company are of the opinion that the transaction in
respect of APSTAR IIR is in substance an outright sale and represents a
capital transaction. The gain derived from this transaction should be
regarded as capital receipts of APT and therefore non-taxable. A letter
disagreeing with the IRD proposal will be filed to pursue the non-taxable
capital gain argument. Having taken into consideration of the independent
professional advice, the Company believes it has a reasonable likelihood
of success in defending its position. Accordingly, no additional
provision has been recognised in the financial statements.                                                                                                                                                                          

F-37



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | 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 GAAP                                                                                                                                                                                                              
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The accompanying consolidated financial statements are prepared in
accordance with HK 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 out below.



| | (i)   |  | Recognition of revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Certain of the Groups transponder lease agreements for
transponder capacity contain pre-determined escalations over
the terms of the agreements. In previous years, revenue was
recognised on an accrual basis under the contract terms under
HK GAAP. Under US GAAP, revenue is recognised on a straight
line basis over the relevant lease term.                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (ii)  |  | Investment properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |       |  | Under HK GAAP, investment properties representing property
leased for a specified period are stated at valuation and are
not depreciated. Changes in the values of investment
properties are dealt with as movements in the investment
property revaluation reserve. 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 statement
of income. Under US GAAP, such investment properties would be
stated at cost and depreciated over their lease terms.                                                                                                                                                                                           
|
| | (iii) |  | Deferred taxation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |       |  | Under HK GAAP, deferred taxation is provided, using the
liability method, on all significant timing differences to the
extent it is probable that the liability will crystallize in
the foreseeable future. A deferred tax asset is not recognised
until its realisation is assured beyond reasonable doubt.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |       |  | Under US GAAP, the tax effects of both taxable and
deductible temporary differences are recognised as deferred tax
liabilities and assets respectively. A valuation allowance is
recorded to the extent it is considered more likely than not
that the deferred tax assets will not be realised.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (iv)  |  | Share options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |       |  | Under HK GAAP, no compensation expense is recognised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |       |  | Under US GAAP, in accordance with Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, compensation expense is recognised for options
granted to employees 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 No. 25 for
purpose of accounting for stock option issued to employees.

F-38



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (v)  |  | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | HK GAAP requires goodwill arising from an acquisition to be
capitalised and amortised over its estimated useful life.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |      |  | Under US GAAP effective from 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 amortised, instead, these assets must
be tested for impairment at least annually.                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (vi) |  | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |      |  | HK GAAP requires that an enterprise assesses at each balance
sheet date whether there is any indication that an asset may be
impaired. If any such indication exists, the enterprise should
estimate the recoverable amount of the asset. Impairment loss
is the amount by which the carrying amount of an asset exceeds
its recoverable amount. Recoverable amount is the higher of an
assets net selling price and its value in use. An impairment
loss is recognised whenever the carrying amount of an asset
exceeds its recoverable amount. A reversal of previous
impairment provisions is allowed to the extent of the loss
previously recognised as expense in the consolidated statement
of income.
|
| |      |  | Under US GAAP, in according to SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, long-lived assets
(except goodwill and other indefinite life assets) are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognised if the expected
future cash flows (undiscounted) are less than the carrying
amount of the assets. The impairment loss is measured based on
the fair value of the asset (less disposal cost if to be
disposed of). Subsequently reversal of the loss is prohibited.                                                                          

F-39



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | Net income                                                                                    
| | --- |  | ----------------------------------------------------------------------------------------------
|
| |     |  | The effect on net income of significant differences between HK GAAP
and US GAAP is as follows:

|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |             |  
|------------------------------------ | --------------------------------------------- |  | ----------------------- | ----------- | ----------- |  | ----------- | ----------- | ---------- |  | ------ | ----------- | -
|                                     |                                               |  | Year ended December 31,
|                                     |                                               |  |                        
|                                     |                                               |  | 2000                    |             | 2001        |  | 2002       
|                                     |                                               |  |                         |             |             |  |            
|                                     |                                               |  | HK$                     |             | HK$         |  | HK$        
|Net income as reported under HK GAAP |                                               |  | 142,996                 |             |             |  | 78,009      |             |            |  | 24,435 |            
|Adjustments:                         |                                               |  |                         |             |             |  |             |             |            |  |        |            
|                                     | Recognition of revenue                        |  |                         | (3,635      | )           |  |             | (1,476      | )          |  |        | (3,697      | )
|                                     | Investment property                           |  |                         |            |             |  |             | (66         | )          |  |        | (13         | )
|                                     | Tax effect of reconciling items               |  |                         | 582         |             |  |             | 236         |            |  |        | 591         |  
|                                     | Compensation expense of share options
granted |  |                         |            |             |  |             | (4,074      | )          |  |        | (7,553      | )
|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |            
|Net income as reported under US GAAP |                                               |  | 139,943                 |             |             |  | 72,629      |             |            |  | 13,763 |            
|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |            
|Weighted average shares, outstanding |                                               |  |                         |             |             |  |             |             |            |  |        |            
|                                     |  basic                                       |  |                         | 417,433,000 |             |  |             | 412,773,000 |            |  |        | 412,675,000 |  
|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |            
|                                     |  diluted                                     |  |                         | N/A         |             |  |             | 413,890,000 |            |  |        | 412,675,000 |  
|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |            
|Earnings per share under US GAAP     |                                               |  |                         |             |             |  |             |             |            |  |        |            
|                                     |  basic                                       |  | 33.52 cents             |             | 17.60 cents |  | 3.34 cents 
|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |            
|                                     |  diluted                                     |  |                         | N/A         |             |  | 17.55 cents |             | 3.34 cents
|                                     |                                               |  |                         |             |             |  |             |             |            |  |        |            



| |  | No outstanding stock options (see Note 22) were included in the
computation of diluted earnings per share for the year ended
December 31, 2002 as their exercise price is higher than their
average market price during the year.                                                                                                                                                                                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under US GAAP effective from January 1, 2002, goodwill is no longer
be amortised but is subject to annual impairment review. Hence,
amortisation 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. Thus, the impairment provision
recorded under US GAAP was HK$660 higher than that recorded under HK
GAAP.

F-40



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Shareholders Equity                                                                                    
| | --- |  | --------------------------------------------------------------------------------------------------------
|
| |     |  | The effect on shareholders equity of significant differences
between HK GAAP and US GAAP is as follows:

|                                               |                                 |  |              |       |      |  |           |     | 
|---------------------------------------------- | ------------------------------- |  | ------------ | ----- | ---- |  | --------- | --- | 
|                                               |                                 |  | December 31,
|                                               |                                 |  |             
|                                               |                                 |  | 2001         |       | 2002
|                                               |                                 |  |              |       |     
|                                               |                                 |  | HK$          |       | HK$ 
|Shareholders equity as reported under
HK GAAP |                                 |  | 2,464,637    |       |      |  | 2,468,311 |    
|Adjustments:                                   |                                 |  |              |       |      |  |           |    
|                                               | Recognition of revenue          |  |              | 3,697 |      |  |           |    | 
|                                               | Investment property             |  |              | 381   |      |  |           | 368 | 
|                                               | Tax effect of reconciling items |  |              | (591  | )    |  |           |    | 
|                                               |                                 |  |              |       |      |  |           |    
|Shareholders equity as reported under
US GAAP |                                 |  | 2,468,124    |       |      |  | 2,468,679 |    
|                                               |                                 |  |              |       |      |  |           |    



| |  | The changes in shareholders equity in accordance with US GAAP is as follows:
| |  | -----------------------------------------------------------------------------

|                                                                               |  |         |        |                 |  |          |           |          |  |  |     |  |  |  |         |  
|------------------------------------------------------------------------------ |  | ------- | ------ | --------------- |  | -------- | --------- | -------- |  |  | --- |  |  |  | ------- | -
|                                                                               |  | Capital |        | Additional      |  | Other    |           | Retained
|                                                                               |  | stock   |        | paid-in capital |  | reserves |           | earnings
|                                                                               |  |         |        |                 |  |          |           |         
|                                                                               |  | HK$     |        | HK$             |  | HK$      |           | HK$     
|Balance at January 1, 2001                                                     |  |         | 41,280 |                 |  |          | 1,794,993 |          |  |  |    |  |  |  | 617,260 |  
|Share repurchased and cancelled                                                |  |         | (8     | )               |  |          | (184      | )        |  |  |    |  |  |  |        |  
|Dividends                                                                      |  |         |       |                 |  |          |          |          |  |  |    |  |  |  | (61,920 | )
|Share options granted                                                          |  |         |       |                 |  |          | 4,074     |          |  |  |    |  |  |  |        |  
|Transfer to other reserves                                                     |  |         |       |                 |  |          |          |          |  |  | 64  |  |  |  | (64     | )
|Net income                                                                     |  |         |       |                 |  |          |          |          |  |  |    |  |  |  | 72,629  |  
|                                                                               |  |         |        |                 |  |          |           |          |  |  |     |  |  |  |         |  
|Balance at December 31, 2001                                                   |  |         | 41,272 |                 |  |          | 1,798,883 |          |  |  | 64  |  |  |  | 627,905 |  
|Share repurchased and cancelled                                                |  |         | (18    | )               |  |          | (289      | )        |  |  |    |  |  |  |        |  
|Translation difference not
recognised in the consolidated
statements of income |  |         |       |                 |  |          |          |          |  |  | 182 |  |  |  |        |  
|Dividends                                                                      |  |         |       |                 |  |          |          |          |  |  |    |  |  |  | (20,636 | )
|Share options granted                                                          |  |         |       |                 |  |          | 7,553     |          |  |  |    |  |  |  |        |  
|Transfer to other reserves                                                     |  |         |       |                 |  |          |          |          |  |  | 30  |  |  |  | (30     | )
|Net income                                                                     |  |         |       |                 |  |          |          |          |  |  |    |  |  |  | 13,763  |  
|                                                                               |  |         |        |                 |  |          |           |          |  |  |     |  |  |  |         |  
|Balance at December 31, 2002                                                   |  |         | 41,254 |                 |  |          | 1,806,147 |          |  |  | 276 |  |  |  | 621,002 |  
|                                                                               |  |         |        |                 |  |          |           |          |  |  |     |  |  |  |         |  

F-41



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) |  | Comprehensive income under US GAAP                                                                                                                                                                                                                                                                                                                   
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | For the years ended December 31, 2000 and 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
difference of HK$182.                                                                                                                                                                                              
|
| | (e) |  | Consolidated statements of income and consolidated balance
sheets under US GAAP                                                                                                                                                                                                                                                                      
|
| |     |  | The compensation received from cancellation of transponder lease
agreements is 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 land and buildings 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:                                                                                                                                                                                                                                                                                   

|                                                  |                                              |  |                         |         |      |  |          |         |      |  |          |         |   |  |         |        |  
|------------------------------------------------- | -------------------------------------------- |  | ----------------------- | ------- | ---- |  | -------- | ------- | ---- |  | -------- | ------- | - |  | ------- | ------ | -
|                                                  |                                              |  | Year ended December 31,
|                                                  |                                              |  |                        
|                                                  |                                              |  | 2000                    |         | 2001 |  | 2002     |         | 2002
|                                                  |                                              |  |                         |         |      |  |          |         |     
|                                                  |                                              |  | HK$                     |         | HK$  |  | HK$      |         | US$ 
|Total revenues                                    |                                              |  | 338,301                 |         |      |  | 373,046  |         |      |  | 347,781  |         |   |  | 44,587  |       
|Total costs and expenses                          |                                              |  | (281,270                | )       |      |  | (342,122 | )       |      |  | (314,621 | )       |   |  | (40,336 | )     
|                                                  |                                              |  |                         |         |      |  |          |         |      |  |          |         |   |  |         |       
|Income from operations                            |                                              |  | 57,031                  |         |      |  | 30,924   |         |      |  | 33,160   |         |   |  | 4,251   |       
|Other income (expenses)                           |                                              |  |                         |         |      |  |          |         |      |  |          |         |   |  |         |       
|                                                  | Interest expense                             |  |                         | (72,072 | )    |  |          | (56,155 | )    |  |          | (43,685 | ) |  |         | (5,601 | )
|                                                  | Interest income                              |  |                         | 163,236 |      |  |          | 120,732 |      |  |          | 65,874  |   |  |         | 8,446  |  
|                                                  | Others-net                                   |  |                         | 27,012  |      |  |          | 7,906   |      |  |          | 2,873   |   |  |         | 368    |  
|                                                  | Share of loss of jointly controlled
entities |  |                         | (1,335  | )    |  |          | (5,067  | )    |  |          | (10,624 | ) |  |         | (1,362 | )
|                                                  |                                              |  |                         |         |      |  |          |         |      |  |          |         |   |  |         |       
|Income before income taxes and minority
interests |                                              |  | 173,872                 |         |      |  | 98,340   |         |      |  | 47,598   |         |   |  | 6,102   |       
|Provision for income taxes                        |                                              |  | (33,929                 | )       |      |  | (25,711  | )       |      |  | (36,223  | )       |   |  | (4,644  | )     
|Minority interests                                |                                              |  |                        |         |      |  |         |         |      |  | 2,388    |         |   |  | 306     |       
|                                                  |                                              |  |                         |         |      |  |          |         |      |  |          |         |   |  |         |       
|Net income                                        |                                              |  | 139,943                 |         |      |  | 72,629   |         |      |  | 13,763   |         |   |  | 1,764   |       
|                                                  |                                              |  |                         |         |      |  |          |         |      |  |          |         |   |  |         |       



| |  |  | Under US GAAP, the Companys consolidated total assets were
HK$3,284,776 and HK$3,339,737 at December 31, 2001 and 2002,
respectively, and consolidated total liabilities were HK$816,652 and
HK$864,220 at December 31, 2001 and 2002, respectively.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-42



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) |  | Consolidated Statements of Cash Flow                                                                                       
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |     |  | A reconciliation of the major captions in the consolidated
statements of cash flow under HK GAAP and US GAAP is as follows:

|                                                          |                                        |  |                         |           |      |  |      |          |   |  |  |            |  
|--------------------------------------------------------- | -------------------------------------- |  | ----------------------- | --------- | ---- |  | ---- | -------- | - |  |  | ---------- | -
|                                                          |                                        |  | Year ended December 31,
|                                                          |                                        |  |                        
|                                                          |                                        |  | 2000                    |           | 2001 |  | 2002
|                                                          |                                        |  |                         |           |      |  |     
|                                                          |                                        |  | HK$                     |           | HK$  |  | HK$ 
|Net cash provided by operating activities:                |                                        |  |                         |           |      |  |      |          |   |  |  |           
|                                                          | Amount under HK GAAP                   |  |                         | 1,577,370 |      |  |      | 281,406  |   |  |  | 162,763    |  
|                                                          | US GAAP adjustment  interest received |  |                         | 90,051    |      |  |      | 87,262   |   |  |  | 20,254     |  
|                                                          |                                        |  |                         |           |      |  |      |          |   |  |  |            |  
|                                                          | Amount under US GAAP                   |  |                         | 1,667,421 |      |  |      | 368,668  |   |  |  | 183,017    |  
|                                                          |                                        |  |                         |           |      |  |      |          |   |  |  |            |  
|Net cash provided by (used in) from investing
activities: |                                        |  |                         |           |      |  |      |          |   |  |  |           
|                                                          | Amount under HK GAAP                   |  |                         | 44,861    |      |  |      | (126,494 | ) |  |  | (1,037,192 | )
|                                                          | US GAAP adjustment  interest received |  |                         | (90,051   | )    |  |      | (87,262  | ) |  |  | (20,254    | )
|                                                          |                                        |  |                         |           |      |  |      |          |   |  |  |            |  
|                                                          | Amount under US GAAP                   |  |                         | (45,190   | )    |  |      | (213,756 | ) |  |  | (1,057,446 | )
|                                                          |                                        |  |                         |           |      |  |      |          |   |  |  |            |  



| |  |  | The net cash (used in) provided by financing activities were the
same under both HK GAAP and US GAAP.
| |  |  | -----------------------------------------------------------------------------------------------------

F-43



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) |  | Income Taxes                                                                                 
| | --- |  | ---------------------------------------------------------------------------------------------
|
| |     |  | A reconciliation of the expected tax with the actual tax expense
under US GAAP is as follows:

|                                                                   |  |                         |         |      |  |      |        |   |  |  |        |  
|------------------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                                   |  | Year ended December 31,
|                                                                   |  |                        
|                                                                   |  | 2000                    |         | 2001 |  | 2002
|                                                                   |  |                         |         |      |  |     
|                                                                   |  | HK$                     |         | HK$  |  | HK$ 
|Hong Kong statutory income tax rate                                |  |                         | 16.0    | %    |  |      | 16.0   | % |  |  | 16.0   | %
|                                                                   |  |                         |         |      |  |      |        |   |  |  |        |  
|Statutory rate applied to income before
income taxes under US GAAP |  |                         | 27,820  |      |  |      | 15,734 |   |  |  | 7,616  |  
|Change in estimated provision of
prior year                        |  |                         | 2,624   |      |  |      | 1,388  |   |  |  |       |  
|Overseas withholding tax applied to
lease revenue                  |  |                         | 24,349  |      |  |      | 18,052 |   |  |  | 27,247 |  
|Income/expense not taxable/deductible, net                         |  |                         | (9,355  | )    |  |      | 87     |   |  |  | (3,602 | )
|Offshore income not taxable, net                                   |  |                         | (5,439  | )    |  |      | (4,717 | ) |  |  | (1,542 | )
|Interest income not taxable                                        |  |                         | (15,096 | )    |  |      | (9,546 | ) |  |  | (2,821 | )
|Share of losses of jointly controlled
entities not deductible      |  |                         | 213     |      |  |      | 811    |   |  |  | 1,717  |  
|Certain leasing arrangements                                       |  |                         | 6,287   |      |  |      | 6,287  |   |  |  | 6,287  |  
|Others                                                             |  |                         | 2,526   |      |  |      | (2,385 | ) |  |  | 1,321  |  
|                                                                   |  |                         |         |      |  |      |        |   |  |  |        |  
|Income taxes under US GAAP                                         |  |                         | 33,929  |      |  |      | 25,711 |   |  |  | 36,223 |  
|                                                                   |  |                         |         |      |  |      |        |   |  |  |        |  



| |  |  | 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, 2002, the Group had net operating loss
carryforwards of approximately HK$330 million that it can
carryforward indefinitely.                                                   
|
| |  |  | The tax expense under US GAAP is presented below:                                                                                                                                                

|         |  |                         |        |      |  |      |        |   |  |  |        | 
|-------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | 
|         |  | Year ended December 31,
|         |  |                        
|         |  | 2000                    |        | 2001 |  | 2002
|         |  |                         |        |      |  |     
|         |  | HK$                     |        | HK$  |  | HK$ 
|Current  |  |                         | 28,844 |      |  |      | 25,798 |   |  |  | 35,026 | 
|Deferred |  |                         | 5,085  |      |  |      | (87    | ) |  |  | 1,197  | 
|         |  |                         |        |      |  |      |        |   |  |  |        | 
|         |  |                         | 33,929 |      |  |      | 25,711 |   |  |  | 36,223 | 
|         |  |                         |        |      |  |      |        |   |  |  |        | 

F-44



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) 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,
|                                                     |                              |  |             
|                                                     |                              |  | 2001         |         | 2002
|                                                     |                              |  |              |         |     
|                                                     |                              |  | HK$          |         | HK$ 
|Tax effect of temporary differences attributable to: |                              |  |              |         |      |  |         |        
|                                                     | Certain leasing arrangements |  |              | 110,887 |      |  |         | 109,941 |  
|                                                     | Accelerated depreciation     |  |              | 77,510  |      |  |         | 66,637  |  
|                                                     | Tax losses                   |  |              | (66,412 | )    |  |         | (52,794 | )
|                                                     | Other timing differences     |  |              | 753     |      |  |         |        |  
|                                                     | Valuation allowance          |  |              | 1,528   |      |  |         | 1,679   |  
|                                                     |                              |  |              |         |      |  |         |         |  
|                                                     |                              |  | 124,266      |         |      |  | 125,463 |        
|                                                     |                              |  |              |         |      |  |         |         |  



| | (h) |  | Pro forma information of net income and earnings per share under SFAS No. 123                                                                                                                                                                                                                                                                                                                         
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, 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.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 as reported under US GAAP and earnings per share for the
years ended December 31, 2001 and 2002 would have been adjusted to
the pro forma amounts as follows:      

|                           |  |             |  |             |        |            |  |      |        |  |  | 
|-------------------------- |  | ----------- |  | ----------- | ------ | ---------- |  | ---- | ------ |  |  | 
|                           |  |             |  |             |        | 2001       |  | 2002
|                           |  |             |  |             |        |            |  |     
|                           |  |             |  |             |        | HK$        |  | HK$ 
|Net income                 |  | As reported |  |             | 72,629 |            |  |      | 13,763 | 
|                           |  | Pro forma   |  |             | 66,113 |            |  |      | 1,685  | 
|Basic earnings per share   |  | As reported |  | 17.60 cents |        | 3.34 cents
|                           |  | Pro forma   |  | 16.02 cents |        | 0.41 cents
|Diluted earnings per share |  | As reported |  | 17.55 cents |        | 3.34 cents
|                           |  | Pro forma   |  | 15.97 cents |        | 0.41 cents

F-45



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (h) |  | Acquisition of a subsidiary                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The 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 9.                                                                                                                                                                                                                                                      
|
| |     |  | Pro Forma Financial Information                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | The 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        |         | 2002      
|                           |  |             |         |           
|                           |  | HK$         |         | HK$       
|Total revenues             |  |             | 373,046 |            |  |  | 347,781 | 
|Net income                 |  |             | 71,994  |            |  |  | 13,089  | 
|Basic earnings per share   |  | 17.44 cents |         | 3.17 cents
|Diluted earnings per share |  | 17.39 cents |         | 3.17 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.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-46



---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED

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



|26. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAPP) AND ADDITIONAL
DISCLOSURES REQUIRED UNDER US GAAP (continued)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) |  | New pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In June 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issue Task Force Issue (EITF) No.
94-3. The Company will adopt the provisions of SFAS No. 146 for
restructuring activities initiated after December 31, 2002. SFAS
No. 146 requires that the liability for costs associated with an
exit or disposal activity be recognised when the liability is
incurred. Under EITF No. 94-3, a liability for an exit cost was
recognised at the date of commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured and
recorded at fair value. Accordingly, SFAS No. 146 may affect the
timing of recognising future restructuring costs as well as the
amounts recognised. The Company does not believe the adoption of
such interpretation will have a material impact on its results of
operations or financial position.
|
| |     |  | In November 2002, the FASB issued Interpretation Number 45,
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others (FIN 45).
This interpretation requires certain disclosures to be made by a
guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
requires a guarantor to recognise, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are
effective for interim and annual periods after December 15, 2002 and
the Company has opted those requirements for these financial
statements. The initial recognition and initial measurement
requirements of FIN 45 are effective prospectively for guarantees
issued or modified after December 31, 2002. The Company does not
believe the adoption of such interpretation will have a material
impact on its results of operations or financial position.                                           
|
| |     |  | In January 2003, the FASB issued FIN 46 Consolidation of Variable
Interest Entities. This interpretation requires existing
unconsolidated variable interest entities to be consolidated by
their primary beneficiaries if the entities do not effectively
disperse risks among parties involved. It explains how to identify
variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to
consolidate that entity. This interpretation applies in the first
fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company does
not believe the adoption of such interpretation will have a material
impact on its results of operations or financial position.                                                                                                                                                                                                                                                   

F-47



---



##### Table of Contents






Item 19. Exhibits.

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|1.1         |  | Memorandum of Association and By-laws of the Company (incorporated by
reference to the Companys Registration Statement, as filed with the
Commission on December 9, 1996, Registration Number 333-6044).                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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)                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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).                                                                                                                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|99.1**      |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|99.2**      |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                 



---

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

-77-



---



##### Table of Contents



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 Zhaobin
Chen Zhaobin
Executive Director and President

Date: July 1, 2003

-78-



---



##### Table of Contents



CERTIFICATIONS

I, Chen Zhaobin, certify that:

(1)  I have reviewed this annual report on Form 20-F of APT Satellite Holdings
Limited;

(2)  Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

(3)  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects of the financial condition, results of operations, and cash flows of
the registrant as of, and for, the periods presented in this annual report;

(4)  The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to filing this annual
report (the Evaluation Date); and                                                                                                              
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.                                                                                                                        

(5)  The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

(6)  The registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in the internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
action with regard to significant deficiencies and material weaknesses.

Date: July 1, 2003

/s/ Chen Zhaobin
Chen Zhaobin Executive
Director and President

-79-



---



##### Table of Contents



I, He Dongfeng, certify that:

(1)  I have reviewed this annual report on Form 20-F of APT Satellite Holdings
Limited;

(2)  Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

(3)  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects of the financial condition, results of operations, and cash flows of
the registrant as of, and for, the periods presented in this annual report;

(4)  The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to filing this annual
report (the Evaluation Date); and                                                                                                              
|
| | (c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.                                                                                                                        

(5)  The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent functions):



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

(6)  The registrants other certifying officer and I have indicated in this
annual report whether there were significant changes in the internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
action with regard to significant deficiencies and material weaknesses.

Date: July 1, 2003

/s/ He Dongfeng
He Dongfeng
Director and Vice President

-80-



---



##### Table of Contents



EXHIBIT LIST

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  | Name of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|1.1     |  | Memorandum of Association and By-laws of the Company (incorporated by
reference to the Companys Registration Statement, as filed with the Commission
on December 9, 1996, Registration Number 333-6044).                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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).                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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).                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|99.1**  |  | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|99.2**  |  | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                 

Notes:



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