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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
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934.
 Commission file number 001-14564 APT SATELLITE HOLDINGS LIMITED 
  Bermuda 
  22 Dai Kwai Street, Tai Po Industrial Estate, Tai Po, New Territories, Hong Kong 
  Securities registered or to be registered pursuant to Section 12(b) of the Act: NONE Securities registered or to be registered pursuant to Section 12(g) of the Act: Title
    
    Name of Each Exchange on Which QuotedOrdinary Shares
    
    The Stock Exchange of Hong Kong LimitedAmerican Depositary Shares
    
    New York Stock Exchange
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report: 413,265,000 Ordinary Shares as of December 31, 2004. 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 þ
    
    NO o
 Indicate by check mark which financial statement item the Company has elected to follow. Item 17 o
    
    Item 18 þ
 Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. NOT APPLICABLE




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TABLE OF CONTENTS PageGLOSSARY OF CERTAIN TERMS
    
    iiiItem 1.
    
    Identity of Directors, Senior Management, and Advisers
    
    
    1Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    1Item 3.
    
    Key Information
    
    
    1Selected Consolidated Financial Information
    
    
    1Risk Factors
    
    
    3Regulatory Risks
    
    
    5Business Risks
    
    
    8Political and Economic Risks
    
    
    11Outbreak of
Infectious Diseases
    
    
    12Item 4.
    
    Information on the Company
    
    
    12History and Development of the Company
    
    
    12Business Overview
    
    
    12Industry and Market Overview
    
    
    14Broadcasting and Telecommunications Markets in Asia
    
    
    16Customers and Services
    
    
    17Competition
    
    
    27Regulation
    
    
    29Organizational Structure
    
    
    31Property, Plant and Equipment
    
    
    32Item 5.
    
    Operating and Financial Review and Prospects
    
    
    32Overview
    
    
    33Application of
Critical Accounting Policies
    
    
    35Commitments and
Contingencies
    
    
    38Off-Balance Sheet Arrangements
    
    
    40Results of Operations
    
    
    40Liquidity and Capital Resources
    
    
    45Capital Expenditures
    
    
    45Forward Looking Statements
    
    
    47Other
    
    
    48Item 6.
    
    Directors and Officers of Registrant
    
    
    48Compensation
    
    
    54Board Practices
    
    
    55Employees
    
    
    56Share Option Schemes
    
    
    57Share Ownership
    
    
    57Service Agreements
    
    
    57Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    57Major Shareholders
    
    
    58Related Party Transactions
    
    
    59Item 8.
    
    Financial Information
    
    
    63Item 9.
    
    The Offer and Listing
    
    
    63Item 10.
    
    Additional Information
    
    
    64Exchange Controls and Other Limitations Affecting Security Holders
    
    
    70Taxation
    
    
    71Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    75Interest Rate Risk
    
    
    75Exchange Rate Sensitivity
    
    
    76




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PageLimitations
    
    
    76Item 12.
    
    Description of Securities Other Than Equity Securities
    
    
    76Item 13.
    
    Defaults, Dividend Arrearages, and Delinquencies
    
    
    76Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    76Item 15.
    
    Controls and Procedures
    
    
    76Item 16A.
    
    Audit Committee Financial Expert
    
    
    77Item 16B.
    
    Code of Ethics
    
    
    77Item 16C.
    
    Principal Accountant Fees and Services
    
    
    77Item 16D.
    
    Exemption from the Listing Standards for Audit Committees
    
    
    78Item 16E.
    
    Purchases of Equity
Securities by the Issuer and Affiliated Purchasers
    
    
    77Item 17.
    
    Financial Statements
    
    
    78Item 18.
    
    Financial Statements
    
    
    78Item 19.
    
    Exhibits
    
    
    78EX-8.2 FINANCIAL STATEMENT OF APT SATELLITE TELECOMMUNICATIONS LIMITEDEX-12.1 CERTIFICATION OF CEOEX-12.2 CERTIFICATION OF CFOEX-14.1 AMENDED CHARTER OF THE AUDIT COMMITTEEEX-14.2 CHARTER OF THE NOMINATION COMMITTEEEX-14.3 CHARTER OF THE REMUNERATION COMMITTEEEX-99.1 CERTIFICATION OF CEOEX-99.2 CERTIFICATION OF CFOEX-99.3 SIGNIFICANT DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES




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GLOSSARY OF CERTAIN TERMS In this Form 20-F, unless the context otherwise requires, the following expressions have the
following meanings: ADS
    
    An American Depositary Share representing ownership of eight shares of the Companys Ordinary
Shares, evidenced by American Depositary Receipts.analog
    
    A method of storing, processing or transmitting information through a continuously varied (rather
than pulsed) signal.APCN2
    
    Asia Pacific Cable Network 2, a submarine cable project under a consortium of telecommunication
companies. The project provides additional telecom capacity for designated Asian cities by the
end of 2001.APSTAR System
    
    The Companys current and future satellites, including APSTAR I, APSTAR IA, APSTAR IIR, APSTAR V,
APSTAR VI (formerly APSTAR VB), and any other satellites to be launched by the Company in the
future.APT/APT HK
    
    APT Satellite Company Limited, a company incorporated in the HKSAR and a wholly-owned indirect
subsidiary of the Company.APT BVI
    
    APT Satellite Investment Company Limited, a company incorporated in the British Virgin Islands
with limited liability and a wholly-owned subsidiary of the Company.APT Group
    
    The Company and its subsidiaries and affiliates.APT International
    
    APT Satellite International Company Limited, a company incorporated in the British Virgin Islands
with limited liability and a shareholder of the Company.APT Telecom
    
    APT Satellite Telecommunications Limited, a jointly controlled entity of the Company which is
incorporated in the HKSAR and had been engaging in the provision of telecommunication services.APT Telecom Lease
    
    The agreement for lease dated March 12, 2001 made between APT Telecom and Science and Technology
Parks Corporation in respect of the Remaining Portion of Section E of Tai Po Town Lot No. 13 and
Extension Thereto, Hong Kong.APTs Leases
    
    The Lease Agreement as supplemented and modified by the Cancelled Agreement for Lease, the Deed
of Cancellation, the Second Supplemental Agreement, the Fifth Modification of Lease and the Fifth
Modification Proposal.bandwidth
    
    A range of frequencies occupied by a modulated carrier or the range of frequencies which can be
transmitted through a communications system. Bandwidth is one measure of the information
carrying capacity of a transponder. The wider the bandwidth, the more information can be
transmitted.Basic Law
    
    The Basic Law of the Hong Kong Special Administrative Region (HKSAR) of the Peoples Republic of
China, effective as of July 1, 1997, is the constitutional document for the HKSAR.beam
    
    The directed electromagnetic rays emanating from a spacecraft or ground station. With respect to
satellites, it typically refers to aggregates of these rays such as a China (coverage) beam or
global (coverage) beam.Cancelled Agreement for Lease
    
    The agreement for lease dated June 19, 2000 made between APT and the Science and Technology Parks
Corporation in respect of the original Remaining Portion of Section E of Tai Po Town Lot No. 13
and Extensions Thereto.C2C
    
    C2C Pte. Ltd., a cable network provider under a consortium of telecommunication companies led by
Singapore Telecommunications Ltd.CCTV
    
    China Central Television, a PRC state-owned enterprise under the supervision and control of the
SARFT.
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CITV
    
    China International Television Corporation, a PRC state-owned enterprise under the supervision
and control of the SARFT.CLTC
    
    China Satellite Launch and Tracking Control General, a PRC state-owned enterprise subject to the
supervision and control of the Defense Commission.C-band
    
    In satellite communications (FSS) used to refer to downlink frequencies between 3.4 GHz and 4.2
GHz and uplink frequencies between 5.85 GHz and 7.075 GHz. It is often referred to as 4/6 GHz.cellular
    
    Domestic public cellular radio telecommunications service. Cellular systems are based on
multiple base stations, or cells, that permit efficient frequency reuse and on software that
permits the system to band mobile calls from cell to cell as subscribers move through the
cellular service area.China Aerospace
    
    China Aerospace Science & Technology Corporation (formerly China Aerospace Corporation or the PRC
Ministry of Aerospace Industry), a PRC state-owned enterprise engaged in the research, design,
testing and manufacturing of launch vehicles and satellites.ChinaSat
    
    China Telecommunications Broadcast Satellite Corporation, a PRC state-owned enterprise under the
supervision of the MII and which is the satellite operation arm of the MII.DBS
    
    Direct broadcast satellite, a satellite capable of transmitting direct-to-home television
programming.dBW
    
    Decibel relative to one watt, a measure of a satellites power (e.g., 50 dBW is 10 times more
powerful than 40 dBW).Deed of Cancellation
    
    The deed of cancellation and surrender dated March 12, 2001 in respect of cancellation of the
Cancelled Agreement for Lease made between APT and Science and Technology Parks Corporation.digital
    
    Referring to a method of storing, processing, or transmitting information through a pulsed
(rather than continuously varied) signal.downlink
    
    The receiving portion of a satellite circuit extending from the satellite to the earth.Director(s)
    
    Director(s) of the Company, including all executive director(s), all non-executive director(s)
and independent non-executive directors.earth station
    
    The antennae, receivers, transmitters and other equipment needed on the ground to transmit and
receive satellite communications signals.EIRP
    
    Equivalent isotropic radiated power, the product of the power supplied to the antenna and the
antenna gain in a given direction relative to an isotropic antenna (absolute or isotropic gain).Eligible Employee(s)
    
    Employee(s) (whether full time or part time employee(s), including any executive director but not
any non-executive director) of the Company or its subsidiaries.Eligible Grantee(s)
    
    Persons who are eligible to accept the offer of the grant of an Option in accordance with the
Scheme 2001 or Scheme 2002, as the context requires.Fifth Modification of Lease
    
    The fifth modification of agreement for lease dated May 31, 2002 made between APT and Science and
Technology Parks Corporation in respect of modification of user of the lease contained in the
Lease Agreement.Fifth Modification Proposal
    
    The fifth modification proposal dated May 31, 2002 made between APT and Science and Technology
Parks Corporation in respect of modification of user in the proposal form in relation to the
Lease Agreement.
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footprint
    
    The geographic area covered by a satellites downlink or uplink beams, the outer edge of which is
generally defined as that area where the quality of communication degrades below an acceptable
commercial level due to the spacecraft antenna pattern, power of the signal or curvature of the
earth.frequency
    
    Number of repetitions in a given time. Typically it refers to the rate of variation per second
of the carrier wave or modulating signal. Communications satellite RF signals are typically in
the GHz frequency range. See C-band and Ku-band.FTNS
    
    Fixed telecommunications network services, presently known as Fixed Carrier Licence.GEO
    
    Geostationary orbit.geostationary orbit
    
    A geosynchronous orbit in which the orbital inclination and eccentricity of a satellite are zero
such that the satellite appears to hover over a fixed position on the earths equator.Global Offering
    
    The Companys initial world-wide public offering of Ordinary Shares and American Depositary
Shares, each representing eight shares of the Companys Ordinary Shares dated December 13, 1996.HDTV
    
    High definition television.HKSAR
    
    Hong Kong Special Administrative Region of the PRC.ISDN
    
    Integrated services data network.ITU or International
Telecommunication Union
    
    The International Telecommunication Union, the telecommunications agency of the United Nations,
established to provide standardized communications procedures and practices, including frequency
allocation and radio regulations, on a world-wide basis.Joint Declaration
    
    The Joint Declaration of the Government of the United Kingdom and the Government of the PRC on
the Question of Hong Kong with Annexes signed on 19 December 1984.Ku-band
    
    In satellite communications (FSS), it is used to refer to downlink frequencies between 10.7 GHz
and 12.75 GHz and uplink frequencies between 13.75 GHz and 14.8 GHz. Often it is referred to as
11/14 or 12/14 GHz.Lease Agreements
    
    The agreement for lease dated February 26, 1993, made between APT and the Science and Technology
Parks Corporation in respect of Subsection 1 of Section E of Tai Po Town Lot No. 13 and Extension
Thereto, Hong Kong on which APTs satellite control center is developed.LEO
    
    Low-earth orbit of up to 1,500 miles above the earth.Master Registry
    
    The Master International Frequency Register of the ITU, which lists frequency assignments of
orbital slots upon notification.MEO
    
    Mid-earth orbit of up to 18,000 miles above the earth.megahertz (MHz)
    
    A measure of frequency, 1 million cycles per second.microwave
    
    Radio frequency carrier waves with wavelengths of less than one meter- frequencies above 300 MHz.MII
    
    Ministry of Information Industry of the PRC.mobile satellite services
    
    Services transmitted via satellites to provide mobile telephone, paging, messaging, facsimile,
data, and position location services directly to users.OFTA
    
    The Office of the Telecommunications Authority of Hong Kong or, where the context requires, the
Telecommunications Authority of Hong Kong.
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operational life
    
    The time for which a satellite is capable of operating in its allotted position. The expected
end of a satellites in-orbit operational life is mainly based on the period during which the
satellites on-board fuel permits proper station-keeping maneuvers for the satellite.Option(s)
    
    Options granted to the Eligible Grantees under the Scheme 2001 or to the Participants under the
Scheme 2002, as the context requires.paging
    
    A service designed to deliver a message to a person whose location is unknown; messages may be
received via an alphanumeric or character display or small speaker.Participant(s)
    
    Any person belonging to any of the following classes of persons: (a) any Eligible Employee; and
(b) any non-executive directors (including independent non-executive directors) of the Company or
any of its Subsidiaries, in accordance with the Scheme 2002PRC
    
    The Peoples Republic of China, other than HKSARPSTN
    
    Public switched telephone networks which comprise the network infrastructure necessary for
providing basic telephone services.radio frequency
    
    A frequency that is higher than the audio frequencies but below the infrared frequencies, usually
above 20 KHz.Radio Regulations
    
    Radio Regulations of the ITU.Radio Regulatory Department
    
    Radio Regulatory Department of the MII.Radiocommunication Bureau
    
    Radiocommunication Bureau of the ITU.SARFT
    
    China State Administration of Radio Film and Television, a government office responsible for the
management of the provision of Radio, Film and Television in the PRC.Satellite Control Center
    
    The earth station of the APT 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

Second Supplemental Agreement
    
    Programming signals which require a
decoder for purposes of viewing.

The second supplemental agreement for lease and grant of second extension area dated March 12,
2001 made between APT and the Science and Technology Parks Corporation in respect of Subsection 3
of Section E of Tai Po Town Lot No. 13 and Extensions Thereto.signal
    
    A physical, time-dependent energy value used for the purpose of conveying information through a
transmission line.switch
    
    A device that opens or closes circuits or selects the paths or circuits to be used for
transmission of information; switching is the process of interconnecting circuits to form a
transmission path between users.teledensity
    
    Telephone access lines per 100 persons.telemetry
    
    Radio transmission of coded or analog data from a satellite to a ground station.telephony
    
    Science of construction and operation of telephones and telephonic systems.transponder
    
    A microwave repeater which provides a discrete path to receive communications signals, translate
and amplify such signals and retransmit them to earth or another satellite.
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TT&C
    
    Telemetry, tracking and command.TT&C Station
    
    Telemetry, tracking and command station, a land-based facility that monitors and controls the
positioning, 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




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PART I 
 Item 1. Identity of Directors, Senior Management, and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 
 Item 3. Key Information 
 Selected Consolidated Financial Information The following table presents selected consolidated financial information for APT Satellite
Holdings Limited (the Company or APT Holdings) as of and for the five fiscal years ended
December 31, 2004. The financial statement information as of and for each of the years in the
five-year period ended December 31, 2004 has been derived from, and should be read in conjunction
with, and are qualified in their entirety by reference to, the Companys Audited Consolidated
Financial Statements (the Audited Consolidated Financial Statements) and with Item 5. Operating
and Financial Review and Prospects. The Audited Consolidated Financial Statements are prepared in
accordance with Hong Kong GAAP, which differs in certain significant respects from US GAAP. For a
discussion of the nature and effect of such differences between Hong Kong GAAP and US GAAP, see
Item 18 and Note 22 of the Notes to the Audited Consolidated Financial Statements of the Company,
which contain descriptions of the significant differences between Hong Kong GAAP and US GAAP, a
reconciliation of net income/(loss) from Hong Kong GAAP to US GAAP for the years ended December 31,
2002, 2003 and 2004, and reconciliation of shareholders equity from Hong Kong GAAP to US GAAP as
of December 31, 2003 and 2004. In addition, Note 22 to the Audited Consolidated Financial
Statements of the Company contains additional disclosures required under US GAAP, which are not
disclosed elsewhere in the Audited Consolidated Financial Statements of the Company. 1




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Statement of Operations Data:
    
    2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004(in millions, except per share data)
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    US$Hong Kong GAAP:Total revenues
    
    
    341.5
    
    
    
    374.2
    
    
    
    351.4
    
    
    
    302.2
    
    

    
    277.3
    
    
    
    35.5Total costs and expenses
    
    
    (327.1
    )
    
    
    (337.9
    )
    
    
    (345.6
    )
    
    
    (355.2
    )
    
    
    (323.4
    )
    
    
    (41.5
    )Other operating revenues
    
    
    179.7
    
    
    
    78.4
    
    
    
    72.3
    
    
    
    33.0
    
    
    
    9.3
    
    
    
    1.2(Deficit)/surplus arising on
revaluation of investment property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss recognized in respect
of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    (5.2
    )
    
    
    (129.1
    )
    
    
    (1.8
    )
    
    
    (0.2
    )Impairment loss recognized in respect
of goodwill arising on acquisition
of an interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    (3.4
    )
    
    
    
    
    
    
    
    
    
    
    Profit/(loss) from operations
    
    
    194.1
    
    
    
    114.7
    
    
    
    69.5
    
    
    
    (149.1
    )
    
    
    (38.6
    )
    
    
    (5.0
    )Borrowing costs
    
    
    (15.3
    )
    
    
    (5.6
    )
    
    
    
    
    
    
    
    
    
    
    (4.1
    )
    
    
    (0.5
    )Share of losses of jointly controlled
entities
    
    
    (1.3
    )
    
    
    (5.1
    )
    
    
    (10.6
    )
    
    
    (64.8
    )
    
    
    (0.5
    )
    
    
    Income/(loss) before income taxes
and minority interests
    
    
    177.5
    
    
    
    104.0
    
    
    
    58.9
    
    
    
    (213.9
    )
    
    
    (43.2
    )
    
    
    (5.5
    )Provision for income taxes
    
    
    (34.5
    )
    
    
    (26.0
    )
    
    
    (36.8
    )
    
    
    (11.7
    )
    
    
    (16.6
    )
    
    
    (2.1
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    0.9
    
    
    
    2.0
    
    
    
    0.2Net income/(loss)
    
    
    143.0
    
    
    
    78.0
    
    
    
    24.4
    
    
    
    (224.7
    )
    
    
    (57.8
    )
    
    
    (7.4
    )Basic earnings/(loss) per share
(cents)(1)
    
    
    34.3
    
    
    
    18.9
    
    
    
    5.9
    
    
    
    (54.4
    )
    
    
    (14.0
    )
    
    
    (1.8
    )Basic earnings/(loss) per ADS
(cents)(1)
    
    
    274.1
    
    
    
    151.2
    
    
    
    47.4
    
    
    
    (435.4
    )
    
    
    (111.8
    )
    
    
    (14.3
    )Diluted earnings/(loss) per share
(cents)(1)
    
    
    
    
    
    
    18.9
    
    
    
    5.9
    
    
    
    (54.4
    )
    
    
    (14.0
    )
    
    
    (1.8
    )Diluted earnings/(loss) per ADS
(cents)(1)
    
    
    
    
    
    
    150.8
    
    
    
    47.4
    
    
    
    (435.4
    )
    
    
    (111.8
    )
    
    
    (14.3
    )Weighted average number of shares
outstanding(1)  Basic
    
    
    417
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Weighted average number of shares
outstanding(1)  Diluted
    
    
    
    
    
    
    414
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Dividend per share (cents)
    
    
    20.0
    
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US GAAP:Total revenues
    
    
    338.3
    
    
    
    373.0
    
    
    
    347.8
    
    
    
    316.3
    
    
    
    277.3
    
    
    
    35.5Total costs and expenses
    
    
    (281.3
    )
    
    
    (342.1
    )
    
    
    (314.6
    )
    
    
    (484.0
    )
    
    
    (323.6
    )
    
    
    (41.5
    )Income/(loss) from operations
    
    
    57.0
    
    
    
    30.9
    
    
    
    33.2
    
    
    
    (167.7
    )
    
    
    (46.3
    )
    
    
    (5.9
    )Share of losses of jointly controlled
entities
    
    
    (1.3
    )
    
    
    (5.1
    )
    
    
    (10.6
    )
    
    
    (65.7
    )
    
    
    (2.3
    )
    
    
    (0.3
    )Income/(loss) before income taxes and
minority interests
    
    
    173.9
    
    
    
    98.3
    
    
    
    47.6
    
    
    
    (214.5
    )
    
    
    (43.3
    )
    
    
    (5.6
    )Net income/(loss)
    
    
    139.9
    
    
    
    72.6
    
    
    
    13.8
    
    
    
    (225.3
    )
    
    
    (58.6
    )
    
    
    (7.5
    )Basic earnings/(loss) per share
(cents)(1)
    
    
    33.5
    
    
    
    17.6
    
    
    
    3.3
    
    
    
    (54.6
    )
    
    
    (14.2
    )
    
    
    (1.8
    )Basic earnings/(loss) per ADS
(cents)(1)
    
    
    268.2
    
    
    
    140.8
    
    
    
    26.7
    
    
    
    (436.5
    )
    
    
    (113.4
    )
    
    
    (14.5
    )Diluted earnings/(loss) per share
(cents)(1)
    
    
    
    
    
    
    17.6
    
    
    
    3.3
    
    
    
    (54.6
    )
    
    
    (14.2
    )
    
    
    (1.8
    )Diluted earnings/(loss) per ADS
(cents)(1)
    
    
    
    
    
    
    140.4
    
    
    
    26.7
    
    
    
    (436.5
    )
    
    
    (113.4
    )
    
    
    (14.5
    )Weighted average number of shares
outstanding(1)  Basic
    
    

    417
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Weighted average number of shares
outstanding(1)
 Diluted
    
    
    
    
    
    
    414
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Balance Sheet Data:(in millions)Hong Kong GAAP:Working capital
    
    
    1,582.4
    
    
    
    1,451.4
    
    
    
    739.5
    
    
    
    482.8
    
    
    
    533.7
    
    
    
    68.4Property, plant and equipment, net
    
    
    1,101.9
    
    
    
    1,150.0
    
    
    
    2,018.9
    
    
    
    2,445.4
    
    
    
    2,696.3
    
    
    
    345.7Total assets
    
    
    3,421.1
    
    
    
    3,280.7
    
    
    
    3,339.4
    
    
    
    3,305.6
    
    
    
    3,627.0
    
    
    
    465.0Long-term liabilities (less current
portion)
    
    
    643.2
    
    
    
    542.9
    
    
    
    377.7
    
    
    
    769.6
    
    
    
    1,195.6
    
    
    
    153.3Total liabilities
    
    
    972.4
    
    
    
    816.1
    
    
    
    864.2
    
    
    
    1,046.6
    
    
    
    1,430.0
    
    
    
    183.3Minority interests
    
    
    
    
    
    
    
    
    
    
    6.8
    
    
    
    5.9
    
    
    
    3.9
    
    
    
    0.5Capital stock-common stock
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    5.3Total shareholders equity
    
    
    2,448.7
    
    
    
    2,464.6
    
    
    
    2,468.4
    
    
    
    2,253.1
    
    
    
    2,193.1
    
    
    
    281.2US GAAP:Working capital
    
    
    1,586.7
    
    
    
    1,454.5
    
    
    
    739.5
    
    
    
    482.8
    
    
    
    533.7
    
    
    
    68.4Total assets
    
    
    3,426.7
    
    
    
    3,284.8
    
    
    
    3,339.7
    
    
    
    3,297.3
    
    
    
    3,620.9
    
    
    
    464.2Total liabilities
    
    
    973.2
    
    
    
    816.7
    
    
    
    864.2
    
    
    
    1,046.6
    
    
    
    1,430.0
    
    
    
    183.3Minority interests
    
    
    
    
    
    
    
    
    
    
    6.8
    
    
    
    5.9
    
    
    
    4.6
    

    
    
    0.6Total shareholders equity
    
    
    2,453.5
    
    
    
    2,468.1
    
    
    
    2,468.7
    
    
    
    2,244.8
    
    
    
    2,186.3
    
    
    
    280.3
 2




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##### 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 fiscal year ended December 31, 2000 as there were no potentially dilutive securities
outstanding. Diluted earnings per share was the same as the basic earnings per share as there
were no dilutive potential ordinary share in existence for the four fiscal years ended
December 31, 2004. The Hong Kong Dollar is freely convertible into other currencies (including the US
Dollar). Since October 17, 1983, the Hong Kong Dollar has been linked to the US Dollar at the rate
of approximately HK$7.80 to US$1.00. The central element in the arrangements which give effect to
the link is an agreement between the government of Hong Kong and the three Hong Kong
banknote-issuing banks, The Hongkong and Shanghai Banking Corporation Limited, Standard Chartered
Bank and Bank of China (Hong Kong) Limited. Under this agreement, the Government of the Hong Kong
SAR Exchange Fund issues certificates of its indebtedness to the banknote-issuing banks against
payment in US Dollars at the fixed exchange rate of HK$7.80 to US$1.00. The banknote-issuing banks
hold the certificates of indebtedness to cover the issuances of banknotes. When the banknotes are
withdrawn from circulation, the banknote-issuing banks surrender the certificates of indebtedness
to the Government of the Hong Kong SAR Exchange Fund and are paid the equivalent US Dollars at the
fixed rate. The consolidated financial statements of the APT Group are expressed in Hong Kong
dollars (HK$). The translations of amounts from Hong Kong dollars into United States dollars for
convenience of the reader in this annual report have been made at the rate on December 31, 2002,
2003 and 2004 of HK$7.80 = US$1.00. No representation is made that the Hong Kong dollar amounts
could have been, or could be, converted into United States dollars at that rate or at any other
certain rate on December 31, 2002, 2003 and 2004, or any other certain date. The market exchange rate of the Hong Kong Dollar against the US Dollar continues to be
influenced by the forces of supply and demand in the foreign exchange market. Exchange rates
between the Hong Kong Dollar and other currencies are influenced by the rate between the US Dollar
and the Hong Kong Dollar. The exchange rates of the Hong Kong Dollar to the United States Dollar as of and during the
years ended December 31, 2000, 2001, 2002, 2003 and 2004 were as follows: 2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004Average (1)
    
    
    7.7933
    
    
    
    7.7994
    
    
    
    7.7997
    
    
    
    7.7875
    
    
    
    7.7891High
    
    
    7.8045
    
    
    
    7.8001
    
    
    
    7.8000
    
    
    
    7.8001
    
    
    
    7.8010Low
    
    
    7.7773
    
    
    
    7.7969
    
    
    
    7.7936
    
    
    
    7.7085
    
    
    
    7.7632End of Period
    
    
    7.7998
    
    
    
    7.7978
    
    
    
    7.7981
    
    
    
    7.7640
    
    
    
    7.7723
 
 (1)
    
    The rate of exchange means the noon buying rate in New York City for cable transfer in
foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.
The average rate means the average of the exchange rates on the last day of each month during
the period. The exchange rates of the Hong Kong Dollar to the United States Dollar for each month during
the previous six months were as follows: December 2004
    
    
    January 2005
    
    
    February 2005
    
    
    March 2005
    
    
    April 2005
    
    
    May 2005High
    
    
    7.7821
    
    
    
    7.7994
    
    
    
    7.7999
    
    
    
    7.7998
    
    
    
    7.7995
    
    
    
    7.7995Low
    
    
    7.7698
    
    
    
    7.7775
    
    
    
    7.7984
    
    
    
    7.7987
    
    
    
    7.7946
    
    
    
    7.7767
 
 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. 3




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##### Table of Contents



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 are significant risks involved in launching satellites. While the Company maintains
launch and initial in-orbit insurance to cover the substantial replacement value of the satellites
and has limited protection in the form of liquidated damages or penalties payable to the Company
due to a delay by either the satellite manufacturer and its affiliates or the launch service
provider, it is unlikely that such insurance, liquidated damages or penalties would be adequate to
compensate the Company for its entire loss in the event of any launch failure or significant delay.
Although APSTAR V and APSTAR VI were successfully launched to their respective designated orbital
slots, there can be no assurance that future insurers will not require exclusions from coverage of
certain potential events or additional premiums based upon the developments in the satellite
industry for the launch insurance of future satellites of APT Group. A launch failure or serious
delay in launching any future satellite could adversely affect APTs transponder utilization
agreements for the relevant customers, and the Companys results of operations and financial

condition would be adversely affected by the loss of customers. 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 IA is an HS-376 satellite model, 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 and as manufactured. Significant defects in or damage to any of the Companys satellites
would adversely affect the Companys results of operations and financial condition. Limited Life of Satellites All satellites have limited operational lives. 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 IA, APSTAR IIR, APSTAR V or APSTAR VI. The
Companys results of operations and financial condition would be adversely affected if the
operational life of satellites in the APSTAR System or any other satellites it may operate are
significantly shorter than expected. TT & C Systems and Earth Station All APSTAR System, except APSTAR V, are controlled with respective TT&C systems, which are
operated by the technical staff of the Company. All TT&C systems are installed in the Satellite
Control Center of the Company. The reliability and performance of the Satellite Control Center has
been good and compatible to that of the industry. However, there can be no assurance that there is
absence of technical problem, event, accidence or disaster, due to whatever reasons, in respect of
the operation of the TT&C systems and the Satellite Control Center. The Companys results would be
adversely affected in the event of the occurrence of any such technical problem, event, accidence
or disaster. Risk of Interruption or harmful interference of APSTAR V APSTAR V is operated by Loral Skynet through the satellite antenna facility of the Company.
Loral Skynet is an experienced satellite operator especially in the operation of the satellites
based on FS1300 platform like APSTAR V. However, there can be no assurance that the operation of
APSTAR V is free from any interruption or harmful interference due to whatever reasons such as
mal-operation of earth station by Loral Skynet. The Companys operating results could be adversely
affected by the occurrence of such defect or problem. 4




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##### Table of Contents



Future Satellites Pursuant to an agreement, which was entered into between APT and China Great Wall Industry
Corporation (CGWIC) on November 10, 2004 as a part of the contingency plan in case of launch
failure of APSTAR VI, APT was granted a right to require CGWIC to provide for the design,
construction, delivery and launch of APSTAR VIB to a designated orbit. The right remains
outstanding and be exercised at APTs option until September 30, 2005. The Company may incur additional costs due to cost overruns, delays, disasters or other
unanticipated expenditures with respect to future satellites of the Company. Accordingly, no
assurance can be given as to the ultimate cost of these satellites or whether these new satellites
will be constructed and placed into service according to the Companys current timetable, or at
all. Changes in Technology Technology in the broadcasting and telecommunications industry is in a rapid and continuing
state of change, with new technological developments and innovations constantly emerging. If such
developments and innovations were to decrease general commercial demand for the use of satellites
of the type operated by the Company, the Companys results of operations and financial condition
could be materially adversely affected. Further, while the Company designs its satellites to
incorporate state-of-the-art technology, there can be no assurance that the technology used in the
Companys satellites will continue to be the most advanced throughout the entire operational life
of each satellite. Any technological lag which develops could result in lower rental fees after
the initial rental term for any given transponder, and could therefore have a material adverse
effect on the Companys results of operations and financial condition. 
 Regulatory Risks Regulatory Regime for Satellite Operations The business prospects of the Company (including the launch and the timing of the launch of
new satellites) could be adversely affected by laws, policies or regulations that modify the
present regulatory regime in HKSAR or elsewhere applicable to APT Group 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. On November 1, 2003 and April 4, 2005, OFTA granted the Space Station Carrier Licence for the
TT&C operations of APSTAR V and APSTAR VI, respectively, to APT. In addition, on April 4, 2005 OFTA
also granted to APT the Outer Space Licence in relation to the launch and operation of APSTAR VI.
The Company currently has licenses for the operation of APSTAR I, APSTAR IA, APSTAR IIR, APSTAR V
and APSTAR VI. Owing to the fact that APSTAR V is under the leasehold arrangement and is operated
by Loral Skynet instead of the Company, 5




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##### Table of Contents



there is no need for the Company to obtain the Outer Space
Licence for APSTAR V. 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 the proposed use of several orbital slots, namely 76.5
degrees East, 89.5 degrees East, 92.2 degrees East, 96 degrees East, 102.8 degrees East, 131
degrees East, 131.8 degrees East, 134 degrees East, 138 degrees East and 140 degrees East. APT also
filed for the orbital slot at 142 degrees East but such filing has also been, for administration
purposes, transferred to ChinaSat in 2004 after liaising with OFTA. Pursuant to such transfer,
APSTAR I can be positioned at 142 degrees East under the existing licenses from OFTA. Under ITU
regulations, no assurance can be given as to whether substantial modifications to satellite
coverage or services may be required with respect to 142 degrees East, and no assurance can be
given 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 V replaced APSTAR I on June 29, 2004. APSTAR V is utilizing certain designated C-band,
extended C-band frequencies and Ku-band frequencies in the orbital slot at 138 degrees East and
APSTAR IA is utilizing certain designated C-band and extended C-band frequencies in the orbital
slot at 134 degrees East. The right to use these frequencies at such orbital slots has been
licensed to the Company by the Kingdom of Tonga (Tonga), which, through its agent namely Friendly
Islands Satellite Communications Limited (TongaSat), has responsibility for the ITU coordination
process with respect to such orbital slots and the frequencies covered by the Companys license. APT and TongaSat entered into a license agreement on July 8, 2003, under which APT can utilize
certain designated C-band, extended C-band and Ku-band frequencies in the orbital slot at 138
degrees East for APSTAR V. APT and TongaSat also entered into an operator agreement on December
19, 2003 for the utilization of certain Ku-band frequencies in the same orbital slot for APSTAR V,
such operator agreement was approved by the corresponding administrations of both HKSAR and Tonga
on March 15, 2004. APT and TongaSat also entered into a license agreement on April 15, 2005, under which APT can
utilize certain designated C-band, extended C-band and Ku-band frequencies in the orbital slot at
134 degrees East for APSTAR VI. 6




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##### Table of Contents



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
satellites are required to be obtained by the 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. Under the APT-Loral Term Sheet dated September 23, 2002 and the agreements signed between
Loral Orion and APT HK in December 2003, 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. Because of the failure of Space Systems/Loral Inc., a subsidiary of Loral Space &
Communications (SS/Loral), to obtain the export license for the transfer of the title of APSTAR V
in time for launching, APT entered into a Satellite Procurement Amendment Agreement, a Satellite
Transponder Agreement and a Satellite Agreement (collectively the Definitive Agreements) with
SS/Loral and Loral Orion Inc. (Loral Orion) on August 26, 2003 for the purpose of minimizing any
further delay in the launch of the satellite. Under the Definitive Agreements, the title of APSTAR
V was transferred to Loral Orion upon intentional ignition of APSTAR V and simultaneously therewith
APT was granted an irrevocable lease of forty-one and one-half (41 and 1/2) transponders for the
lease term commencing upon transfer of title from SS/Loral to Loral Orion until the end of
operational life of APSTAR V. Under the Satellite Agreement, APT will release the leasehold
interest of twelve and one-half (12 and 1/2) transponders to Loral Orion in stages over a five
years period from the in-service date of APSTAR V subject to payment of installments by Loral Orion
to APT. This will result in APT having 29 transponders. Under the leasehold arrangement, Loral
Orion has committed to continue pursuing the necessary export license for title transfer of APSTAR
V. The Definitive Agreements were approved by the United States
Bankruptcy Court on October 28, 2003. The Company believes that entering into the Definitive
Agreements will allow for the timely replacement of APSTAR I so that satellite transponder services
of the APT Group can be enhanced. The Definitive Agreements will not adversely impact the business
and future plans of the APT Group because the leasehold interests under the Definitive Agreements
will allow APT to carry on its business in a normal commercial practice of leasing its transponders
capacities to any third parties. Owing to the failure by SS/Loral in achieving Congressional Notification in October 2003 in
time for the State Department of the United States to approve the launch of APSTAR V, the original
launch window for APSTAR V under the Launch Agreement was missed. The delay in obtaining the export
license led to the further postponement in the launch of APSTAR V from November 2003 to April 2004.
As a result, APT HK entered into a Settlement Agreement and the Amended Launch Agreement with Loral
Orion, SS/Loral and Sea Launch Limited Partnership (Sea Launch) on November 16, 2003. The
Settlement Agreement made certain amendments to the Satellite 7




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##### Table of Contents



Procurement Amendment Agreement, the
Satellite Transponder Agreement, the Satellite Agreement and the Launch Agreement, which mainly
include (i) a postponement in the launch date of APSTAR V to April 28, 2004 (due to the partial
failure of deployment of north solar array of Estrela do Sul, in January 2004, the launch date of
APSTAR V was further delayed to June 26, 2004); and (ii) for Loral Orion to take an additional 4.5
transponders immediately upon the completion of in-orbit testing (IOT) making a total of 17
transponders to be taken up upon the completion of IOT of APSTAR V. In return, Loral Orion assumed
the payment of US$20.4 million that would otherwise to be paid by APT HK for the construction,
launch and insurance of APSTAR V. The total number of 25 transponders of APSTAR V to be taken up by
Loral Orion will remain unchanged. The Settlement Agreement and the Amended Launch Agreement were
approved by the United States Bankruptcy Court on December 4, 2003 and the export license of APSTAR
V was issued by the government of the United States on November 25, 2003 for APSTAR V to be
launched by Sea Launch. APSTAR V was launched by Sea Launch on June 29, 2004 (Hong Kong time). Owing to the absence of export license for the delivery of the TT&C system of APSTAR V, the
satellite is currently controlled by Loral Skynet through the Satellite Control Centre of the APT
Group until the export license for the delivery of the TT&C system of APSTAR V is obtained by Loral
Skynet. Loral Orion has committed to continue pursuing the necessary export license for title transfer
of APSTAR V. However, there can be no assurance that the relevant vendor of any satellite of the
Company will be able to obtain all the necessary licenses or that such other licenses will not be
revoked by the relevant government or that the relevant government will not impose additional
restrictions or trade sanctions against the PRC or other countries that would significantly delay
the planned launch of the satellite in question or other satellites that the Company or any of its
subsidiary or associated company may launch in the future. 
 Business Risks Insurance The Company has in-orbit insurance coverage in respect of APSTAR IA, APSTAR IIR and APSTAR V
until December 31, 2005, October 18, 2005 and June 29, 2005, respectively. The in-orbit insurance
coverage for APSTAR I was operative until December 31, 2003 and could not have been extended to
cover its remaining design life because it was less than one-year. The Company has taken the
launch insurance plus initial in-orbit insurance (12 months after launch) for APSTAR VI until April
11, 2006. The Company is negotiating the renewal of in-orbit insurance of APSTAR V. The Company had also maintained third-party liability insurance for APSTAR I, IA and IIR as
required by the Outer Space Ordinance License until June 30, 2002. Having gone through discussions
with OFTA in respect of obtaining a waiver that would exempt the Company from compiling the
requirement of maintaining third-party liability insurance for in-orbit satellites such as APSTAR
I, APSTAR IA and APSTAR IIR in accordance with the Outer Space Ordinance. On April 30, 2004 OFTA
granted the Company such a waiver whereby the requirement of third party liability insurance in
respect of APSTAR I, IA and IIR, respectively, for in-orbit operation is waived. There can be no
assurance that the Company will not be subject to claims for third-party liability in respect of
satellites under APSTAR System. CGWIC, the launch service provider of APSTAR VI, has secured
third-party liability insurance for the launch with a one year period after launch, which covers,
among
others, the Company, the governments of Hong Kong and PRC as additional insured. As the title
of APSTAR V has transferred to Loral Skynet upon launch, there is no need for the Company to obtain
an Outer Space Ordinance Licence for APSTAR V and the Company is not required to secure third-party
liability insurance for APSTAR V. No assurance can be given with respect to the change of policy
of OFTA. After the World Trade Center event happened on September 11, 2001, the insurance industry
imposed unfavorable terms on 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, or at all. The failure to secure adequate insurance coverage may
result in the Company not being in 8




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##### Table of Contents



compliance with its Outer Space Ordinance License, and could
adversely affect the Companys financial condition if an event were to occur for which the Company
was not adequately insured. 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. It is the Companys policy to secure
in-orbit insurances to cover only the book value, rather than the replacement cost, of a satellite,
however, the Company may take into account the obligations under the bank loan conditions and the
general industrial practice on a case by case basis. There is no assurance that the Company will
take in-orbit insurance to fully cover the book value of the 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 except for the acts of the range safety officer acting within the limit
of his authority. 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, there would be an increase of transponder capacity serving the region
and the increased supply of international telecommunications facilities, including those of the
Company, would likely exceed the demand for such services. Such overcapacity could have a negative
impact on the Companys results of operations and financial condition. Technological developments,
such as the use of digital video compression technology, and the proliferation of fiber optic
cables in the form of land cables and submarine cables at comparatively lower cost for
point-to-point telecommunication services may also result in reduced demand for transponder
capacity as such advancements become commercially viable. The laws of certain countries require domestic television broadcasters and domestic satellite
telecommunications operators providing services in their home countries generally to use
state-owned or locally-owned satellites to the extent capacity is available. These legal
requirements may prevent the Company and other satellite companies from competing in the provision
of transponder capacity to these potential customers. There can be no assurance that other

countries in the Asia Pacific or Middle East regions, including those countries within the
footprints of APSTAR System satellites and in which the Companys customers currently provide
programming or telecommunications services, will not impose similar requirements to use state-owned
or locally-owned satellites in the future on domestic broadcasters or operators. The imposition of
such requirements could adversely affect the Companys results of operations and financial
condition. Additional Financing Requirements On December 16, 2002, APT entered into a secured term loan facility (as amended by a Deed of
Amendment and Restatement dated October 27, 2004 and Second Deed of Amendment and Restatement dated
May 18, 2005, the Loan Facility), which is secured by the assignment of the construction,
launching, and related equipment contracts relating to APSTAR V and APSTAR VI and their related
insurance claim proceeds, assignment of all present and fixed charges over certain bank accounts
which will hold receipts of transponder utilization income and termination payments under
construction, launching and related equipment contracts. As of December 31, 2003 and 2004, the aggregate outstanding borrowing amount under the Loan
Facility was US$90 million and US$125.1 million, respectively. The Loan Facility contains financial covenants, including maintenance of collateral coverage
ratio, minimum net worth and minimum EBITDA. The Loan Facility also contains customary
limitations, including those 9




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on dividends, investments, capital expenditures, changes of
controlling shareholders, creating liens and transactions with affiliates. No assurance can be
given that APT will be able to meet any financial and operating covenant. It limits the Companys
ability to raise additional funds when required and could significantly restrict the Companys
business expansion. The actual amount of any capital expenditures may vary as a result of a variety of factors,
including cost overruns, delays or other unanticipated expenditures. The Company expects that APT
will fund such capital expenditures with the Loan Facility, operating cash flow and the Companys
existing internal resources. While the Company believes that such sources will be sufficient to
fund APTs planned expenditures, there can be no assurance that this will be the case. Restrictions on Real Property Use APT Telecom entered into the APT Telecom Lease on March 12, 2001 for the lease of a piece of
land, until June 27, 2047, known as The Remaining Portion of Section E of Tai Po Town Lot No. 13
and Extension Thereto of approximately 6,903.29 square meters (equivalent to approximately 74,309
square feet) (Site 3A) adjacent to the Satellite Control Center for the development of an
integrated teleport (the Teleport) for telecommunication services. Pursuant to the APT Telecom
Lease, APT Telecom has completed the construction of the Teleport and obtained the occupation
permit for the property on June 24, 2003. APT Telecom is also required under the APT Telecom Lease
to make new/additional capital expenditures of not less than HK$200 million (the Investment
Commitment) within 30 months from September 6, 2001 (the date of possession). Such performance has
been pledged by a bank guarantee in form of Science Park. On August 2, 2004, Hong Kong Science &
Technology Parks Corporation has approved for reduction of the Investment Commitment from HK$200
million to HK$86 million and release of the bank guarantee. As at December 31, 2004, APT Telecom
therefore has no further capital commitment in respect of the property in which the Company has to
share. APT entered into the Second Supplemental Agreement on March 12, 2001 for the lease of property
known as Subsection 3 of Section E of Tai Po Town Lot No. 13 and Extensions Thereto of
approximately 2,016 square meters (equivalent to approximately 21,701 square feet) (Site 3B)
adjacent to the Satellite Control Center, which was then merged with the lands leased under the
Lease Agreement, the occupied land (Site 1) for the TT&C facility and the adjacent land (Site 2),
where Phase II of the Satellite Control Center is located, in order to manage the additional needs
for the operation and control of APSTAR V and APSTAR VI, as well as the provision of broadcasting
and telecommunication services. APT committed to completing the construction and commencing
operations on the new site within 24 and 30 months, respectively, of March 12, 2001. The Second
Supplemental Agreement required APT to make additional capital expenditures of not less than HK$100
million with respect to the development of this property and APT had completed the commitment at
the end of December 2003. APT completed the construction of the Satellite Control Center Phase II
and obtained the occupation permit with respect to the property on February 2, 2002. APT entered into the Fifth Modification of Lease and Fifth Modification Proposal in May 2002
pursuant to which APT is allowed to extend its services to broadcasting transmission services and
telecommunication services, including Internet data centers, teleport services and other
telecommunication facilities and services. Pursuant to the APT Telecom Lease and the Second Supplemental Agreement, each of APT Telecom
and APT has procured Bank of China (Hong Kong) Limited to provide two bank guarantees in the
respective amounts of HK$1.3 million (for Site 3A mentioned above) and HK$670 thousand (for Site 3B
mentioned above) in favor of the Science and Technology Parks Corporation, enforceable by the
Science and Technology Parks Corporation against Bank of China (Hong Kong) in the event of either
companys failure to perform or comply with its respective obligations and undertakings on the
above-mentioned development schedules and capital expenditures commitments. The bank guarantees
expired on March 5, 2004. Both APT and APT Telecom are subject to the terms and conditions of their respective Agreement
for Lease and the Proposal Form, in which APT and APT Telecom have committed the capital
investments in respect of the use of the premises. After the grant of lease, if the premium or the rents have been in arrear for 21 days or if
there shall be any breach of any of the covenants by APT or APT Telecom (the Lessees), the
Science Park may serve upon the 10




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Lessees notice requiring the Lessees to remedy the breach within
such reasonable time. If the Lessees fail to remedy the breach to the satisfaction of the Science
Park, it may re-enter and repossess the premises but without prejudice to the rights, remedies and
claims of the Science Park for the recovery of any premium, rent and other monies due to it from
the Lessees or in respect of any breach, non-observance or non-performance of the terms, conditions
and covenants of the Leases on the part of the Lessees. Dependence on Key Customers Revenues from the Companys five largest customers for the years ended December 31, 2002,
2003, and 2004 were HK$198.9 million, HK$119.2 million and HK$111.9 million (US$14.3 million),
respectively, which represented 56.6%, 39.4% and 40.4%, respectively, of total revenues. Revenues
from the Companys largest customer represented 22.9%, 12.6% and 12.7%, respectively, of total
revenues during such periods. The Companys results of operations could be materially and
adversely affected by the loss of one or more of its key customers. There can be no assurance that
the key customers will renew the existing satellite capacity utilization agreements on similar
commercial terms, including price levels and for similar capacity. In addition, to the extent the
credit quality of key customers deteriorates or these customers seek bankruptcy protection, we may
not be able to collect our receivables from these customers, which may adversely affect our
operating results. Interference Adjacent satellites may use the same band of frequencies as the Companys satellites and the
transmission made by other satellites or other legal or illegal source of transmission which may
interfere with the transmissions of the Companys satellites. Such interference could lead to the
loss of revenues if customers migrate to competitors who operate satellites without such
interference. Further, there can be no assurance that the Company can avoid the material
interference with other satellites. If this occurs, the Company may be in violation of the Outer
Space Ordinance Licence, and the affected parties may submit a complaint in the ITU. 
 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, 2002, 2003, and 2004, approximately 72.5%, 74.7% and
70.4%, respectively, of the Companys revenues were derived from customers based in other regions
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 economy of the PRC differs from the economies of most countries belonging to the
Organization for Economic Co-operation and Development in such respects as structure, government
involvement, level of development, growth rate, capital reinvestment, allocation of resources, rate
of inflation and balance of payments
position. For over 50 years, the economy of the PRC has been a planned economy subject to
five-year state plans adopted by central PRC government authorities and implemented, to a large
extent, by provincial and local authorities, which set production and development targets.
Although the majority of productive assets in the PRC are still owned by the government, in the
past several years emphasis has been placed on decentralization and the utilization of market
mechanisms in the development of the PRC economy. Since the late 1970s, the PRC government has been reforming its economic systems. Many of the
reforms are unprecedented or experimental, and are expected to be refined and improved. Other
political, economic and social factors could also lead to further readjustment of the reform
measures. This refining and readjustment process may not always have a positive effect on the
operations of the Company and its PRC customers. The Company and its PRC customers may be
adversely affected by changes in the PRCs political, economic and social conditions and by changes
in policies of the PRC government, such as changes in laws and regulations (or the interpretation
thereof), measures which may be introduced to control inflation or imposition of additional
restrictions on currency conversion. 11




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Subsequent to the accession of the PRC into the World Trade Organization in November 2001,
there has been no immediate adverse impact on the satellite industry in the PRC market. However,
its long-term implications are uncertain. The PRC government has mandated that international satellite channels must distribute their
channels in the PRC using a unified satellite platform different from the APSTAR System. The
implications of this requirement are not yet certain, but since over 70% of APTs revenue is
derived from the PRC, there may be an adverse impact on APTs business. Most of the payments under the Companys transponder utilization agreements are required to be
made in US Dollars. The PRC currently has extensive foreign exchange controls. The ability of the
Companys PRC customers to convert Renminbi (the currency of the PRC) into foreign currency and to
purchase foreign currency is subject to various PRC laws and regulations. There can be no
assurance that in the future the PRCs foreign exchange controls will not adversely affect the
ability of the Companys PRC customers to make payments to the Company in US Dollars. 
 The outbreak of infectious diseases In the first half of 2003, there was the outbreak of a highly infectious deadly flu-like
disease known as Severe Acute Respiratory Syndrome (SARS) in the Asia Pacific region, including
the PRC. The SARS outbreak severely affected the economic environment of most of Asia. No vaccine
has yet been successfully developed, and therefore another outbreak of SARS could adversely affect
the economies of the region. In addition to SARS, there were incidences of bird flu reported in the Asia Pacific region,
including Vietnam, Thailand and the PRC. Effective treatments for such bird flus have not yet been
successfully proved, and therefore further outbreaks of bird flu or other similar disease could
adversely affect the economies of the region. 
 Item 4. Information on the Company 
 History and Development of the Company APT Satellite Holdings Limited (the Company or APT Holdings) is a Bermuda company
incorporated on October 17, 1996 with its principal place of business originally at Rooms
3111-3112, 31st Floor, One Pacific Place, 88 Queensway, Hong Kong (Telephone: 852
2526-2281) and subsequently removed to 22 Dai Kwai Street, Tai Po Industrial Estate, Tai Po, New
Territories, Hong Kong on December 8, 2003 (Telephone: 852 2600-2100). The Companys registered
office is at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda. APT is a Hong Kong
company and a wholly-owned indirect subsidiary of the Company. References herein to the Company
include APT Holdings and its subsidiaries, except where the context otherwise requires. 
 Business Overview The Company, through its subsidiary, APT, is a leading provider of high quality satellite
services throughout the PRC and elsewhere in the Asia Pacific region. APSTAR System broadcasts
satellite TV channels of many prominent international broadcasters, and PRC, Taiwan and Hong Kong
broadcasters including CCTV, CETV-1, CBSAT, D-Sky and CableTV. 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 transponder service to telecommunications operators, among
others, Singapore Telecommunications Limited (SingTel), BtN Access, China Telecom Corp. and China
United Telecommunications Corp. (China Unicom) and China Netcom. The Company comprises two main business segments, namely provision of satellite transponder
capacity and, for the last three years, provision of satellite-based telecommunications services.
A summary of the Companys business segment is disclosed as follows (in HK$ millions): 12




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Business segments:
    
    2002
    
    
    2003
    
    
    2004Revenue from external customers:Provision of satellite transponder capacity
    
    
    324.0
    
    
    
    274.7
    
    
    
    226.9Provision of satellite-based
telecommunications services
    
    
    11.3
    
    
    
    16.4
    
    
    
    38.7Service income
    
    
    16.1
    
    
    
    11.1
    
    
    
    11.7Total
    
    
    351.4
    
    
    
    302.2
    
    
    
    277.3
 Provision of satellite transponder capacity The Companys income from provision of satellite transponder capacity is derived from its
operating satellites. APTs first satellite, APSTAR I, was launched in July 1994 and commenced commercial service on
September 15, 1994. APSTAR I was replaced by APSTAR V on August 13, 2004 at 138 degrees East.
APSTAR I currently has sufficient fuel to operate in an inclined mode for at least 3 years. APT has
entered into a utilization agreement with a customer to utilize APSTAR I at 142 degree East through
the end of its useful life. APSTAR I was drifted from 138 degree East to 142 degree East. APTs second satellite, APSTAR IA, was launched in July 1996 and commenced commercial service
on September 1, 1996. APSTAR IA is located at 134 degree East. APSTAR IA was replaced by APSTAR VI
on June 7, 2005. The Company launched a third satellite, APSTAR IIR, in October 1997, and it commenced
commercial service on January 1, 1998 for the provision of high quality and high power transponder
capacity in the Asia Pacific region. APSTAR IIR is located at 76.5 degree East. On June 29, 2004 and April 12, 2005, the Company launched its fourth and fifth satellites,
APSTAR V and APSTAR VI, respectively, as replacement satellites of APSTAR I and APSTAR IA,
respectively. APSTAR V commenced its commercial service on August 13, 2004 while APSTAR VI
commenced its commercial operation on June 7, 2005. As at December 31, 2004, the utilization rates of APSTAR IA, APSTAR IIR and APSTAR V were
59.5%, 100% and 50.3%, respectively (in 2003, the utilization rates of APSTAR I, APSTAR IA and
APSTAR IIR were, 53.9%, 60.7% and 100%, respectively). In order to take advantage of the demand in the PRC and elsewhere in the Asia Pacific region
for varied television programming with superior picture and sound quality, the Company launched
high power satellites, APSTAR V and APSTAR VI, in June 2004 and April 2005, respectively. APSTAR V
is intended to satisfy
demand in both Asia and Australia for transponder capacity. 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 provide capacity on future
satellites to its existing customers as well as to expand its customer base to include other
prominent broadcasting and telecommunications customers. Satellite-based Telecommunications and Broadcasting Services In order to fully tap the business potential arising from the telecommunications field in the
Asia Pacific region, including the PRC, APT Telecom Services Limited provides telecommunication
services with its FCL (formerly known as external satellite-based fixed telecommunication network
services), which was issued by the OFTA. Services under the FCL include VSAT, wholesale voice and
Internet POP gateway services. On September 10, 2003, APT Satellite Telecommunications Limited (APTT), a jointly controlled
entity owned by the Company, entered into a master agreement with, APT Telecom Services Limited a
wholly-owned subsidiary of the Company (APTTS), Skywork and SingaSat, whereby the business of
APTT was reorganized through the transfer of APTTs FCL business together with the FCL to APTTS and
the transfer of APTTs cable interests related to FCL, including the transfer of the APCN and C2C
interests to SingTel. The former transfer was done pursuant to a transfer of business agreement
between APTT and APTTS at consideration of HK$6,800,000 13




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together with compensation of HK$13,500,000
payable by APTT in 5 equal annual installments commencing on February 1, 2005 to APTTSs holding
company, APT Satellite Company Limited, and the surrender by APTT of the remaining term of a
services and facilities lease agreement in respect of a premises in Tai Po Industrial Estate. The
latter transfer was done pursuant to a cable interests transfer agreement between APTT and
SingaSat, which interests were subsequently assigned it to SingaSats holding company, SingTel, at
considerations of HK$2,986,000 and HK$2,574,000 in respect of the APCN interest and C2C interest,
respectively. This reorganization was completed on October 10, 2003. The Company believes that the
reorganization will allow the APT Group to concentrate on the satellite-related telecom services
business, which is in line with the APT Groups core business in providing satellite transponder
services. APT Satellite TV Development Limited (APT TV) established a satellite TV broadcasting
platform based on the Satellite Television Uplink and Downlink License first granted by the
Government of HKSAR in 1999 and was further broadened in March and June 2005 to include APSTAR V
and APSTAR VI. To accommodate the future demand for satellite TV program services, enhance the
encoding capability of APT TV and further develop the Companys satellite broadcasting business,
APT increased investments in uplinks and downlinks and TV-program transmission and broadcasting
facilities during the first half of 2002. At December 31, 2004, APT TVs DVB MPEG-2 encoding
capability was up to 28 channels. In April 2002, APT TV and Eurosport, Societe Anonyme (Eurosport) established an associate
venture in which APT TV owned 35% interest in the associate. Through this associate, APT TV and
Eurosport provide the Chinese market with satellite TV broadcasting services, and commenced
operation of the first sports news channel in the PRC in July 2002. In December 2002, the
associate venture signed an agreement with China International TV Corporation and obtained a permit
for limited broadcasting in PRC. Owing to the change in business strategy of the associate such
that the APSTAR System could not be used by the associate in establishing its business, APT TV
transferred a 33% interest in the venture and the amount due from the associate to Eurosport at a
consideration of HK$634 thousand (US$81 thousand). Although APT TV transferred a 33% interest in
that associates total share capital to Eurosport in December 2003, the Company will continue to
pursue the establishment of the satellite TV platform as an overall strategy. In April 2002, APT Group acquired an additional 20% interest in CTIA VSAT Network Limited
(CTIA), in which it previously had a 40% ownership interest. CTIA indirectly owns 21% of a PRC
company that provides data broadcasting services for the PRC market, Beijing Zhong Guang Xin Da
Data Broadcast Technology Co, Ltd. (Beijing Zhong Guang Xin Da). After the acquisition, the
Company indirectly holds a 12.6% effective interest in Beijing Zhong Guang Xin Da. The Companys
acquisition of an additional ownership interest in CTIA is in line with its strategic development
plan of shifting towards end-users in the value-chain of the broadcasting businesses. The revenue generated from provision of satellite-based telecommunications services were
approximately HK$11.3 million, HK$16.4 million and HK$38.7 million (US$5.0 million) for the years
ended December 31, 2002, 2003 and 2004, respectively, which represented 3.2%, 5.4% and 14.0%,
respectively, of total revenues for such years. 
 Industry and Market Overview Satellites The global communications market for video, data and voice transmissions is served primarily
through terrestrial and submarine optical fiber and coaxial cable, microwave systems and
satellites. Ground-based microwave systems disseminate signals in the form of radio waves from an antenna
on top of a building or a transmission tower. Microwave systems are well suited for use by local
television stations and cellular telephone systems because the reach of the transmission signal
typically is limited to one discrete area. Microwave systems are not suitable for long distance
communication or broadcasting, since transmission over long distances requires the construction of
a number of microwave relay stations to relay a signal, and repeated transmission can distort a
signal. Satellite systems require only two stations to cover long distances, one uplink station
and one downlink station. Most importantly, satellites can provide point to multipoint
transmissions while simultaneously transmitting signals over the entire region covered within the
satellites footprint. 14




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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
between 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 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
less interference from atmospheric conditions. C-band frequencies are also used by ground-based
microwave systems. In certain parts of the world, C-band satellite transmission antennae must be
located far from centers of population to avoid interference with ground-based systems. Since
there are fewer Ku-band systems in existence than C-band systems, more powerful Ku-band
transponders can be used in urban areas without similar interference concerns. Because of higher
available transmission power, Ku-band frequencies can be used in conjunction with antennae that are
smaller than antennae that are used in conjunction with C-band frequencies. Ku-band is generally
used for the
same purposes as C-band as well as for satellite news-gathering (transportable antennae) and
in some VSAT applications. The combination of high power transmitters and small antennae also makes Ku-band suitable for
direct-to-home television. Direct-to-home television did not become commercially viable until recently because available
satellite technology did not have the power to transmit to receivers and digital compression
technology had not been adequately developed. Today, DBS provides an efficient point-to-multipoint
delivery of video and audio transmissions. The advent of high-powered satellites allows for dishes
as small as 18 inches and digital compression technology permits the broadcast of up to 10 channels
of programming per transponder. In the United States, Europe and Japan, DBS operators have had
success in penetrating their respective markets. Satellite operators such as APT provide satellite transponder capacity. For television
programming distribution, these services may consist of arranging satellite capacity and providing
teleport transmission facilities and other value-added services. Services for other broadcasting
applications, such as live news and sports reporting, may include the arrangement of satellite
capacity, the provision of trucks equipped for live news and sports broadcasts, transmission
scheduling and signal monitoring. Services for business communications networks are generally more
extensive and may include arranging satellite capacity, procurement and installation of on-site
antennae and network design, integration, management, operation and maintenance. Satellite
operators either provide these services or provide satellite capacity to other companies which
provide these services. The Company has chosen to focus on the provision of satellite transponder
capacity, through the establishment of the APSTAR System, in order to maximize the efficient use of
its resources so as to provide the highest quality service. 15




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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. Continuing Technological Advancements The Company believes that technological advances will increase information carrying capacity
and reduce transmission and equipment costs which may, in turn, stimulate demand for satellite
communications services. Such advances include the following: High-powered Satellites.New satellites, which are of higher power, can deliver improved
quality signals to antennae that are generally smaller and less expensive (and are therefore more
convenient for private and commercial use) and can cover a larger area than those used with
earlier-generation satellites. The increasing use of these smaller, less expensive antennae is
expanding the markets for public and private communications networks and video distribution
services. Digital Communications.Analog telephone systems carry relatively low volumes of information.
Globally, telephone companies are rebuilding their infrastructure to carry high-speed digital
communications, which permit new and enhanced business communications and consumer services.
Examples include video phones, video conferencing, video-on-demand, wide-area networks,
telecommuting and interactive TV. Many of these services use satellite transponder capacity within
their transmission circuits and, because of their high transmission rates, will require significant
transponder capacity. Furthermore, developments in digital technology for VSATs, which reduce
terminal size and increase transmission throughput, are encouraging the development of new,
cost-effective business and rural communications applications. Compressed Digital Video.Digital video compression technology is designed to compress
multiple high-quality video channels into the same transponder capacity that previously carried one
analog channel. This technology facilitates a significant increase in the number of available
video channels with improved transmission quality and allows satellite operators to provide
satellite transmission services using less bandwidth. Digital video 16




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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 signals 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. 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 The Company provides satellite transponder capacity primarily to the broadcasting and
telecommunications markets. For the years ended December 31, 2002, 2003 and 2004, the Companys
revenues were derived from the following customer bases: Years Ended December 31,2002
    
    
    2003
    
    
    2004Broadcasting
    
    
    49.0
    %
    
    
    49.5
    %
    
    
    51.2
    %Telecommunications
    
    
    46.4
    %
    
    
    46.8
    %
    
    
    44.6
    %Other service
    
    
    4.6
    %
    
    
    3.7
    %
    
    
    4.2
    %
 Revenues from the Companys five largest customers for the years ended December 31, 2002, 2003
and 2004 were HK$198.9 million, HK$119.2 million and HK$111.9 million (US$14.3 million),
respectively, which represented 56.6%, 39.4% and 40.4%, respectively, of total revenues. Revenues
from the Companys largest customer represented 22.9%, 12.6% and 12.7%, respectively, of total
revenues during such periods. Broadcasting Customers 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 utilize transponder capacity for distributing programming to
television stations, local cable operators and master antenna systems. On July 6, 1999, the Company was first granted the Satellite Television Uplink and Downlink
License by the HKSAR government. According to this license, the Company is able to use the newly
acquired uplink platform 17




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and downlink system, together with certain encryption and digital
compression technologies, to provide satellite television uplink and downlink services through the
Companys APSTAR IIR (C & Ku-band), and APSTAR V (Ku-band only) and APSTAR VI (C & Ku-band) and
other approved satellite. 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 utilize 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 VI (migrated from APSTAR IA) to distribute a variety of CCTV
channels, its national television network, to audiences throughout the PRC, including remote areas. The APSTAR System also offers a number of other benefits for domestic broadcasters. By using
one of the satellites in the APSTAR System, domestic broadcasters may, for example, purchase
certain segments of an international programmers feed using the same satellite for broadcast as
part of their own programming, without incurring the cost of adding a separate earth station to
receive the international programmers segments. In addition, domestic broadcasters can sell their
own programming regionally or internationally because the APSTAR
System allows them to use the same transmission antennae to relay their programming
internationally as well as domestically to others using the same satellite. Local cable and
television station operators also benefit from using the APSTAR System for television programming
distribution because they need only one earth station pointed at an APSTAR satellite to receive
programming from both domestic and regional broadcasters using the same satellite. The following chart lists APTs typical broadcasting customers and the nature of their
programming: Customer
    
    ProgrammingChina Central Television (CCTV)
    
    National television in the PRC
including CCTV-1 to 12, CCTV New,
CCTV Cartoons except CCTV-4 and
CCTV-9China Education Television (CETV-1)
    
    Educational television in the PRCChina Broadcasting Film Television
Satellite Co., Ltd. (CBSAT)
    
    Provisional television in the PRC,
including Yunnan, Xinjiang, Tibet
and Hainan, totally around 16
provinces and around 25 channels
 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. 18




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Telecommunications Customers The Companys telecommunications services include the provision of transponder capacity for
private communications networks for data and voice communications and the provision of PSTN carrier
services including the wholesale voice to telecom network operators and other communications
service providers in Asia. Private Networks.Many businesses and organizations utilize satellites rather than
ground-based transmission media for a variety of reasons, including (i) cost savings for large,
geographically dispersed networks, (ii) independence from telephone companies, (iii) predictability
of costs over a long period, (iv) flexibility in changing and adding remote locations to a network,
(v) integrated network management and control of remote locations and (vi) increased network
availability and lower transmission error rates. For example, retail chains use satellite business communications networks for rapid credit
card authorization and inventory control. Banks use satellite networks to connect automatic teller
machines to processing computers. News agencies use satellite networks to distribute information
to numerous locations and paging operators use satellite networks to distribute paging information
from a central switch to multiple remote transmitters for retransmission to pagers. The Company
believes that there will continue to be opportunities in Asia to market transponder capacity to
certain end users which, due to inadequate telecommunications infrastructure or high costs of local
public networks, desire to operate their own private networks for data and voice transmission. The Company offers satellite services for private business communications networks, including
VSAT networks. VSAT networks consist of small rooftop antennae and are utilized by customers that
need to send short bursts of data over a network for relatively short periods of time. Through the
use of VSAT technology and sophisticated software, these networks can be served with a relatively
small amount of satellite capacity. Networks using VSATs have been growing rapidly to meet the
specialized data requirements of particular industries. Carrier services.A portion of the Companys revenues in the telecommunications market is
derived from the provision of satellite capacity to domestic and regional communications carriers
in Asia, including telecom network operators in the PRC that use the capacity as part of their
communications network on a national or international basis. Other Service Customers 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. On April 11, 2003, APT and SingTel entered into a new agreement (the New Agreement)
superceding the old agreement, which was entered on January 8, 2001 pursuant to which SingTel was
to use 15 C-band transponder services of APSTAR V. Pursuant to the New Agreement, APT agreed,
subject to certain conditions, to provide 6 C-band transponders services of APSTAR V to SingTel,
and upon SingTels written request within three years from the date on which APSTAR V commences
operation, to also make available 5 more C-band transponders services of APSTAR V to SingTel. APT
is obligated to provide operational and maintenance services to SingTel through APSTAR Vs useful
life, which is expected to be not less than 13 years, in exchange for an 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 maintenance. The fixed aggregate value
of the management fees for the 6 transponder capacity amounts to US$16.3 million (approximately
HK$127.1 million), and the annual amounts of the management fees will range from US$0.8 million
(approximately HK$6.6 million) to US$1.4 million (approximately HK$11.0 million). If SingTel
exercises its rights to utilize additional transponder capacity, the fixed aggregate amount of the
management fees for the additional transponder capacity will be US$13.6 million (approximately
HK$105.9 million). On September 1, 2004, APT and SingTel entered into an agreement to amend certain terminology
and to modify the New Agreement into the form of utilization agreement for clarification purpose.
The term and condition contained in the New Agreement remain unchanged. On October 22, 2004, APT entered an agreement with National Astronomical Observatories of the
Chinese Academy of Sciences ( NAOC). Under the agreement with NAOC, APT provides the necessary
satellite control 19




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services for APSTAR I to NAOC. In consideration of the services provided, APT
receives a payment of approximately US$300 thousand per year from NAOC. Transponder Utilization Agreements The Companys typical transponder utilization agreement allows for utilization 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
utilization agreements require payment of all amounts due in US Dollars. Generally, upon a fixed
number of months notice, a customer may terminate its transponder utilization 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 utilization agreement. In addition, the transponder
utilization agreements, in general, provide for a specified reduction in the service fees if
transponder service is interrupted for reasons not caused by the customer or beyond the control of
APT (such as mechanical transponder failure). If such service interruptions continue without
correction (within an acceptable period of time) and APT is unable to provide suitable alternative
capacity within an agreed period thereafter, the customer is entitled to terminate the transponder
utilization agreement without further obligation to APT. Under the terms of the transponder
utilization 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 utilization agreements under which its customers
have obtained the right to use transponder capacity on APSTAR I, APSTAR IA, APSTAR IIR or APSTAR V
for the life of the transponder. Most of the commercial terms of such transponder utilization
agreements are substantially the same as those found in the typical transponder utilization
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. APT
provides 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 provided to Loral
Asia. In respect of APSTAR I, which is being utilized by NAOC,APT agreed to provide a limited
warranty for utilizing at least 16 transponder capacity for the first 2 years and at least 12
transponder capacity for the third year of the utilization functioning properly. Sales and Marketing Marketing activities include customer visits, trade shows, advertisements, customer training,
event sponsorships, joint marketing programs and presentations at industry conferences. APTs
current sales and marketing efforts are focused on new business development so as to solicit
customers for unused or underutilized transponder capacity on APSTAR satellites. In addition,
APTs sales and marketing also focus on the creation of awareness resulting in lead generation of
APSTAR V and APSTAR VI. APTs sales and marketing staff maintain regular contact with customers
even after they have decided to utilize 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. 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 20




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is manifested by the preemptible transponders located on each
satellite. These transponders are intended, in the ordinary course, to be provided 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 satellites enables customers to
be re-routed on an as-needed basis to another satellite in APSTAR System. Similar back-up
capacity is available not only from satellite to satellite, but also from use to use. 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 APSTAR I
    
    APSTAR 1A
    
    APSTAR IIR
    
    APSTAR V
    
    APSTAR VIRegion covered
    
    North and
Southeast Asia
    
    North and
Southeast Asia
    
    Europe, Asia,
Middle East,
Africa
    
    Most of Asia,
Australia, New
Zealand,
Pacific region,
Hawaii
    
    Most of Asia,
Australia, New
Zealand,
Pacific region,
HawaiiStatus
    
    Operational
( inclined
mode)
    
    Operational
(inclined mode)
    
    Operational
    
    Operational
    
    OperationalModel
    
    HS 376
    
    HS 376
    
    FS 1300
    
    FS1300
    
    SB4100C1Manufacturers
    
    Hughes
    
    Hughes
    
    SS/Loral
    
    SS/Loral
    
    AlcatelTranspondersKu-band
    
    
    
    
    
    16
    
    16*
    
    12C-band
    
    24
    
    24
    
    28
    
    38*
    
    38Expected end of
operational life
    
    **
    
    ***
    
    2013
    
    2019
    
    2021
 
  **
It is expected that APSTAR I will be operating for at least 3 years at an inclined mode from
October 2004. *** It is expected that APSTAR IA will be operating for at least 5 years at an inclined mode. 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. 21




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##### Table of Contents



APSTAR I carries 24 C-band transponders, 20 of which have a bandwidth of 36 MHz (suitable for
television broadcasting and telecommunications purposes) and four of which have a bandwidth of 72
MHz (suitable for telecommunications purposes). The transponders have a maximum EIRP value of 38.5
dBW. APSTAR I started commercial operations on September 15, 1994. and was replaced by APSTAR V on
August 13, 2004. APSTAR I currently has sufficient fuel to work in an inclined orbital mode for at
least 3 years from October 2004. APT has entered into a utilization agreement with a customer to
utilize APSTAR I at 142 degree East through the end of its life. APSTAR IA APSTAR IA, 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. The specifications of APSTAR IA are virtually identical to those of APSTAR I, except that
APSTAR IA provides enhanced coverage of India. As with APSTAR I, APSTAR IA carries 24 C-band
transponders with a maximum EIRP value of 39 dBW. APSTAR IA started commercial operations on September 1, 1996. After successful launch and
completion of In-Orbit Testing of APSTAR VI, APSTAR IA was replaced in June 2005. APSTAR IA currently has sufficient fuel to work in an inclined
orbital mode for at least 5 years. 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 provision 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 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 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 agreement and all relevant
operating licenses, APT continues to be the legal owner of APSTAR IIR and is responsible for the
operational control of the satellite under the satellite service agreement with Loral Asia. APSTAR V APT together with SS/Loral and China Great Wall Industry Corporation, respectively, signed the
Procurement Agreement and the Launch Agreements of APSTAR V satellite on January 8, 2001, to
confirm the commissioning of the satellite. 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. On September 20, 2002, APT entered into the APT-Loral Term Sheet and subsequently entered into
certain other agreements. Under the APT-Loral Term Sheet and the agreements, Loral Orion agreed to
jointly 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 22




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##### Table of Contents



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 and subject to the payments
made by it under the term sheet and the agreements. As a result of discussions regarding a matter
related to the launch vehicle, the parties have agreed to reduce the number of transponders
attributable to Loral Orion from 27 to 25 in March 2003 with no adjustment to consideration payable
by APT and Loral Orion. Because of the failure of SS/Loral to obtain the export license for the transfer of the title
of APSTAR V in time for launching, APT entered into a Satellite Procurement Amendment Agreement, a
Satellite Transponder Agreement and a Satellite Agreement (collectively the Definitive Agreements) with SS/Loral
and Loral Orion on August 26, 2003 for the purpose of minimizing any further delay in the launch of
the satellite. Under the Definitive Agreements, the title of APSTAR V will be transferred to Loral
Orion upon intentional ignition rather and simultaneously therewith APT will have an irrevocable
lease of forty-one and one-half (41 and 1/2) transponders for the lease term commencing upon
transfer of title from SS/Loral to Loral Orion until the end of operational life of APSTAR V.
Therefore, the joint development of APSTAR V was converted to a lease. Under the Satellite
Agreement, APT will release the leasehold interest of twelve and one-half (12 and 1/2) transponders
to Loral Orion in stages over a five years period from the in-service date of APSTAR V subject to
payment of installments by Loral Orion to APT. This will result in APT having 29 transponders.
Under the leasehold arrangement, Loral Orion has committed to continue pursuing the necessary
export license for title transfer of APSTAR V. The delay in obtaining the Export License has caused the postponement of the launch of APSTAR
V. To cope with the delay, APT HK entered into a Settlement Agreement with Loral Orion Inc. and the
Amended Launch Agreement with SS/Loral and Sea Launch Limited Partnership on November 16, 2003. The
Settlement Agreement makes certain amendments to the Satellite Procurement Amendment Agreement, the
Satellite Transponder Agreement and the Satellite Agreement and the Launch Agreement to allow for
(i) a postponement of the date of launch of APSTAR V to April 28, 2004 (later on, due to the
partial failure of deployment of north solar array of EdS, a SS/L-made satellite that was launched
by Sea Launch in January 2004, the launch date of APSTAR V was further postponed to June 26, 2004);
and (ii) for Loral Orion to take an additional 4.5 transponders as Initial Loral Orion
Transponders, which are in aggregate 17 transponders to be taken up upon the completion of in-orbit
test of APSTAR V, resulting in Loral Orion assuming the payment of US$20.4 million that would
otherwise to be paid by APT HK for the construction, launch and insurance of APSTAR V. Such payment
significantly reduced the cash-flow pressure of APT HK. The total number of 25 transponders of
APSTAR V to be taken up by Loral Orion will remain unchanged. The Settlement Agreement and the Amended Launch Agreement were approved by the United States
Bankruptcy Court on December 4, 2003 and the Export License for launch of APSTAR V was issued by United States
government on November 25, 2003. APSTAR V was launched by Sea Launch Limited Partnership on June 29, 2004. APSTAR V, a high
powered satellite based on an FS 1300 model satellite manufactured by SS/Loral, comprises 38 C-band
and 16 Ku-band transponders. The satellite is 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), and China and India (Beam Two). In-Orbit Test (IOT) was completed on
August 13, 2004 and the result showed that all satellite specifications are in line with design and
satellite useful life time is estimated to be 15.3 years. APSTAR V started commercial operations
upon completion of IOT. All customer carriers on APSTAR I have been successfully migrated to
APSTAR V on 138 Degree East. Based on the arrangements entered into by the Company and Loral
Orion, title of the APSTAR V remained with Loral Orion. The Company assumed risks and rewards of
37 transponders (APT Transponders) for the entire operational life of APSTAR V under finance
leases while the risks and rewards relating to the other 17 transponders remained with Loral Orion.
The total cost for the communication satellites held under finance leases in connection with the
APT Transponders of APSTAR V amounted to US$148.4 million which has been funded by internal
resources and bank loans. 23




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Pursuant to the various amended agreements with Loral Orion, Loral Orion has an option to
acquire the remaining operational life of 4 APT Transponders on the fourth year and 4 APT
Transponders on the fifth year after completion of IOT of APSTAR V at a total consideration of
US$36.3 million. APSTAR VI (formerly APSTAR VB) On December 11, 2001, APT entered into a Satellite Procurement Agreement with Alcatel for the
design, construction, testing and delivery of APSTAR VI. APT had secured the Satellite Launch
Service Agreement with CGWIC to launch APSTAR VI on board the Long March 3B (LM-3B) launch
vehicle on October 23, 2002 by amending the Satellite Launch Service Agreement of APSTAR V. APSTAR VI is a high powered
satellite and is based on a SB-4100 C 1 model satellite of Alcatel with 38 C-band and 12 Ku-band
transponders. The footprints of its C-band will cover substantially all of the Asian countries in
the Asia Pacific region including China, India, Southeast Asia, Australia, Hawaii, Guam, and the
South Pacific Islands, whereas its Ku-band will cover China including Hong Kong, Macau and Taiwan
and provide effective and reliable broadcasting and telecommunications services. APSTAR VI was launched successfully on April 12, 2005 on a Long March 3B launch vehicle and
has been located at geostationary orbital slot at 134 degree east. The In-orbit Test of the
satellite has been completed. The final acceptance has been accomplished and the satellite has been
handover by the vendor to APT on June 7, 2005. Customers are in the process to be moved from APSTAR IA to APSTAR
VI. The satellite operation life based on the fuel is estimated to be about 16 years. Total
capital expenditures for the design, construction and launch of APSTAR VI are expected to be
approximately US$225 million, which has been funded by internal resources and bank loan. Existing Orbital Slots APSTAR V and APSTAR VI are utilizing certain designated C-band and Ku-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 15 years (approximately coterminous with the expected
operational life of the satellites). APSTAR I is currently located at 142 degrees East under PRCs filing as approved by OFTA. 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 awaiting the final result. Future Satellites APSTAR VIB In view of the risk of satellite launch, it is necessary for APT to have a contingency plan
safeguarding the replacement arrangement of APSTAR IA and to lock a launching slot in case of
failure of the launching of APSTAR VI for the smooth operations of satellite transponder services
provided by APT. APT therefore entered into an agreement with CGWIC on November 10, 2004 pursuant
to which APT will be granted a right to require CGWIC to provide for the design, construction,
delivery and launch of APSTAR VIB to a designated orbit. The option can be exercised from November
10, 2004 to September 30, 2005 but it is yet to be exercised. The consideration for the option is
US$7.68 million payable in four installments. In the event the option is exercised by APT, the
option price will be applied towards the total consideration for the design, construction, delivery
and launch of APSTAR VIB. In the event, the option is not exercised by APT, CGWIC shall stop all
preparation works for the design, construction, delivery and launch of APSTAR VIB and will have to
transfer the option price to such other satellite project as may be designated by APT (whether with
CGWIC or not) and refund the balance of the option price (net of all reasonable fee incurred). 24




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The consideration shall be subject to adjustment in case after in-orbit testing, APSTAR VIB
carries functional transponders of less than 28 C-band transponders and 16 Ku-band transponders
with an expected operational life of 13 years. Insurance APT maintains in-orbit insurance for thirty-seven transponders for APSTAR V, APSTAR IA, APSTAR
VI 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 V, APSTAR VI and APSTAR IIR. The Companys insurance
policies have standard provisions and customary exclusions. For 2002, the Company spent HK$7.0
million on in-orbit and third party liability insurance. For 2003 and 2004, the Company spent
HK$5.0 million and HK$12.6 million (US$1.6 million), respectively, on in-orbit insurance. In-orbit Insurance.Satellite in-orbit insurance is purchased on an annual basis. Such
insurance provides protection only against the total loss, destruction or failure of the satellite.
Total loss is defined as the loss of more than 75% of the satellites communications capacity for
APSTAR IA and APSTAR IIR, respectively. It is the Companys policy to take in-orbit insurance to
only cover the book value of the satellite, rather than the replacement cost. The Company renewed
its annual in-orbit insurance until December 31, 2005 for APSTAR IA and October 18, 2005 for APSTAR
IIR. The launch insurance of APSTAR V (thirty-seven transponders only) and APSTAR VI has already
covered the first year of in-orbit insurance until June 29, 2005 and April 11, 2006, respectively.
The Company is negotiating the renewal of in-orbit insurance of APSTAR V. The Company may take
into account the obligations under the bank loan conditions and the general industrial practice on
a case by case basis. Third-Party Liability Insurance.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 obtained satellite in-orbit third-party liability insurance for APSTAR I and APSTAR
IA, and APSTAR IIR in an aggregate amount of US$150 million until June 30, 2002. On April 30,
2004, OFTA granted the Company a waiver exempting the Company from complying with the requirement
of maintaining third-party liability insurance with respect to APSTAR I, APSTAR IA and APSTAR IIR
for in-orbit operation. The launch service provider of APSTAR VI has taken the third party
liability insurance for the launch with one year after launch, which covers, among others, the
Company, the governments of Hong Kong and PRC as additional insured. There is no need to take
third party liability insurance for APSTAR V as the title of APSTAR V goes to Loral Orion. Satellite and Ground Operation Facility APT operates a 77,000 square foot facility consisting of the Satellite Control Center, Network
Operation Center and TV uplink Center on a 85,000 square feet property at the Tai Po Industrial
Estate, Tai Po, Hong Kong. APT employs approximately 35 experienced satellite and communications
specialists and engineers to continuously control and monitor APTs satellites in geostationary
orbit, as well as to operate ground teleport and satellite TV uplink services. To prepare for the operation of the future satellites including APSTAR V and APSTAR VI as well
as the satellite television uplink services, the Company has expanded its operating facilities
since year 2000 by purchasing antennae, radio frequency and baseband equipment. The Company
currently operates a number of antennae ranging from 3 meter to 13 meter in diameter and
transmission facilities, as well as the related equipment and facilities, such as radio frequency
equipment, baseband units, ground monitoring systems, data processing systems and communication
traffic monitoring systems. Each antenna is capable of controlling any of the Companys satellites
and is designed to withstand winds of up to 150 miles per hour. The Company maintains its own
power generator and uninterrupted power supply to provide continuous electricity supply in case of
a power outage. Satellite TT&C operations with the APT satellites are carried out at our Satellite Control
Center. Once a satellite is placed at its orbital location, it is controlled by the TT&C facility
on a 24-hour basis until the end of its in-orbit life. The Companys engineers at the Satellite
Control Center periodically correct each satellites attitude and conduct east-west and north-south
station keeping maneuvers, thus ensuring that the Companys satellites maintain their proper
orientation and orbital position. In addition, commands from the Satellite Control Center can
switch transponders in and out of service, control the charging and discharging of the batteries,
activate back-up equipment and engage other control functions. 25




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APT has leased data and voice link in order to provide a direct data and voice communications
link between the Satellite Control Center and the satellite manufacturers. The customer carrier monitoring and teleport services are carried out at our Network Operation
Center, which provides 24-hour support to customer via the Carrier Monitoring System. The Company
also provides external satellite-based FTNS such as VSAT, Wholesale Telecom Services, and Internet
POP Gateway under the external satellite-based FTNS license issued by OFTA on June 19, 2000. The Company has completed the installation of satellite broadcasting facilities in the
Satellite TV Uplink Center, under the Satellite Television Uplink and Downlink License issued on
July 6, 1999, the Satellite TV Uplink Center provides one stop solution service to customer such
as playout, digital video broadcasting compression, turn around and radio frequency uplink
transmission service. The Centers DVB MPEG-2 encoding capability is up to 28 channels. 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 filed an application for the orbital slot at 131 degrees East, 89.5 degrees East, 92.2
degrees East, 96 degrees East, 102.8 degrees East, 131.8 degrees East, 138 degrees East, 140
degrees East and 142 degrees East. Those orbital slots could be used by future satellite which the
design should meet the coordination requirement for each slot. Employees Including the executive directors and senior management of the Company, as of December 31,
2004, the Company had 158 full-time employees, of which 27 employees were in management, 131 were
in engineering and operations, marketing, accounting and administration. The directors of the
Company will continue to closely monitor the number of employees, ensuring that the number is in
line with the needs and corporate strategies of the APT Group. The Company believes that its
relations with its employees are good. A majority of APTs technical and engineering staff
employed at the Satellite Control Center were originally seconded from affiliates of ChinaSat and
China Aerospace. APT emphasizes the training of its technical personnel. The Companys in-house training
programs cover a broad spectrum of topics including theories, operational techniques, and new
technological development in satellite telemetry and control, transponder management, satellite
communications, TT&C equipment operation and computer systems. A series of courses and job training has been conducted to train the satellite operators to be
familiar with the various procedures, such as satellite carrier line-up-tests, satellite traffic
monitoring, and satellite interference checks. The Company believes that this training results in
highly qualified satellite operators who provide quick response to meet the customers need. APT provides satellite uplink services for various customers, and operates its own satellite
television broadcasting platform. Each year APT holds regular technical training courses to cover
all aspects of satellite 26




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broadcasting technology. Course tutors use modern multimedia
presentations and each participant is provided with comprehensive course notes. Practical courses
include a hands on session for testing and fault diagnosis. In December 2000, the Company changed its then existing defined-contributory retirement
benefits scheme to Mandatory Provident Fund (MPF). In compliance with the MPF Legislation
regulated by the Mandatory Provident Fund Schemes Authority in Hong Kong, with effect from December
1, 2000, the Company is required to participate in the MPF Scheme operated by approved trustees in
Hong Kong and to make contributions for its eligible employees. Share Option Scheme The Company adopted a new share option scheme (Scheme 2002) at its 2002 annual general
meeting in response to new rules governing the listing of securities on The Stock Exchange of Hong
Kong Limited (the Listing Rules) that took effect in September 2001. New options after the
adoption of Scheme 2002 will be granted by the Company only pursuant to such scheme. Since the
adoption of Scheme 2002, no further options have been granted under the previous share option
scheme, which was adopted on May 22, 2001 (Scheme 2001) which itself replaced the old Share
Option Scheme (See Item 6 below for a more detailed description of the old Share Option Scheme.).
All of the options granted on June 19, 2001, a total of 14,650,000 share options, under Scheme 2001
to Eligible Employees will, however, remain valid until their the expiration of their terms. By
their terms, all of the options granted on June 19, 2001 are exercisable from May 22, 2003 to May
21, 2011 for a nominal consideration of HK$1 per grantee. During 2002, 2003 and 2004, 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
8,450,000, which represents 2.04% of the issued share capital of the Company as at December 31,
2004. 
 Competition APT currently serves the satellite communications market in Asia. A number of international
and domestic satellite operators also compete in this market. The Companys primary focus is Asian
intra-regional broadcasting, TV uplink and downlink, IP broadband and telecommunications, with
special emphasis on the PRC. The Company has not attempted to enter the international PSTN trunk
route market, which is dominated by the International Telecommunications Satellite Organization
(Intelsat). In providing satellite capacity, the Company competes with major established companies and
organizations. The Companys competitors include government-owned and privately-owned
international, regional and domestic satellite companies. Many of these competitors have
long-standing customer relationships and are substantially larger and have financial resources that
are substantially greater than those of the Company. The Company believes that its ability to
compete with these organizations depends on its existing customer relationships and the quality of
its customer service, its reputation as a reliable operator of commercial satellites, flexible and
value pricing policy, and the technical advantages of its advance and powerful satellites. The Company faces competition in all its markets from one or more satellite systems. Other
than domestic satellite companies, the Company is currently aware of five other international or
regional satellite companies with coverage of the PRC: Intelsat, Asia Satellite Telecommunications
Holdings Limited (AsiaSat), PanAmSat Corporation (PanAmSat), Satelindo-PT Satelit Palapa
Indonesia (Palapa) and Sino Satellite Communications Company Limited (SinoSat). Due to the
economic slowdown in many Asian countries, many satellite-related projects have been delayed or
cancelled and the current supply of transponders is still greater than the demand. For such
reasons, APT has faced fierce market competition resulting in price-cutting and pressure on
utilization rates. Digital video compression technology may have the effect of increasing the overall supply of
transponder capacity in the satellite industry. Such technology permits programmers to use less
transponder capacity than is currently required to transmit the same amount of programming. At
present, however, digital integrated receivers-decoders which are necessary to unscramble digitally
compressed transmissions are not generally available outside the more developed markets, and the
Company believes that it may be some time before they are commonplace in the developing markets of
Asia. Customers who make significant financial commitments to the use of satellites for
broadcasting and telecommunications applications often seek to secure back-up transponder capacity 27




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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 (over 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 stretches from the Middle East to
Japan and Southeast Asia. Its Ku-band coverage focuses on the Indian subcontinent and Southeast
Asia. Due to the satellite design and coverage area, the ST-1 satellite system only has the
ability to compete with the Company in C-band segment of the Asia Pacific market. SinoSat, which was established in May 1994, has four major shareholders including China
Aerospace Science & Technology Corporation, State Development and Investment Corporation, China
Financial Computerization Company, and Shanghai Alliance Investment Limited. Its first satellite,
SinoSat-1, was launched on July 18, 1998 carrying 24 C-band and 14 Ku-band transponders with
footprints including China and Asia Pacific regions for providing telecommunication, data
transmission and TV broadcasting whereas its SinoSat-2 is still in the planning and development
stage. Because of its coverage and transponder capacity, SinoSat-1 is one of APTs competitors in
the China region. Domestic Satellites A number of companies located in various countries in the region have launched or are planning
to launch domestic satellites. These include ChinaSat, which is also a Principal Shareholder
(which term is defined below), 28




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Chinastar (merged with ChinaSat) and SinoSat of the PRC, INSAT of
India, JSAT and NSTAR of Japan, Koreasat of Korea, Measat of Malaysia, Optus of Australia, Thaicom of Thailand, Mabuhay of the
Philippines, and GE-1A of the United States. Although these satellites may be focused on their
respective domestic markets, such companies may have the ability, due to satellite design and
coverage areas, to compete with the Company in segments of the Asia Pacific market. In 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 systems 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 markets. Other Satellites Other existing and proposed organizations have considered or might consider competing in the
Asia Pacific 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, telephony
services and more recently in broadband and internet users. Owing to the telecom-boom era legacy of
huge overcapacity in the market, prices for leasing wholesale cable have plummeted over the past
five years as supply has still outstripped overall demand. The abundant supply of cable capacities
and rock-bottom prices have led to the situations that satellite capacities are difficult to
compete with cable in point-to-point communications. 
 Regulation The international telecommunications industry is highly regulated. Satellite services are
subject to international space law, and the principal body of international law relating to the use
of outer space is the Outer Space Treaty. Countries which are party to the Outer Space Treaty or
to other treaties or conventions regulating outer space activities are responsible for fulfilling
their own obligations under such treaties or conventions. This often results in the adoption by
such member countries of domestic laws to regulate the activities of their own subjects in order to
enable the country concerned to comply with its international obligations. As an operator of privately-owned satellites in Hong Kong, APT is subject to the regulatory
authority of APTs principal regulator, OFTA. Many of the Companys existing and potential customers who may wish to use the APSTAR System
to broadcast into or provide telecommunications services for countries in Asia are subject to
government licensing. The applicable regulatory schemes in these countries vary considerably.
While the Company does not believe these regulatory schemes will prevent it from pursuing its
business, there can be no assurance that its customers licenses and approvals are or will remain
sufficient in the view of foreign regulatory authorities and that these authorities will not
discourage or prevent existing or potential customers from utilizing transponders on the APSTAR
System. Many of APTs customers must have authorization from the countries in which they are located
in order to uplink to and communicate by means of APTs satellites. While obtaining such
authorizations on behalf of its customers is not the Companys responsibility, the Companys
success may depend on the ability of its customers to obtain the required authorizations. International Telecommunication Union Member nations are required by treaty to give notice of, coordinate and register radio
frequency assignments and any associated orbital locations in the geosynchronous satellite orbit
with the Radiocommunication 29




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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 any sanctions that are then
in effect under the US Arms Export Control Act or other US laws and regulations. Hong Kong Regulation The Companys satellite operations are principally regulated by the Outer Space Ordinance.
The Outer Space Ordinance prohibits any person from launching or procuring the launch of a
satellite, or operating a satellite, without obtaining an appropriate license. The Outer Space
Ordinance further stipulates that any such license shall describe the activities authorized by it
and also provides that licenses may be granted subject to conditions specified therein. The
conditions may include basic orbital parameters and requirements to avoid interference with the
activities of other users of outer space. Breach of any such conditions can give rise to a right
of revocation of the relevant license. The ultimate authority to grant licenses and otherwise to administer the Outer Space Ordinance
is vested in the Chief Executive. In practice, all relevant matters are dealt with on a regular
basis by OFTA. Effective July 1, 1997, the regulation of satellite launch and operation by Hong
Kong companies has remained under the authority of OFTA. APT had previously been granted licenses
under the Outer Space Act 1986 (Hong Kong) Order 1990 (the Outer Space Order) by the Chief Executive covering current and future
operation of each of APSTAR I, 30




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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, APSTAR IIR, APSTAR V and APSTAR VI
covering all of its TT&C operations, as well as monitoring and testing functions, subject to the
terms and conditions of the respective licenses. Such licenses have terms of 20 years, commencing
on July 19, 1994, June 11, 1996, October 13, 1997, November 1, 2003 and April 4, 2005,
respectively. The licenses require APT (among other things) to avoid harmful interference with
other telecommunication apparatus operating within or outside Hong Kong and to ensure compliance
with all relevant requirements of the International Telecommunication Convention, a complementary
document to the ITUs constitution document, and any other international telecommunication
agreements which may from time to time be acceded to by or on behalf of, or applied to, Hong Kong.
These licenses were formally granted with the grant of the licenses under the Outer Space Order
referred to above. The Telecommunication Ordinance also contains provisions for (i) the taking of possession by
the Hong Kong government of telecommunications stations where the Chief Executive in Council is of
the opinion that an emergency has arisen in which it is expedient for the public service that the
Hong Kong government should have control over telecommunications stations and (ii) the payment of
compensation should such taking of possession occur. Overseas National Telecommunications Authorities The laws and regulatory requirements regulating access to satellite systems vary from country
to country. Some countries have substantially deregulated satellite communications, making
customer access to the Companys satellites a relatively simple procedure, while other countries
have maintained strict monopoly regimes. The application procedure for access to satellite systems
can be time-consuming and costly, and the terms of the licenses vary among different countries. Direct reception of satellite television is currently illegal in a number of countries in Asia
and the Middle East, and is subject to stringent restrictions in certain other countries in those
regions. Private ownership of dishes is currently prohibited in the PRC, although certain
tourist-grade hotels and apartments and other specified entities are permitted to operate dishes
upon application to the relevant authorities. In addition, regulations regarding content of
advertisements and advertising vary from country to country, making it difficult for broadcasters
to address advertisements to Asia and the Middle East as a whole. 
 Organizational Structure The parent company of the APT Group is APT Satellite International Company Limited (APT
International), which directly controls approximately 51.83 % of the interest of the Company. APT
International is in turn jointly 100% owned by five principal shareholders. More information on
major shareholders is set forth in Item 7. Major Shareholders and Related Party Transactions. The Company, through APT BVI, indirectly owns 100% of APT. The full list of subsidiaries of
APT Group is set forth in Note 1 to the Audited Consolidated Financial Statements. 31




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Property, Plant and Equipment The Companys executive offices are located in the Satellite Control Center in Tai Po
Industrial Estate, Hong Kong. Upon the removal of the Companys business office to its Satellite
Control Center in Tai Po on December 8, 2003, the lease of the Companys business office space
originally in Room 3111-3112, 31/F One Pacific Place, 88 Queensway, Hong Kong was terminated on
February 29, 2004. The rental amount (excluding rates and management charges) under the lease was
approximately HK$530 thousand for 2004. 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. In early 2000, APT had leased from the Science and Technology Parks Corporation
property originally designated as The Remaining Portion of Section E of Tai Po Town Lot No. 13 and
Extensions Thereto with 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. On March
21, 2001, APT with the Science and Technology Parks Corporation entered into the Cancelled
Agreement, which divided the interest of the property originally designated as The Remaining
Portion of Section E of Tai Po Town Lot No. 13 and Extensions Thereto between APT and APT Telecom.
On March 21, 2001, the Science and Technology Parks Corporation leased the majority portion of that
piece of property, totaling 6,903.29 square meters (approximately 74,309 square feet) (Site 3A)
(newly designated as the Remaining Portion of Section E of Tai Po Town Lot No. 13 and Extension
thereto), to APT Telecom for telecommunications services, and granted a lease of the remaining
portion of the property, totaling 2,016 square meters (approximately 21,701 square feet) (Site 3B)
(newly designated as Subsection 3 of Section E of Tai Po Town Lot No. 13 and Extensions thereto) to
APT by the Second Supplemental Agreement and this piece of property was merged with the property
originally leased, Site 1 and Site 2. In order to expand the Companys satellite operations and
control capabilities in preparation for the launch of APSTAR V and APSTAR VI, as well as expand its
capabilities with respect to broadcasting and telecommunication services, APT 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. Phase II also includes a new data center (approximately 14,700
square feet) for the telecommunications services. 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. As at December 31, 2004, the Company has invested
HK$28.4 million (US$3.6 million) in the facilities. As a result, the Companys program transmission
capacity is increased, strengthening its capacity to meet future demand for satellite TV services. The Company assumed risks and rewards of thirty-seven transponders for the entire operational
life of APSTAR V under finance leases on August 13, 2004. As at December 31, 2004, the Company has
invested HK$1,157.9 million (US$148.4 million) for the thirty-seven transponders of APSTAR V. See
Summary of Satellite Data for further details related to the Companys satellite assets. 
 Item 5. Operating and Financial Review and Prospects The following discussion and analysis should be read in conjunction with the Audited
Consolidated Financial Statements of the Company. The Audited Consolidated Financial Statements
have been prepared in accordance with Hong Kong GAAP, which differs in certain respects from US
GAAP. For a summary of significant differences between Hong Kong GAAP and US GAAP, see Item 18 and
Note 22 of the Notes to the Consolidated Financial Statements. 32




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Overview The Companys existing satellites, APSTAR I, APSTAR IA, APSTAR IIR, APSTAR V and APSTAR VI
provide commercial service to broadcasting and telecommunications customers in the Asia Pacific
region. APSTAR IA began commercial service on September 1, 1996, APSTAR IIR on January 1, 1998,
APSTAR V on August 13, 2004 and APSTAR VI on June 7, 2005. APTs transponder utilization agreements typically require the payment of a deposit of one
calendar quarters utilization fee upon signing of the contract, provide for an escalation of
utilization fees during the agreement term according to an agreed schedule, require utilization
fees to be paid in advance and provide for renewal options. Certain aspects of the business of the Company are subject to governmental regulation,
including the coordination of orbital slots under the regulations of the ITU and the licensing of
the Companys satellite-related activities in Hong Kong by the HKSAR under the Outer Space
Ordinance. Licenses from the HKSAR must be obtained to launch or operate a satellite. APT has
obtained licenses covering current and future operation of each of APSTAR I, APSTAR IA, APSTAR IIR,
APSTAR V and APSTAR VI. The licenses each require the approval of the HKSAR for any transfer of a
beneficial interest in the satellite. Fees with respect to each of these licenses are payable
annually at fixed rates. The Company paid aggregate license fees with respect to its satellites of
HK$386 thousand (US$50 thousand) to the HKSAR in 2004. Although neither the Joint Declaration nor
the Basic Law makes express provision with respect to the Outer Space Ordinance or the regulation
of satellite launch and operation or other outer space activities, the Basic Law provides that the
laws previously in force in Hong Kong shall be maintained, except for any laws that contravene the
Basic Law, and subject to any amendment by the legislature of the HKSAR. The Company believes that the market for satellite communications will not improve
significantly in the coming year due to the uncertain economic outlook of the Asia Pacific region
and increased competition in the transponder services market, which the Company believes will grow
increasingly intense. At the same time, the Company plans to develop new satellite broadcasting
and telecommunications businesses, with a view to maintaining business growth. The Company is
currently focusing its sales and marketing efforts on:  
    
    providing transponder capacity to broadcast customers for the distribution of
programming to television audiences in the PRC and Asia Pacific region;
    
    providing telecommunications networks for data and voice communications; and
    
    providing satellite television uplink and downlink service through the APSTAR System. The Companys future revenues will depend upon the success of the above business strategies,
and it cannot provide any assurances that it will be successful in implementing its strategies or
meeting its projections. APSTAR System, together with their corresponding telemetry, tracking and control systems, have
been operating under normal condition. APT Groups core business remains the provision of satellite
transponder capacity and broadcasting services in the Asia Pacific region. There has been an
increase of revenue contributed from the provision of satellite-based telecommunication services.
In the first half of 2003, the economic conditions in the Companys markets continued to be
sluggish due to SARS, which exacerbated an already weakened economic environment. Market
competition in the satellite broadcasting business was extremely fierce in 2003 as demand for
transponder capacities remained weak. In the second half of 2003, the economic outlook improved in
the Asia Pacific region as the SARS outbreak was brought under control and the economy in the PRC
continued to grow at an increased pace. In the year of 2004, the transponder service market
remained highly competitive. The market for satellite communications in the Asia Pacific region
remained highly competitive because of the following reasons: (i) there was a significant
oversupply in transponder capacities with respect to transponders operating on both the C-band and
Ku-band; and (ii) there was an over-supply in submarine cable capacities, particularly with respect
to telecommunication services. As of December 31, 2004, the utilization rates of APSTAR IA, APSTAR
IIR and APSTAR V stood at 59.5%, 100% and 50.3%, respectively. 33




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##### Table of Contents



The Company intends to continue focusing on its core-business of providing satellite
transponder capacity and satellite-based telecommunications services in the Asia Pacific region in
the near term. While there is no current indication that the over-supply in transponder capacities
and submarine cable capacities in the region will be reduced in the near term, the transponder
markets as well as the broadcasting and telecommunication services market began a limited recovery
at the end of 2004. APT intends to aggressively market the services of its new, state-of-the-art
satellites, APSTAR V and APSTAR VI, which were launched on June 29, 2004 and April 12, 2005,
respectively, in an attempt to gain market share as the economy improves. The Company believes
that the advantages of these two satellites include (i) higher power; (ii) broadened footprints;
(iii) smooth customer migration; (iv) linking northern and southern hemispheres and bridging major
cities between North America and Asia; (v) anti-jamming features (APSTAR VI only); and (vi) the
potential for strong neighborhood effects with such customers as CCTV and other renowned
broadcasters, which enjoy over 300 million TV-households. Upon the completion of the Companys
satellite replacement program following the commencement of service of APSTAR VI, the Company
believes that its market competitiveness should be significantly strengthened. APT Satellite TV Development Limited has established its satellite TV uplink and broadcasting
services platform (the Satellite TV Platform) for the provision of broadcasting services under a
Satellite TV Broadcasting Licence granted by HKSAR. The Company believes that the Satellite TV
Platform will help establish a neighborhood effect, whereby the APSTAR System will stimulate more
demand for transponder capacities for the APSTAR System. APT Telecom was re-organized on September
10, 2003 in response to the continued downturn in the market for telecommunication services and the
oversupply of submarine cable capacities. After the reorganization, APT Telecom Services Limited
continued to provide telecommunication services under the Fixed Carrier License approved by OFTA in
October 2003. The Company believes that the provision of broadcasting service and telecommunication
service offerings to its customers provides an important competitive advantage with respect to
customers who desire a one-stop shop in communications services. The Company projects that the broadcasting and telecommunication businesses in the Asia
Pacific region will see limited growth during 2005. The transponder service market will likely
still be highly competitive due to excess capacity in the transponder market in the region. While
the Company believes that the business climate in the next year will remain challenging, it
believes that the successful launch of APSTAR V and APSTAR VI will enhance its competitiveness in
the transponder services market. APT intends to continue focusing on its core business and seeks
to further develop new satellite-related business opportunities for business expansion and
enterprise value growth. An analysis of the sources of the Companys revenues by business segment for the three years
ended December, 2004 is shown in Item 4 Information on the Company  Business Overview. 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
operations. 2002
    
    
    2003
    
    
    2004Statement of Operations Data:Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Cost of services (excluding depreciation
and amortization)
    
    
    11.9
    %
    
    
    14.6
    %
    
    
    24.1
    %Depreciation and amortization
    
    
    66.5
    %
    
    
    78.1
    %
    
    
    64.1
    %Selling, general and administrative
(excluding depreciation and amortization)
    
    
    19.9
    %
    
    
    24.8
    %
    
    
    28.4
    %Total costs and expenses
    
    
    98.3
    %
    
    
    117.5
    %
    
    
    116.6
    %1.7
    %
    
    
    (17.5
    %)
    
    
    (16.6
    %)Income/(loss) before income taxes and minority
interests
    
    
    16.7
    %
    
    
    (70.8
    %)
    
    
    (15.6
    %)Net income/(loss)
    
    
    7.0
    %
    
    
    (74.4
    %)
    
    
    (20.8
    %)
 34




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##### Table of Contents



An analysis of the source of the Companys revenues by geographical area for the years ended
December 31, 2002, 2003 and 2004 is as follows: Years Ended December 31,2002
    
    
    2003
    
    
    
    
    
    
    2004(HK$ in millions)% of Total
    
    
    
    
    
    
    % of Total
    
    
    
    
    
    
    % of TotalAmount
    
    
    Revenues
    
    
    Amount
    
    
    Revenues
    
    
    Amount
    
    
    RevenuesThe Peoples
Republic of China:Hong Kong
    
    
    47.2
    
    
    
    13.4
    %
    
    
    25.1
    
    
    
    8.3
    %
    
    
    21.3
    
    
    
    7.7
    %Other regions
    
    
    254.9
    
    
    
    72.5
    %
    
    
    225.8
    
    
    
    74.7
    %
    
    
    195.2
    
    
    
    70.4
    %Singapore
    
    
    18.6
    
    
    
    5.3
    %
    
    
    18.4
    
    
    
    6.1
    %
    
    
    23.3
    
    
    
    8.4
    %USA
    
    
    18.8
    
    
    
    5.4
    %
    
    
    18.9
    
    
    
    6.3
    %
    
    
    8.4
    
    
    
    3.0
    %Others
    
    
    11.9
    
    
    
    3.4
    %
    
    
    14.0
    
    
    
    4.6
    %
    
    
    29.1
    
    
    
    10.5
    %351.4
    
    
    
    100.0
    %
    
    
    302.2
    
    
    
    100.0
    %
    
    
    277.3
    
    
    
    100
    %
 The Company has not incurred any research and development expenditure for the years ended
December 31, 2002, 2003 or 2004. 
 Application of Critical Accounting Policies The financial statements are based on the selection and application of significant accounting
policies, which require management to make significant estimates and assumptions that affect the
reported amount of assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of the financial statements. Actual results may
differ from these estimates under different assumptions or conditions. The following are some of
the more critical judgment areas in the application of the Companys accounting policies that
currently affect the Companys financial condition and results of operations. Depreciation Depreciation of satellite assets is provided for on the straight-line method over the
estimated useful life of the satellite, which is determined by engineering analysis performed at
the in-services date and re-evaluated periodically, to residual value. A number of factors affect
the operational lives of satellites, including construction quality, component durability, fuel
usage, the launch vehicle used and the skill with which the satellite is monitored and operated. As
the telecommunication industry is subject to rapid technological change and the Companys
satellites have been subjected to certain operational lives, the Company may be required to revise
the estimated useful lives of its satellites and communication equipment or to adjust their
carrying amounts periodically. Accordingly, the estimated useful lives of the Companys satellites
are reviewed using current engineering data. If a significant change in the estimated useful lives
of our satellites is identified, the Company accounts for the effects of such change as
depreciation expenses on a prospective basis. Depreciation for future satellites will depend on in-orbit testing on their estimated useful
lives after successful launch and, as the cost of the future satellites is greater than the
carrying value of the current satellites, the depreciation charge is expected to increase in the
coming years. During the year ended December 31, 2004, the Company revised its estimate of the remaining
useful life of APSTAR IA from December 31, 2004 to June 30, 2005 based on an assessment by the
Companys engineer. The 35




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##### Table of Contents



effect of this change in estimated remaining useful life of APSTAR IA has
decreased the depreciation charge by HK$18.1 million (US$2.3 million) for the year. Other
satellites have no change of the remaining useful lives. Accounts receivables and other receivables The management of the Company estimates the provision of allowances required for the potential
non-collectability of receivables at each balance sheet date based on the aging of its customer
accounts and its historical write-off experience, net of recoveries. The Company performs ongoing
credit evaluations of its customers and adjusts credit limits based upon payment history and the
customers current credit worthiness. The Company does not make a general provision on its
accounts receivables and other receivables, but instead, makes a specific provision on its accounts
receivables and other receivables. Hence, the Company continuously monitors collections and
payments from customers and maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the financial
condition of the customers of the Company were to deteriorate, actual write-offs would be higher
than estimated. As disclosed in Note 18(e) to the Consolidated Financial Statements for the years ended
December 31, 2002, 2003, and 2004, the Company wrote off accounts receivable in the amounts of
HK$11.5 million (US$1.5 million), and HK$nil, and HK$nil, respectively. For the years ended
December 31, 2002, 2003, and 2004, the Company made allowance for doubtful receivables in the
amounts of HK$5.3 million (US$679 thousand), HK$8.4 million (US$1.1 million), and HK$5.7 million
(US$731 thousand) respectively. If the financial condition of the Companys customers were to
deteriorate, additional allowances may be required. The Company periodically reviews the carrying amounts of provision for doubtful debts to
determine whether there is any indication that the provision needs to be written off. If the
Company becomes aware of a situation where a customer still not be able to meet its financial
obligations due to change of contact information by the customer without notification or after
seeking professional advice from lawyers or debt collection agent that the probability of recovery
is remote. Impairment of property, plant and equipment The Company periodically reviews the carrying amount of the 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. Under
HK GAAP, the estimated future cash flows are discounted at a discount rate when assessing the
recoverable amount of the assets. Under US GAAP, recoverability of assets is measured by a
comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows
expected to be generated by the asset or asset group. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amounts
of the assets exceed the fair value of the assets. The Company applies the foregoing analysis in determining the timing of the impairment test,
the estimated useful lives of the individual assets, the discount rate, future cash flows used to
assess impairments and the fair value of impaired assets. It is difficult to precisely estimate the
price of the transponder capacities and related satellite services and residual values because the
market prices for our assets are not readily available. The estimates of future cash flows are
based on the terms of existing transponder capacity and service agreements. The dynamic economic
environment in which the Company operates and the resulting assumptions used in setting depreciable
lives on assets and judgment relating to the utilization rate of the assets, price and amount of
operating costs to estimate future cash flows impact the outcome of all of these impairment tests.
If these estimates or their related assumptions change in the future, the Company may be required
to record impairment loss for these assets not previously recorded. The Company periodically reviews the carrying amounts of its property, plant and equipment
through reference to its use value and fair market value as assessed both by the Company and by an
independent professional property appraiser. If the use value or fair market value of the
property, plant and equipment are lower than their carrying amount, the Company may be required to
record additional impairment loss not previously recognized. 36




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##### Table of Contents



During the year ended December 31, 2004, the Company determined under HK GAAP that certain
construction in progress was impaired, as the recoverable amount of these assets is estimated to be
less than their carrying amount. Accordingly, under HK GAAP the Company recognized an impairment
loss of HK$1.8 million (US$231 thousand) in respect of the construction in progress (included in
the business segment of provision of satellite-based telecommunications services) for the year
ended December 31, 2004 after reassessing the expected future revenues which the Company had
already taken into account, due to the economic recession and uncertain demand of the broadband
services in PRC market. Further, in light of the rapid technological change in broadband services
the Company was compelled to make additional investments in its services in order to keep pace with
the market. Under US GAAP the Company did not recognize any impairment loss on this construction
in progress as such impairment is determined based upon an assessment of estimated undiscounted
cash flow under US GAAP. Contingencies and provisions Contingencies, representing an obligation that are neither probable nor certain at the date of
the financial statements, or a probable obligation for which the cash outflow is not probable, are
not recorded. Provisions are recorded when, at the end of period, there is an obligation of APT Group to a
third party which is probable or certain to create an outflow of resources to the third party,
without at least an equivalent return expected from the third party. This obligation may be legal,
regulatory or contractual in nature. To estimate the expenditure that the Company is likely to bear in order to settle an
obligation, the management of the Company takes into consideration 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. For details, please refer to Item 18 and Note 11 of the Notes to the Audited Consolidated
Financial Statements of the Company. Recent HK accounting pronouncements The Hong Kong Institute of Certified of Public Accountants (HKICPA), formerly the Hong Kong
Society of Accountants has issued a number of new and revised Hong Kong Financial Standards
(HKFRSs) which are applicable to the Company for accounting periods beginning on or after January
1, 2005. The Company has not early adopted these new HKFRSs in the financial statements for the year
ended December 31, 2004. The Company has completed a preliminary assessment of the impact of these
new HKFRSs to the extent that they applicable to the Company. A brief summary of the key features
of these new HKFRSs and the Companys preliminary assessment result is as follows:  (i)
    
    In March 2004, the HKICPA issued the Hong Kong Accounting Standards (HKAS)
No. 1, Presentation of Financial Statements and superseded the Hong Kong Statement
of Standard Accounting Practice (SSAP) No. 1, Presentation of Financial Statements
(revised in 2001) and Interpretation 8 Presentation of Financial Statements  Current
Assets : Classification of Restricted and Appropriated Cash Balance. HKAS 1 requires
disclosure of an entitys judgments and assumptions on application of accounting
policies. Additionally, HKAS 1 provides guidance on classification of assets and
liabilities. Currently, the Company does not expect the application of HKAS 1 will
have a material impact on its financial position or results of operations.(ii)
    
    In December 2004, the HKICPA issued HKAS 17, Leases and superseded the SSAP
No. 14, Leases (revised in 2000). The adoption of HKAS 17 has resulted in a change
in accounting policy relating to leasehold land. In accordance with the provisions of
HKAS 17, a lease of land and building should be split into a lease of land and a lease
of building in proportion to the relative fair
values of the leasehold interests in the land element and the building element of the
lease at the inception of the lease. The lease premium for land is stated at cost and
amortized over the period of the lease whereas the leasehold building is stated at cost
less accumulated depreciation. Currently, the Company does not expect the application
of HKAS 17 will have a material impact on its financial position or results of
operations. 37




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##### Table of Contents



(iii)
    
    In March 2004, the HKICPA issued HKAS 23, Borrowing costs and superseded the
SSAP no. 19, Borrowing costs. HKAS 23 allows entities to opt for a policy of either
expensing all borrowing costs through consolidated statements of operations as they are
incurred, or capitalizing borrowing costs when criteria under HKAS 23 are met.
Currently, the Company chooses a policy of capitalizing borrowing costs as in the past
when the criteria are met and does not expect the application of HKAS 23 will have a
material impact on its financial position or results of operations.(iv)
    
    In March 2004, the HKICPA issued HKAS 27, Consolidated and Separate Financial
Statements (revised in December 2004) and superseded the SSAP No. 32, Consolidated
Financial Statements and Accounting for Investment in Subsidiaries and Interpretation
18 Consolidation and Equity Method  Potential Voting Rights and Allocation of
Ownership Interests. HKAS 27 modifies the conditions for excluding subsidiaries from
consolidation. HKAS 27 also requires minority interests to be presented within equity,
separately from the parent shareholders equity. Currently, the Company does not
expect the application of HKAS 27 will have a material impact on its financial position
or results of operations.(v)
    
    In March 2004, the HKICPA issued HKAS 31, Interests in joint ventures and
superseded the SSAP no. 21, Accounting for interests in joint ventures (revised in
2001). HKAS 31 allows venturers to choose an accounting policy for investments in
jointly controlled entities (JCEs) using either the equity method or the proportionate
consolidation method. Currently, the Company chooses accounting for investments in
JCEs using equity method as in the past and does not expect the application of HKAS 31
will have a material impact on its financial position or results of operations.(vi)
    
    In December 2004, the HKICPA issued HKAS 40, Investment Property and
superseded the SSAP No. 13, Accounting for Investment Properties (revised in 2000).
The adoption of HKAS 40 has resulted in a change in accounting policy for the APT
Groups investment property. Changes in valuation of the investment property were
previously dealt with in an investment property revaluation reserve. Following the
adoption of HKAS 40, all changes in valuation of the investment property would be
recognized in the consolidated statements of operations. On adoption, the HKAS 40
required the effect of applying this standard as an adjustment to the opening balance
of retained earnings of the Company. Currently, the Company does not expect the
application of HKAS 40 will have a material impact on its financial position or results
of operations.(vii)
    
    In April 2004, the HKICPA issued Hong Kong Financial Reporting Standards
(HKFRS) No. 2, Share-based Payment. HKFRS 2 addresses the accounting for
share-based payment transactions in financial statements and requires an entity to
measure the employee service received and the liability incurred at the fair value of
the instrument at the grant date. The adoption of HKFRS 2 has resulted in a change in
accounting policy for employee options. Prior to this, the provision of share options
to employees did not result in a charge to consolidated statements of operations.
Following the adoption of HKFRS 2, the share options would be measured at grant date.
Currently, the Company does not expect the application of HKFRS 2 will have a material
impact on its financial position or results of operations. Recent US GAAP pronouncements Please see item 18 and note 22 (k) to the Audited Consolidated Financial Statements of the
Company for recent US accounting pronouncements. 
 Commitments and Contingencies In the ordinary course of its business, the Company enters into commercial commitments for
various aspects of operations, such as repair and maintenance. However, the Company believes that
those commitments will not have a material effect on the Companys financial condition, results of
operations or cash flows. The following tables aggregate the contractual obligations and other commercial commitments of
the Company as of December 31, 2004 (HK$ in millions): 38




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##### Table of Contents



Contractual Obligations: Payments due by periodLess than
    
    
    13
    
    
    45
    
    
    After 5Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    yearsUS$240 million term loan
facility(1)
    
    
    975.8
    
    
    
    66.3
    
    
    
    228.4
    
    
    
    387.9
    
    
    
    293.2Purchase obligations
- the Company (2)
    
    
    286.0
    
    
    
    286.0
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (3)
    
    
    4.1
    
    
    
    4.1
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    1,265.9
    
    
    
    356.4
    
    
    
    228.4
    
    
    
    387.9
    
    
    
    293.2
 Other Commercial Commitments: Amount of commitment expiration per periodTotalamounts
    
    
    Less than
    
    
    1  3
    
    
    4  5
    
    
    After 5committed
    
    
    1 year
    
    
    years
    
    
    years
    
    
    yearsOther commercial
commitments
- the Company
(4)
    
    
    340.6
    
    
    
    340.6
    
    
    
    
    
    
    
    
    
    
    
    Deposit received
    
    
    12.6
    
    
    
    8.0
    
    
    
    4.6
    
    
    
    
    
    
    
    Deferred income
    
    
    285.2
    
    
    
    23.8
    
    
    
    45.1
    
    
    
    45.1
    
    
    
    171.2Total commercial
commitments
    
    
    638.4
    
    
    
    372.4
    
    
    
    49.7
    
    
    
    45.1
    
    
    
    171.2
 
 (1)
    
    This line item represents the cash obligations for principal payments of the
Loan Facility. The Loan Facility was secured by the assignment of the construction,
launching and related equipment contracts relating to satellites under construction and
their related insurance claim proceeds, assignment of all present and future
utilization agreements of their transponders of satellites under construction,
launching and related equipment contracts.(2)
    
    This line item represents various purchase commitments entered into with the
Companys suppliers due to the long lead times required before the satellites become
operational.(3)
    
    This line item represents future minimum payments under operating leases with
remaining terms of one year or more.(4)
    
    This line item represents various purchase commitments authorized by the
Company with its suppliers but not contracted at the balance sheet date. Contingencies: APTs overseas withholding tax charged on certain transponder utilization income in respect
of 1998 and before, calculated at the applicable rates based on the relevant transponder income
earned in those years, and not provided for in the financial statements, amounted to
approximately HK$75.9 million (US$9.7 million). (See Note 11 of the Companys Consolidated
Financial Statements). APT did not recognize liabilities as the Companys position is that the
applicable tax rules are effective from 1999 onwards. If such tax charge is claimed for the
period from 1998 and before, it could result in a significant adverse effect on the Companys
financial condition. In 2003, APT received a letter from the Hong Kong Inland Revenue Department (IRD) in
connection 39




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##### Table of Contents



with the Profits Tax Return that IRD disagreed with APT on the capital gain claim of
HK$389.7 million (US$50.0 million) in 1999 in relation to the transfer of substantially all of the
satellite transponder capacities of APSTAR IIR for the rest of its useful life. APT has claimed
the gain as a non-taxable capital gain in its 1999/2000 Profits Tax Return. The non-taxable claim
is under review by the IRD which has proposed to treat the proceeds received as taxable income to
this subsidiary with a corresponding entitlement to statutory depreciation allowance in respect of
APSTAR IIR. For the year ended December 31, 2004, the tax effect of this event to APT is estimated
to be HK$56.0 million (US$ 7.2 million). Having taken into consideration independent professional advice, the Company believes it has a
reasonable likelihood of success in defending its position that the gain derived from the
abovementioned transaction should be treated as non-taxable. If the Company is unsuccessful with
respect to its position, this tax liability could be offset against current tax loss brought
forward under APT. In addition, certain potential losses of a satellite or the satellites functionality may not
be fully covered by APT Groups launch or in-orbit insurance policies. For example, APT Groups
insurance coverage would not compensate it for business interruption and similar losses (including,
among other things, loss of market share, loss of revenue and incidental and consequential
damages). In the event that the insurance proceeds exceed the carrying amount of the satellites,
the excess of the proceeds over the carrying value of the satellite would be recognized as income.
Any shortfall between the insurance proceeds and the carrying amount of the satellites would be
recognized in the statements of operations as expense. 
 Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements other than its operating leases. 
 Results of Operations Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 Total Revenues.Total revenues for the year ended December 31, 2004 were HK$277.3 million
(US$35.5 million), a decrease of HK$24.9 million (US$3.2 million), or 8.2%, as compared to total
revenues of HK$302.2 million (US$38.7 million) for the same period in 2003. The decrease of
revenues in 2004 was due to continued intense market competition, which put further downward
pressure on transponder pricing, eroding the Companys profit margins and leading to a further drop
in revenues. The Company believes that the commencement of operations of APSTAR V and APSTAR VI
will enhance the Companys competitive position. By bundling broadcasting services and
telecommunication services into a one-stop shop for communications services, the Company aims to
further strengthen the utilization rates of its satellites as the regional economic outlook
improves, in an effort to increase its profit margins. Total Costs and Expenses.The major components of total costs and expenses consist of cost of
services, depreciation and amortization, and selling, general and administrative expenses. Total
costs and expenses for the year ended December 31, 2004 were HK$323.4 million (US$41.5 million), a
decrease of HK$31.8 million (US$4.0 million), or 9.0%, as compared to the same period in 2003.
This decrease was primarily due to the decrease of HK$35.6 million (US$4.5 million) in cost of
services, which was partially offset by an increase of HK$3.8 million (US$487 thousand) in selling,
general and administrative expenses. Total costs and expenses as a percentage of revenues were
116.6% in the year ended December 31, 2004, as compared to 117.5% in the year ended December 31,
2003, as further discussed as below. Cost of Services, including Depreciation and Amortization. The major components of cost of
services include depreciation and amortization, license fees, orbital slot management fees,
in-orbit insurance and satellite operations services charges. The cost of services, including
depreciation and amortization for the year ended December 31, 2004 was HK$244.7 million (US$31.4
million), a decrease of HK$35.6 million (US$4.5 million) or 12.7% when compared to the cost of
HK$280.3 million (US$35.9 million) for the year ended December 31, 2003. The decrease was due to
the decrease in depreciation and amortization incurred in running the business as further discussed
as below. 40




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##### Table of Contents



Cost of Services, excluding Depreciation and Amortization. Cost of services excluding
depreciation and amortization for the year ended December 31, 2004 was HK$67.0 million (US$8.5
million), an increase of HK$22.7 million (US$2.9 million) or 51.2% as compared to cost of services
of HK$44.3 million (US$5.7 million) for the year ended December 31, 2003. The increased cost of
services is mainly due to the payment of in-orbit insurance for APSTAR V, which began operation on
August 13, 2004, while there were no such related expenses in 2003 for APSTAR V. Furthermore, a
full years result is reflected in 2004 while only a 3-month result is reflected in 2003 in respect
of the Companys acquisition of the satellite-based external telecommunications business of a
jointly controlled entity on October 10, 2003. Depreciation and Amortization.Depreciation and amortization for the year ended December 31,
2004 was HK$177.7 million (US$22.8 million), a decrease of HK$58.3 million (US$7.4 million) or
24.7% as compared to depreciation and amortization of HK$236.0 million (US$30.2 million) for the
year ended December 31, 2003. This decrease was mainly due to firstly, an impairment loss that was
recognized in respect to communication satellites for the year ended December 31, 2003, secondly,
the Company revised its estimate of the remaining useful life of APSTAR IA by extending 6 months.
As a result, depreciation recorded for the year ended December 31, 2004 was decreased. Selling, General and Administrative Expenses.The major components of selling, general and
administrative expenses include depreciation and amortization, staff costs, office rental expenses,
office general expenses, provision for bad and doubtful receivables, and marketing and promotion
expenses. Selling, general and administrative expenses for the year ended December 31, 2004 were
HK$78.7 million (US$10.1 million), an increase of HK$3.8 million (US$487 thousand), or 5.1%, as
compared to selling, general and administrative expenses of HK$74.9 million (US$9.6 million) for
the year ended December 31, 2003. This increase was largely due to reflection of full years
result in 2004 while only 3-month result in respect of the Companys acquisition made reflected in
2003 as discussed above. Other Operating Revenues.The major components of other operating revenues consist of
interest income and other income and the reasons for such decrease as discussed below. Aggregate
non-operating items resulted in income of HK$9.3 million (US$1.2 million) in the year ended
December 31, 2004, a decrease of HK$23.7 million (US$3.0 million), or 71.8%, as compared to the
revenues of HK$33.0 million (US$4.2 million) for the year ended December 31, 2003. Interest
Income  Net.Interest income - net was HK$7.3 million (US$937 thousand) in the year
ended December 31, 2004, an increase of HK$200 thousand (US$27 thousand), or 2.8%, as compared to
the interest income of HK$7.1 million (US$910 thousand) for the year ended December 31, 2003. Other Income.Other income was HK$2.0 million (US$259 thousand) in the year ended December
31, 2004, decrease of HK$23.9 million (US$3.1 million), or 92.3%, as compared to other income of
HK$25.9 million (US$3.3 million) in the year ended December 31, 2003. The decrease was mainly due
to a compensation payment of HK$13.5 million (US$1.7 million) from a jointly controlled entity for
the early termination of services and a facilities lease as the result of the jointly controlled
entitys reorganization in October 2003 that was recognized in 2003, while there was no such income
recognition in 2004. Impairment Loss Recognized In Respect to Property, Plant and Equipment.Impairment loss
recognized in respect to property, plant and equipment of HK$1.8 million (US$231 thousand) was
recognized for the year ended December 31, 2004 with respect to the Companys construction in
progress as compared to impairment loss recognized in respect to communication satellites of
HK$129.1 million (US$16.5 million) for the year ended December 31, 2003. Impairment loss on
construction in progress and communication satellites was recognized for the excess of the carrying
value over the discounted expected future cash flow to be generated by the respective assets. For
the year ended December 31, 2004, the Company re-assessed the discounted expected future revenues
of the broadband project, which the Company expects the future revenues to be lower than originally
projected. Under US GAAP no impairment loss was recognized on this construction in progress, please refer
to Item 18 and Note 22(a)(v) to the Audited Consolidated Financial Statements of the
Company. Borrowing Costs.For the year ended December 31, 2004 the Company incurred finance costs of
HK$20.8 million (US$2.7 million) representing capitalized interest expenses of HK$17.2 million
(US$2.2 million) incurred under the Loan Facility and other related finance costs of HK$3.6 million
(US$462 thousand) as part of 41




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satellite construction costs. As APSTAR V has commenced commercial operation on August 13,
2004, the Company no longer capitalized the finance costs of HK$4.1 million (US$529 thousand) from
that date but expensed it to the statements of operations. For the year ended December 31, 2003,
no interest expenses were recorded because the interest expenses incurred under the Loan Facility
were capitalized as part of satellite construction costs. The interest expenses of HK$6.6 million
(US$846 thousand) and other related cost of HK$1.2 million (US$154 thousand) incurred in obtaining
the loans were capitalized. Share of Losses of Jointly Controlled Entities.Share of losses of jointly controlled
entities was HK$509 thousand (US$65 thousand) for the year ended December 31, 2004, a decrease of
HK$64.3 million (US$8.2 million) or 99.2% as compared to the share of losses of jointly controlled
entities of HK$64.8 million (US$8.3 million) for the year ended December 31, 2003. The decrease
was mainly due to the share of impairment loss from one of the jointly controlled entities in
respect of cables and satellite-based telecommunication equipment and property, and compensation
expense for early termination of services and facilities lease for the year ended December 31, 2003
while no such expenses were recognized for the year ended December 31, 2004. The impairment loss
recognized in 2003 on cable and satellite-based telecommunications equipment and property resulted
primarily from excess capacities in the cable and satellite-based communications services markets
during the continued downturn in the regional telecommunications sector, which exerted a downward
pressure on pricing and the ability of the jointly controlled entity to grow its customer base, and
partially due to write-downs in obsolete telecommunications equipment. As a result, projected cash
flow was lower than the carrying value of the property and equipment and the shortfall was
recognized as an impairment loss in 2003 consolidated statements of operations. Share of the
impairment loss was HK$49.0 million (US$6.3 million) and share of the compensation expense was
HK$7.4 million (US$949 thousand) in 2003. For results of operations and financial position of the
jointly controlled entity, please refer to Exhibit 8.2 Financial Statements of APT Satellite
Telecommunications Limited. Under US GAAP there has been an adjustment to share of loss of jointly controlled entities as
a result of GAAP difference of depreciation of investment property of HK$1.8 million (US$231
thousand) for the year ended December 31, 2004, a decrease of HK$875 thousand (US$112 thousand)
when compared to the depreciation of HK$875 thousand (US$112 thousand) for the year ended December
31, 2003. The decrease was mainly due to full year depreciation charge accounted for in year 2004
while only half-year depreciation charge accounted for in year 2003. For details, please refer to
Item 18 and Note 22(a)(ii) to the Audited Consolidated Financial Statements of the Company. Provision for Income Taxes.Provision for income taxes was HK$16.6 million (US$2.1 million)
in the year ended December 31, 2004, an increase of HK$4.9 million (US$628 thousand) or 41.9%, as
compared to provision for income taxes of HK$11.7 million (US$1.5 million) for the year ended
December 31, 2003. The increase was mainly due to the combined effect of decrease in both deferred
tax written back and overseas withholding tax provided in year 2004. The decrease in overseas
withholding tax provided in year 2004 is due to decrease in overseas income that is subject to tax
while the decrease in deferred tax written back is mainly due to a certain leasing arrangement that
is subject to tax was written back in year 2003 while no such written back in year 2004. The
leasing arrangements entered in year 1994 provided the Company with an initial cash inflow in
return for being responsible for the future obligations to make payments of taxation under the
arrangements. Any differences between the initial benefit and the eventual tax liability were
provided for over the lives to the relevant leases. The arrangement was completed in December
2003. Net Loss.Net loss for the year ended December 31, 2004 was HK$57.8 million (US$7.4 million),
a decrease of HK$166.9 million (US$21.4 million), or 74.3%, as compared to the net loss of HK$224.7
million (US$28.8 million) for the year ended December 31, 2003. This decrease of net loss was due
to all of the factors discussed above. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Total Revenues.Total revenues for the year ended December 31, 2003 were HK$302.2 million
(US$38.7 million), a decrease of HK$49.2 million (US$6.3 million), or 14.0%, as compared to total
revenues of HK$351.4 million (US$45.1 million) for the same period in 2002. This decrease was due
primarily to the weakening of demand for transponder capacity in the Asia Pacific region and
intense market competition that continued to exert downward pressure on the utilization rates of
transponders during the year. The decrease in demand for transponder capacity was due to the
sluggishness of the economy in the region, especially in the first half of 2003. The 42




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weakening of demand further worsened the problem of excess transponder capacity in the region.
In the second half of 2003, while there were indications that the regional economic environment was
improving, the market in the region remained highly competitive due to a number of factors: (i)
there continued to be a significant excess capacity in transponder capacities with respect to
transponders operating on both C-band and Ku-band in the region; (ii) there continued to be excess
capacity in submarine cable capacities, particularly with respect to telecommunication services;
(iii) APSTAR I and APSTAR IA are comparatively lower in transmission power and are close to
retirement thereby making them less attractive to potential customers as compared to the newer
satellites available. Intense market competition during 2003 forced transponder utilization fee
down, eroding the Companys profit margins. Total Costs and Expenses.The major components of total costs and expenses consist of cost of
services, depreciation and amortization, and selling, general and administrative expenses. Total
costs and expenses for the year ended December 31, 2003 were HK$355.2 million (US$45.5 million), an
increase of HK$9.6 million (US$1.2 million), or 2.8%, as compared to the same period in 2002. This
increase was primarily due to increases of HK$4.6 million (US$590 thousand) and HK$5.0 million
(US$641 thousand), respectively, in cost of services and selling, general and administrative
expenses. Total costs and expenses as a percentage of revenues were 117.5% in the year ended
December 31, 2003, as compared to 98.3% in the year ended December 31, 2002, as further discussed
as below. Cost of Services, including Depreciation and Amortization. The major components of cost of
services include depreciation and amortization, license fees, orbital slot management fees,
in-orbit insurance and satellite operations services charges. The cost of services, including
depreciation and amortization for the year ended December 31, 2003 was HK$280.3 million (US$35.9
million), an increase of HK$4.6 million (US$590 thousand) or 1.7% when compared to the cost for the
year ended December 31, 2002. The increase was due to the increase in depreciation and
amortization and the cost of services incurred in running the business acquired from a jointly
controlled entity as further discussed as below. Cost of Services, excluding Depreciation and Amortization. Cost of services excluding
depreciation and amortization for the year ended December 31, 2003 was HK$44.3 million (US$5.7
million), an increase of HK$2.3 million (US$295 thousand) or 5.5% as compared to cost of services
of HK$42.0. million (US$5.4 million) for the year ended December 31, 2002. The increased cost of
services is mainly due to the Companys acquisition of the satellite-based external
telecommunications business of a jointly controlled entity on October 10, 2003, with the cost of
services incurred in running the business increasing accordingly. Depreciation and Amortization.Depreciation and amortization for the year ended December 31,
2003 was HK$236.0 million (US$30.2 million), an increase of HK$2.3 million (US$295 thousand) or
1.0% as compared to depreciation and amortization of HK$233.7 million (US$29.9 million) for the
year ended December 31, 2002. This increase was mainly due to full year depreciation charge on
uplink equipment for the year ended December 31, 2003 while only half year depreciation charge on
the uplink equipment for the year ended December 31, 2002. Selling, General and Administrative Expenses.The major components of selling, general and
administrative expenses include depreciation and amortization, staff costs, office rental expenses,
office general expenses, provision for bad and doubtful receivables, and marketing and promotion
expenses. Selling, general and administrative expenses for the year ended December 31, 2003 were
HK$74.9 million (US$9.6 million), an increase of HK$5.0 million (US$641 thousand), or 7.2%, as
compared to selling, general and administrative expenses of HK$69.9 million (US$9.0 million) for
the year ended December 31, 2002. This increase was largely due to increases in receivable
allowance and office expenses. Other Operating Revenues.The major components of other operating revenues consist of
interest income and other income. Aggregate non-operating items resulted in income of HK$33.0
million (US$4.2 million) in the year ended December 31, 2003, a decrease of HK$39.3 million (US$5.0
million), as compared to the year ended December 31, 2002. Interest
Income  Net.Interest income - net was HK$7.1 million (US$910 thousand) in the year
ended December 31, 2003, a decrease of HK$15.1 million (US$1.9 million), or 68.0%, as compared to
the year ended December 31, 2002, largely as a result of decreased interest income from short-term
deposits at banks, which was due to both decreases in interest rates on bank deposits and in bank
balances available for earning interest during 2003 due to increased capital expenditures for the
year. 43




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Other Income.Other income was HK$25.9 million (US$3.3 million) in the year ended December
31, 2003, a decrease of HK$24.2 million (US$3.1 million), or 48.3%, as compared to other income of
HK$50.1 million (US$6.4 million) in the year ended December 31, 2002. The decrease was mainly due
to reversal of provision on regulatory matters previously recognized in relation to the transfer of
the rest of the useful life of 43 transponders of APSTAR IIR of HK$47.2 million (US$6.1 million)
for the year ended December 31, 2002, while no such amount was recognized in the year ended
December 31, 2003. The regulatory matter concerned the requirement to retrofit satellite dishes
under the terms of an agreement with an independent third party, which the Company determined it
would not likely be required to do. For details of the reversal, see Note 19a to the Companys
audited Consolidated Financial Statements in the section entitled Item 18. Financial Statements
of this Annual Report. In addition, a compensation payment of HK$13.5 million (US$1.7 million)
from a jointly controlled entity for the early termination of services and a facilities lease as
the result of the jointly controlled entitys reorganization in October 2003 was recognized for the
year ended December 31, 2003. Impairment Loss Recognized In Respect to Property, Plant and Equipment.Impairment loss
recognized in respect to property, plant and equipment of HK$129.1 million (US$16.5 million) was
recognized for the year ended December 31, 2003 with respect to the Companys communication
satellites as compared to impairment loss recognized in respect to property, plant and equipment of
HK$5.2 million (US$667 thousand) for the year ended December 31, 2002. Impairment loss on land and
buildings was recognized for the excess of their carrying amount over their fair market value while
the impairment loss on communication satellites and goodwill was recognized for the excess of the
carrying value over the expected future cash flow to be generated by the assets. For the year
ended December 31, 2003, the Company re-assessed the expected future revenues and the expected
sales proceeds from disposal of one of the satellites, which the Company expects to retire one year
earlier than originally projected. Impairment Loss Recognized In Respect of Goodwill Arising on Acquisition of Interest in a
Subsidiary.No impairment loss recognized in respect of goodwill arising on acquisition of
interest in a subsidiary was recognized for the year ended December 31, 2003 as compared to
impairment loss recognized of goodwill arising on acquisition of interest in a subsidiary of HK$3.4
million (US$436 thousand) that was recognized for the year ended December 31, 2002 with respect to
goodwill arising on acquisition of an interest in a subsidiary, CTIA. Borrowing Costs. No finance costs were recorded for either year ended December 31, 2002 or
2003 because the interest expenses incurred under the US$240 million Loan Facility were capitalized
as part of satellite construction costs. The interest expenses of HK$6.6 million (US$846
thousand) and other related cost of HK$1.2 million (US$154 thousand) incurred in obtaining the
loans were capitalized for the year ended December 31, 2003 while interest expenses of HK$117
thousand (US$15 thousand) and other related cost of HK$2.1 million (US$269 thousand) were
capitalized for the year ended December 31, 2002. Share of Losses of Jointly Controlled Entities.Share of losses of jointly controlled
entities was HK$64.8 million (US$8.3 million) for the year ended December 31, 2003, an increase of
HK$54.2 million (US$6.9 million) or 511.3% as compared to the share of losses of jointly
controlled entities of HK$10.6 million (US$1.4 million) for the year ended December 31, 2002. The
increase was mainly due to the share of impairment loss from one of the jointly controlled entities
in respect of cables and satellite-based telecommunication equipment and property and compensation
expense for early termination of services and facilities lease for the year ended December 31, 2003
while no such expenses were recognized for the year ended December 31, 2002. The impairment loss
recognized on cable and satellite-based telecommunications equipment and property resulted
primarily from excess capacities in the cable and satellite-based communications services markets
during the continued downturn in the regional telecommunications sector, which exerted a downward
pressure on pricing and the ability of the jointly controlled entity to grow its customer base, and
partially due to write-downs in obsolete telecommunications equipment. As a result, projected cash
flow was lower than the carrying value of the property and equipment and the shortfall was
recognized as an impairment loss. Share of the impairment loss was HK$49.0 million (US$6.3
million) and share of the compensation expense was HK$7.4 million (US$949 thousand). For results
of operations and financial position of the jointly controlled entity, please refer to Exhibit 8.2
Financial Statements of APT Satellite Telecommunications Limited. Under US GAAP there has been an adjustment to share of loss of jointly controlled entities as
a result of GAAP difference of depreciation of investment property of HK$875 thousand (US$112
thousand) for the year ended December 31, 2003 while no such adjustment in year 2002, The
investment property was still under development 44




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and not completed until June 24, 2003, so no depreciation was charged before the completion
date. For details, please refer to Item 18 and Note 22(a)(ii)to the Audited Consolidated
Financial Statements of the Company. Provision for Income Taxes.Provision for income taxes was HK$11.7 million (US$1.5 million)
in the year ended December 31, 2003, a decrease of HK$25.1 million (US$3.2 million) or 68.2%, as
compared to provision for income taxes of HK$36.8 million (US$4.7 million) for the year ended
December 31, 2002. The decrease was mainly due to the Company incurring a loss during the year as
the result of decreased revenue from overseas customers and the adoption by the Company of a new
accounting policy effective January 1, 2003 under Hong Kong GAAP, which allowed for the recognition
of deferred tax in the balance sheet. During the year ended December 31, 2003, the Company
recognized HK$9.4 million (US$1.2 million) in deferred taxes to comply with this new accounting
policy. On the other hand, the change in Hong Kong Profits Tax rate from 16% to 17.5% with effect
from March, 2003 has led to an increase in deferred tax liabilities of the Company. The net effect
has led to a decrease in provision for income tax. Net Loss.Net loss for the year ended December 31, 2003 was HK$224.7 million (US$28.8
million), an increase of HK$249.1 million (US$31.9 million), or 1020.9%, as compared to the net
income of HK$24.4 (US$3.1 million) for the year ended December 31, 2002. This decrease of net
income was due to all of the factors discussed above. 
 Liquidity and Capital Resources Sources of Cash and Credit Available Since the Companys initial public offering, it has financed its operations primarily through
cash flows from operations. On August 18, 1999, APT entered into an agreement with Loral Asia
Pacific Satellite (HK) Ltd. (Loral Asia), a wholly-owned subsidiary of Loral Space and
Communications Limited, for the transfer of 43 of the 44 transponders of APSTAR IIR. The Company
has received a total of approximately US$273 million from Loral Asia. This greatly increased the
Companys cash on hand in 1999 and 2000. As of December 31, 2004, the Company had HK$673.8 million (US$86.4 million) of available cash,
HK$21.1 million (US$2.7 million) of restricted cash and HK$311.2 million (US$39.9 million) available
credit from the Loan Facility. 
 Capital Expenditures APTs principal use of capital in the last several years has been (and will for the
foreseeable future be) capital expenditures related to the construction and launch of its
satellites, construction of Phase II of the Satellite Control Centre and investment in its
satellite TV broadcasting platform. The Companys business is capital-intensive, requiring
substantial capital outlays before any given satellite is commissioned for commercial service and
can begin providing a return on capital. The Company makes periodic satellite project progress payments 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. The total cost for the communication satellites held under finance leases in connection with
the APT transponders of APSTAR V amounted to US$148.4 million. The Company expects total capital
expenditures for the design, construction and launch of APSTAR VI to be approximately US$225
million. The Company estimates that cash outflow for capital expenditures in 2005 relating to
expenditures for the construction, launch service and launch insurance for APSTAR VI will be
approximately HK$585.5 million (US$75.1 million). The Company expects that financing for APSTAR VI
will be provided by internal resources, future cash flow from operations and amounts borrowed under
the Loan Facility. As of December 31, 2004, the Company had HK$673.8 million (US$86.4 million) of
cash and HK$311.2 million (US$39.9 million) available credit under the Loan Facility. The Company
believes that it will have sufficient funds to meet all of its capital 45




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expenditure needs. There can be no assurance, however, that the Companys assumptions with
respect to costs for future construction and launch of its satellites will be correct, or that
funds available to it from the sources discussed above will be sufficient to cover any shortfall in
funding for additional launches caused by launch failures, cost overruns, delays, capacity
shortages or other unanticipated expenses. In addition, if the Company was to consummate any strategic transactions or undertake any
other project requiring significant capital expenditures, it may be required to seek additional
financing. There can be no assurance that additional funds will be available at all or that, if
available, will be obtained at terms favorable to the Company. Contractual Obligations and Other Commercial Commitments For capital commitments in respect of capital expenditures, see Item 5. Contractual
Obligations and Commercial Commitments. Cash Flow Items Net Cash Provided by Operating Activities Net cash provided by operating activities amounted to HK$233.4 million (US$29.9 million) for
the year ended December 31, 2004, an increase of HK$142.1 million (US$18.2 million), or 155.6%,
compared to net cash provided by operating activities of HK$91.3 million (US$11.7 million) for the
year ended December 31, 2003. The increase in net cash provided by operating activities over the
period was principally due to the prepayment by SingTel of transponder utilization income of
HK$231.3 million (US$29.7 million) for the remaining life of APSTAR V in 2004. Net Cash Used in Investing Activities Net cash used in investing activities was HK$364.5 million (US$46.7 million) for the year
ended December 31, 2004, a decrease of HK$224.8 million (US$28.8 million), or 38.2%, compared to
net cash used in investing activities of HK$589.3 million (US$75.5 million) for the year ended
December 31, 2003. The decrease in net cash used in investing activities over the period was
mainly due to the reduction of progress payment for the construction of APSTAR V and APSTAR VI. Net Cash Provided by Financing Activities Net cash provided by financing activities was HK$257.9 million (US$33.1 million) for the year
ended December 31, 2004, an increase of HK$39.0 million (US$5 million), or 17.8%, compared to net
cash provided by financing activities of HK$218.9 million (US$28.1 million) for the year ended
December 31, 2003. The increase in net cash provided by financing activities over the period was
primarily the result of new borrowings under the secured bank loans for APSTAR VI of HK$273.8
million (US$35.1 million) while the net new borrowings was HK$220.5 million (US$28.3 million) in
2003. Financing On December 16, 2002, APT entered into a US$240 million secured term loan facility (the Loan
Facility). The Loan Facility was amended by a Deed of Amendment and Restatement on October 27,
2004 and Second Deed of Amendment and Restatement on May 18, 2005. Accordingly the unutilized
portion for the facilities with respect to APSTAR V and the backup satellite were cancelled due to
the availability of a drawing period under the facility with respect to APSTAR V having expired at
end of 2003. The aggregate Loan Facility was reduced to US$165 million, the repayment date of the
first installation under facility with respect of APSTAR V was extended to six months after the
successful launch and in-orbit testing of APSTAR V and certain financial covenants were amended.
As at December 31, 2003 and 2004, the aggregate borrowings under the Loan Facility were HK$702
million (US$90.0 million) and HK$975.8 million (US$125.1 million), respectively. As at December
31, 2003 and 2004, the assets under fixed charge were APSTAR V and APSTAR VI under construction
with aggregate carrying value of approximately HK$2,015.3 million (US$258.4 million) and HK$2,398.2
million (US$307.5 million), respectively and bank deposit of approximately HK$111.5 million
(US$14.3 million) and HK$20.8 million (US$2.7 million), respectively. In addition, APT has undrawn
committed facilities of HK$311.2 million (US$39.9 million). As of 46




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December 31, 2004, the Company complied with all the financial covenants over the past
twelve-month period. Due to the delay in the launch of APSTAR VI, the Company obtained a
confirmation letter from its banks in March 2005. Pursuant to the confirmation letter, the
availability period of drawing under the Loan Facility with respect to APSTAR VI was extended to
June 30, 2005. In the event that the Company is unable to extend the Loan Facility, the Company will consider
possible alternative sources of financing such as entering a new secured term loan credit facility
with guarantees by the Principal Shareholders to repay in full the existing Loan Facility and other
capital expenditure requirements. There can be no assurance that alternative sources of financing
will be available at all or that, if available, will be obtained at terms as favorable as the terms
contained in the Loan Facility. The Loan Facility is secured by the assignment of the construction, launching and related
equipment contracts relating to APSTAR V, APSTAR VI and their related insurance claim proceeds,
assignment of all present and future utilization 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 and 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 which limit is tied to certain EBITDA and cash to debt service ratios contained
therein. The Loan Facility includes covenants customary for agreements of this type, including
restrictions on the Companys and its subsidiaries ability to incur indebtedness, certain
ownership restrictions, certain restrictions on the Companys ability to pay dividends,
restrictions on affiliated transactions, certain financial covenants, covenants with respect of
compliance with laws, maintenance of licenses and permits required for APTs business and a
requirement that all future transponder utilization agreements be entered into on an arms-length
basis. Among other things, APT has undertaken to ensure that APT International directly owns at
least 50.01% of the voting rights in the Company. The Loan Facility also contains financial
covenants, including maintenance of collateral coverage ratio, minimum net worth and minimum
EBITDA. The Loan Facility also contains customary limitations, including those on dividend,
investments, capital expenditures, change of controlling shareholders, creating liens and
transactions with affiliates. No assurance can be given that APT will be able to meet any of the
financial performance covenants contained in the Loan Facility. 
 Forward Looking Statements This report contains statements and other information made by or on behalf of the Company that
constitute forward-looking statements within the meaning of Private Securities Litigation Reform
Act of 1995. Statements that are not historical facts are forward-looking statements. By their
nature, forward-looking statements involve inherent risks and uncertainties, both general and
specific, and actual results could be materially different from those expressed or implied by
forward-looking statements. Words such as believes, anticipates, expects, intends and plans and similar
expressions are intended to identify forward-looking statements but are not the exclusive means of
identifying such statements. Forward statements herein may include, without limitation, statements
relating to the Companys expectations, plans, objectives or goals relating to (i) its operations
and financial results; (ii) launch schedules and anticipated transponder utilization; (iii) the
technical capabilities of the APSTAR System; (iv) customer demand for the Companys system; (v)
strategic relationships that impact its operations; (vi) its funding needs and sources; (vii)
satellite communications regulatory matters; (viii) the pricing of its services, (ix) its
competitors and their services; and (x) actions of the Companys suppliers, vendors and service
providers. The Company cautions you that a number of important factors could cause the Companys results
of operations to differ materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward-looking statements. These factors include, but are not
limited to: (i) technological risks related to the development, operation and maintenance of
various components of the APSTAR System; (ii) delays and cost overruns related to the construction,
deployment and maintenance of the Companys APSTAR System; (iii) risks related to the operation and
maintenance of the Companys new satellites, APSTAR V and APSTAR VI; (iv) competition from other
satellite operators and a number of existing satellite systems that provide similar services in
various markets; (v) actions taken by regulators with respect to the Companys business and
practices in one or more 47




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of the countries in which the Company conducts its operations; (vi) the Companys capital
structure and its ability to maintain sufficient liquidity and access capital markets; (vii)
customer demand for the services of the Companys satellite transponders and the perceived overall
value of these services by customers; (viii) the ability to increase market share and control
expenses; (ix) the ability of counterparties to meet their obligations to the Company; (x) the
possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets
in countries in which the Company conducts its operations; (xi) the effects of changes in laws,
regulations or accounting policies or practices; (xii) the ability to retain and recruit qualified
personnel; (xiii) the strength of the global economy in general and the strength of the economies
of the countries in which the Company conducts its operations in particular; (xiv) political and
social developments, including war, civil unrest or terrorist activity; and (xv) the Companys
success at managing the risks involved in the foregoing. The Company cautions you that the foregoing list of important factors is not exclusive. When
evaluating forward-looking statements, you should carefully consider the foregoing factors as well
as the risks identified in the Companys most recently filed Form 20-F and reports on Form 6-K
furnished to the US Securities and Exchange Commission. These and other factors could result in
the forward-looking statements proving to be inaccurate and may materially affect the Companys
operations. The Company does not undertake any obligation to publicly release any revisions to the
forward-looking statements contained in this report, or to update them to reflect events or
circumstances occurring after the date of this report, or to reflect the occurrence of
unanticipated events. 
 Other Exchange Rates Substantially all of APTs historical revenues from transponder capacity utilization, 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, 2004, all of the Companys material contracts and obligations were
denominated in US Dollars. Inflation Inflation has not materially affected the Companys operations during its operating history. Taxation The Companys profits/(loss) for the years ended December 31, 2002, 2003 and 2004, which are
deemed to be Hong Kong-sourced are subject to Hong Kong profits tax, which was levied at the rate
of 16%, 17.5% and 17.5%, respectively. Offshore interest income and capital gains 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 transponder
utilization income in 2002, 2003 and 2004, respectively. Subsidiaries of the Company in the PRC are currently subject to PRC income tax and charged at
the rates of 15% and 33% in Shenzhen and Beijing, respectively, in 2002, 2003 and 2004. US GAAP Reconciliation The Companys financial statements are prepared in accordance with Hong Kong GAAP, which
differ in certain significant respects from US GAAP. The differences impacting the Company are
presented in Note 22 to the Audited Consolidated Financial Statements of the Company. 
 Item 6. Directors and Officers of Registrant 48




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A majority of the Companys current executive officers were originally seconded from
affiliates of the Principal Shareholders, principally affiliates of ChinaSat, SingaSat and China
Aerospace. A majority of APTs technical and engineering staff employed at the Satellite Control
Center in Tai Po were seconded from affiliates of ChinaSat, and China Aerospace and became
employees of the Company. The directors and executive officers of APT Holdings are set forth below. Date FirstElected orName
    
    Age
    
    Position
    
    AppointedExecutive DirectorsChen Zhaobin
    
    
    49
    
    
    Director and President
    
    
    2001Tong Xudong
    
    
    41
    
    
    Director and Vice President (appointed
March 29, 2004 and April 20, 2004
respectively)
    
    
    2004Non-executive DirectorsLiu Ji Yuan
    
    
    71
    
    
    Chairman
    
    
    1998Zhang Hainan
    
    
    60
    
    
    Deputy Chairman (appointed March 29, 2004)
    
    
    2004Lim Toon
    
    
    62
    
    
    Director
    
    
    1993Wu Zhen Mu
    
    
    59
    
    
    Director
    
    
    1998Yin Yen-liang
    
    
    54
    
    
    Director
    
    
    2003Lim Wee Seng
    
    
    51
    
    
    Director (appointed December 20, 2004)
    
    
    2003Tseng Ta-mon
    
    
    47
    
    
    Alternate Director to Yin Yen-liang
(appointed September 8, 2004)
    
    
    2003Kwok Kah Wai Victor
    
    
    49
    
    
    Alternate Director to Lim Toon and Lim Wee
Seng (appointed December 20, 2004)
    
    
    2004Independent Non-executive
directorsYuen Pak Yiu, Philip
    
    
    69
    
    
    Director
    
    
    1996Huan Guocang
    
    
    55
    
    
    Director
    
    
    2002Lui King Man
    
    
    50
    
    
    Director (appointed August 18, 2004)
    
    
    2004Executive OfficersCui Xinzheng
    
    
    51
    
    
    Vice President
    
    
    2001Lo Kin Hang, Brian
    
    
    48
    
    
    Vice President & Company Secretary
    
    
    2002/1996Chen Xun
    
    
    34
    
    
    Assistant President (appointed in July 2004)
    
    
    2004Yang Qing
    
    
    41
    
    
    Assistant President (appointed in July 2004)
    
    
    2004
 Executive Directors Mr. CHEN Zhaobin, aged 49, was appointed as the Executive Director and President of the
Company in February 2001. He is responsible for the overall management of the Company. Mr. Chen is
also the Director of APT Satellite Company Limited, APT Satellite Investment Company Limited, Acme
Star Investment Limited, APT Satellite Telewell Limited, APT Satellite Vision Limited, APT
Satellite TV Development Limited, Skywork Corporation, APT Telecom Services Limited, Ying Fai
Realty (China) Limited, APT Satellite Global Company Limited, APT Satellite Enterprise Limited and
APT Satellite Link Limited, each of which is subsidiary of the Company. He is also the Chairman of
the board of directors of APT Satellite Telecommunications Limited, a jointly controlled entity
between a wholly-owned subsidiary of the Company and one of the shareholders of APT Satellite
International Company Limited (APT International), a substantial shareholder of the Company. Mr.
Chen is also a Director of APT International. He graduated with a Bachelors Degree in Engineering
from the Beijing University of 49




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Posts and Telecommunications in 1982 and is accredited as a Senior Engineer. He held the posts of
Deputy General Manager of China Telecommunications Broadcast Satellite Corporation (ChinaSat),
Vice-Chairman and President of China Telecom (Hong Kong) Limited (presently known as China Mobile
(Hong Kong) Limited) and China Telecom (Hong Kong) Group Limited, Director and Deputy President of
Telpo Communications (Group) Limited, and the Deputy Director of the Office of Coordination
Production of the Ministry of Posts and Telecommunications of the PRC (presently known as Ministry
of Information Industry (MII)). Mr. Chen has many years of experience in post and
telecommunication fields and in corporate management. Mr. TONG Xudong, age 41, was appointed as the Executive Director and Vice President of the
Company in March and April 2004, respectively. Mr. Tong was also appointed as a member of the
Nomination Committee and the Remuneration Committee of the Company on April 11, 2005. Mr. Tong is
also a Director of APT Satellite Company Limited, APT Satellite Investment Company Limited, APT
Satellite Vision Limited, APT Satellite TV Development Limited, APT Satellite Global Company
Limited, APT Satellite Enterprise Limited, APT Satellite Link Limited, APT Communication Technology
Development (Shenzhen) Company Limited, CTIA Vsat Network Limited and Beijing Asia Pacific East
Communication Network Limited (BAPECN Limited), each of which is a subsidiary of the Company. He
is also the chairman of BAPECN Limited. He is also a Director of APT Satellite International
Company Limited, a substantial shareholder of the Company. Mr. Tong graduated from Nanjing
Aeronautic Institute in 1985 and obtained a Masters Degree from Beijing Institute of Space
Mechanics and Electricity, Chinese Academy of Space Technology in 1988. Immediately after his
graduation, he served for the Beijing Institute of Space Mechanics and Electricity. In 1993, he
further pursued his studies at Samara University of Aeronautics and Astronautics, in Russia. From
May 1995 to June 2000, he served as the Vice-Director of Beijing Institute of Space Mechanics and
Electricity and was appointed as professor in 1998. From June 2000 to December 2003, he was the
Director of the same Institute. In 2003, he was appointed as the Vice-President of the Chinese
Academy of Space Technology. Mr. Tong is a standing committee member of Chinese Society of Space
Research and Chairman of the Committee of Recovery and Reentry, Chinese Society of Astronautics. Non-Executive Directors Mr. LIU Ji Yuan, age 71, was appointed as the Chairman of the Company in June 1998. Mr. Liu is
also a Director of APT Satellite Company Limited and APT Satellite Investment Company Limited,
subsidiaries of the Company. He is a Director of APT Satellite International Company Limited, a
substantial shareholder of the Company. Mr. Liu graduated from Bowman Polytechnic University, in
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, and Honorary Chairman of China
Aerospace Industrial and Entrepreneurial Management Association. Mr. ZHANG Hainan, age 60, was appointed as a Non-executive Director and Deputy Chairman of the
Company in March 2004. Mr. Zhang is also a Director of APT Satellite Company Limited and APT
Satellite Investment Company Limited, subsidiaries of the Company. He is also a Director of APT
Satellite International Company Limited, a substantial shareholder of the Company. Mr. Zhang
graduated from the Northwestern Polytechnical University in 1968 and was accredited as a senior
engineer. Since 1984, he has been deputy director of Factory Number 782 and 762, the Ministry of
Electronics Industry of China; deputy head and head of the Bureau of Electronics Industry, Shanxi
Province; deputy head and head of Shanxi Economic and Trade Commission; and assistant to the
governor of the Shanxi Province government, among others. In 2001, he was transferred to China
Satellite Communications Corporation, the holding company of one of the shareholders of APT
Satellite International Company Limited, as deputy general manager and general manager. Mr. Zhang
has many years of 50




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experience in government and corporate management. Mr. LIM Toon, age 62, has been a Director of APT Satellite Company Limited since February 1993
and was appointed as a Non-Executive Director of the Company in October 1996. Mr. Lim is also a
Director of APT Satellite Company Limited and APT Satellite Investment Company Limited,
subsidiaries of the Company. He is also a Director of APT Satellite Telecommunications Limited, a
jointly controlled entity between a wholly-owned subsidiary of the Company and one of the
shareholders of APT Satellite International Company Limited, a substantial shareholder of the
Company. Mr. Lim is also a Director of APT Satellite International Company Limited. In 1966, Mr.
Lim graduated from the University of Canterbury in New Zealand, with a first class honours degree
in Engineering. In 1975, Mr. Lim obtained a Postgraduate Diploma in Business Administration from
the University of Singapore. He attended the Advanced Management Programme at Harvard Business
School in 1992. He has been the Chief Operating Officer of SingTel, the holding company of one of
the shareholders of APT Satellite International Company Limited, since April 1999 and has worked
for Singapore Telecom since 1970, serving in various appointments of engineering, radio services,
traffic operations, personnel & training and information systems departments. He was appointed
Executive Vice President of Network Services in April 1989 and Executive Vice President of
International Services in April 1994. He was awarded the Efficiency Medal in 1978 and the Public
Administration Medal (Gold) in 1991 by the Singapore government. He is presently a Director of a
number of overseas companies. Mr. WU Zhen Mu, age 59, was appointed as a Non-Executive Director of the Company in June 1998.
Mr. Wu is also a Director of APT Satellite Company Limited and APT Satellite Investment Company
Limited, subsidiaries of the Company. Mr. Wu is a Director of APT Satellite International Company
Limited, a substantial shareholder of the Company. Mr. Wu graduated with a degree in Manufacturing
Engineering from the Beijing Institute of Aeronautics in 1969 and obtained a Masters Degree in
Electro-Mechanical Automation from the same institute in 1981. He was a lecturer at the Zhengzhou
Institute of Aeronautics from 1970 through 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. Dr. YIN Yen-liang, age 54, was appointed as a Non-Executive Director of the Company in January
2003. Dr. Yin is also a Director of APT Satellite Company Limited and APT Satellite Investment
Company Limited, subsidiaries of the Company. Dr. Yin is a Director of APT Satellite International
Company Limited, a substantial shareholder of the Company. Dr. Yin graduated with an MBA Degree
from National Taiwan University in 1983 and received a PhD Degree in Business Administration from
National Chengchi University in 1987. He has been President of the Ruentex Group, the holding
company of one of the shareholders of APT Satellite International Company Limited, since 1994 and
concurrently holds the position of Executive Director of SinoPac Holdings Co., Ltd., Executive
Director of Bank SinoPac, Director of Acer Incorporate, and Chairman of Aetna SinoPac Credit Card
Company Limited. Mr. LIM Wee Seng, age 51, was appointed as a Non-Executive Director of the Company on December
20, 2004. Mr. Lim had been an Alternate Director to Mr. Lim Toon and Mr. Tay Chek Khoon,
non-executive directors of the Company, from September to December in 2004. He also had been an
Alternate Director to Mr. Lim Shyong, a non-executive director of the Company, from September 2003
to September 2004. Mr. Lim is also a Director of APT Satellite Company Limited and APT Satellite
Investment Company Limited, subsidiaries of the Company. He is a Director of APT Satellite
Telecommunications Limited, a jointly controlled entity between a wholly-owned subsidiary of the
Company and one of the shareholders of APT Satellite International Company Limited , a substantial
shareholder of the Company. Mr. Lim is a Director of APT International. Mr. Lim graduated from the
University of Singapore with a First Class Honours Degree in Bachelor of Engineering (Electrical
and Electronics) in 1979 and subsequently obtained a Master of Science (Electrical Engineering)
Degree in 1985. He has been with SingTel, the holding company of one of the shareholders of APT
International, since 1979 and has held management positions in various areas including engineering,
radio services, network, carrier wholesale business and strategic investment. From 1998 to 2000, he
was the Managing Director of SingTels subsidiary company in UK, responsible for setting up and
running SingTels voice and data business in Europe. He was also a member of the Singapore ST-1
satellite planning team in 1991 to 1993. Mr. Lim is currently Director of Strategic Investment in
SingTel and is responsible for mergers, acquisitions and monitoring of SingTels joint venture
companies. 51




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Mr. TSENG Ta-mon, age 47, was appointed as an Alternate Director to Dr. Yin Yen-liang, a
non-executive director of the Company, on September 8, 2004. He had been a Non-Executive Director
of the Company from July 2003 to September 2004. Mr. Tseng is also an Alternate Director to Dr. Yin
Yen-liang, a Director of APT Satellite Company Limited and APT Satellite Investment Company
Limited, subsidiaries of the Company. Mr. Tseng is also an Alternate Director to Dr. Yin Yen-liang,
a director of APT Satellite International Company Limited, a substantial shareholder of the
Company. Mr. Tseng graduated with an LL.B. Degree from National Chengchi University in 1980 and
subsequently received an LL.M. Degree from University College London in 1982 and an LL.B. Degree at
University of Cambridge in 1984. He also graduated from the Inns of Court School of Law of Middle
Temple in 1985 and became Barrister-at-Law in the same year. He was the Specialist of the Board of
International Trade from 1985 to 1987. He was also the Partner at Dong & Lee from 1987 to 1992. He
has been the Counsel of the Ruentex Group, the holding company of one of the shareholders of APT
Satellite International Company Limited, since 1992. Mr. KWOK Kah Wai Victor, aged 49, was appointed as an Alternate Director to Mr. Lim Toon and
Mr. Lim Wee Seng, Non-Executive Directors of the Company, on December 20, 2004. Mr. Kwok had been a
Vice President of the Company from March 2001 to June 2004, and is responsible for the Marketing
and Sales division of the Company. Mr. Kwok is also an Alternate Director to Mr. Lim Toon and Mr.
Lim Wee Seng, directors of APT Satellite Company Limited and APT Satellite Investment Company
Limited, subsidiaries of the Company. He is also an Alternate Director to Mr. Lim Toon and Mr. Lim
Wee Seng, directors of APT Satellite Telecommunications Limited, a jointly controlled entity
between a wholly-owned subsidiary of the Company and one of the shareholders of APT Satellite
International Company Limited, the substantial shareholder of the Company. Mr. Kwok is also the
Alternate Director to Mr. Lim Toon and Mr. Lim Wee Seng, directors of APT Satellite International
Company Limited. Prior to joining the Company, Mr. Kwok was the Managing Director of Global
Services Development at SingTel, the holding company of one of the shareholders of APT Satellite
International Company Limited. Mr. Kwok established SingTels global communication network and
services, ConnectPlus, as well as SingTels global internet backbone to the US and the Asian
region, SingTel IX. Mr. Kwok has also been active in the alliance development works during this
period. Mr. Kwok has been with SingTel for the last twenty years and has held management positions
in Corporate Product Marketing and Corporate Account Management. Mr. Kwok has been seconded to be
the Managing Director of STI Svenska in 1995 and Acting CEO of SingCom, Australia in 1994. Mr. Kwok
is currently the Senior Director of the Regional Satellite Business Group of SingTel. Mr. Kwok
graduated from National University of Singapore with an Honors Degree in Electrical Engineering in
1981 and an MBA degree in 1987. Mr. Kwok also attended the Harvard Business Schools International
Senior Management Program in May 1993. Independent Non-Executive Directors Mr. YUEN Pak Yiu, Philip, age 69, was appointed as an Independent Non-executive Director of
the Company in October 1996. Mr. Yuen was also appointed as the Chairman of the Nomination
Committee of the Company and as a member of the Remuneration Committee of the Company on April 11,
2005. Mr. Yuen is also the Chairman of the Audit Committee of the Company. 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 of experience in the legal field and has been a Director of a
number of listed companies including Henderson Investment Limited, Henderson China Holdings Limited
and Melbourne Enterprises Limited. He is a Director of the China Appointed Attesting Officers
Association in Hong Kong, a Standing Committee Member of the China Chamber of Commerce of Hong
Kong, a Member of the National Committee of Chinese Peoples Political Consultative Conference, an
Arbitrator at the China International Economic & Trade Arbitration Commission and an Adviser of
Hong Kong Affairs to the PRC government. Dr. HUAN Guocang, age 55, was appointed as an Independent Non-executive Director of the
Company in August 2002. Dr. Huan was also appointed as a member of the Nomination Committee and the
Remuneration Committee of the Company on April 11, 2005. Dr. Huan is also a member of the Audit
Committee of the Company. He is the Head of Investment Banking, Asia Pacific of The Hongkong and
Shanghai Banking Corporation Limited (HSBC). Before joining HSBC, he was Managing Director and
Co-Head of Investment Banking, Asia Pacific of Salomon Smith Barney. Dr. Huan has more than 15
years of investment banking experience and has held senior positions at the Brookings Institution,
the Atlantic Council of the U.S., J.P. Morgan & Co., BZW Asia Limited, and Columbia University. Dr.
Huan holds a Ph.D. degree in International Political Economy from Princeton University, 52




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Master of Arts in International Relations from Columbia University and Master of Arts in International
Economics from the University of Denver. Dr. LUI King Man, aged 50, was appointed as an Independent Non-Executive Director of the
Company on August 18, 2004. Dr. Lui was also appointed as the Chairman of the Remuneration
Committee of the Company and a member of the Nomination Committee of the Company on April 11, 2005.
Dr. Lui is also a member of the Audit Committee of the Company. Dr. Lui has been a practicing
Certified Public Accountant in Hong Kong since 1989, and established his accounting firm K.M. LUI &
CO in the same year. Before commencing his own practice, Dr. Lui worked with an international
accounting firm and a listed commercial bank. Dr. Lui received his accountancy education in United
Kingdom in 1980 and attained professional accountant qualification in 1985. He is a Fellow of The
Chartered Association of Certified Accountants and Associate member of The Hong Kong Society of
Accountants. Dr. Lui obtained an MBA Degree from Heriot-Watt University in 1997 and received a
Doctoral Degree in Business Administration from The University of Hull in 2004. Dr. Lui has over 23
years experience in accounting, finance, business acquisition and auditing fields. He has been a
consultant of a number of commercial and non-commercial organizations. Senior Management Mr. CUI Xinzheng,aged 51, was appointed as an Executive Director and Vice President of the
Company in February 2001. He is also a Director of Acme Star Investment Limited, APT Satellite
Telewell Limited, Skywork Corporation, Haslett Investments Limited, APT Telecom Services Limited
and APT Communication Technology Development (Shenzhen) Company Limited (APT Shenzhen), each of
which is a subsidiary of the Company. He is also the chairman and the general manager of APT
Shenzhen. He is also the Director of APT Satellite Telecommunications Limited, a jointly controlled
entity between a wholly-owned subsidiary of the Company and one of the shareholders of APT
Satellite International Company Limited, a substantial shareholder of the Company. He served as the
Director of General Office, Deputy Director of ChinaSat; the Deputy Director of Research Division
of Beijing Micro-Electronics Technology Institute. He graduated from Graduate School of Chinese of
Social Sciences Academy. He has 30 years of experience in economics management and has significant
experience in the operation of satellite telecommunications. Mr. Cui resigned as Executive Director
of the Company on September 8, 2004 but remains as a Vice President of the Company. Dr. LO Kin Hang, Brian, age 48, has been the Vice President of the APT Group since April 2002
and Company Secretary (since October 1996) of the Company. Dr. Lo joined the Company in September
1996 and was the Assistant to the President (since December 1997). He graduated with an
Associateship in Production and Industrial Engineering and an M.Sc. Degree in Information
Technology from Hong Kong Polytechnic University, a MBA Degree from the University of Wales, UK,
and a Doctor Degree of Business Administration from the University of Hull, UK. He has attained
several professional qualifications including Chartered Engineer, Member of the Institute of
Electrical Engineers and is a Fellow of the Institute of Chartered Secretaries and Administrators
in the United Kingdom and a Fellow of the Hong Kong Institute of Company Secretaries. Prior to
joining the APT Group, he was a Director and senior management executive responsible for financial
and investment management and the company secretary of a publicly listed company in Hong Kong. Dr.
Lo has over 18 years experience in corporate and project management. Mr. CHEN Xun, aged 34, has been an Assistant President of the Company since July 2004. He
joined the Company in 2000 and has worked as the Director of Engineering and Technical Operations
Department and the Deputy Chief Engineer of APT Group. Mr. Chen graduated from the Department of
Computer and Telecommunications of Chongqing Institute of Post & Telecommunications. He has been
working for China Telecommunications Broadcast Satellite Corporation from 1992 to 1999 before
joining the APT Group. Mr. YANG Qing, aged 41, has been an Assistant President of the Company since July 2004. He
joined the Company in 2000. He had worked as the Deputy Director of the Engineering and Technical
Operations Department of APT Group. Mr. Yang graduated from the Department of Flight Vehicle
Engineering of Beijing Institute of Technology in June 1985. During the period from July 1985 to
December 1999, he worked for CALT (China Academy of Launch Vehicle Technology) and was designated
as Senior Engineer and the Deputy Director of systems designer of LM-2C launch vehicle by CALT
before joining APT Group. 53




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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 have 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, and the Company will only
grant new options under Scheme 2002. Since then, no further options have been granted under Scheme
2001, however, all the options that have been granted under Scheme 2001 shall 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, 2004, 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
8,450,000, which represents 2.05% 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 ordinary 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 may not exceed 1% of the Shares in issue. The exercise price (subscription price)
must be determined by the Board of directors at the time of the making of the option grant, but in
any case the exercise price cannot 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 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 may 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 a share option scheme under the Listing Rules
of the Stock Exchange, which took effect on September 1, 2001, the Company proposed to the
shareholders the adoption of Scheme 2002. Scheme 2002 was approved at the annual general
shareholders meeting. Since its adoption, options are to be granted only Scheme 2002 and no longer
under Scheme 2001. Nevertheless, Scheme 2001 will remain effective and the options granted on June
19, 2001 under Scheme 2001 will remain valid. Scheme 2002, the details of which were 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 differences,
which are described in the Item 6 of the Companys Annual Report on Form 20-F for the year ended
December 31, 2001 and incorporated therein by reference. Scheme 2002 will remain in force for a period of 10 years commencing from May 22, 2002 until
May 21, 2012. The shares allotted upon the exercise of options under Scheme 2002 will be subject to
all the provisions of the Bye-laws of the Company and will rank pari passu in all respects with all
the fully paid shares in issue. There was no compensation paid by the Company to directors for the year ended December 31,
2004. None of the Companys directors and officers or affiliates of such persons 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. 54




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Board Practices Mr. Chen Zhaobin and Mr. Tong Xudong have entered into service contracts with the Company for
an initial term of three years, commencing February 10, 2001 and April 20, 2004, respectively, and
continuing thereafter until terminated by either party giving to the other not less than six
months notice. Except as disclosed above, no Director has a service contract with the Company or its
subsidiaries, which is not determinable by APT Group within one year without payment of
compensation (other than statutory compensation). The term of office of all directors except the Chairman of the Board, Mr. Liu Ji Yuan, and the
President, Mr. Chen Zhaobin, is the period up to their retirement in accordance with Article 86(2)
and 87 of the Companys Bye-laws. The Audit Committee was formed by the Company on July 31, 1999. The Audit Committee currently
consists of three non-executive directors, Mr. Yuen Pak Yiu, Philip (the Chairman of the Audit
Committee), Dr.
 Huan Guocang and Dr. Lui King Man. The Board of Directors has determined that each of the
members of the Audit Committee is currently independent under the rules of the New York Stock
Exchange. Under its Charter (also known as terms of reference) as revised on April 11, 2005 and
incorporated herein by reference, the Audit Committee is required to be composed of directors who
are independent of the management of the Company and are free of any relationship that, in the
opinion of the Companys Board of Directors, would interfere with their exercise of independent
judgment as Committee members. The Audit Committee is authorized by the Board of Directors to
investigate any activity within its terms of reference and to seek any information it requires from
any employee and all employees are directed to co-operate with any request made by the Audit
Committee. It can also obtain support from outside legal or other independent professional
advisors and experts. The Audit Committee meets at least twice a year and its duties are
summarized as below:  
    
    to be primarily responsible for making recommendation to the Board on the
appointment, reappointment and removal of the external auditor, and to approve the
remuneration and terms of engagement of the external auditor;
    
    to monitor integrity of and review significant financial reporting judgments of
the half-year and annual financial statements;
    
    to discuss problems and reservations arising from the interim and final audits;
    
    to consider the major findings and internal investigations and managements
response;
    
    to review the Companys statement on financial controls, internal control system
and risk management systems (where one is included in the annual report) prior to
endorsement by the Board of Directors;
    
    to review and monitor the external auditors independence and objectivity and
effectiveness of the audit process in accordance with applicable standard, as well as
the nature and scope of other professional services provided to the Company by the
external auditor;
    
    to review APT Groups financial and accounting policies and practices;
    
    to review periodically Company policy statements to determine their adherence to
the Companys codes of conduct;
    
    to investigate any matter brought to its attention within the scope of its duties,
and to retain outside legal counsel or other professional advice for this purpose if,
in its judgment, that is appropriate; and
    
    to consider other topics, as determined by the Board. On April 11, 2005, Nomination Committee and Remuneration Committee were formed. Messrs. Tong
Xudong, Yuen Pak Yiu, Philip, Huan Guocang and Lui King Man were appointed as the members of these
two new committees. Mr. Yuen Pak Yiu, Philip and Dr. Lui King Man, the independent non-executive
directors of the Company, were appointed as the Chairman of the Nomination Committee and the
Remuneration Committee, respectively. The Nomination Committee, under its Charter (also known as terms of reference) as incorporated
herein by reference and pursuant to the domestic corporate governance requirements, is required to
be composed of a majority of members who should be independent non-executive directors and are
independent of the management of the Company and are free of any relationship that, in the opinion
of the Companys Board of Directors, would interfere 55




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with their exercise of independent judgment as Committee members. The Nomination Committee is authorized by the Board of Directors to provide
recommendations in respect of the composition of the Board, the appointments of Directors and the
independence of independent non-executive directors. It shall also be entitled to access external
professional advice whenever necessary. The Nomination Committee meets at least once a year and
its responsibilities are summarized as below:  
    
    to review the structure, size and composition of the Board;
    
    to identify individuals suitably qualified to become Board members;
    
    to assess the independence of Independent Non-executive directors;
    
    to make recommendations to the Board on matters relating to the appointment or
re-appointments of Directors and succession planning for Directors in particular the
Chairman and the President;
    
    to establish the nomination procedures; and
    
    to submit a work report to the Board yearly. The Remuneration Committee, under its Charter (also known as terms of reference) as
incorporated herein by reference and pursuant to the domestic corporate governance requirements,
the Remuneration Committee is required to be composed of a majority of members who should be
independent non-executive directors and are independent of the management of the Company and are
free of any relationship that, in the opinion of the Companys Board of Directors, would interfere
with their exercise of independent judgment as Committee members. The Nomination Committee is
authorized by the Board of Directors for providing recommendations in respect of the remuneration
of Directors and senior management staff and related policies. It shall also be entitled to access
external professional advice whenever necessary. The Nomination Committee shall meet at least once
a year and its responsibilities are summarized as below:  
    
    to make recommendations to the Board on policy and structure for all
remuneration of Directors and senior management and on the establishment of a formal
procedure for developing remuneration policy;
    
    to determine the specific remuneration packages of all Directors and senior
management, including benefits in kind, pension rights and compensation payments;
    
    to review and approve the performance-based remuneration by reference to
corporate goals and objectives resolved by the Board;
    
    to review and approve the compensation payable to Directors and senior management;
    
    to review and approve compensation arrangements relating to dismissal or removal of Directors;
    
    to ensure that no Director or any of his/her associates is involved in deciding his own remuneration;
    
    to formulate and review regularly the policy for the remuneration of Directors,
assessing Directors performance and approving the terms of Directors service
contracts; and
    
    to submit a work report to the Board yearly. 
 Employees Including the executive directors and senior management of the Company, as of December 31,
2004, the Company had 158 full-time employees, of which 27 employees were in management, 131 were
in engineering and operations, marketing, accounting and administration. The management of the
Company will continue to closely monitor the number of employees ensuring that it is compatible and
in line with the development and needs in the corporate strategies of the APT Group. The Company
believes that its relations with its employees are good. A majority of APTs technical and
engineering staff employed at the satellite control center in Tai Po were originally seconded from
affiliates of ChinaSat and China Aerospace. 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 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. 56




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##### Table of Contents



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, which are exercisable
during the vesting period from May 22, 2003 to May 21, 2011. During 2004, no options were granted
under Scheme 2002. 
 Share Ownership As at December 31, 2004, Dr. Lo Kin Hang, Brian, Vice President and Company Secretary of the
Company, had personal interests in 5,000 ordinary shares of the Company. As at December 31, 2004, the options granted under Scheme 2001 to directors and chief
executive were as follows: Chen Zhaobin
    
    (Executive Director & President)
    
    
    2,200,000Cui Xinzheng
    
    (Vice President)
    
    
    1,200,000Lo Kin Hang, Brian
    
    (Vice President & Company Secretary)
    
    
    800,000
 All of the options indicated above, exercisable within the period from May 22, 2003 to May 21,
2011, were granted for a nominal consideration of HK$1 per grantee with an exercise price of
HK$2.765 per share for the ordinary shares of the Company. On June 19, 2001, under Scheme 2001, the Company granted a total of 14,650,000 options to its
employees in order to provide incentives to employees for their contribution to APT Group. The
terms such as the exercise price and the expiration date of options are the same as the terms of
the options granted to directors and senior management indicated above. 
 Service Agreements Mr. Chen Zhaobin and Mr. Tong Xudong entered into service contracts with the Company for an
initial term of three years, commencing February 10, 2001 and April 20, 2004, respectively, and
continuing thereafter until terminated by either party giving to the other not less than six
months notice. Under the service contracts, Mr. Chen and Mr. Tong (the Contracted Directors) are each
entitled to a basic salary payable monthly in arrears by the Company, with such basic salary
subject to annual review by the Companys board of directors. In addition, Mr. Chen is entitled to
receive an annual discretionary bonus of such amount as determined by the board of directors,
provided that the amount of discretionary bonus payable that the Contracted Directors by the
Company in respect of any financial year shall not exceed an agreed percentage of the audited
consolidated net income after taxation and minority interests but before extraordinary items of the
Company for the relevant financial year. Each of the Contracted Directors is provided with housing
allowance subject to an agreed maximum amount, which maximum amount may be revised from time to
time by the board of directors. Each of the Contracted Directors is also entitled to receive
certain other benefits such as the use a motor car, the provision of recreation club memberships
and medical and personal accident insurance, and participation in the Companys retirement scheme
and any share option scheme for its employees. Other than the directors of the Company, the service contracts of senior executives have no
definite terms of office, and may be terminated by either party giving not less than 4 months to 6
months notice or payment in lieu of notice. Under the service contracts, each of the executives
is 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 executives is entitled to a discretionary
annual bonus based upon the Companys performance. Each of the executives is also entitled to
receive certain other benefits such as the provision of medical and personal accident insurance and
participation in the Companys retirement scheme and any share option scheme for its employees. 57




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions 
 Major Shareholders Certain principal shareholders of the Company (Principal Shareholders) have provided
substantial financial support since APT was founded, funding the design, construction and launch of
APSTAR I, APSTAR IA, APSTAR IIR, APSTAR V and APSTAR VI through equity contributions,
shareholders loans and shareholder guarantees of bank loans used to finance or refinance the costs
of satellite design, construction and launch. The Principal Shareholders have also provided
significant human resources, technical and marketing support. When the Company was listed in
December 1996, the Principal Shareholders of the Company were: CLTC, ChinaSat, China Aerospace,
CASIL Satellite (formerly known as Chia Tai International Company Limited), China Travel
(Macau), SingaSat, and Kwang Hua. Each Principal Shareholder held one-seventh of the total issued
shares of APT International pursuant to the corporate restructuring undertaken in connection with
the Companys 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. 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, 2005 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. Identity of Person
    
    Number of
    
    
    Percent ofor Groups
    
    Shares
    
    
    Class (1)China Telecommunications Broadcast
Satellite Corporation (2) (3)
    
    
    67,200,000
    
    
    
    16.26
    %China Aerospace Science & Technology
Corporation (2) (4)
    
    
    36,600,000
    
    
    
    8.86
    %CASIL Satellite Holdings Limited (2)
(5)
    
    
    45,000,000
    
    
    
    10.89
    %SingaSat PTE Ltd. (2) (6)
    
    
    84,000,000
    
    
    
    20.33
    %Kwang Hua Development and Investment
Limited (2) (7)
    
    
    30,600,000
    
    
    
    7.40
    %Sinolike Investments Limited (5)
    
    
    16,800,000
    
    
    
    4.07
    %APT Satellite International Company
Limited (2)
    
    
    214,200,000
    
    
    
    51.83
    %All Directors and Officers as a Group (17
persons)
    
    
    5,000
    
    
    
    *
 
 *
    
    Less than 1%  (1)
    
    As of March 31, 2005, the total number of issued Ordinary Shares is 413,265,000.(2)
    
    The Principal Shareholders collectively hold in aggregate underlying ownership interests of
51.83% indirectly through APT Satellite International Company Limited (APT International),
which holds 214,200,000 Ordinary Shares. The interest of each Principal Shareholder in APT
International as of December 31, 2004 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 58




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customers of commercial launch services effected by Long March launch vehicles. China Aerospace directly owns
6,000,000 Shares and indirectly owns, through its shareholdings in APT International,
30,600,000 Shares.(5)
    
    Chia Tai International Telecommunication Company Limited (Chia Tai) was wholly-owned by
Telecom Holding Company Limited (Telecom Holding), which managed the investment in the
Company of Telecom Asia Corporation Public Company Limited (TelecomAsia), a publicly listed
company in Thailand. Telecom Holding disposed of its Chai Tai holdings in the Company to
Sinolike Investment Limited (Sinolike) through a share transaction agreement on October 16, 1997. Chia Tai was renamed as CASIL
Satellite Holdings Limited (CASIL Satellite) on May 6, 1998. Sinolike is a wholly owned
subsidiary of China Aerospace International Holdings Limited (CASIL), which is a conglomerate
listed in Hong Kong and is a 41.86% owned subsidiary of China Aerospace. CASIL Satellite
directly owns 14,400,000 Shares and indirectly owns, through its shareholdings in APT
International, 30,600,000 Shares. Sinolike also directly owns 16,800,000 Shares.(6)
    
    SingaSat PTE Ltd. (SingaSat) is wholly-owned by Singapore Telecommunications Limited
(SingTel). SingTel is a telecommunications operating company and a holding company for over
forty subsidiaries which provide a wide range of domestic, international and mobile
telecommunications as well as postal services. SingTel is a publicly listed company in
Singapore. SingaSat directly owns 22,800,000 Shares and indirectly owns, through its
shareholdings in APT International, 61,200,000 Shares.(7)
    
    Kwang Hua Development and Investment Limited (Kwang Hua) is a Hong Kong incorporated
venture capital company owned jointly by the Ruentex Group, one of the largest Taiwanese
conglomerates, and China Development, a prominent financial and investment company in Taiwan.
China Development is also an affiliate of the Ruentex Group. Kwang Hua indirectly owns,
through its shareholdings in APT International, 30,600,000 Shares. The Principal Shareholders have entered into an agreement (the Shareholders Agreement),
which governs their respective rights and obligations with respect to, among other things, their
shareholdings in APT International. The Shareholders Agreement contains (among other things)
provisions restricting the transfer or other disposal or encumbrance by any Principal Shareholder
of the Shares in APT International, and granting mutual rights of pre-emption among the Principal
Shareholders in the event of any proposed transfer by a Principal Shareholder of any share(s) in
APT International. Except as disclosed above and to the knowledge of the Company, there are no persons or
entities that beneficially own, directly or indirectly, more than 5% of the Companys outstanding
Ordinary Shares or American Depositary Receipts. 
 Related Party Transactions The Company has used CGWICs Long March launch vehicles to launch all of its satellites to
date except the launch of APSTAR V which was launched by Sea Launch on June 29, 2004. The Company
may enter into further launch services contracts with CGWIC (or other affiliates of China
Aerospace) in respect of the Companys future satellites. Negotiations for each of the launch
services contracts with CGWIC have been conducted on an arms length basis and any future
negotiations with China Great Wall Industry Corporation would be similarly conducted. Apart from procuring launching service from CGWIC, on November 10, 2004 an agreement for right
to design, construction, delivery and launch of APSTAR VIB was entered into between APT HK and
CGWIC as a contingency plan if the launch of APSTAR VI was unsuccessful. In the opinion of the
Directors such a transaction was conducted in the ordinary and usual course of business of APT HK,
on normal commercial terms and the terms of the transaction was fair and reasonable and in the
interests of the shareholders of the Company as a whole. Two of the Principal Shareholders or their affiliates are currently customers of APT.
ChinaSat and SingTel have utilized several transponders for the transmission of television
programming, private networks and PSTN services on APSTAR I whereas SingTel entered into a new
utilization agreement with APT on April 11, 2003 for the utilization of six transponders of APSTAR
V through its useful life which superseded the original agreement dated January 8, 2001 for the
utilization of fifteen transponders for the remaining life of APSTAR V. Negotiations for
transponder utilization 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 59




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transponder is within the range representative of
the Companys pricing for its other customers. For details, please refer to Other service
customers under Item 4-Information on the Company. In addition, as announced on August 28, 2003, the APT Group and the Companys non wholly-owned
subsidiary namely APT Satellite Telecommunications Limited (APTT), which was owned as to 55% and
45% by Skywork Corporation (Skywork), a wholly-owned subsidiary of the Company, and by SingaSat
Private Limited (SingaSat), a wholly-owned subsidiary of SingTel, respectively, had in their
ordinary course of business entered into various transactions with SingTel and its subsidiaries
(collectively SingTel Group) for (a) provision of transponder capacity; (b) provision or purchase
of telecommunication services; and (c) secondment of executives from SingTel Group with the APT
Group and APTT. These various transactions have been reviewed by the independent non-executive
directors of the Company who confirmed that they were (i) entered into in the ordinary and usual
course of business of the APT Group; (ii) conducted on normal commercial terms; (iii) conducted on
terms that were fair and reasonable to the shareholders of the Company; (iv) carried out in
accordance with the terms of the agreements governing these transactions; and (v) the aggregate
value of each type of these transactions entered into during the year of 2003 was not exceeding the
threshold subject to the Stock Exchange with reference to its latest published financial
statements. Further, on September 10, 2003, APTT entered into a master agreement with the Companys
wholly-owned subsidiary, APTTS, Skywork and SingaSat whereby the business of APTT was reorganized
through the transfer of APTTs FCL business together with the FCL to APTTS and the transfer of
APTTs cable interests related to FCL, including the transfer of the APCN and C2C interests to
SingTel. The former transfer was done pursuant to a transfer of business agreement between APTT and
APTTS at consideration of HK$6,800,000 with compensation of HK$13,500,000 payable by APTT in 5
equal annual installments commencing on February 1, 2005 to APTTSs holding company, APT Satellite
Company Limited, for the surrender by APTT of the remaining term of a services and facilities lease
agreement in respect of a premises in Tai Po Industrial Estate. The latter transfer was done
pursuant to a cable interests transfer agreement between APTT and SingaSat, which subsequently
assigned it to its holding company SingTel, at considerations of HK$2,986,000 and HK$2,574,000 in
respect of the APCN interest and C2C interest, respectively. This reorganization was completed on
October 10, 2003. The Company believes that the reorganization will allow the APT Group to
concentrate on the satellite-related telecom services business, which is in line with the APT
Groups core business in providing satellite transponder services. In relation to certain transactions conducted between APT Group and SingTel Group as announced
on August 28, 2003 and September 10, 2003 and mentioned in the foregoing paragraphs, for the
purposes of governing the continuing connected transactions (the Continuing Connected
Transactions) and ensuring the compliance with the listing rules in Hong Kong, on December 1,
2004, two Master Agreements were entered into between the Company and SingTel in relation to the
provision of satellite transponder capacity and any other satellite related services by APT Group
to SingTel and Singapore Telecom Hong Kong Limited (an associate of SingTel), or vice versa
(Transponder Transactions); and between the Company and C2C Pte Limited (an associate of SingTel)
in relation to the provision of telecommunications related services by APT Group to C2C Pte Limited
and its subsidiary, or vice versa (Telecom Transactions). The duration of the Master Agreements
shall remain in force until December 31, 2006. As recommended by an independent board committee
comprising three independent non-executive directors of the Company that the terms of the Master
Agreements and the annual caps as indicated below were fair and reasonable, on December 30, 2004
the independent shareholders of the Company approved the Master Agreements and the annual caps for
the three years ending December 31, 2004, December 31, 2005 and December 31, 2006 of the
Transponder Transactions will not exceed HK$15 million, HK$18 million and HK$32 million,
respectively, and in the case of Telecom Transactions, their annual caps will not exceed HK$2
million, HK$9 million and HK$11 million, respectively. The Company is aware that ChinaSat intends to operate a PRC domestic satellite network.
ChinaSat merged with OrientSat to form ChinaSat Group, which owns ChinaStar 1 and ChinaSat 6. In
addition, China Aerospace holds a substantial interest in SinoSat, which owns a satellite,
SinoSat-1, that is devoted largely to providing telecommunications services, data transmission and
TV broadcasting. Singapore Telecom, the parent company of SingaSat, has holdings in a number of
other satellite companies. As a result of satellite design and coverage, the Company does not
believe such satellite companies compete with the Company, other than the ST-1 satellite system
which Singapore Telecom operates and in which it has an ownership interest. The ST-1 satellite
system only has the ability to compete with the Company in C-band segments of the Asia Pacific
market. Through the 60




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##### Table of Contents



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, 2002, 2003 and 2004
with shareholders and affiliates (HK$ in thousands): Years ended December 31,Note
    
    2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Income from provision of satellite
transponder capacity to certain
shareholders and its subsidiary of the
Company
    
    (i)
    
    
    34,551
    
    
    
    35,921
    
    
    
    38,259Income from provision of satellite
transponder capacity, provision of
satellite-based telecommunications services
and service income to a holding company
and its subsidiaries of a shareholder of the
Company
    
    (i)
    
    
    18,594
    
    
    
    19,741
    
    
    
    24,163Income from provision of satellite
transponder capacity to a jointly controlled
entity
    
    (i)
    
    
    8,245
    
    
    
    6,160
    
    
    
    Management fee income from a jointly
controlled entity
    
    (ii)
    
    
    1,500
    
    
    
    1,121
    
    
    
    480Management fee income from an
associate
    
    (iii)
    
    
    189
    
    
    
    65
    
    
    
    Facilities management services
income from a jointly controlled entity
    
    (iv)
    
    
    8,311
    
    
    
    3,386
    
    
    
    Expenses in connection with
the provision of transponder capacity from a
shareholder of the Company
    
    (v)
    
    
    2,574
    
    
    
    
    
    
    
    Technical support services expenses
to a shareholder of the Company
    
    (vi)
    
    
    
    
    
    
    75
    
    
    
    Management fee expenses to a holding
company of a shareholder of the Company
    
    (vii)
    
    
    2,280
    
    
    
    2,280
    
    
    
    1,135Payments of service fee in connection
with the satellite project to a fellow
subsidiary of a shareholder of the Company
    
    (viii)
    
    
    12,324
    
    
    
    87,604
    
    
    
    151,895Compensation income from a jointly
controlled entity in connection with the
early termination of services and facilities
lease
    
    (ix)
    
    
    
    
    
    
    13,500
    
    
    
    Purchase of certain fixed assets from a
jointly controlled entity
    
    (x)
    
    
    
    
    
    
    6,800
    
    
    
    
 61




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##### Table of Contents



At December 31, 2003 and 2004, the APT Group had the following amounts included in the
consolidated balance sheet in respect of amounts owing by and to related parties (HK$ in
thousands): Deposits,
    
    
    
    
    
    
    
    
    
    
    Rentals receivedInterest in jointly
    
    
    
    
    
    
    
    
    
    
    prepayments and
    
    
    Payables and
    
    
    in advance andPrepayment
    
    
    controlled entities
    
    
    Trade receivables
    
    
    other receivables
    
    
    accrued charges
    
    
    deferred income2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Jointly controlled
entities
    
    
    
    
    
    
    
    
    
    
    70,723
    
    
    
    70,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    921
    
    
    
    
    
    
    
    
    
    
    Certain shareholders
and its subsidiary
of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,496
    
    
    
    18,237
    
    
    
    3,120
    
    
    
    
    
    
    
    3,750
    
    
    
    24
    
    
    
    3,524
    
    
    Holding company and
its subsidiaries of a
shareholder of the
Company (note (i))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,518
    
    
    
    2,226
    
    
    
    
    
    
    
    
    
    
    
    31,910
    
    
    
    6
    
    
    
    2,907
    
    
    255,105A fellow subsidiary
of a
shareholder of the
Company
    
    
    
    
    
    
    38,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
 During the year ended December 31, 2003, a shareholder of the Company advanced RMB3.3
million, equivalent to US$400 thousand, to the APT Group. In return the APT Group advanced
US$400 thousand to that shareholder. The items of such advance are interest-free and
repayable within one year. In addition, at December 31, 2003 and 2004, the APT Group had an outstanding commitment to
pay launch service fees to a fellow subsidiary of a shareholder of the Company amounting to
HK$230.2 million and HK$116.8 million, respectively. At December 31, 2004, the APT Group had
an outstanding commitment to pay an option payment for the design, construction, delivery
and launch of a satellite APSTAR VIB to a fellow subsidiary of a shareholder of the Company
amounting to HK$21.5 million.    (i)
    
    The terms and conditions of these transponder capacity utilization agreements are
similar to those contracted with other customers of APT 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 Directors consider that the terms and conditions of these transponders
utilization agreements were similar to those offered to other customers by the
provider.(vi)
    
    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. 62




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(vii)
    
    Management fee expenses arose from a reimbursement of cost of services
provided from the holding company of a shareholder of the Company.(viii)
    
    The Directors consider that the service fee is charged according to prices and
conditions similar to those offered to other customers by the launch service provider.(ix)
    
    As a result of the reorganization of a jointly controlled entity, the jointly
controlled entity early terminated the services and facilities lease agreement and APT
Group received a compensation for the early termination of the agreement. The Directors
consider that the compensation is charged according to prices and conditions similar to
those offered to other customers by the termination.(x)
    
    As a result of the reorganization of a jointly controlled entity, certain
fixed assets were purchased from the jointly controlled entity. The Directors consider
that the purchase consideration was arrived at after arms length negotiation with
reference to the valuation conducted by an independent valuation company. 
 Item 8. Financial Information See Item 18 for presentation of the consolidated financial statements of the Company. 
 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. 63




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High (HK$)
    
    
    Low (HK$)2000
    
    
    9.0000
    
    
    
    2.90002001
    
    
    4.6000
    
    
    
    2.20002002
    
    
    3.6000
    
    
    
    1.39002003Quarter ended March 31
    
    
    1.8300
    
    
    
    1.2500Quarter ended June 30
    
    
    3.0000
    
    
    
    1.0200Quarter ended September 30
    
    
    3.9250
    
    
    
    2.2000Quarter ended December 31
    
    
    2.5500
    
    
    
    1.95002.5500
    
    
    
    2.22502004Quarter ended March 31
    
    
    2.8250
    
    
    
    2.0000Quarter ended June 30
    
    
    2.3000
    
    
    
    1.6500Quarter ended September 30
    
    
    1.8000
    
    
    
    1.3900Quarter ended December 31
    
    
    1.5200
    
    
    
    1.3000December
    
    
    1.5200
    
    
    
    1.30002005January
    
    
    1.5000
    
    
    
    1.3200February
    
    
    1.4800
    
    
    
    1.2000March
    
    
    1.4200
    
    
    
    1.2000April
    
    
    1.6000
    
    
    
    1.2900May
    
    
    1.4500
    
    
    
    1.3100
 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, 2005, there were 45 holders of records
of ADSs with addresses in the United States and such holders owned an aggregate of 8,442,839 ADSs.
The table below details, for the periods indicated, the high and low market prices of the ADSs on
the NYSE. High (US$)
    
    
    Low (US$)2000
    
    
    9.2500
    
    
    
    2.62502001
    
    
    4.3500
    
    
    
    2.15002002
    
    
    3.6000
    
    
    
    1.15002003Quarter ended March 31
    
    
    2.0500
    
    
    
    1.3800Quarter ended June 30
    
    
    3.3600
    
    
    
    1.1000Quarter ended September 30
    
    
    4.6000
    
    
    
    2.0500Quarter ended December 31
    
    
    2.8500
    
    
    
    1.89002004Quarter ended March 31
    
    
    3.5000
    
    
    
    1.9300Quarter ended June 30
    
    
    2.1500
    
    
    
    1.5900Quarter ended September 30
    
    
    1.9900
    
    
    
    1.3200Quarter ended December 31
    
    
    1.6800
    
    
    
    1.3200December
    
    
    1.6800
    
    
    
    1.33002005January
    
    
    1.6100
    
    
    
    1.2500February
    
    
    1.4000
    
    
    
    1.2680March
    
    
    1.3800
    
    
    
    1.2600April
    
    
    1.4000
    
    
    
    1.2500May
    
    
    1.4200
    
    
    
    1.2600
 64




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Item 10. Additional Information Memorandum of Association and Bylaws In compliance with the newly amended listing rules of the Stock Exchange which came into force
on March 30, 2004, certain provisions of the Memorandum of Association and Bylaws of the Company
were therefore amended and adopted at the annual general meeting of the Company on May 20, 2004. Organization and Register The Company was incorporated in Bermuda on the October 17, 1996 in accordance with The
Companies Act. The Register of the Company is maintained by the Bermuda Register of Companies with
registration number EC 22483. Objects and Purposes The objects for which the Company is formed and incorporated as provided for in Clause 6 of
the Memorandum of Association are to:  1)
    
    to act and to perform all the functions of a holding company in all its
branches and to co-ordinate the policy and administration of any subsidiary company or
companies wherever incorporated or carrying on business or of any group of companies of
which the Company or any subsidiary company is a member or which are in any manner
controlled directly or indirectly by the Company;2)
    
    to act as an investment company and for that purpose to acquire and hold upon
any terms and, either in the name of the Company or that of any nominee, shares, stock,
debentures, debenture stock, annuities, notes, mortgages, bonds, obligations and
securities, foreign exchange, foreign currency deposits and commodities, issued or
guaranteed by any company wherever incorporated or carrying on business, or by any
government, sovereign, ruler, commissioners, public body or authority, supreme,
municipal, local or otherwise, by original subscription, tender, purchase, exchange,
underwriting, participation in syndicates or in any other manner and whether or not
fully paid up, and to make payments thereon as called up or in advance of calls or
otherwise and to subscribe for the same, whether conditionally or absolutely, and to
hold the same with a view to investment, but with the power to vary any investments,
and to exercise and enforce all rights and powers conferred by or incident to the
ownership thereof, and to invest and deal with the moneys of the Company not
immediately required upon such securities and in such manner as may be from time to
time determined;3)
    
    as set out in paragraphs (b) to (n) and (p) to (u) inclusive of the Second
Schedule to The Companies Act 1981. Directors When a Director who to his knowledge is in any way, whether directly or indirectly, interested
in a contract or arrangement or proposed contract or arrangement with the Company shall declare the
nature of his interest at the meeting of the Board of the Company (the Board) at which the
question of entering into the contract or arrangement is first considered, if he knows his interest
then exists, or in any case at the first meeting of the Board after he knows that he is or has
become so interested. A Director shall not vote nor be counted in the quorum on any resolution of
the Board in respect of any contract or arrangement or any other proposal in which he or any of his
associate(s) is materially interested, and if he shall do so his vote shall not be counted nor is
he to be counted in the quorum for the resolution. But this prohibition shall not apply to any of
the following matters namely:  (i)
    
    any contract or arrangement for the giving by the Company or any of its
subsidiaries of any security or indemnity to the Director or his associate(s) in
respect of money lent by him or any of his associates or obligations incurred or undertaken by him or any of them at the
request of or for the benefit of the Company or any of its subsidiaries;(ii)
    
    any contract or arrangement for the giving by the Company or any of its
subsidiaries of any security or indemnity to a third party in respect of a debt or
obligation of the Company or any of its subsidiaries for which the Director or his
associate(s) has/have himself/themselves assumed 65




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responsibility in whole or in part
whether alone or jointly under a guarantee or indemnity or by the giving of security;(iii)
    
    any contract or arrangement by a Director or his associate(s) to subscribe for shares or debentures or other securities of the Company or any of its subsidiaries to
be issued pursuant to any offer or invitation to the members or debenture holders or to
the public which does not provide the Director or his associate(s) any privilege not
accorded to any other members or debenture holders or to the public;(iv)
    
    any contract, arrangement or proposal concerning an offer of the shares or
debentures or other securities of or by the Company or any other company which the
Company may promote or be interested in for subscription or purchase where the Director
or his associate(s) is/are or is/are to be interested as a participant in the
underwriting or sub-underwriting of the offer;(v)
    
    any contract or arrangement in which the Director or his associate(s) is/are
interested in the same manner as other holders of shares or debentures or other
securities of the Company by virtue only of his/their interest in shares or debentures
or other securities of the Company;(vi)
    
    any contract, arrangement or proposal concerning any company in which the
Director or his associate(s) is/are interested only, whether directly or indirectly,
as an officer or executive or a shareholder or in which the Director and any of his
associate(s) are not in aggregate beneficially interested in five (5) per cent or more
of the issued shares or of the voting rights of any class of shares of such company (or
of any third company through which his interest or that of any of his associates is
derived);(vii)
    
    any proposal or arrangement for the benefit of employees of the Company or its
subsidiaries including the adoption, modification or operation of a pension fund or
retirement, death or disability benefit scheme which relates both to directors, his
associates and employees of the Company or of any of its subsidiaries and does not give
the Director, or his associate(s), as such any privilege or advantage not accorded
generally to the class of persons to whom such scheme or fund relates; or(viii)
    
    any proposal concerning the adoption, modification or operation of any share scheme
involving the issue or grant of options over shares or other securities by the Company
to, or for the benefit of the employees of the Company or its subsidiaries under which
the Director or his associate(s) may benefit. A company shall be deemed to be a company in which a Director and/or his associate(s) has/have
an interest of five (5) per cent or more if and so long as (but only if and so long as) he and/or
his associate(s) (either directly or indirectly) is/are the holders of or beneficially interested
in five (5) per cent or more of any class of the equity share capital of such company or of the
voting rights available to members of such company (or of any third company through which his
interest or that of any of his associate(s) is derived). For the purpose of this paragraph there
shall be disregarded any shares held by a Director or his associate(s) as bare or custodian trustee
and in which he or any of them has no beneficial interest, any shares comprised in a trust in which
the interest of the Director and/or his associate(s) is/are in reversion or remainder if and so
long as some other person is entitled to receive the income thereof and any shares comprised in an
authorized unit trust scheme in which the Director and/or his associate(s) is/are interested only
as a unit holder. Where a company in which a Director and/or his associate(s) has/have an interest of five (5)
per cent or more is materially interested in a transaction, then that Director and/or his
associate(s) shall also be deemed materially interested in such transaction. As to the question of the materiality of the interest of a Director (other than the chairman
of the meeting) or as to the entitlement of any Director (other than such chairman) to vote or be
counted in the quorum and such question is not resolved by his voluntarily agreeing to abstain from
voting or not to be counted in the quorum, such question shall be referred to the chairman of the
meeting and his ruling in relation to such other Director shall be final and conclusive except in a
case where the nature or extent of the interest of the Director concerned as known to 66




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such Director has not been fairly disclosed to the Board. If any question as aforesaid shall arise in respect of
the chairman of the meeting such question shall be decided by a resolution of the Board (for which
purpose such chairman shall not vote thereon) and such resolution shall be final and conclusive
except in a case where the nature or extent of the interest of such chairman as known to such
chairman has not been fairly disclosed to the Board. The Company may by ordinary resolution ratify any transaction not duly authorized by reason of
a contravention of this Bye-Law provided that no Director and/or his associate(s) who is/are
materially interested in such transaction shall vote upon such ordinary resolution in respect of
any shares in the Company in which they are interested. The ordinary remuneration of the Directors shall from time to time be determined by the
Company in general meeting. Each Director shall be entitled to be prepaid or repaid all traveling,
hotel and incidental expenses reasonably expected to be incurred or reasonably incurred by him in
attending meetings of the Board or committees of the Board or general meeting or separate meetings
of any class of shares of the Company or otherwise in connection with the discharge of his duties
as a Director. The Board shall obtain the approval of the Company in general meeting before making
any payment to any Director or past Director of the Company by way of compensation for loss of
office, or as consideration for or in connection with his retirement from office. The Board may exercise all the powers of the Company to raise or borrow money or to secure the
payment or repayment of any sum or sums of money and to mortgage or charge all or any part of the
undertaking, property and assets and uncalled capital of the Company subject to The Companies Act,
in such manner and upon such terms and conditions in all respects as it thinks fit and in
particular by the issue of debentures, bonds and other securities, whether outright or as
collateral security for any debt, liability or obligation of the Company or of any third party. Neither a Director nor an alternate Director shall be required to vacate office or become
ineligible for re-election as Director of being beyond any age limitation. Neither a Director nor an alternate Director shall be required to hold any shares of the
Company by way of qualification. Shareholders Rights Currently, the Companys authorized share capital consists of ordinary class of shares 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. 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 Bye-laws of the Company, every shareholder of the Company present in
person or by proxy, on a show of hands shall have one vote and on a poll shall have one vote, for
every share which is fully paid or credited as fully paid of which he is the holder. A shareholder
entitled to attend and vote at the general meeting of the Company is entitled to appoint another
person as his proxy to attend and vote instead of him. A proxy need not be a member of the
Company. A resolution put to the vote of a general meeting shall be decided on a show of hands
unless a poll is demanded in accordance with the Bye-laws. 67




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No business shall be transacted at any general meeting unless a required quorum is present.
All business shall be deemed special that is transacted at a special general meeting, and also all
business that is transacted at an annual general meeting, with the exception of sanctioning
dividends, the reading, considering and adopting of the accounts and balance sheet and the reports
of the Directors and Auditors and other documents required to be annexed to the balance sheet, the
election of Directors and appointment of Auditors and other officers in the place of those
retiring, the determination of the remuneration of the Auditors and of the Directors of the
Company. The Company in general meeting may from time to time declare dividends to the shareholders of
the Company and may also make a distribution to the shareholders of the Company out of any
contributed surplus in accordance with The Companies Act. In the event of the Company being wound up, the surplus assets remaining after payment to all
creditors shall be divided among the Shareholders of the Company in proportion to the capital paid
up on the shares held by them respectively. But, if such surplus assets shall be insufficient to
repay the whole of the paid up capital, they shall be distributed subject to the rights of any
shares which may be issued on special terms and conditions, so that, as nearly as may be, the
losses shall be borne by the Shareholders of the Company in proportion to the capital paid up on
the shares held by them respectively. The Bye-laws of the Company does not include any provisions in relation to redemption, sinking
fund, liability to further capital calls by the Company nor any provisions discriminating against
any existing or prospective holder of such securities as a result of such shareholder owning a
substantial number of shares. Actions Necessary to Change Shareholders Rights Subject to the Companies Act and without prejudice to other provisions of the Bye-laws, all or
any of the special rights for the time being attached to the shares or any class of shares may,
unless otherwise provided by the terms of issue of the shares of that class, from time to time
(whether or not the Company is being would up) be varied, modified or abrogated either with the
consent in writing of the holders of not less than three-fourths of the issued shares of that class
or with the sanction of a special resolution passed at a separate general meeting of the holders of
the shares of that class. To every such separate general meeting all the provisions of these
Bye-laws relating to general meetings of the Company shall, mutatis mutandis, apply, but so that:  (a)
    
    the necessary quorum (other than at an adjourned meeting) shall be at least two
persons holding or representing by proxy or authorized representative not less than
one-third in nominal value of the issued shares of that class and at any adjourned
meeting of such holders, two holders present in person or by proxy (whatever the number
of shares held by them) shall be a quorum;(b)
    
    every holder of shares of the class shall be entitled on a poll to one vote for
every such share held by him/her; and(c)
    
    any holder of shares of the class present in person or by proxy or authorized
representative may demand a poll. The special rights conferred upon the holders of any shares or class of shares shall not,
unless otherwise expressly provided in the rights attaching to or the terms of issue of such
shares, be deemed to be varied, modified or abrogated by the creation or issue of further shares
ranking pari passu therewith. General Meetings of Shareholders An annual general meeting of the Company shall be held in each year other than the year in
which its statutory meeting is convened at such time and place as may be determined by the Board.
Each general meeting, other than an annual general meeting, shall be called a special general
meeting. General meetings may be held in any part of the world as may be determined by the Board.
The Board may, in its discretion, call special general meetings, and shareholders 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) 68




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months after the deposit of such requisition. An annual general meeting and any special general meeting at which the passing of a
special resolution is to be considered shall be called by not less than twenty-one (21) clear days
notice. All other special general meetings may be called by not less than fourteen (14) clear days
notice but a general meeting may be called by shorter notice if it is so agreed by the
shareholders. Notice of every general meeting shall be given to all shareholders of the Company
other than to such shareholders as, under the provisions of these Bye-laws or the terms of issue of
the shares they hold, are not entitled to receive such notices from the Company, to all persons
entitled to a share in consequence of the death or bankruptcy or winding-up of a shareholder and to
each of the Directors and the Auditor. Limitation on Foreign Ownership There is no limitation on the rights to own securities, including the rights of non-resident
or foreign shareholders to hold or exercise voting rights on the securities imposed by foreign law
or by the Bye-laws of the Company. Change in Control The Bye-laws of the Company do not contain any specific provision that may have an effect of
delaying, deferring or preventing a change in control of the company in the event of merger,
acquisition or corporate restructuring of the Company. However, the shareholders agreement of APT
Telecom (which is a joint-venture company formed by a wholly-owned subsidiary of the Company, APT
TV, and SingaSat Private Limited) requires that any merger, consolidation or amalgamation of the
Company must be approved by all the shareholders of APT Telecom. Subject to the Bye-laws of the
Company, any shareholder may transfer all or any of his/her shares by an instrument of transfer in
the usual or common form or in any other form approved by the Board 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 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 Registration Office or such other
place in Bermuda at which the Register is kept in accordance with the The Companies Act
or the Registration Office (as the case may be) accompanies by the relevant share
certificate(s) and such other evidence as the Board may reasonably require to show the
right of the transferor to make the transfer; and(b)
    
    if applicable, the instrument of transfer is duly and properly stamped. Ownership Threshold Disclosure The Bye-laws of the Company does not provide any ownership threshold above which a shareholder
has to disclose such ownership. Significant Differences in Applicable Law With respect to items 2 through 8 of the Exchange Act Forms, the law applicable to the Company
in these areas is not significantly different from that in Hong Kong. Changes in Capital The Bye-laws of the Company governing changes in the capital does not contain any condition,
which are more stringent than is required by law. Material Contracts On January 8, 2001, APT, together with SS/Loral and CGWIC signed the Procurement and the
Launch Agreements of APSTAR V satellite, to confirm the commissioning of the APSTAR V which would
replace the APSTAR I. On October 23, 2002, the launch services to be provided by CGWIC originally
for APSTAR V were transferred to APSTAR VI. In March 2003, APT selected Sea Launch for the launch
of APSTAR V. APSTAR V was launched on June 29, 2004 as a replacement satellite of APSTAR I. Upon
completion of IOT of APSTAR V, 69




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title of the APSTAR V remained with Loral Orion. The Company assumed
risks and rewards of 37 transponders (APT Transponders) for the entire operational life of APSTAR
V under finance leases while the risks and rewards relating to the other 17 transponders remained
with Loral Orion. On December 11, 2001, APT signed a procurement agreement for construction and delivery of
APSTAR VI (formerly APSTAR VB) with Alcatel Space Industries . APT secured the Satellite Launch
Service Agreement with CGWIC to launch APSTAR VI on the Long March 3B (LM-3B) launch vehicle on
October 23, 2002 by the amending the Satellite Launch Service Agreement of APSTAR V. APSTAR VI was
successfully launched on April 12, 2005 and has been put into geo-synchronous orbit. The In-orbit Test of
the satellite has been completed. The final acceptance has been accomplished and the satellite has been handover by
the vendor to APT on June 7, 2005. Customers are in the process to be moved from APSTAR IA to APSTAR VI. Total capital expenditures for the design, construction and launch of APSTAR VI are
expected to be approximately US$225 million, which has been funded by internal resources and 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. Permission has been obtained from the Bermuda Monetary Authority for the transfer of Shares of
the Company between persons regarded as non-resident of Bermuda for exchange control purposes and
the issue of Shares within the current authorized share capital of the Company of HK$100,000,000 to
such persons, 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-residents of
Bermuda for exchange control purposes to hold or vote their shares. Because the Company has been
designated as a non-resident for Bermuda exchange control purposes, there are no restrictions on
its ability to transfer funds, including remittance of interest or payment to non-resident holders
of Shares, if any, in and out of Bermuda or to pay dividends to United States residents who are
holders of the Shares, other than in respect of local Bermuda currency. In accordance with Bermuda law, share certificates are only issued in the names of
corporations, partnerships, or individuals. In the case of an applicant acting in a special
capacity (for example, as trustee), certificates may, at the request of the applicant, record the
capacity in which the applicant is acting. Notwithstanding the recording of any such special
capacity, the Company is not bound to investigate or incur any responsibility in respect of the
proper administration of any such trust. The Company will take no notice of any trust applicable to any of its Shares whether or not it
has notice of such trust. As an exempted company, the Company is exempt from Bermuda laws which restrict the percentage
of share capital that may be held by non-Bermudians, but as an exempted company, the Company may
not participate in certain business transactions including: (1) the acquisition or holding of land
in Bermuda (except that required for its business and held by way of lease or tenancy for terms of
not more than 50 years or, with the consent of the Minister of Finance, land by way of lease or
tenancy agreement for a term not exceeding 21 years in order to provide accommodation or
recreational facilities for its officers and employees), (2) the taking of mortgages on land in
Bermuda to secure an amount in excess of 50,000 Bermuda Dollars without the consent of the Minister
of Finance of 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 70




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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%, 17.5% and 17.5% for 2002 and 2003 and 2004, respectively on
corporations and at a maximum rate of 15%, 15.5% and 16% for 2002, 2003 and 2004, respectively, 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. 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. 71




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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 Investor-United States Holders As used herein, a United States holder means a beneficial owner of Shares or ADSs that is an
individual who is a citizen or resident of the United States; a corporation, partnership or other
entity created or organized in or under the laws of the United States or any State thereof; an
estate the income of which is subject to United States federal income tax regardless of its source,
or a trust subject to control of a United States person and the primary supervision of a United
States court, or a trust in existence on August 20, 1996 that has elected to continue to be treated
as a United States trust. A resident of the United States includes an individual that (i) is
lawfully admitted for permanent residence in the United States, or (ii) (a) is present in the
United States for 31 days or more during the calendar year, (b) is present in the United States for
an aggregate of 183 days or more, on a weighted basis, over a 3-year period ending in such calendar year, and (c) is present in the United States
for less than 183 days during the calendar year and does not have a closer connection to a tax
home that is located outside the United States. A non-United States holder means a beneficial owner of Shares or ADSs that is not a United
States holder. It should be noted that certain single member entities are disregarded for United
States federal income tax purposes. Thus, the income, gain, loss and deductions of such entity are
attributed to the owner of such single member entity for United States federal income tax purposes.
The discussion below for United States holders may not apply to certain single member noncorporate
entities that are treated as owned by a non-United States holder. Investors which are single
member noncorporate entities should consult with their own tax advisors to determine the United
States federal, state, local and other tax consequences that may be relevant to them. 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. 72




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Taxation of Dividends Subject to the passive foreign investment company rules discussed below and to the extent
provided below, a United States holder will be required to include in gross income when paid,
actually or constructively, to the holder or, in the case of ADSs, to the Depositary, as a dividend
any cash or the fair market value of any property distributed by the Company out of its current or
accumulated earnings and profits (as determined for United States federal income tax purposes).
Distributions paid in any currency other than the US Dollar will be translated into US Dollars at
the spot rate on the date the dividends are paid, regardless of whether the dividends are in fact
converted on that date. Distributions in excess of the Companys current or accumulated earnings
and profits (as determined for United States federal income tax purposes) will be treated as a
non-taxable return of capital to the extent of the holders basis in the Shares or ADSs, and
thereafter, as a taxable capital gain. Dividends paid by the Company will not be eligible for the dividends received deduction
generally allowed to United States corporations in respect of dividends received from other United
States corporations under the United States Internal Revenue Code of 1986, as amended (the Code).
For purposes of the United States foreign tax credit limitation, dividends paid by the Company
generally will constitute foreign source passive income (or, in the case of a holder who is a
financial services entity as defined in regulations under the Code, financial services income).
The rules relating to foreign tax credits are extremely complex and the availability of a foreign
tax credit depends on numerous factors. All investors that are United States holders should
consult with their own tax advisors concerning the application of the United States foreign tax
credit rules to their particular circumstances. Taxation of Dispositions of Shares or ADSs Subject to the passive foreign investment company rules discussed below, a gain or loss
realized by a United States holder on the sale or other disposition of a Share or an ADS will be
subject to United States federal income tax, as a capital gain or loss, in an amount equal to the
difference between such United States holders adjusted tax basis in the Share or ADS and the
amount realized on its disposition. Such capital gain or loss will be long-term if the United
States holders holding period for the Share or ADS is more than one year and will be short-term if
the holding period is equal to or less than one year. Long-term capital gain of a non-corporate
United States holder is generally taxed at preferential rates. The deductibility of capital losses
is subject to limitations. For purposes of the United States foreign tax credit limitation, a recognized gain or loss
arising on the disposition of a Share or ADS generally will be United States source gain. There is
a risk, however, that a recognized loss may, however, be allocated against foreign source income by
reference to the source of income received under the Share or ADS based on, among other things, whether or not the Share or ADS is
attributable to a foreign office or other fixed place of business of the holder. The IRS has
issued Regulations on the sourcing of losses and holders of Shares or ADSs should consult with
their tax advisors regarding the application of such Regulations to their specific situation. Passive Foreign Investment Company Rules The foregoing discussion assumes that the Company is not currently, and will not in the future
be, classified as a passive foreign investment company (PFIC) under the Code. Special United States federal income tax rules apply to holders of equity interests in a PFIC.
A foreign corporation will constitute a PFIC for United States federal income tax purposes if 75%
or more of its gross income for a taxable year consist of passive income, or, on average, 50% or
more of the value of its assets held during a taxable year consist of assets that give rise, or
that reasonably could give rise during the reasonably foreseeable future, to passive income.
Passive income generally includes (i) rent and lease income (not including rent and lease 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 73




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PFIC is a factual determination based upon the composition of the annual income and assets of the entity, there can
be no assurance that the Company, APT or APT BVI will not be considered a PFIC for the current or
for any subsequent taxable year. Because the Companys sole asset is its stock interest in APT BVI, and APT BVIs sole asset,
in turn, is its stock interest in APT, if APT is or becomes a PFIC, both the Company and APT BVI
will also be or become PFICs. If the Company, APT and APT BVI are or become PFICs, a United States
holder (whether direct, indirect or constructive) would be required to allocate to each day in its
holding period with respect to the Shares or ADSs a pro rata portion of any distribution received,
or deemed received under certain attribution rules, from the Company, APT or APT BVI that is
treated as an excess distribution. Generally, an excess distribution is that portion of the
total annual distributions (including the proceeds from a redemption of Shares or ADSs that is
treated as a distribution) from the Company, APT or APT BVI that exceeds 125% of the per share
average annual amount distributed (as measured in the currency of such distributions) by that
entity during the three preceding years (or such shorter period as the United States holder may
have held the Shares or ADSs). In addition, the full amount of any gain recognized on a
disposition or deemed disposition (including a liquidation, a redemption that is treated as an
exchange, or a pledge) of (i) Shares or ADSs by the United States holder, (ii) attributable shares
of APT by APT BVI, or (iii) attributable shares of APT BVI by the Company will be treated as an
excess distribution. The amount of any excess distribution is allocated ratably over the United States holders
entire holding period. The amount allocated to the current taxable year and to any period prior to
the first taxable year during which the Company, APT and APT BVI were PFICs is taxed as ordinary
income. Any amount of the excess distribution allocable to a prior taxable year during which the
Company, APT and APT BVI were PFICs or after the first taxable year they were PFICs will be subject
to a deferred United States federal income tax charge, calculated as the sum of the amount of tax
imposed on the allocable excess distribution at the highest applicable rate in effect for each such
year plus the accumulated interest on the determined amount of tax. Given the distribution and
investment policies of the Company, if the Company, APT and APT BVI are or become PFICs, there is a
substantial risk that any distribution by the Company will be treated as an excess distribution.
(See Item 5. Operating and Financial Review and ProspectsLiquidity and Capital Resources). For purposes of the PFIC rules, under certain circumstances, Shares or ADSs held by a
non-United States holder may be attributed to a United States person (as defined in Section
7701(a)(30) of the Code) owning an interest, directly or indirectly, in that non-United States holder. In such event, dividends and
other transactions in respect of the Shares or ADSs held by the non-United States holder would be
attributed to such United States person for purposes of applying the above PFIC rules. If the Company is a PFIC, a United States holder must file Internal Revenue Service Form 8621
regarding distributions received with respect to Shares or ADSs and any gain realized on the
disposition or deemed disposition of Shares or ADSs for each taxable year in which the United
States holder owns Shares or ADSs. If the Company, APT and APT BVI are or become PFICs, an investment in Shares or ADSs by a
United States holder could subject the holder to substantial, adverse United States federal income
tax consequences. Investors who are United States holders should consult their own tax advisers
regarding the potential application of the PFIC regime. 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 74




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income tax treaties to which the United States is a party may shield a non-United States holder
from the imposition of United States federal income tax on income from Shares or ADSs or reduce the
applicable tax rate, even if such income or such holder falls in one of the categories listed
above. Investors who are non-United States holders should consult their tax advisors regarding the
taxability of income in respect of the Shares or ADSs. United States Backup Withholding Tax and Information Reporting For a United States holder, a 28% backup withholding federal income tax and certain
information reporting requirements may apply to certain payments made on Shares or ADSs and to the
proceeds from the disposition of Shares or ADSs unless such holder (i) is a corporation or comes
within certain other exempt categories, provided the exemption from backup withholding is properly
established, or (ii) provides a correct taxpayer identification number, certifies that it is not
subject to backup withholding, and otherwise complies with applicable requirements of the backup
withholding rules. Non-United States holders are generally exempt from backup withholding, provided such holders
certify in writing as to their non-United States holder status under penalties of perjury or
otherwise establish an exemption (provided neither the Company nor the Companys agent has actual
knowledge that the holder is a United States person (as defined in Section 7701(a)(30) of the Code)
or that the conditions of any other exemption are not in fact satisfied). Holders should consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such exemption if applicable. Any amounts withheld under the backup withholding tax rules from a payment to a holder will be
allowed as a refund or a credit against such holders United States federal income tax, provided
that the required information is furnished to the IRS. 
 Item 11. Quantitative and Qualitative Disclosures about Market Risk The Companys primary market risk exposures are interest rate risk and foreign currency risk. 
 Interest Rate Risk The Company is subject to interest rate risk due to fluctuation in interest rates. As of
December 31, 2004, the Companys outstanding bank loans consist of variable interest rate loans
only. From time to time, the Company may enter into interest rate swap agreements designed to
mitigate our exposure to interest rate risks, although the Company did not consider it necessary
to do so in 2004. 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, 2004. Expected Maturity Date2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter(HK$ in million, except interest rates)Variable rate bank loan
    
    
    66.3
    
    
    
    97.6
    
    
    
    130.7
    
    
    
    179.6
    
    
    
    208.4
    
    
    
    293.2Average interest rate (1)
    
    
    4.36
    %
    
    
    5.12
    %
    
    
    5.28
    %
    
    
    5.36
    %
    
    
    5.48
    %
    
    
    5.48
    %
 
 (1)
    
    The interest rates are the implied future LIBOR rates calculated from US swap as proxy. 75




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For the year ended December 31, 2004, if the average interest rate for the variable rate bank
loan had increased by 10%, additional interest expenses of HK$1.1 million (US$139 thousand) would
have incurred. 
 Exchange Rate Sensitivity The Companys reporting currency is the Hong Kong Dollar. The Companys revenues, premiums
for satellite insurance coverage and debt service and substantially all capital expenditures were
denominated in U.S. Dollars. The Companys remaining expenses were primarily denominated in Hong
Kong Dollars. The Company does not hedge its exposure to foreign exchange risk. Gains and losses
resulting from the effects of changes in the U.S. Dollar to Hong Kong Dollar exchange rate are
recorded in the statements of operations. 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, 2004 and as a
result, does not consider exposures or positions that could arise after that date. The Companys
ultimate realized gain or loss with respect to interest rate and exchange rate fluctuations would
depend on the exposures that arise during the period, the Companys hedging strategies at the time,
and interest and foreign exchange rates. 
 Item 12. Description of Securities Other Than Equity Securities Not applicable. PART II 
 Item 13. Defaults, Dividend Arrearages, and Delinquencies Not applicable. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable. 
 Item 15. Controls and Procedures Disclosure Controls and Procedures.The Companys Chief Executive Officer, or CEO, and Chief
Financial Officer, or CFO, are responsible for establishing and maintaining its disclosure controls
and procedures. These controls and procedures were designed to ensure that information required to
be disclosed in the reports that the Company files under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the SEC. The Company evaluated these disclosure controls and procedures under
the supervision of its CEO and CFO as of December 31, 2004. Based on this evaluation, the Companys
CEO and CFO concluded that the Companys disclosure controls and procedures are effective in timely
alerting them to information required to be disclosed in our periodic reports to the SEC. Internal Control Over Financial Reporting.There were no changes in the Companys internal
control over financial reporting that occurred during the year ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. 
 Item 16A. Audit Committee Financial Expert The Companys Board of Directors has determined that it has a member, Dr. Lui King Man, of its
Audit Committee, that qualifies as an audit committee financial expert as defined in subsection
(b) of Item 16A of Form 20-F, and is independent under the rules and regulations of the New York
Stock Exchange. 76




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Item 16B. Code of Ethics The Company currently has a Code of Ethics. This Code of Ethics is made available at the
Companys website: www.apstar.com. 
 Item 16C. Principal Accountant Fees and Services Aggregate fee billed to the APT Group for the fiscal years ended December 31, 2003 and 2004 by
our principal accounting firm, KPMG, respectively and their respective affiliates are as follows: Years ended December 31,(in US$ thousands)
    
    2003
    
    
    2004Audit fees
    
    
    69
    
    
    
    103Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    1Total
    
    
    69
    
    
    
    104
 Audit Fees are the aggregate fees billed (for the year) for the audit of the Companys
annual financial statements, reviews of interim financial statements and attestation services that
are normally provided in connection with statutory and regulatory filings or engagements. Audit-Related Fees are the aggregate fees billed (for the year) for assurance and related
services that are reasonably related to the performance of the audit or review of the Companys
financial statements and are not reported under Audit Fees. Tax Fees are the aggregate fees billed (in the year) for professional services rendered for
tax compliance, tax advice on actual or contemplated transactions and tax planning. KPMG does not
provide us with tax services such as PFIC evaluation and tax planning. The Companys Audit Committee oversees our independent auditors. See also the description
under the heading Board Practices in Item 6. Directors, Senior Management and Employees. The
Companys Audit Committees policy is to approve any audit or permitted non-audit services proposed
to be provided by its independent auditors before engaging its independent auditors to provide such
services. Pursuant to this policy, which is designed to assure that such engagements do not impair
the independence of the Companys auditors, the Chairperson of the Companys Audit Committee is
authorized to approve any such services between meetings of the Audit Committee, subject to
ratification by the Audit Committee, and to report any such approvals to the Audit Committee at its
next meeting. 
 Item 16D. Exemption from the Listing Standards for Audit Committees Not applicable. 
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable. 77




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PART III 
 Item 17. Financial Statements The Company has elected to provide financial statements for fiscal year 2004 and the related
information pursuant to Item 18 in lieu of Item 17. 
 Item 18. Financial Statements Reference
is made to pages F-1 to F-62 for year-end financial statements. APT Satellite Telecommunications Limited met the significant tests in 2003 which requires,
under SEC Rule 3-09 of Regulation S-X the provision of separate financial statements. Such
financial statements are filed in exhibit 8.2 to this Annual Report. 
 Item 19. Exhibits. Exhibit No.
    
    Description of Exhibit1.1
    
    Memorandum of Association and
Bye-laws of the Company (incorporated by reference to the
Companys Annual Report, as filed with the Commission on
June 29, 2004).4.1
    
    Satellite Procurement Agreement by and between APT Satellite Company Limited, a wholly owned
subsidiary of the Company, and Contractor, an independent third party not associated with the
Directors, chief executive officer and major shareholders of the Company or any of its
subsidiaries, dated January 8, 2001 (incorporated by reference to the Companys 6-K filed with
the Commission on January 9, 2001).4.2
    
    Launch Agreement by and between APT Satellite Company Limited, a wholly owned subsidiary of
the Company, and the Launch Contractor, a subsidiary of China Aerospace Science & Technology
Corporation, dated January 8, 2001 (incorporated by reference to the Companys 6-K filed with
the Commission on January 9, 2001).4.3
    
    Satellite Procurement Agreement by and between APT Satellite Company Limited, a wholly owned
subsidiary of the Company, and Contractor, an independent third party not associated with the
Directors, chief executive officer and major shareholders of the Company or any of its
subsidiaries, dated December 11, 2001 (incorporated by reference to the Companys 6-K filed
with the Commission on December 18, 2001).4.4
    
    Term Sheet executed by and between APT Satellite Company Limited, a wholly owned subsidiary
of the Company, Contractor and Loral Orion, Inc., both of which are independent third party
not associated with the Directors, chief executive officer and major shareholders of the
Company or any of its subsidiaries, dated September 20, 2002 (incorporated by reference to the
Companys 6-K filed with the Commission on September 30, 2002).4.5
    
    Transponder Utilization Agreement by and between APT Satellite Company Limited, a wholly
owned subsidiary of the Company, and Lessee, a connected person under the rules governing the
listing of securities on The Stock Exchange of Hong Kong Limited, dated April 11, 2003
(incorporated by reference to the Companys 6-K filed with the Commission on April 16, 2003).4.6
    
    Change of Auditors of the Company KPMG with effect from July 15, 2003 (incorporated by
reference to the Companys 6-K filed with the Commission on July 17, 2003).4.7
    
    Satellite Procurement Amendment Agreement by and between APT Satellite Company Limited, a
wholly owned subsidiary of the Company, and the Contractor, a party independent of the
Director, chief executive officer and substantial shareholder of the Company and its
subsidiaries and their respective associates, dated August 26, 2003. The Satellite
Transponder Agreement and Satellite Agreement by and between APT Satellite Company Limited, a
wholly owned subsidiary of the Company, and the lessor, a party independent of the Director,
chief executive officer and
 78




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Exhibit No.
    
    Description of Exhibitsubstantial shareholder of the Company and its subsidiaries and their respective associates, dated August 26, 2003 (incorporated by reference to the
Companys 6-K filed with the Commission on September 2, 2003).4.8
    
    Various on-going transactions in their ordinary course of business had entered into between
the APT Group of the Company and APT Telecom, a non-wholly owned subsidiary of the Company,
and the contracting party, a connected person under the rules governing the listing of
securities on The Stock Exchange of Hong Kong Limited, as announced August 28, 2003
(incorporated by reference to the Companys 6-K filed with the Commission on September 2,
2003).4.9
    
    Master Agreement by and between APT Satellite Telecommunications Limited, a non-wholly owned
subsidiary of the Company, Skywork Corporation, a wholly owned subsidiary of the Company, APT
Telecom Services Limited, a wholly owned subsidiary of the Company, and a connected person under the rules governing the listing of securities on The Stock
Exchange of Hong Kong Limited, dated September 10, 2003 whereby the business of APT
Satellite Telecommunications Limited was being reorganized (incorporated by
reference to the Companys 6-K filed with the Commission on September 15, 2003).4.10
    
    The Agreement and the Amended Launch Agreement by and between APT Satellite Company Limited,
a wholly owned subsidiary of the Company, and the Contractor of APSTAR V, dated November 16,
2003 (incorporated by reference to the Companys 6-K filed with the Commission on September
17, 2003).4.11
    
    An utilization agreement for the remaining life of APSTAR I
by and between APT Satellite Company Limited, a wholly owned
subsidiary of the Company, and the customer, dated October 22, 2004 (incorporated by reference to the Companys 6-K
filed with the Commission on October 29, 2004).4.12
    
    An agreement by and between APT Satellite Company Limited, a wholly owned subsidiary of the
Company, and the grantor and contractor of APSTAR VIB dated November 10, 2004 (incorporated by
reference to the Companys 6-K filed with the Commission on November 15, 2004).4.13
    
    Two Master Agreements by and between the Company and Singapore Telecommunications Limited;
and the Company and C2C Pte Limited dated December 1, 2004 (incorporated by reference to the
Companys 6-K filed with the Commission on December 3, 2004).8.1
    
    List of subsidiaries and the jurisdictions under which each does business (contained in Note
1 to the Consolidated Financial Statements in Item 18 herein).8.2**
    
    Financial statements of APT Satellite Telecommunications Limited12.1**
    
    Certification of CEO12.2**
    
    Certification of CFO14.1**
    
    Amended Charter of the Audit Committee14.2**
    
    Charter of the Nomination Committee14.3**
    
    Charter of the Remuneration Committee99.1**
    
    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 2002.99.3**
    
    Significant Differences in Corporate Governance Practices.
 
 **
    
    Filed herewith. 79




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SIGNATURES The Company hereby certifies that it meets all of the requirements for filing an Annual Report
on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its
behalf. APT SATELLITE HOLDINGS LIMITED /s/ CHEN ZHAOBINChen ZhaobinExecutive Director and President
 Date:   
June 29, 2005 80




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm
    
    F  2 & 3Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F  4 & 5Consolidated Statements of Operations for the years ended
December 31, 2002, 2003 and 2004
    
    F  6Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2002, 2003 and 2004
    
    F  7Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2003 and 2004
    
    F  8 & 9Notes on the Consolidated Financial Statements
    
    F  10 & 62
 F - 1




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(KPMG LOGO) 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and
Shareholders of
APT Satellite Holdings Limited: We have audited the accompanying consolidated balance sheets of APT Satellite Holdings Limited and
subsidiaries (the Group) as of December 31, 2003 and 2004 and the related consolidated statements
of operations, changes in shareholders equity and cash flows for the years ended December 31, 2003
and 2004, all expressed in Hong Kong dollars. These consolidated financial statements are the
responsibility of the Groups management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The accompanying consolidated financial
statements of APT Satellite Holdings Limited and subsidiaries as of December 31, 2002 were audited
by other auditors whose report thereon dated April 7, 2003, expressed an unqualified opinion on
those consolidated financial statements, before the restatement described in Note 19 to the
consolidated financial statements. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States) and auditing standards generally accepted in Hong Kong. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of APT Satellite Holdings Limited and subsidiaries as of
December 31, 2003 and 2004, and the results of their operations and their cash flows for each of
the years in the two-year period ended December 31, 2003 and 2004, in conformity with accounting
principles generally accepted in Hong Kong. As discussed above, the consolidated financial statements of APT Satellite Holdings Limited and
subsidiaries as of December 31, 2002, and for the year then ended were audited by other auditors.
As described in Note 19, the Group changed the composition of its reportable segments in 2004, and
the amounts in the 2002 and 2003 consolidated financial statements relating to reportable segments
have been restated to conform to the 2004 composition of reportable segments. We audited the
adjustments that were applied to restate the 2002 disclosures for reportable segments reflected in
Note 19. In our opinion, such adjustments are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the 2002 consolidated
financial statements of the Group, other than with respect to such adjustments and, accordingly, we
do not express an opinion or any other form of assurance on the 2002 consolidated financial
statements taken as a whole. Accounting principles generally accepted in Hong Kong vary in certain significant respects from
accounting principles generally accepted in the United States of America. Information relating to
the nature and effect of such differences is presented in Note 22 to the consolidated financial
statements. The accompanying consolidated financial statements as of and for the year ended December 31, 2004
have been translated into United States dollars solely for the convenience of the reader. We have
audited the translation, and in our opinion, the consolidated financial statements expressed in
Hong Kong dollars have been translated into United States dollars on the basis set forth in Note 2
to the consolidated financial statements. KPMG
Hong Kong
April 11, 2005 F - 2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of APT Satellite Holdings Limited We have audited the consolidated statements of operations, shareholders equity and comprehensive
income, and cash flows for the year ended December 31, 2002 (all expressed in Hong Kong dollars).
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States) and auditing standards general accepted in Hong Kong. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion. As disclosed in note 19, the Company changed the composition of its reportable segments in
2004, and accordingly, the amounts disclosed in 2002 financial statements relating to the
reportable segments have been restated to conform to the 2004 composition of its reportable
segments. We have not audited the restatement adjustments for changes in segment composition of
the reportable segment. Except for the restatements on the segment information for 2002 as discussed above, in our opinion,
such financial statements present fairly, in all material respects, the result of operations and
cashflows of APT Satellite Holdings Limited and its subsidiaries for the year ended December 31,
2002, in conformity with accounting principles generally accepted in Hong Kong. Accounting principles generally accepted in Hong Kong vary in certain significant respects from
accounting principles generally accepted in the United States of America. The applications of the
latter would have affected the determination of net income for the year ended December 31, 2002, to
the extent summarized in note 22. Deloitte Touche Tohmatsu
Hong Kong
April 7, 2003 (July 1, 2003 as to note 11 c (ii)) (June 28, 2004 as to note 15 (b)) F - 3




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2004
  December 31,Note
    
    
    2003
    
    
    2004
    
    
    2004HK$
    
    
    HK$
    
    
    US$ASSETSCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    546,864
    
    
    
    673,763
    
    
    
    86,380Pledged bank deposits
    
    
    7
    
    
    
    111,863
    
    
    
    21,140
    
    
    
    2,710Trade receivables, less allowance of HK$4,220
in 2003 and HK$9,874 in 2004
    
    
    
    
    
    
    68,364
    
    
    
    45,753
    
    
    
    5,866Amount due from immediate holding company
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    Amount due from a jointly controlled entity
    
    
    6
    
    
    
    
    
    
    
    2,700
    
    
    
    346Deposits, prepayments and other receivables, less
allowance of HK$10,219 in 2003 and
HK$10,219 in 2004
    
    
    
    
    
    
    32,662
    
    
    
    24,752
    
    
    
    3,174Total current assets
    
    
    
    
    
    
    759,773
    
    
    
    768,108
    
    
    
    98,476Property, plant and equipment, net
    
    
    4
    
    
    
    2,445,360
    
    
    
    2,696,275
    
    
    
    345,676Investment property
    
    
    5
    
    
    
    2,262
    
    
    
    2,340
    
    
    
    300Interest in jointly controlled entities
    
    
    6Share of net assets
    
    
    
    
    
    
    12,935
    
    
    
    10,226
    
    
    
    1,311Amounts due from jointly controlled entities
    
    
    
    
    
    
    69,846
    
    
    
    67,914
    
    
    
    8,707Prepayment for construction of a satellite
    
    
    
    
    
    
    
    
    
    
    38,454
    
    
    
    4,930Other assets
    
    
    
    
    
    
    5,977
    
    
    
    33,581
    
    
    
    4,305Deferred tax assets
    
    
    16
    
    
    
    9,416
    
    
    
    10,134
    
    
    
    1,299TOTAL ASSETS
    
    
    
    
    
    
    3,305,569
    
    
    
    3,627,032
    
    
    
    465,004
 See accompanying notes to the consolidated financial statements. F - 4




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS (continued)
AS OF DECEMBER 31, 2003 AND 2004
(Amounts stated in thousands, except share data) December 31,Note
    
    
    2003
    
    
    2004
    
    
    2004HK$
    
    
    HK$
    
    

    US$LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesPayables and accrued charges
    
    
    10
    
    
    
    50,237
    
    
    
    45,139
    
    
    
    5,787Rentals received in advance
    
    
    
    
    
    
    20,961
    
    
    
    30,652
    
    
    
    3,930Loan from a minority shareholder
    
    
    
    
    
    
    
    
    
    
    7,488
    
    
    
    960Income taxes payable
    
    
    16
    
    
    
    188,231
    
    
    
    84,768
    
    
    
    10,868Bank loans - current portion
    
    
    7
    
    
    
    17,550
    
    
    
    66,339
    
    
    
    8,505Total current liabilities
    
    
    
    
    
    
    276,979
    
    
    
    234,386
    
    
    
    30,050Loan from a minority shareholder
    
    
    
    
    
    
    7,488
    
    
    
    
    
    
    
    Deposits received
    
    
    8
    
    
    
    37,960
    
    
    
    12,607
    
    
    
    1,616Bank loans  non-current portion
    
    
    7
    
    
    
    684,450
    
    
    
    909,441
    
    
    
    116,595Deferred income
    
    
    9
    
    
    
    27,881
    
    
    
    261,380
    
    
    
    33,510Deferred tax liabilities
    
    
    16
    
    
    
    11,866
    
    
    
    12,209
    
    
    
    1,565TOTAL LIABILITIES
    
    
    
    
    
    
    1,046,624
    
    
    
    1,430,023
    
    
    
    183,336Contingencies and commitments
    
    
    11Minority interests
    
    
    
    
    
    
    5,915
    
    
    
    3,856
    
    
    
    495Shareholders equityCapital
stock - Common stock
    
    
    12
    
    
    
    41,327
    
    
    
    41,327
    
    
    
    5,299Additional paid-in capital
    
    
    13
    
    
    
    1,796,466
    
    
    
    1,796,466
    
    
    
    230,316Revaluation reserve
    
    
    
    
    
    
    7,700
    
    
    
    5,500
    
    
    
    705Translation reserve
    
    
    
    
    
    
    (100
    )
    
    
    (20
    )
    
    
    (3
    )Other reserves
    
    
    13
    
    
    
    102
    
    
    
    102
    
    
    
    13Retained earnings
    
    
    
    
    
    
    407,535
    
    
    
    349,778
    
    
    
    44,843Total shareholders equity
    
    
    
    
    
    
    2,253,030
    
    
    
    2,193,153
    
    
    
    281,173TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY
    
    
    
    
    
    
    3,305,569
    
    
    
    3,627,032
    
    
    
    465,004
 See accompanying notes to the consolidated financial statements. F - 5




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CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
  Years ended December 31,Note
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004HK$
    
    
    HK$
    
    
    HK$
    
    
    US$Operating revenuesProvision of satellite transponder capacity to:Unaffiliated customers
    
    
    
    
    
    
    262,571
    
    
    
    212,830
    
    
    
    168,611
    
    
    
    21,617Related parties
    
    
    17
    
    
    
    61,390
    
    
    
    61,822
    
    
    
    58,267
    
    
    
    7,470Provision of satellite-based telecommunications services to:Unaffiliated customers
    
    
    
    
    
    
    11,354
    
    
    
    16,403

    
    
    
    37,665
    
    
    
    4,829Related parties
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    1,018
    
    
    
    131Service income received from:Unaffiliated customers
    
    
    
    
    
    
    6,110
    
    
    
    6,614
    
    
    
    8,562
    
    
    
    1,098Related parties
    
    
    17
    
    
    
    10,000
    
    
    
    4,572
    
    
    
    3,137
    
    
    
    402Total revenues
    
    
    
    
    
    
    351,425
    
    
    
    302,241
    
    
    
    277,260
    
    
    
    35,547Costs and expensesCost of service including depreciation
and amortization of 2002: HK$233,713,
2003: HK$236,027 and 2004: HK$177,692
    
    
    
    
    
    
    (275,717
    )
    
    
    (280,319
    )
    
    
    (244,755
    )
    
    
    (31,379
    )Selling, general and administrative including
depreciation and amortization of 2002: HK$258,
2003: HK$295 and 2004: HK$300
    
    
    
    
    
    
    (69,886
    )
    
    
    (74,892
    )
    
    
    (78,680
    )
    
    
    (10,087
    )Total costs and expenses
    
    
    
    
    
    
    (345,603
    )
    
    
    (355,211
    )
    
    
    (323,435
    )
    
    
    (41,466
    )5,822
    
    
    
    (52,970
    )
    
    
    (46,175
    )
    
    
    (5,919
    )Other operating revenuesInterest
income - net
    
    
    
    
    
    
    22,189
    
    
    
    7,111
    
    
    
    7,312
    
    
    
    937Reversal of provision on regulatory
matters previously recognized in the life
lease of transponders of APSTAR IIR
    
    
    
    
    
    
    47,212
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    
    
    
    
    2,926
    
    
    
    25,928
    
    
    
    2,020
    
    
    
    259(Deficit)/surplus arising on revaluation of
investment property
    
    
    5
    
    
    
    (70
    )
    
    
    (70
    )
    
    
    78
    
    
    
    10Impairment loss recognized in respect
of property, plant and equipment
    
    
    4
    
    
    
    (5,218
    )
    
    
    (129,098
    )
    
    
    (1,800
    )
    
    
    (231
    )Impairment loss recognized in respect
of goodwill arising on acquisition
of interest in a subsidiary
    
    
    
    
    
    
    (3,376
    )
    
    
    
    
    
    
    
    
    
    
    Gain on partial disposal of an associate
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    Profit/(loss) from operations
    
    
    18
    (d)
    

    
    69,485
    
    
    
    (149,087
    )
    
    
    (38,565
    )
    
    
    (4,944
    )Borrowing costs
    
    
    18
    (b)
    
    
    
    
    
    
    
    
    
    
    (4,117
    )
    
    
    (529
    )Share of losses of jointly controlled
entities
    
    
    
    
    
    
    (10,624
    )
    
    
    (64,833
    )
    
    
    (509
    )
    
    
    (65
    )Income/(loss) before income taxes and
minority interests
    
    
    
    
    
    
    58,861
    
    
    
    (213,920
    )
    
    
    (43,191
    )
    
    
    (5,538
    )Provision for income taxes
    
    
    15
    
    
    
    (36,814
    )
    
    
    (11,721
    )
    
    
    (16,625
    )
    
    
    (2,131
    )Minority interests
    
    
    
    
    
    
    2,388
    
    
    
    923
    
    
    
    2,059
    
    
    
    264Net income/(loss)
    
    
    
    
    
    
    24,435
    
    
    
    (224,718
    )
    
    
    (57,757
    )
    
    
    (7,405
    )Earnings/(loss) per share- Basic
    
    
    
    
    
        6 cents
    
    
        (54 cents
    )
    
    (14 cents
    )
    
    (2 cents
    )- Diluted
    
    
    
    
    
        6 cents
    
    
        (54 cents
    )
    


        (14 cents
    )

    
        (2 cents
    )
 See accompanying notes to the consolidated financial statements. F - 6




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
  AdditionalCapital
    
    
    paid-in
    
    
    Revaluation
    
    
    Translation
    
    
    Other
    
    
    Retainedstock
    
    
    capital
    
    
    reserve
    
    
    reserve
    
    
    reserves
    
    
    earnings
    
    
    TotalHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Balance at January 1, 2002
    
    
    41,272
    
    
    
    1,794,809
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    628,492
    
    
    
    2,464,637Repurchase of shares
    
    
    (18
    )
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (307
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    182Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (30
    )
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,636
    )
    
    
    (20,636
    )Net profit for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,435
    
    
    
    24,435At January 1, 2003
    
    
    41,254
    
    
    
    1,794,520
    
    
    
    
    
    
    
    182
    
    
    
    94
    
    
    
    632,261
    
    
    
    2,468,311Shares issued under the share option scheme
    
    
    73
    
    
    
    1,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,019Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    
    
    
    
    
    
    
    
    (282
    )Share of a jointly controlled entitys reserve
    
    
    
    
    
    
    
    
    
    
    7,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,700Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (224,718
    )
    
    
    (224,718
    )At January 1, 2004
    
    
    41,327
    
    
    
    1,796,466
    
    
    
    7,700
    
    
    
    (100
    )
    
    
    102
    
    
    
    407,535
    
    
    
    2,253,030Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    80Share of a jointly controlled entitys reserve
    
    
    
    
    
    
    
    
    
    
    (2,200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,200
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,757
    )
    
    
    (57,757
    )At December 31, 2004
    
    
    41,327
    
    
    
    1,796,466
    
    
    
    5,500
    
    
    
    (20
    )
    
    
    102
    
    
    
    349,778
    
    
    
    2,193,153At December 31, 2004 (in US$)
    
    
    5,299
    
    
    
    230,316
    
    
    
    705
    
    
    
    (3
    )
    
    
    13
    
    
    
    44,843
    
    
    
    281,173Attributable to jointly controlled entitiesAt December 31, 2004
    
    
    
    
    
    
    
    
    
    
    5,500
    
    
    
    
    
    
    
    
    
    
    
    (80,370
    )
    
    
    (74,870
    )At December 31, 2003
    
    
    
    
    
    
    
    
    
    
    7,700
    
    
    
    
    
    
    
    
    
    
    
    (79,861
    )
    
    
    (72,161
    )At December 31, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,028
    )
    
    
    (15,028
    )
 See accompanying notes to the consolidated financial statements. F - 7




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
  Years ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2004HK$
    
    
    HK$
    
    
    HK$
    
    
    US$Operating activitiesIncome/(loss) before income taxes and minority interests
    
    
    58,861
    
    
    
    (213,920
    )
    
    
    (43,191
    )
    
    
    (5,538
    )Adjustments for:Depreciation
    
    
    233,971
    
    
    
    236,322
    
    
    
    177,992
    
    
    
    22,820Amortization of goodwill
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    Impairment losses recognized
    
    
    8,594
    
    
    
    129,098
    
    
    
    1,800
    
    
    
    231Gain on partial disposal of an associate
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    Interest income
    
    
    (22,189
    )
    
    
    (7,111
    )
    
    
    (7,312
    )
    
    
    (937
    )Interest expenses
    
    
    
    
    
    
    
    
    
    
    3,671
    
    
    
    471Loss on disposal of property, plant and equipment
    
    
    30
    
    
    
    
    
    
    
    32
    
    
    
    4Deficit/(surplus) arising on revaluation of investment property
    
    
    70
    
    
    
    70
    
    
    
    (78
    )
    
    
    (10
    )Share of losses of jointly controlled entities
    
    
    10,624
    
    
    
    64,833
    
    
    
    509
    
    
    
    65Reversal of provision on regulatory matters
    
    
    (47,212
    )
    
    
    
    
    
    
    
    
    
    
    Allowance for doubtful receivables
    
    
    5,207
    
    
    
    8,402
    
    
    
    5,654
    
    
    
    725Operating profit before changes in working capital
    
    
    248,616
    
    
    
    217,682
    
    
    
    139,077
    
    
    
    17,831Decrease/(increase) in trade receivables
    
    
    1,659
    
    
    
    (47,055
    )
    
    
    16,957
    
    
    
    2,174Increase in deposits, prepayment and deferred expenses
    
    
    (252
    )
    
    
    (87
    )
    
    
    (27,604
    )
    
    
    (3,539
    )Decrease/(increase) in amount due from immediate
holding company
    
    
    20
    
    
    
    (20
    )
    
    
    20
    
    
    
    2(Increase)/decrease in deposits, prepayments and other
receivables
    
    
    (30,175
    )
    
    
    (240
    )
    
    
    17,261
    
    
    
    2,213Decrease in payables and accrued charges
    
    
    (5,534
    )
    
    
    (955
    )
    
    
    (8,939
    )
    
    
    (1,146
    )(Decrease)/increase in rentals received in advance
    
    
    (8,379
    )
    
    
    (13,789
    )
    
    
    9,691
    
    
    
    1,242Decrease/(increase) in amounts due from jointly controlled
entities
    
    
    198
    
    
    
    (12,731
    )
    
    
    (768
    )
    
    
    (98
    )(Increase)/decrease in amount due from an associate
    
    
    (209
    )
    
    
    209
    
    
    
    
    
    
    
    (Decrease)/increase in deferred income
    
    
    (22,286
    )
    
    
    (22,286
    )
    
    
    233,499
    
    
    
    29,936Decrease in deposits received
    
    
    (4,109
    )
    
    
    (1,582
    )
    
    
    (25,353
    )
    
    
    (3,250
    )Cash generated from operations
    
    
    179,549
    
    
    
    119,146
    
    
    
    353,841
    
    
    
    45,365Hong Kong profits tax paid
    
    
    (7,422
    )
    
    
    (9,541
    )
    
    
    (108,135
    )
    
    
    (13,863
    )Overseas tax paid
    
    
    (9,364
    )
    
    
    (18,313
    )
    
    
    (12,328
    )
    
    
    (1,581
    )Net cash from operating activities
    
    
    162,763
    
    
    
    91,292
    
    
    
    233,378
    
    
    
    29,921Investing activitiesPayment for purchase of property, plant and equipment and construction of satellites
    
    
    (1,091,362
    )
    
    
    (763,454
    )
    
    
    (462,026
    )
    
    
    (59,234
    )Payment for acquisition of a subsidiary, net of cash acquired
    
    
    (4,421
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from partial disposal of an associate
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    Proceeds from disposal of property, plant and equipment
    
    
    5
    
    
    
    1
    
    
    
    1
    
    
    
    Advances/loans to jointly controlled entities
    
    
    (23,650
    )
    
    
    (40,920
    )
    
    
    
    
    
    
    Interest received
    
    
    20,254
    
    
    
    9,279
    
    
    
    6,810
    
    
    
    873Decrease in pledged bank deposits
    
    
    61,982
    
    
    
    205,823
    
    
    
    90,723
    
    
    
    11,631Net cash used in investing activities
    
    
    (1,037,192
    )
    
    
    (589,259
    )
    
    
    (364,492
    )
    
    
    (46,730
    )
 See accompanying notes to the consolidated financial statements. F - 8




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS  continued
FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(Amounts stated in thousands) Years ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2004HK$
    
    
    HK$
    
    
    HK$
    
    
    US$Financing activitiesInterest paid
    
    
    
    
    
    
    (3,681
    )
    
    
    (15,847
    )
    
    
    (2,032
    )New bank borrowings
    
    
    163,800
    
    
    
    538,200
    
    
    
    273,780
    
    
    
    35,100Repayment of bank borrowings
    
    
    (61,986
    )
    
    
    (317,682
    )
    
    
    
    
    
    
    Dividends paid
    
    
    (20,636
    )
    
    
    
    
    
    
    
    
    
    
    Repurchase of shares
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from shares issued under the share option scheme
    
    
    
    
    
    
    2,019
    
    
    
    
    
    
    
    Net cash from financing activities
    
    
    80,871
    
    
    
    218,856
    
    
    
    257,933
    
    
    
    33,068Net (decrease)/increase in cash and cash equivalents
    
    
    (793,558
    )
    
    
    (279,111
    )
    
    
    126,819
    
    
    
    16,259Cash and cash equivalents at January 1,
    
    
    1,619,686
    
    
    
    826,257
    
    
    
    546,864
    
    
    
    70,111Effect of foreign exchange rate changes
    
    
    129
    
    
    
    (282
    )
    
    
    80
    
    
    
    10Cash and cash equivalents at December 31,
    
    
    826,257
    
    
    
    546,864
    
    
    
    673,763
    
    
    
    86,380Analysis of the balance of cash and cash equivalents:Deposits with banks
    
    
    812,709
    
    
    
    539,916
    
    
    
    661,677
    
    
    
    84,830Cash at bank and in hand
    
    
    13,548
    
    
    
    6,948
    
    
    
    12,086
    
    
    
    1,550Cash and cash equivalents at December 31,
    
    
    826,257
    
    
    
    546,864
    
    
    
    673,763
    
    
    
    86,380
 See accompanying notes to the consolidated financial statements. F - 9




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIESAPT Satellite Holdings Limited (the Company) was incorporated under the laws of Bermuda on
October 17, 1996 with limited liability. The Company owns all the issued shares of APT
Satellite Investment Company Limited, which, in turn, holds all the issued voting shares of
APT Satellite Company Limited.The Company and its subsidiaries (hereafter collectively referred to as the Group)
currently operate four satellites. The Companys first satellite, APSTAR I, was launched in
July 1994 and commenced commercial service in September 1994. After the commencement of
commercial service of APSTAR V, APSTAR I was operated in an inclined mode in October 2004.
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. The Companys
fourth satellite, APSTAR V, was launched in June 2004 and commenced commercial service in
August 2004. In August 1999, the Company provided 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, 2004, the
construction of APSTAR VI was proceeding as planned and they are scheduled for delivery in
the second quarter of 2005, to replace APSTAR IA.The following list contains only the particulars of subsidiaries which principally affected
the results, assets or liabilities of the Group. The class of shares held is ordinary
unless otherwise stated.All of these are controlled subsidiaries and have been consolidated into the Group financial
statements. F - 10




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##### Table of Contents



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




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  2.
    
    BASIS OF PRESENTATION The consolidated financial statements have been prepared in accordance with all applicable
Hong Kong Financial Reporting Standards as they apply to the Group (which includes all
applicable Statements of Standard Accounting Practice and Interpretations) issued by the
Hong Kong Institute of Certified Public Accountants (previously named the Hong Kong Society
of Accountants), accounting principles generally accepted in Hong Kong (HK GAAP) which
differ in certain significant respects from accounting principles generally accepted in the
United States of America (US GAAP). The differences between HK GAAP and US GAAP as they
apply to the Group are summarized in note 22. The measurement basis used in the preparation of the consolidated financial
statements is historical cost modified by the revaluation of investment properties as
explained in the accounting policies set out below. The consolidated financial statements of the Group are expressed in Hong Kong dollars
(HK$). The translations of amounts from Hong Kong dollars into United States dollars for
convenience of the reader have been made at the rate on December 31, 2004 of HK$7.80 =
US$1.00, which approximates the noon buying rate in New York City for cable transfers in
Hong Kong Dollars as certified for customs purposes by the Federal Reserve Bank of New York
on December 31, 2004. No representation is made that the Hong Kong dollar amounts could
have been, or could be, converted into United States dollars at that rate or at any other
certain rate on December 31, 2004, or any other certain date.  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (a)
    
    Basis of consolidation The consolidated financial statements include the financial statements of the
Company and its subsidiaries. A subsidiary is an enterprise controlled by the
Company. Control exists when the Company has the power, directly or indirectly, to
govern the financial and operating policies of an enterprise, so as to obtain
benefits from their activities. All significant intra-group balances and transactions, and any
unrealized profits arising from intra-group transactions, are eliminated in
full in preparing the consolidated financial statements. Unrealized losses
resulting from intra-group transactions are eliminated in the same way as
unrealized profits, but only to the extent that there is no evidence of
impairment. F - 12




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##### Table of Contents



Minority interests at the balance sheet date, being the portion of the net assets of
subsidiaries attributable to equity interests that are not owned by the
Company, whether directly or indirectly through subsidiaries, are presented in
the consolidated balance sheet separately from liabilities and the
shareholders equity. Minority interests in the results of the Group for the
year are also separately presented in the consolidated statements of
operations. The particulars of the Groups principal subsidiaries are set out
in note 1. F - 13




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (b)
    
    Associates and jointly controlled entities An associate is an entity in which the Group or Company has significant influence,
but not control or joint control, over its management, including participation in
the financial and operating policy decisions. A jointly controlled entity is an entity which operates under a contractual
arrangement between the Group or Company and other parties, where the contractual
arrangement establishes that the Group or Company and one or more of the other
parties share joint control over the economic activity of the entity. An investment in an associate or a jointly controlled entity is accounted for in the
consolidated financial statements under the equity method and is initially recorded
at cost and adjusted thereafter for the post acquisition change in the Groups share
of the associates or the jointly controlled entitys net assets. The consolidated
statements of operations reflect the Groups share of the post-acquisition results
of the associates and jointly controlled entities for the year. When the Groups
share of losses exceeds the carrying amount of the associate, the carrying amount is
reduced to nil and recognition of further losses is discontinued except to the
extent that the Group has incurred obligations in respect of the associate or made
payable on behalf of the associate to satisfy obligation of the associate that the
Group has guaranteed or otherwise committed. Unrealized profits and losses resulting from transactions between the Group and its
associates and jointly controlled entities are eliminated to the extent of the
Groups interest in the associate or jointly controlled entity, except where
unrealized losses provide evidence of an impairment of the asset transferred, in
which case they are recognized immediately in the consolidated statements of
operations. F - 14




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (c)
    
    Goodwill Positive goodwill arising on consolidation represents the excess of the cost of the
acquisition over the Groups share of the fair value of the identifiable assets
acquired and liabilities assumed. In respect of controlled subsidiaries for
acquisitions on or after January 1, 2001, positive goodwill is amortized to the
consolidated statements of operations on a straight-line basis over its estimated
useful life. Positive goodwill is stated in the consolidated balance sheet at cost
less any accumulated amortization and any impairment losses (see note 3(g)). In respect of acquisitions of associates and jointly controlled entities, positive
goodwill is amortized to the consolidated statements of operations on a
straight-line basis over its estimated useful life. The cost of positive goodwill
less any accumulated amortization and any impairment losses (see note 3(g)) is
included in the carrying amount of the interest in associates or jointly controlled
entities. On disposal of a controlled subsidiary, an associate or a jointly controlled entity
during the year, any attributable amount of purchased goodwill not previously
amortized through the consolidated statements of operations or which has previously
been dealt with as a movement on Group reserves is included in the calculation of
the profit or loss on disposal.  (d)
    
    Property, plant and equipment, and investment property  (i)
    
    Fixed assets are carried in the balance sheets on the following
bases:  
    
    property, plant, and equipment, other than construction in progress,
are stated in the balance sheet at cost less accumulated depreciation
(see note 3(f)) and impairment losses (see note 3(g)); and  
    
    construction in progress is stated at specifically
identified cost, including borrowing costs capitalized, aggregate cost of
development, materials and supplies, wages and other direct expenses,
less impairment losses (see note 3(g)); and  
    
    investment properties with an unexpired lease term of
more than 20 years are stated in the balance sheet at their open market
value which is assessed annually by external qualified valuers.  (ii)
    
    Changes arising on the revaluation of investment properties are generally
dealt with in reserves. The only exceptions are as follows:  
    
    when a deficit arises on revaluation, it will be charged to the
consolidated statements of operations, if and to the extent that it
exceeds the amount held in the reserve in respect of the portfolio of
investment properties immediately prior to the revaluation; and F - 15




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (d)
    
    Property, plant and equipment, and investment property (continued)  
    
    when a surplus arises on revaluation, it will be credited to the
consolidated statements of operations, if and to the extent that a deficit
on revaluation in respect of the portfolio of investment properties had
previously been charged to the consolidated statements of operations.  (iii)
    
    Subsequent expenditure relating to a fixed asset that has already been
recognized is added to the carrying amount of the asset when it is probable
that future economic benefits, in excess of the originally assessed standard of
performance of the existing asset, will flow to the enterprise. All other
subsequent expenditure is recognized as an expense in the period in which it is
incurred.  (iv)
    
    Gains or losses arising from the retirement or disposal of a
fixed asset are determined as the difference between the estimated net disposal
proceeds and the carrying amount of the asset and are recognized in the
consolidated statements of operations on the date of retirement or disposal. On
disposal of an investment property, the related portion of surpluses or
deficits previously taken to the investment properties revaluation reserve is
also transferred to the consolidated statements of operations for the year.  (e)
    
    Leased assets Leases of assets under which the lessee assumes substantially all the risks and
benefits of ownership are classified as finance leases. Leases of assets under which
the lessor has not transferred all the risks and benefits of ownership are
classified as operating leases.  (i)
    
    Assets acquired under finance leases Where the Group acquires the use of assets under finance leases, the amounts
representing the fair value of the leased asset, or, if lower, the present
value of the minimum lease payments, of such assets are included in fixed
assets and the corresponding liabilities, net of finance charges, are recorded
as obligations under finance leases. Depreciation is provided at rates which
write off the cost of the assets in equal annual amounts to residual values,
over the term of the relevant lease or, where it is likely the
Company or Group will obtain ownership of the asset, the life of the asset, as
set out in note 3(f). Impairment losses are accounted for in accordance with
the accounting policy as set out in note 3(g). Finance charges implicit in the
lease payments are charged to the statements of operations over the period of
the leases so as to produce an approximately constant periodic rate of charge
on the remaining balance of the obligations for each accounting period.
Contingent rentals are written off as an expense of the accounting period in
which they are incurred. F - 16




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (e)
    
    Leased assets (continued)  (ii)
    
    Assets held for use in operating leases Where the Group leases out assets under operating leases, the assets are
included in the consolidated balance sheet according to their nature and,
where applicable, are depreciated in accordance with the Groups depreciation
policies, as set out in note 3(f). Impairment losses are accounted for in
accordance with the accounting policy as set out in note 3(g). Revenue arising
from operating leases is recognized in accordance with the Groups revenue
recognition policies, as set out in note 3(l)(iv).  (iii)
    
    Operating lease charges Where the Group has the use of assets under operating leases, payments made
under the leases are charged to the consolidated statements of operations in
equal instalments over the accounting periods covered by the lease term,
except where an alternative basis is more representative of the pattern of
benefits to be derived from the leased asset. Lease incentives received are
recognized in the consolidated statements of operations as an integral part of
the aggregate net lease payments made. Contingent rentals are charged to the
consolidated statements of operations in the accounting period in which they
are incurred.  (f)
    
    Amortization and depreciation  (i)
    
    No depreciation is provided on investment properties with an
unexpired lease term of over 20 years or on freehold land.  (ii)
    
    No depreciation is provided on construction in progress until
such time as the relevant assets are completed and ready for their intended
use.  (iii)
    
    Depreciation is calculated to write off the cost of property,
plant and equipment on a straight-line basis over their estimated useful lives,
to residual values, as follows: Leasehold land
    
    45 to 50 yearsLeasehold buildings
    
    50 yearsLeasehold improvements
    
    45 to 50 yearsFurniture and equipment, motor vehicles, and computer
equipment
    
    5 yearsCommunication satellite equipment
    
    5 to 15 yearsCommunication station
    
    5 yearsCommunication satellites
    
    9 to 16 years
  (g)
    
    Impairment of assets Internal and external sources of information are reviewed at each balance sheet date
to identify indications that the following assets may be impaired or an impairment
loss previously recognized no longer exists or may have decreased:  
    
    property, plant and equipment (other than properties carried at
revalued amounts); F - 17




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (g)
    
    Impairment of assets (continued)  
    
    intangible assets; and  
    
    positive goodwill (whether taken initially to reserves or
recognized as an asset). If any such indication exists, the assets recoverable amount is estimated. An
impairment loss is recognized in the consolidated statements of operations whenever
the carrying amount of such an asset (including positive goodwill taken directly to
reserves) exceeds its recoverable amount.  (i)
    
    Calculation of recoverable amount
The recoverable amount of an asset is the greater of its net selling price and
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of time value of money and the risks specific to
the asset. Where an asset does not generate cash inflows largely independent
of those from other assets, the recoverable amount is determined for the
smallest group of assets that generates cash inflows independently (i.e. a
cash-generating unit).  (ii)
    
    Reversals of impairment losses In respect of assets other than goodwill, an impairment loss is reversed if
there has been a favourable change in the estimates used to determine the
recoverable amount. An impairment loss in respect of positive goodwill is
reversed only if the loss was caused by a specific external event of an
exceptional nature that is not expected to recur, and the increase in
recoverable amount relates clearly to the reversal of the effect of that
specific event. A reversal of impairment losses is limited to the assets carrying amount that
would have been determined had no impairment loss been recognized in prior
years. Reversals of impairment losses are credited to the consolidated
statements of operations in the year in which the reversals are recognized.  (h)
    
    Cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with
banks and short-term, highly liquid investments that are readily convertible into
known amounts of cash and which are subject to an insignificant risk of changes in
value, having been within three months of maturity at acquisition. None of the
Groups cash and cash equivalents is restricted as to withdrawal.  (i)
    
    Employee benefits  (i)
    
    Salaries, annual bonuses, paid annual leave, leave passage and
the cost to the Group of non-monetary benefits are accrued in the year in which
the associated services are rendered by employees of the Group. Where payment
or settlement is deferred and the effect would be material, these amounts are
stated at their present values. F - 18




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (i)
    
    Employee benefits (continued)  (ii)
    
    Contributions to Mandatory Provident Funds as required under
the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognized as an
expense in the consolidated statements of operations as incurred.  (iii)
    
    The employees of the Group in the PRC participate in
retirement plans managed by respective local governments of the municipalities
in which the Group operates. The Groups contributions to the plan are
calculated based on fixed rates of the employees salary costs and charged to
the consolidated statements of operations when incurred. The Group has no other
obligation for the payment of retirement and other post-retirement benefits of
employees other than the contributions described above.  (iv)
    
    When the Group grants employees options to acquire shares of
the Company at nil consideration, no employee benefit cost or obligation is
recognized at the date of grant. When the options are exercised, equity is
increased by the amount of the proceeds received.  (j)
    
    Income tax  (i)
    
    Income tax for the year comprises current tax and movements in
deferred tax assets and liabilities. Current tax and movements in deferred tax
assets and liabilities are recognized in the consolidated statements of
operations except to the extent that they relate to items recognized directly
in equity, in which case they are recognized in equity.  (ii)
    
    Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at the balance
sheet date, and any adjustment to tax payable in respect of previous years.  (iii)
    
    Deferred tax assets and liabilities arise from deductible and
taxable temporary differences respectively, being the differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
their tax bases. Deferred tax assets also arise from unused tax losses and
unused tax credits.  Apart from certain limited exceptions, all deferred tax liabilities, and all
deferred tax assets to the extent that it is probable that future taxable
profits will be available against which the asset can be utilized, are
recognized. Future taxable profits that may support the recognition of
deferred tax assets arising from deductible temporary differences include
those that will arise from the reversal of existing taxable temporary
differences, provided those differences relate to the same taxation authority
and the same taxable entity, and are expected to reverse either in the same
period as the expected reversal of the deductible temporary difference or in
periods into which a tax loss arising from the deferred tax asset can be
carried back or forward. The same
criteria are adopted when determining whether existing taxable temporary
differences support the recognition of deferred tax assets arising from unused
tax losses and credits, that is, those differences are taken into account if
they relate to the same taxation authority and the same taxable entity, and
are expected to reverse in a period, or periods, in which the tax loss or
credit can be utilized. F - 19




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (j)
    
    Income tax (continued) The limited exceptions to recognition of deferred tax assets and liabilities
are those temporary differences arising from positive goodwill not deductible
for tax purposes, negative goodwill treated as deferred income, the initial
recognition of assets or liabilities that affect neither accounting nor
taxable profit (provided they are not part of a business combination), and
temporary differences relating to investments in subsidiaries to the extent
that, in the case of taxable differences, the Group controls the timing of the
reversal and it is probable that the differences will not reverse in the
foreseeable future, or in the case of deductible differences, unless it is
probable that they will reverse in the future. The amount of deferred tax recognized is measured based on the expected manner
of realization or settlement of the carrying amount of the assets and
liabilities, using tax rates enacted or substantively enacted at the balance
sheet date. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at each balance sheet
date and is reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow the related tax benefit
to be utilized. Any such reduction is reversed to the extent that it becomes
probable that sufficient taxable profit will be available. Additional income taxes that arise from the distribution of dividends are
recognized when the liability to pay the related dividends is recognized.  (iv)
    
    Current tax balances and deferred tax balances, and movements
therein, are presented separately from each other and are not offset. Current
tax assets are offset against current tax liabilities, and deferred tax assets
against deferred tax liabilities if, and only if, the Company or the Group has
the legally enforceable right to set off current tax assets against current tax
liabilities and the following additional conditions are met:  
    
    in the case of current tax assets and liabilities, the Company or the
Group intends either to settle on a net basis, or to realize the asset
and settle the liability simultaneously; or  
    
    in the case of deferred tax assets and liabilities,
if they relate to income taxes levied by the same taxation authority on
either:  
    
    the same taxable entity; or  
    
    different taxable entities, which, in each
future period in which significant amounts of deferred tax
liabilities or assets are expected to be settled or recovered, intend
to realize the current tax assets and settle the current tax
liabilities on a net basis or realize and settle simultaneously. F - 20




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (k)
    
    Provisions and contingent liabilities Provisions are recognized for liabilities of uncertain timing or amount when the
Company or Group has a legal or constructive obligation arising as a result of a
past event, it is probable that an outflow of economic benefits will be required to
settle the obligation and a reliable estimate can be made. Where the time value of
money is material, provisions are stated at the present value of the expenditures
expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or
the amount cannot be estimated reliably, the obligation is disclosed as a contingent
liability, unless the probability of outflow of economic benefits is remote.
Possible obligations, whose existence will only be confirmed by the occurrence or
non-occurrence of one or more future events are also disclosed as contingent
liabilities unless the probability of outflow of economic benefits is remote.  (l)
    
    Revenue recognition Provided it is probable that the economic benefits will flow to the Group and the
revenue and costs, if applicable, can be measured reliably, revenue is recognized in
the consolidated statements of operations as follows:  (i)
    
    Transponder utilization income Income from provision of satellite transponder capacity is recognized in the
consolidated statements of operations in equal instalments over the F - 21




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##### Table of Contents



accounting
periods covered by the contract term, except where an alternative basis is
more representative of the pattern of benefits to be derived from the
satellite transponder capacity utilized.  (ii)
    
    Service incomeService income in respect of satellite control and provision of
satellite-based telecommunications and related service is recognized when
services are provided.(iii)
    
    Interest incomeInterest income from bank deposits is accrued on a time-apportioned basis by
reference to the principal outstanding and the rate applicable.(iv)
    
    Rental income from operating leasesRental income receivable under operating leases is recognized in the
statements of operations in equal instalments over the accounting periods
covered by the leased term, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased asset.  (m)
    
    Translation of foreign currenciesForeign currency transactions during the year are translated at the exchange
rates ruling at the transaction dates. Monetary assets and liabilities denominated
in foreign currencies are translated at the exchange rates ruling at the balance
sheet date. Foreign currency assets, being equity investments or other long-term
non-monetary assets, the F-22




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (m)
    
    Translation of foreign currencies (continued)holding or the use or the subsequent disposal of which will generate receipts in a
foreign currency, hedged by foreign currency borrowings, are translated at the
exchange rates ruling at the balance sheet date.Exchange gains and losses are dealt with in the consolidated statements of
operations, except those arising from the translation at closing rates of foreign
currency assets hedged by foreign currency borrowings, and the gains and losses on
those foreign currency borrowings (to the extent of exchange differences arising on
the foreign currency assets), which are taken directly to reserves.The functional currency of the Groups main operations is the United States dollar
which is translated into Hong Kong dollar for reporting of the financial statements.
The exchange rate of the United States dollar to the Hong Kong dollar has not
materially fluctuated during the year.The results of foreign enterprises are translated into Hong Kong dollars at the
average exchange rates for the year; balance sheet items are translated into Hong
Kong dollars at the rates of exchange ruling at the balance sheet date. The
resulting exchange differences are dealt with as a movement in reserves.On disposal of a foreign enterprise, the cumulative amount of the exchange
differences which relate to that foreign enterprise is included in the calculation
of the profit or loss on disposal.(n)
    
    Borrowing costsBorrowing costs are expensed in the consolidated statements of operations in the
period in which they are incurred, except to the extent that they are capitalized as
being directly attributable to the acquisition or construction of an asset which
necessarily takes a substantial period of time to get ready for its intended use or
sale.The capitalization of borrowing costs as part of the cost of a qualifying asset
commences when expenditures for the asset are being incurred, borrowing costs are
being incurred and activities that are necessary to prepare the asset for its
intended use or sale are in progress. Capitalization of borrowing costs is suspended
or ceases when substantially all the activities necessary to prepare the qualifying
asset for its intended use or sale are interrupted or complete.(o)
    
    Related partiesFor the purposes of these financial statements, parties are considered to be related
to the Group if the Group has the ability, directly or indirectly, to control the
party or exercise significant influence over the party in making financial and
operating decisions, or vice versa, or where the Group and the party are subject to
common control or common significant influence. Related parties may be individuals
or other entities. F-23




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (p)
    
    Segment reportingA segment is a distinguishable component of the Group that is engaged either in
providing products or services (business segment), or in providing products or
services within a particular economic environment (geographical segment), which is
subject to risks and rewards that are different from those of other segments.Segment revenue, expenses, results, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on a reasonable
basis to that segment. For example, segment assets may include inventories, trade
receivables and property, plant and equipment. Segment revenue, expenses, assets,
and liabilities are determined before intra-group balances and intra-group
transactions are eliminated as part of the consolidation process, except to the
extent that such intra-group balances and transactions are between Group enterprises
within a single segment. Inter-segment pricing is based on similar terms as those
available to other external parties.Segment capital expenditure is the total cost incurred during the period to acquire
segment assets (both tangible and intangible) that are expected to be used for more
than one period.Corporate items mainly comprise financial and corporate assets, interest-bearing
loans, borrowings, corporate and financing expenses and minority interests.(q)
    
    Use of estimatesThe preparation of financial statements in conformity with HK GAAP requires
management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from those
assumptions. F-24




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)  (r)
    
    Earnings/(loss) per shareThe calculation of the basic and diluted earnings/(loss) per share is based on the
following data: 2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Earnings/(loss)Earnings/(loss) for the purposes of calculating
basic and diluted earnings/(loss) per share
(net income/(loss) for the year)
    
    
    24,435
    
    
    
    (224,718
    )
    
    
    (57,757
    )Number of shares
    
    
    000
    
    
    
    000
    
    
    
    000Weighted average number of ordinary shares
for the purposes of calculating basic earnings/(loss)
per share
    
    
    412,675
    
    
    
    412,892
    
    
    
    413,265Weighted average number of ordinary shares for
the purposes of calculating diluted earnings/(loss)
per share
    
    
    412,675
    
    
    
    412,892
    
    
    
    413,265
  Options to purchase 9,670,000 shares and 8,450,000 shares of common stock at
HK$2.765 per share were outstanding during the year 2003 and 2004, respectively, but
were not included in the computation of diluted EPS because the options exercise
price was greater than the average market price of the common shares for the period.
The options, which expire on May 21, 2011, were still outstanding at the end of
year 2004.  4.
    
    PROPERTY, PLANT AND EQUIPMENT Furniture andequipment, motor
    
    
    Commun-vehicles, and
    
    
    ication
    
    
    Commun-
    
    
    Commun-Land and
    
    
    Leasehold
    
    
    computer
    
    
    satellite
    
    
    ication
    
    
    ication
    
    
    Constructionbuildings
    
    
    improvements
    
    
    equipment
    
    
    equipment
    
    
    station
    
    
    satellites
    
    
    in progress
    
    
    TotalHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Cost:At January 1, 2004
    
    
    118,770
    
    
    
    9,251
    
    
    
    41,678
    
    
    
    125,600
    
    
    
    8,425
    
    
    
    2,100,129
    
    
    
    2,020,724
    
    
    
    4,424,577Additions
    
    
    2,414
    
    
    
    474
    
    
    
    1,624
    
    
    
    5,264
    
    
    
    51
    
    
    
    
    
    
    
    420,913
    
    
    
    430,740Disposals
    
    
    
    
    
    
    (2,344
    )
    
    
    (472
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,818
    )Transfer
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    24
    
    
    
    529
    
    
    
    1,157,899
    
    
    
    (1,158,527
    )
    
    
    At December 31, 2004
    
    
    121,184
    
    
    
    7,381
    
    
    
    42,905
    
    
    
    130,886
    
    
    
    9,005
    
    
    
    3,258,028
    
    
    
    1,283,110
    
    
    
    4,852,499Accumulated
depreciation:At January 1, 2004
    
    
    15,587
    
    
    
    5,503
    
    
    
    18,973
    
    
    
    63,430
    
    
    
    1,443
    
    
    
    1,874,281
    
    
    
    
    
    
    
    1,979,217Charge for the year
    
    
    2,444
    
    
    
    676
    
    
    
    8,167
    
    
    
    13,893
    
    
    
    1,565
    
    
    
    151,247
    
    
    
    
    
    
    
    177,992Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    1,800Written back on disposal
    
    
    
    
    
    
    (2,344
    )
    
    
    (440
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,785
    )At December 31, 2004
    
    
    18,031
    
    
    
    3,835
    
    
    
    26,700
    
    
    
    77,322
    
    
    
    3,008
    
    
    
    2,025,528
    
    
    
    1,800
    
    
    
    2,156,224Net book value:At December 31, 2004

    
    
    103,153
    
    
    
    3,546
    
    
    
    16,205
    
    
    
    53,564
    
    
    
    5,997
    
    
    
    1,232,500
    
    
    
    1,281,310
    
    
    
    2,696,275At December 31, 2003
    
    
    103,183
    
    
    
    3,748
    
    
    
    22,705
    
    
    
    62,170
    
    
    
    6,982
    
    
    
    225,848
    
    
    
    2,020,724
    
    
    
    2,445,360
 F-25




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  4.
    
    PROPERTY, PLANT AND EQUIPMENT (continued)Interest expense of HK$6,553 and HK$17,223 and other related cost of HK$1,162 and HK$3,598
incurred for obtaining the loans were capitalized during the years ended December 31,
2003 and 2004, respectively.Satellite under finance leasesIn August 2004, the in-orbit test of APSTAR V with 54 transponders was completed
and APSTAR V was put into service on August 13, 2004. Based on the arrangements entered
into by the Group and the vendor, Loral Orion, Inc (Loral Orion), the Group assumed
risks and rewards of 37 transponders (APT Transponders) for the entire operational
life of APSTAR V under finance leases, while the risks and rewards relating to the
other 17 transponders remained with Loral Orion. As at December 31, 2004, the net book
value of communication satellites held under finance leases in connection with APSTAR V
amounted to HK$1,126,576 (2003: HK$nil).Pursuant to the various amended agreements with Loral Orion, Loral Orion has an option to
acquire the remaining operational life of 4 APT Transponders on the fourth year and 4 APT
Transponders on the fifth year after completion of in-orbit tests of APSTAR V at a total
consideration of HK$282,865. The transponders subject to this option had a net book value of
HK$$243,584 at December 31, 2004.Impairment lossDuring the years ended December 31, 2002, 2003 and 2004, the Directors of the Company
conducted a review of the Groups property, plant and equipment and determined that certain
land and buildings, communication satellites and certain construction in progress were
impaired, respectively, as the recoverable amount of these assets is estimated to be less
than their carrying amount. Accordingly, an impairment loss of HK$5,218 in respect of land
and buildings (included in business segment of provision of satellite transponder capacity),
HK$129,098 in respect of communication satellites (included in business segment of provision
of satellite transponder capacity), HK$1,800 in respect of certain construction in progress
(included in business segment of provision of satellite-based telecommunications services) have been recognized and charged to the
consolidated statements of operations for the years ended December 31, 2002, 2003 and 2004,
respectively. F-26




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##### Table of Contents



Change in estimate of useful life During the year ended December 31, 2004, the Group revised its estimate of the remaining
useful life of APSTAR IA from December 31, 2004 to June 30, 2005 based on an assessment by
the Groups engineer. The effect of this change in estimated remaining useful life of APSTAR
IA has decreased the depreciation charge by HK$18,050 for the year. Other satellites have no
change of the remaining estimated useful lives. The analysis of net book value of land and buildings held by the Group is as follows : 2003
    
    
    2004HK$
    
    
    HK$Medium-term leases outside Hong Kong
    
    
    2,651
    
    
    
    2,584Medium-term leases in Hong Kong
    
    
    100,532
    
    
    
    100,569103,183
    
    
    
    103,153
  5.
    
    INVESTMENT PROPERTYThe investment property was revalued at December 31, 2003 and 2004 at HK$2,262 and HK$2,340,
respectively, by Chesterton Petty Limited, an independent professional property valuer, on
an open market value basis by reference to net rental income allowing for reversionary
income potential. This valuation gave rise to a revaluation deficit of HK$70, HK$70 and a
revaluation surplus of HK$78 which has been charged to the consolidated statements of
operations or credited to the consolidated statements of operations to reverse the deficit
previously charged to the consolidated statements of operations for the years ended December
31, 2002, 2003 and 2004, respectively.The investment property, which is situated in the PRC under a medium-term lease, is rented
out under an operating lease and the rental income earned from the investment property for
the years ended December 31, 2003 and 2004 was HK$245 and HK$250, respectively.6.
    
    INTEREST IN JOINTLY CONTROLLED ENTITIES 2003
    
    
    2004HK$
    
    
    HK$Share of net assets
    
    
    12,935
    
    
    
    10,226Amounts due from jointly controlled entities
    
    
    69,846
    
    
    
    67,91482,781
    
    
    
    78,140
 F-27




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##### Table of Contents



Details of the jointly controlled entities of the Group as at December 31, 2004 are set
out below: Proportion of ownership interestForm of
    
    Place of
    
    Particulars of
    
    Groups
    
    held by
    
    held bybusiness
    
    incorporation
    
    issued and paid
    
    effective
    
    the
    
    the
    
    PrincipalName of joint venture
    
    structure
    
    and operation
    
    up capital
    
    interest
    
    Company
    
    subsidiary
    
    activityAPT Satellite
Telecommunications
Limited (APT
Telecom)
    
    Incorporated
    
    Hong Kong
    
    HK$153,791,900
    
    
    55
    %
    
    
    
    
    55
    %
    
    Property holdingBeijing Zhong Guang
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ProvisionXin Da Data Broadcast
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of dataTechnology Co. Limited
    
    Joint venture,
    
    
    
    Registered capital
    
    
    
    
    
    
    
    
    
    
    
    transmission(Zhong Guang Xin Da)
    
    Incorporated
    
    PRC
    
    RMB11,000,000
    
    
    12.6
    %
    
    
    
    
    35
    %
    
    services
  APT Telecom is considered as a jointly controlled entity as the Group and the other
shareholder of APT Telecom both have the right to appoint an equal number of directors to
the board of directors.APT Telecom completed the reorganization on October 10, 2003, whereby its entire cable
interests were sold to its shareholder at HK$5,560; while the Fixed Carrier Licence and
all its related business were sold to APT Telecom Services Limited, a subsidiary of the
Group at HK$6,800, respectively. A surrender of service and facilities leasing agreement
between APT Telecom and APT Satellite Company Limited, the subsidiary of the Group, was
executed on the same date in respect of early termination of services and facilities lease
for a compensation of HK$13,500. The summarized information of APT Telecom is set out in
note 22 (j). F-28




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  6.
    
    INTEREST IN JOINTLY CONTROLLED ENTITIES (continued)Zhong Guang Xin Da is considered as a jointly controlled entity as the Group and the
other shareholder of Zhong Guang Xin Da exercise joint control over it pursuant to a
shareholders resolution.The amounts due from jointly controlled entities are unsecured and interest-free.
Except for amount of HK$13,500 and HK$13,500 as at December 31, 2003 and 2004,
respectively, the amounts have no fixed repayment terms. The Group has agreed not to
demand for repayment within the next twelve months from the balance sheet date and
accordingly, the amounts are classified as non-current.The amount of HK$13,500 is repayable in five annual instalments, with the first instalment
of HK$2,700 payable in 2005 and is classified under current assets.  7.
    
    BANK LOANS December 31, 2003
    
    
    December 31, 2004Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageinterest
    
    
    
    
    
    
    interestNote
    
    
    Interest rate
    
    
    rate
    
    
    
    
    
    
    rateHK$
    
    
    
    
    
    
    HK$Bank loans denominated
in US Dollars:
    
    
    aPayable semi-annually from
2005 (secured)
    
    
    
    
    
    LIBOR+0.73%
    
    
    1.97
    %
    
    
    351,000
    
    
    
    2.27
    %
    
    
    351,000Payable semi-annually with
the first instalment falling
due on September 30, 2005 (secured)
    
    
    
    
    
    LIBOR+0.73%
    
    
    1.97
    %
    
    
    351,000
    
    
    
    2.41
    %
    
    
    624,780702,000
    
    
    
    
    
    
    
    975,780Current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,550
    )
    
    
    
    
    
    
    (66,339
    )Non-current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    684,450
    
    
    
    
    
    
    
    909,441
 Notes:  (a)
    
    In December 2002, the Group 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, APSTAR VI under
construction and their related insurance claim proceeds, assignment of all present and
future utilization agreements of their transponders of satellites under construction,
first fixed charge over certain bank accounts which will hold receipts of the
transponder income and the termination payments under construction, launching and
related equipment contracts. In October 2004, the Group entered into a Deed of
Amendment and Restatement to amend certain terms of the Loan Facility for the purpose
of adjusting for the cancellation of the unutilized portion relating to APSTAR V
satellite and APSTAR VI backup satellite. Accordingly, the maximum aggregate amount
under Loan Facility was reduced to US$165 million and certain financial covenants were
amended. The revised terms did not affect amounts previously outstanding under the
Loan Facility. The Company was in compliance with these covenants as of December 31,
2004. At December 31, 2003 and 2004, the assets under fixed charge were APSTAR V and
APSTAR VI under construction F-29




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  7.
    
    BANK LOANS (continued) with aggregate carrying value of approximately HK$2,015,276 and HK$2,398,169,
respectively and bank deposit of approximately HK$111,473 and HK$20,750,
respectively. This Loan Facility agreement contains the following covenants: Restricted Distributions The Loan Facility provides that the Company may make annual dividend payments only
when Projected EBITDA (as defined in the Loan Facility) plus Free Cash (as defined
in the Loan Facility) less capital expenditure for that year is less than (i) 130%
of Project Debt Service (as defined in the Loan Facility) of that year before the
release of certain pledged assets and (ii) 180% of Project Debt Service after the
release of certain pledged assets. Financial Covenants The Loan Facility provides that certain earnings and cash flow ratios of APT and the
Group must be measured over various periods during its term. APT and the Group
undertakes to ensure that (i) it maintains its aggregate Consolidated Net Worth (as
defined in the Loan Facility) at not less than US$200 million (other than for the
year ending December 31, 2002 and 2003, it will be not less than US$230 million),
(ii) the aggregate of Consolidated Total Liabilities (as defined in the Loan
Facility) shall not exceed 120% of Consolidated Net Worth, (iii) Consolidated EBITDA
(as defined in the Loan Facility) shall not be less than US$25 million, (other than
for the year ending December 31, 2004, it will not be less than US$17 million), (iv)
the ratio of the aggregate outstanding principal under each tranche to the value of
the satellite financed by such tranche shall not exceed 50% and (v) after the
release of certain pledged assets, Borrower EBITDA (as defined in the Loan Facility)
shall be at least 180% of Debt Service (as defined in the Loan Facility). 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 and APSTAR VI
and (ii) Termination sum of related construction contracts must be deposited in a
designated account. The withdrawal of deposited amounts in such accounts may only
occur in accordance with provision contained in the Loan Facility. 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 the Groups business and a requirement that all future transponder utilization
agreements be entered into on an arms-length basis. Among others, APT undertakes to
ensure that its ultimate holding company, APT Satellite International Company
Limited, directly owns at least 50.01% of the voting rights in the Group. F-30




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  7.
    
    BANK LOANS (continued) For the years presented, the Group complied with all the above covenants. The aggregate annual repayments of bank loans as at December 31, 2004 are as
follows: HK$2005
    
    
    66,3392006
    
    
    97,5782007
    
    
    130,7482008
    
    
    179,5362009
    
    
    208,424Thereafter
    
    
    293,155Total
    
    
    975,780
  (b)
    
    At December 31, 2003 and 2004, certain of the Groups banking facilities were
secured by the Groups land and buildings with a net book value of HK$5,004 and
HK$4,887, respectively and bank deposits of approximately HK$390 and HK$390,
respectively.On December 29, 1994, the Companys subsidiaries entered into an arrangement
for the leasing of a communication satellite with the Partnership, which became a
wholly-owned subsidiary of the Company in 1997. The bank loans, in respect of the
arrangement borrowed by the Partnership were secured by the pledged time deposits,
fully repaid at December 29, 2003. The corresponding interest income and interest
expense amounted to HK$43,685 and HK$35,771 were set-off in the consolidated
statements of operations for the years ended December 31, 2002 and 2003,
respectively.  8.
    
    DEPOSIT RECEIVEDThe amount represents deposits received in respect of provision of satellite transponder
capacity.9.
    
    DEFERRED INCOME F-31




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##### Table of Contents



Deferred income represents unrecognized revenue received in respect of transponder
utilization income under which customers have obtained the right to use the transponder
capacity for future periods.10.
    
    PAYABLES AND ACCRUED CHARGES 2003
    
    
    2004HK$
    
    
    HK$Provision for employee benefits
    
    
    4,880
    
    
    
    4,492Other accrued expenses
    
    
    45,357
    
    
    
    40,64750,237
    
    
    
    45,139
 F-32




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  11.
    
    CONTINGENCIES AND COMMITMENTS  (a)
    
    Capital commitments:  (i)
    
    At December 31, 2003 and 2004, the Group had the following outstanding
capital commitments not provided for in the Groups financial statements,
mainly in respect of the procurement and launch of satellites, APSTAR V and
APSTAR VI and an option fee for the design, construction, delivery and launch
of a new satellite APSTAR VIB: 2003
    
    
    2004HK$
    
    
    HK$Contracted for
    
    
    677,876
    
    
    
    286,048Authorized but not contracted for
    
    
    417,887
    
    
    
    340,551Total commitments
    
    
    1,095,763
    
    
    
    626,599
  Also, the Groups share of the capital commitments of jointly
controlled entities not included in the above are as follows: 2003
    
    
    2004HK$
    
    
    HK$Contracted but not provided for in the
financial statements
    
    
    20,896
    
    
    
    
  (ii)
    
    At December 31, 2004, the Group had entered into an agreement
with a contractor, a fellow subsidiary of the shareholder of the Company,
pursuant to which the Group is granted a right to require the contractor to
provide for the design, construction, delivery and launch of a new satellite,
APSTAR VIB and the total option price is HK$59,904. If the option is exercised,
the total consideration for the procurement and launch of APSTAR VIB is
HK$936,780 and the option price will be applied towards the total consideration. At the balance sheet date, the option paid of
HK$38,454 is included as prepayment for construction of a satellite in the
consolidated balance sheet, and the remaining balance of HK$21,450 is
included in the outstanding capital commitment.  (b)
    
    Leasing arrangements - operating lease:  (i)
    
    The Group as lesseeAt the balance sheet date, the Group had commitments for future minimum
lease payments under non-cancellable operating leases which fall due as
follows: 2003
    
    
    2004HK$
    
    
    HK$Land and buildings:2004
    
    
    1,229
    
    
    
    2005
    
    
    476
    
    
    
    5452006
    
    
    31
    
    
    
    31Total
    
    
    1,736
    
    
    
    576
  Operating lease rental expenses were HK$3,597, HK$3,650 and HK$1,010 for the
years ended December 31, 2002, 2003 and 2004, respectively. F-33




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  11.
    
    CONTINGENCIES AND COMMITMENTS (continued) 2003
    
    
    2004HK$
    
    
    HK$Satellite transponder capacity:2004
    
    
    5,857
    
    
    
    2005
    
    
    1,683
    
    
    
    3,464Total
    
    
    7,540
    
    
    
    3,464
  Operating lease rental expenses were HK$1,474, HK$3,228 and HK$4,948 for the
years ended December 31, 2002, 2003 and 2004, respectively.  (ii)
    
    The Group as lessorProperty rental income was HK$448, HK$452 and HK$513 for the years ended
December 31, 2002, 2003 and 2004, respectively. At December 31, 2003 and
2004, certain properties with an aggregate carrying value of HK$9,137 and
HK$8,120, respectively, were held for rental purpose.
Depreciation charges relating to these properties were HK$149, HK$160 and
HK$138 for the years ended December 31, 2002, 2003 and 2004, 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: 2003
    
    
    2004HK$
    
    
    HK$2004
    
    
    236
    
    
    
    2005
    
    
    
    
    
    
    1,2942006
    
    
    
    
    
    
    209Total
    
    

    236
    
    
    
    1,503
  Service income earned relating to leasing of facilities equipment was HK$
nil, HK$3,680 and HK$1,374 for the years ended December 31, 2002, 2003 and
2004, respectively. At the balance sheet date, the Group had contracted with
customers for the future minimum lease payments under non-cancellable
operating lease which fall due as follows: 2003
    
    
    2004HK$
    
    
    HK$2004
    
    
    1,183
    
    
    
    2005
    
    
    618
    
    
    
    8862006
    
    
    
    
    
    
    2672007
    
    
    
    
    
    
    108Total
    
    
    1,801
    
    
    
    1,261
 F-34




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  11.
    
    CONTINGENCIES AND COMMITMENTS (continued) (c)
    
    (i)
    
    In the years before 1999, overseas withholding tax was not charged in
respect of the Groups transponder utilization income derived from the overseas
customers. From 1999, overseas withholding tax has been charged on certain
transponder utilization income of the Group and full provision for such withholding
tax for the years from 1999 onwards has been made in the financial statements. The
Directors of the Company are of the opinion that the applicable tax rules should
take effect from 1999 onwards and, accordingly, no provision for the withholding tax
in respect of the years before 1999 is necessary. The Groups withholding tax in
respect of 1998 and before, calculated at the applicable rates based on the relevant
income earned in those years, not provided for in the financial statements amounted
to approximately HK$75,864.(ii)
    
    The Hong Kong Profits Tax returns of a subsidiary of the
Company for the years of assessment 1999/2000 and 2000/2001 are currently
under dispute with the Hong Kong Inland Revenue Department (IRD). This
subsidiary recognized a gain of HK$389,744 in 1999 in relation to the
transfer of substantially all of the satellite transponder capacities of
APSTAR IIR for the rest of its useful life. This subsidiary has claimed the
gain as a non-taxable capital gain in its 1999/2000 Profits Tax return. The
non-taxable claim is under review by the IRD which has proposed to treat
the proceeds received as taxable income to this subsidiary with a
corresponding entitlement to statutory depreciation allowance in respect of
APSTAR IIR.Having taken into consideration independent professional advice, the
Company believes it has a reasonable likelihood of success in defending
its position that the gain derived from the abovementioned transaction
should be treated as non-taxable. Accordingly, no provision for
additional taxation is required. In the event that the Company is
unsuccessful in the capital gains claim, the estimated tax exposure is
HK$56,000.
  12.
    
    COMMON STOCK Issued andNumber
    
    
    fully paidof shares
    
    
    capital stock000
    
    
    HK$Ordinary shares of HK$0.10 eachBalance at January 1, 2003
    
    
    412,535
    
    
    
    41,254New shares issued under the share option scheme
    
    
    730
    
    
    
    73Balance at December 31, 2003 and December 31, 2004
    
    
    413,265
    
    
    
    41,327
  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. F-35




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  13.
    
    ADDITIONAL PAID-IN CAPITAL/OTHER RESERVESThe additional paid-in capital of the Group arose as a result of the Group reorganization in
1996 and represented the excess of the par value of the shares of the subsidiaries which the
Company acquired over the par value of the Companys shares issued in consideration thereof.Other reserves represent Enterprise Expansion Fund and General Reserve Fund set aside by a
subsidiary in accordance with the relevant laws and regulations of the PRC, which are not
available for distribution.14.
    
    RETIREMENT BENEFIT SCHEMESThe Group operates a Mandatory Provident Fund Scheme under the Hong Kong Mandatory Provident
Fund Schemes Ordinance for all qualified employees in Hong Kong under the jurisdiction of
the Hong Kong Employment Ordinance. Under the scheme, the employer and its employees are
each required to make contributions to the scheme at 5% of the employees relevant income,
subject to a cap of monthly relevant income of HK$20. Contributions to the scheme vest
immediately. The assets of the scheme are held separately from those of the Group, in funds
under the control of trustees.The Group also joins the retirement insurance scheme operated by the local government under
the law of the PRC for all employees in the PRC. Under the scheme, both the Group and
employees are required to contribute 8% and 5% of the monthly salary, respectively, to the
retirement insurance scheme.The only obligation of the Group with respect to the Mandatory Provident Fund Scheme and the
retirement insurance scheme is to make the specific contributions.The Groups contributions to retirement benefit schemes during the years ended December 31,
2002, 2003 and 2004 amounted to HK$1,266, HK$1,203 and HK$1,579, respectively. F-36




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  15.
    
    INCOME TAXES IN THE CONSOLIDATED STATEMENTS OF OPERATIONS  (a)
    
    The income taxes charged to the consolidated statements of operations are as follows: Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Current tax  Provision for Hong Kong Profits TaxTax for the year
    
    
    7,744
    
    
    
    114,487
    
    
    
    Current tax  OverseasTax for the year
    
    
    23,551
    
    
    
    20,247
    
    
    
    17,000Under-provision in respect of prior years
    
    
    3,731
    
    
    
    
    
    
    
    35,026
    
    
    
    134,734
    
    
    
    17,000Deferred tax  Hong KongOrigination and reversal of temporary differences
    
    
    1,788
    
    
    
    (134,775
    )
    
    
    (375
    )Effect of increase in tax rate on deferred tax
balance at January 1,
    
    
    
    
    
    
    11,762
    
    
    
    1,788
    
    
    
    (123,013
    )
    
    
    (375
    )36,814
    
    
    
    11,721
    
    
    
    16,625
  The provision for Hong Kong Profits Tax Provision for the years ended December 31,
2002, 2003 and 2004 were made by applying the tax rate of 16%, 17.5% and 17.5%,
respectively, to the estimated assessable profits earned in Hong Kong.Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation
ruling in the relevant countries.Overseas tax includes the withholding tax paid or payable in respect of Groups income from
provision of satellite transponder capacity to the customers which are located outside Hong
Kong. The provision for the years ended December 31, 2002, 2003 and 2004 were made by
applying tax rates prevailing in respective jurisdictions. F-37




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  15.
    
    INCOME TAXES IN THE STATEMENT OF OPERATIONS (continued)  (b)
    
    Reconciliation between tax expense and accounting profit/(loss) at the
applicable tax rates: Years ended December 31,2002
    
    
2003
    
    
2004HK$
    
    
    HK$
    
    
    HK$Profit/(loss) before tax
    
    
    58,861
    
    
    
    (213,920
    )
    
    
    (43,191
    )Notional tax on profit/(loss) before tax, calculated
at the rates applicable to profits/(losses) in the
countries concerned
    
    
    9,353
    
    
    
    (37,455
    )
    
    
    (8,331
    )Overseas withholding tax
    
    
    23,516
    
    
    
    20,237
    
    
    
    17,000Tax effect of non-deductible expenses
    
    
    9,592
    
    
    
    7,616
    
    
    
    40,756Tax effect of non-taxable revenue
    
    
    (11,992
    )
    
    
    (3,099
    )
    
    
    (27,852
    )Tax effect of unused tax losses not recognized
    
    
    2,614
    
    
    
    12,660
    
    
    
    2,656Tax effect of prior years unrecognized tax losses
utilized this year
    
    
    
    
    
    
    
    
    
    
    (7,604
    )Effect on opening deferred tax balances resulting
from an increase in tax rate during the year
    
    
    
    
    
    
    11,762
    
    
    
    Under-provision in prior years
    
    
    3,731
    
    
    
    
    
    
    
    Actual tax expenses
    
    
    36,814
    
    
    
    11,721
    
    
    
    16,625
  16.
    
    INCOME TAXES IN THE CONSOLIDATED BALANCE SHEET  (a)
    
    Income taxes payable in the consolidated balance sheet represents: 2003
    
    
    2004HK$
    
    
    HK$Provision for Hong Kong Profits Tax for the year
    
    
    114,487
    
    
    
    Provisional Hong Kong Profits Tax paid
    
    
    (6,352
    )
    
    
    Overseas tax payable
    
    
    1,938
    
    
    
    4,672110,073
    
    
    
    4,672Balance of overseas tax provision relating to prior years
    
    
    78,059
    
    
    
    79,997Balance of Hong Kong Profits tax provision relating to prior years
    
    
    99
    
    
    
    99188,231
    
    
    
    84,768
 F-38




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 16. INCOME TAXES IN THE BALANCE SHEET (continued)  (b)
    
    The components of deferred tax (assets)/liabilities recognized in the
consolidated balance sheet and the movements during the years ended December 31, 2003
and 2004 are as follows: Depreciationallowances in
    
    
    Other
    
    
    
    
    
    
    Certainexcess of related
    
    
    temporary
    
    
    
    
    
    
    leasingDeferred tax arising from:
    
    depreciation
    
    
    differences
    
    
    Losses
    
    
    arrangements
    
    
    Total$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000At January 1, 2003
    
    
    66,637
    
    
    
    
    
    
    
    (51,115
    )
    
    
    109,941
    
    
    
    125,463Charged/(credited) to
consolidated statements of
operations
    
    
    (29,051
    )
    
    
    (281
    )
    
    
    16,260
    
    
    
    (109,941
    )
    
    
    (123,013
    )At December 31, 2003
    
    
    37,586
    
    
    
    (281
    )
    
    
    (34,855
    )
    
    
    
    
    
    
    2,450At January 1, 2004
    
    
    37,586
    
    
    
    (281
    )
    
    
    (34,855
    )
    
    
    
    
    
    
    2,450Charged/(credited) to
consolidated statements of
operations
    
    
    96,996
    
    
    
    40
    
    
    
    (97,411
    )
    
    
    
    
    
    
    (375
    )At December 31, 2004
    
    
    134,582
    
    
    
    (241
    )
    
    
    (132,266
    )
    
    
    
    
    
    
    2,075
 In 1994, certain leasing arrangements provided the Group with an initial cash inflow
in return for being responsible for the future obligations to make payments of taxation
under the leasing arrangements. Any differences between the initial benefit and the
eventual tax liability were provided for over the lives to the relevant leases. The
arrangement was completed in December 2003. 2003
    
    
    2004HK$
    
    
    HK$Net deferred tax assets recognized in the
consolidated balance sheet
    
    
    (9,416
    )
    
    
    (10,134
    )Net deferred tax liabilities recognized in the
consolidated balance sheet
    
    
    11,866
    
    
    
    12,2092,450
    
    
    
    2,075
  (c)
    
    Deferred tax assets not recognized:The Group has not recognized deferred tax assets in respect of tax losses of HK$62,594
and HK$30,723 and other deductible temporary differences of HK$17,173 and HK$21,535, as
the realization of assets was considered not probable as at December 31, 2003 and 2004,
respectively.The Groups share of unrecognized deferred tax assets in respect of tax losses of
jointly controlled entity amounted HK$26,886 and HK$31,753 and other deductible
temporary differences amounted HK$3,816 and HK$1,174 as at December 31, 2003 and 2004,
respectively.The tax losses do not expire under current tax legislation. F-39




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  17.
    
    MATERIAL RELATED PARTY TRANSACTIONS  (a)
    
    During the years ended December 31, 2002, 2003 and 2004, the Group entered
into the following transactions with related parties: Years ended December 31,Note
    
    2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Income from provision of satellite
transponder capacity to certain
shareholders and its subsidiary of the
Company
    
    (i)
    
    
    34,551
    
    
    
    35,921
    
    
    
    38,259Income from provision of satellite
transponder capacity, provision of
satellite-based telecommunications services
to a holding company and its subsidiaries
of a shareholder of the Company
    
    (i)
    
    
    18,594
    
    
    
    19,741
    
    
    
    24,163Income from provision of satellite
transponder capacity to a jointly controlled
entity
    
    (i)
    
    
    8,245
    
    
    
    6,160
    
    
    
    Management fee income from a jointly
controlled entity
    
    (ii)
    
    
    1,500
    
    
    
    1,121
    
    
    
    480Management fee income from an
associate
    
    (iii)
    
    
    189
    
    
    
    65
    
    
    
    Facilities management services
income from a jointly controlled entity
    
    (iv)
    
    
    8,311
    
    
    
    3,386
    
    
    
    Expenses in connection with
the provision of transponder capacity from
a shareholder of the Company
    
    (v)
    
    
    2,574
    
    
    
    
    
    
    
    Technical support services expenses
to a shareholder of the Company
    
    (vi)
    
    
    
    
    
    
    75
    
    
    
    Management fee expenses to a holding
company of a shareholder of the Company
    
    (vii)
    
    
    2,280
    
    
    
    2,280
    
    
    
    1,135Payments of service fee in connection
with the satellite project to a fellow
subsidiary of a shareholder of the Company
    
    (viii)
    
    
    12,324
    
    
    
    87,604
    
    
    
    151,895Compensation income from a jointly
controlled entity in connection with the
early termination of services and facilities
lease
    
    (ix)
    
    
    
    
    
    
    13,500
    
    
    
    Purchase of certain fixed assets from a
jointly controlled entity
    
    (x)
    
    
    
    
    
    
    6,800
    
    
    
    
 F - 40




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  17.
    
    MATERIAL RELATED PARTY TRANSACTIONS (continued)  (b)
    
    At December 31, 2003 and 2004, the Group had the following amounts included in
the consolidated balance sheet in respect of amounts owing by and to related parties: Deposits,
    
    
    
    
    
    
    
    
    
    
    Rentals received inInterest in jointly
    
    
    
    
    
    
    
    
    
    
    prepayments and
    
    
    Payables and
    
    
    advance andPrepayment
    
    
    controlled entities
    
    
    Trade receivables
    
    
    other receivables
    
    
    accrued charges
    
    
    deferred income2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Jointly controlled entities
    
    
    
    
    
    
    
    
    
    
    70,723
    
    
    
    70,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    921
    
    
    
    
    
    
    
    
    
    
    
    Certain shareholders and
its subsidiary of the
Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    7,496
    
    
    
    18,237
    
    
    
    3,120
    
    
    
    
    
    
    
    3,750
    
    
    
    24
    
    
    
    3,524
    
    
    
    Holding company and
its subsidiaries of a
shareholder of the Company
(note (i))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,518
    
    
    
    2,226
    
    
    
    
    
    
    
    
    
    
    
    31,910
    
    
    
    6
    
    
    
    2,907
    
    
    
    255,105A fellow subsidiary of a
shareholder of the Company
    
    
    
    
    
    
    38,454
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 During the year ended December 31, 2003, a shareholder of the Company advanced
RMB3,300, equivalent to US$400, to the Group. In return the Group advanced US$400 to
that shareholder. The items of such advance are interest-free and repayable within
one year.  (c)
    
    In addition, at December 31, 2003 and 2004, the Group had an outstanding
commitment to pay launch service fees of APSTAR VI to a fellow subsidiary of a
shareholder of the Company amounting to HK$230,246 and HK$116,805, respectively. At
December 31, 2004, the Group had an outstanding commitment to pay an option payment for
the design, construction, delivery and launch of a satellite APSTAR VIB to a fellow
subsidiary of a shareholder of the Company amounting to HK$21,450. Notes:  (i)
    
    The terms and conditions of these transponder capacity utilization 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 Directors consider that the terms and conditions of these transponders
utilization agreements were similar to those offered to other customers by the
provider.(vi)
    
    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. F - 41




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 17. MATERIAL RELATED PARTY TRANSACTIONS (continued) Notes  continued  (vii)
    
    Management fee expenses arose from a reimbursement of cost of services provided
from the holding company of a shareholder of the Company.(viii)
    
    The Directors consider that the service fee is charged according to prices and
conditions similar to those offered to other customers by the launch service provider.(ix)
    
    As a result of the reorganization of a jointly controlled entity, the jointly
controlled entity early terminated the services and facilities lease agreement and the
Group received a compensation for the early termination of the agreement. The Directors
consider that the compensation is charged according to prices and conditions similar to
those offered to other customers by the termination.(x)
    
    As a result of the reorganization of a jointly controlled entity, certain
fixed assets are purchased from the jointly controlled entity. The Directors consider
that the purchase consideration is arrived after arms length negotiation with
reference to the valuation conducted by an independent valuation company.  18.
    
    SUPPLEMENTAL INFORMATION  (a)
    
    Other operating revenuesOther operating revenues include the following: Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    HK$
    
    HK$Compensation income for early termination
of utilization agreements in respect of
provision of satellite transponder capacity
    
    
    53
    
    
    
    550
    
    
    
    Compensation income from a jointly
controlled entity for early termination of
services and facilities lease
    
    
    
    
    
    
    13,500
    
    
    
    Reversal of provision on regulatory
matters previously recognized in the
life lease of transponders of APSTAR
IIR (note)
    
    
    47,212
    
    
    
    
    
    
    
    Reversal of allowance for doubtful
receivables
    
    
    130
    
    
    
    
    
    
    
    
 F - 42




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  18.
    
    SUPPLEMENTAL INFORMATION (continued) Note : Under the terms of an agreement made with an independent third party dated
August 18, 1999 in relation to the provision 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 totally HK$93,000. In 2000, as the number of transponders that had been
identified as probable cause of the interference decreased, an amount of HK$45,788
related to this provision was reversed and the provision was HK$47,212 at December
31, 2000 and 2001. In 2002, the directors of the Group reassessed the probability of the need to
increase the dish size of affected customers of APSTAR IIR. Based on information
from the customers of the transponders in APSTAR IIR (customer) 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 customer and potentially affected customers have not requested the
Group to retrofit the dishes as of December 31, 2002. In addition, the customer 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 customer had also
not requested the Group to reimburse the customer 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)
    
    Borrowing costs Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Interest on bank borrowings wholly
repayable within five years
    
    
    117
    
    
    
    6,553
    
    
    
    17,223Other borrowing costs
    
    
    2,125
    
    
    
    1,162
    
    
    
    3,598Less: Amount capitalized into construction
in progress*
    
    
    (2,242
    )
    
    
    (7,715
    )
    
    
    (16,704
    )
    
    
    
    
    
    
    
    4,117
  *
    
    The borrowing costs have been capitalized at a rate of 2.27% to 2.41% per
annum (2003 : 1.97%).  Borrowing costs capitalized during the years ended December 31, 2003 and 2004
arose on bank loans borrowed for the purpose of financing the construction and
launching of satellites.  F - 43




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  18.
    
    SUPPLEMENTAL INFORMATION (continued)  (c)
    
    Staff costs Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Staff costs (including directors emoluments)Pension contributions
    
    
    1,294
    
    
    
    1,370
    
    
    
    1,608Less: Forfeited contributions
    
    
    (28
    )
    
    
    (167
    )
    
    
    (29
    )Net pension contributions
    
    
    1,266
    
    
    
    1,203
    
    
    
    1,579Salaries, wages and other benefits
    
    
    35,900
    
    
    
    36,764
    
    
    
    40,25837,166
    
    
    
    37,967
    
    
    
    41,837Less: Capitalized into construction in progress
    
    
    (1,108
    )
    
    
    (1,326
    )
    
    
    (772
    )36,058
    
    
    
    36,641
    
    
    
    41,065
  (d)
    
    Profit/(loss) from operations Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Profit/(loss) from operations has been arrived
at after charging:Amortization of goodwill (included in
administrative expenses)
    
    
    660
    
    
    
    
    
    
    
    Bad debt written off
    
    
    107
    
    
    
    153
    
    
    
    Depreciation
    
    
    233,971
    
    
    
    236,322
    
    
    
    177,992Exchange loss
    
    
    16
    
    
    
    
    
    
    
    458Loss on disposal of property, plant and
equipment
    
    
    30
    
    
    
    
    
    
    
    32Allowance for doubtful receivables

    
    
    5,207
    
    
    
    8,402
    
    
    
    5,654
  (e)
    
    Valuation and qualifying accounts Years ended December 31,2002
    
    
    2003
    
    
    2004Allowance for doubtful receivables
    
    HK$
    
    
    HK$
    
    
    HK$Balance at beginning of the year
    
    
    12,305
    
    
    
    6,037
    
    
    
    14,439Charged to cost and expenses
    
    
    5,337
    
    
    
    8,402
    
    
    
    5,654Reductions
    
    
    (130
    )
    
    
    
    
    
    
    Written off
    
    
    (11,475
    )
    
    
    
    
    
    
    Balance at end of the year
    
    
    6,037
    
    
    
    14,439
    
    
    
    20,093
 F - 44




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  19.
    
    SEGMENTAL REPORTING Segment information is presented in respect of the Groups business and geographical
segments. Business information is chosen as primary reporting format because this is
more relevant to the Groups internal financial reporting. Inter-segment is based on similar terms as those available to other external parties. Business segments The Group comprises two main business segments, namely provision of satellite
transponder capacity and provision of satellite-based telecommunications services. Provision ofProvision of satellite
    
    
    satellite-based
    
    
    Inter-segmenttransponder capacity
    
    
    telecommunications services
    
    
    elimination
    
    
    Consolidated2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Revenue from
external customers
    
    
    323,961
    
    
    
    274,652
    
    
    
    226,878
    
    
    
    11,354
    
    
    
    16,403
    
    
    
    38,683
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335,315
    
    
    
    291,055
    
    
    
    265,561Inter-segment
revenue
    
    
    1,178
    
    
    
    897
    
    
    
    5,276
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    (1,178
    )
    
    
    (897
    )
    
    
    (5,282
    )
    
    
    
    
    
    
    
    
    
    
    Total segment
revenue
    
    
    325,139
    
    
    
    275,549
    
    
    
    232,154
    
    
    
    11,354
    
    
    
    16,403
    
    
    
    38,689
    
    
    
    (1,178
    )
    
    
    (897
    )
    
    
    (5,282
    )
    
    
    335,315
    
    
    
    291,055
    
    
    
    265,561Service income
not included in
segment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,110
    
    
    
    11,186
    
    
    
    11,699Total
revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    351,425
    
    
    
    302,241
    
    
    
    277,260Segment result
    
    
    95,628
    
    
    
    (121,187
    )
    
    
    16,690
    
    
    
    (3,386
    )
    
    
    (5,577
    )
    
    
    (3,332
    )
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    92,242
    
    
    
    (126,764
    )
    
    
    13,352Service income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,110
    
    
    
    11,186
    
    
    
    11,699Corporate operating
income and expenses- Other operating
revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,115
    
    
    
    33,051
    
    
    
    9,410- Selling, general
and administrative
expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,982
    )
    
    
    (66,560
    )
    
    
    (73,026
    )
    
    
    
    
    
    
    
    Profit/(loss) from
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,485
    
    
    
    (149,087
    )
    
    
    (38,565
    )Borrowing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,117
    )Share of losses of
jointly controlled
entities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,624
    )
    
    
    (64,833
    )
    
    
    (509
    )Income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,814
    )
    
    
    (11,721
    )
    
    
    (16,625
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,388
    
    
    
    923
    
    
    
    2,059Profit/(loss)
attributable to
shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,435
    
    
    
    (224,718
    )
    
    
    (57,757
    )
 F - 45




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  19.
    
    SEGMENTAL REPORTING (continued) Provision ofProvision of satellite
    
    
    satellite-based
    
    
    Inter-segmenttransponder capacity
    
    
    telecommunications services
    
    
    elimination
    
    
    Consolidated2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Depreciation for
the year
    
    
    230,022
    
    
    
    228,961
    
    
    
    167,896
    
    
    
    3,949
    
    
    
    7,361
    
    
    
    10,096Amortization for
the year
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment loss for
the year
    
    
    8,594
    
    
    
    129,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800Allowance on
doubtful
receivables
    
    
    
    
    
    
    4,792
    
    
    
    2,883
    
    
    
    5,337
    
    
    
    3,610
    
    
    
    2,771Segment assets
    
    
    
    

    
    
    2,533,571
    
    
    
    2,829,145
    
    
    
    
    
    
    
    52,497
    
    
    
    52,869
    
    
    
    
    
    
    
    (38,052
    )
    
    
    (52,284
    )
    
    
    
    
    
    
    2,548,016
    
    
    
    2,829,730Investment in
jointly controlled
entities
    
    
    
    
    
    
    82,271
    
    
    
    80,330
    
    
    
    
    
    
    
    510
    
    
    
    510
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,781
    
    
    
    80,840Corporate assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674,772
    
    
    
    716,462Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,305,569
    
    
    
    3,627,032Segment liabilities
    
    
    
    
    
    
    288,661
    
    
    
    399,229
    
    
    
    
    
    
    
    60,597
    
    
    
    74,994
    
    
    
    
    
    
    
    (38,052
    )
    
    
    (52,284
    )
    
    
    
    
    
    
    311,206
    
    
    
    421,939Corporate
liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    735,418
    
    
    
    1,008,084Total liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,046,624
    
    
    
    1,430,023Capital expenditure
incurred during the
year
    
    
    
    
    
    
    781,511
    
    
    
    417,553
    
    
    
    
    
    
    
    10,397
    
    
    
    13,187
 Note 1: The Company changed the composition of its reportable segments in 2004,
and accordingly, the amounts disclosed in 2002 and 2003 financial statements relating to the
reportable segments have been restated to conform to the 2004 composition of its reportable
segments. The restatement did not have any impacts on either the financial results or
financial position on the Company in 2002 and 2003. F - 46




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 19. SEGMENTAL REPORTING (continued) Geographical segments 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. In presenting information on the basis of geographical segments, segment revenue, segment
assets and capital expenditure is based on the geographical location of customers. Other regions inHong Kong
    
    
    the PRC
    
    
    Singapore
    
    
    USA
    
    
    Others
    
    
    Unallocated2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Revenue from
external customers
    
    
    47,178
    
    
    
    25,082
    
    
    
    21,287
    
    
    
    254,901
    
    
    
    225,786
    
    
    
    195,155
    
    
    
    18,616
    
    
    
    18,376
    
    
    
    23,339
    
    
    
    18,848
    
    
    
    18,973
    
    
    
    8,375
    
    
    
    11,882
    
    
    
    14,024
    
    
    
    29,104
    
    
    
    
    
    
    
    
    
    
    
    Segment assets
    
    
    
    
    
    
    3,548
    
    
    
    1,666
    
    
    
    
    
    
    
    75,673
    
    
    
    55,492
    
    
    
    
    
    
    
    1,480
    
    
    
    2,226
    
    
    
    
    
    
    
    2,317
    
    
    
    
    
    
    
    
    
    
    
    4,921
    
    
    
    4,677
    
    
    
    
    
    
    
    3,217,630
    
    
    
    3,562,971Capital expenditure
incurred during the
year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,490
    
    
    
    2,253
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    788,418
    
    
    
    428,487
 20. SHARE OPTION PLAN At the annual general meeting on May 22, 2001, the Company adopted a share option scheme
(Scheme 2001) and granted options to its employees on June 19, 2001. On May 22, 2002, the
Company adopted a new share option scheme (Scheme 2002) at its 2002 annual general
meeting. Thereafter, no future options can be granted under the Scheme 2001. The options
granted on June 19, 2001 shall continue to be valid until their expiry. The total number of shares which may be issued upon exercise of all options to be granted
under Scheme 2001 and Scheme 2002 shall not in aggregate exceed 10% of the total number of shares of the Company in issue on the adoption date of the Scheme 2002 (i.e. 412,720,000
shares). As at the date of report, 413,265,000 shares of the Company were in issue. Under Scheme 2002, the total number of shares to be issued upon exercise of the options
granted to each eligible person (including both exercised and outstanding options) in any
12-month period shall not exceed 1% of the total number of shares in issue. The exercise
price (subscription price) shall be such price as determined by the Board of Directors in
its absolute discretion at the time of the making of the offer but in any case the exercise
price shall not be lower than the highest of (i) the closing price of the shares as stated
in The Stock Exchange of Hong Kong Limiteds (the Exchanges) daily quotations sheet on
the date of the offer of grant, which must be a trading day; F - 47




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 20. SHARE OPTION PLAN (continued) the average closing price of the shares as stated in the Exchanges daily
quotations sheets for the five trading days immediately preceding the date of the offer
of grant; and (iii) the nominal value of a share. During the year, no options were granted under the Scheme 2002. Under the Scheme 2001, the maximum entitlement of each eligible person was that the
total number of shares issued or issuable under all options granted to such eligible
person (including both exercised and outstanding options) upon such grant being made
shall not exceed 25% of the total number of the shares for the time being issued and
issuable under the Scheme 2001. In addition, the subscription price was determined by
the Board of Directors on a case-by-case basis and would not be less than the nominal
value of the shares nor at a discount of more than 20% below the average closing price
of the shares as stated in the Exchanges daily quotation sheets on the five dealing
days immediately preceding the date on which the invitation to apply for an option
under Scheme 2001.  (a)
    
    Movements in share optionsThe particulars of the share options granted under the Scheme 2001 outstanding
during the years ended December 31, 2002, 2003 and 2004 are as follows: Number ofshare optionsAt January 1, 2002
    
    
    13,450,000Cancelled during the year
    
    
    (40,000
    )At December 31, 2002
    
    
    13,410,000Cancelled during the year
    
    
    (3,010,000
    )Exercised
    
    
    (730,000
    )At December 31, 2003
    
    
    9,670,000Cancelled during the year
    
    
    (1,220,000
    )At December 31, 2004
    
    
    8,450,000
 The above granted options have an exercise price of HK$2.765 per share and are
exercisable within the period from May 22, 2003 to May 21, 2011. At December 31,
2004, the weighted average remaining contractual life of outstanding options was
6.39 years. The financial impact of share options granted is not recorded in the
consolidated financial statements until such time as the options are exercised, and
no charge is recognized in the consolidated statements of operations in respect of
the value of options granted in the year. Upon the exercise of the share options,
the resulting shares issued are recorded by the Company as additional share capital
at the nominal value of the shares, and the excess of the exercise price per share
over the nominal value of the shares is recorded by the Company in the share premium
account. Options which lapse or are cancelled prior to their exercise date are
deleted from the register of outstanding options. F - 48




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data) 20.      SHARE OPTION PLAN (continued) (b) Details of share options exercised during the year ended December 31, 2003: Market value per shareExercise period
    
    Exercise price
    
    
    at exercise date
    
    
    Proceeds received
    
    
    NumberJuly 16, 2003 to
    
    Range from HK$2.944September 8, 2003
    
    HK$2.765
    
    to HK$3.782
    
    HK$2,019
    
    
    730,000
  21.
    
    CONCENTRATION AND OTHER RISKSFinancial instruments that potentially subject the Group significant concentrations of
credit risk consist principally of cash investments and trade receivables.The Group maintains cash and cash equivalents with various financial institutions. These
financial institutions are located both in Hong Kong and overseas. The Company policy is
designed to limit exposure to any one institution.Two customers accounted for 23% and 13% each of the total transponder utilization revenues
in the year ended December 31, 2002. Two customers accounted for 13% and 12% each of the
total transponder utilization revenues in the year ended December 31, 2003. One customer
accounted for 13% of the total transponder utilization revenues in the year ended December
31, 2004.Revenues from the Groups five largest customers for the years ended December 31, 2002, 2003
and 2004 were HK$198,920, HK$119,188 and HK$111,925 (US$14,349), respectively, which
represented 56.6%, 39.4% and 40.4%, respectively, of total revenues. Revenues from the
Groups largest customer are derived from PRC and represented 22.9%, 12.6% and 12.7%,
respectively, of total revenues during the years ended December 31, 2002, 2003 and 2004.Substantially all of the Groups trade receivables are due from prominent broadcasters and
telecommunication services providers. Furthermore, as of December 31, 2003 and 2004, the
three largest trade receivables amounted to HK$32,878 and HK$22,321, 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 utilization fees payable to the Group. The transponder utilization
agreements are subject to termination by the Group if utilization 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 utilization fees after the expiration of the initial terms for the utilized
transponder capacity.The Groups launch insurance is unlikely to fully reimburse the Group for its
expenditures with respect to launching a replacement satellite, with uninsured expenses
comprising legal and other professional fees, interest and certain other expenses. In the
very unlikely event of catastrophic launch failure of APSTAR VI, the Group will recognize a
capital loss of approximately HK$390,000 (US$50,000) due to insufficient insurance coverage.
Nevertheless, the claimed F - 49




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  21.
    
    CONCENTRATION AND OTHER RISKS (continued)payment under the catastrophic launch failure (which will be
approximately HK$1,365,000
(US$175,000) in the case of total loss), will be sufficient to fully repay the outstanding
principal of the term loan.Currently, the Groups in-orbit insurance, other than APSTAR VI, covers only the book value,
rather than the replacement cost, of a satellite. In respect of APSTAR VI, the launch
insurance covers the first year in-orbit operations in an amount only US$175,000 but not the
book value of a satellite. Any anomalies and significant loss occur in that year may lead
to recognition of non-cash impairment loss to write off the book value. Further, the
Companys insurance coverage does not compensate the Group for business interruption and
similar losses (including, among other things, loss of market share, loss of revenue and
incidental and consequential damages).22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP  (a)
    
    Summary of Significant Differences Between HK GAAP and US GAAPThe Groups accounting policies conform with generally accepted accounting
principles in Hong Kong (HK GAAP) which differ in certain material respects from
those applicable generally accepted accounting principles in the United States of
America (US GAAP).The significant differences relate principally to the following items and the
adjustments considered necessary to present the net income/(loss) and shareholders
equity in accordance with US GAAP are set out below.  (i)
    
    Revenue recognitionCertain of the Groups transponder utilization agreements for transponder
capacity contain pre-determined escalations over the terms of the
agreements. Prior to 2002, revenue was recognized on an accrual basis under
the contract terms under HK GAAP. For US GAAP, revenue is recognized on a
straight-line basis over the relevant contract term. Effective from January
1, 2002, revenue is recognized on a straight-line basis over the relevant
contract terms under HK GAAP. As such, US GAAP adjustments were made in
2002 to reverse the accumulated difference as at December 31, 2001 between
revenue recognized on an accrual basis and on a straight-line basis under HK
GAAP, and its corresponding tax effect.(ii)
    
    Investment properties revaluation and depreciationUnder HK GAAP, investment properties are stated at appraised values and
are not depreciated. Changes in the value of investment properties are dealt
with as movements in the investment properties revaluation reserve in the
shareholders equity. If the total of this reserve is insufficient to cover
a deficit, on a portfolio basis, the excess of the deficit is charged to the
consolidated statements of operations. Under US GAAP, investment properties
are stated at cost and depreciated over the lease terms. Accordingly, the
investment properties of the Group and its jointly controlled entity, which
are stated at open market value, have been restated at historical cost less
accumulated depreciation. F - 50




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (ii)
    
    Investment properties revaluation and depreciation (continued)Depreciation has been based on the historical cost of the properties held by
the Group and its jointly controlled entity and the useful lives of such
properties range from 44 to 46 years. The gross historical cost of
properties held by the Group and jointly controlled entity subject to
depreciation under US GAAP which are not depreciated under HK GAAP at
December 31, 2004 amounted to HK$3,821 (2003: HK$3,821) and HK$140,000 (2003:
HK$140,000), respectively.In the US GAAP reconciliation of net loss for the year, the adjustments
represent the reversal of revaluation gain in respect of the Groups
properties of HK$78 (2003: revaluation loss of HK$70 and 2002: revaluation
loss of HK$70), and the depreciation in respect of the properties held by the
Group amounting HK$84 (2003: HK$83 and 2002: HK$83) and the Groups
proportionate share of depreciation in respect of the property held by
jointly controlled entity amounting HK$1,750 (2003: HK$875 and 2002: HK$nil).
In the US GAAP reconciliation of shareholders equity at December 31, 2004,
the adjustments represent the reversal of revaluation gain in respect of the
investment properties of the Group of HK$78 (2003: revaluation loss of HK$70)
and the Groups proportionate share of revaluation gain in respect of the
property held by its jointly controlled entity HK$5,500 (2003: HK$7,700), and
the additional accumulated depreciation charged on the Groups properties and
proportionate share of the jointly controlled entitys properties under US
GAAP amounting HK$1,288 (2003: HK$1,204) and HK$2,625 (2003: HK$875),
respectively.(iii)
    
    Share optionsUnder HK GAAP, no compensation expense is recognized.Under US GAAP, in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees"(APB 25), compensation
expense is recognized for options granted to employees and amortized over
the vesting period of the options concerned to the extent that the fair
value of the equity instrument exceeds the exercise price of the option
granted at a defined measurement date, which is generally the grant
date unless certain conditions apply. Under Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, an entity may alternatively compute compensation expense
based on the fair value of the options granted. The Company has adopted APB
25 for purposes of accounting for its fixed plan stock options issued to
employees.When the eligible employees have resigned and their
share options are cancelled prior to vesting, adjustment is made to
reverse any previous years amortized compensation expenses of those
employees option under US GAAP. F-51




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (iii)
    
    Share options (continued)In the USGAAP reconciliation of net income/(loss) for the year ended December
31, 2002 and 2003, the compensation expense of share options granted
represents the amortization over ther vesting period for the year net of the
reversal adjustment relating to the cancellation of share options prior to
vesting. There has been no compensation expense of share options granted for
the year ended December 31, 2004 as all the share options granted have been
vested in 2003. In the US GAAP reconciliation of shareholders equity at
December 31, 2004, the adjustments represent compensation expenses of
HK$11,284 (2003: HK$11,284) charged to retained earnings, exercise of share
options of HK$73 (2003: HK$73) and HK$719 (2003: HK$719) charged to share
capital and share premium, respectively and the share options outstanding
included in shareholders equity is HK$10,492 (2003: HK$10,492).(iv)
    
    GoodwillUnder HK GAAP, the Group adopted the acquisition method to account for
the purchase of subsidiaries from the holding company. Under the acquisition
method, the acquired results are included in the results of operations from
the date of their acquisition. For acquisitions before January 1, 2001,
goodwill arising on the acquisition, being the excess of the cost over the
fair value of the Groups share of the separable net assets acquired, is
eliminated against reserves immediately on acquisition. For acquisitions on
or after January 1, 2001, goodwill arising on the acquisition is amortized
to the consolidated statements of operations on a straight-line basis over
its estimated useful life.Under US GAAP effective January 1, 2002, SFAS No. 142, Goodwill and Other
Intangible Assets, requires that goodwill and other indefinite life assets
acquired in a business combination no longer be amortized, instead, these
assets must be tested for impairment at least annually. The excess fair
value of net assets acquired over the purchase price (negative goodwill)
shall be allocated as a pro rata reduction of the amounts that otherwise
would have been assigned to all of the acquired assets except financial
assets other than investments accounted for by the equity method, assets to
be disposed of by sale, deferred tax assets, prepaid assets relating to
pension or other postretirement benefit plans, and any other current assets.
If any excess remains after reducing to zero the amounts that otherwise
would have been assigned to those assets, that remaining excess shall be
recognized as an extraordinary gain. The extraordinary gain shall be
recognized in the period in which the business combination is completed
unless the acquisition involves contingent consideration that, if paid or
issued, would be recognized as an additional element of cost of the acquired
entity. F-52




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (v)
    
    Impairment of long-lived assetsThe Group periodically reviews the carrying amount of the 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. Under HK GAAP, the estimated future cash flows
are discounted at a discount rate when assessing the recoverable amount of
the asset.Under US GAAP, in accordance with SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, recoverability of the assets
is measured by a comparison of the carrying amount of an asset or asset
group to future undiscounted net cash flows expected to be generated by the
asset or asset
group. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amounts of the
assets exceed the fair value of the assets.Given that the estimated undiscounted cash flows expected to be generated by
the asset exceed the carrying amount of the asset that was impaired under HK
GAAP in 2004, the asset is not considered impaired under US GAAP.
Accordingly, the US GAAP adjustment represents the reversal of impairment
loss attributable to the Group in respect to property, plant and equipment
HK$1,080 (2003: HK$nil). The loss attributable to the minority interest is
HK$720 (2003: HK$nil).(vi)
    
    Segment reportingUnder HK GAAP, the Group has reported business segment information as
its primary reporting segment in accordance with its internal financial
reporting. Segment information under HK GAAP includes data that can be
directly attributable to a segment and those items that can be reasonably
allocated.Under US GAAP, segment information is based on the segmental operating
results regularly reviewed by the Groups chief operating
decision maker applying accounting policies consistent with those used in
preparation of the Groups consolidated HK GAAP financial statements.Segment information, including revenues and results for these segments for
each of the three years ended December 31, 2004 is presented in note 19.
The computation of segment results required by HK GAAP approximates measures
of performance used internally by the chief operating decision maker and
materially complies with US GAAP.Please refer to note 19 for the Groups other segment information required
by the provisions of SFAS No. 131 Segment Reporting. F-53




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (b)
    
    Net income/(loss)The effect on net income/(loss) of significant differences between HK GAAP and US
GAAP is as follows: Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Net income/(loss) as reported
under HK GAAP
    
    
    24,435
    
    
    
    (224,718
    )
    
    
    (57,757
    )Adjustments:Recognition of revenue
    
    
    (3,697
    )
    
    
    
    
    
    
    Investment properties
    
    
    (13
    )
    
    
    (888
    )
    
    
    (1,912
    )Tax effect of reconciling items
    
    
    591
    
    
    
    
    
    
    
    Compensation expense of share options
granted
    
    
    (7,553
    )
    
    
    344
    
    
    
    Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    1,080Net income/(loss) as reported
under US GAAP
    
    
    13,763
    
    
    
    (225,262
    )
    
    
    (58,589
    )Weighted
average shares, outstanding- basic
    
    
    412,675,000
    
    
    
    412,892,000
    
    
    
    413,265,000- diluted
    
    
    412,675,000
    
    
    
    412,892,000
    
    
    
    413,265,000Earnings/(loss) per share under US GAAP- basic
    
    3 cents
    
    
    (55 cents)
    
    
    (14 cents)- diluted
    
    3 cents
    
    
    (55 cents)
    
    
    (14 cents)
  Options to purchase 9,670,000 shares and 8,450,000 shares of common stock at
HK$2.765 per share were outstanding during the years 2003 and 2004, respectively,
but were not included in the computation of diluted EPS because the options
exercise price was greater than the average market price of the common shares for
the period. The options, which expire on May 21, 2011, were still outstanding at
the end of year 2004.Under US GAAP effective from January 1, 2002, goodwill is no longer
amortized but is subject to annual impairment review. Hence, amortization of
goodwill of approximately HK$660 which has been provided under HK GAAP during
2002 was reversed under US GAAP. However, as a result of the Groups
impairment assessment, a provision was recorded to reduce goodwill to its
estimated fair value for both HK GAAP and US GAAP. The impairment provision
recorded under US GAAP was HK$660 higher than that recorded under HK GAAP. No
goodwill was recorded under HK GAAP or US GAAP for the years ended December 31,
2003 and 2004. F-54




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (c)
    
    Shareholders equityThe effect on shareholders equity of significant differences between HK GAAP and
US GAAP is as follows: December 31,2003
    
    
    2004HK$
    
    
    HK$Shareholders equity as reported under
HK GAAP
    
    
    2,253,030
    
    
    
    2,193,153Adjustments:Accumulated depreciation on investment
properties
    
    
    (520
    )
    
    
    (2,432
    )Revaluation reserve
    
    
    (7,700
    )
    
    
    (5,500
    )Property, plant and equipment
    
    
    
    
    
    
    1,080Shareholders equity as reported under
US GAAP
    
    
    2,244,810
    
    
    
    2,186,301
  The changes in shareholders equity in accordance with US GAAP is as follows: Capital
    
    
    Additional
    
    
    Other
    
    
    Retainedstock
    
    
    paid-in capital
    
    
    reserves
    
    
    earningsHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Balance at January 1, 2002
    
    
    41,272
    
    
    
    1,798,883
    
    
    
    64
    
    
    
    627,905Repurchase of shares
    
    
    (18
    )
    
    
    (289
    )
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,636
    )Compensation expense of share
options granted
    

    
    
    
    
    
    7,553
    
    
    
    
    
    
    
    Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    (30
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,763Balance at December 31, 2002
    
    
    41,254
    
    
    
    1,806,147
    
    
    
    276
    
    
    
    621,002New shares issued under the share
option scheme
    
    
    73
    
    
    
    1,946
    
    
    
    
    
    
    
    Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    Compensation expense of share
options granted
    
    
    
    
    
    
    (344
    )
    
    
    
    
    
    
    Transfer to other reserves
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    (8
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225,262
    )Balance at December 31, 2003
    
    
    41,327
    
    
    
    1,807,749
    
    
    
    2
    
    
    
    395,732Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,589
    )Balance at December 31, 2004
    
    
    41,327
    
    
    
    1,807,749
    
    
    
    82
    
    
    
    337,143
 F-55




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (d)
    
    Comprehensive income under US GAAPThe comprehensive income for the year ended December 31, 2002 was HK$13,945,
comprised of net income of HK$13,763 and a foreign currency translation gain of
HK$182.The comprehensive loss for the year ended December 31, 2003 was HK$225,544,
comprised of net loss of HK$225,262 and a foreign currency translation loss of
HK$282.The comprehensive loss for the year ended December 31, 2004 was
HK$58,509, comprised of net loss of HK$58,589 and a foreign currency
translation gain of HK$80.(e)
    
    Consolidated statements of operations and consolidated balance sheets under
US GAAPThe compensation received from cancellation of transponder utilization agreements
and from early termination of services and facilities lease are classified as
revenues under US GAAP. In addition, the reversals of the allowance for doubtful
receivables and provision for regulatory matters, and the impairment loss on
goodwill and property, plant and equipment are presented as part of costs and
expenses under US GAAP.Under US GAAP, the interest expense on the loan borrowed by the Partnership and
the related interest income on the deposit by a fellow subsidiary are not offset.The consolidated statements of operations under US GAAP is as
follows: Years ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2004HK$
    
    
    HK$
    
    
    HK$
    
    
    US$Total revenues
    
    
    347,781
    
    
    
    316,291
    
    
    
    277,260
    
    
    
    35,547Total costs and expenses
    
    
    (314,621
    )
    
    
    (484,036
    )
    
    
    (323,519
    )
    
    
    (41,477
    )Income/(loss) from operations
    
    
    33,160
    
    
    
    (167,745
    )
    
    
    (46,259
    )
    
    
    (5,930
    )Other income/(expenses)Borrowing costs
    
    
    (43,685
    )
    
    
    (35,771
    )
    
    
    (4,117
    )
    
    
    (529
    )Interest income
    
    
    65,874
    
    
    
    42,882
    
    
    
    7,312
    
    
    
    937Others-net
    
    
    2,873
    
    
    
    11,878
    
    
    
    2,020
    
    
    
    259Share of losses of jointly controlled
entities
    
    
    (10,624
    )
    
    
    (65,708
    )
    
    
    (2,259
    )
    
    
    (289
    )Income/(loss) before income taxes and
minority interests
    
    
    47,598
    
    
    
    (214,464
    )
    
    
    (43,303
    )
    
    
    (5,552
    )Provision for income taxes
    
    
    (36,223
    )
    
    
    (11,721
    )
    
    
    (16,625
    )
    
    
    (2,131
    )Minority interests
    
    
    2,388
    
    
    
    923
    
    
    
    1,339
    
    
    
    172Net income/(loss)
    
    
    13,763
    
    
    
    (225,262
    )
    
    
    (58,589
    )
    
    
    (7,511
    )
 F-56




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (e)
    
    Consolidated statements of operations and consolidated balance sheets under US GAAP (continued)Under US GAAP, the Companys consolidated current assets were
HK$759,773 and HK$768,108 and total assets were HK$3,297,349 and HK$3,620,900
at December 31, 2003 and 2004, respectively, and consolidated current
liabilities were HK$276,979 and HK$234,386 and total liabilities were
HK$1,046,624 and HK$1,430,023 at December 31, 2003 and 2004, respectively.(f)
    
    Consolidated statements of cash flowThe Group applies Hong Kong Statement of Standard Accounting Practice No. 15
(revised 2001) Cash Flow Statements (HK SSAP 15). Its objectives and principles
are similar to those set out in SFAS No. 95, Statement of Cash Flows for US GAAP
purposes. The principal differences between the standards relate to
classification. Interest received is classified under investing activities and
interest paid under financing activities shown under HK SSAP 15. These items are
classified under operating activities under SFAS No. 95.A reconciliation of the major captions in the consolidated statements of cash flow
under HK GAAP and US GAAP is as follows: Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Net cash from operating activities:Amount under HK GAAP
    
    
    162,763
    
    
    
    91,292
    
    
    
    233,378US GAAP
adjustment  - interest received
    
    
    20,254
    
    
    
    9,279
    
    
    
    6,810- interest paid
    
    
    
    
    
    
    (3,681
    )
    
    
    (15,847
    )Amount under US GAAP
    
    
    183,017
    
    
    
    96,890
    
    
    
    224,341Net cash used in investing activities:Amount under HK GAAP
    
    
    (1,037,192
    )
    
    
    (589,259
    )
    
    
    (364,492
    )US GAAP
adjustment - interest received
    
    
    (20,254
    )
    
    
    (9,279
    )
    
    
    (6,810
    )Amount under US GAAP
    
    
    (1,057,446
    )
    
    
    (598,538
    )
    
    
    (371,302
    )Net cash from financing activities:Amount under HK GAAP
    
    
    80,871
    
    
    
    218,856
    
    
    
    257,933US GAAP
adjustment - interest paid
    
    
    
    
    
    
    3,681
    
    
    
    15,847Amount under US GAAP
    
    
    80,871
    
    
    
    222,537
    
    
    
    273,780
 F-57




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (g)
    
    Income taxesA reconciliation of the expected income tax expense (benefit), using the statutory
tax rates of the applicable countries, with the actual income taxes expense under US
GAAP is as follows: Year ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Profit/(loss) before tax and minority interests
    
    
    47,598
    
    
    
    (214,464
    )
    
    
    (43,303
    )Expected income tax expense (benefit)
    
    
    7,551
    
    
    
    (37,550
    )
    
    
    (8,072
    )Overseas withholding tax
    
    
    23,516
    
    
    
    20,237
    
    
    
    17,000Tax effect of non-deductible expenses
    
    
    10,803
    
    
    
    7,618
    
    
    
    40,497Tax effect of non-taxable revenue
    
    
    (11,992
    )
    
    
    (3,159
    )
    
    
    (27,852
    )Tax effect of unused tax losses not recognized
    
    
    2,614
    
    
    
    12,813
    
    
    
    2,656Tax effect of prior years unrecognized tax
losses utilized this year
    
    
    
    
    
    
    
    
    
    
    (7,604
    )Effect on opening deferred tax balances resulting
from an increase in tax rate during the year
    
    
    
    
    
    
    11,762
    
    
    
    Under-provision in prior years
    
    
    3,731
    
    
    
    
    
    
    
    Actual tax expenses
    
    
    36,223
    
    
    
    11,721
    
    
    
    16,625
 All but an
insignificant amount
of loss was
generated from Hong
Kong sources.  Non-deductible expenses include 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, 2004, the Group had net operating loss carryforwards of
approximately HK$786 million that it can carryforward indefinitely.The income taxes expense under US GAAP is presented below: Years ended December 31,2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Current
    
    
    35,026
    
    
    
    134,734
    
    
    
    17,000Deferred
    
    
    1,197
    
    
    
    (123,013
    )
    
    
    (375
    )36,223
    
    
    
    11,721
    
    
    
    16,625
 F-58




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (g)
    
    Income taxes (continued)The principal components of the deferred tax liabilities/(assets) under US GAAP are
as follows: December 31,2003
    
    
    2004HK$
    
    
    HK$Deferred tax assets:Tax losses
    
    
    45,809
    
    
    
    138,252Property, plant and equipment
    
    
    3,802
    
    
    
    4,295Trade and other receivables
    
    
    1,763
    
    
    
    2,537Others
    
    
    672
    
    
    
    511Total deferred tax assets
    
    
    52,046
    
    
    
    145,595Valuation allowance
    
    
    (16,910
    )
    
    
    (13,088
    )Net deferred tax assets
    
    
    35,136
    
    
    
    132,507Deferred tax liabilitiesProperty, plant and equipment
    
    
    (37,586
    )
    
    
    (134,582
    )Net deferred tax liabilities
    
    
    (2,450
    )
    
    
    (2,075
    )
  At January 1, 2002, the valuation allowance was HK$1,528. During 2002 and 2003, the
valuation allowance increased by HK$151 and HK$15,231, respectively. During 2004,
the valuation allowance decreased by HK$3,822.(h)
    
    Pro forma information of net income/(loss) and per share under SFAS No. 123 and 148
earnings/(loss)Pro forma information regarding net income/(loss) and earnings/(loss) per share is
required by SFAS No. 123 and 148, and has been determined as if the Group had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value of share option at date of grant is HK$2.82 per option which is
estimated using the Black-Scholes option pricing model with the following
assumptions:  (1)
    
    an expected volatility of 47%(2)
    
    no expected annual dividend(3)
    
    an expected life of the options of 119 months; and(4)
    
    a risk free interest rate of 6%  The Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the expected volatility of share price.
Because changes in subjective input assumptions can materially affect the fair
value estimate, in managements opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of the share
options. F-59




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (h)
    
    Pro forma information of net income/(loss) and
earnings/(loss) per share under SFAS No. 123 and 148 (continued)If the Company had accounted for its share option plan by
recording compensation expense based on the fair value at grant date for such
awards consistent with the method of SFAS No. 123, the Companys net
income/(loss) as reported under US GAAP and earnings/(loss) per share for the
years ended December 31, 2002, 2003 and 2004 would have been adjusted to the
pro forma amounts as follows: 2002
    
    
    2003
    
    
    2004HK$
    
    
    HK$
    
    
    HK$Net income/(loss)
    
    As reported
    
    
    13,763
    
    
    
    (225,262
    )
    
    
    (58,589
    )Add: Stock-based employee
compensation expense
included in reported net
income/(loss)
    
    
    
    
    7,553
    
    
    
    (344
    )
    
    
    Deduct: Total stock-based
employee compensation
expense determined under
fair value based method
    
    
    
    
    (19,631
    )
    
    
    892
    
    
    
    Net income/(loss)
    
    Pro forma
    
    
    1,685
    
    
    
    (224,714
    )
    
    
    (58,589
    )Basic earnings/(loss) per
share
    
    As reported
    
    3 cents
    
    
    (55 cents
    )
    
    (14 cents
    )Pro forma
    
    1 cent
    
    
    (54 cents
    )
    
    (14 cents
    )Diluted earnings/(loss) per
share
    
    As reported
    
    3 cents
    
    
    (55 cents
    )
    
    (14 cents
    )Pro forma
    
    1 cent
    
    
    (54 cents
    )
    
    (14 cents
    )
  (i)
    
    Acquisition of a subsidiaryThe results of CTIA have been included in the consolidated financial statements from
the date of acquisition of the additional 20% interest (i.e. April 11, 2002). CTIA
has established a joint venture in the PRC which primarily engages in provision of
data transmission services.The Groups acquisition of an additional ownership interest in CTIA is in line with
the Groups strategic development plan of shifting towards end-users in the
value-chain of the telecommunications and broadcasting businesses.Goodwill is recorded when the consideration paid for the acquisition of additional
20% interest in CTIA exceeds the fair value of identifiable net tangible assets. F-60




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (i)
    
    Acquisition of a subsidiary (continued)

Pro Forma Financial InformationThe unaudited pro forma US GAAP financial information shown below has been prepared
on the basis that the additional 20% interest in CTIA had been acquired at the
beginning of 2002. 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 2002. Pro forma information is as follows: 2002HK$Total revenues
    
    
    347,781Net income
    
    
    13,089Basic earnings per share
    
    3 centsDiluted earnings per share
    
    3 cents
  The pro forma revenue for 2002 included the revenues of CTIA from January 1, 2002 to
date of acquisition of HK$1,438. 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 through the date of
acquisition.(j)
    
    Summarized information on APT Telecom, a significant jointly controlled
entityUnder US GAAP, APT Telecoms net losses were HK$18,261, HK$119,469
and HK$4,108 for the years ended December 31, 2002, 2003 and 2004,
respectively, total assets were HK$157,636 and HK$138,817 as at December 31,
2003 and 2004, respectively, and total liabilities were HK$150,636 and
HK$135,925 as at December 31, 2003 and 2004, respectively.During 2003, the directors of APT Telecom conducted a review of the companys fixed
assets and determined that property, plant and equipment, and other assets were
impaired due to the recoverable amount of these assets is estimated to be less
than their carrying amount. Accordingly, impairment loss of HK$89,018 has been
recognized and charged to the statements of operations for the year ended December
31, 2003. APT Telecom did not have any impairment in 2004. F-61




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)  22.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)  (k)
    
    Recent US accounting pronouncementsIn December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-based payment
and superseded APB Opinion No. 25, Accounting for Stock Issued to Employees, and
its related implementation guidance. SFAS No. 123R addresses the accounting for
share-based payment transactions in which an enterprise receives employee services
in exchange for equity instruments of the enterprise or liabilities that are based
on the fair value of the enterprises equity instruments or that may be settled by
the issuance of such equity instruments. SFAS No. 123R requires an entity to
recognize the grant-date fair-value of stock options and other equity-based
compensation issued to the employees in the consolidated statements of operations.
The revised statement generally requires that an entity account for those
transactions using the fair-value-based method, and eliminates an entitys ability
to account for share-based compensation transactions using the intrinsic value
method of accounting, which was permitted under Statement 123, as originally issued.
For the Company, SFAS No. 123R is effective for fiscal years beginning after June
15, 2005. Consequently, the Company has elected to defer adoption of SFAS No. 123R
until January 1, 2006. The Company is in the process of determining the impact of
the adoption of SFAS No. 123R. The pro forma results disclosed in Note 22 (h) are
not necessarily indicative of what the impact of SFAS No. 123R will be upon
adoption.In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, which eliminates an exception in Accounting Principles
Board Opinion No. 29, Accounting for Nonmonetary Transactions, for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchange of nonmonetary assets that do not have
commercial substance. This Statement will be effective for the Company for
nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The Company does not believe that the adoption of SFAS No. 153 will
have a significant effect on its financial statements.In March 2005, the FASB issued an Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations. This Interpretation
clarifies the term conditional asset retirement obligation as used in SFAS No.
143, Accounting for Asset Retirement Obligations and when an entity would
have sufficient information to reasonably estimate the fair value of an asset
retirement obligation. This Interpretation will be effective no later than the
end of fiscal years ending
after December 15, 2005. The Company does not believe that the adoption of the
Interpretation No. 47 will be a significant effect on its financial statements. F-62




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##### Table of Contents



EXHIBIT LIST ExhibitNumber
    
    Name of Exhibit1.1
    
    Memorandum of Association and Bye-laws of the Company
(incorporated by reference to the Companys Annual Report, as filed with the Commission
on June 29, 2004).4.1
    
    Satellite Procurement Agreement by and between APT Satellite
Company Limited, a wholly owned subsidiary of the Company,
and Contractor, an independent third party not associated
with the Directors, chief executive officer and major
shareholders of the Company or any of its subsidiaries,
dated January 8, 2001 (incorporated by reference to the
Companys 6-K filed with the Commission on January 9, 2001).4.2
    
    Launch Agreement by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and the
Launch Contractor, a subsidiary of China Aerospace Science &
Technology Corporation, dated January 8, 2001 (incorporated
by reference to the Companys 6-K filed with the Commission
on January 9, 2001).4.3
    
    Satellite Procurement Agreement by and between APT Satellite
Company Limited, a wholly owned subsidiary of the Company,
and Contractor, an independent third party not associated
with the Directors, chief executive officer and major
shareholders of the Company or any of its subsidiaries,
dated December 11, 2001 (incorporated by reference to the
Companys 6-K filed with the Commission on December 18,
2001).4.4
    
    Term Sheet executed by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company,
Contractor and Loral Orion, Inc., both of which are
independent third party not associated with the Directors,
chief executive officer and major shareholders of the
Company or any of its subsidiaries, dated September 20, 2002
(incorporated by reference to the Companys 6-K filed with
the Commission on September 30, 2002).4.5
    
    Transponder Utilization Agreement by and between APT
Satellite Company Limited, a wholly owned subsidiary of the
Company, and Lessee, a connected person under the rules
governing the listing of securities on The Stock Exchange of
Hong Kong Limited, dated April 11, 2003 (incorporated by
reference to the Companys 6-K filed with the Commission on
April 16, 2003).4.6
    
    Auditors of the Company was changed to Messrs. KPMG with
effect from July 15, 2003 (incorporated by reference to the
Companys 6-K filed with the Commission on July 17, 2003).4.7
    
    Satellite Procurement Amendment Agreement by and between APT
Satellite Company Limited, a wholly owned subsidiary of the
Company, and the Contractor, a party independent of the
Director, chief executive officer and substantial
shareholder of the Company and its subsidiaries and their
respective associates, dated August 26, 2003. The Satellite
Transponder Agreement and Satellite Agreement by and between
APT Satellite Company Limited, a wholly owned subsidiary of
the Company, and the lessor, a party independent of the
Director, chief executive officer and substantial
shareholder of the Company and its subsidiaries and their
respective associates, dated August 26, 2003 (incorporated
by reference to the Companys 6-K filed with the Commission
on September 2, 2003).




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##### Table of Contents



ExhibitNumber
    
    Name of Exhibit4.8
    
    Various on-going transactions in their ordinary course of
business had entered into between the APT Group of the
Company and APT Telecom, a non-wholly owned subsidiary of
the Company, and the contracting party, a connected person
under the rules governing the listing of securities on The
Stock Exchange of Hong Kong Limited, as announced August 28,
2003 (incorporated by reference to the Companys 6-K filed
with the Commission on September 2, 2003).4.9
    
    Master Agreement by and between APT Satellite
Telecommunications Limited, a non-wholly owned subsidiary of
the Company, Skywork Corporation, a wholly owned subsidiary
of the Company, APT Telecom Services Limited, a wholly owned
subsidiary of the Company, and a connected person under the
rules governing the listing of securities on The Stock
Exchange of Hong Kong Limited, dated September 10, 2003
whereby the business of APT Satellite Telecommunications
Limited was being reorganized (incorporated by reference to
the Companys 6-K filed with the Commission on September 15,
2003).4.10
    
    The Agreement and the Amended Launch Agreement by and
between APT Satellite Company Limited, a wholly owned
subsidiary of the Company, and the Contractor of APSTAR V,
dated November 16, 2003 (incorporated by reference to the
Companys 6-K filed with the Commission on September 17,
2003).4.11
    
    An utilization agreement for the remaining life of APSTAR I
by and between APT Satellite Company Limited, a wholly owned
subsidiary of the Company, and the customer, dated October 22, 2004 (incorporated by reference to the Companys 6-K
filed with the Commission on October 29, 2004).4.12
    
    An agreement by and between APT Satellite Company Limited, a
wholly owned subsidiary of the Company, and the grantor and
contractor of APSTAR VIB dated November 10, 2004
(incorporated by reference to the Companys 6-K filed with
the Commission on November 15, 2004).4.13
    
    Two Master Agreements between the Company and Singapore
Telecommunications Limited; and the Company and C2C Pte
Limited dated December 1, 2004 (incorporated by reference to
the Companys 6-K filed with the Commission on December 3,
2004).8.1
    
    List of subsidiaries and the jurisdictions under which each
does business (contained in Note 1 to the Consolidated
Financial Statements in Item 18 herein).8.2**
    
    Financial statements of APT Satellite Telecommunications
Limited12.1**
    
    Certification of CEO12.2**
    
    Certification of CFO14.1**
    
    Amended Charter of the Audit Committee14.2**
    
    Charter of the Nomination Committee14.3**
    
    Charter of the Remuneration Committee99.1**
    
    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
2002.99.3**
    
    Significant Differences in Corporate Governance Practices.
 Notes: 
 **
    
    Filed herewith.