##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (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, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934, or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
 Date of event requiring this shell company report
 Commission file number 001-14564
 APT SATELLITE HOLDINGS LIMITED
 
  APT SATELLITE HOLDINGS LIMITED
 
  Bermuda
 
  22 Dai Kwai Street, Tai Po Industrial Estate, Tai Po, New Territories, Hong Kong
 
   Title
    
    Name of Each Exchange on Which QuotedOrdinary Shares
    
    The Stock Exchange of Hong Kong LimitedAmerican Depositary Shares
    
    New York Stock Exchange
        o þ
  o þ
  þ o
  o o þ
  o þ
  o þ




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##### Table of Contents



PageGLOSSARY OF CERTAIN TERMS
    
    iiiItem 1.
    
    Identity of Directors, Senior Management, and Advisers
    
    
    8Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    8Item 3.
    
    Key Information
    
    
    8Selected Consolidated Financial Information
    
    
    8Risk Factors
    
    
    10Item 4.
    
    Information on the Company
    
    
    17History and Development of the Company
    
    
    17Business Overview
    
    
    17Industry and Market Overview
    
    
    20Broadcasting and Telecommunications Markets in Asia
    
    
    21Customers and Services
    
    
    22Competition
    
    
    31Regulation
    
    
    33Organizational Structure
    
    
    35Property, Plant and Equipment
    
    
    36Item 4A.
    
    Unresolved Staff Comments
    
    
    36Item 5.
    
    Operating and Financial Review and Prospects
    
    
    36Overview
    
    
    36Application of Critical Accounting Matters
    
    
    39Contractual Obligations and Commercial Commitments
    
    
    41Off-Balance Sheet Arrangements
    
    
    42Results of Operations
    
    
    42Liquidity and Capital Resources
    
    
    46Forward Looking Statements
    
    
    48Other
    
    
    49Item 6.
    
    Directors, Senior Management and Employees
    
    
    50Compensation
    
    
    55Board Practices
    
    
    57Service Agreements
    
    
    58Employees
    
    
    60Share Option Schemes
    
    
    60Share Ownership
    
    
    60Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    61Major Shareholders
    
    
    61Related Party Transactions
    
    
    63Item 8.
    
    Financial Information
    
    
    65Item 9.
    
    The Offer and Listing
    
    
    65Item 10.
    
    Additional Information
    
    
    66Exchange Controls and Other Limitations Affecting Security Holders
    
    
    71Taxation
    
    
    72Item 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    77Interest Rate Risk
    
    
    77Exchange Rate Sensitivity
    
    
    77Limitations
    
    
    78Item 12.
    
    Description of Securities Other Than Equity Securities
    
    
    78Item 13.
    
    Defaults, Dividend Arrearages, and Delinquencies
    
    
    78
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PageItem 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    78Item 15.
    
    Controls and Procedures
    
    
    78Item 16A.
    
    Audit Committee Financial Expert
    
    
    78Item 16B.
    
    Code of Ethics
    
    
    78Item 16C.
    
    Principal Accountant Fees and Services
    
    
    79Item 16D.
    
    Exemption from the Listing Standards for Audit Committees
    
    
    79Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    79Item 17.
    
    Financial Statements
    
    
    80Item 18.
    
    Financial Statements
    
    
    80Item 19.
    
    Exhibits
    
    
    80EX-11.1 THE AMENDED CODE OF ETHICSEX-12.1 CERTIFICATION OF CEO PURSUANT TO SECTION 302EX-12.2 CERTIFICATION OF CFO PURSUANT TO SECTION 302EX-13.1 CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350EX-13.2 CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350
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GLOSSARY OF CERTAIN TERMS
  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.APSTAR System
    
    The Companys current and future satellites, including APSTAR I, APSTAR IA, APSTAR IIR, APSTAR V,
APSTAR VI , 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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.APT Telecom
    
    APT Satellite Telecommunications Limited, a jointly controlled entity of the Company which is
incorporated in the HKSAR.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, as modified by the Modification of Agreement for Lease and
Modification of Proposal Form.APT TS
    
    APT Telecom Services Limited, a company incorporated in the HKSAR and a wholly-owned subsidiary
of APT.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.Bank loan
    
    On December 16, 2002, APT Satellite Company Limited entered into a secured term facility of
US$240 million. It was amended by a Deed of Amendment and Restatement on October 27, 2004 and a
Second Deed of Amendment and Restatement on May 18, 2005.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.
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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.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.EBITDA
    
    Net income before taking into account: (i) interest expenses; tax; any share of the profit of any
associated company or undertaking, except for dividends received in cash by any member of the
Company; any share of the non-cash loss
of any investment company of other associated company or undertakings; and extraordinary and exceptional items; and (ii) without
double-counting, after adding back all amounts provided for as depreciation, amortization, impairment assets value or other
provision not involving an outflow of cash.
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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.FCL
    
    Fixed Carrier Licence issued by OFTA for the provision of Facility-based External
Telecommunication Services.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 purpose of the lease contained in the
Lease Agreement.Fifth Modification Proposal
    
    The fifth modification to proposal form dated May 31, 2002 made between APT and Science and
Technology Parks Corporation in respect of modification of purpose in the proposal form in
relation to the Lease Agreement.footprint
    
    The geographic area covered by a satellites downlink or uplink beams, the outer edge of which is
generally defined as that area where the quality of communication degrades below an acceptable
commercial level due to the spacecraft antenna pattern, power of the signal or curvature of the
earth.frequency
    
    Number of repetitions in a given time. Typically it refers to the rate of variation per second
of the carrier wave or modulating signal. Communications satellite RF signals are typically in
the GHz frequency range. See C-band and Ku-band.FTNS/Fixed Carrier Licence
    
    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 InternationalTelecommunication 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
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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.operational life
    
    The time for which a satellite is capable of operating in its allotted position. The expected
end of a satellites in-orbit operational life is mainly based on the period during which the
satellites on-board fuel permits proper station-keeping maneuvers for the satellite.Option(s)
    
    Options granted to the Eligible Grantees under the Scheme 2001 or to the Participants under the
Scheme 2002, as the context requires.paging
    
    A service designed to deliver a message to a person whose location is unknown; messages may be
received via an alphanumeric or character display or small speaker.Participant(s)
    
    Any person belonging to any of the following classes of persons: (a) any Eligible Employee; and
(b) any non-executive directors (including independent non-executive directors) of the Company or
any of its Subsidiaries, in accordance with the Scheme 2002.PRC
    
    The Peoples Republic of China, other than HKSAR.PSTN
    
    Public switched telephone networks which comprise the network infrastructure necessary for
providing basic telephone services.radio frequency
    
    A frequency that is higher than the audio frequencies but below the infrared frequencies, usually
above 20 KHz.Radio Regulations
    
    Radio Regulations of the ITU.Radio Regulatory Department
    
    Radio Regulatory Department of the MII.Radiocommunication Bureau
    
    Radiocommunication Bureau of the ITU.SARFT
    
    China State Administration of Radio Film and Television, a government office responsible for the
management of the provision of Radio, Film and Television in the PRC.Satellite Control Center
    
    The earth station of the 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
    
    Programming signals which require a decoder for purposes of viewing.
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Second Supplemental Agreement
    
    The second supplemental agreement for lease and grant of second extension area dated March 12,
2001 made between APT and the Science and Technology Parks Corporation in respect of Subsection 3
of Section E of Tai Po Town Lot No. 13 and Extensions Thereto.signal
    
    A physical, time-dependent energy value used for the purpose of conveying information through a
transmission line.switch
    
    A device that opens or closes circuits or selects the paths or circuits to be used for
transmission of information; switching is the process of interconnecting circuits to form a
transmission path between users.teledensity
    
    Telephone access lines per 100 persons.telemetry
    
    Radio transmission of coded or analog data from a satellite to a ground station.telephony
    
    Science of construction and operation of telephones and telephonic systems.transponder
    
    A microwave repeater which provides a discrete path to receive communications signals, translate
and amplify such signals and retransmit them to earth or another satellite.TT&C
    
    Telemetry, tracking and command.TT&C Station
    
    Telemetry, tracking and command station, a land-based facility that monitors and controls the
positioning, altitude and status of a satellite in orbit.uplink
    
    In satellite communications, the signal from the earth station to the space station (satellite).VSAT
    
    Very small aperture terminal.
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##### Table of Contents



PART I
 
 Item 1. Identity of Directors, Senior Management, and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 Selected Consolidated Financial Information
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2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    US$Statement of Operations Data:(in millions, except per share data)Hong Kong GAAP:Total revenues
    
    
    351.4
    
    
    
    302.2
    
    
    
    277.3
    
    
    
    336.5
    
    
    
    427.0
    
    
    
    54.7Total costs and expenses
    
    
    (365.4
    )
    
    
    (354.3
    )
    
    
    (323.4
    )
    
    
    (378.4
    )
    
    
    (427.2
    )
    
    
    (54.8
    )Income/(loss) from operations
    
    
    49.7
    
    
    
    (148.2
    )
    
    
    (38.6
    )
    
    
    (78.5
    )
    
    
    37.5
    
    
    
    4.8Share of (losses)/income of jointly
controlled entities
    
    
    (10.6
    )
    
    
    (57.1
    )
    
    
    (2.7
    )
    
    
    (8.0
    )
    
    
    2.2
    
    
    
    0.3Income/(loss) before income taxes
    
    
    39.1
    
    
    
    (205.3
    )
    
    
    (45.4
    )
    
    
    (123.4
    )
    
    
    (24.5
    )
    
    
    (3.1
    )Net income/(loss)
    
    
    2.3
    
    
    
    (217.0
    )
    
    
    (62.0
    )
    
    
    (136.6
    )
    
    
    (80.6
    )
    
    
    (10.3
    )Attributable to:Minority interests
    
    
    (2.3
    )
    
    
    (0.9
    )
    
    
    (2.0
    )
    
    
    (1.0
    )
    
    
    (1.1
    )
    
    
    (0.1
    )Equity shareholders of the Company
    
    
    4.6
    
    
    
    (216.1
    )
    
    
    (60.0
    )
    
    
    (135.6
    )
    
    
    (79.5
    )
    
    
    (10.2
    )Basic earnings/(loss) per share
(cents)(1)
    
    
    1
    
    
    
    (52
    )
    
    
    (15
    )
    
    
    (33
    )
    
    
    (19
    )
    
    
    (2
    )Basic earnings/(loss) per ADS
(cents)(1)
    
    
    8
    
    
    
    (416
    )
    
    
    (120
    )
    
    
    (264
    )
    
    
    (152
    )
    
    
    (19
    )Diluted earnings/(loss) per share
(cents) (1)
    
    
    1
    
    
    
    (52
    )
    
    
    (15
    )
    
    
    (33
    )
    
    
    (19
    )
    
    
    (2
    )Diluted earnings/(loss) per ADS
(cents)(1)
    
    
    8
    
    
    
    (416
    )
    
    
    (120
    )
    
    
    (264
    )
    
    
    (152
    )
    
    
    (19
    )Weighted average number of shares
outstanding(1)  Basic
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Weighted average number of shares
outstanding(1)  Diluted
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Dividend per share (cents)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US GAAP:Total revenues
    
    
    347.8
    
    
    
    316.3
    
    
    
    277.3
    
    
    
    336.5
    
    
    
    427.0
    
    
    
    54.7Total costs and expenses
    
    
    (314.6
    )
    
    
    (484.0
    )
    
    
    (323.6
    )
    
    
    (445.9
    )
    
    
    (427.3
    )
    
    
    (54.8
    )Gain on
disposal of property, plant and equipment
    
    
    
    
    
    

    


    
    
    
    

    
    


    
    


    
    
    
    17.6
    
    
    
    2.3Income/(loss) from operations
    
    
    33.2
    
    
    
    (167.7
    )
    
    
    (46.3
    )
    
    
    (109.4
    )
    
    
    17.3
    
    
    
    2.2Share of (losses)/income of jointly
controlled entities
    
    
    (10.6
    )
    
    
    (65.7
    )
    
    
    (2.3
    )
    
    
    (2.6
    )
    
    
    0.4
    
    
    
    0.1Income/(loss) before income taxes and
minority interests
    
    
    47.6
    
    
    
    (214.5
    )
    
    
    (43.3
    )
    
    
    (118.1
    )
    
    
    (26.5
    )
    
    
    (3.4
    )Net income/(loss)
    
    
    13.8
    
    
    
    (225.3
    )
    
    
    (58.6
    )
    
    
    (130.2
    )
    
    
    (81.5
    )
    
    
    (10.4
    )Basic earnings/(loss) per share
(cents)(1)
    
    
    3
    
    
    
    (55
    )
    
    
    (14
    )
    
    
    (32
    )
    
    
    (20
    )
    
    
    (2
    )Basic earnings/(loss) per ADS
(cents)(1)
    
    
    24
    
    
    
    (440
    )
    
    
    (112
    )
    
    
    (256
    )
    
    
    (160
    )
    
    
    (20
    )Diluted earnings/(loss) per share
(cents)(1)
    
    
    3
    
    
    
    (55
    )
    
    
    (14
    )
    
    
    (32
    )
    
    
    (20
    )
    
    
    (2
    )Diluted earnings/(loss) per ADS
(cents)(1)
    
    
    24
    
    
    
    (440
    )
    
    
    (112
    )
    
    
    (256
    )
    
    
    (160
    )
    
    
    (20
    )Weighted average number of shares
outstanding(1)  Basic
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Weighted average number of shares
outstanding(1)   Diluted
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413
    
    
    
    413Balance Sheet Data:(in millions)Hong Kong GAAP:Working capital (2)
    
    
    739.5
    
    
    
    482.8
    
    
    
    533.7
    
    
    
    188.4
    
    
    
    206.8
    
    
    
    26.5Property, plant and equipment, net
    
    
    2,002.0
    
    
    
    2,429.0
    
    
    
    2,680.3
    
    
    
    2,999.4
    
    
    
    2,721.6
    
    
    
    348.9Total assets
    
    
    3,347.0
    
    
    
    3,305.6
    
    
    
    3,621.0
    
    
    
    3,614.3
    
    
    
    3,407.6
    
    
    
    436.9Long-term liabilities (less current
portion)
    
    
    377.7
    
    
    
    769.6
    
    
    
    1,191.0
    
    
    
    1,255.3
    
    
    
    1,080.0
    
    
    
    138.5Total liabilities
    
    
    864.2
    
    
    
    1,046.6
    
    
    
    1,423.8
    
    
    
    1,552.7
    
    
    
    1,425.3
    
    
    
    182.7Minority interests
    
    
    6.8
    
    
    
    5.9
    
    
    
    3.9
    
    
    
    2.9
    
    
    
    1.8
    
    
    
    0.2Capital stock-common stock
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    41.3
    
    
    
    5.3Total shareholders equity
    
    
    2,482.7
    
    
    
    2,253.1
    
    
    
    2,193.1
    
    
    
    2,058.6
    
    
    
    1,980.4
    
    
    
    253.9US GAAP:Working capital (2)
    
    
    739.5
    
    
    
    482.8
    
    
    
    533.7
    
    
    
    194.0
    
    
    
    216.6
    
    
    
    27.8Total assets
    
    
    3,339.7
    
    
    
    3,297.3
    
    
    
    3,613.9
    
    
    
    3,615.4
    
    
    
    3,405.2
    
    
    
    436.6Total liabilities
    
    
    864.2
    
    
    
    1,046.6
    
    
    
    1,423.8
    
    
    
    1,554.7
    
    
    
    1,426.4
    
    
    
    182.9Minority interests
    
    
    6.8
    
    
    
    5.9
    
    
    
    4.6
    
    
    
    3.6
    
    
    
    1.8
    
    
    
    0.2Total shareholders equity
    
    
    2,468.7
    
    
    
    2,244.8
    
    
    
    2,186.3
    
    
    
    2,057.1
    
    
    
    1,976.9
    
    
    
    253.4
 
 (1)
    
    Per share and per ADS data is derived from the weighted average number of shares
outstanding during the applicable period. Diluted earnings per share was the same as the
basic earnings per share as there were no dilutive potential ordinary share in existence for
five fiscal years ended December 31, 2006.(2)
    
    Current assets minus current liabilities. -9-




---



##### Table of Contents



2002
    
    2003
    
    2004
    
    2005
    
    2006Average (1)
    
    
    7.7997
    
    
    
    7.7875
    
    
    
    7.7891
    
    
    
    7.7774
    
    
    
    7.7684High
    
    
    7.8000
    
    
    
    7.8001
    
    
    
    7.8010
    
    
    
    7.8000
    
    
    
    7.7933Low
    
    
    7.7936
    
    
    
    7.7085
    
    
    
    7.7632
    
    
    
    7.7519
    
    
    
    7.7509End of Period
    
    
    7.7981
    
    
    
    7.7640
    
    
    
    7.7723
    
    
    
    7.7545
    
    
    
    7.7778
 
 (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.  December 2006
    
    January 2007
    
    February 2007
    
    March 2007
    
    April 2007
    
    May 2007High
    
    
    7.7805
    
    
    
    7.8119
    
    
    
    7.8156
    
    
    
    7.8168
    
    
    
    7.8225
    
    
    
    7.8242Low
    
    
    7.7690
    
    
    
    7.7778
    
    
    
    7.8051
    
    
    
    7.8086
    
    
    
    7.8104
    
    
    
    7.8062
 
 Risk Factors
 Prior to making an investment decision, prospective investors should carefully consider all of
the information set forth in this annual report, including the following risk factors. If any of
the following risks actually occur, the Companys business, financial condition and operating
results could be adversely affected. As a result, the trading price of the Companys ordinary
shares and ADSs could decline and all or part of a prospective investors investment could be lost.
 Technical Risks of satellite systems
  -10-




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##### Table of Contents



Risk of Satellite Defects or Failure
  Limited Life of Satellites
  TT&C Systems and Earth Station
  Risk of Interruption or harmful interference of APSTAR V
  Changes in Technology and Industry
  Regulatory Risks
 Regulatory Regime for Satellite Operations
  -11-




---



##### Table of Contents



Priority for Orbital Slots
    -12-




---



##### Table of Contents



Possible Disputes Relating to Orbital Slots
      Regulatory Constraints on End-users
   Export Restrictions
  -13-




---



##### Table of Contents



1 2 1 2 1 2
  Business Risks
 Insurance
  -14-




---



##### Table of Contents



Competitive Nature of the Industry
   Additional Financing Requirements
  -15-




---



##### Table of Contents



Dependence on Key Customers
  Interference
  Political and Economic Risks
    -16-




---



##### Table of Contents



The Outbreak of Infectious Diseases
   
 Item 4. Information on the Company
 
 History and Development of the Company
 st
 
 Business Overview
  -17-




---



##### Table of Contents



Business segments:
    
    2004
    
    2005
    
    2006Revenue from external customers:Provision of satellite transponder capacity and related
services
    
    
    238.4
    
    
    
    290.7
    
    
    
    363.1Provision of satellite-based broadcasting and
telecommunications services
    
    
    38.7
    
    
    
    45.5
    
    
    
    63.8Service income
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.1Total
    
    
    277.3
    
    
    
    336.5
    
    
    
    427.0
 Provision of satellite transponder capacity and related services
        -18-




---



##### Table of Contents



Satellite-based Broadcasting and Telecommunications Services
       -19-




---



##### Table of Contents



Industry and Market Overview
 Satellites
        -20-




---



##### Table of Contents



Broadcasting and Telecommunications Markets in Asia
 Increased Distribution of Television Programming
   Liberalization of the Television and Telecommunications Industries
   Continuing Technological Advancements
  High-powered Satellites.
 -21-




---



##### Table of Contents



Digital Communications.
 Compressed Digital Video.
  Increased Spending on Telecommunications Projects
  Growth of Information Services Markets
  
 Customers and Services
  Years Ended December 31,2004
    
    2005
    
    2006Broadcasting
    
    
    51.2
    %
    
    
    41.5
    %
    
    
    33.4
    %Telecommunications
    
    
    44.6
    %
    
    
    49.8
    %
    
    
    61.7
    %Other service
    
    
    4.2
    %
    
    
    8.7
    %
    
    
    4.9
    %
 -22-




---



##### Table of Contents



Broadcasting Customers
   Television Programming Distribution.
    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,
Guangdong and Hainan, totaling
around 15 provinces and around 24
channels
 -23-




---



##### Table of Contents



Backhaul Services.
 Ad Hoc/Occasional Services.
 Telecommunications Customers
  Private Networks.
   Carrier services.
 Other Service Customers
   -24-




---



##### Table of Contents



Transponder Utilization Agreements
  Sales and Marketing
  Operation of the APSTAR System
   -25-




---



##### Table of Contents



SUMMARY OF SATELLITE DATA
 APSTAR I
    
    APSTAR IA
    
    APSTAR IIR
    
    APSTAR V
    
    APSTAR VIRegion covered
    
    North and
    
    North and
    
    Europe, Asia,
    
    Most of Asia,
    
    Most of Asia,Southeast Asia
    
    Southeast Asia
    
    Middle East,
    
    Australia,  New
    
    Australia,  NewAfrica
    
    Zealand,
    
    Zealand,Pacific region,
    
    Pacific region,Hawaii
    
    HawaiiStatus
    
    Operational
    
    Operational
    
    Operational
    
    Operational
    
    Operational(inclined mode)
    
    (inclined mode)Model
    
    HS 376
    
    HS 376
    
    FS 1300
    
    
    FS1300
    
    
    
    SB4100C1Manufacturers
    
    Hughes
    
    Hughes
    
    SS/Loral
    
    SS/Loral
    
    AlcatelTransponders
Ku-band
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    16
    *
    
    
    12C-band
    
    
    24
    
    
    
    24
    
    
    
    28
    
    
    
    38
    *
    
    
    38Expected end of
operational life
    
    
    **
        
    
    ***
    
    
    
    2013
    
    
    
    2019
    
    
    
    2021
 
 *
    
    As at August 13, 2004, APT has taken up 25 C-band and 12 Ku-band transponders of APSTAR V.
Two C-band were released to Loral Orion on September 28, 2006.**
    
    It is expected that APSTAR I will be operating in inclined mode through late 2007, this
satellite remains functioning and provides limited transponder service to customer.***
    
    It is expected that APSTAR IA will be operating in inclined mode through mid 2010. APSTAR Satellites
 APSTAR I
  -26-




---



##### Table of Contents



APSTAR IA
    APSTAR IIR
   APSTAR V
  -27-




---



##### Table of Contents



1 2 1 2
    -28-




---



##### Table of Contents



APSTAR VI (formerly APSTAR VB)
   Existing Orbital Slots
    Future Satellites
 APSTAR VIB
   -29-




---



##### Table of Contents



Insurance
  In-orbit Insurance.
 Third-Party Liability Insurance.
 Satellite and Ground Operation Facility
   -30-




---



##### Table of Contents



Customer Technical Qualifications and Support
   Additional Orbital Slots
  
 Competition
   -31-




---



##### Table of Contents



International Satellites
  Regional Satellites
   -32-




---



##### Table of Contents



Optical Fiber Systems
  
 Regulation
     -33-




---



##### Table of Contents



International Telecommunication Union
     Export Regulation
  Hong Kong Regulation
  -34-




---



##### Table of Contents



Overseas National Telecommunications Authorities
   
 Organizational Structure
   -35-




---



##### Table of Contents



Property, Plant and Equipment
    
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
  
 Overview
  -36-




---



##### Table of Contents




    
    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.
     -37-




---



##### Table of Contents



2004
    
    2005
    
    2006Statement of Operations Data:Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Cost of services (excluding depreciation
and amortization)
    
    
    24.1
    %
    
    
    30.7
    %
    
    
    25.0
    %Depreciation and amortization
    
    
    64.2
    %
    
    
    58.9
    %
    
    
    54.3
    %Selling, general and administrative
(excluding depreciation and amortization)
    
    
    28.4
    %
    
    
    22.9
    %
    
    
    20.8
    %Total costs and expenses
    
    
    116.7
    %
    
    
    112.5
    %
    
    
    100.1
    %(16.7
    %)
    
    
    (12.5
    %)
    
    
    (0.1
    %)Loss before income taxes
    
    
    (16.4
    %)
    
    
    (36.7
    %)
    
    
    (5.7
    %)Loss for the year
    
    
    (22.4
    %)
    
    
    (40.6
    %)
    
    
    (18.9
    %)
  Years Ended December 31,2004
    
    2005
    
    2006Amount
    
    
    
    
    
    Amount
    
    
    
    
    
    Amount(HK$ in
    
    % of Total
    
    (HK$ in
    
    % of Total
    
    (HK$ in
    
    % of Totalmillions)
    
    Revenues
    
    millions)
    
    Revenues
    
    millions)
    
    RevenuesThe Peoples
Republic of China:Hong Kong
    
    
    21.3
    
    
    
    7.7
    %
    
    
    38.5
    
    
    
    11.5
    %
    
    
    60.3
    
    
    
    14.1
    %Other regions
    
    
    195.2
    
    
    
    70.4
    %
    
    
    201.9
    
    
    
    60.0
    %
    
    
    207.4
    
    
    
    48.6
    %
 -38-




---



##### Table of Contents



Years Ended December 31,2004
    
    2005
    
    2006Amount
    
    
    
    
    
    Amount
    
    
    
    
    
    Amount(HK$ in
    
    % of Total
    
    (HK$ in
    
    % of Total
    
    (HK$ in
    
    % of Totalmillions)
    
    Revenues
    
    millions)
    
    Revenues
    
    millions)
    
    RevenuesSingapore
    
    
    23.3
    
    
    
    8.4
    %
    
    
    30.7
    
    
    
    9.1
    %
    
    
    49.8
    
    
    
    11.7
    %USA
    
    
    8.4
    
    
    
    3.0
    %
    
    
    0.4
    
    
    
    0.1
    %
    
    
    0.4
    
    
    
    0.1
    %Indonesia
    
    
    6.0
    
    
    
    2.2
    %
    
    
    32.3
    
    
    
    9.6
    %
    
    
    50.4
    
    
    
    11.8
    %Others
    
    
    23.1
    
    
    
    8.3
    %
    
    
    32.7
    
    
    
    9.7
    %
    
    
    58.7
    
    
    
    13.7
    %277.3
    
    
    
    100.0
    %
    
    
    336.5
    
    
    
    100.0
    %
    
    
    427.0
    
    
    
    100
    %
  
 Application of Critical Accounting Policies
  Depreciation
  Accounts receivables and other receivables
    Impairment of property, plant and equipment
 -39-




---



##### Table of Contents



Contingencies and provisions
     -40-




---



##### Table of Contents



Change in accounting policies
   Recent US GAAP pronouncements
  Commitments and Contingencies
   
 Contractual Obligations:
 Payments due by periodLess than
    
    
    13
    
    
    45Total
    
    
    1 year
    
    
    years
    
    
    yearsUS$240 million term Bank loan(1)
    
    
    936.1
    
    
    
    159.5
    
    
    
    476.2
    
    
    
    300.4Interest payment obligations (2)
    
    
    152.6
    
    
    
    52.4
    
    
    
    80.3
    
    
    
    19.9Purchase obligations of
the Company (3)
    
    
    4.9
    
    
    
    4.9
    
    
    
    
    
    
    
    Operating leases (4)
    
    
    7.3
    
    
    
    4.7
    
    
    
    2.6
    
    
    
    Total contractual obligations
    
    
    1,100.9
    
    
    
    221.5
    
    
    
    559.1
    
    
    
    320.3
 Other Commercial Commitments:
 Amount of commitment expiration per periodTotalamounts
    
    
    Less than
    
    
    1  3
    
    
    4  5
    
    
    After 5committed
    
    
    1 year
    
    
    years
    
    
    years
    
    
    yearsDeposit received
    
    
    20.4
    
    
    
    15.0
    
    
    
    5.4
    
    
    
    
    
    
    
    Rental received in advance
    
    
    34.2
    
    
    
    34.2
    
    
    
    
    
    
    
    
    
    
    
    Deferred income
    
    
    222.1
    
    
    
    
    
    
    
    50.9
    
    
    
    45.1
    
    
    
    126.1Total commercial commitments
    
    
    276.7
    
    
    
    49.2
    
    
    
    56.3
    
    
    
    45.1
    
    
    
    126.1
 -41-




---



##### Table of Contents



(1)
    
    This line item represents the cash obligations for principal payments of the
Bank loan. The Bank loan was secured by the assignment of the construction, launching
and related equipment contracts relating to satellites under construction and their
related insurance claim proceeds,
assignment of all present and future utilization agreements of their transponders of
satellites under construction, launching and related equipment contracts. The above
Bank loan represents outstanding principle as at balance sheets date which does not
include the borrowing cost amounting to HK$5.7 million (US$0.7 million).(2)
    
    This line item represents the contractual interest payable for the Bank loan.
The interest payable is calculated by using average interest rate since the actual
interest payment depends on future LIBOR.(3)
    
    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.(4)
    
    This line item represents future minimum payments under operating leases with
remaining terms of one year or more.  
 Off-Balance Sheet Arrangements
  
 Results of Operations
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Total Revenues.
 Total Costs and Expenses.
 Cost of Services, including Depreciation and Amortization
 -42-




---



##### Table of Contents



Cost of Services, excluding Depreciation and Amortization
 Depreciation and Amortization.
 Selling, General and Administrative Expenses.
 Other Operating Income.
 Interest Income  Net.
 Gain on disposal of property, plant and equipment.
 Impairment Loss Recognized In Respect to Property, Plant and Equipment.
 Impairment Loss Recognized In Respect of prepayment for construction of a satellite.
 -43-




---



##### Table of Contents



Borrowing Costs.
 Share of Income and Losses of Jointly Controlled Entities.
  Provision for Income Taxes.
 Net Loss.
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 -44-




---



##### Table of Contents



Total Revenues.
 Total Costs and Expenses.
 Cost of Services, including Depreciation and Amortization
 Cost of Services, excluding Depreciation and Amortization
 Depreciation and Amortization.
 Selling, General and Administrative Expenses.
 Other Operating Income.
 Interest Income  Net.
 Compensation income.
 Impairment Loss Recognized In Respect to Property, Plant and Equipment.
 -45-




---



##### Table of Contents



Impairment Loss Recognized In Respect of prepayment for construction of a satellite.
 Borrowing Costs.
 Share of Losses of Jointly Controlled Entities.
  Provision for Income Taxes.
 Net Loss.
 
 Liquidity and Capital Resources
 Sources of Cash and Credit Available
 -46-




---



##### Table of Contents



Capital Expenditures
    Contractual Obligations and Other Commercial Commitments
  Cash Flow Items
 Net Cash Provided by Operating Activities
  Net Cash Generated from/ (Used in) Investing Activities
  Net Cash (Used in)/Provided by Financing Activities
  -47-




---



##### Table of Contents



Financing
    
 Forward Looking Statements
   -48-




---



##### Table of Contents



Other
 Exchange Rates
  Inflation
  Taxation
    -49-




---



##### Table of Contents



US GAAP Reconciliation
  
 Item 6. Directors, Senior Management and Employees
   Date FirstElected orName
    
    Age
    
    Position
    
    AppointedExecutive DirectorsNi Yifeng
    
    59
    
    Director and President
    
    2005Tong Xudong
    
    43
    
    Director and Vice President
    
    2004Non-executive DirectorsRui Xiaowu
    
    48
    
    Chairman (appointed December 7, 2006)
    
    2006Lim Toon
    
    64
    
    Director
    
    1993Yin Yen-liang
    
    56
    
    Director
    
    2003Wu Zhen Mu
    
    61
    
    Director
    
    1998Zhao Liqiang
    
    46
    
    Director (appointed December 7, 2006)
    
    2006Yong Foo Chong
    
    40
    
    Director (appointed March 8, 2007)
    
    2007Tseng Ta-mon
    
    49
    
    Alternate Director to Yin Yen-liang
    
    2003Independent Non-executive directorsYuen Pak Yiu, Philip
    
    71
    
    Director
    
    1996Huan Guocang
    
    57
    
    Director
    
    2002Lui King Man
    
    52
    
    Director
    
    2004Executive OfficersDong Gang
    
    53
    
    Vice President
    
    2005Lo Kin Hang, Brian
    
    50
    
    Vice President & Company Secretary
    
    2002/1996Chen Xun
    
    36
    
    Vice President  (changed to Vice President from Assistant to President on June 1, 2007 )
    
    2004Yang Qing
    
    43
    
    Vice President (changed to Vice President from Assistant to President on June 1, 2007 )
    
    2004
 Executive Directors
 Mr. NI Yifeng
 -50-




---



##### Table of Contents



Mr. TONG Xudong
 Non-Executive Directors
 Mr. RUI Xiaowu
 -51-




---



##### Table of Contents



Mr. LIM Toon
 Dr. YIN Yen-liang
 Mr. WU Zhen Mu
 Mr. ZHAO Liqiang
 -52-




---



##### Table of Contents



Mr. YONG Foo Chong
 Mr. TSENG Ta-mon
 Independent Non-Executive Directors
 Mr. YUEN Pak Yiu, Philip
 Dr. HUAN Guocang
 -53-




---



##### Table of Contents



Dr. LUI King Man
 Senior Management
 Mr. Dong Gang
 Dr. LO Kin Hang, Brian
 Mr. CHEN Xun
 -54-




---



##### Table of Contents



Mr. YANG Qing
 
 Compensation
   Salaries,allowances and
    
    
    Retirement
    
    
    2005Directorsfees
    
    
    benefits in kind
    
    
    scheme contributions
    
    
    TotalHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Executive directorsNi Yifeng
    
    
    23
    
    
    
    1,427
    
    
    
    76
    
    
    
    1,526Tong Xudong
    
    
    50
    
    
    
    2,316
    
    
    
    142
    
    
    
    2,508Chen Zhaobin
    
    
    27
    
    
    
    2,595
    
    
    
    49
    
    
    
    2,671Non-executive directorsLiu Ji Yuan
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Zhang Hainan
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Lim Toon
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Lan Kwai-chu
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19Yin Yen-liang
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Wu Zhen Mu
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Lim Wee Seng
(note ii)
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Tseng Ta-mon
(note iii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kwok Kah Wai
Victor (note i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Independent non-executive
directorsYuen Pak Yiu, Philip
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Huan Guocang
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Lui King Man
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100700
    
    
    
    6,338
    
    
    
    267
    
    
    
    7,305
 -55-




---



##### Table of Contents



Salaries,
    
    
    RetirementDirectors
    
    
    allowances and
    
    
    scheme
    
    
    2006fees
    
    
    benefits in kind
    
    
    contributions
    
    
    TotalHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Executive directorsNi Yifeng
    
    
    50
    
    
    
    2,800
    
    
    
    165
    
    
    
    3,015Tong Xudong
    
    
    50
    
    
    
    2,263
    
    
    
    142
    
    
    
    2,455Non-executive directorsRui Xiaowu
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Liu Ji Yuan
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    47Zhao Liqiang
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Zhang Hainan
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    47Lim Toon
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Ho Siaw Hong
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    38Lan Kwai-chu
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Yin Yen-liang
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Wu Zhen Mu
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Tseng Ta-mon
(note iii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Independent
non-executive
directorsYuen Pak Yiu, Philip
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Huan Guocang
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Lui King Man
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100700
    
    
    
    5,063
    
    
    
    307
    
    
    
    6,070
    (i)
    
    Mr. Kwok Kah Wai Victor was alternate director.(ii)
    
    Mr. Lim Wee Seng was re-designated from alternate director to
non-executive director on 20 December 2004.(iii)
    
    Mr. Tseng Ta-mon was re-designated from non-executive director to
alternate director on 8 September 2004.
 -56-




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##### Table of Contents



2005
    
    
    2006HK$000
    
    
    HK$000Salaries and other emoluments
    
    
    4,117
    
    
    
    4,541Performance related incentive payments
    
    
    
    
    
    
    154Retirement benefits contributions
    
    
    218
    
    
    
    3034,335
    
    
    
    4,998
  Number of individuals2005
    
    
    2006$Nil to $1,000
    
    
    
    
    
    
    1$1,500 to $2,000
    
    
    1
    
    
    
    $2,001 to $2,500
    
    
    
    
    
    
    2$2,501 to $3,000
    
    
    1
    
    
    
    2
    
    
    
    3
 Key management personnel remuneration
  2005
    
    
    2006HK$000
    
    
    HK$000Short-term employee benefits
    
    
    13,356
    
    
    
    10,591Other long-term benefits
    
    
    665
    
    
    
    687Termination benefits
    
    
    
    
    
    
    14,021
    
    
    
    11,278
  
 Board Practices
 Term of office
  -57-




---



##### Table of Contents



Service Agreements
     Audit Committee, Nomination Committee and Remuneration Committee
   -58-




---



##### Table of Contents




    
    to be primarily responsible for making recommendation to the Board of Directors
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 of Directors.
   
    
    to review the structure, size and composition of the Board of Directors;
    
    to identify individuals suitably qualified to become directors;
    
    to assess the independence of Independent Non-executive directors;
    
    to make recommendations to the Board of Directors 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 of Directors yearly.
  
    
    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;
 -59-




---



##### Table of Contents




    
    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 of Directors;
    
    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 of Directors yearly.
 
 Employees
   
 Share Option Schemes
    Options grantedEmployees in
    
    on June 19, 2001
    
    
    
    
    
    
    
    
    
    
    Options remainaggregate
    
    and remain
    
    
    
    
    
    
    
    
    
    
    outstanding as at(including
    
    outstanding as at
    
    
    Options cancelled
    
    
    Options exercised
    
    
    December 31,management)
    
    January 1, 2006
    
    
    during the year
    
    
    during the year
    
    
    2006Employees under
employment
contracts
    
    
    4,230,000
    
    
    
    840,000
    
    
    
    
    
    
    
    3,390,000
 
 Share Ownership
  -60-




---



##### Table of Contents



Lo Kin Hang, Brian
    
    (Vice President & Company Secretary)
    
    
    800,000Chen Xun
    
    (Vice President1)
    
    
    260,000Yang Qing
    
    (Vice President2)
    
    
    130,000
 
 (1)(2)
    
    Chen Xun and Yang Qing were changed to Vice President commencing June 1, 2007  
 Item 7. Major Shareholders and Related Party Transactions
 
 Major Shareholders
   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)
    
    
    11,000
    
    
    
    *
 
 *
    
    Less than 1%(1)
    
    As of March 31, 2007, the total number of issued Ordinary Shares is 413,265,000. -61-




---



##### Table of Contents



(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, 2006 is: ChinaSat
    
    200 shares
    
    
    28.57
    %China Aerospace Science & Technology Corporation
    
    100 shares
    
    
    14.28
    %CASIL Satellite Holdings Ltd.
    
    100 shares
    
    
    14.28
    %SingaSat Pte. Ltd.
    
    200 shares
    
    
    28.57
    %Kwang Hua Development and Investment Ltd.
    
    100 shares
    
    
    14.28
    %
 
 (3)
    
    China Telecommunications Broadcast Satellite Corporation (ChinaSat) is a PRC state-owned
enterprise under the supervision of the MII. ChinaSat is the satellite operation arm of the
MII. ChinaSat directly owns 6,000,000 Shares and indirectly owns, through its shareholdings
in APT International, 61,200,000 Shares.(4)
    
    China Aerospace Science & Technology Corporation (China Aerospace), formerly China
Aerospace Corporation or the PRC Ministry of Aerospace Industry, is a PRC state-owned
enterprise. China Aerospace is engaged in the research, design, testing and manufacturing of
launch vehicles and satellites. China Aerospace also supervises and controls China Great Wall
Industry Corporation, which is responsible for the sale to foreign customers of commercial
launch services effected by Long March launch vehicles. China Aerospace directly owns
6,000,000 Shares and indirectly owns, through its shareholdings in APT International,
30,600,000 Shares.(5)
    
    Chia Tai International Telecommunication Company Limited (Chia Tai) was wholly-owned by
Telecom Holding Company Limited (Telecom Holding), which managed the investment in the
Company of 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 an approximately 42.53% 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
around 170 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.   -62-




---



##### Table of Contents



Related Party Transactions
 CGWIC
   ChinaSat and SingTel
    -63-




---



##### Table of Contents



Years ended December 31,Note
    
    2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Income from provision of satellite
transponder capacity to certain
shareholders and its subsidiary of the
Company
    
    
    (i
    )
    
    
    38,259
    
    
    
    36,339
    
    
    
    16,309Income 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
    )
    
    
    24,163
    
    
    
    31,335
    
    
    
    36,068Management fee income from a jointly
controlled entity
    
    (ii)
    
    
    480
    
    
    
    480
    
    
    
    480Management fee expenses to a holding
company of a shareholder of the Company
    
    (iii)
    
    
    1,135
    
    
    
    
    
    
    
    Payments of service fee in connection
with the satellite project to a fellow
subsidiary of a shareholder of the Company
    
    (iv)
    
    
    151,895
    
    
    
    138,727
    
    
    
    
  
 (i)
    
    The terms and conditions of these transponder capacity utilization agreements are
similar to those contracted with other customers of APT Group. -64-




---



##### Table of Contents



(ii)
    
    Management fee income arose from a reimbursement of cost of service provided to
a jointly controlled entity under the agreement.(iii)
    
    Management fee expenses arose from a reimbursement of cost of services
provided from the holding company of a shareholder of the Company.(vi)
    
    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.  Amounts due
    
    Amounts due from
    
    
    
    
    
    
    
    
    
    Deposits,
    
    
    
    
    
    
    
    
    
    Rentals received infrom immediate
    
    a jointly controlled
    
    
    
    
    
    
    
    
    
    prepayments and
    
    Payables and
    
    advance andholding company
    
    entity
    
    Trade receivables
    
    other receivables
    
    accrued charges
    
    deferred income2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Immediate holding company
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jointly controlled entities
    
    
    
    
    
    
    
    
    
    
    72,576
    
    
    
    75,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Certain shareholders and
its subsidiary
of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,992
    
    
    
    1,037
    
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    228
    
    
    
    
    
    
    
    Holding company and
its subsidiaries of a
shareholder of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390
    
    
    
    908
    
    
    
    
    
    
    
    123
    
    
    
    325
    
    
    
    11
    
    
    
    236,425
    
    
    
    217,193
 
 Item 8. Financial Information
  
 Item 9. The Offer and Listing
  High (HK$)
    
    Low (HK$)2002
    
    
    
    
    3.60
    
    
    
    1.392003
    
    
    
    
    3.93
    
    
    
    1.022004
    
    
    
    
    2.83
    
    
    
    1.302005Quarter ended March 31
    
    
    1.50
    
    
    
    1.20Quarter ended June 30
    
    
    1. 60
    
    
    
    1.26Quarter ended September 30
    
    
    1.39
    
    
    
    1.13Quarter ended December 31
    
    
    1.54
    
    
    
    1.102006Quarter ended March 31
    
    
    2.10
    
    
    
    1.35Quarter ended June 30
    
    
    1.88
    
    
    
    1.33Quarter ended September 30
    
    
    1.60
    
    
    
    1.30Quarter ended December 31
    
    
    1.89
    
    
    
    1.18December
    
    
    1.89
    
    
    
    1.20
 -65-




---



##### Table of Contents



High (HK$)
    
    Low (HK$)2007January
    
    
    1.90
    
    
    
    1.45February
    
    
    2.50
    
    
    
    1.35March
    
    
    2.60
    
    
    
    1.80April
    
    
    2.17
    
    
    
    1.75May
    
    
    2.30
    
    
    
    1.75
  High (US$)
    
    Low (US$)2002
    
    
    
    
    3.60
    
    
    
    1.152003
    
    
    
    
    4.60
    
    
    
    1.102004
    
    
    
    
    3.50
    
    
    
    1.322005Quarter ended March 31
    
    
    1.61
    
    
    
    1.25Quarter ended June 30
    
    
    1.42
    
    
    
    1.25Quarter ended September 30
    
    
    1.33
    
    
    
    1.16Quarter ended December 31
    
    
    1.48
    
    
    
    1.122006Quarter ended March 31
    
    
    2.10
    
    
    
    1.30Quarter ended June 30
    
    
    1.84
    
    
    
    1.35Quarter ended September 30
    
    
    1.55
    
    
    
    1.28Quarter ended December 31
    
    
    1.69
    
    
    
    1.20December
    
    
    1.67
    
    
    
    1.422007January
    
    
    1.60
    
    
    
    1.36February
    
    
    2.60
    
    
    
    1.41March
    
    
    2.36
    
    
    
    1.79April
    
    
    2.11
    
    
    
    1.80May
    
    
    2.20
    
    
    
    1.75
 
 Item 10. Additional Information
 Memorandum of Association and Bye-laws
  Incorporation and Registration Number
  Objects and Purposes
  -66-




---



##### Table of Contents



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
  (i)
    
    any contract or arrangement for the giving by the Company or any of its
subsidiaries of any security or indemnity to the Director or his associate(s) in
respect of money lent by him or any of his associates or obligations incurred or
undertaken by him or any of them at the request of or for the benefit of the Company or
any of its subsidiaries;(ii)
    
    any contract or arrangement for the giving by the Company or any of its
subsidiaries of any security or indemnity to a third party in respect of a debt or
obligation of the Company or any of its subsidiaries for which the Director or his
associate(s) has/have himself/themselves assumed responsibility in whole or in part
whether alone or jointly under a guarantee or indemnity or by the giving of security;(iii)
    
    any contract or arrangement by a Director or his associate(s) to subscribe for
 shares or debentures or other securities of the Company or any of its subsidiaries to
be issued pursuant to any offer or invitation to the members or debenture holders or to
the public which does not provide the Director or his associate(s) any privilege not
accorded to any other members or debenture holders or to the public;(iv)
    
    any contract, arrangement or proposal concerning an offer of the shares or
debentures or other securities of or by the Company or any other company which the
Company may promote or be interested in for subscription or purchase where the Director
or his associate(s) is/are or is/are to be interested as a participant in the
underwriting or sub-underwriting of the offer;
 -67-




---



##### Table of Contents



(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.
      -68-




---



##### Table of Contents



Shareholders Rights
      -69-




---



##### Table of Contents



Actions Necessary to Change Shareholders Rights
  (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.
  General Meetings of Shareholders
   Limitation on Foreign Ownership
  -70-




---



##### Table of Contents



Change in Control
  (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 Companies Act or
the Registration Office (as the case may be) accompanied 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
  Significant Differences in Applicable Law
  Changes in Capital
  Material Contracts
  
 Exchange Controls and Other Limitations Affecting Security Holders
     -71-




---



##### Table of Contents



Taxation
 .
 Bermuda Taxation
  Hong Kong Taxation
 Tax on Dividends
  -72-




---



##### Table of Contents



Profits Tax
  United States Federal Income Taxation
    The Company
   Taxation of Investor-United States Holders
  -73-




---



##### Table of Contents



Ownership of ADSs and Shares
  Taxation of Dividends
    -74-




---



##### Table of Contents



Taxation of Dispositions of Shares or ADSs
   Passive Foreign Investment Company Rules
     -75-




---



##### Table of Contents



Taxation of Investors-Non-United States Holders
  United States Backup Withholding Tax and Information Reporting
  -76-




---



##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures about Market Risk
  
 Interest Rate Risk
   Expected Maturity Date2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter(HK$ in million, except interest rates)Variable rate Bank loan
    
    
    159
    
    
    
    220
    
    
    
    257
    
    
    
    202
    
    
    
    98
    
    
    
    Average interest rate (1)
    
    
    5.85
    %
    
    
    5.606
    %
    
    
    5.566
    %
    
    
    5.654
    %
    
    
    5.774
    %
    
    
    5.774
    %
 
 (1)
    
    The interest rates are the implied future LIBOR rates calculated from US swap as proxy.  
 Exchange Rate Sensitivity
   -77-




---



##### Table of Contents



Limitations
  
 Item 12. Description of Securities Other Than Equity Securities
  PART II
 
 Item 13. Defaults, Dividend Arrearages, and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.
 
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  -78-




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##### Table of Contents



Item 16C. Principal Accountant Fees and Services
  Years ended December 31,(in US$ thousands)
    
    2005
    
    2006Audit fees
    
    
    111
    
    
    
    158Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    Total
    
    
    111
    
    
    
    158
   
 Item 16D. Exemption from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  -79-




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##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 Item 19. Exhibits.
 Exhibit No.
    
    Description of Exhibit1.1
    
    Memorandum of Association and By-laws of the Company (incorporated by reference to the
Company Registration Statement, as filed with the Commission on December 9, 1996, Registration
Number 333-6044).1.2
    
    The amended Memorandum of Association and Bye-Laws of the Company (incorporated by reference
to the Companys 20-F 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
 -80-




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##### Table of Contents



Exhibit No.
    
    Description of ExhibitAgreement by and between APT Satellite Company Limited, a
wholly owned subsidiary of the Company, and the lessor, a party independent of the Director,
chief executive officer and substantial shareholder of the Company and its subsidiaries and
their respective associates, dated August 26, 2003 (incorporated by reference to the
Companys 6-K filed with the Commission on September 2, 2003).4.8
    
    Various on-going transactions in their ordinary course of business had entered into between
the 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).4.14
    
    The sum insured in respect of the launch of APSTAR VI by and between APT Satellite Company
Limited, a wholly owned subsidiary of the Company, and the joint insurance brokers announced
on March 15, 2005 (incorporated by reference to the Companys 6-K filed with the Commission on
March 16, 2005).4.15
    
    The arrangement of sum insured in respect of the in-orbit insurance of APSTAR V by and
between APT Satellite Company Limited, a wholly owned subsidiary of the Company, and the
insurance broker dated August 4, 2005 (incorporated by reference to the Companys 6-K filed
with the Commission on August 5, 2005).4.16
    
    Settlement Proposal in respect of the tax assessment on the gain of the transfer of
transponders of APSTAR IIR submitted with the Inland Revenue Department of Hong Kong on August
28, 2006 by APT Satellite Company Limited, a wholly owned subsidiary of the Company, and the
response received from the department (incorporated by reference to the Companys 6-K filed
with the Commission on September 25, 2006).
 -81-




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit4.17
    
    The Supplemental Agreement by and between the Company and Singapore Telecommunications
Limited dated December 28, 2006 whereby extending the term of the Master Agreement as filed to
the Companys 6-K on December 3, 2004 (incorporated by reference to the Companys 6-K filed
with the Commission on December 29, 2006).8.1
    
    List of subsidiaries of the Company and the jurisdictions under which each does business
(contained in Note 1 to the Consolidated Financial Statements filed herein under Item 18).11
    
    Code of Ethics (incorporated by reference to Exhibit 14.1 on the Form 20-F for fiscal year
ended December 31, 2003).11.1**
    
    The amended Code of Ethics dated July 17, 2006.12.1**
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.12.2**
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.13.1**
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2**
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 **
    
    Filed herewith. -82-




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##### Table of Contents



SIGNATURES
  APT SATELLITE HOLDINGS LIMITED/s/ Ni YifengNi Yifeng
Executive Director and President  -83-




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED AND SUBSIDIARIES




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    F - 2Consolidated Balance Sheets as of December 31, 2005 and 2006
    
    
    F - 3 & 4Consolidated Statements of Operations for the years ended
December 31, 2004, 2005 and 2006
    
    
    F - 5Consolidated Statements of Changes in Equity
for the years ended December 31, 2004, 2005 and 2006
    
    
    F - 6Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2005 and 2006
    
    
    F - 7 & 8Notes to the Consolidated Financial Statements
    
    
    F - 9  66




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##### Table of Contents



(KPMG LOGO) 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F- 2




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 
 CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND 2006
 December 31,Note
    
    2005
    
    2006HK$
    
    HK$ASSETSCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    326,440
    
    
    
    341,325Pledged bank deposits
    
    
    10
    
    
    
    68,699
    
    
    
    89,190Trade receivables, less allowance of HK$10,291
in 2005 and HK$18,382 in 2006
    
    
    11
    
    
    
    49,730
    
    
    
    80,261Amount due from immediate holding company
    
    
    
    
    
    
    
    
    
    
    82Amounts due from a jointly controlled entitiy
    
    
    
    
    
    
    5,100
    
    
    
    2,741Deposits, prepayments and other receivables, less
allowance of HK$10,219 in 2005 and HK$10,686
in 2006
    
    
    
    
    
    
    35,918
    
    
    
    38,482Total current assets
    
    
    
    
    
    
    485,887
    
    
    
    552,081Property, plant and equipment, net
    
    
    5
    
    
    
    2,999,402
    
    
    
    2,721,582Interest in leasehold land held forOwn use under an operating lease
    
    
    6
    
    
    
    15,570
    
    
    
    15,195Investment property
    
    
    7
    
    
    
    2,340
    
    
    
    2,496Interest in jointly controlled entities
    
    
    8Share of net assets
    
    
    
    
    
    
    2,241
    
    
    
    4,423Amounts due from a jointly controlled entity
    
    
    
    
    
    
    67,476
    
    
    
    72,294Other assets
    
    
    
    
    
    
    37,764
    
    
    
    30,744Deferred tax assets
    
    
    20
    
    
    
    3,609
    
    
    
    8,747TOTAL ASSETS
    
    
    
    
    
    
    3,614,289
    
    
    
    3,407,562
  F- 3




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 CONSOLIDATED BALANCE SHEETS (continued)
AS OF DECEMBER 31, 2005 AND 2006
 December 31,Note
    
    2005
    
    2006HK$
    
    HK$LIABILITIES AND EQUITYCurrent liabilitiesPayables and accrued charges
    
    
    14
    
    
    
    51,593
    
    
    
    53,777Rentals received in advance
    
    
    
    
    
    
    31,414
    
    
    
    34,155Loan from a minority shareholder
    
    
    
    
    
    
    7,488
    
    
    
    7,488Income taxes payable
    
    
    20
    
    
    
    89,186
    
    
    
    93,080Bank loans  current portion
    
    
    10
    
    
    
    117,757
    
    
    
    156,820Total current liabilities
    
    
    
    
    
    
    297,438
    
    
    
    345,320Deposits received
    
    
    12
    
    
    
    15,986
    
    
    
    20,419Bank loans  non-current portion
    
    
    10
    
    
    
    1,000,302
    
    
    
    773,534Deferred income
    
    
    13
    
    
    
    239,011
    
    
    
    222,141Deferred tax liabilities
    
    
    20
    
    
    
    
    
    
    
    63,915TOTAL LIABILITIES
    
    
    
    
    
    
    1,552,737
    
    
    
    1,425,329Contingencies and commitments
    
    
    15Shareholders equityCapital stock  Common stock
    
    
    16
    
    
    
    41,327
    
    
    
    41,327Additional paid-in capital
    
    
    17
    
    
    
    1,798,536
    
    
    
    1,798,536Capital reserve
    
    
    
    
    
    
    11,996
    
    
    
    9,614Translation reserve
    
    
    
    
    
    
    1,347
    
    
    
    2,639Other reserves
    
    
    17
    
    
    
    104
    
    
    
    109Retained earnings
    
    
    
    
    
    
    205,315
    
    
    
    128,2172,058,625
    
    
    
    1,980,442Minority interests
    
    
    
    
    
    
    2,927
    
    
    
    1,791TOTAL LIABILITIES AND
EQUITY
    
    
    
    
    
    
    3,614,289
    
    
    
    3,407,562
  F- 4




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
 Years ended December 31,Note
    
    2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Operating revenuesProvision of satellite transponder capacity to:Unaffiliated customers
    
    
    
    
    
    
    168,611
    
    
    
    243,228
    
    
    
    316,751Related parties
    
    
    21
    
    
    
    58,267
    
    
    
    47,455
    
    
    
    46,323Provision of satellite-based tele-
communications services to:Unaffiliated customers
    
    
    
    
    
    
    37,665
    
    
    
    25,333
    
    
    
    57,763Related parties
    
    
    21
    
    
    
    1,018
    
    
    
    20,219
    
    
    
    6,054Service income received from:Unaffiliated customers
    
    
    
    
    
    
    8,562
    
    
    
    277
    
    
    
    97Related parties
    
    
    21
    
    
    
    3,137
    
    
    
    
    
    
    
    Total revenues
    
    
    
    
    
    
    277,260
    
    
    
    336,512
    
    
    
    426,988Costs and expensesCost of service including depreciation
and amortization of 2004: HK$177,692,
2005: HK$197,880 and 2006: HK$231,482
    
    
    
    
    
    
    (244,755
    )
    
    
    (301,193
    )
    
    
    (338,259
    )Selling, general and administrative including
depreciation and amortization of 2004: HK$300,
2005: HK$301 and 2006: HK$240
    
    
    
    
    
    
    (78,680
    )
    
    
    (77,199
    )
    
    
    (88,957
    )Total costs and expenses
    
    
    
    
    
    
    (323,435
    )
    
    
    (378,392
    )
    
    
    (427,216
    )(46,175
    )
    
    
    (41,880
    )
    
    
    (228
    )Other operating income/(expenses)Interest income  net
    
    
    
    
    
    
    7,312
    
    
    
    12,916
    
    
    
    17,559Compensation income for late delivery
of the satellite
    
    
    22
    (a)
    
    
    
    
    
    
    15,600
    
    
    
    Gain on disposal of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,630Other income
    
    
    
    
    
    
    2,020
    
    
    
    2,315
    
    
    
    2,353Surplus arising on revaluation of
investment property
    
    
    7
    
    
    
    78
    
    
    
    
    
    
    
    156Impairment loss recognized in respect
of property, plant and equipment
    
    
    5
    
    
    
    (1,800
    )
    
    
    (7,512
    )
    
    
    Impairment loss recognized in respect of
prepayment for construction of a satellite
    
    
    9
    
    
    
    
    
    
    
    (59,904
    )
    
    
    (Loss)/income from operations
    
    
    22
    (d)
    
    
    (38,565
    )
    
    
    (78,465
    )
    
    
    37,470Borrowing costs
    
    
    22
    (b)
    
    
    (4,117
    )
    
    
    (36,942
    )
    
    
    (64,140
    )Share of result of jointly controlled entities
    
    
    
    
    
    
    (2,709
    )
    
    
    (7,995
    )
    
    
    2,182Loss before income taxes
    
    
    
    
    
    
    (45,391
    )
    
    
    (123,402
    )
    
    
    (24,488
    )Provision for income taxes
    
    
    19
    
    
    
    (16,625
    )
    
    
    (13,172
    )
    
    
    (56,128
    )Loss for the year
    
    
    
    
    
    
    (62,016
    )
    
    
    (136,574
    )
    
    
    (80,616
    )Attributable to:Equity shareholders of the Company
    
    
    
    
    
    
    (59,957
    )
    
    
    (135,564
    )
    
    
    (79,480
    )Minority interests
    
    
    
    
    
    
    (2,059
    )
    
    
    (1,010
    )
    
    
    (1,136
    )Loss for the year
    
    
    
    
    
    
    (62,016
    )
    
    
    (136,574
    )
    
    
    (80,616
    )Loss per share- Basic
    
    
    
    
    
    (15 cents)
    
    (33 cents)
    
    (19 cents)- Diluted
    
    
    
    
    
    (15 cents)
    
    (33 cents)
    
    (19 cents)
  F- 5




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
 AdditionalCapital
    
    
    paid -in
    
    
    Capital
    
    
    Translation
    
    
    Other
    
    
    Retained
    
    
    
    
    
    
    Minoritystock
    
    
    capital
    
    
    reserve
    
    
    reserve
    
    
    reserves
    
    
    earnings
    
    
    Total
    
    
    interests
    
    
    Total equityHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Balance as
at January 1, 2004
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    27,424
    
    
    
    (100
    )
    
    
    102
    
    
    
    385,741
    
    
    
    2,253,030
    
    
    
    5,915
    
    
    
    2,258,945Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    80Cancellation of share options
    
    
    
    
    
    
    
    
    
    
    (3,460
    )
    
    
    
    
    
    
    
    
    
    
    3,460
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,957
    )
    
    
    (59,957
    )
    
    
    (2,059
    )
    
    
    (62,016
    )Balance at
December 31, 2004
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    23,964
    
    
    
    (20
    )
    
    
    102
    
    
    
    329,244
    
    
    
    2,193,153
    
    
    
    3,856
    
    
    
    2,197,009At
January 1, 2005Before opening balance adjustment
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    23,964
    
    
    
    (20
    )
    
    
    102
    
    
    
    329,244
    
    
    
    2,193,153
    
    
    
    3,856
    
    
    
    2,197,009Opening balance adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )
    
    
    (333
    )
    
    
    
    
    
    
    (333
    )At
January 1, 2005 after opening balance
adjustment
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    23,964
    
    
    
    (20
    )
    
    
    102
    
    
    
    328,911
    
    
    
    2,192,820
    
    
    
    3,856
    
    
    
    2,196,676Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,367
    
    
    
    2
    
    
    
    
    
    
    
    1,369
    
    
    
    81
    
    
    
    1,450Cancellation of share options
    
    
    
    
    
    
    
    
    
    
    (11,968
    )
    
    
    
    
    
    
    
    
    
    
    11,968
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,564
    )
    
    
    (135,564
    )
    
    
    (1,010
    )
    
    
    (136,574
    )Balance at
December 31, 2005
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    11,996
    
    
    
    1,347
    
    
    
    104
    
    
    
    205,315
    
    
    
    2,058,625
    
    
    
    2,927
    
    
    
    2,061,552At
January 1, 2006
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    11,996
    
    
    
    1,347
    
    
    
    104
    
    
    
    205,315
    
    
    
    2,058,625
    
    
    
    2,927
    
    
    
    2,061,552Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,292
    
    
    
    5
    
    
    
    
    
    
    
    1,297
    
    
    
    
    
    
    
    1,297Cancellation of share options
    
    
    
    
    
    
    
    
    
    
    (2,382
    )
    
    
    
    
    
    
    
    
    
    
    2,382
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,480
    )
    
    
    (79,480
    )
    
    
    (1,136
    )
    
    
    (80,616
    )Balance at 
December 31, 2006
    
    
    41,327
    
    
    
    1,798,536
    
    
    
    9,614
    
    
    
    2,639
    
    
    
    109
    
    
    
    128,217
    
    
    
    1,980,442
    
    
    
    1,791
    
    
    
    1,982,233
  F- 6




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
 Years ended December 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Operating activitiesLoss before income taxes
    
    
    (45,391
    )
    
    
    (123,402
    )
    
    
    (24,488
    )Adjustments for:Depreciation
    
    
    177,617
    
    
    
    197,806
    
    
    
    231,347Amortisation of leasehold land held for own use
    
    
    375
    
    
    
    375
    
    
    
    375Impairment loss recognized in respect of property,
property, plant and equipment
    
    
    1,800
    
    
    
    7,512
    
    
    
    Impairment loss recognised in respect of prepayment for
construction of a satellite
    
    
    
    
    
    
    59,904
    
    
    
    Interest income
    
    
    (7,312
    )
    
    
    (12,916
    )
    
    
    (17,559
    )Borrowing cost
    
    
    4,117
    
    
    
    36,942
    
    
    
    64,140Loss/(gain) on disposal of property, plant and equipment
    
    
    32
    
    
    
    (109
    )
    
    
    (17,630
    )Surplus arising on revaluation of investment property
    
    
    (78
    )
    
    
    
    
    
    
    (156
    )Share of result of jointly controlled entities
    
    
    2,709
    
    
    
    7,995
    
    
    
    (2,182
    )Allowance for doubtful receivables
    
    
    5,654
    
    
    
    350
    
    
    
    8,347Operating profit before changes in working capital
    
    
    139,523
    
    
    
    174,457
    
    
    
    242,194Decrease/(increase) in trade receivables
    
    
    16,957
    
    
    
    (4,393
    )
    
    
    (38,622
    )(Increase)/decrease in other assets
    
    
    (27,604
    )
    
    
    (8,863
    )
    
    
    7,020Decrease/(increase) in amount due from immediate
holding company
    
    
    20
    
    
    
    
    
    
    
    (82
    )Decrease/(increase) in deposits, prepayments and other
receivables
    
    
    16,815
    
    
    
    19,293
    
    
    
    (2,302
    )(Decrease)/increase in payables and accrued charges
    
    
    (8,939
    )
    
    
    1,400
    
    
    
    4,787Increase in rentals received in advance
    
    
    9,691
    
    
    
    762
    
    
    
    2,741(Increase)/decrease in amounts due from jointly controlled
entities
    
    
    (768
    )
    
    
    300
    
    
    
    5,059Increase in deferred income
    
    
    233,499
    
    
    
    3,379
    
    
    
    4,433Decrease in deposits received
    
    
    (25,353
    )
    
    
    (22,369
    )
    
    
    (16,870
    )Cash generated from operations
    
    
    353,841
    
    
    
    163,966
    
    
    
    208,358Hong Kong profits tax (paid)/refunded
    
    
    (108,135
    )
    
    
    
    
    
    
    21,672Overseas tax paid
    
    
    (12,328
    )
    
    
    (14,438
    )
    
    
    (15,129
    )Net cash from operating activities
    
    
    233,378
    
    
    
    149,528
    
    
    
    214,901Investing activitiesPayment for purchase of property, plant and equipment and
construction of satellites
    
    
    (462,026
    )
    
    
    (581,230
    )
    
    
    (7,098
    )Proceeds from disposal of property, plant and equipment
    
    
    1
    
    
    
    178
    
    
    
    70,898Advances/loans to jointly controlled entities
    
    
    
    
    
    
    (2,261
    )
    
    
    (7,518
    )Interest received
    
    
    6,810
    
    
    
    13,404
    
    
    
    16,896Decrease/(increase) in pledged bank deposits
    
    
    90,723
    
    
    
    (47,559
    )
    
    
    (20,491
    )Net cash (used in)/generated from investing activities
    
    
    (364,492
    )
    
    
    (617,468
    )
    
    
    52,687
  F- 7




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
 Years ended December 31,2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$Financing activitiesInterest paid
    
    
    (15,847
    )
    
    
    (32,582
    )
    
    
    (63,514
    )New bank borrowings
    
    
    273,780
    
    
    
    229,320
    
    
    
    Repayment of bank borrowings
    
    
    
    
    
    
    (77,805
    )
    
    
    (191,226
    )Net cash from/(used in) financing activities
    
    
    257,933
    
    
    
    118,933
    
    
    
    (254,740
    )Net increase/(decrease) in cash and cash equivalents
    
    
    126,819
    
    
    
    (349,007
    )
    
    
    12,848Cash and cash equivalents at January 1
    
    
    546,864
    
    
    
    673,763
    
    
    
    326,440Effect of foreign exchange rate changes
    
    
    80
    
    
    
    1,684
    
    
    
    2,037Cash and cash equivalents at December 31
    
    
    673,763
    
    
    
    326,440
    
    
    
    341,325Analysis of the balance of cash and cash equivalents:Deposits with banks
    
    
    661,677
    
    
    
    316,685
    
    
    
    316,536Cash at bank and in hand
    
    
    12,086
    
    
    
    9,755
    
    
    
    24,789Cash and cash equivalents at December 31
    
    
    673,763
    
    
    
    326,440
    
    
    
    341,325
  F-8




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 
 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 five 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 orbital 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. In August
1999, the Company provided substantially all of the transponders of APSTAR IIR to a third
party for the rest of its life. The Companys fourth satellite, APSTAR V, was launched in
June 2004 and commenced commercial service in August 2004. In April 2005, the Companys
fifth satellite, APSTAR VI, was successfully launched and commenced commercial service in
June 2005. Both APSTAR I and APSTAR IA were operated in an inclined orbital mode.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-9




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 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.  F-10




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    BASIS OF PRESENTATIONThese financial statements have been prepared in accordance with all applicable Hong
Kong Financial Reporting Standards (HKFRSs), which collective term includes all applicable
individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (HKASs)
and Interpretations issued by the Hong Kong Institute of Certified Public Accountants
(HKICPA), accounting principles generally accepted in Hong Kong (HK GAAP). Significant
differences between HK GAAP and accounting principles generally accepted in the United
States (US GAAP) are summarised in note 28.The HKICPA has issued certain new and revised HKFRSs that are first effective or available
for early adoption for the current accounting period of the Group and the Company. The
Group has assessed and determined in the preparation of these financial statements
that the new and revised HKFRSs have no significant impact on the Groups current and prior
accounting periods financial position and results of operations.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.3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    Basis of consolidationThe consolidated financial statements include the financial statements of the
Company and its subsidiaries. Subsidiaries are entities controlled by the Group.
Control exists when the Group has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that presently are exercisable are taken into
account.An investment in a subsidiary is consolidated into the consolidated financial
statements from the date that control commences until the date that control ceases.
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 gains but only to the extent that there is
no evidence of impairment.Minority interests represent the portion of the net assets of subsidiaries
attributable to interests that are not owned by the Company, whether directly or
indirectly through subsidiaries, and in respect of which the Group has not agreed any
additional terms with the holders of those interests which would result in the Group
as a whole having a contractual obligation in respect of those interests that meets
the definition of a financial liability. Minority interests are presented in the
consolidated balance sheet within equity, separately from equity attributable to the
equity shareholders of the Company. Minority interests in the results of the Group
are presented on the face of the consolidated income statement as an allocation of
the total profit or loss for the year between minority interests and the equity
shareholders of the Company.
 F-11




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (a)
    
    Basis of consolidation (continued)Where losses applicable to the minority exceed the minoritys interest in the
equity of a subsidiary, the excess, and any further losses applicable to the
minority, are charged against the Groups interest except to the extent that the
minority has a binding obligation to, and is able to, make additional investment to
cover the losses. If the subsidiary subsequently reports profits, the Groups
interest is allocated all such profits until the minoritys share of losses
previously absorbed by the Group has been recovered.The particulars of the Groups principal subsidiaries are set out in note 1.(b)
    
    Jointly controlled entitiesA 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 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
jointly controlled entitys net assets, unless it is classified as held for sale (or
included in a disposal group that is classified as held for sale). The consolidated
statement of operations includes the Groups share of the post-acquisition post-tax results
of the jointly controlled entities for the year, including any impairment loss on
goodwill relating to the investment in jointly controlled entities recognised for the
year (see note 3(c)).When the Groups share of losses exceeds its interest in the jointly controlled
entity, the Groups interest is reduced to nil and recognition of further losses is
discontinued except to the extent that the Group has incurred legal or constructive
obligations or made payments on behalf of the jointly controlled entity. For this
purpose, the Groups interest in the jointly controlled entity is the carrying amount
of the investment under the equity method together with the Groups long-term
interests that in substance from part of the Groups net investment in the jointly
controlled entity.Unrealised profits and losses resulting from transactions between the Group and its
jointly controlled entities are eliminated to the extent of the Groups interest in
the jointly controlled entity, except where unrealised losses provide evidence of an
impairment of the asset transferred, in which case they are recognised immediately in
the statement of operations.
 F-12




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (c)
    
    GoodwillGoodwill represents the excess of the cost of a business combination or an investment
in an associate or a jointly controlled entity over the Groups share in the net fair
value of the acquirees identifiable assets, liabilities and contingent liabilities.Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated
to cash-generating units and is tested annually for impairment (see note 3(g)). In
respect of jointly controlled entities, the carrying amount of goodwill is included
in the carrying amount of the interest in the jointly controlled entity.Any excess of the Groups interest in the net fair value of the acquirees
identifiable assets, liabilities and contingent liabilities over the cost of a
business combination or an investment in a jointly controlled entity is recognised
immediately in the statement of operations.On disposal of a controlled subsidiary or a jointly controlled entity during the
year, any attributable amount of purchased goodwill is included in the calculation of
the profit or loss on disposal.(d)
    
    Investment propertyInvestment properties are land and/or buildings which are owned or held under a
leasehold interest (see note 3(f)) to earn rental income and/or for capital
appreciation. These include land held for a currently undetermined future use.Investment properties are stated in the balance sheet at fair value. Any gain or loss
arising from a change in fair value or from the retirement or disposal of an
investment property is recognised in profit or loss. Rental income from investment
properties is accounted for as described in note 3(o)(iv).When the Group holds a property interest under an operating lease to earn rental
income and/or for capital appreciation, the interest is classified and accounted for
as an investment property on a property-by-property basis. Any such property interest
which has been classified as an investment property is accounted for as if it were
held under a finance lease (see note 3(f)), and the same accounting policies are
applied to that interest as are applied to other investment properties leased under
finance leases. Lease payments are accounted for as described in note 3(f).(e)
    
    Other property, plant and equipmentThe following items of property, plant and equipment are stated in the balance sheet
at cost less accumulated depreciation and impairment losses (see note 3(g)):
 
    
    buildings held for own use which are situated on leasehold land,
where the fair value of the building could be measured separately from the fair
value of the leasehold land at the inception of the lease (see note 3(f)); and
    
    other items of plant and equipment
  F-13




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (e)
    
    Other property, plant and equipment (continued)Depreciation is calculated to write off the cost or valuation of items of property,
plant and equipment, less their estimated residual value, if any, using the straight
line method over their estimated useful lives as follows:
 
    
    Buildings situated on leasehold land are depreciated over the
shorter of the unexpired term of lease and their estimated useful lives, being
no more than 50 years after the date of completion.
   Leasehold improvements
    
    Over the lease term  Furniture and equipment, motor vehicles,
and computer equipment
    
    5 years  Communication satellite equipment
    
    5 to 15 years  Communication stations
    
    5 years  Communication satellites
    
    9 to 16 years
 Where parts of an item of property, plant and equipment have different useful lives,
the cost or valuation of the item is allocated on a reasonable basis between the
parts and each part is depreciated separately. Both the useful life of an asset and
its residual value, if any, are reviewed annually.(f)
    
    Leased assetsAn arrangement, comprising a transaction or a series of transactions, is or
contains a lease if the Group determines that the arrangement conveys a right to use
a specific asset or assets for an agreed period of time in return for a payment or a
series of payments. Such a determination is made on an evaluation of the substance
of the arrangement and is regardless of whether the arrangement takes the legal form
of a lease.
 (i)
    
    Classification of assets leased to the GroupAssets that are held by the Group under leases which transfer to the Group
substantially all the risks and rewards of ownership are classified as being
held under finance leases. Leases which do not transfer substantially all the
risks and rewards of ownership to the Group are classified as operating leases,
with the following exceptions:
 
    
    property held under operating leases that would
otherwise meet the definition of an investment property is classified as
an investment property on a property-by-property basis and, if classified
as investment property, is accounted for as if held under a finance lease
(see note 3(d)); and
    
    land held for own use under an operating lease, the
fair value of which cannot be measured separately from the fair value of a
building situated thereon at the inception of the lease, is accounted for
as being held under a finance lease, unless the building is also clearly
held under an operating lease. For these purposes, the inception of the
lease is the time that the lease was first entered into by the Group, or
taken over from the previous lessee.
 F-14




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (f)
    
    Leased assets (continued)
 (ii)
    
    Assets acquired under finance leasesWhere 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(e). 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 statement 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
charged to profit or loss in the accounting period in which they are incurred.(iii)
    
    Operating lease chargesWhere the Group has the use of assets under operating leases, payments made
under the leases are charged to the statement 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 recognised in the
statement of operations as an integral part of the aggregate net lease payments
made. Contingent rentals are charged to the statement of operations in the
accounting period in which they are incurred.The cost of acquiring land held under an operating lease is amortised on a
straight-line basis over the period of the lease term except where the property
is classified as an investment property.
 (g)
    
    Impairment of assets
 (i)
    
    Impairment of assetsInternal and external sources of information are reviewed at each balance sheet
date to identify indications that the following assets may be impaired or,
except in the case of goodwill, an impairment loss previously recognised no
longer exists or may have decreased:
 
    
    property, plant and equipment;
    
    investments in subsidiaries and joint ventures;
    
    trade and other receivables;
    
    club memberships; and
    
    goodwill.
  F-15




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (g)
    
    Impairment of other assets (continued)
 (i)
    
    Impairment of assets (continued)
 
    
    Calculation of recoverable amountThe recoverable amount of an asset is the greater of its net selling
price and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of time value of money and
the risks specific to the asset. Where an asset does not generate cash
inflows largely independent of those from other assets, the recoverable
amount is determined for the smallest group of assets that generates cash
inflows independently (i.e. a cash-generating unit).
    
    Recognition of impairment lossesAn impairment loss is recognised in the statement of operations whenever
the carrying amount of an asset, or the cash-generating unit to which it
belongs, exceeds its recoverable amount. Impairment losses recognised in
respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating unit (or group of
units) and then, to reduce the carrying amount of the other assets in the
unit (or group of units) on a pro rata basis, except that the carrying
value of an asset will not be reduced below its individual fair value less
costs to sell, or value in use, if determinable.
    
    Reversals of impairment lossesIn 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 goodwill is not
reversed.A reversal of impairment losses is limited to the assets carrying amount
that would have been determined had no impairment loss been recognised in
prior years. Reversals of impairment losses are credited to the statement
of operations in the year in which the reversals are recognised.
 (ii)
    
    Interim financial reporting and impairmentUnder the rule governing the listing of securities on the Stock Exchange of
Hong Kong Limited, the Group is required to prepare an interim financial report
in compliance with HKAS 34, Interim financial reporting, in respect of the
first six months of the financial year. At the end of the interim period, the
Group applies the same impairment testing, recognition, and reversal criteria
as it would at the end of the financial year (see notes 3(g)(i)).Impairment losses recognised in an interim period in respect of goodwill and
unquoted equity securities carried at cost are not reversed in a subsequent
period. This is the case even if no losses, or a smaller loss, would have been
recognised had the impairment been assessed only on at the end of the financial
year to which the interim period relates.
 (h)
    
    Trade and other receivablesTrade and other receivables are initially recognised at fair value and thereafter
stated at amortised cost less impairment losses for bad and doubtful debts (see note
3(g)), except where the receivables are interest-free loans made to related parties
without any fixed repayment terms. In such cases, the receivables are stated at cost
less impairment losses for bad and doubtful debts.
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APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (i)
    
    Interest-bearing borrowingsInterest-bearing borrowings are recognised initially at fair value less attributable
transaction costs. Subsequent to initial recognition, interest-bearing borrowings are
stated at amortised cost with any difference between cost and redemption value being
recognised in the statement of operations over the period of the borrowings, together
with any interest and fees payable, using the effective interest method.(j)
    
    Trade and other payablesTrade and other payables are initially recognised at fair value and thereafter stated
at amortised cost unless the effect of discounting would be immaterial, in which case
they are stated at cost.(k)
    
    Cash and cash equivalentsCash and cash equivalents comprise cash at bank and on hand, demand deposits with
banks and other financial institutions, 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. Bank overdrafts that are repayable on demand and form an integral
part of the Groups cash management are also included as a component of cash and cash
equivalents for the purpose of the consolidated cash flow statement.(l)
    
    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.Contributions to Mandatory Provident Funds as required under the Hong Kong
Mandatory Provident Fund Schemes Ordinance, are recognised as an expense in the
consolidated statement of operations as incurred.The employees of the Group participate in retirement plans managed by
respective local governments of the municipalities in which the Group operates
in the Peoples Republic of China (the PRC). The Groups contributions to the
plan are calculated based on fixed rates of the employees salary costs and
charged to the statement of operations when incurred. The Group has no other
obligation for the payment of retirement and other post-retirement benefits of
staff other than the contributions described above.(ii)
    
    Share based paymentsThe fair value of share options granted to employees is recognised as an
employee cost with a corresponding increase in a capital reserve within equity.
The fair value is measured at grant date using the binomial lattice model,
taking into account the terms and conditions upon which the options were
granted. Where the employees have to meet vesting conditions before becoming
unconditionally entitled to the share options, the total estimated fair value
of the share options is spread over the vesting period, taking into account the
probability that the options will vest.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (l)
    
    Employee benefits (continued)
 (ii)
    
    Share based payments (continued)During the vesting period, the number of share options that is expected to vest
is reviewed. Any adjustment to the cumulative fair value recognised in prior
years is charged/credited to the statement of operations for the year of the
review, unless the original employee expenses qualify for recognition as an
asset, with a corresponding adjustment to the capital reserve. On vesting date,
the amount recognised as an expense is adjusted to reflect the actual number of
share options that vest (with a corresponding adjustment to the capital
reserve) except where forfeiture is only due to not achieving vesting
conditions that relate to the market price of the Companys shares. The equity
amount is recognised in the capital reserve until either the option is
exercised (when it is transferred to the share premium account) or the option
expires (when it is released directly to retained profits).(iii)
    
    Termination benefitsTermination benefits are recognised when, and only when, the Group demonstrably
commits itself to terminate employment or to provide benefits as a result of
voluntary redundancy by having a detailed formal plan which is without
realistic possibility of withdrawal.
 (m)
    
    Income taxIncome 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
recognised in the statement of operations except to the extent that they relate to
items recognised directly in equity, in which case they are recognised in equity.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.Deferred tax assets and liabilities arise from deductible and taxable temporary
differences respectively, being the differences between the carrying amounts of
assets and liabilities for financial reporting purposes and their tax bases. Deferred
tax assets also arise from unused tax losses and unused tax credits.Apart from certain limited exceptions, all deferred tax liabilities, and all deferred
tax assets to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised, are recognised. Future taxable
profits that may support the recognition of deferred tax assets arising from
deductible temporary differences include those that will arise from the reversal of
existing taxable temporary differences, provided those differences relate to the same
taxation authority and the same taxable entity, and are expected to reverse either in
the same period as the expected reversal of the deductible temporary difference or in
periods into which a tax loss arising from the deferred tax asset can be carried back
or forward. The same criteria are adopted when determining whether existing taxable
temporary differences support the recognition of deferred tax assets arising from
unused tax losses and credits, that is, those differences are taken into account if
they relate to the same taxation authority and the same taxable entity, and are
expected to reverse in a period, or periods, in which the tax loss or credit can be
utilised.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (m)
    
    Income tax (continued)The limited exceptions to recognition of deferred tax assets and liabilities are
those temporary differences arising from 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 recognised is measured based on the expected manner of
realisation 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 utilised. Any such
reduction is reversed to the extent that it becomes probable that sufficient taxable
profit will be available.Additional income taxes that arise from the distribution of dividends are recognised
when the liability to pay the related dividends is recognised.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 realise 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 realise the current tax
assets and settle the current tax liabilities on a net basis or realise and
settle simultaneously.
 (n)
    
    Provisions and contingent liabilitiesProvisions are recognised for other 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.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (o)
    
    Revenue recognitionProvided it is probable that the economic benefits will flow to the Group and the
revenue and costs, if applicable, can be measured reliably, revenue is recognized in
the statement of operations as follows:
 (i)
    
    Transponder utilization incomeIncome from provision of satellite transponder capacity and related
services is recognised in the statement of operations in equal instalments over
the 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 utilised.(ii)
    
    Service incomeService income in respect of provision of satellite-based broadcasting and
telecommunications services and other service is recognised when services are
provided.(iii)
    
    Interest incomeInterest income is recognised as it accrues using the effective interest method.(iv)
    
    Rental income from operating leasesRental income receivable under operating leases is recognised in the statement
of operations in equal instalments over the periods covered by the lease term,
except where an alternative basis is more representative of the pattern of
benefits to be derived from the use of the leased asset. Lease incentives
granted are recognised in the statement of operations as an integral part of the
aggregate net lease payments receivable. Contingent rentals are recognised as
income in the accounting period in which they are earned.
 (p)
    
    Translation of foreign currenciesForeign currency transactions during the year are translated at the foreign exchange
rates ruling at the transaction dates. Monetary assets and liabilities denominated in
foreign currencies are translated at the foreign exchange rates ruling at the balance
sheet date. Exchange gains and losses are recognised in the statement of operations,
except those arising from foreign currency borrowings used to hedge a net investment
in a foreign operation which are recognised directly in equity.Non-monetary assets and liabilities that are measured in terms of historical cost in
a foreign currency are translated using the foreign exchange rates ruling at the
transaction dates. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated using the foreign exchange
rates ruling at the dates the fair value was determined.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.
As the Hong Kong dollar is pegged to the United States dollar, foreign currency
exchange fluctuations have an insignificant impact to the Group.The results of foreign operations are translated into Hong Kong dollars at the
exchange rates approximating the foreign exchange rates ruling at the dates of the
transactions. Balance sheet items are translated into Hong Kong dollars at the
foreign exchange rates ruling at the balance sheet date. The resulting exchange
differences are recognised directly in a separate component of equity.On disposal of a foreign operation, the cumulative amount of the exchange differences
recognised in equity which relate to that foreign operation is included in the
calculation of the profit or loss on disposal.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (q)
    
    Borrowing costsBorrowing costs are expensed in the statement of operations in the period in which
they are incurred, except to the extent that they are capitalised 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 capitalisation 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. Capitalisation 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.(r)
    
    Related partiesFor the purposes of these financial statements, a party is considered to be related
to the Group if:
 (i)
    
    the party has the ability, directly or indirectly through one or more
intermediaries, to control the Group or exercise significant influence over the
Group in making financial and operating policy decisions, or has joint control
over the Group;(ii)
    
    the Group and the party are subject to common control;(iii)
    
    the party is an associate of the Group or a joint venture in which
the Group is a venturer;(iv)
    
    the party is a member of key management personnel of the Group or the
Groups parent, or a close family member of such an individual, or is an entity
under the control, joint control or significant influence of such individuals;(v)
    
    the party is a close family member of a party referred to in (i) or is
an entity under the control, joint control or significant influence of such
individuals; or(vi)
    
    the party is a post-employment benefit plan which is for the benefit
of employees of the Group or of any entity that is a related party of the Group.
  (s)
    
    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.In accordance with the Groups internal financial reporting system, the Group has
chosen business segment information as the primary reporting format and geographical
segment information as the secondary reporting format for the purposes of these
financial statements.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. Segment assets of the Group include 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 entities
within a single segment. Inter-segment pricing is based on terms similar to those
available to other external parties.
 F-21




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (s)
    
    Segment reporting (continued)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.Unallocated items mainly comprise financial and corporate assets, tax balances,
corporate and financing expenses.(t)
    
    Loss per shareThe calculation of the basic and diluted loss per share is based on the following data:
 2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$LossLoss for the purposes of calculating
basic and diluted loss per share
(net loss for the year)
    
    
    (59,957
    )
    
    
    (135,564
    )
    
    
    (79,480
    )Number of shares
    
    
    '000
    
    
    
    '000
    
    
    
    '000Weighted average number of ordinary shares for
the purposes of calculating basis and diluted loss
per share
    
    
    413,265
    
    
    
    413,265
    
    
    
    413,265
  F-22




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 (u)
    
    Use of estimatesThe preparation of financial statements in conformity with HKFRSs requires
management judgements, estimates any assumptions that affect the application of
policies and reported amounts of assets, liabilities, income and expenses. The
estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgements about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which estimate is revised if
the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.Judgements made by management in the application of HKFRSs that have significant
effect on the financial statements and estimates are discussed in note 26.
 4.
    
    CHANGES IN ACCOUNTING POLICIESThe HKICPA has issued certain new and revised HKFRSs that are first effective or available
for early adoption for the current accounting period of the Group.Note 3 summarises the accounting policies of the Group after the adoption of these
developments to the extent that they are relevant to the Group. The adoption of these new
and revised HKFRSs did not result in any significant impact for the current and prior
accounting periods.The Group has not applied any new standard or interpretation that is not yet effective for
the current accounting period (see note 27), except for HK (IFRIC) 10, Interim financial
reporting and impairment, which is effective for accounting periods beginning on or after
November 1, 2006.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    PROPERTY, PLANT AND EQUIPMENT
 Furniture andequipment, motor
    
    Commun-vehicles, and
    
    ication
    
    Commun-
    
    Commun-Land and
    
    Leasehold
    
    computer
    
    satellite
    
    ication
    
    ication
    
    Constructionbuildings
    
    improvements
    
    equipment
    
    equipment
    
    stations
    
    satellites
    
    in progress
    
    TotalHK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Cost:At January 1, 2005
    
    
    102,506
    
    
    
    7,381
    
    
    
    42,905
    
    
    
    130,886
    
    
    
    9,005
    
    
    
    3,258,028
    
    
    
    1,283,110
    
    
    
    4,833,821Exchange adjustments
    
    
    
    
    
    
    21
    
    
    
    58
    
    
    
    152
    
    
    
    187
    
    
    
    
    
    
    
    144
    
    
    
    562Additions
    
    
    200
    
    
    
    229
    
    
    
    685
    
    
    
    2,017
    
    
    
    151
    
    
    
    
    
    
    
    521,182
    
    
    
    524,464Disposals
    
    
    (473
    )
    
    
    (10
    )
    
    
    (368
    )
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (896
    )Transfer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,165
    
    
    
    4,561
    
    
    
    1,770,612
    
    
    
    (1,803,338
    )
    
    
    At December 31, 2005
    
    
    102,233
    
    
    
    7,621
    
    
    
    43,280
    
    
    
    161,175
    
    
    
    13,904
    
    
    
    5,028,640
    
    
    
    1,098
    
    
    
    5,357,951Cost:At January 1, 2006
    
    
    102,233
    
    
    
    7,621
    
    
    
    43,280
    
    
    
    161,175
    
    
    
    13,904
    
    
    
    5,028,640
    
    
    
    1,098
    
    
    
    5,357,951Exchange adjustments
    
    
    
    
    
    
    42
    
    
    
    109
    
    
    
    406
    
    
    
    556
    
    
    
    
    
    
    
    44
    
    
    
    1,157Additions
    
    
    
    
    
    
    491
    
    
    
    2,759
    
    
    
    2,743
    
    
    
    23
    
    
    
    
    
    
    
    218
    
    
    
    6,234Disposals
    
    
    
    
    
    
    
    
    
    
    (536
    )
    
    
    (824
    )
    
    
    
    
    
    
    (62,589
    )
    
    
    
    
    
    
    (63,949
    )At December 31, 2006
    
    
    102,233
    
    
    
    8,154
    
    
    
    45,612
    
    
    
    163,500
    
    
    
    14,483
    
    
    
    4,966,051
    
    
    
    1,360
    
    
    
    5,301,393Accumulated
depreciation:At January 1, 2005
    
    
    15,298
    
    
    
    3,835
    
    
    
    26,700
    
    
    
    77,322
    
    
    
    3,008
    
    
    
    2,025,528
    
    
    
    1,800
    
    
    
    2,153,491Exchange adjustments
    
    
    
    
    
    
    13
    
    
    
    35
    
    
    
    84
    
    
    
    63
    
    
    
    
    
    
    
    37
    
    
    
    232Charge for the year
    
    
    2,096
    
    
    
    439
    
    
    
    7,570
    
    
    
    14,185
    
    
    
    1,663
    
    
    
    171,853
    
    
    
    
    
    
    
    197,806Impairment loss transfer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    680
    
    
    
    1,157
    
    
    
    
    
    
    
    (1,837
    )
    
    
    Impairment loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,512Written back on disposal
    
    
    (105
    )
    
    
    (10
    )
    
    
    (361
    )
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (492
    )At December 31, 2005
    
    
    17,289
    
    
    
    4,277
    
    
    
    33,944
    
    
    
    99,767
    
    
    
    5,891
    
    
    
    2,197,381
    
    
    
    
    
    
    
    2,358,549Accumulated
depreciation:At January 1, 2006
    
    
    17,289
    
    
    
    4,277
    
    
    
    33,944
    
    
    
    99,767
    
    
    
    5,891
    
    
    
    2,197,381
    
    
    
    
    
    
    
    2,358,549Exchange adjustments
    
    
    
    
    
    
    34
    
    
    
    84
    
    
    
    242
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    596Charge for the year
    
    
    2,075
    
    
    
    416
    
    
    
    7,435
    
    
    
    12,583
    
    
    
    2,582
    
    
    
    206,256
    
    
    
    
    
    
    
    231,347Written back on disposal
    
    
    
    
    
    
    
    
    
    
    (495
    )
    
    
    (810
    )
    
    
    
    
    
    
    (9,376
    )
    
    
    
    
    
    
    (10,681
    )At December 31, 2006
    
    
    19,364
    
    
    
    4,727
    
    
    
    40,968
    
    
    
    111,782
    
    
    
    8,709
    
    
    
    2,394,261
    
    
    
    
    
    
    
    2,579,811Net book value:At December 31, 2006
    
    
    82,869
    
    
    
    3,427
    
    
    
    4,644
    
    
    
    51,718
    
    
    
    5,774
    
    
    
    2,571,790
    
    
    
    1,360
    
    
    
    2,721,582At December 31, 2005
    
    
    84,944
    
    
    
    3,344
    
    
    
    9,336
    
    
    
    61,408
    
    
    
    8,013
    
    
    
    2,831,259
    
    
    
    1,098
    
    
    
    2,999,402
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    PROPERTY, PLANT AND EQUIPMENT (continued)Fixed assets finance leases
 (i)
    
    The fair value of the buildings held for own use, which are situated on
leasehold land as disclosed above cannot be measured separately from the fair value of
the leasehold land at the inception of the lease, and therefore is accounted for as
being held under a finance lease.(ii)
    
    In August 2004, the in-orbit tests 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, 2005 and 2006, the net book value of communication satellites held under
finance leases in connection with APSTAR V amounted to HK$1,045,095 and HK$911,526
 respectively.Pursuant to the various amended agreements with Loral Orion, Loral Orion has an option
to take up 4 APT Transponders from the fourth year and another 4 APT Transponders from
the fifth year after completion of in-orbit tests of APSTAR V to its remaining
operational lives at a total consideration of HK$282,865. On September 29, 2006, Loral
Orion partially exercised its right to take up 2 APT Transponders ahead of schedule, at
a total consideration of HK$70,716. As a result, a gain of HK$17,503 arising from
disposal of the 2 APT Transponders was recognised in the statement of operations. The
consideration in relation to the remaining 6 APT Transponders to be taken up by Loral
Orion is HK$212,149. The remaining APT transponders subject to this arrangement had a
net book value of HK$225,966 and HK$156,262 at December 31, 2005 and 2006 respectively.
 Impairment loss
  F-25




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 5.
    
    PROPERTY, PLANT AND EQUIPMENT (continued)The analysis of net book value of land and buildings held by the Group is as follows :
 2005
    
    2006HK$
    
    HK$Medium-term leases outside Hong Kong
    
    
    2,150
    
    
    
    2,094Medium-term leases in Hong Kong
    
    
    82,794
    
    
    
    80,77584,944
    
    
    
    82,869
 6.
    
    INTEREST IN LEASEHOLD LAND HELD FOR OWN USE UNDER AN OPERATING LEASE
 HK$Cost:At
January 1, 2005 and December 31, 2006
    
    
    18,678Accumulated depreciation:At
January 1, 2005
    
    
    2,733Charge for the year
    
    
    375At
December 31, 2005
    
    
    3,108At
January 1, 2006
    
    
    3,108Charge for the year
    
    
    375At
December 31, 2006
    
    
    3,483Net book value:At
December 31, 2006
    
    
    15,195At
December 31, 2005
    
    
    15,570
 7.
    
    INVESTMENT PROPERTYThe investment property was revalued at December 31, 2005 and 2006 at HK$2,340 and HK$2,496
respectively by Savills Valuation and Professional Services Limited, an independent
professional property valuer, on an open market value basis by reference to net rental income
allowing for reversionary income potential. The revaluation surplus of HK$78, zero
revaluation surplus or deficit, and revaluation surplus of HK$156 was credited to the
consolidated statements of operations for the years ended December 31, 2004, 2005 and 2006
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, 2004 and 2005 and 2006 was HK$250, HK$254 and HK$254
respectively.
 F-26




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    INTEREST IN JOINTLY CONTROLLED ENTITIES
 2005
    
    2006HK$
    
    HK$Share of net assets
    
    
    2,241
    
    
    
    4,423Amounts due from a jointly controlled entity
    
    
    67,476
    
    
    
    72,29469,717
    
    
    
    76,717
  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
Xin Da Data Broadcast
Technology Co.
Limited
(Zhong Guang Xin Da)
    
    Joint venture, Incorporated
    
    PRC
    
    Registered capital RMB11,000,000
    
    
    12.6
    %
    
    
    
    
    
    
    35
    %
    
    Provision of data transmission services
     2005
    
    2006HK$
    
    HK$Within one year or on demand
    
    
    5,100
    
    
    
    2,700After one year but within five years
    
    
    8,100
    
    
    
    5,40013,200
    
    
    
    8,100
  F-27




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8.
    
    INTEREST IN JOINTLY CONTROLLED ENTITIES (continued)Summary financial information on jointly controlled entities  Groups effective interest:
 2005
    
    2006HK$
    
    HK$Non-current assets
    
    
    75,350
    
    
    
    75,350Current assets
    
    
    3,398
    
    
    
    969Non-current liabilities
    
    
    (63,831
    )
    
    
    (66,894
    )Current liabilities
    
    
    (12,676
    )
    
    
    (5,002
    )Net assets
    
    
    2,241
    
    
    
    4,423Income
    
    
    1,084
    
    
    
    3,553Expenses
    
    
    (9,079
    )
    
    
    (1,371
    )Profit/ (loss) for the year
    
    
    (7,995
    )
    
    
    2,182
 9.
    
    PREPAYMENT FOR CONSTRUCTION OF A SATELLITEIn 2004, the Group had entered into an agreement with a contractor on November 10, 2004
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 at the total option
price of HK$59,904. If the option was exercised, the total consideration for the procurement
and launch of APSTAR VIB would be HK$936,780 and the option price would be applied towards
the total consideration.
 HK$At January 1, 2005
    
    
    38,454Prepayment
    
    
    21,450Impairment loss
    
    
    (59,904
    )At December 31, 2005, January 1, 2006 and December 31, 2006
    
    
    
  F-28




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. BANK LOANS
 December 31, 2005
    
    December 31, 2006Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    averageinterest
    
    
    
    
    
    interestNote
    
    Interest rate
    
    rate
    
    
    
    
    
    rateHK$
    
    
    
    
    
    HK$Bank loans denominated
    
    
    (a
    )in US Dollars:Payable semi-annually from
2005 (secured)
    
    
    
    
    
    LIBOR+0.73%
    
    
    4.04
    %
    
    
    315,900
    
    
    
    5.78
    %
    
    
    210,083Payable semi-annually with
the first instalment falling
due on September 30, 2005 (secured)
    
    
    
    
    
    LIBOR+0.73%
    
    
    4.25
    %
    
    
    811,395
    
    
    
    5.75
    %
    
    
    725,9851,127,295
    
    
    
    
    
    
    
    936,068Less: borrowing cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,236
    )
    
    
    
    
    
    
    (5,714
    )1,118,059
    
    
    
    
    
    
    
    930,354Current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (117,757
    )
    
    
    
    
    
    
    (156,820
    )Non-current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,302
    
    
    
    
    
    
    
    773,534
  (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 utilisation 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 unutilised portion relating to APSTAR V
satellite and APSTAR VI backup satellite. Accordingly, the maximum aggregate amount
under the Loan Facility was reduced to US$165 million and certain financial covenants
were amended. In May 2005, the Group entered into a Second Deed of Amendment and
Restatement. The second amendment extended the availability period of drawing under the
facility with respect to APSTAR VI to June 30, 2005 and amended the financial
covenants. The Group was in compliance with these covenants as of December 31, 2006.
At December 31, 2005 and 2006, the assets under fixed charge were APSTAR V and APSTAR
VI, which had carrying value of totally HK$2,752,162 and HK$2,506,454 respectively. As
of December 31, 2005 and 2006, APSTAR V and APSTAR VI were pledged by the bank deposits
of approximately HK$68,699 and HK$89,190 respectively.This Loan Facility agreement contains the following covenants:Restricted DistributionsThe 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.
 F-29




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10.
    
    BANK LOANS (continued)
 Financial Covenants
  Block Account/Withdrawal Conditions
  Others
    HK$2007
    
    
    156,8202008
    
    
    217,8352009
    
    
    255,6502010
    
    
    201,8652011
    
    
    98,184Total
    
    
    930,354
  F-30




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 11.
    
    TRADE RECEIVABLES
 2005
    
    2006HK$
    
    HK$Due from third parties
    
    
    26,348
    
    
    
    78,316Due from shareholders of the Company
    
    
    22,992
    
    
    
    1,037Due from holding company and its subsidiaries of a
shareholder of the Company
    
    
    390
    
    
    
    90849,730
    
    
    
    80,261
   2005
    
    2006HK$
    
    HK$0 - 30 days
    
    
    27,603
    
    
    
    52,61631 - 60 days
    
    
    8,208
    
    
    
    8,41461 - 90 days
    
    
    6,141
    
    
    
    6,56891 - 120 days
    
    
    2,129
    
    
    
    2,201Over 121 days
    
    
    5,649
    
    
    
    10,46249,730
    
    
    
    80,261
   2005

    
    2006Renminbi
    
    RMB1,398
    
    RMB2,350
 F-31




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12.
    
    DEPOSITS RECEIVEDThe amount represents deposits received in respect of provision of satellite transponder
capacity service, satellite-based broadcasting and telecommunications services and other
services.13.
    
    DEFERRED INCOMEDeferred 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. Deferred income is recognised in the statement of operations
according to revenue recognition policy of transponder utilization income as mentioned in
note 3(o)(i).14.
    
    PAYABLES AND ACCRUED CHARGES
 2005
    
    2006HK$
    
    HK$Provision for employee benefits
    
    
    6,349
    
    
    
    9,993Interest payables
    
    
    16,315
    
    
    
    13,419Accrued expenses for operations
    
    
    20,948
    
    
    
    22,320Others
    
    
    7,981
    
    
    
    8,04551,593
    
    
    
    53,777
 15.
    
    CONTINGENCIES AND COMMITMENTS
 (a)
    
    Capital commitments:At December 31, 2005 and 2006, the Group had the following outstanding capital
commitments not provided for in the Groups financial statements:
 2005
    
    2006HK$
    
    HK$Contracted for
    
    
    2,290
    
    
    
    4,852Authorized but not contracted for
    
    
    
    
    
    
    Total commitments
    
    
    2,290
    
    
    
    4,852
 (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:
 2005
    
    2006HK$
    
    HK$Land and buildings:2006
    
    
    109
    
    
    
    2007
    
    
    
    
    
    
    8492008
    
    
    
    
    
    
    5642009
    
    
    
    
    
    
    2392010
    
    
    
    
    
    
    172011
    
    
    
    
    
    
    8Total
    
    
    109
    
    
    
    1,677
 F-32




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    CONTINGENCIES AND COMMITMENTS (continued)
 (b)
    
    Leasing arrangements  operating lease: (continued)
 (i)
    
    The Group as lessee (continued)Operating lease rental expenses for land and building were HK$1,010, HK$486
and HK$1,021 for the years ended December 31, 2004, 2005 and 2006,
respectively.
 2005
    
    2006HK$
    
    HK$Satellite transponder capacity:2006
    
    
    2,108
    
    
    
    2007
    
    
    14
    
    
    
    3,8252008
    
    
    
    
    
    
    1,797Total
    
    
    2,122
    
    
    
    5,622
  (ii)
    
    The Group as lessorProperty rental income was HK$513, HK$538 and HK$536 for the years ended
December 31, 2004, 2005 and 2006, respectively. At December 31, 2005 and
2006, certain properties with an aggregate carrying value of HK$8,896 and
HK$8,892, respectively, were held for rental purpose. Depreciation charges
relating to these properties were HK$138, HK$160 and HK$160 for the years
ended December 31, 2004, 2005 and 2006, 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:
 2005
    
    2006HK$
    
    HK$2006
    
    
    368
    
    
    
    2007
    
    
    
    
    
    
    4432008
    
    
    
    
    
    
    2672009
    
    
    
    
    
    
    67Total
    
    
    368
    
    
    
    777
 F-33




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    CONTINGENCIES AND COMMITMENTS (continued)
 (b)
    
    Leasing arrangements  operating lease: (continued)
 (ii)
    
    The Group as lessor (continued)Service income earned relating to leasing of facilities equipment was
HK$1,374, HK$1,294 and HK$734 for the years ended December 31, 2004, 2005 and
2006, 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:
 2005
    
    2006HK$
    
    HK$2006
    
    
    542
    
    
    
    2007
    
    
    108
    
    
    
    324Total
    
    
    650
    
    
    
    324
 (c)
    
    Contingent liabilities:
 (i)
    
    In the years before 1999, no provision for overseas withholding
tax has been made in respect of the Groups transponder utilization income
derived from the overseas customers as there was no applicable overseas tax
rules stating that such transponder utilization income are subject to overseas
withholding tax. In 1999, pursuant to the new overseas tax rules, the Groups
certain transponder utilization income derived from the overseas are subject to
withholding tax and therefore 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 new tax rules should take
effect from 1999 onwards and accordingly, no provision for the withholding tax
in respect of the years before 1999 is necessary. The Groups withholding tax
in respect of 1998 and before, calculated at the applicable rates based on the
relevant income earned in those years, not provided for in the financial
statements amounted to approximately HK$75,864.(ii)
    
    The Company has given guarantees to banks in respect of the
secured term loan facility granted to its subsidiary. The extent of such
facility utilised by the subsidiary at 31 December 2005 and 2006 amounted to
HK$1,127,295 and HK$936,069 respectively.
 (d)
    
    InsuranceAs of December 31, 2005 and 2006, the Company did not have fully in-orbit
insurance coverage for its satellites. The in-orbit satellites had a net book value
in aggregate of HK$2,831,259 and HK$2,571,790 as of December 31, 2005 and December 31
2006, respectively.
 16.
    
    COMMON STOCK
 Issued andNumber
    
    fully paidof shares
    
    capital stock000
    
    HK$Ordinary shares of HK$0.10 eachBalance at January 1, 2005
    
    
    413,265
    
    
    
    41,327Balance at December 31, 2005 and December 31, 2006
    
    
    413,265
    
    
    
    41,327
  F-34




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 17.
    
    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.18.
    
    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.As stipulated by the regulations of the PRC, the subsidiaries in the
PRC participate in basic defined contribution pension plans organized
by their respective Municipal Governments under which they are
governed. Employees in the PRC are entitled to retirement benefits
equal to fixed proportion of their salary at their nomal retirement
age. The Group has no other material obligation for payment of basic
retirement benefits beyond the annual contributions which are
calculated at a rate on the salaries, bonuses and certain allowances
of its employees.The Groups contributions to retirement benefit schemes during the
years ended December 31, 2004, 2005 and 2006 amounted to HK$1,579,
HK$1,857 and HK$2,391, respectively.
 F-35




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 19.
    
    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 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Current tax  Provision for
Hong Kong Profits TaxOverprovision in respect of prior years
    
    
    
    
    
    
    
    
    
    
    (21,771
    )Current tax  OverseasTax for the year
    
    
    17,000
    
    
    
    18,856
    
    
    
    19,12217,000
    
    
    
    18,856
    
    
    
    (2,649
    )Deferred tax  Hong KongOrigination and reversal of
temporary differences
    
    
    (375
    )
    
    
    (5,684
    )
    
    
    58,777(375
    )
    
    
    (5,684
    )
    
    
    58,77716,625
    
    
    
    13,172
    
    
    
    56,128
     F-36




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 19.
    
    INCOME TAXES IN THE CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
 (a)
    
    The income taxes charged to the consolidated statements of operations are as
follows: (continued)With the proposal accepted by IRD, the tax dispute in respect of the years of
assessment of 1999/2000 and 2000/2001 is settled. The net assessable profit for
1999/2000 of the subsidiary was revised to zero and the profits tax previously paid of
HK$21,589 were refunded. In addition, as the subsidiary was in a tax loss position in
2000/2001, 2001/2002 and 2002/03, the Tax Reserve Certificate in the amount of
HK$78,385 previously paid, with interest from the date of purchase in March 2006 until
the date of IRD accepting the proposal were redeemed and the provisional tax paid for
2002/2003 of HK$83 was refunded.As a result of the proposal accepted by IRD, a deferred tax asset of HK$123,239 has
been recognised based on the total cumulative tax losses carried forward and the
depreciation allowances in respect of APSTAR IIR to be deducted in the future.
Furthermore, a deferred tax liability of HK$166,063 has been recognised for related
deferred lease income to be taxable in the future.(b)
    
    Reconciliation between tax expense and accounting loss at the applicable tax
rates:
 Years ended December 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Loss before income taxes
    
    
    (45,391
    )
    
    
    (123,402
    )
    
    
    (24,488
    )Notional tax on loss before tax, calculated
at the rates applicable to losses in the
countries concerned
    
    
    (8,681
    )
    
    
    (21,996
    )
    
    
    (4,710
    )Overseas withholding tax
    
    
    17,000
    
    
    
    18,856
    
    
    
    19,122Tax effect of non-deductible expenses
    
    
    41,106
    
    
    
    27,113
    
    
    
    2,967Tax effect of non-taxable revenue
    
    
    (27,852
    )
    
    
    (13,552
    )
    
    
    (3,834
    )Tax effect of unused tax losses not recognized
    
    
    2,656
    
    
    
    2,808
    
    
    
    1,767Tax effect of prior years unrecognized tax losses
utilized this year
    
    
    (7,604
    )
    
    
    (57
    )
    
    
    (2,008
    )Other (note)
    
    
    
    
    
    
    
    
    
    
    42,824Actual tax expenses
    
    
    16,625
    
    
    
    13,172
    
    
    
    56,128
 note: This represents the net deferred tax expense recognised in
connection with the tax settlement of APSTAR IIR (See note 19(a)).
 20.
    
    INCOME TAXES IN THE CONSOLIDATED BALANCE SHEET
 (a)
    
    Income taxes payable in the consolidated balance sheet represents:
 2005
    
    2006HK$
    
    HK$Overseas tax payable
    
    
    4,418
    
    
    
    11,644Balance of overseas tax provision relating to prior years
    
    
    84,669
    
    
    
    81,436Balance of Hong Kong profits tax provision relating to prior years
    
    
    99
    
    
    
    89,186
    
    
    
    93,080
 F-37




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 20. INCOME TAXES IN THE CONSOLIDATED 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,
2005 and 2006 are as follows:
 Depreciationallowances inexcess of
    
    
    Deferred
    
    
    
    
    
    
    Otherrelated
    
    
    lease
    
    
    
    
    
    
    temporarydepreciation
    
    
    income
    
    
    Losses
    
    
    differences
    
    
    TotalHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Deferred tax arising from:At January 1, 2005
    
    
    134,582
    
    
    
    
    
    
    
    (132,266
    )
    
    
    (241
    )
    
    
    2,075Charged/(credited) to
consolidated statements of
operations
    
    
    241,840
    
    
    
    
    
    
    
    (247,369
    )
    
    
    (155
    )
    
    
    (5,684
    )At December 31, 2005
    
    
    376,422
    
    
    
    
    
    
    
    (379,635
    )
    
    
    (396
    )
    
    
    (3,609
    )At January 1, 2006
    
    
    376,422
    
    
    
    
    
    
    
    (379,635
    )
    
    
    (396
    )
    
    
    (3,609
    )Charged/(credited) to
consolidated statements of
operations
    
    
    (3,047
    )
    
    
    166,063
    
    
    
    (104,093
    )
    
    
    (146
    )
    
    
    58,777At December 31, 2006
    
    
    373,375
    
    
    
    166,063
    
    
    
    (483,728
    )
    
    
    (542
    )
    
    
    55,168
 2005
    
    
    2006HK$
    
    
    HK$Net deferred tax assets recognized in the
consolidated balance sheet
    
    
    (3,609
    )
    
    
    (8,747
    )Net deferred tax liabilities recognized in the
consolidated balance sheet
    
    
    
    
    
    
    63,915(3,609
    )
    
    
    55,168
 (c)
    
    Deferred tax assets not recognized:The Group has not recognized deferred tax assets in respect of tax losses of
HK$44,895 and HK$42,961 and other deductible temporary differences of HK$22,667 and
HK$23,770, as the realization of assets was considered not probable as at December
31, 2005 and 2006, respectively.The Groups share of unrecognized deferred tax assets in respect of tax losses of
jointly controlled entity amounted HK$35,791 and HK$40,701 and other deductible
temporary differences amounted HK$4,654 and HK$989 as at December 31, 2005 and 2006,
respectively.The tax losses do not expire under current tax legislation.
 F- 38




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 21. RELATED PARTY TRANSACTIONS
 (a)
    
    During the years ended December 31, 2004, 2005 and 2006, the Group entered
into the following transactions with related parties:
 Years ended December 31,Note
    
    2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Income from provision of satellite
transponder capacity and provision of
satellite-based telecommunications
services to certain shareholders and its
subsidiary of the Company
    
    
    (i
    )
    
    
    38,259

    
    
    36,339

    
    
    16,309Income 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
    )
    
    
    24,163

    
    
    31,335

    
    
    36,068Management fee income from a jointly
controlled entity
    
    (ii)
    
    
    480

    
    
    480

    
    
    480Management fee expenses to a holding
company of a shareholder of the Company
    
    (iii)
    
    
    1,135

    
    
    

    
    
    Payments of service fee in connection
with the satellite project to a fellow
subsidiary of a shareholder of the Company
    
    (iv)
    
    
    151,895

    
    
    138,727

    
    
    
 F- 39




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 21. RELATED PARTY TRANSACTIONS (continued)
 (b)
    
    At December 31, 2005 and 2006, the Group had the following amounts included in the
consolidated balance sheet in respect of amounts owing by and to related parties:
 Amounts duefromImmediate
    
    
    Amounts due
    
    
    
    
    
    
    
    
    
    
    Deposits,
    
    
    Payables and
    
    
    Rentals receivedholding
    
    
    from a jointly
    
    
    Trade
    
    
    prepayments and
    
    
    accrued
    
    
    in advance andcompany
    
    
    controlled entity
    
    
    receivables
    
    
    other receivables
    
    
    charges
    
    
    eferred income2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Immediate holding
company
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jointly controlled
entities
    
    
    
    
    
    
    
    
    
    
    72,576
    
    
    
    75,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Certain shareholders
and its subsidiary
of the Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,992
    
    
    
    1,037
    
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    228
    
    
    
    
    
    
    
    Holding company and
its subsidiaries of a
shareholder of the
Company (note (i))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390
    
    
    
    908
    
    
    
    
    
    
    
    123
    
    
    
    325
    
    
    
    11
    
    
    
    236,425
    
    
    
    217,193
  
 (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 expenses arose from a reimbursement of cost of services
provided from the holding company of a shareholder of the Company.(iv)
    
    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. F- 40




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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. SUPPLEMENTAL INFORMATION
 (a)
    
    Other operating income/(expenses)Other operating income/(expenses) includes the following:
 Years ended December 31,2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$Compensation income for late delivery
of the satellite *
    
    
    
    
    
    
    15,600
    
    
    
    
 
 *
    
    On December 11, 2001, the Group entered into a Satellite Procurement Agreement
with a contractor for the design, construction, tests and delivery of APSTAR VI.
APSTAR VI was originally scheduled to be launched at the end of 2004/early 2005.
The delay in delivery of the satellite by the contractor has caused the
postponement of the launch of APSTAR VI until April 12, 2005. To cope with the
delay, the contractor agreed and paid a lump sum payment to the Group for the
liquidated damages due to the late delivery of APSTAR VI in 2005. (b)
    
    Borrowing costs
 Years ended December 31,2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$Interest on bank borrowings wholly
repayable within five years
    
    
    17,223
    
    
    
    44,482
    
    
    
    60,525Other borrowing costs
    
    
    3,598
    
    
    
    2,222
    
    
    
    3,615Less: amount capitalized into constructionin progress*
    
    
    (16,704
    )
    
    
    (9,762
    )
    
    
    4,117
    
    
    
    36,942
    
    
    
    64,140
 
 *
    
    The borrowing costs were capitalized for 2004 and 2005 at a rate of 2.27% to
2.41% and 4.04% to 4.25% per annum respectively, which arose on bank loans borrowed
for the purpose of financing the construction and launching of satellites. No
borrowing cost have been capitalised in 2006. (c)
    
    Staff costs
 Years ended December 31,2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$Staff costs (including directors emoluments)Pension contributions
    
    
    1,608
    
    
    
    1,878
    
    
    
    2,399Less: Forfeited contributions
    
    
    (29
    )
    
    
    (21
    )
    
    
    (8
    )Net pension contributions
    
    
    1,579
    
    
    
    1,857
    
    
    
    2,391Salaries, wages and other benefits
    
    
    40,258
    
    
    
    44,264
    
    
    
    44,36341,837
    
    
    
    46,121
    
    
    
    46,754Less: Capitalized into construction in progress
    
    
    (772
    )
    
    
    
    
    
    
    41,065
    
    
    
    46,121
    
    
    
    46,754
 F- 41




---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. SUPPLEMENTAL INFORMATION (continued)
 (d)
    
    (Loss)/income from operations
 Years ended December 31,2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$Loss from operations has been arrived
at after charging/(crediting):Amortization on leasehold land held for own use
    
    
    375
    
    
    
    375
    
    
    
    375Bad debts written off
    
    
    
    
    
    
    19
    
    
    
    Depreciation
    
    
    177,617
    
    
    
    197,806
    
    
    
    231,347Exchange loss/(gain)
    
    
    458
    
    
    
    584
    
    
    
    (302
    )Loss/(gain) on disposal of property, plant and
equipment
    
    
    32
    
    
    
    (109
    )
    
    
    (17,630
    )Allowance for doubtful receivables
    
    
    5,654
    
    
    
    350
    
    
    
    8,347
 (e)
    
    Allowance for doubtful receivables
 Years ended December 31,2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$Balance at beginning of the year
    
    
    14,439
    
    
    
    20,093
    
    
    
    20,510Charged to consolidated statements of opeartions
    
    
    5,654
    
    
    
    350
    
    
    
    8,347Exchange difference
    
    
    
    
    
    
    67
    
    
    
    211Balance at end of the year
    
    
    20,093
    
    
    
    20,510
    
    
    
    29,068
 F- 42




---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. SUPPLEMENTAL INFORMATION (continued)
 (f)
    
    Directors remunerationDirectors remuneration for the year ended December 31, 2005 is set out
below:
 Salaries,
    
    RetirementDirectors
    
    allowances and
    
    scheme
    
    2005fees
    
    benefits in kind
    
    contributions
    
    TotalHK$
    
    HK$
    
    HK$
    
    HK$Executive directorsNi Yifeng
    
    
    23

    
    
    1,427

    
    
    76

    
    
    1,526Tong Xudong
    
    
    50

    
    
    2,316

    
    
    142

    
    
    2,508Chen Zhaobin
    
    
    27
    

    
    2,595

    
    
    49

    
    
    2,671Non-executive directorsLiu Ji Yuan
    
    
    50

    
    
    
    
    

    

    
    
    50Zhang Hainan
    
    
    50
    

    
    

    
    
    

    
    
    50Lim Toon
    
    
    50

    
    
    
    
    

    

    
    
    50Lan Kwai-chu
    
    
    19

    
    
    

    
    
    
    

    
    19Yin Yen-liang
    
    
    50

    
    
    

    
    
    
    

    
    50Wu Zhen Mu
    
    
    50
    
    

    

    
    
    

    
    
    50Lim Wee Seng (note ii)
    
    
    31

    
    
    

    
    
    
    

    
    31Tseng Ta-mon (note iii)
    
    
    
    
    

    

    
    
    

    
    
    Kwok Kah Wai Victor (note i)
    
    
    

    
    
    

    
    
    
    
    
    Independent non-executive directorsYuen Pak Yiu, Philip
    
    
    100

    
    
    

    
    
    

    
    
    100Huan Guocang
    
    
    100

    
    
    

    
    
    
    

    
    100Lui King Man
    
    
    100

    
    
    

    
    
    
    

    
    100700

    
    
    6,338

    
    
    267

    
    
    7,305
 F- 43




---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. SUPPLEMENTAL INFORMATION (continued)
 (f)
    
    Directors remuneration (Continued)Directors remuneration for the year ended December 31, 2006 is set out
below:
 Salaries,
    
    
    RetirementDirectors
    
    
    allowances and
    
    
    scheme
    
    
    2006fees
    
    
    benefits in kind
    
    
    contributions
    
    
    TotalHK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Executive directorsNi Yifeng
    
    
    50
    
    
    
    2,800
    
    
    
    165
    
    
    
    3,015Tong Xudong
    
    
    50
    
    
    
    2,263
    
    
    
    142
    
    
    
    2,455Non-executive directorsRui Xiaowu
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Liu Ji Yuan
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    47Zhao Liqiang
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Zhang Hainan
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    47Lim Toon
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Ho Siaw Hong
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    38Lan Kwai-chu
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Yin Yen-liang
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Wu Zhen Mu
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Tseng Ta-mon (note iii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Independent non-executive directorsYuen Pak Yiu, Philip
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Huan Guocang
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100Lui King Man
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    100700
    
    
    
    5,063
    
    
    
    307
    
    
    
    6,070
   
  (i)
    
    Mr. Kwok Kah Wai Victor was alternate director.(ii)
    
    Mr. Lim Wee Seng was re-designated from alternate director to non-executive
director on 20 December 2004.(iii)
    
    Mr. Tseng Ta-mon was re-designated from non-executive director to alternate
director on 8 September 2004.
 F- 44




---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22. SUPPLEMENTAL INFORMATION (continued)
 (g)
    
    Individuals with highest emolumentsOf the five highest paid individuals of the Group, two are directors (2005: three)
whose remuneration is disclosed in note 22(f). The aggregate of emoluments in
respect of the other three (2005: two) individuals are as follows:
 2005
    
    
    2006HK$
    
    
    HK$Salaries and other emoluments
    
    
    4,117
    
    
    
    4,541Performance related incentive payments
    
    
    
    
    
    
    154Retirement benefits contributions
    
    
    218
    
    
    
    3034,335
    
    
    
    4,998
  Number of individuals2005
    
    2006$Nil to $1,000
    
    
    
    
    
    
    1$1,500 to $2,000
    
    
    1
    
    
    
    $2,001 to $2,500
    
    
    
    
    
    
    2$2,501 to $3,000
    
    
    1
    
    
    
    2
    
    
    
    3
 F- 45




---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 23. SEGMENTAL REPORTING
   Business segments
  Provision ofProvision of satellite
    
    
    satellite-basedtransponder capacity and related
    
    
    broadcasting and
    
    
    Inter-segmentservices
    
    
    telecommunications services
    
    
    elimination
    
    
    
    
    
    
    Consolidated2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Turnover from
external customers
    
    
    238,418
    
    
    
    290,683
    
    
    
    363,074
    
    
    
    38,683
    
    
    
    45,552
    
    
    
    63,817
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277,101
    
    
    
    336,235
    
    
    
    426,891Inter-segment
turnover
    
    
    5,276
    
    
    
    4,264
    
    
    
    19,193
    
    
    
    6
    
    
    
    720
    
    
    
    1,128
    
    
    
    (5,282
    )
    
    
    (4,984
    )
    
    
    (20,321
    )
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    243,694
    
    
    
    294,947
    
    
    
    382,267
    
    
    
    38,689
    
    
    
    46,272
    
    
    
    64,945
    
    
    
    (5,282
    )
    
    
    (4,984
    )
    
    
    (20,321
    )
    
    
    277,101
    
    
    
    336,235
    
    
    
    426,891Service income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    277
    
    
    
    97277,260
    
    
    
    336,512
    
    
    
    426,988Segment result
    
    
    28,230
    
    
    
    (29,021
    )
    
    
    71,809
    
    
    
    (3,332
    )
    
    
    (3,697
    )
    
    
    8,481
    
    
    
    (6
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    24,892
    
    
    
    (32,723
    )
    
    
    80,285Service income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159
    
    
    
    277
    
    
    
    97Unallocated other
net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,410
    
    
    
    30,831
    
    
    
    37,698Unallocated selling and
Administrative expenses- staff costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,605
    )
    
    
    (45,035
    )
    
    
    (44,940
    )- office expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,421
    )
    
    
    (31,815
    )
    
    
    (35,670
    )(Loss)/profit from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,565
    )
    
    
    (78,465
    )
    
    
    37,470Borrowing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,117
    )
    
    
    (36,942
    )
    
    
    (64,140
    )Share of results of
jointly controlled
entities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,709
    )
    
    
    (7,995
    )
    
    
    2,182Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,625
    )
    
    
    (13,172
    )
    
    
    (56,128
    )Loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,016
    )
    
    
    (136,574
    )
    
    
    (80,616
    )
 F- 46




---



##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 23. SEGMENTAL REPORTING (continued)
 Provision of satellite
    
    
    Provision oftransponder capacity and related
    
    
    satellite-based broadcasting and
    
    
    Inter-segmentservices
    
    
    
    
    
    
    telecommunications services
    
    
    elimination
    
    
    Consolidated2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Depreciation for
the year
    
    
    167,521
    
    
    
    187,967
    
    
    
    224,501
    
    
    
    10,096
    
    
    
    9,839
    
    
    
    6,846Impairment loss for
the year
    
    
    
    
    
    
    59,904
    
    
    
    
    
    
    
    1,800
    
    
    
    7,512
    
    
    
    Significant
non-cash expenses
(other than
depreciation)
    
    
    2,883
    
    
    
    
    
    
    
    7,886
    
    
    
    2,771
    
    
    
    349
    
    
    
    460Provision of satellite
    
    
    Provision oftransponder capacity and related
    
    
    satellite-based broadcasting and
    
    
    Inter-segmentservices
    
    
    
    
    
    
    telecommunications services
    
    
    elimination
    
    
    Consolidated2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2004
    
    
    2005
    
    
    2006HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$
    
    
    HK$Segment assets
    
    
    
    
    
    
    3,110,958
    
    
    
    2,858,518
    
    
    
    
    
    
    
    50,170
    
    
    
    50,768
    
    
    
    
    
    
    
    (56,666
    )
    
    
    (51,922
    )
    
    
    
    
    
    
    3,104,462
    
    
    
    2,857,364Investment in and
amounts due from
jointly controlled
entities
    
    
    
    
    
    
    74,817
    
    
    
    79,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,817
    
    
    
    79,458Corporate assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    435,010
    
    
    
    470,740Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,614,289
    
    
    
    3,407,562Segment liabilities
    
    
    
    
    
    
    384,044
    
    
    
    344,165
    
    
    
    
    
    
    
    87,043
    
    
    
    90,362
    
    
    
    
    
    
    
    (56,666
    )
    
    
    (51,922
    )
    
    
    
    
    
    
    414,421
    
    
    
    382,605Corporate
liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,138,316
    
    
    
    1,042,724Total liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,552,737
    
    
    
    1,425,329Capital expenditure
incurred during the
year
    
    
    
    
    
    
    521,677
    
    
    
    3,506
    
    
    
    
    
    
    
    2,787
    
    
    
    2,728
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 23.
    
    SEGMENTAL REPORTING (continued)Geographical segmentsThe 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.
 Hong Kong
    
    Other regions in the PRC
    
    Singapore
    
    Indonesia
    
    Others
    
    Unallocated2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006
    
    2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$
    
    HK$Turnover from
external customers
    
    
    21,287
    
    
    
    38,459
    
    
    
    60,340
    
    
    
    195,155
    
    
    
    201,851
    
    
    
    207,389
    
    
    
    23,339
    
    
    
    30,657
    
    
    
    49,821
    
    
    
    6,010
    
    
    
    32,262
    
    
    
    50,420
    
    
    
    31,469
    
    
    
    33,283
    
    
    
    59,018
    
    
    
    
    
    
    
    
    
    
    
    Segment assets
    
    
    1,666
    
    
    
    4,009
    
    
    
    15,302
    
    
    
    55,492
    
    
    
    44,972
    
    
    
    41,254
    
    
    
    2,226
    
    
    
    468
    
    
    
    1,930
    
    
    
    155
    
    
    
    4,061
    
    
    
    14,132
    
    
    
    4,522
    
    
    
    5,453
    
    
    
    7,643
    
    
    
    3,556,731
    
    
    
    3,555,326
    
    
    
    3,327,301Capital expenditure
incurred during the
year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,253
    
    
    
    1,416
    
    
    
    844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428,487
    
    
    
    523,048
    
    
    
    5,390
 24.
    
    SHARE OPTION PLANAt 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 further 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 this report, 413,265,000
shares of the Company were in issue.Under Scheme 2002, the total number of shares to be issued upon
exercise of the options granted to each eligible person
(including both exercised and outstanding options) in any
12-month period shall not exceed 1% of the total number of shares
in issue. The exercise price (subscription price) shall be such
price as determined by the Board of Directors in its absolute
discretion at the time of the making of the offer but in any case
the exercise price shall not be lower than the highest of (i) the
closing price of the shares as stated in The Stock Exchange of
Hong Kong Limiteds (the Exchanges) daily quotations sheet on
the date of the offer of grant, which must be a trading day; (ii)
the average closing price of the shares as stated in the
Exchanges daily quotations sheets for the five trading days
immediately preceding the date of the offer of grant; and (iii)
the nominal value of a share.During the year, no options were granted under the Scheme 2002.
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APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 24.
    
    SHARE OPTION PLAN (continued)Under the Scheme 2001, the maximum entitlement of each eligible
person was that the total number of shares issued or issuable
under all options granted to such eligible person (including both
exercised and outstanding options) upon such grant being made
shall not exceed 25% of the total number of the shares for the
time being issued and issuable under the Scheme 2001. In
addition, the subscription price was determined by the Board of
Directors on a case-by-case basis and would not be less than the
nominal value of the shares nor at a discount of more than 20%
below the average closing price of the shares as stated in the
Exchanges daily quotation sheets on the five dealing days
immediately preceding the date on which the invitation to apply
for an option under Scheme 2001.
 (a)
    
    Movements in share optionsThe particulars of the share options granted under the Scheme 2001 outstanding during
the years ended December 31, 2004, 2005 and 2006 are as follows:
 Number ofshare optionsAt January 1, 2004
    
    
    9,670,000Cancelled during the year
    
    
    (1,220,000
    )At December 31, 2004
    
    
    8,450,000Cancelled during the year
    
    
    (4,220,000
    )At December 31, 2005
    
    
    4,230,000Cancelled during the year
    
    
    (840,000
    )At December 31, 2006
    
    
    3,390,000
 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.Fair value of share options and assumptionsThe fair value of services received in return for share options granted
are measured by reference to the fair value of share option granted. The
estimated fair value of the services received is measured based on a binomial
lattice model. The contractual life of the option is used as an input into this
model. Expectations of early exercise are incorporated into the binomial lattice
model.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 25.
    
    FINANCIAL INSTRUMENTSExposure to credit, liquidity, interest rate and currency risks arises in the normal course of
the Groups business. These risks are limited by the Groups financial management policies and
practices described below.
 (a)
    
    Credit riskThe Groups credit risk is primarily attributable to trade and other receivables and
cash investments. Management has a credit policy in place and the exposures to these
credit risks are monitored on an ongoing basis.In respect of trade and other receivables, periodic credit evaluations are performed
of its customers financial condition. The Group 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.At the balance sheet date, the Group has a certain concentration of credit risk as 31%
and 28% in 2005 and 2006 respectively of the total trade and other receivables was due
from the Groups largest customer, and as 65% and 62% in 2005 and 2006, respectively,
was due from the Groups five largest customers respectively within the satellite
transponder business segment.The credit risk on liquid funds is limited because the majority of counter parties are
financial institutions with high credit ratings assigned by international
credit-rating agencies and state-controled financial instituations with good
reputation.Revenues from the Groups largest customer for the years ended December 31, 2004, 2005
and 2006 represented 12.7%, 9.1% and 8.4%, respectively, of total revenues. Revenues
from the Groups five largest customers represented 40.4%, 33.6% and 30.0%,
respectively, of total revenues during such periods.(b)
    
    Liquidity riskIndividual operating entities within the Group are responsible for their own cash
management, including the short term investment of cash surpluses and the raising of
loans to cover expected cash demands, subject to approval by the parent companys
board. The Groups policy is to regularly monitor current and expected liquidity
requirements and its compliance with lending covenants, to ensure that it maintains
sufficient reserves of cash and adequate committed lines of funding from major
financial institutions to meet its liquidity requirements in the short and longer
term.
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APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 25.
    
    FINANCIAL INSTRUMENTS (continued)
 (c)
    
    Interest rate riskThe Group is subject to interest rate risk due to fluctuation in interest rates. As of
December 31, 2006, the Groups outstanding bank loans consist of variable interest
rate loans only. From time to time, the Group may enter into interest rate swap
agreements designed to mitigate our exposure to interest rate risks, although the
Group did not consider it necessary to do so in 2006. 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 Group.The following table contains information about the Groups bank loans that are
sensitive to changes in interest rates, as of December 31, 2006.
 Expected Maturity Date2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter(HK$ in million, except interest rates)Variable rate bank loan
    
    
    159
    
    
    
    220
    
    
    
    257
    
    
    
    202
    
    
    
    98
    
    
    
    Average interest rate(1)
    
    
    5.85
    %
    
    
    5.606
    %
    
    
    5.566
    %
    
    
    5.654
    %
    
    
    5.774
    %
    
    
    5.774
    %
 
 (1)
    
    The interest rates are the implied future LIBOR rates calculated from US
swap as proxy. (d)
    
    Foreign currency riskThe Groups reporting currency is the Hong Kong Dollar. The Groups revenues, premiums
for satellite insurance coverage and debt service and substantially all capital
expenditures were denominated in United States Dollars. The Groups remaining expenses
were primarily denominated in Hong Kong Dollars. The Group does not hedge its exposure
to foreign exchange risk. Gains and losses resulting from the effects of changes in
the United States Dollar to Hong Kong Dollar exchange rate are recorded in the
consolidated statement of operations.The Group does not utilize derivative financial instruments to hedge its foreign
currency rate risks.In respect of other trade receivables and payables held in currencies other than the
functional currency of the operations to which they relate, the Group ensures that the
net exposure is kept to an acceptable level, by buying or selling foreign currencies
at spot rates where necessary to address short-term imbalances.The Groups borrowings are denominated in United States Dollars. Given substantially
the Groups revenues are denominated in United States Dollars, management does not
expect that there will be any significant currency risk associated with the Groups
borrowings.
 (e)
    
    Sensitivity analysisIn managing interest rate and foreign currency risks the Group aims to reduce the
impact of short-term fluctuations on the Groups earnings. Over the longer term,
however, permanent changes in foreign exchange and interest rates would have an impact
on consolidated earnings.At December 31, 2006, it is estimated that a general increase of one percentage point
in interest rates would increase the Groups loss before income taxes by
approximately HK$11,076 and HK$10,660 respectively in 2005 and 2006 so far as the
effect on interest-bearing financial instruments is concerned.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
 25.
    
    FINANCIAL INSTRUMENTS (continued)
 (f)
    
    Fair valuesThe following financial assets and liabilities have their carrying amount
approximately equal to their fair value: trade receivables, deposit,
prepayments and other receivables, cash and cash equivalents, payables and accrued charges, and secured
bank borrowings.
 26.
    
    ACCOUNTING ESTIMATES AND JUDGEMENTS
 (a)
    
    Key sources of estimation uncertaintyThe 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.(b)
    
    Critical accounting judgement in applying the groups accounting policiesThe following are some of the more critical judgment areas in the application of the
Groups accounting policies that currently affect the Groups financial condition and
results of operations.
 (i)
    
    DepreciationDepreciation of communication satellites is provided for on the
straight-line method over the estimated useful life of the satellite, which is
determined by engineering analysis performed at the in-services date and
re-evaluated periodically. A number of factors affect the operational lives of
satellites, including construction quality, component durability, fuel usage,
the launch vehicle used and the skill with which the satellite is monitored and
operated. As the telecommunication industry is subject to rapid technological
change and the Groups satellites have been subjected to certain operational
lives, the Group 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 Groups satellites
are reviewed using current engineering data.If a significant change in the estimated useful lives of our satellites is
identified, the Group accounts for the effects of such change as depreciation
expenses on a prospective basis. Details of the depreciation of communication
satellites are disclosed in notes 3(e) and 5.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.
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APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 26.
    
    ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
 (b)
    
    Critical accounting judgement in applying the groups accounting policies
(continued)
 (ii)
    
    Trade receivables and other receivablesThe management of the Group estimates the provision of bad and doubtful debts
required for the potential non-collectability of trade receivables and other
receivables at each balance sheet date based on the ageing of its customer accounts
and its historical write-off experience, net of recoveries. The Group performs
ongoing credit evaluations of its customers and adjusts credit limits based upon
payment history and the customers current credit worthiness. The Group does not
make a general provision on its trade receivables and other receivables, but
instead, makes a specific provision on its trade receivables and other receivables.
Hence, the Group continuously monitors collections and payments from customers and
maintains allowances for bad and 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 Group were to deteriorate, actual write-offs
would be higher than estimated. For the year ended December 31, 2004, 2005 and
2006, the Group made the provision for bad and doubtful debts in the amount of HK$
5,654, HK$350 and HK$8,347 respectively.The Group periodically reviews the carrying amounts of provision for bad and
doubtful debts to determine whether there is any indication that the provision
needs to be written off. If the Group becomes aware of a situation where a customer
is 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, the Group will consider to write off the debt.(iii)
    
    Impairment of property, plant and equipmentThe Group periodically reviews internal or external resources to identify
indications that the assets may be impaired. 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 Group 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 Group may be required to
adjust the impairment charges previously recorded.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 26.
    
    ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
 (b)
    
    Critical accounting judgement in applying the groups accounting policies
(continued)
 (iii)
    
    Impairment of property, plant and equipment (continued)The Group 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 Group 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 Group may be
required to record impairment loss for these assets not previously recorded.The Group 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 Group 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 Group may be required to record additional impairment
loss not previously recognised. Details of the impairment loss of property, plant
and equipment are disclosed in note 5.(iv)
    
    Contingencies and provisionsContingencies, representing an obligation that are neither probable nor certain at
the date of the financial statements, or a probable obligation for which the cash
outflow is not probable, are not recorded.Provisions are recorded when, at the end of period, there is an obligation of the
Group to a third party which is probable or certain to create an outflow of
resources to the third party, without at least an equivalent return expected from
the third party. This obligation may be legal, regulatory or contractual in nature.To estimate the expenditure that the Group is likely to bear in order to settle an
obligation, the management of the Group 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 note 15(c) of contingent liabilities.
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APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 27.
    
    Possible impact of amendments, new standards and interpretations issued but not yet
effective for the annual accounting period ended December 31, 2006Up to the date of issue of these financial statements, the HKICPA has issued a number
of amendments, new standards and interpretations which are not yet effective for the
accounting period ended December 31, 2006 and which have not been adopted in these financial
statements.The Group is in the process of making an assessment of what the impact of these amendments,
new standards and new interpretations is expected to be in the period of initial application.
So far it has conducted that the adoption of them is unlikely to have a significant impact on
the companys results of operations and financial position.In addition, the following developments may result in new or amended disclosures in the
financial statements:
 Effective foraccounting periodsbeginning on or afterHKFRS 7, Financial instruments: disclosures
    
    January 1, 2007Amendment to HKAS 1, Presentation of financial statements: capital disclosures
    
    January 1, 2007
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APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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 loss and shareholders equity in
accordance with US GAAP are set out below.
 (i)
    
    Investment properties revaluation and depreciationUnder HK GAAP, all changes in the fair value of investment properties are
recognised directly in the statement of operations in accordance with the fair
value model.Under US GAAP, investment properties are stated at cost and depreciated over the
shorter of the useful life and the land 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.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 its jointly controlled entity subject to depreciation under US GAAP
which are not depreciated under HK GAAP at December 31, 2006 amounted to HK$3,821
(2005: HK$3,821) and HK$140,000 (2005: HK$140,000), respectively.In the US GAAP reconciliation of net loss for the year, the adjustments with
respect of investment properties represent: (i) the reversal of revaluation gain
in respect of the Groups properties of HK$156 (2005: HK$nil and 2004: HK$78), and
the Groups proportionate share of revaluation loss in respect of the property
held by its jointly controlled entity HK$nil (2005: HK$7,150 and 2004: revaluation
loss of HK$2,200); and (ii) the depreciation in respect of the properties held by
the Group amounting to HK$83 (2005: HK$83 and 2004: HK$84), and the Groups
proportionate share of depreciation in respect of the property held by jointly
controlled entity amounting HK$1,750 (2005: HK$1,750 and 2004: HK$1,750) which are
not recongized under HK GAAP.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)
 (a)
    
    Summary of Significant Differences Between HK GAAP and US GAAP
(continued)
 (i)
    
    Investment properties revaluation and depreciation (continued)In the US GAAP reconciliation of shareholders equity at December 31, 2006, the
adjustments represent the reversal of revaluation gain in respect of the
investment properties of the Group of HK$156 (2004: HK$nil), and the Groups
proportionate share of revaluation loss in respect of the property held by its
jointly controlled entity of HK$1,650 (2005: HK$1,650).(ii)
    
    Share optionsThe Group granted share options to directors and employees. Under HK GAAP and
prior to January 1, 2005, the proceeds received are recognised as an increase to
capital upon the exercise of the share options. The Group does not account for
the issuance of stock options until they are exercised. With effect from January
1, 2005, in order to comply with HKFRS 2, the Group recognises the fair value of
such share options as an expense in the consolidated statement of operations, or
as an asset, if the cost qualifies for recognition as an asset under the Groups
accounting policies. A corresponding increase is recognised in a capital reserve
within equity.Under US GAAP, and prior to January 1, 2006, the Group followed Accounting
Principles Board Opinion 25, Accounting for Stock Issued to Employees, and
determined compensation expenses based on the excess, if any, of the quoted market
price of the shares on the date of grant over the exercise price of the stock
options. Such amount was charged to the consolidated income statement over the
vesting period of the options. With effect from January 1, 2006, in order to
comply with Statement of Financial Accounting Standards No. 123 (revised 2004)
(SFAS 123R), Share-Based Payment, the Group recognizes compensation expense
for all share-based payments at fair value. The Group adopted the
modified-prospective transition method in which effective from January 1, 2006,
compensation expense is recognized at fair value for (i) share options granted
after January 1, 2006; and (ii) all share options granted prior to January 1, 2006
that remain unvested at that date. No restatement for prior periods is required.Given share options granted prior January 1, 2006 became exercisable before
January 1, 2006 and no share options were granted after January 1, 2006, there is
no effect to the Group as a result of adoption of SFAS 123R.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)
 (a)
    
    Summary of Significant Differences Between HK GAAP and US GAAP
(continued)
 (iii)
    
    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 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 to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognised is measured by the amount by which the
carrying amounts of the assets exceed the fair value of the assets.Given that the undiscounted cash flows expected to be generated by certain
long-lived assets were below the carrying amount of such assets and subject to
impairment under HK GAAP, the assets are also considered impaired under US GAAP.
Accordingly, the impairment loss recognised under HK GAAP has not been reversed
for US GAAP purpose.(iv)
    
    Minority interestsUnder International Financial Reporting Standard, minority intesests at the balance
sheet date are presented in the consolidated balance sheet within equity,
separately from equity attributable to the equity shareholders of the Company, and
minority interests in the results of the Group for the year are presented on the
face of the consolidated statements of income as an allocation of the total net
income for the year between the minority interests and the equity shareholders of
the Company. Under USGAAP, minority interests at the balance sheet date are
presented in the consolidated balance sheet either as liabilities or separately
from liabilities and equity. Minority interests in the results of the Group for the
year are also separately presented in the consolidated statements of income as a
component of net income.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP
(continued)
 (a)
    
    Summary of Significant Differences Between HK GAAP and US GAAP
(continued)
 (v)
    
    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, 2006 is presented in note 23. 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 23 for the Groups other segment information required by the
provisions of SFAS No. 131 Segment Reporting.
 (b)
    
    Net lossThe effect on net loss of significant differences between HK GAAP and US GAAP is as
follows:
 Years ended December 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Net loss attributable to equity shareholders
in accordance with HK GAAP
    
    
    (59,957
    )
    
    
    (135,564
    )
    
    
    (79,480
    )Adjustments required under US GAAPRevaluation of investment properties
    
    
    2,122
    
    
    
    7,150
    
    
    
    (156
    )Depreciation of investment properties
    
    
    (1,834
    )
    
    
    (1,833
    )
    
    
    (1,833
    )Impairment of long-lived assets
    
    
    1,080
    
    
    
    
    
    
    
    Net loss in accordance with US GAAP
    
    
    (58,589
    )
    
    
    (130,247
    )
    
    
    (81,469
    )Basic and diluted loss per share under US GAAP
    
    (14 cents)
    
    (32 cents)
    
    (20 cents)
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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 loss (continued)Options to purchase 4,230,000 shares and 3,390,000 shares of common stock at HK$2.765
per share were outstanding during the years 2005 and 2006, 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 2006.(c)
    
    Shareholders equityThe effect on shareholders equity of significant differences between HK GAAP and US
GAAP is as follows:
 Years ended December 31,2005
    
    2006HK$
    
    HK$Total equity attributable to equity shareholders
in accordance with HK GAAP
    
    
    2,058,625
    
    
    
    1,980,442Adjustments required under US GAAPRevaluation of investment properties
    
    
    1,650
    
    
    
    1,494Accumulated depreciation of investment properties
    
    
    (4,265
    )
    
    
    (6,098
    )Impairment of long-lived assets
    
    
    1,080
    
    
    
    1,080Shareholders equity in accordance with US GAAP
    
    
    2,057,090
    
    
    
    1,976,918
 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, 2004
    
    
    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
    
    
    
    337,143Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    1,369
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (130,247
    )Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (333
    )Balance at December 31, 2005
    
    
    41,327
    
    
    
    1,807,749
    
    
    
    1,451
    
    
    
    206,563Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    1,297
    
    
    
    Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (81,469
    )Balance at December 31, 2006
    
    
    41,327
    
    
    
    1,807,749
    
    
    
    2,748
    
    
    
    125,094
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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 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.The comprehensive loss for the year ended December 31, 2005 was
HK$128,878, comprised of net loss of HK$130,247 and a foreign currency
translation gain of HK$1,369.The comprehensive loss for the year ended December 31, 2006 was
HK$80,172, comprised of net loss of HK$81,469 and a foreign currency translation
gain of HK$1,297.
 (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 are as follows:
 Years ended December 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Total revenues
    
    
    277,260
    
    
    
    336,512
    
    
    
    426,988Total costs and expenses
    
    
    (323,519
    )
    
    
    (445,891
    )
    
    
    (427,299
    )Gain on disposal of property plant and
equipment
    
    
    
    
    
    
    
    
    
    
    17,630(Loss)/income from operations
    
    
    (46,259
    )
    
    
    (109,379
    )
    
    
    17,319Other income/(expenses)Borrowing costs
    
    
    (4,117
    )
    
    
    (36,942
    )
    
    
    (64,140
    )Interest income
    
    
    7,312
    
    
    
    12,916
    
    
    
    17,559Others-net
    
    
    2,020
    
    
    
    17,915
    
    
    
    2,353Share of losses of jointly controlled
entities
    
    
    (2,259
    )
    
    
    (2,595
    )
    
    
    432Loss before income taxes and
minority interests
    
    
    (43,303
    )
    
    
    (118,085
    )
    
    
    (26,477
    )Provision for income taxes
    
    
    (16,625
    )
    
    
    (13,172
    )
    
    
    (56,128
    )Minority interests
    
    
    1,339
    
    
    
    1,010
    
    
    
    1,136Net loss
    
    
    (58,589
    )
    
    
    (130,247
    )
    
    
    (81,469
    )
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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$491,473
and HK$561,946 and total assets were HK$3,615,451 and HK$3,405,155 at December
31, 2005 and 2006, respectively, and consolidated current liabilities were
HK$297,438 and HK$345,320 and total liabilities were HK$1,554,714 and
HK$1,426,446 at December 31, 2005 and 2006, respectively.(f)
    
    Consolidated statements of cash flowThe Group applies Hong Kong Accounting Standards No. 7 Cash Flow Statements (HKAS
7). 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 HKAS 7. 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 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Net cash from operating activities:Amount under HK GAAP
    
    
    233,378
    
    
    
    149,528
    
    
    
    214,901US GAAP adjustment - interest received
    
    
    6,810
    
    
    
    13,404
    
    
    
    16,896- interest paid
    
    
    (15,847
    )
    
    
    (32,582
    )
    
    
    (63,514
    )Amount under US GAAP
    
    
    224,341
    
    
    
    130,350
    
    
    
    168,283Net cash used in investing activities:Amount under HK GAAP
    
    
    (364,492
    )
    
    
    (617,468
    )
    
    
    52,687US GAAP adjustment  interest received
    
    
    (6,810
    )
    
    
    (13,404
    )
    
    
    (16,896
    )Amount under US GAAP
    
    
    (371,302
    )
    
    
    (630,872
    )
    
    
    35,791Net cash from financing activities:Amount under HK GAAP
    
    
    257,933
    
    
    
    118,933
    
    
    
    (254,740
    )US GAAP adjustment  interest paid
    
    
    15,847
    
    
    
    32,582
    
    
    
    63,514Amount under US GAAP
    
    
    273,780
    
    
    
    151,515
    
    
    
    (191,226
    )
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING PRINCPLES (US GAAP) AND ADDITIONAL DISCLOSURES REQUIRED UNDER US GAAP (continued)
 (g)
    
    Income taxesA reconciliation of the expected income tax 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 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Loss before tax and minority interests
    
    
    (43,303
    )
    
    
    (118,085
    )
    
    
    (26,477
    )Notional tax on loss before tax, calculated
at the rates applicable to losses in the
countries concerned
    
    
    (8,072
    )
    
    
    (21,066
    )
    
    
    (5,058
    )Overseas withholding tax
    
    
    17,000
    
    
    
    18,856
    
    
    
    19,122Tax effect of non-deductible expenses
    
    
    40,497
    
    
    
    26,183
    
    
    
    3,315Tax effect of non-taxable revenue
    
    
    (27,852
    )
    
    
    (13,552
    )
    
    
    (3,834
    )Tax effect of unused tax losses not recognized
    
    
    2,656
    
    
    
    2,808
    
    
    
    1,767Tax effect of prior years unrecognized tax
losses utilized this year
    
    
    (7,604
    )
    
    
    (57
    )
    
    
    (2,008
    )Others
    
    
    
    
    
    
    
    
    
    
    42,824Actual tax expenses
    
    
    16,625
    
    
    
    13,172
    
    
    
    56,128
 All but an insignificant amount of loss was generated from Hong Kong sources.Non-deductible expenses include tax losses incurred by several subsidiaries that
are not allowed to be carried forward to offset future taxable income.Others represents the net deferred tax expenses recognised in connection with the tax
settlement (see note 19(a)).As at December 31, 2006, the Group had net operating loss carryforwards of
approximately HK$2,807,121, which can be carried forward indefinitely.The income taxes expense/(benefit) under US GAAP is presented below:
 Years ended December 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Current
    
    
    17,000
    
    
    
    18,856
    
    
    
    (2,649
    )Deferred
    
    
    (375
    )
    
    
    (5,684
    )
    
    
    58,77716,625
    
    
    
    13,172
    
    
    
    56,128
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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 31,2005
    
    2006HK$
    
    HK$Deferred tax assets:Tax losses
    
    
    388,328
    
    
    
    492,713Property, plant and equipment
    
    
    4,378
    
    
    
    4,679Trade and other receivables
    
    
    2,705
    
    
    
    3,235Others
    
    
    693
    
    
    
    505Total deferred tax assets
    
    
    396,104
    
    
    
    501,132Valuation allowance
    
    
    (16,073
    )
    
    
    (16,862
    )Net deferred tax assets
    
    
    380,031
    
    
    
    484,270Deferred tax liabilities:Deferred lease income
    
    
    
    
    
    
    (166,063
    )Property, plant and equipment
    
    
    (376,422
    )
    
    
    (373,375
    )Net deferred tax (liabilities)/assets
    
    
    3,609
    
    
    
    (55,168
    )
 At January 1, 2004, the valuation allowance was HK$16,910. During 2004, 2005 and
2006, the valuation allowance decreased by HK$3,822, increased by HK$2,985 and
increased by HK$789, respectively.The valuation allowance relates to tax losses and other deductible temporary
differences which management considers it is more likely than not that these deferred
tax assets will not be realized.In accordance with HK GAAP, deferred tax assets and liabilities are classified as
non-current items. Under US GAAP, deferred tax assets and liabilities would be
classified as current or non-current based on the classification of the related asset
or liability, and the valuation allowance is allocated on a pro rata basis for the
relevant jurisdiction. At December 31, 2006 and 2005, deferred tax assets and
liabilities for U.S. GAAP were as follows:
 December 31,2005
    
    2006HK$
    
    HK$Net current deferred tax assets recognized in the
consolidated balance sheet
    
    
    5,586
    
    
    
    9,864Net non-current deferred tax liabilities recognized in the
consolidated balance sheet
    
    
    (1,977
    )
    
    
    (65,032
    )3,609
    
    
    
    (55,168
    )
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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)
    
    The Groups tangible long-lived assets are located in the following
countries as of December 31, 2004, 2005 and 2006:
 December 31,2004
    
    2005
    
    2006HK$
    
    HK$
    
    HK$Hong Kong
    
    
    158,205
    
    
    
    151,957
    
    
    
    136,261PRC
    
    
    20,373
    
    
    
    18,526
    
    
    
    16,027Unallocated (note)
    
    
    2,504,092
    
    
    
    2,831,259
    
    
    
    2,571,7902,682,670
    
    
    
    3,001,742
    
    
    
    2,724,078
 Note: represents the satellites which are used for transmission to
multiple countries but not located at a specific country.
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##### Table of Contents



APT SATELLITE HOLDINGS LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 28.
    
    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)
    
    Recent US accounting pronouncementsStatement of Financial Accounting Standards (SFAS)No. 157In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that require
or permit fair value measurements, the FASB having previously concluded in those
accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements. However,
for some entities, the application of this Statement will change current practice. This
Statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Group is in the process of evaluating the potential impact of this
standard.SFAS No. 159In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities, which permits entities to choose
to measure many financial instruments and certain other items at fair value.
SFAS No. 159 will be effective as of the beginning of an entitys first fiscal
year that begins after November 15, 2007. The Group is in the process of
determing whether it will elect the fair value option allowed by the statement.FASB Interpretation No. 48 (FIN 48)In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan
Interpretation of FASB Statements No. 109, which clarifies the accounting for
uncertainty in tax positions. This interpretation requires that the entities recognize in
the financial statements the impact of a tax position, if that position is more likely
than not of being sustained upon examination, based on the technical merits of the
position. FIN 48 will be effective for the fiscal years beginning after December 15,
2006. Management does not expect the adoption of this interpretation to have a material
effect on the Companys consolidated results of operations and financial position.Staff Accounting Bulletin No. 108 (SAB 108)In September 2006, the SEC issued SAB 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB
108). SAB 108 provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of a materiality
assessment. SAB 108 establishes an approach that requires quantification of financial
statement errors based on the effects of each on a companys balance sheet and statement
of operations and the related financial statement disclosures. The Company adopted SAB
108 for the year ended December 31, 2006, which did not have any impact on the Companys
consolidated financial position or results of operations.
 F- 66