<PAGE> 1
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B)
OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-14564
APT SATELLITE HOLDINGS LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA
(Jurisdiction of incorporation or organization)
ROOM 3111-3112, 31/F, ONE PACIFIC PLACE, 88 QUEENSWAY, HONG KONG K3
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each Name of each exchange
class on which registered
American Depositary Shares New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of
the Act.
None
(Title of Class)
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
420,000,000 Ordinary Shares, of
which 80,648,800 Ordinary Shares are
held as American Depositary Shares
with a ratio of eight Ordinary
Shares per American Depositary Share
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicated by check mark which financial statement item the registrant
has elected to follow.
Item 17 Item 18 X
-------- --------
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Indicated by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
-------- --------
<PAGE> 3
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
APT Satellite Holdings Limited (the "Company" or "APT Holdings") is a
Bermuda company incorporated on October 17, 1996. APT Satellite Company Limited
(including its subsidiaries, "APT") is a Hong Kong company and a wholly-owned
indirect subsidiary of the Company. References herein to the "Company" include
APT and its subsidiaries, except where the context otherwise requires.
The Company, through its subsidiary, APT, is a leading provider of high
quality satellite services throughout the PRC and elsewhere in the Asia-Pacific
region. The Company's customers include many prominent international
broadcasters (including Discovery, Disney, ESPN, HBO, Sony Pictures
Entertainment, TCI, Turner and Viacom), as well as prominent PRC, Taiwan and
Hong Kong broadcasters (including CCTV, China Entertainment, Koting, One Leader
and Po Hsin). The Company's strategy is to serve as a preferred operator for
these and other international and PRC, Taiwanese and Hong Kong broadcasters. The
Company also provides telecommunications services to, among others, the Ministry
of Posts and Telecommunications of the PRC ("MPT") and United Communication
Corporation ("Unicom"), the only two PSTN operators currently operating in the
PRC. In addition to its current services, the Company's strategy includes
pursuing high growth opportunities, such as providing DBS services in the PRC
and southeast Asia.
APT's first satellite, APSTAR I, was launched in July 1994 and, since
February 1995, effectively all of its available transponder capacity has been
leased. In July 1996, APT's second satellite, APSTAR IA, was launched. APSTAR IA
commenced commercial service on September 1, 1996 and, as of December 31, 1996,
approximately 67.3% of its transponder capacity was leased. The Company plans to
launch a third satellite, APSTAR IIR, in mid-1997 in response to the strong
demand which the Company believes exists for high quality, high power
transponder capacity in the Asia-Pacific region. As of December 31, 1996 the
Company had signed or had commitments for long-term leases with prominent
international broadcasters for seven transponders on APSTAR IIR. The Company
expects that APSTAR IIR will provide increased coverage and a substantial gain
in power, compared to APSTAR I and APSTAR IA. Together, APSTAR I, APSTAR IA and
APSTAR IIR will constitute an integrated satellite system, the APSTAR System.
While the APSTAR System is principally focused on serving the PRC market and
other parts of the Asia-Pacific region, after the launch of APSTAR IIR it will
cover more than 100 countries from Japan to South Africa and from Germany to
Australia, encompassing over four billion people, or approximately 75% of the
world's population.
In order to take advantage of the demand in the PRC for varied
television programming with superior picture and sound quality, the Company is
in discussions with the Ministry of Radio, Film and Television of the PRC
("MRFT") regarding the DBS Project. The Company expects that, subject to receipt
of the necessary governmental approvals, the DBS Project will include one
in-orbit satellite, APSTAR IIID, and a ground spare satellite, APSTAR IVD. In
addition, the Company plans to launch another satellite, APSTAR V, by the end of
2000, to satisfy demand in both Asia and Europe for transponder capacity and to
further expand the APSTAR System as APSTAR I approaches the end of its expected
operational life.
As of December 31, 1996, the Company had signed or had commitments
(excluding reservations) for long-term leases with 25 different customers for
46.3 transponders on the APSTAR System, currently providing for future aggregate
rental payments to the Company of approximately US$447.6 million during the
period ending 10 years after the date APSTAR IIR commences commercial
operations. Three of the Principal Shareholders or their affiliates had entered
into agreements for 15 transponders. The Company has focused its marketing
efforts on developing a customer base of international and PRC broadcasters and
telecommunications providers. The Company has established close relationships
with its existing customers and believes that it is well-positioned to continue
to lease capacity on future satellites to its existing customers as well as to
expand its customer base to include other prominent broadcasting and
telecommunications customers. In this regard, APT acts as the overseas agent for
CITV, and in this capacity assists CITV by introducing international programmers
who wish to access the PRC market.
The Company's broadcasting customers generated approximately 86.6%,
78.0% and 76.9% of the Company's total revenues for the years ended December 31,
1994, 1995 and 1996, respectively, with the remaining
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revenues in those periods having been derived from its telecommunications
customers. In the years ended December 31, 1994, 1995 and 1996, approximately
18.9%, 28.4% and 40.2% respectively, of the Company's revenues were derived from
customers in the PRC.
STRATEGY
The Company's strategy for achieving its objective of serving as a
preferred provider of satellite capacity for international and PRC broadcasters
is to:
FOCUS ON THE PRC AND THE ASIA-PACIFIC REGION
The Company believes that the potential market for satellite
communications services in the PRC and the Asia-Pacific region is substantial.
Through its broad coverage areas and quality customer service, the Company has
obtained a strong competitive position with broadcasters and telecommunications
providers serving the PRC. The Company's strategy is to focus on the
Asia-Pacific region with particular emphasis on the PRC, in order to serve this
fast-growing market with high quality transponder capacity for broadcasting and
telecommunications customers.
LEVERAGE SHAREHOLDER RELATIONSHIPS TO PROVIDE CUSTOMERS WITH ACCESS TO
THE PRC MARKET
The Company's Principal Shareholders include four entities affiliated
with PRC governmental organizations. The relationships established by the
Company with these Principal Shareholders provide the Company with unique
opportunities to generate PRC broadcasting and telecommunications customers.
Additionally, the Company is the overseas agent appointed by CITV to introduce
international programmers who wish to deliver scrambled programming signals into
the PRC. This arrangement is expected to provide APT with a significant
competitive advantage in providing access for a diverse group of international
broadcasting customers to the rapidly expanding demand for programming in the
PRC.
BUILD ON ITS INTERNATIONAL BROADCASTING CUSTOMER BASE
The Company has developed a customer base that includes some of the
world's most prominent broadcasters, such as Discovery, Disney, ESPN, HBO, Sony
Pictures Entertainment, TCI, Turner and Viacom, as well as major broadcasters in
the PRC (including CCTV). APSTAR I was one of the earliest satellites to offer
international broadcasters access to the PRC market. The Company intends to
build on its relationships with these customers and to offer them transponder
capacity on APSTAR IIR, a technologically more advanced satellite with greater
coverage, which would increase the attractiveness of the satellite to other
broadcasters who generally prefer satellites with an established viewership.
Several leading international broadcasters have already signed long-term leases
on APSTAR IIR, including ESPN, HBO, TCI, Turner and ATV International
Filmverlags AG ("ATV") of Austria.
CAPITALIZE ON REGIONAL GROWTH IN TELECOMMUNICATIONS INVESTMENT
The Company believes that businesses and government organizations in the
Asia-Pacific region will depend for the foreseeable future, substantially on
wireless communications, including satellites, to serve their communications
needs because of the expense and lead time associated with the development of
land-based systems. The Company intends to offer cost-effective, high quality
transponder coverage for the growth of private voice and data networks in Asia.
EXPAND INTO OTHER HIGH GROWTH SERVICES, INCLUDING DBS
The Company intends to target opportunities to expand into other high
growth services. These services are expected to include providing DBS services
to the PRC. The Company has conducted a preliminary feasibility study and is
currently in discussions with the MRFT to provide DBS services. The Company also
intends to continue to explore opportunities in other high growth markets,
including private networks, while focusing on its core business of leasing
transponder capacity.
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UTILIZE ITS SUPERIOR SATELLITE SYSTEM AND COVERAGE AREAS TO PROVIDE
HIGH QUALITY SERVICES TO ITS CUSTOMERS
While the focus of the APSTAR System will be on the PRC market, after
the launch of APSTAR IIR it will be capable of providing coverage to over 100
countries, encompassing over four billion people, or approximately 75% of the
world's population. A successful launch of APSTAR IIR would give the Company the
ability to serve European as well as Asia-Pacific markets. This coverage would
be further augmented by a successful launch of an additional APSTAR System
satellite by the end of 2000 to satisfy demand in both Asia and Europe for
transponder capacity.
The APSTAR System was designed to be a state-of-the-art, integrated
system, giving optimal coverage of its target market and provide the necessary
backup and redundant transponder capacity to safeguard operations. APSTAR IIR
and the Company's other future satellites are, and will be, designed to provide
high transmission power, a characteristic which will enable APT's broadcasting
and telecommunications customers to employ cost-effective networks using small,
relatively low-cost antennae on the ground. The Company's satellite control
center, operated by its own highly trained personnel, allows the Company to be
responsive to the needs of its customers.
INDUSTRY AND MARKET OVERVIEW
SATELLITES
The global communications market for video, data and voice transmissions
is served primarily through terrestrial and submarine optical fiber and coaxial
cable, microwave systems and satellites.
Optical fiber and coaxial cables are well suited for relaying large
amounts of bulk traffic, such as long-distance telephone calls between major
geographic locations, for example, from New York to London. Bulk traffic
transmitted by cable is then passed on, usually by cable, to its final
destination. Ground-based microwave systems disseminate signals in the form of
radio waves from an antenna on top of a building or a transmission tower.
Microwave systems are well suited for use by local television stations and
cellular telephone systems because the reach of the transmission signal
typically is limited to one discrete area. Microwave systems are not suitable
for long distance communication or broadcasting, however, since transmission
over long distances requires the construction of a number of microwave relay
stations to relay a signal, and repeated transmission can distort a signal.
Satellite systems require only two stations to cover long distances, one uplink
station and one downlink station. Most importantly, satellites can provide point
to multipoint transmissions while simultaneously transmitting signals over the
entire region covered within the satellite's footprint.
Satellite systems can operate in three types of orbits -- low-earth
orbit ("LEO"), mid-earth orbit ("MEO") and geostationary orbit ("GEO"). LEO and
MEO systems operate in orbits at distances of up to 1,500 miles and 18,000 miles
from earth, respectively. Satellites in these systems are not geostationary,
that is, they do not constantly overlook the same area on earth. The inability
to cover the same area on earth continuously makes these systems impractical for
broadcasting and traditional telecommunications usage. In general, LEO and MEO
systems are comprised of a series of satellites that are used commercially
primarily for mobile satellite services. By contrast, GEO satellites, such as
APSTAR I and APSTAR IA, are located in orbit approximately 22,300 miles above
earth and can blanket large geographic areas with signal coverage.
GEO satellites can be accessed through an uplink station virtually
anywhere within the satellite's footprint. With broad coverage capability, GEO
satellites have commonly been used for (i) television broadcasting, principally
to cable operators for redistribution and also to households equipped with
direct reception antennae as well as for supplementary terrestrial transmission
networks in remote areas, (ii) international and domestic trunk telephony
complementing optical fiber and coaxial cable and microwave backbone networks
and (iii) business services, principally for voice, data and video transmissions
to private networks such as VSAT networks and program exchanges between
television broadcasters, including satellite news gathering.
Communications satellites typically are evaluated on (i) their coverage
area, (ii) the quality of the signal transmitted to the coverage area and (iii)
the availability of the transponders. Footprint is a measurement of the breadth
of a satellite's coverage. A key measurement of signal quality is the intensity
of transmission power in the
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coverage area. Higher power signal enables a customer to use smaller, lower-cost
antennae on the ground. Availability is determined by considering a satellite's
operational "lifetime" as well as the number of transponders capable of
providing service. The Company considers all three factors in determining
whether a particular satellite is appropriate for its needs.
Commercial telecommunications and broadcast satellites typically
transmit signals using either C-band or Ku-band. C-band is used worldwide for
satellite communications to transmit signals with minimum interference from
atmospheric conditions. C-band frequencies are also used by ground-based
microwave systems. In certain parts of the world, C-band satellite transmission
antennae must be located far from centers of population to avoid interference
with ground-based systems. Since there are fewer Ku-band systems in existence
than C-band systems, more powerful Ku-band transponders can be used in urban
areas without similar interference concerns. Because of higher available
transmission power, Ku-band frequencies can be used in conjunction with antennae
that are smaller than antennae that are used in conjunction with C-band
frequencies. Ku-band is generally used for the same purposes as C-band as well
as for satellite news-gathering (transportable antennae) and in some VSAT
applications. The combination of high power transmitters and small antennae also
makes Ku-band suitable for direct-to-home television.
Direct-to-home television did not become commercially viable until
recently because available satellite technology did not have the power to
transmit to small receivers and digital compression technology had not been
adequately developed. Today, DBS provides an efficient point-to-multipoint
delivery of video and audio transmissions. The advent of high-powered satellites
allows for dishes as small as 18 inches and digital compression technology
permits the broadcast of up to 10 channels of programming per transponder. In
the United States, Europe and Japan, DBS operators have had success in
penetrating their respective markets. For instance, over 3.5 million households
have subscribed to DBS services in the United States.
Satellite operators such as APT provide satellite transponder capacity.
Some other satellite operators also provide the services necessary to establish
a satellite communications network. For television programming distribution,
these services may consist of arranging satellite capacity and providing
teleport transmission facilities and other value-added services. Services for
other broadcasting applications, such as live news and sports reporting, may
include the arrangement of satellite capacity, the provision of trucks equipped
for live news and sports broadcasts, transmission scheduling and signal
monitoring. Services for business communications networks are generally more
extensive and may include arranging satellite capacity, procurement and
installation of on-site antennae and network design, integration, management,
operation and maintenance. Satellite operators either provide these services or
provide satellite capacity to other companies which provide these services. The
Company has chosen to focus on the provision of satellite transponder capacity,
through the establishment of the APSTAR System, in order to maximize the
efficient use of its resources so as to provide the highest quality service.
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BROADCASTING AND TELECOMMUNICATIONS MARKETS IN ASIA
The table below sets forth 1994 data relating to the population, gross
domestic product ("GDP") growth rate, the teledensity (main telephone lines per
100 inhabitants) and number of television households in selected countries or
territories in the Asia-Pacific region which are currently under the footprint
of the APSTAR System and, for purposes of comparison, in the United States.
<TABLE>
<CAPTION>
Main telephone Households wth
Population 1993-1994 GDP lines per 100 televisions
(in milions) Growth Rate inhabitants (in thousands)
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Hong Kong...................... 5.83 5.4 53.99 1,650
India.......................... 913.60 6.3 1.07 45,680
Indonesia...................... 189.91 7.5 1.33 25,500
Japan.......................... 124.78 0.5 47.98 34,701
Malaysia....................... 19.50 9.2 14.69 2,885
Pakistan....................... 126.28 3.8 1.62 1,975
Phillippines................... 66.19 4.4 1.68 7,500
PRC............................ 1,190.92 11.8 2.29 220,000
Singapore...................... 2.82 10.1 47.26 654
South Korea.................... 44.45 8.4 39.70 12,000
Sri Lanka...................... 18.13 5.6 1.00 1,000
Taiwan......................... 21.26 6.5 40.00 5,515
Thailand....................... 58.72 8.7 4.69 12,710
Vietnam........................ 72.93 8.8 0.61 6,000
United States.................. 260.53 3.5 60.17 95,361
</TABLE>
Source: World Telecommunication Development Report 1995, ITU, October 1995; Asia
Development Bank Annual Report, 1995; World Economic Outlook, International
Monetary Fund.
Since 1979, when the PRC began implementing an economic reform program,
the PRC has experienced significant economic growth. Living standards have
improved, corresponding with the growth in the economy. In 1995, the average
annual per capita income for urban households in the PRC was RMB3,893
(approximately US$460), compared with RMB3,179 (approximately US$370) in 1994.
With rising affluence, the Company believes that PRC consumers will be able to
afford an increasing variety of television programming and telecommunications
services that can be provided through satellite-based systems.
The Asia-Pacific region has experienced rapid growth in recent years and
the Company believes that the Asian satellite communications market is expanding
as a result of this general economic growth and the following factors: (i)
increased distribution of television programming, (ii) liberalization of the
television and telecommunication industries, (iii) continuing technological
advancements, (iv) increased spending on telecommunication projects and (v)
growth of information services markets.
INCREASED DISTRIBUTION OF TELEVISION PROGRAMMING
The television market in Asia is experiencing significant growth, both
in terms of the number of broadcasters creating programming and the number of
channels available to viewers. In particular, the number of
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television broadcast networks has grown substantially since 1991. Discovery,
Disney, ESPN, HBO, TCI (Encore), Turner (CNN International) and Viacom (MTV) as
well as other major US programmers are seeking to provide entertainment in Asia.
Satellites are ideally suited for broadcasting to international, regional and
national audiences and for delivering television programming to cable operators
or microwave transmission stations for local redistribution.
The television market in Asia is not uniform, and among the nations of
Asia there are numerous regional differences in language, culture and ideology
as well as in income levels and income distribution. Programmers who wish to
take full advantage of the entire Asian television market must tailor their
programming to be responsive to these regional differences. Access to satellite
transponder capacity from satellite operators provides opportunities to
television broadcasters to tailor programming for particular audiences. The
Company believes that this will stimulate demand for transponder capacity on its
satellites.
LIBERALIZATION OF THE TELEVISION AND TELECOMMUNICATIONS INDUSTRIES
Liberalization of the television industry in a number of countries in
Asia has increased the portion of programming on satellites that is broadcast by
private television networks and programmers which complement or compete with
state-owned or state-sponsored broadcasters. For example, in Taiwan,
liberalization of the television industry has led to a large increase of
available channels, from three in the early 1990s to approximately 50 today.
Many countries in Asia (such as Thailand and Indonesia) are liberalizing
their telecommunications markets in order to permit private service providers,
in addition to the traditional state-sponsored telephone monopolies, to provide
facilities and services. The PRC has also begun to liberalize its
telecommunications markets by permitting a second company, Unicom, to offer PSTN
service. New telecommunications service providers stimulate demand for satellite
capacity such as that offered by the Company.
CONTINUING TECHNOLOGICAL ADVANCEMENTS
The Company believes that technological advances will increase
information carrying capacity and reduce transmission and equipment costs which
may, in turn, stimulate demand for satellite communications services. Such
advances include the following:
High-powered Satellites. The latest generation of satellites, such as
APSTAR IIR, generally has more power than satellites launched in the 1980s.
These new satellites can deliver improved quality signals to antennae that are
generally smaller and less expensive (and are therefore more convenient for
private and commercial use) and can cover a larger area than those used with
earlier-generation satellites. The increasing use of these small, less expensive
antennae is expanding the markets for public and private communications networks
and video distribution services.
Digital Communications. Analog telephone systems carry relatively low
volumes of information. Globally, telephone companies are rebuilding their
infrastructure to carry high-speed digital communications, which permit new and
enhanced business communications and consumer services. Examples include video
phones, video conferencing, video-on-demand, wide-area networks, telecommuting
and interactive TV. Many of these services use satellite transponder capacity
within their transmission circuits and, because of their high transmission
rates, will require significant transponder capacity. Furthermore, developments
in digital technology for VSATs, which reduce terminal size and increase
transmission throughput, are encouraging the development of new, cost-effective
business and rural communications applications.
Compressed Digital Video. Digital video compression technology is
designed to compress multiple high-quality video channels into the same
transponder capacity that previously carried one analog channel. This technology
facilitates a significant increase in the number of available video channels
with improved transmission quality and allows satellite operators to provide
satellite transmission services using less bandwidth. Digital video compression
technology is expected to lower the costs of delivering programming via
satellite and cable television systems, thereby permitting more programming
options to be provided to niche markets. Digital video compression technology
may also permit broadcasters, by lowering per channel costs, to offer local
broadcasting platforms including programming designed for particular national
audiences and particular cultures and languages. The
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Company believes that digital video compression technology may facilitate the
efforts of broadcasters to distribute their programming regionally to multiple
audiences.
Digital video compression technology may also in the future facilitate
the introduction of HDTV Digital video compression technology is expected to
permit HDTV signal with superior picture quality, which in analog form typically
consumes large amounts of bandwidth, to use an amount of bandwidth comparable to
that used by a current analog channel with a far inferior image.
INCREASED SPENDING ON TELECOMMUNICATIONS PROJECTS
Many countries in Asia lack basic telephone services as well as the
sophisticated optical fiber and digital switching infrastructure required for
large bandwidth, high speed data applications for businesses. The governments of
many of the developing countries in Asia have recognized the effect of shortages
of telecommunications services in their countries and are responding by setting
goals aimed at significantly increasing teledensity (measured in main telephone
lines per 100 inhabitants) in their countries. For example, national
telecommunication development plans for the PRC call for capacity of 100 million
PSTN lines by the year 2000, increasing teledensity to 8.0 lines per 100
inhabitants from approximately 2.3 lines per 100 inhabitants in 1994. National
telecommunication development plans for India call for capacity of 30 million
PSTN lines by the year 2000, increasing teledensity to approximately 2.3 lines
per 100 inhabitants from approximately 1.1 lines per 100 inhabitants in 1994. In
other countries in Asia, such as Indonesia, Thailand, Vietnam and the
Philippines, large scale telecommunications projects are being undertaken. The
Company believes that government organizations in such countries and other less
developed regions in Asia will depend significantly on wireless communications,
including satellites, to serve their communications needs because the
development of land-based infrastructure is more costly and time-consuming.
GROWTH OF INFORMATION SERVICES MARKETS
The Company believes that the market in Asia for information services
has the potential to grow, both in terms of the numbers of providers and users
of such services and the types of services available. Satellite distribution is
ideally suited for the provision of information services supplied by global
service providers.
CUSTOMERS AND SERVICES
For the years ended December 31, 1994, 1995 and 1996, the Company's
transponder leasing revenues were derived from the following businesses:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Broadcasting........................ 86.6% 78.0% 76.9%
Telecommunications.................. 13.4% 22.0% 23.1%
</TABLE>
Revenues from the Company's five largest customers for the years ended
December 31, 1994, 1995 and 1996 were HK$37.6 million, HK$157.3 million and
HK$192.1 million (US$24.8 million), respectively, which represented 54.4%, 55.2%
and 52.2%, respectively, of total revenues. Revenues from the Company's largest
customer, ChinaSat, represented 18.9%, 28.4% and 26.6%, respectively, of total
revenues during such periods.
Since February 1995, transponder capacity on APSTAR I has been
effectively fully leased. Of the 24 available transponders, 23.1 transponders
were leased to 19 separate customers. As of December 31, 1996, of the 24
available transponders on APSTAR IA, 16.2 were leased to seven separate
customers. As of December 31, 1996, 10 of the 28 C-band transponders on APSTAR
IIR had been committed (including three transponders which were committed by the
Company under options exercisable at the discretion of the relevant customers).
The Company does not have any exclusivity arrangements with any customer.
BROADCASTING
Local, national and international broadcasters use satellite transponder
capacity for (i) television programming distribution, (ii) contribution or
"backhaul" operations (the transmission of video feeds from one
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location to another) and (iii) ad hoc or "spot" services such as the
transmission of special events and live news reports from the scene of the
event. At present, most of APT's broadcasting customers lease transponder
capacity for distributing programming to television stations, local cable
operators and master antenna systems.
Television Programming Distribution. The Company's strategy is to
position the APSTAR System as a preferred provider of satellite capacity
covering the PRC and the Asia-Pacific region. This strategy has been implemented
by targeting both international and domestic broadcasters as customers for
services on APSTAR I, APSTAR IA and APSTAR IIR.
Local cable television operators and over-the-air local broadcasters
install and position their downlink antennae to receive programming from
programmers using a satellite in the APSTAR System. Once such antennae have been
installed and positioned to receive signals from a particular programming
provider on the relevant APSTAR System satellite, cable operators and local
broadcasters can receive programming using the same antenna from other providers
using such satellite. As a result, new programmers may seek to lease transponder
capacity on a satellite with an established audience rather than leasing
transponder capacity on a satellite with a less-established audience.
For domestic Asian broadcasters, the APSTAR System offers the ability to
create national networks where, due to difficult terrain and the high costs of
building the required infrastructure, none was possible before. For example, the
MRFT uses capacity on APSTAR IA to distribute a variety of CCTV channels, its
national television network, to audiences throughout the PRC, including remote
areas.
The APSTAR System also offers a number of other benefits for domestic
broadcasters. By using one of the satellites in the APSTAR System, domestic
broadcasters may, for example, purchase certain segments of an international
programmer's feed (e.g., a sports event from ESPN or a news show from CNN) using
the same satellite for broadcast as part of their own programming, without
incurring the cost of adding a separate earth station to receive the
international programmer's segments. In addition, domestic broadcasters can sell
their own programming (e.g., a local sports event) regionally or internationally
because the APSTAR System allows them to use the same transmission antennae to
relay their programming internationally as well as domestically to others using
the same satellite. Local cable and television station operators also benefit
from using the APSTAR System for television programming distribution because
they need only one earth station pointed at an APSTAR satellite to receive
programming from both domestic and regional broadcasters using the same
satellite.
The following chart lists APT's broadcasting customers and the nature of
their programming:
<TABLE>
<CAPTION>
CUSTOMER PROGRAMMING
<S> <C>
China Educational Television(1) Educational television in the PRC (CETV)
China Entertainment Television Broadcast General entertainment in Mandarin
Ltd. ("China Entertainment")
Discovery Communications, Inc. Documentaries and educational
("Discovery") entertainment
Walt Disney Television International--Asia Animated classics, original series,
Pacific ("Disney") entertainment specials and movies (The
Disney Channel)
ESPN Asia Ltd. ("ESPN") Sports programming
HBO Pacific Partners, C.V. ("HBO") Movies and special events
Koting International Ltd. ("Koting") General entertainment in Taiwan
MRFT(2) National and provincial television in
the PRC, including CCTV-I and CCTV-2
One Leader Communication Inc. ("One Financial news, general entertainment in
Leader") Taiwan
Po Hsin Multimedia, Inc. ("Po Hsin") News, general entertainment in Taiwan
Reuters Asia Limited ("Reuters") News and data distribution and backhaul
</TABLE>
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<TABLE>
<CAPTION>
CUSTOMER PROGRAMMING
<S> <C>
Sony Pictures Entertainment (SPE Asia General entertainment
Ltd.) ("Sony Pictures Entertainment")
Telesat--Satellite Communications Ltd. News, general entertainment in Macau
("Telesat")(3)
Transpacific Broadcast Group Sports programming
International, Inc. ("Transpacific")
Turner Broadcasting System, Inc. ("Turner") News (CNN International), cartoons (The
Cartoon Network)
Viacom International Inc. ("Viacom") Music videos and entertainment (MTV)
Western Tele-Communications, Inc. ("TCI") General entertainment (Encore)
</TABLE>
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(1) Capacity is leased by ChinaSat.
(2) Capacity is leased by China Broadcast Film Television Satellite Co.,
Ltd., a wholly-owned subsidiary of MRFT.
(3) Capacity is leased by an affiliate of CLTC.
Backhaul Services. Broadcasters can use satellite capacity for
"backhaul" operations, such as transporting programming from a broadcaster's
foreign news bureau to its broadcast center for simultaneous or later
transmission. Reuters utilizes a transponder on APSTAR I for backhaul
operations, among other applications.
Ad Hoc Services. Broadcasters can also use satellites to transmit
coverage of live scheduled special events to programmers on a short-term ad hoc
basis as well as to relay live news coverage, short duration video feeds and
syndicated programming for broadcasters on a scheduled or ad hoc basis. At
present, none of the APSTAR System's transponder capacity is leased by customers
for the provision of ad hoc services.
TELECOMMUNICATIONS
The Company's telecommunications services include the provision of
transponder capacity for private communications networks for data and voice
communications and the provision of PSTN carrier services to telephone companies
and other communications service providers in Asia.
Private Networks. Many businesses and organizations utilize satellites
rather than ground-based transmission media for a variety of reasons, including
(i) cost savings for large, geographically dispersed networks, (ii) independence
from telephone companies, (iii) predictability of costs over a long period, (iv)
flexibility in changing and adding remote locations to a network, (v) integrated
network management and control of remote locations and (vi) increased network
availability and lower transmission error rates.
For example, retail chains use satellite business communications
networks for rapid credit card authorization and inventory control. Banks use
satellite networks to connect automatic teller machines to processing computers.
News agencies use satellite networks to distribute information to numerous
locations and paging operators use satellite networks to distribute paging
information from a central switch to multiple remote transmitters for
retransmission to pagers. The Company believes that there will continue to be
opportunities in Asia to market transponder capacity to certain end users which,
due to inadequate telecommunications infrastructure or high costs of local
public networks, desire to operate their own private networks for data and voice
transmission.
The Company offers satellite services for private business
communications networks, including VSAT networks. VSAT networks consist of small
rooftop antennae and are utilized by customers that need to send short bursts of
data over a network for relatively short periods of time. Through the use of
VSAT technology and sophisticated software, these networks can be served with a
relatively small amount of satellite capacity. Networks using VSATs have been
growing rapidly to meet the specialized data requirements of particular
industries.
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<PAGE> 12
The PRC represents one of the world's largest potential markets for
satellite communications. There are currently 58 private communications networks
in the PRC, as compared to two in 1989. The MPT uses APSTAR I to support many
network applications on behalf of other organizations, including the Shenzhen
Stock Exchange and Civil Aviation Telecommunication Corporation of the PRC.
Carrier services. A portion of the Company's revenues in the
telecommunications market is derived from the provision of satellite capacity to
domestic and regional communications carriers in Asia, including telephone
companies in the PRC that use the capacity as part of their communications
network on a national or international basis.
The MPT, through ChinaSat, currently leases transponders on APSTAR I and
APSTAR IA to provide carrier services in the PRC. In addition, Unicom leases one
transponder to provide carrier services in the PRC.
TRANSPONDER LEASE AGREEMENTS
The average initial terms of APT's transponder lease agreements in
effect as of October 31, 1996 for APSTAR I and APSTAR IA were approximately 6.2
and 5.6 years per transponder, respectively. The Company's typical transponder
lease agreement for APSTAR I and APSTAR IA has a term of five years, with a
service fee which increases during the agreement term according to an agreed
escalation schedule, and usually an option to renew after the first five-year
term. As of December 31, 1996, all of the transponder lease agreements for
APSTAR IIR have, and the remainder are expected to have, 10-year terms. All of
APT's transponder lease agreements require payment of all amounts due in United
States dollars. Generally, upon a fixed number of months' notice, a customer can
terminate its transponder lease agreement without cause. However, the customer
is obligated to pay to APT specified liquidated damages based on the terms of
the transponder lease agreement. In addition, the transponder lease agreements,
in general, provide for a specified reduction in the service fees if transponder
service is interrupted for reasons not caused by the customer or beyond the
control of APT (such as mechanical transponder failure). If such service
interruptions continue without correction (usually 30 days) and APT is unable to
provide a suitable alternative capacity after an agreed period thereafter, the
customer is entitled to terminate the transponder lease agreement, without
further obligation to APT. Under the terms of the transponder lease agreements,
APT is not liable for the lost profits or other indirect or consequential
damages of any customers.
APT has also entered into three transponder lease agreements under which
the customers have obtained the right to use transponder capacity for two
transponders on APSTAR I and one transponder on APSTAR IA for the life of the
transponders. The terms of such transponder lease agreements are substantially
the same as those found in the typical five-year transponder lease agreements,
except that payment for the entire period of use is to be completed by the end
of the second year of the term of the agreement and APT provides a limited
warranty for a period of 60 months commencing on the date the transponder is
made available for the customer's use.
Transponder lease agreements relating to APSTAR IIR signed by the
Company with its customers in advance of the launch of APSTAR IIR have generally
included provisions allowing the customer, upon notice, to terminate the
agreement if the launch of APSTAR IIR is later than an agreed date (typically
August 31, 1997) or commercial operations on APSTAR IIR have failed to commence
three months thereafter.
Customers that lease a large number of transponders may receive a
discount on the annual lease price or receive more favorable contract terms.
Certain of APT's transponder lease agreements contain "most favored customer"
provisions that would require APT to offer the lessee the most favorable terms
in subsequent transponder lease agreements with other customers under certain
circumstances. As a general practice, APT endeavors to commit as many of a
satellite's transponders as possible prior to the satellite's launch. Customers
who lease transponder capacity in advance of a satellite's launch generally
receive a lower price than customers who lease transponder capacity after a
launch and may receive priority for the use of spare or pre-emptible
transponders. See "--Operation of the APSTAR System."
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<PAGE> 13
DIRECT BROADCAST SATELLITES
DBS service allows for the transmission of television programming
directly to homes through the use by the consumer of relatively inexpensive
18-inch dishes. DBS services can provide more varied television programming with
picture and sound quality superior to that of current analog cable or
terrestrial television services. The Company has conducted a preliminary
feasibility study and is currently in discussions with the MRFT to provide DBS
services. APT expects that the DBS Project will include one in-orbit satellite,
APSTAR IIID, and a ground spare satellite, APSTAR IVD.
DBS services are not currently available in the PRC and the private
ownership of dishes is currently prohibited by the PRC government, although
certain hotels and other entities are permitted to operate dishes upon
application to the relevant authorities. Since television is a highly regulated
industry in the PRC, the provision of DBS services by the Company will require
various regulatory approvals. There can be no assurance that the approvals
necessary for the Company to provide DBS services in the PRC will be obtained.
AGENCY ARRANGEMENTS
The Company currently acts as the overseas agent for CITV, a company
affiliated with the MRFT. International programmers who wish to distribute
scrambled programming signals into the PRC can be introduced to CITV through the
Company. Although the Company does not derive, nor is it expected to derive, any
revenues in its capacity as agent for CITV, the Company believes that by serving
as the overseas agent, it is well-positioned to identify potential new customers
who wish to access the PRC market. The terms of the agreement governing the
Company's agency for CITV expires in December 1997. The Company expects that it
will be able to extend this relationship beyond that date. The Company's
agreement with CITV is non-exclusive.
SALES AND MARKETING
Marketing activities include customer visits, trade advertising and
presentations at industry conferences. APT's current sales and marketing efforts
are focused on obtaining customers for unused or underutilized transponder
capacity on APSTAR IA and developing its customer base for APSTAR IIR before its
expected launch in mid-1997. Although the typical terms of APT's transponder
lease agreements for APSTAR I and APSTAR IA are five years and for APSTAR IIR
are, and are expected to continue to be, 10 years, APT's sales and marketing
staff maintain regular contact with customers even after they have decided to
lease transponder capacity in order to ensure continuing customer satisfaction.
OPERATION OF THE APSTAR SYSTEM
The APSTAR System is an integrated satellite system that will ultimately
cover more than 100 countries from Japan to South Africa and from Germany to
Australia, encompassing over four billion people, or approximately 75% of the
world's population.
The APSTAR System is the product of an extensive strategic planning
process. This planning has been both internal to APT, such as the analysis and
evaluation of satellite make-up, platform choice and launch vehicle choice, and
also external, in the sense of designing the APSTAR System to meet the practical
and strategic needs of its customers.
The APSTAR System offers its customers the ability to relocate from one
satellite to another for strategic reasons of their own (e.g., from APSTAR IA to
APSTAR IIR). Compatibility of the satellites in the APSTAR System also permits
APT to move customers' programming from one transponder to another,
intra-satellite, or from one satellite to another, for technical reasons or to
ensure continuity of service in the event of any difficulties.
The APSTAR System is structured to provide flexibility for customers, a
benefit which the Company believes makes APT attractive to customers.
Inter-satellite back-up capacity is manifested by the pre-emptible transponders
located on APSTAR IA and to be included on APSTAR IIR. These transponders are
intended, in the ordinary course, to be leased to customers on a pre-emptible
basis (at reduced cost), under the understanding that the
-11-
<PAGE> 14
customers' use will be pre-empted if the transponder is needed by another
customer as a result of a technical problem.
Additional back-up capacity will also be available to APSTAR System
customers on an inter-satellite basis. Pre-emptible transponder capacity on
APSTAR IA and APSTAR IIR will enable customers on each satellite, and also on
APSTAR I, to be "re-routed" on an as-needed basis to another satellite. Similar
back-up capacity is available not only from satellite to satellite, but also
from use to use (e.g., APSTAR IIR's Ku-band transponders are capable of
providing contingent back-up capacity, in certain regions of the PRC, for DBS
customers on any future DBS satellite).
The Company's TT&C facility, which enables the Company to monitor the
status of its satellites and respond to the technical demands of its customers,
is an important part of the APSTAR System. See "--Satellite Control Center."
APSTAR SATELLITES
APSTAR I
APSTAR I, a Hughes HS-376 model, was launched in July 1994 by a Long
March 3 launch vehicle from Xichang. APSTAR I was placed into a geostationary
orbit at 138 degrees East and has a footprint that covers the PRC, Japan and
Southeast Asia, reaching as far south as Papua New Guinea and Indonesia. The
total cost for the construction and launch of APSTAR I, including launch
insurance, ground facilities, related expenses and capitalized interest, was
approximately US$132.4 million which was financed through a combination of
shareholders' loans and a syndicated term loan.
APSTAR I started commercial operations on September 15, 1994. It has an
expected service lifetime of at least 10 years. APSTAR I has not experienced any
anomalies that have affected its operation.
APSTAR I carries 24 C-band transponders, 20 of which have a bandwidth of
36MHz (suitable for television broadcasting and telecommunications purposes) and
four of which have a bandwidth of 72MHz (suitable for telecommunications
purposes). The transponders have a maximum EIRP value of 38.5dBW.
Since February 1995, APSTAR I has been effectively fully leased. Of the
24 available transponders, 23.1 (including leases of two partial transponders)
were leased to 19 separate customers. The Company's broadcasting customers on
APSTAR I include China Entertainment, ChinaSat, Discovery, Disney, ESPN, HBO,
Koting, One Leader, Po Hsin, Reuters, TCI, Turner and Viacom. The Company's
telecommunications customers include ChinaSat and Pacific Century Group (Hong
Kong) Limited.
APSTAR IA
APSTAR IA, also a Hughes HS-376 satellite, was launched in July 1996 on
a Long March 3 launch vehicle from Xichang into a geostationary orbit at 134
degrees East. The cost for the construction and launch of APSTAR IA, including
launch insurance, ground facilities, related expenses and capitalized interest,
was approximately US$127.8 million, which was financed through a combination of
shareholders' loans, a syndicated term loan and internally generated funds.
APSTAR IA started commercial operations on September 1, 1996. Like
APSTAR I, it has an expected service lifetime of at least 10 years. APSTAR IA
has not experienced any anomalies that had affected its operation.
The specifications of APSTAR IA are virtually identical to those of
APSTAR I, except that APSTAR IA provides enhanced coverage of India. As with
APSTAR I, APSTAR IA carries 24 C-band transponders with a maximum EIRP value of
39dBW.
As of December 31, 1996, of the 24 available transponders on APSTAR IA,
16.2 were leased to seven separate customers. The Company's broadcasting
customers on APSTAR IA include the MRFT (which has leased eight transponders),
Sony Pictures Entertainment, CLTC and Transpacific. The Company's
telecommunications
-12-
<PAGE> 15
customers include ChinaSat (which has leased four transponders on APSTAR IA in
addition to the eight on APSTAR I), China Zhonghua Communication Development
Corporation and an affiliate of Unicom.
APSTAR IIR
In June 1995, APT entered into an agreement for the construction of
APSTAR IIR, an SS/Loral FS-1300 satellite. The launch of APSTAR IIR is scheduled
for mid-1997. APSTAR IIR should commence commercial operation after a period of
in-orbit testing, typically lasting approximately one month. The total cost for
construction and launch of APSTAR IIR, including launch insurance, ground
facilities, related expenses and capitalized interest, is currently estimated to
be approximately US$216.5 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
APT has obtained a priority position in the ITU filing process for the
use of the orbital slot located at 77 degrees East and is in the process of
completing frequency coordination for this slot. The Company anticipates
completing the coordination process by the time of the launch of APSTAR IIR.
The C-band footprint of APSTAR IIR will stretch from Japan to South
Africa and from Germany to Australia with the addition of two Ku-band beams
focused on the PRC, Taiwan, Hong Kong and Macau. APSTAR IIR will provide
high-powered service to the growing market areas in the Asia-Pacific region.
APSTAR IIR has been designed to have multiple beam coverage and to be
equipped with 28 C-band transponders, having a maximum EIRP value of 39dBW, and
16 Ku-band transponders, having a maximum EIRP value of 56dBW. APSTAR IIR is
designed to have transponder power output of 60W for C-band and 110W for
Ku-band. The satellite is expected to have an operational life of 13.5 years.
The Ku-band EIRP value will be higher in the southeast region of the PRC in
order to account for rain fade, which may occur with greater likelihood in the
southeastern part of the PRC, and due to relatively greater population density
and economic development in the southeast region than in the northwest region of
the PRC. As a result, smaller antennae will be able to be used in these areas.
The APSTAR IIR Ku-band transponders will also be capable of transmitting
direct-to-home television in the southeast region of the PRC. As a result,
APSTAR IIR will be capable of providing contingent backup to any future DBS
satellite in certain regions of the PRC. See "--Future Satellites." Furthermore,
in advance of the launch of a DBS satellite, APT will be able to use APSTAR IIR
to test any uplink or downlink hardware or software necessary to provide DBS
services. The Company believes that using APSTAR IIR for such testing could
accelerate the start-up of any future DBS services.
As of December 31, 1996, the Company had signed or had commitments for
long-term leases with four of its existing customers (ESPN, HBO, TCI and Turner)
for a total of six C-band transponders on APSTAR IIR. ATV has also leased one
C-band transponder. In addition, three transponders were committed by the
Company under options exercisable at the discretion of the relevant customers.
Four Ku-band transponders were reserved by One Leader, a Taiwanese customer of
the Company.
FUTURE SATELLITES
The Company has conducted a preliminary feasibility study and is
currently in discussions with the MRFT to provide DBS services. Preliminary
plans call for a DBS satellite, APSTAR IIID, utilizing high-powered Ku-band
transponders to serve the PRC and southeast Asia with a ground spare Satellite,
APSTAR IVD, which will be constructed at the same time as the operating
satellite in order to minimize the long lead-times required for satellite
construction. The Company has commenced preliminary discussions with several
manufacturers concerning the construction of the satellites; however, until
discussions with the MRFT have been concluded and the necessary PRC governmental
approvals have been received, the Company will not enter into any contracts for
the construction or launch of any DBS satellite. The Company anticipates that it
will finance the cost of any DBS satellites principally through bank borrowings.
Preliminary plans also call for the Company to build an uplink facility
in Hong Kong in connection with the project to provide DBS services. The Company
will be required to obtain a license from the Hong Kong
-13-
<PAGE> 16
government to operate such a facility. The Company will also expand its existing
TT&C facilities at its Tai Po satellite control center in order to monitor and
control its DBS satellites. In August 1993, the Company leased an approximately
40,000 square feet of property adjacent to its Tai Po satellite control center
site, which could be used for the installation of additional antennae and
related equipment to monitor and control DBS satellites, as well as for the
construction of the uplink facility.
The Company intends to launch another satellite, APSTAR V, by the end of
2000 to provide a satellite distribution link between Europe and Asia, and in
part as a replacement for APSTAR I, the projected operational life of which will
end in September 2004. The Company expects, however, that such satellite will be
a high power satellite having C-band and Ku-band coverage and power
substantially similar to APSTAR IIR. The Company also expects that before the
launch of this satellite, it will have to further expand its existing TT&C
facilities in Tai Po. The Company has not commenced the process of selecting a
manufacturer or a launch service provider for this satellite, and the
development of this project is in a very early stage. Accordingly, the Company's
plans for the construction, launch and operation of this future satellite is
subject to substantial contingencies and risks of delay.
APSTAR IIR CONSTRUCTION CONTRACT
The APSTAR IIR Construction Contract, executed on June 30, 1995 between
APT and SS/Loral (the "APSTAR IIR Construction Contract"), provides that
SS/Loral bears the risk of loss of the satellite during the construction phase,
during transport to the launch site and during storage at the launch site until
title of APSTAR IIR passes to APT upon intentional ignition of the launch
vehicle. The APSTAR IIR Construction Contract provides for limited liquidated
damages payable by SS/Loral in the event of a late delivery. In the event of
defects that arise or are discovered after launch that cause the performance of
APSTAR IIR not to achieve certain performance criteria, SS/Loral has agreed to
refund a limited portion of the purchase price of APSTAR IIR to APT during the
operational life of the satellite. Monthly progress payments of varying amounts,
depending on the stage of construction, are required over the period of the
construction of the satellite. SS/Loral is entitled to an incentive payment for
early delivery of the satellite.
SS/Loral has agreed under the APSTAR IIR Construction Contract to
provide related launch support services to launch APSTAR IIR. SS/Loral will also
provide two engineers to APT for a period of six months after the completion of
in-orbit testing for the purpose of support operations.
LAUNCH ARRANGEMENTS
China Great Wall Industry Corporation, a PRC state-owned enterprise
under the supervision and control of China Aerospace ("Great Wall"), has
launched each of the satellites in the APSTAR System. APSTAR I and APSTAR IA
were each successfully put into a geostationary orbit on Long March 3 launch
vehicles. The launch of APSTAR II on a Long March 2E launch vehicle was
unsuccessful. Great Wall has been engaged in the manufacture of launch vehicles
and other space equipment since the 1960s and the Long March series of launch
vehicles has been available in the international satellite launch vehicle market
since 1985. APSTAR IIR must be launched by a more powerful launch vehicle than
was used for either APSTAR I or APSTAR IA, and the Company has determined that
the Long March 3B launch vehicle manufactured by Great Wall is an appropriate
launch vehicle for this satellite based on price and the requirements of the
Company as to timing as well as the Company's familiarity with Long March launch
vehicles.
As of December 31, 1996, Great Wall has attempted only one commercial
launch on a Long March 3B launch vehicle. On February 15, 1996, a Long March 3B
carrying an International Telecommunications Satellite Organization ("Intelsat")
communications satellite failed 20 seconds after lift-off. The Company believes
that Great Wall has scheduled one additional launch of a Long March 3B launch
vehicle and one launch of a Long March 3A launch vehicle prior to the scheduled
launch of APSTAR IIR. The Long March 3B launch vehicle is developed from the
Long March 3A launch vehicle and the two employ similar technology.
The APSTAR IIR Launch Services Contract provides that if either party
postpones the launch, a postponement fee of up to US$1.0 million (depending on
the length of the delay, up to a maximum of six months) may be payable to the
other party. Pursuant to an amendment to the APSTAR IIR Launch Services Contract
executed on November 6, 1996, the Company can terminate the contract and receive
a refund of all amounts paid to
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<PAGE> 17
Great Wall (other than any postponement fees and payments for optional services)
in the event of a launch failure of any Long March launch vehicle launched from
Xichang which occurs between November 6, 1996 and the launch of APSTAR IIR. The
Company can also terminate the contract and receive a refund of 70% of amounts
paid to Great Wall (other than any postponement fees and payments for optional
services) if, as a result of delays attributable to Great Wall, the launch of
APSTAR IIR is postponed until after October 1, 1997. If the Company terminates
the contract for any other reason, it would be subject to a termination fee of
100% of all contract amounts paid or payable to Great Wall as of the date of
termination up to the first 20% of the contract price, plus 50% of all amounts
paid or payable in excess of the first 20% of the contract price as of such date
of termination. Part of the contract price for the APSTAR IIR Launch Services
Contract may be satisfied by APT providing one C-band or Ku-band transponder to
Great Wall for the operational life of the satellite.
In an effort to increase its operational flexibility, the Company has
entered into discussions with other parties with a view to enabling it, in the
event of the termination of the APSTAR IIR Launch Services Contract, to use an
alternative launch provider for APSTAR IIR pursuant to terms acceptable to the
Company. There can be no assurance that it will be possible for the Company to
make such an arrangement with an alternate launch provider or that, if it is
possible, that the amount of time required before an alternative launch could
take place will be acceptable to the Company.
EXISTING ORBITAL SLOTS
APSTAR I is utilizing certain designated C-band and extended C-band
frequencies in the orbital slot at 138 degrees East and APSTAR IA is utilizing
certain designated C-band frequencies in the orbital slot at 134 degrees East.
The right to use these frequencies at such orbital slots has been licensed to
the Company by the Kingdom of Tonga ("Tonga"), through TongaSat, which has
responsibility for the ITU coordination process with respect to such orbital
slots and the frequencies covered by the Company's license. APSTAR I was
initially intended to be placed in an orbital slot at 131 degrees East. In
conjunction with the coordination of that orbital slot, the Company reached
agreement with Tonga whereby it was authorized to use C-band frequencies at an
orbital location of 138 degrees East. The agreement covers a period of 10 years
(approximately coterminous with the expected operational life of the satellite),
after which Tonga has agreed for an additional period of 20 years not to offer
the use of the C-band frequencies at 138 degrees East to a third party without
first offering such use to the Company on the same terms and conditions as are
offered by the third party. The agreement in which the license is granted
contains, among other things, representations by the licensor relating to the
lack of encumbrances affecting the 138 degrees East orbital slot and an
indemnity by the licensor protecting the Company's use of the frequencies
covered by the license.
After the loss of APSTAR II, which was intended to be located at 77
degrees East, the Company determined to launch a replacement satellite, APSTAR
IA, as promptly as reasonably practicable in order to retain customers which had
committed to lease transponder capacity on APSTAR II. In order to reserve the
slot at 77 degrees East for APSTAR IIR, the Company decided to place APSTAR IA
at the 134 degrees East orbital slot. The Company ultimately licensed the C-band
frequencies of the 134 degrees East orbital slot from Tonga. The license covers
a period of 10 years (approximately coterminous with the expected operational
life of the satellite), after which Tonga has agreed for an additional period of
20 years not to offer the use of the C-band frequencies to a third party without
first offering such use to the Company on the same terms and conditions as are
offered by the third party. The agreement in which the license is granted
contains, among other things, representations by the licensor relating to the
lack of encumbrances affecting the 134 degrees East orbital slot and an
indemnity by the licensor protecting the Company's use of the frequencies
covered by the license.
The process for coordination of orbital slots is complex and has in the
past given rise to disputes and disagreements with respect to the use of orbital
slots. Another country has made filings with the ITU with respect to the orbital
slot at 134 degrees East and a party has transmitted signals which have resulted
in limited interference with APSTAR IA. Tonga has filed for and coordinated the
frequencies currently used by APSTAR IA in the orbital slot at 134 degrees East
(as well as the frequencies currently used by APSTAR I in the orbital slot at
138 degrees East). Tonga has also confirmed to the Company that it has not
granted rights to any third party that would affect the Company's license for
134 degrees East or the Company's entitlement to use the frequencies at such
orbital slot covered by the license. Accordingly, the Company believes it has
full legal right to use the frequencies at the orbital slot at 134 degrees East
covered by the Company's license. However, no assurance can be given that the
country that has made ITU filings with respect to the orbital slot at 134
degrees East or other parties will not dispute Tonga's
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<PAGE> 18
priority to the orbital slot at 134 degrees East and the Company's entitlement
to use such orbital slot, or that there will not be interference with APSTAR IA
in the future. In addition, other disputes may arise with respect to these and
other orbital slots used by or contemplated for the Company's satellites. Any
such disputes or interference may have a material adverse effect on the
Company's business.
INSURANCE
APT maintains launch and initial in-orbit insurance for APSTAR IA and
in-orbit insurance for APSTAR I. APT also maintains third-party liability
insurance for these two satellites. The Company is not aware of any reason why
it will not be able to (i) renew existing insurance for APSTAR I or (ii) obtain
in-orbit insurance for APSTAR IA upon expiration of the launch insurance, on
normal commercial terms. APT is currently seeking bids for launch and initial
in-orbit insurance for APSTAR IIR. The Company's insurance policies have
standard provisions and customary exclusions. For the years ended December 31,
1994, 1995 and 1996, the Company spent HK$0.3 million, HK$5.1 million and
HK$14.3 million (US$1.8 million), respectively, on in-orbit and third-party
liability insurance.
Launch and Initial In-orbit Insurance. APT's launch and initial in-orbit
insurance for APSTAR IA expired on January 4, 1997. The launch and initial
in-orbit insurance policy, in the amount of US$130.0 million, provides coverage
for (i) the partial loss of the satellite's communications capacity and (ii) the
total loss, destruction or failure of the satellite. Total loss is defined as
loss of more than 50% of the satellite's communications capacity. The APSTAR IA
launch and initial in-orbit insurance policy provides coverage for claims
arising from occurrences up to 181 days after the launch of the satellite. The
approximate cost of launch and initial in-orbit insurance for APSTAR IA was
US$26.1 million. This amount is being capitalized and amortized over the
operational life of the satellite.
In-orbit Insurance. Subsequent satellite in-orbit insurance is purchased
on an annual basis. Satellite in-orbit insurance premiums for APSTAR I are less
than 2% of the satellite's current book value. Such insurance provides
protection only against the total loss, destruction or failure of the satellite.
Total loss is defined as the loss of more than 50% of the satellite's
communications capacity. In-orbit insurance only covers the book value of the
satellite, rather than the replacement cost. The Company renewed its annual
in-orbit insurance from October 15, 1996 for APSTAR I for a premium equal to a
percentage of book value marginally lower than that in the prior year.
Third-Party Liability Insurance. Third-party liability insurance offers
protection against liability to third parties for damage arising out of a
particular launch and the operation of the satellite. APT has obtained satellite
in-orbit third-party liability insurance for APSTAR I and APSTAR IA in the
amount of L100.0 million for each satellite.
SATELLITE CONTROL CENTER
APT operates a 19,600 square foot satellite control center on a 45,000
square foot property at the Tai Po Industrial Estate, Tai Po, Hong Kong. APT
employs approximately 40 experienced satellite and communications specialists
and engineers to control and monitor continuously APT's satellites in a
geostationary orbit. TT&C operations with the APT satellites are carried out at
the satellite control center.
Once a satellite is placed at its orbital location, it is controlled by
the TT&C facility until the end of its in-orbit life. The Company's engineers at
the satellite control center periodically correct each satellite's attitude and
conduct east-west and north-south stationkeeping maneuvers, thus ensuring that
the Company's satellites maintain their proper orientation and orbital position.
In addition, commands from the satellite control center can switch transponders
in and out of service, control the charging and discharging of the batteries,
activate back-up equipment and engage other control functions.
The satellite control center currently operates six antennae and nine
transmission facilities as well as associated equipment and facilities, such as
radio frequency equipment, baseband units, ground monitoring systems, data
processing systems and communication traffic monitoring systems. Each antenna is
capable of controlling any of the Company's satellites and is designed to
withstand winds of up to 150 miles per hour. The Company is integrating its
existing control and monitoring systems with the equipment to be installed for
APSTAR IIR before the launch of APSTAR IIR. The satellite control center
maintains its own power generator to provide a continuous
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supply of electricity in the case of a power outage, and its air conditioning
and ventilation systems back up each other.
APT has leased one ISDN line in order to provide a direct data and voice
communications link between the satellite control center and the Hughes mission
control center in Los Angeles. If required, Hughes can quickly ascertain the
status of both APSTAR I and APSTAR IA and assist APT personnel in taking
corrective steps to control the satellites, including adjusting the
geostationary orbit of both satellites. APT is considering a similar link with
SS/Loral in relation to APSTAR IIR, which would be connected upon a successful
launch of APSTAR IIR.
The satellite control center currently has the capability to control and
monitor three satellites. As additional satellites are brought into the APSTAR
System, the Company will be required to expand its TT&C operations. In this
regard, the Company has leased an approximately 40,000 square feet of property
adjacent to the satellite control center which can be used for the installation
of additional antennae and related equipment or the construction of other types
of TT&C facilities as the need arises.
CUSTOMER TECHNICAL QUALIFICATIONS AND SUPPORT
Before uplink communication with a satellite is permitted, the Company
ensures each customer can meet the Company's strict performance and operations
specifications so that the customer's equipment does not interfere with other
customers on the same satellite or users of neighboring satellites. The
Company's engineers advise customers on the adjustments required to be made to
the customer's equipment in order to minimize interference. As of December 31,
1996, APT had qualified 47, and was in the process of qualifying another four
main television uplinks, hub stations and telecommunications networks for uplink
to APT satellites.
The Company provides extensive technical support to its customers. It
helps customers determine and evaluate their equipment configuration, carrier
modulation, bandwidth and power requirements, design their networks and
calculate link budgets.
ADDITIONAL ORBITAL SLOTS
The PRC government, on behalf of APT, has applied for a number of
additional orbital slots. Under ITU regulations, a slot can be reserved for six
years (extendable to nine years) from the date of advance publication. In
addition to the orbital slot located at 77 degrees East, in which APSTAR IIR is
expected to be placed, the Company has applications outstanding for orbital
slots at 131 degrees East, 93 degrees East, 85.5 degrees East and 89.5 degrees
East. Satellites must occupy 131 degrees East and 93 degrees East no later than
May 10, 2002 and 85.5 degrees East and 89.5 degrees East no later than September
5, 2003 (in each case, assuming the three-year extension is granted), or the
priorities will lapse. See "Regulation." Other than with respect to 77 degrees
East, the Company, has not earmarked any specific satellite to occupy any of
these slots in the near future. The Company is in discussions with PRC
authorities concerning the positioning of a DBS satellite in one of the PRC's
three orbital slots (92 degrees East, 80 degrees East and 62 degrees East)
designated for DBS services by the ITU.
EMPLOYEES
Including the executive directors and senior management of the Company,
as of December 31, 1996, the Company had 73 full-time employees, of which seven
employees were in management, 38 were in engineering and operations and the
remainder in marketing, accounting and administration. The Company believes that
its relations with its employees are good. A majority of APT's technical and
engineering staff employed at the satellite control center in Tai Po were
originally seconded from affiliates of CLTC, the MPT and China Aerospace and
became the Company's staff before the Global Offering of the Company in December
1996.
APT emphasizes the training of its technical personnel. All of its
engineers have received training at either Hughes or SS/Loral in the United
States for periods ranging from two weeks to a year or have received on-site
training from Hughes or SS/Loral in Hong Kong. APT has also developed an
in-house training program to train new personnel. In order to provide training
opportunities for satellite controllers, APT purchased a Hughes HS-376 dynamic
satellite simulator which simulates the in-orbit flight status of APSTAR I and
APSTAR IA and has ordered an SS/Loral dynamic satellite simulator for APSTAR
IIR.
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The Company has maintained a defined contribution retirement scheme (the
"Scheme") for its employees since May 1, 1996. The Scheme is operated under an
insurance policy with an authorized insurer. The Company and each employee are
required to contribute an amount equal to 5% of the employee's monthly salary to
the Scheme. Benefits are payable to an employee on retirement, termination of
employment, death or retirement on health grounds, and are subject to vesting
provisions in the case of employees who leave employment (other than because of
retirement, death or ill-health) with less than 10 years' service. The terms of
the Scheme permit forfeitures and unvested benefits to be used to reduce the
level of the Company's contributions.
COMPETITION
APT currently serves the satellite communications market in Asia. A
number of international and domestic satellite operators also compete in this
market. The Company's primary focus is Asian intra-regional broadcasting and
telecommunications, with special emphasis on the PRC. The Company has not
attempted to enter the international PSTN trunk route market, which is dominated
by the International Telecommunications Satellite Organisation ("Intelsat").
In providing satellite capacity, the Company competes with major
established companies and organizations. The Company's competitors include
government-owned and privately-owned international, regional and domestic
satellite companies. Many of these competitors have long-standing customer
relationships and are substantially larger and have financial resources that are
substantially greater than those of the Company. The Company believes that its
ability to compete with these organizations depends on its existing customer
relationships and the quality of its customer service, its reputation as a
reliable operator of commercial satellites and the technical advantages of its
satellites.
The Company faces competition in all its markets from one or more
satellite systems. Other than domestic satellite companies, the Company is
currently aware of four other international or regional satellite companies with
coverage of the PRC: Intelsat, Asia Satellite Telecommunications Holdings
Limited ("AsiaSat"), PanAmSat Corporation ("PanAmSat") and Palapa. The Company
expects that several new satellites will be launched covering all or part of the
Asia-Pacific region by the end of 1998, assuming announced plans for such
launches are successfully implemented on schedule. If such launches are
implemented on schedule, there would be a significant increase of transponder
capacity serving the region. Digital video compression technology could also
increase the overall supply of transponder capacity in the satellite industry
because such technology permits programmers to use less transponder capacity
than is currently required to transmit the same amount of programming. At
present, however, digital integrated receivers-decoders which are necessary to
unscramble digitally compressed transmissions are only now becoming available in
the more developed markets, and the Company believes that it may be some time
before they are commonplace in the developing markets of Asia. Currently, the
lack of transponder capacity in Asia may have the effect of preventing potential
customers from pursuing the use of satellites for various broadcasting and
telecommunications applications because they do not believe they will be able to
secure reliable transponder capacity. In addition, the Company believes there
has been a lack of sufficient satellite capacity in Asia to satisfy customers'
needs for redundancy. Customers who make significant financial commitments to
the use of satellites for broadcasting and telecommunications applications often
seek to secure back-up transponder capacity in order to protect their
investment. The Company believes that potential customers in Asia may, at some
future point, prefer to use those satellites that can provide backup capacity to
help reduce customer risk.
INTERNATIONAL SATELLITES
The market for international satellite communications capacity has been
dominated by Intelsat for 30 years, and Intelsat can be expected to continue to
dominate it for the foreseeable future. Intelsat, established by international
treaty in 1964, owns and operates the largest fleet of commercial geosynchronous
satellites in the world (more than 20 satellites), and now comprises a
consortium of 125 countries. Intelsat has been operating communications
satellites in the Asia-Pacific region since the 1960s. Although the number
varies depending upon the exact criteria used to define Asia-Pacific, Intelsat
has several satellites in the region. At present, however, Intelsat primarily
uses beams which have a much lower EIRP than the Company's satellites and
therefore require larger diameter antennae to be received. Intelsat is
traditionally seen as a "long-haul" carrier for PSTNs. A
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proposed restructuring of Intelsat has been publicly reported. The television
distribution and VSAT operations of Intelsat could potentially compete directly
with the Company.
PanAmSat was started in the 1980s to compete with the Intelsat monopoly.
It currently operates four satellites providing coverage over the Atlantic,
Pacific and Indian Oceans and is one of the Company's principal competitors in
the Asia-Pacific region. PanAmSat's PAS-4 has some features in common with APT's
satellites. including coverage of certain of the same geographic areas. PanAmSat
has announced that it intends to launch additional satellites to provide further
global coverage. Hughes, the manufacturer of APSTAR I and APSTAR IA, recently
announced an agreement to acquire PanAmSat. The Company is unable to determine,
as of December 31, 1996, the impact, if any, of the announced acquisition on its
business.
REGIONAL SATELLITES
Coverage, service and target customers of AsiaSat are very similar to
those of APT. AsiaSat 1's service area is very similar to that of both APSTAR I
and APSTAR IA. AsiaSat 2's footprint is smaller than that planned for APSTAR
IIR, but AsiaSat 3, now in construction, will have a footprint very similar to
that planned for APSTAR IIR. The Company believes AsiaSat is and will continue
to be a major competitor of APT in the Asia-Pacific market, including the PRC
market. Currently, the majority of AsiaSat's transponder capacity was committed,
as of June 13, 1996, to a single (non-PRC) customer under an exclusive
arrangement. However, the Company is not aware of any exclusivity arrangements
in respect of AsiaSat 3.
Satelindo's Palapa system began operations in the mid-to-late 1970s to
support communications in Indonesia and southeast Asia. Satelindo is currently
implementing its third generation of communications satellites. Palapa has been
successful in attracting international broadcasters to its satellites and is
planning to increase the coverage of its satellites to cover the entire
Asia-Pacific region and to compete with Intelsat across the Pacific Ocean.
Palapa is already servicing a number of international broadcasting companies,
and it is a major competitor of APT outside the PRC market.
The ST-I satellite system, which is partly owned and operated by
Singapore Telecom, is expected to be launched in early 1998. Its C-band coverage
will stretch from the Middle East to Japan and southeast Asia. Its Ku-band
coverage is expected to focus on the Indian subcontinent and southeast Asia. Due
to the satellite design and coverage area, the ST-1 satellite system is expected
to have the ability to compete with the Company in segments of the Asia-Pacific
market.
DOMESTIC SATELLITES
A number of companies located in various countries in the region have
launched or are planning to launch domestic satellites. These include ChinaSat
(which is also a Principal Shareholder), Chinastar and SinoSat of the PRC, INSAT
of India, JSAT and NSTAR of Japan, Koreasat of Korea, Measat of Malaysia, Optus
of Australia, Thaicom of Thailand and Mabuhay of the Philippines. Although these
satellites may be focused on their respective domestic markets, such companies
may have the ability, due to satellite design and coverage areas, to compete
with the Company in segments of the Asia-Pacific market. In certain of these
countries, domestic television broadcasters and domestic satellite
telecommunication operators providing services in their home countries are
generally required to use a state-owned or locally-owned satellite system to the
extent capacity is available and therefore may not use APT's satellites. In
addition, many of the domestic systems are planning to add at least some
regional transponders with substantial beam coverage to their next generation of
satellites, and therefore may in the future become competitors of APT in the
regional market.
OTHER SATELLITES
Other existing and proposed organizations have considered or might
consider competing in the Asian regional market. These include Russian systems,
TongaSat, Orion Network Systems, Rimsat and others. Some of the existing
potential competitors offer low-cost, low-performance transponders, which do not
compete directly with the Company's high-performance transponders. New
organizations face significant competitive barriers including scarcity of
orbital slots and high costs of entry.
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OPTICAL FIBER SYSTEMS
Optical fiber systems have been widely installed within the region for
point-to-point trans-oceanic communications. In addition, point-to-point optical
fiber connections between major cities in Asia are common. Optical fiber is
being used in more developed markets for cable TV networks, and can also be used
for telephony services. In the short term, these systems do not compete in most
of the Company's markets, but, as optical fiber coverage increases, the
competitive advantage of satellites for point-to-point communications will
diminish.
REGULATION
The international telecommunications industry is highly regulated.
Satellite services are subject to international space law, and the principal
body of international law relating to the use of outer space is the Outer Space
Treaty. Countries which are party to the Outer Space Treaty or to other treaties
or conventions regulating outer space activities are responsible for fulfilling
their own obligations under such treaties or conventions. This often results in
the adoption by such member countries of domestic laws to regulate the
activities of their own subjects in order to enable the country concerned to
comply with its international obligations.
As an operator of privately-owned satellites in Hong Kong, APT is
subject to the regulatory authority of APT's principal regulator, OFTA. From
July 1, 1997, Hong Kong will be an SAR and its government and regulatory bodies
will be subject to the control and supervision of the PRC. The business
prospects of the Company could be adversely affected by the adoption of new
laws, policies or regulations, or changes in the administration, interpretation
or application of existing laws, policies and regulations, that modify the
present regulatory environment in Hong Kong.
Many of the Company's existing and potential customers who may wish to
use the APSTAR System to broadcast into or provide telecommunications services
for countries in Asia are subject to government licensing. The applicable
regulatory schemes in these countries vary considerably. While the Company does
not believe these regulatory schemes will prevent it from pursuing its business,
there can be no assurance that its customers' licenses and approvals are or will
remain sufficient in the view of foreign regulatory authorities and that these
authorities will not discourage or prevent existing or potential customers from
utilizing transponders on the APSTAR System.
Many of APT's customers must have authorization from the countries in
which they are located in order to uplink to and communicate by means of APT's
satellites. While obtaining such authorizations on behalf of its customers is
not the Company's responsibility, the Company's success may depend on the
ability of its customers to obtain required authorizations.
INTERNATIONAL TELECOMMUNICATION UNION
Member nations are required by treaty to give notice of, coordinate and
register radio frequency assignments and any associated orbital locations in the
geosynchronous satellite orbit with the ITU's Radiocommunication Bureau. The
purpose of such notice, coordination and registration is to eliminate harmful
interference between earth and space-based stations of different countries, to
improve the use of the radio frequency spectrum and the geosynchronous satellite
orbit and to accommodate, to the extent possible, a country's needs. Pursuant to
the ITU's Radio Regulations, after a country gives notice to the
Radiocommunication Bureau of its intent to use given frequencies in connection
with given orbital locations and for a particular type of service, the "advance
publication" stage commences during which other countries are afforded the
opportunity to apprise the Radiocommunication Bureau of any conflicts with any
existing or intended satellite systems. When a present or potential conflict is
noted, countries are then obligated to negotiate (during the "coordination"
process) in an effort to coordinate the proposed uses and resolve any
interference concerns.
An orbital slot is a function of intended use, orbital location and
frequency band. As international coordinations vary in complexity, the time for
their completion is uncertain and depends on the number of countries involved
and the extent to which there are competing uses for the frequency bands that
are the subject of the coordination. The coordination process may result in
modification of proposed coverage areas or satellite design to eliminate or
minimize interference with other potential users.
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When coordination is completed and conflicts are resolved, the proposed
users achieve "notification" status with the Radiocommunication Bureau. The
frequency assignments are then recorded in the Master Registry, and such users
are thereafter entitled under international law to protection from interference
from subsequent or nonconforming uses from other countries. The failure to use
an orbital slot within six years of advance publication (extendable for a
further three years) could result in loss of priority in the coordination
process.
Under the Radio Regulations, during the coordination process, a country
may request the Radiocommunication Bureau to assist it in resolving disputes in
connection with existing or proposed uses of frequencies and orbital locations.
However, should any such disputes remain unresolved, and the coordination
process therefore not be successfully completed, there is no formal dispute
resolution mechanism and any country that nonetheless places a satellite or any
earth station into operation may not be entitled to seek the assistance of the
Radiocommunication Bureau to resolve complaints relating to interference.
The Company has requested the Radio Regulatory Department to file and
coordinate applications by APT for orbital slots with the Radiocommunication
Bureau and to resolve interference concerns. The Radio Regulatory Department has
notified the Radiocommunication Bureau of the proposed use of six orbital slots.
See "--Operation of the APSTAR System--Additional Orbital Slots." The
applications provide for "registered lifetimes" of satellites of 20 years.
Coordination of APSTAR IIR's orbital slot of 77 degrees East commenced on May
11, 1993 and the Company does not foresee any significant difficulties in
coordinating that orbital slot. There can be no assurance, however, that it will
be possible to complete the filing and coordination process for APSTAR IIR or
any future APSTAR System satellites. In respect of four remaining applications,
two of which are still in the advance publication stage, no assurance can be
given as to whether substantial modifications to satellite coverage or design
may be required, whether the coordination process will be successfully completed
or whether the Company will have any priority for such orbital slots. The
Company is in discussions with PRC authorities concerning the positioning of a
DBS satellite in one of the PRC's three orbital slots (92 degrees East, 80
degrees East and 62 degrees East) designated for DBS services by the ITU.
EXPORT REGULATION
The United States Department of Commerce has imposed certain
restrictions on technology transfers to the PRC and certain other countries,
such as Russia. The proposed launch site for APSTAR IIR is located in the PRC
and the launch provider is an entity licensed by the PRC government. The launch
sites for other satellites that the Company may launch in the future may also be
located in the PRC or such other countries. Special export licenses are required
to be obtained by SS/Loral, the manufacturer of APSTAR IIR, and manufacturers of
other satellites that the Company may launch in the future in connection with
launches in any country subject to restrictions on technology transfers.
SS/Loral has represented to the Company that it has obtained a technical data
exchange license from the United States Department of Commerce permitting the
exchange between SS/Loral and Great Wall of certain technical data necessary to
prepare APSTAR IIR for launch on a Long March 3B launch vehicle. In addition,
the export of US-origin commercial communications satellites requires a
Presidential waiver of the restrictions contained in the US Foreign Relations
Authorization Act relating to such exports to the PRC. SS/Loral has represented
to the Company that it has obtained hardware export licenses from the Department
of Commerce for the transport to the PRC of APSTAR IIR for launch. There can be
no assurance that in the future such licenses will not be revoked by the US
government or that the US government will not impose additional restrictions or
trade sanctions against the PRC in the future that would significantly delay the
planned launch of APSTAR IIR or other satellites that the Company may launch in
the future.
The PRC has entered into a memorandum of agreement with the United
States which, among other things, limits the number of commercial satellite
launches that can be conducted by Great Wall on behalf of international
customers (such as the Company) to I1 launches between January 1, 1995 and
December 31, 2001. While the Company believes that it is unlikely that Great
Wall will reach the limit by mid-1997, there can be no assurance that Great Wall
will not have reached the limit by such time. At this time, the Company cannot
predict the effect on the launch of APSTAR IIR by Great Wall if such limit were
reached.
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HONG KONG REGULATION
The Company's satellite operations are principally regulated by the
Outer Space Order which extended the United Kingdom Outer Space Act 1986 to all
Hong Kong nationals and bodies corporate incorporated under the law of Hong
Kong, including APT. The Outer Space Order prohibits any person from launching
or procuring the launch of a satellite, or operating a satellite, without
obtaining an appropriate license. The Outer Space Order further stipulates that
any such license shall describe the activities authorized by it and also
provides that licenses may be granted subject to conditions specified therein.
The conditions may include basic orbital parameters and requirements to avoid
interference with the activities of other users of outer space. Breach of any
such conditions can give rise to a right of revocation of the relevant license.
The ultimate authority to grant licenses and otherwise to administer the
Outer Space Order is vested in the Governor in Council. In practice, all
relevant matters are dealt with on a regular basis by OFTA. With effect from
July 1, 1997, the regulation of satellite launch and operation by Hong Kong
companies will come under the authority of the PRC. Neither the Joint
Declaration, nor the Basic Law, makes express provision with respect to the
Outer Space Order or the regulation of satellite launch and operation or other
outer space activities. Accordingly, there is some uncertainty as to the
regulatory regime which will apply in Hong Kong after June 30, 1997. APT has the
benefit of existing licenses granted under the Outer Space Order by the Governor
in Council covering current and future operation of each of APSTAR I and APSTAR
IA, subject to the conditions of the respective licenses. Each of these licenses
requires the approval of the Hong Kong government for any transfer of a
beneficial interest in the satellite, such as that which will arise in
connection with the consummation of the Global Offering. The Company has applied
to obtain these approvals. The license application process for APSTAR IIR has
begun. Based on its past experience, the Company expects the appropriate
licenses to be granted before the launch of APSTAR IIR and the resumption of
sovereignty by the PRC over Hong Kong. There can be no assurance, however, that
such licenses will be granted prior to such date, or at all.
The Company's earth station operations involve the operation and use of
telecommunications apparatus at and from its earth station at Tai Po, Hong Kong.
Establishment, possession and use of such telecommunication apparatus in Hong
Kong is regulated by the Telecommunication Ordinance and the orders and
regulations thereunder. APT has the benefit of licenses granted under the
Telecommunication Ordinance for each of APSTAR I and APSTAR IA covering all its
TT&C operations, as well as monitoring and testing functions, subject to the
terms and conditions of the respective licenses. Such licenses have terms of 20
years, commencing July 19, 1994 and June 11, 1996, respectively. The licenses
require APT (among other things) to avoid harmful interference with other
telecommunication apparatus operating within or outside Hong Kong and to ensure
compliance with all relevant requirements of the International Telecommunication
Convention, a complementary document to the ITU's constitution document, and any
other international telecommunication agreements which may from time to time be
acceded to by or on behalf of, or applied to Hong Kong. These licenses were
formally granted with the grant of the licenses under the Outer Space Order
referred to above and the Company expects to obtain an appropriate license for
APSTAR IIR at the relevant time and on a similar basis. There can be no
assurance, however, that such license will be granted. The licenses also
prohibit video, data and voice transmissions from the Tai Po satellite control
center.
The Telecommunication Ordinance also contains provisions for (i) the
taking of possession by the Hong Kong government of telecommunications stations
where the Governor in Council is of the opinion that an emergency has arisen in
which it is expedient for the public service that the Hong Kong government
should have control over telecommunications stations and (ii) the payment of
compensation should such taking of possession occur.
OVERSEAS NATIONAL TELECOMMUNICATIONS AUTHORITIES
The laws and regulatory requirements regulating access to satellite
systems vary from country to country. Some countries have substantially
deregulated satellite communications, making customer access to the Company's
satellites a relatively simple procedure, while other countries have maintained
strict monopoly regimes. The application procedure for access to satellite
systems can be time-consuming and costly, and the terms of the licenses vary
among different countries.
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Direct reception of satellite television is currently illegal in a
number of countries in Asia and the Middle East, and is subject to stringent
restrictions in certain other countries in those regions. Private ownership of
dishes is currently prohibited in the PRC, although certain hotels and other
entities are permitted to operate dishes upon application to the relevant
authorities. The Company is in discussions with the MRFT to jointly develop the
DBS business. However, there can be no assurance that the approvals necessary
for the DBS Project will be obtained. In addition, regulations regarding content
of advertisements and advertising vary from country to country, making it
difficult for broadcasters to address advertisements to Asia and the Middle East
as a whole.
GLOSSARY OF CERTAIN TERMS
In this Form 20-F, unless the context otherwise requires, the following
expressions have the following meanings:
ADS An American Depositary Share representing ownership
of eight shares of the Company's Common Stock,
evidenced by American Depositary Receipts.
analog A method of storing, processing or transmitting
information through a continuous varied (rather
than pulsed) signal.
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 International APT Satellite International Company Limited, a
company incorporated in the British Virgin Islands
with limited liability and a shareholder of the
Company.
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 which can be
transmitted.
Basic Law The Basic Law of the Hong Kong Special
Administrative Region of the People's Republic of
China which was adopted on 4 April 1990.
beam The directed electromagnetic rays emanating from a
spacecraft or ground station. On satellites,
typically refers to aggregates of these rays such
as a China (coverage) beam or global (coverage)
beam.
CCTV China Central Television, a PRC state-owned
enterprise under the supervision and control of the
MRFT.
CITV China International Television Corporation, a PRC
state-owned enterprise under the supervision and
control of the MRFT.
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. 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.
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).
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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.
earth station The antennae, receivers, transmitters and
other equipment needed on the ground to transmit
and receive satellite communications signals.
EIRP Equivalent isotropic radiated power, the product of
the power supplied to the antenna and the antenna
gain in a given direction relative to an isotropic
antenna (absolute or isotropic gain).
Estates Corporation Hong Kong Industrial Estates Corporation, the
lessor under the Lease Agreements.
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
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.
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
Common Stock and American Depositary Shares, each
representing eight shares of the Company's Common
Stock dated December 13, 1996.
HDTV High definition television.
ISDN Integrated services data network.
ITU or International
Telecommunication Union The International Telecommunication Union, the
telecommunications agency of the United Nations,
established to provide standardised 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), 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 referred to as 11/14 or 12/14 GHz.
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Lease Agreements The agreement for lease dated 26 February 1996, as
amended, supplemented and modified, between APT and
the Estates Corporation, relating to the land
underlying APT's satellite control centre and an
adjacent property.
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.
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.
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.
PRC The People's Republic of China.
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.
SAR Special Administrative Region of the PRC.
scrambled programming Programming signals which require a decoder for
purposes of viewing.
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.
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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 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.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at leased premises in Hong
Kong. Coordination of all customer-related communication on the Company's
satellites, including initial station testing and outage and trouble reporting,
is conducted through the Company's satellite control center. See "--Satellite
Control Center" in Item 1 herein. The 45,000 square foot site where the TT&C
facility is constructed and the 40,000 square foot unoccupied site adjacent to
such facility are held by the Company pursuant to the Lease Agreements. The
lease covering the Company's office space in Hong Kong expires in August 1999.
The rental amount (excluding rates and management charges) under all such leases
is approximately HK$3.3 million per year.
The terms of the Lease Agreement for the land underlying the Company's
satellite control center in Tai Po, Hong Kong and the property adjacent thereto
require the Company to complete the development of the currently undeveloped
adjacent property by no later than April 27, 1998 (56 months from the date of
possession of the adjacent property). This involves the (i) the construction of
a building and (ii) installation of antennae and other satellite-related
equipment, such equipment having a value of at least HK$44.7 million. As of
December 31, 1996, the Company had not begun to develop the adjacent property,
which the Company intends to develop in connection with the DBS Project. Failure
to develop the adjacent property would result in a breach of the Lease
Agreements which would give the Estates Corporation the right to re-enter and
take possession of both the developed property and the adjacent property. The
Estates Corporation has indicated to the Company that it will either (i) grant
an extension of the completion date for the entire development of the adjacent
property to October 27, 1999, and, in consideration of granting such extension,
may require the payment of an additional lump sum amount of HK$400,000, or (ii)
exercise its right to re-enter and take possession of only the undeveloped
adjacent property. The Company's future expansion plans could be materially
adversely affected if the Estates Corporation were to take possession of the
adjacent property.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its subsidiaries is a party to any
material litigation or arbitration proceeding.
ITEM 4. CONTROL OF REGISTRANT.
The principal shareholders of the Company ("Principal Shareholders")
have provided substantial financial support since APT was founded, funding the
design, construction and launch of APSTAR I and APSTAR IA and the design and
construction of APSTAR IIR through equity contributions, shareholders' loans and
shareholder guarantees of bank loans used to finance or refinance the costs of
satellite design, construction and launch. The Principal Shareholders have also
provided significant human resources, technical and marketing support.
The following table shows the approximate underlying direct and indirect
ownership interests of the Principal Shareholders in the issued ordinary share
capital of the Company as of June 26, 1997. None of the directors or executive
officers of the Company has any shareholding in the Company.
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<PAGE> 29
<TABLE>
<CAPTION>
Title of Class Identity of Person or Groups Amount Percent of Class(1)
-------------- ---------------------------- ------ -------------------
<S> <C> <C> <C> <C>
Common Stock CLTC 8,400,000 10.71%
Common Stock ChinaSat 8,400,000 10.71%
Common Stock China Aerospace 8,400,000 10.71%
Common Stock Chia Tai 8,400,000 10.71%
Common Stock China Travel (Macau) 8,400,000 10.71%
Common Stock SingaSat 8,400,000 10.71%
Common Stock Kwang Hua 8,400,000 10.71%
---------- ------
58,800,000 74.97%
</TABLE>
- ----------
(1) The underlying ownership interests of the Principal Shareholders in the
issued share capital of the Company is held on the following basis: (a)
each Principal Shareholder holds 8,400,000 shares of Common Stock
directly, representing 2% of the Company's issued share capital and (b)
the Principal Shareholders collectively hold further aggregate
underlying ownership interests of 61% indirectly through APT Satellite
International Company Limited ("APT International"), which holds
256,200,000 shares (i.e., each Principal Shareholder has an underlying
ownership interest of approximately 8.71% held indirectly through APT
International).
The entire issued share capital of APT International comprises 700
shares of US$1.00 each, of which 100 shares are held by each of the Principal
Shareholders. The Principal Shareholders have entered into an agreement (the
"Shareholders' Agreement"), which governs their respective rights and
obligations with respect to, among other things, their shareholdings in APT
International. The Shareholders' Agreement contains (among other things)
provisions restricting the transfer or other disposal or encumbrance by any
Principal Shareholder of the Shares in APT International, and granting mutual
rights of pre-emption among the Principal Shareholders in the event of any
proposed transfer by a Principal Shareholder of any share(s) in APT
International.
CLTC is a PRC registered and state-owned enterprise and is subject to
supervision and control by the Defense Commission, which controls the operation
of the PRC's three satellite launch centers and the PRC's satellite TT&C
network.
China Telecommunications Broadcast Satellite Corporation ("ChinaSat") is
a PRC state-owned enterprise under the supervision of the MPT. ChinaSat is the
satellite operation arm of the MPT.
China Aerospace Corporation ("China Aerospace"), formerly 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 Great Wall, which
is responsible for the sale to foreign customers of commercial launch services
effected by Long March launch vehicles.
Chia Tai International Telecommunication Company Limited ("Chia Tai") is
wholly-owned by Telecom Holding Company Limited ("Telecom Holding") which
manages the investment in the Company of TelecomAsia Corporation Public Company
Limited ("TelecomAsia"), a publicly listed company in Thailand. TelecomAsia was
established in Thailand by the Charoen Pokphand Group in association with NYNEX
Network Systems Company of the United States. TelecomAsia operates 2.6 million
telephone lines in the Bangkok metropolitan area.
China Travel Fok Tai (Macau) Limited ("China Travel Macau)") is owned
50% by China Travel Service (Holdings) Hong Kong Ltd. ("CTS (Holdings)") and 50%
by five individuals who each own 10%. CTS (Holdings) is one of the largest
PRC-owned companies in Hong Kong, with interests in a wide range of businesses
including tourism, transportation, trading, industry, property development and
construction, and research and development in science and technology through its
over 190 subsidiaries, joint ventures and associated companies. China Travel
International Investment Hong Kong Ltd., one of its subsidiaries, is a publicly
listed company in Hong Kong with a market capitalization as of September 30,
1996 of approximately HK$5.6 billion.
SingaSat PTE Ltd. ("SingaSat") is wholly-owned by Singapore Telecom.
Singapore Telecom is a telecommunications operating company and a holding
company for over forty subsidiaries which provide a wide range of domestic,
international and mobile telecommunications as well as postal services.
Singapore Telecom is a
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<PAGE> 30
publicly listed company in Singapore, and, as of September 30, 1996, it had a
market capitalization of approximately US$35.5 billion.
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.
The following table shows the approximate underlying direct and indirect
ownership interests of each person known by the Company to own beneficially more
than 10% of the Company's outstanding American Depositary Receipts ("ADRs") as
of June 26, 1997.
<TABLE>
<CAPTION>
Title of Class Identity of Person or Groups Amount Percent of Class
-------------- ---------------------------- ------ ----------------
<S> <C> <C> <C>
ADRs FMR Corp. 2,246,500 21.19%(1)
ADRs Edward C. Johnson 3d 2,246,500 21.19%(2)(3)
ADRs Abigail P. Johnson 2,246,500 21.19%(3)
</TABLE>
- ----------
(1) The underlying ownership of FMR Corp. in the issued ADRs of the Company
is held on the following basis: (a) Fidelity Management & Research
Company ("Fidelity"),a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 2,246,500 ADRs or
21.19% of the ADRs outstanding of the Company as a result of acting as
an investment adviser to various investment companies under Section 8 of
the Investment Company Act of 1940; (b) the ownership of one investment
company, Fidelity Select Telecommunications Portfolio, amounts to
1,023,200 ADRs or 9.65% of the ADRs outstanding; (c) the ownership of
one investment company, Fidelity Defense and Aerospace Portfolio,
amounts to 600,000 ADRs or 5.66% of the ADRs outstanding; and (d) the
ownership of one investment company, Fidelity Trend Fund, amounts to
591,100 ADRs or 5.01% of the ADRs outstanding.
(2) Edward C. Johnson 3d, Chairman of FMR Corp., though its control of
Fidelity, and the funds each has sole power to dispose of the 2,246,500
ADRs owned by the funds. Neither FMR Corp. nor Edward C. Johnson 3d has
the sole power to vote or direct the voting of the ADRS owned directly
by the Fidelity funds, which power resides with the funds' Boards of
Trustees. Fidelity carries out the voting of the ADRs under written
guidelines established by the funds' Boards of Trustees.
(3) Members of the Edward C. Johnson 3d family and trusts for their benefit
are the predominant owners of Class B shares of common stock of FMR
Corp., representing approximately 49% of the voting power of FMR Corp.
Mr. Johnson 3d owns 12.0% and Abigail Johnson owns 24.5% of the
aggregate outstanding voting stock of FMR Corp. Mr. Johnson 3d is
Chairman of FMR Corp. and Abigail P. Johnson is a Director of FMR Corp.
The Johnson family group and all other Class B shareholders have entered
into a shareholders' voting agreement under which all Class B shares
will be voted in accordance with the majority vote of Class B shares.
Accordingly, through their ownership of voting common stock and the
execution of the shareholders' voting agreement, members of the Johnson
family may be deemed, under the Investment Company Act of 1940, to form
a controlling group with respect to FMR Corp.
ITEM 5. NATURE OF TRADING MARKET.
The Company's Common Stock is listed on The Stock Exchange of Hong Kong
Limited (the "Hong Kong Stock Exchange"). The Hong Kong Stock Exchange is the
principal non-United States trading market for the Company's Common Stock. The
following table sets forth the range of quarterly high and low closing sale
prices of the Common Stock on the Hong Kong Stock Exchange.
<TABLE>
<CAPTION>
1997 High (HK$) Low (HK$)
---- ---------- ---------
<S> <C> <C>
First Quarter 13.70 10.00
Second Quarter (through June 25, 1997) 13.50 11.80
</TABLE>
In addition, the Company's ADSs are listed on the New York Stock
Exchange ("NYSE"). The Bank of New York serves as depositary (the "Depositary")
with respect to the ADSs trading on the NYSE. According to
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<PAGE> 31
information furnished to the Company by the Depositary, as of June 24, 1997,
there were 8 holders of records of ADSs with addresses in the United States and
such holders owned an aggregate of 10,164,275 ADSs. The following table sets
forth the range of quarterly high and low closing sale prices of the ADSs on the
NYSE.
<TABLE>
<CAPTION>
1997 High (US$) Low (US$)
---- ---------- ---------
<S> <C> <C>
First Quarter 14.375 10.000
Second Quarter (through June 24, 1997) 14.500 11.875
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.
The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority.
The transfer of shares of Common Stock of the Company ("Shares") between
persons regarded as resident outside Bermuda for exchange control purposes and
the issue of Shares within the current authorized share capital of the Company
to or by such persons may be effected without specific consent under the
Exchange Control Act of 1972 and regulations thereunder subject to such Shares
being listed on the Hong Kong Stock Exchange or the New York Stock Exchange.
Issues and transfers of Shares involving any person regarded as resident in
Bermuda for exchange control purposes require specific prior approval under the
Exchange Control Act of 1972.
There are no limitations on the rights of holders of the Shares who are
non-resident in Bermuda for exchange control purposes to hold or vote their
shares. Because the Company has been designated as a non-resident for Bermuda
exchange control purposes, there are no restrictions on its ability to transfer
funds in and out of Bermuda or to pay dividends to United States residents who
are holders of the Shares, other than in respect of local Bermuda currency.
In accordance with Bermuda law, share certificates are only issued in
the names of corporations, partnerships, or individuals. In the case of an
applicant acting in a special capacity (for example, as trustee), certificates
may, at the request of the applicant, record the capacity in which the applicant
is acting. Notwithstanding the recording of any such special capacity, the
Company is not bound to investigate or incur any responsibility in respect of
the proper administration of any such trust.
The Company will take no notice of any trust applicable to any of its
Shares whether or not it has notice of such trust.
As an exempted company, the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company, the Company may not participate in certain business
transactions including: (1) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years), (2) the taking of mortgages on land in Bermuda
to secure an amount in excess of 50,000 Bermuda dollars without the consent of
the Minister of Finance of Bermuda, (3) the acquisition of any bonds or
debentures secured on any land in Bermuda except bonds or debentures issued by
the Bermuda government or a public authority or (4) the carrying on of business
of any kind in Bermuda, except in furtherance of the business of the Company
carried on outside or under a license by the Minister of Finance of Bermuda.
ITEM 7. TAXATION.
The following discussion is a summary of the material Bermuda, Hong
Kong, and United States federal income tax considerations relevant to an
investment decision with respect to the Company's American Depositary Shares
("ADSs") and Shares. This discussion does not purport to deal with the tax
consequences of owning ADSs and Shares to all categories of investors, some of
which (such as, dealers in securities, banks, tax-exempt organizations, certain
insurance companies, investors liable for alternative minimum tax, investors
that actually or constructively own 10% or more of the voting stock of the
Company, investors who do not hold the Shares or ADSs as capital assets,
investors who hold ADSs or Shares that are part of a hedging, straddle, or
conversion transaction or US Holders whose functional currency is not the US
Dollar) may be subject to special rules. This discussion is not
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<PAGE> 32
exhaustive of all possible tax considerations, including, specifically, the
consequences under United States federal, state, local, and other laws, of the
acquisition, ownership, and disposition of ADSs and the disposition of Shares.
BERMUDA TAXATION
The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to its
shareholders. Furthermore, the Company has received from the Minister of Finance
of Bermuda under the Exempted Undertakings Tax Protection Act of 1966 an
assurance that, in the event that Bermuda enacts any legislation imposing any
tax computed on profits or income or on any capital asset, gain or appreciation,
or any tax in the nature of an estate duty or inheritance tax, the imposition of
such tax shall not be applicable to the Company or any of its operations, nor to
the shares, debentures, or other obligations of the Company, until March 28,
2016. This assurance does not, however, prevent the imposition of any Bermuda
tax payable in relation to any land in Bermuda leased to the Company or to
persons ordinarily resident in Bermuda.
HONG KONG TAXATION
TAX ON DIVIDENDS
Under the current law and practice of Hong Kong, no tax is payable in
Hong Kong in respect of dividends paid by the Company.
PROFITS TAX
No tax is imposed in Hong Kong in respect of capital gains from the sale
of property (such as the ADSs or Shares). Trading gains from the sale of
property by persons carrying on a trade, profession, or business in Hong Kong
where such gains are derived from or arise in Hong Kong from such trade,
profession, or business will be chargeable to Hong Kong profits tax which is
currently imposed at the rate of 16.5% on corporations and at a maximum rate of
15% on individuals. Gains from sales of the Shares effected on the Hong Kong
Stock Exchange will be considered to be derived from or arise in Hong Kong.
Liability for Hong Kong profits tax would thus arise in respect of trading gains
from sales of Shares realized by persons carrying on a business in Hong Kong of
trading or dealing in securities. Gains from sales of the ADSs effected on the
New York Stock Exchange will usually be considered to be derived from or arise
outside Hong Kong, and therefore, liability for Hong Kong profits tax would not
ordinarily arise in respect of trading gains from sales of ADSs.
STAMP DUTY
In order for Shares to be dealt on the Hong Kong Stock Exchange, such
Shares must be registered on the Hong Kong branch register of the Company. Hong
Kong Stamp duty will be payable by the transferee on every, and by the
transferor, on every transfer of a beneficial interest in Shares that are
registered on the Hong Kong branch register of the Company. The duty is charged
at the rate of HK$1.50 per HK$1,000 or part thereof of the consideration for, or
(if greater) the value of, the Shares transferred (i.e., a total of HK$3 per
HK$1,000 or part thereof is currently payable on a typical sale and purchase
transaction of Shares). In addition, a fixed duty of HK$5 is currently payable
on an instrument of transfer of such Shares.
The withdrawal of Shares that are registered on the Hong Kong branch
register of the Company upon the surrender of ADSs, and the issuance of ADSs
upon the deposit of such Shares, will not attract the stamp duty charge at the
rate described above for sale and purchase transactions unless such withdrawal
or deposit results in a change in the beneficial ownership of the Shares under
Hong Kong law. The issuance of ADSs upon the deposit of Shares issued directly
to the Depositary or for the account of the Depositary should not attract stamp
duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong
Kong.
ESTATE DUTY
Estate duty is imposed upon the principal value of property situated in
Hong Kong passing on the death of a person. Shares that are registered on the
Hong Kong branch register of the Company (which may include Shares
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<PAGE> 33
represented by ADSs) are regarded as property situated in Hong Kong for estate
duty purposes. Hong Kong estate duty is imposed on the principal value of a
deceased's Hong Kong estate at graduated rates from 6% to 18%. In respect of the
estate of persons dying on or after April 1, 1996, no estate duty is payable
where the principal value of the dutiable Hong Kong estate does not exceed
HK$6.5 million; the maximum rate of 18% applies where the principal value
exceeds HK$9.5 million.
UNITED STATES FEDERAL INCOME TAXATION
The following summary describes the principal United States federal
income tax consequences of the purchase, ownership, and disposition of Shares
and ADSs (evidenced by American Depositary Receipts ("ADRs"), but it does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase, own, or dispose of Shares or ADSs. In
particular, this summary of United States federal income tax matters deals only
with holders that will hold Shares or ADSs as capital assets and does not
address special tax situations, such as the United States tax treatment of
holders who are securities dealers, who are holding Shares or ADSs as part of a
hedging or larger integrated financial or conversion transaction, who are
citizens or residents of a possession or territory of the United States, who are
United States holders (as defined below) with a currency other than the US
dollar as their functional currency or who own, directly or indirectly, 10% or
more of the voting stock of the Company. For this purpose, the Shares and ADSs
will constitute voting stock of the Company.
This summary is based upon (i) the income tax laws of the United States
as in effect on December 13, 1996, which are subject to change, possibly with
retroactive effect, and (ii) in part, on representations of The Bank of New
York, as the Company's depositary (the "Depositary") and on the assumption that
each obligation in the Deposit Agreement and any related agreement will be
performed in accordance with its terms.
This discussion is not exhaustive of the consequences of the purchase,
ownership, and disposition of Shares or ADSs, including the effect of any state
or local tax laws or the laws of any jurisdiction other than the United States.
THE COMPANY
The Shares and Shares represented by ADSs are characterized as equity
interests in the Company, and the Company will so characterize all such Shares
for all United States federal income tax purposes.
The Company will be subject to United States federal income tax only to
the extent that it derives certain United States source income or income
effectively connected with the conduct of a trade or business within the United
States. Currently, the Company does not have, intends and anticipates that it
will not have, and will conduct its affairs in a manner so that it will not
have, any United States source income subject to United States federal income or
withholding tax or income effectively connected with the conduct of a trade or
business within the United States. Thus, the Company intends and anticipates
that it will not be subject to any United States federal tax.
TAXATION OF INVESTORS--UNITED STATES HOLDERS
As used herein, a "United States holder" means a beneficial owner of
Shares or ADSs who is a citizen or resident of the United States; a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any State thereof; or an estate or trust, the income of which
is subject to United States federal income tax regardless of its source. A
"resident" of the United States includes an individual that (i) is lawfully
admitted for permanent residence in the United States, (ii) is present in the
United States for 183 days or more during a calendar year or (iii) (a) is
present in the United States for 31 days or more during a calendar year, (b) is
present in the United States for an aggregate of 183 days or more, on a weighted
basis, over a 3-year period ending in such calendar year, and (c) does not have
a closer connection to a "tax home" that is located outside the United States.
OWNERSHIP OF ADSS AND SHARES. For United States federal income tax
purposes, a United States holder of ADRs will be treated as the owner of the
ADSs evidenced thereby and of the Shares represented by such ADSs. Accordingly,
no gain or loss will be recognized by a United States holder upon the exchange
of ADSs for the Shares represented by such ADSs. A United States holder's tax
basis
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<PAGE> 34
in the Shares received will be the same as its tax basis in the surrendered ADSs
and the holding period for Shares received will include the period during which
the holder held such ADSs.
TAXATION OF DIVIDENDS. To the extent provided below, a United States
holder will be required to include in gross income when received by the holder
or, in the case of ADSs, by the Depositary, as a dividend any cash or the fair
market value of any property distributed by the Company in the same manner as if
the Company were a United States corporation not subject to the rules described
below. Distributions paid in any currency other than the US dollar will be
translated into US dollars at the spot rate on the date the dividends are paid,
regardless of whether the dividends are in fact converted on that date.
Dividends paid by the Company will not be eligible for the dividends
received deduction generally allowed to corporations under the United States
Internal Revenue Code of 1986, as amended ("the Code"). For purposes of the
United States foreign tax credit limitation, dividends paid by the Company
generally will constitute foreign source "passive income" (or, in the case of a
holder who is a "financial services entity" as defined in regulations under the
Code, "financial services income").
TAXATION OF DISPOSITIONS OF SHARES OR ADSS. A gain or loss realized by a
United States holder on the sale or other disposition of a Share or an ADS will
be subject to United States federal income tax, as a capital gain or loss, in an
amount equal to the difference between such United States holder's adjusted tax
basis in the Share or ADS and the amount realized on its disposition.
For purposes of the United States foreign tax credit limitation, a
recognized gain or loss arising on the disposition of a Share or ADS generally
will be United States source gain. There is a risk, however, that a recognized
loss may be allocated against foreign source income by reference to the source
of income received under the Share or ADS based on, among other things, whether
or not a Share or ADS is attributable to a foreign office of the holder. The
Internal Revenue Service has issued Proposed Regulations (which, while not
currently effective, may become effective at some future time) on the sourcing
of losses and holders of Shares or ADSs should consult with their tax advisors
regarding the application of such Proposed Regulations to their specific
situation,.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
The foregoing discussion assumes that the Company is not currently, and
will not in the future be, classified as a "passive foreign investment company"
("PFIC") under the Code.
Special United States federal income tax rules apply to holders of
equity interests in a PFIC. A foreign corporation will constitute a PFIC for
United States federal income tax purposes if 75% or more of its gross income for
a taxable year were to consist of passive income, or 50% or more of its average
assets held during a taxable year were to consist of passive assets. Passive
assets are defined as assets that give rise, or that reasonably could give rise
during the reasonably foreseeable future, to passive income. Passive income
includes (i) rent and lease income (not including rent and lease income derived
from persons other than related persons from the active conduct of a rental or
leasing trade or business), (ii) interest, (iii) dividends from shares of stock
in a corporation in which the foreign corporation directly or indirectly owns
less than 25% of the value of the stock in the corporation and (iv) gains from
the sale of any (a) property that gives rise to passive rent or lease income,
(b) partnership interests, or (c) shares of stock.
Based on the Company's existing and anticipated future operations, as
well as the existing and anticipated future operations of APT and APT BVI, the
Company believes that it, APT and APT BVI are not, and intends and anticipates
that they will not become in the future, PFICs. However, it is possible that
certain lease income derived by the Company (or APT or APT BVI) might be viewed
by the United States Internal Revenue Service (the "IRS") as passive income. In
addition, because of the nature of the leasing business, and because the
determination of whether or not the Company, APT or APT BVI is a PFIC will be
based upon the composition of the annual income and assets of the entity, there
can be no assurance that the Company, APT or APT BVI will not be considered a
PFIC for the current or for any subsequent taxable year.
Because the Company's sole asset is its stock interest in APT BVI, and
APT BVI's sole asset, in turn, is its stock interest in APT, if APT is or
becomes a PFIC, both the Company and APT BVI will also be or become PFICs.
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<PAGE> 35
If the Company, APT and APT BVI are or become PFICs, a United States holder
(whether direct, indirect or constructive) would be required to allocate to each
day in its holding period with respect to the Shares or ADSs a pro rata portion
of any distribution received, or deemed received under certain attribution
rules, from the Company, APT or APT BVI that is treated as an "excess
distribution." Generally, an excess distribution is that portion of the total
annual distributions (including the proceeds from a redemption of Shares or ADSs
that is treated as a distribution) from the Company, APT or APT BVI that exceeds
125% of the average annual amount distributed (as measured in the currency of
such distributions) by that entity during the three preceding years (or such
shorter period as the United States holder may have held the Shares or ADSs). In
addition, the full amount of any gain recognized on a disposition or deemed
disposition (including a liquidation, a redemption that is treated as an
exchange, or a pledge) of (i) Shares or ADSs by the United States holder, (ii)
attributable shares of APT by APT BVI, or (iii) attributable shares of APT BVI
by the Company will be treated as an excess distribution.
The amount of any excess distribution is allocated ratably over the
United States holder's entire holding period. The amount allocated to the
current taxable year and to any period prior to the first taxable year during
which the Company, APT and APT BVI were PFICs is taxed as ordinary income. Any
amount of the excess distribution allocable to a prior taxable year during which
the Company, APT and APT BVI were PFICs or after the first taxable year they
were PFICs will be subject to a deferred United States federal income tax
charge, calculated as the sum of the amount of tax imposed on the allocable
excess distribution at the highest applicable rate in effect for each year plus
the accumulated interest on the determined amount of tax. Given the distribution
and investment policies of the Company, if the Company, APT and APT BVI are or
become PFICs, there is a substantial risk that any distribution by the Company
will be treated as an excess distribution. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources").
For purposes of the PFIC rules, under certain circumstances, Shares or
ADSs held by a non-United States holder (as defined below) may be attributed to
a United States person owning an interest, directly or indirectly, in that
non-United States holder. In such event, dividends and other transactions in
respect of the Shares or ADSs held by the non-United States holder would be
attributed to such United States person for purposes of applying the above PFIC
rules.
If the Company is a PFIC, a United States holder must file Internal
Revenue Service Form 8621 regarding distributions received with respect to
Shares or ADSs and any gain realized on the disposition or deemed disposition of
Shares or ADSs for each taxable year in which the United States holder owns
Shares or ADSs.
If the Company, APT and APT BVI are or become PFICs, an investment in
Shares or ADSs by a United States holder could subject the holder to
substantial, adverse United States federal income tax consequences. Prospective
United States holders should consult their own tax advisers regarding the
potential application of the PFIC regime.
TAXATION OF INVESTORS--NON-UNITED STATES HOLDERS
Subject to the discussion of United States backup withholding tax below,
a holder of Shares or ADSs other than a United States holder (a "non-United
States holder") will not be subject to United States federal income or
withholding tax on income derived by the Company, dividends paid to a holder by
the Company or gains realized on the sale of Shares or ADSs, provided that (i)
such income is not effectively connected with the conduct by the non-United
States holder of a trade or business within the United States, (ii) the
non-United States holder is not or was not present in, or does not have or did
not have a permanent establishment in, the United States, (iii) there has not
been a present or former connection between the non-United States holder and the
United States, including, without limitation, such non-United States holder's
status as a citizen or former citizen thereof or resident or former resident
thereof, or (iv) in the case of a gain from the sale or disposition of Shares or
ADSs by an individual, the non-United States holder is not present in the United
States for 183 days or more during the taxable year of the sale or certain other
conditions are met. In addition, the provisions of certain bi-lateral income tax
treaties to which the United States is a party may shield a non-United States
holder from the imposition of United States federal income tax on income from
Shares or ADSs even if such income or such holder falls in one of the categories
listed above. Non-United States holders should consult their tax advisors
regarding the taxability of income in respect of the Shares or ADSs.
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<PAGE> 36
UNITED STATES BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current temporary regulations, dividends paid on Shares or ADSs to
United States holders or non-United States holders through United States or
United States-related persons will be subject to a 31% United States backup
withholding tax if certain information reporting requirements are not satisfied.
In addition, under current temporary regulations, the proceeds of sales of the
Shares or ADSs by United States holders or non-United States holders through
United States or United States-related brokers would be subject to the 31%
United States backup withholding requirements if certain information reporting
requirements are not satisfied. In most cases, a United States holder can avoid
the imposition of backup withholding tax by reporting his taxpayer
identification number to his broker or paying agent on IRS Form W-9. A
non-United States holder can avoid the imposition of backup withholding tax by
providing a duly completed IRS Form W-8 to his broker or paying agent.
Any amounts withheld under the backup withholding tax rules from a
payment to a holder will be allowed as a refund or a credit against such
holder's United States federal income tax, provided that the required
information is furnished to the IRS.
ITEM 8. SELECTED FINANCIAL DATA.
The selected financial data for the Company as of and for the three
years ended December 31, 1994, 1995 and 1996 set forth below are derived from,
and should be read in conjunction with, and are qualified in their entirety by
reference to, the audited consolidated financial statements of the Company,
including the Notes thereto (the "Consolidated Financial Statements"), included
herein. The selected financial data as of and for the periods ended December 31,
1992 and 1993 set forth below are derived from audited consolidated financial
statements of the Company not included herein. The Consolidated Financial
Statements are prepared and presented in accordance with Hong Kong GAAP. For a
discussion of certain differences between Hong Kong GAAP and US GAAP, see Note
21 to the Consolidated Financial Statements.
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<PAGE> 37
<TABLE>
<CAPTION>
January
21, 1992
(date of
incorporation
to Year ended December 31,
December 31, -------------------------------------------------
1992 1993 1994 1995 1996 1996
(In millions except per share and per ADS data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Hong Kong GAAP
Revenues:
Leasing of satellite
transponders to:
Unaffiliated
customers.......... HK$ -- HK$ -- HK$ 56.0 HK$197.1 HK$249.5 US$ 32.2
Related parties.... -- -- 13.1 87.7 118.1 15.3
---- ---- ----- ----- ----- -----
Total Revenues........ -- -- 69.1 284.8 367.6 47.5
---- ---- ----- ----- ----- -----
Operating expenses:
Cost of service....... -- -- (2.5) (17.3) (26.9) (3.5)
Depreciation and
amortization.......... (0.3) (0.9) (38.7) (113.2) (148.1) (19.1)
Selling, general and
administrative........ (9.6) (21.7) (38.1) (48.9) (64.1) (8.3)
------ ------ ------ ------ ------ ------
Total operating expenses (9.9) (22.6) (79.3) (179.4) (239.1) (30.9)
------ ------ ------ ------ ------- ------
Operating income (loss)
from continuing
operations............ (9.9) (22.6) (10.2) 105.4 128.5 16.6
Other income (expenses):
Interest income....... 1.5 6.4 8.7 22.5 17.0 2.2
Interest expense...... -- (1.0) (12.4) (43.8) (52.7) (6.8)
Other income.......... -- -- 14.1 0.5 6.3 0.8
---- ---- ----- ----- ----- -----
Income (loss) before
exceptional item and
discontinued operations (8.4) (17.2) 0.2 84.6 99.1 12.8
Income from discontinued
operations.............. -- 2.8 1.2 -- -- --
---- ---- ---
Exceptional item(1)..... -- 60.9 -- (69.8) -- --
---- ----- ---- ------ ---- ---
Income before income
taxes................... (8.4) 46.5 1.4 14.8 99.1 12.8
Provision for income
taxes................... -- -- -- -- (22.6) (2.9)
---- --- ---- --- ------ ------
Net income (loss)....... HK$ (8.4) HK$ 46.5 HK$ 1.4 HK$ 14.8 HK$ 76.5 US$ 9.9
========= ======== ======== ======== ========= =========
Net income (loss) from
continuing operations
per share(2).......... 0.15 -- 0.05 0.24 0.03
Net income (loss) form
continuing operations
per ADS(2)............ 1.22 -- 0.38 1.92 0.25
Weighted average number
of shares
outstanding(2)........ 285.4 315.0 315.0 319.0 319.0
US GAAP:
Net income (loss) from
continuing operations 46.4 2.8 16.9 89.3 11.5
Net income (loss) from
continuing operations
per share(2) 0.16 0.01 0.05 0.28 0.04
Net income (loss) from
continuing operations
per ADS(2)........... 1.30 0.07 0.43 2.24 0.29
Weighted average
number of shares
outstanding(2)....... 285.4 315.0 315.0 319.0 319.0
BALANCE SHEET DATA:
Hong Kong GAAP:
Working capital....... HK$ 60.8 HK$ 65.5 HK$(126.9) HK$(96.4) HK$174.3 US$ 22.5
Property, plant and
equipment............. 2.3 16.7 1,083.7 1,000.7 1,851.5 239.3
Total assets.......... 302.4 1,044.6 2,550.8 2,082.2 3,193.6 412.8
Long-term debt (less
current portion)...... 307.6 786.2 1,289.4 973.7 692.9 89.6
Shareholders' equity
(deficit)............. (7.9) 38.9 581.9 596.7 1,942.5 251.1
US GAAP:
Total assets.......... 1,044.6 3,523.2 3,027.9 4,124.4 533.1
Total liabilities..... 1,001.9 2,935.1 2,422.9 2,160.9 279.3
Shareholders' equity.. 42.7 588.1 605.0 1,963.5 253.8
OTHER DATA:
Hong Kong GAAP:
Earnings before
interest income,
interest expense,
other income, income
taxes, depreciations
and amortization and
exceptional items
("EBITDA") from
continuing
operations(3)........ HK$ (9.6) HK$(21.7) HK $ 28.5 HK$218.6 HK$276.6 US$ 35.7
EBITDA margin(4)...... -- -- 41.2% 76.7% 75.2% 75.2%
Capital expenditures(5) HK$240.3 HK$553.4 HK$1,490.3 HK$1,106.6 HK$1,053.7 US$ 136.2
</TABLE>
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<PAGE> 38
- ----------
(1) The exceptional gain for the year ended December 31, 1993 represents
compensation received from a third party in connection with the
termination of a joint venture agreement between a subsidiary of the
Company and the third party for the development of a satellite
communications system. The exceptional loss for the year ended December
31, 1995 represented uninsured expenses related to the loss of APSTAR
II, the launching of which was unsuccessful. Uninsured expenses comprise
legal and other professional fees, interest and certain other expenses.
(2) Per share and per ADS data is derived from the weighted average number
of shares outstanding during the applicable period which gives effect to
the number of shares outstanding after the Company's restructuring
before and in anticipation of the Global Offering, and for the year
ended December 31, 1996, after the Global Offering.
(3) EBITDA is computed under Hong Kong GAAP, EBITDA is not intended to
represent cash flow for the period nor has it been presented as an
alternative to net income as an indicator of operating performance.
(4) EBITDA margin represents EBITDA as a percentage of the Company's
revenues.
(5) Capital expenditures includes capitalized interest.
EXCHANGE RATE
The exchange rates as of and during the years ended December 31, 1992,
1993, 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(HK$ equivalent to $1)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average (1) 7.7402 7.7357 7.7290 7.7357 7.7345
High 7.7765 7.7650 7.7530 7.7665 7.7440
Low 7.7237 7.7230 7.7225 7.7300 7.7310
End of Period 7.7430 7.7280 7.7375 7.7323 7.7370
</TABLE>
- ----------
(1) Determined by averaging the rates on each day during the relevant
period.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements. The Consolidated Financial Statements
have been prepared in accordance with Hong Kong GAAP, which differs in certain
respects from US GAAP. For a summary of material differences between Hong Kong
GAAP and US GAAP, see Note 21 of Notes to the Consolidated Financial Statements
and "US GAAP Reconciliation" below.
OVERVIEW
APT's existing satellites, APSTAR I and APSTAR IA, are in geostationary
orbit at 138 degrees East and 134 degrees East, respectively, providing
commercial service to broadcasting and telecommunications customers in the
Asia-Pacific region (virtually all of which is covered by the footprints of both
satellites), with particular emphasis on the PRC. APSTAR I was launched from
Xichang on July 21, 1994, and began commercial service on September 15, 1994.
APSTAR IA was launched, also from Xichang, on July 3, 1996, and commenced
commercial service on September 1, 1996. Both satellites are Hughes HS-376
communications satellites and each is equipped with 24 C-band transponders, 20
at 36 MHz and four at 72 MHz.
APSTAR I's transponders have been effectively fully committed since
February 1995. As of December 31, 1996 28.8% of revenues from APSTAR I were
derived from PRC customers. The remaining transponders are leased to a variety
of international broadcasting companies from the United States, Hong Kong and
Taiwan. APSTAR IA's transponders were 67.3% committed as of December 31, 1996.
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<PAGE> 39
APT's transponder lease agreements typically have a term of five years,
require the payment of a deposit of one calendar quarter's rental upon signing
of the contract, provide for an escalation of service fees during the agreement
term according to an agreed schedule, require service fees to be paid quarterly
in advance and provide for renewal options. In addition, two of the 36 MHz
transponders on APSTAR I have been committed for the life of the satellite.
Revenues from the payments for these transponders are recognized on a straight
line basis over the warranty period provided to the customers, generally 60
months.
The Company intends to expand its operations in the Asia-Pacific region
by commissioning APSTAR IIR, an SS/Loral FS-1300 communications satellite,
currently scheduled for launch in mid-1997, and through future satellite
projects, including the DBS Project. See "Business - Operation of the APSTAR
System - Future Satellites."
On January 26, 1995, APSTAR II was destroyed 50 seconds after lift-off.
The Company received an insurance payment of approximately HK$1,241.5 million
with respect to this incident, but recognized an exceptional loss of HK$69.8
million in its results of operations for the year ended December 31, 1995
relating to the uninsured portion of the project. See "The Company."
Certain aspects of the business of the Company are subject to
governmental regulation, including the coordination of orbital slots under the
regulations of the ITU and the licensing of the Company's satellite-related
activities in Hong Kong by the Hong Kong government under the Outer Space Order.
See "Regulation." Licenses from the Hong Kong government must be obtained to
launch or operate a satellite. APT has the benefit of existing licenses covering
current and future operation of each of APSTAR I and APSTAR IA. Each of these
licenses requires the approval of the Hong Kong government for any transfer of a
beneficial interest in the satellite, such as that which will arise in
connection with the consummation of the Global Offering. The Company has applied
to obtain these approvals. The Company pays annually HK$136,500 in licensing
fees to the Hong Kong government as fixed in its licenses. The license
application process for APSTAR IIR began in July 1995. Based on its past
experience, the Company expects that it will take 10 to 20 months to obtain the
license. The Company expects the appropriate licenses to be granted before the
launch of APSTAR IIR. Although neither the Joint Declaration nor the Basic Law
makes express provision with respect to the Outer Space Order or the regulation
of satellite launch and operation or other outer space activities, the Basic Law
provides that the laws previously in force in Hong Kong shall be maintained,
except for any laws that contravene the Basic Law, and subject to any amendment
by the legislature of the Hong Kong SAR.
The following table sets forth, for the periods indicated, the
percentage of revenues from continuing operations represented by certain revenue
and expense items in the Company's statements of income.
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<PAGE> 40
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1994 1995 1996
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................... 100.0% 100.0% 100.0%
Operating expenses:
Cost of service........................ 3.6 6.1 7.3
Depreciation and amortization.......... 56.0 39.7 40.3
Selling, general and administrative.... 55.2 17.2 17.4
---- ---- ----
Total operating expenses................... 114.8 63.0 65.0
----- ---- ----
Operating income (loss).................... (14.8)% 37.0% 35.0%
====== ==== ====
Income before exceptional item and
discontinued operations.................. 0.2% 29.7% 27.0%
Net income (loss).......................... 0.2% 5.2% 20.8%
OTHER DATA:
EBITDA..................................... 41.2% 76.7% 75.2%
</TABLE>
APT did not recognize any revenues for satellite transponder leasing
until September 15, 1994, the date on which APSTAR I commenced commercial
service. Prior to that date, the Company's revenues were attributable to sales
of certain electronic products, a business which was discontinued in 1994.
The Company began to recognize revenues from APSTAR IA on September 1,
1996, and, therefore, none of such revenues is reflected in results of
operations for the periods for which information is presented in this offering
circular. Further, all relevant costs relating to APSTAR IA have been
capitalized during the periods discussed herein, and are therefore also not
reflected in results of operations.
For the years ended December 31, 1994, 1995 and 1996, the Company did
not write off any accounts receivable.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
REVENUES. Revenues for the year ended December 31, 1996 were HK$367.6
million (US$47.5 million), an increase of HK$82.8 million (US$10.7 million), or
29.1%, as compared to revenues of HK$284.8 million for the same period in 1995.
This increase was primarily a result of the leasing of additional APSTAR IA
transponders. In the year ended December 31, 1996, 76.9% of revenues was related
to broadcast services, and 23.1% of such revenues was derived from
telecommunications services as opposed to 78.0% and 22.0%, respectively, for the
year ended December 31, 1995.
OPERATING EXPENSES. Operating expenses were HK$239.1 million (US$30.9
million) for the year ended December 31, 1996, an increase of HK$59.7 million
(US$7.7 million), or 35.5%, as compared to the year ended December 31, 1995.
This increase was primarily a result of a HK$8.9 million (US$1.1 million) item
included in cost of service relating to increase in-orbit insurance costs for
APSTAR I in 1996. In 1995, the Company obtained in-orbit insurance for APSTAR I
(for the first time, after expiration of the initial launch and in-orbit
insurance package) later in the year than in 1996, effectively reducing the
premium attributable to the year ended December 31, 1995. Operating expenses as
a percentage of revenues were 65.0% in the year ended December 31, 1996, as
compared to 63.0% in 1995.
The Company capitalizes all costs that are directly attributable to a
satellite incurred during the period prior to the commissioning of such
satellite (including insurance and financing costs). With respect to APSTAR II,
after the loss of the satellite, the aggregate satellite project progress
payments of HK$1,311.3 million was offset in part by the insurance payment
received by the Company in March 1995 (HK$1,241.5 million). The balance,
reflecting the
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<PAGE> 41
uninsured portion of the loss (HK$69.8 million), was written off as an
exceptional item in the Company's 1995 results of operations. Similarly,
operating costs directly incurred for APSTAR IIR and the DBS Project satellites
prior to their commissioning will be capitalized and amortized as described
above.
EBITDA. EBITDA for the year ended December 31, 1996 was HK$276.6 million
(US$35.7 million), an increase of HK$58.0 million, (US$7.5 million) or 26.5% as
compared to the year ended December 31, 1995. EBITDA was equal to 75.2% of
revenues for the year ended December 31, 1996, as compared to 76.7% for 1995.
Such decrease was due to the factors discussed above. EBITDA is not a recognized
US GAAP or Hong Kong GAAP measurement.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
year ended December 31, 1996 was HK$148.1 million (US$19.1 million), essentially
flat as compared to depreciation and amortization of HK$113.2 million for the
year ended December 31, 1995. Both periods reflected amortization of APSTAR I,
and neither included amortization of APSTAR IA, as amortization of APSTAR I
commenced on September 15, 1994, and amortization of APSTAR IA did not commence
until September 1, 1996.
OPERATING INCOME. Operating income was HK$128.5 million (US$16.6
million) for the year ended December 31, 1996, an increase of HK$23.1 million
(US$3.0 million), or 22.0%, as compared to the year ended December 31, 1995.
Such increase was due to the factors discussed above.
OTHER INCOME AND EXPENSES. Net interest expense was HK$35.7 million
(US$4.6 million) in the year ended December 31, 1996, an increase of HK$14.4
million (US$1.9 million), or 67.6%, as compared to the year ended December 31,
1995, largely as a result of increases in interest expenses, which related to
the commencement of repayments under the APSTAR IA Loan Agreement (as defined
herein), exceeding decreases in interest income. Aggregate non-operating items
resulted in an expense of HK$29.4 million (US$3.8 million) in the year ended
December 31, 1996, an increase of HK$8.6 million (US$1.1 million), or 41.3%, as
compared to the year ended December 31, 1995.
PROVISION FOR INCOME TAXES. Provision for income taxes was HK$22.6
million (US$2.9 million) in the year ended December 31, 1996, an increase of
HK$22.6 million as compared to the year ended December 31, 1995 when taxable
income was fully offset at year-end by tax loss carryforwards.
NET INCOME. Net income for the year ended December 31, 1996 was HK$76.5
million (US$9.9 million), an increase of HK$61.7 million (US$8.0 million), as
compared to the year ended December 31, 1995. This increase was primarily
attributable to an exceptional loss in 1995 of HK$69.8 million relating to the
uninsured portion of the loss from the destruction of APSTAR II shortly after
its lift-off.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
REVENUES. Revenues were HK$284.8 million in 1995, an increase of
HK$215.7 million, as compared to revenues from continuing operations of HK$69.1
million in 1994. This increase was primarily as a result of the commissioning to
service of APSTAR I on September 15, 1994. 78.0% of transponder leasing revenues
(HK$222.1 million) related to broadcasting services and 22.0% (HK$62.7 million)
to telecommunications services in 1995, as compared to 86.5% (HK$59.8 million)
and 13.5% (HK$9.3 million), respectively, in 1994.
OPERATING EXPENSES. Operating expenses were HK$179.4 million for 1995,
an increase of HK$100.1 million as compared to operating expenses from
continuing operations of HK$79.3 million in 1994. The increase was attributable
to increases in cost of service (HK$14.8 million), depreciation and amortization
(HK$74.5 million) and selling, general and administrative expenses (HK$10.8
million), all relating to the maturing of the Company's business and operations
after the commissioning of APSTAR I in September 1994. Operating expenses as a
percentage of transponder leasing revenues were 63.0% in 1995, as compared to
114.8% in 1994. In 1994, the Company had expenses related to discontinued
operations of HK$16.7 million.
EBITDA. EBITDA was HK$218.6 million in 1995, an increase of HK$190.1
million as compared to EBITDA from continuing operations in 1994 of HK$28.5
million. EBITDA was equal to 76.7% of revenues in 1995, as compared to EBITDA
from continuing operations equal to 41.2% of revenues and the decrease in
selling,
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<PAGE> 42
general administrative expenses as a percentage of revenues (17.2% in 1995, as
compared to 55.2% in 1994), notwithstanding the actual increase in such expenses
from year to year (HK$48.9 million in 1995, as compared to HK$38.1 million in
1994). EBITDA is not a recognized US GAAP or Hong Kong GAAP measurement.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was
HK$113.2 million in 1995, an increase of HK$74.5 million as compared to
depreciation and amortization related to continuing operations in 1994,
attributable to the full year of amortization of APSTAR I in 1995, rather than
four months, as in 1994.
OPERATING INCOME (LOSS). Operating income was HK$105.4 million in 1995,
an increase of HK$115.6 million as compared to the operating loss from
continuing operations of HK$10.2 million in 1994. This change was attributable
to the inclusion of a full year's satellite transponder rental payments in 1995,
as opposed to the initial start-up and partial year's revenues from the same
source in 1994. Operating income from discontinued operations was HK$1.2 million
in 1994.
OTHER INCOME AND EXPENSES. Net interest expense was HK$21.3 million for
1995, an increase of HK$17.6 million as compared to net interest expenses from
continuing operations in 1994. The increase was primarily related to the
cessation of capitalization of interest relating to the financing of APSTAR I
after the satellite commenced commercial operations on September 15, 1994. The
Company had an aggregate non-operating expense of HK$20.8 million in 1995, as
compared to a non-operating income of HK$10.4 million from continuing operations
in 1994, which was largely attributable to HK$13.7 million of non-operating
income in 1994 relating to compensation received upon cancellation of
transponder rental agreements by two customers which opted not to utilize
transponders on APSTAR I after the satellite commenced operations.
INCOME TAXES. No Hong Kong profits tax was paid by the Company in 1995
and 1994. See Note 13 of Notes to the Consolidate Financial Statements.
NET INCOME. Net income was HK$14.8 million in 1995, an increase of
HK$14.6 million as compared to net income from continuing operations of HK$0.2
million in 1994. The increase was primarily as result of the increases in
revenues and operating income following the commencement of commercial service
by APSTAR I in September 1994.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities amount to HK$266.4 million
(US$34.4 million) in the year ended December 31, 1996, and HK$131.4 million in
the year ended December 31, 1995. Net cash provided by operating activities
substantially exceeded net operating income in both periods as a result of a
number of factors, most prominent of which was depreciation and amortization.
Net cash provided by operating activities was HK$293.8 million in 1994.
At December 31, 1996, APT had working capital of HK$174.3 million
(US$22.5 million) and cash and cash equivalents of HK$313.5 million (US$40.5
million). Working capital increased by HK$270.7 million (US$35.0 million)
between December 31, 1995 and December 31, 1996, primarily as a result of
increases in prepayments, deposits and other receivables of HK$13.1 million
(US$1.7 million) and tax payable of HK$22.6 million (US$2.9 million), and
decreases in accounts payable and accrued expenses of HK$13.8 million (US$1.8
million) and rental received in advance of HK$11.7 million (US$1.5 million).
Net cash used in investing activities was HK$1,053.7 million (US$136.2
million) in the year ended December 31, 1996. Of this amount, HK$1,040.2 million
(US$134.4 million) was attributable to increases in satellite project progress
payments on APSTAR IA and APSTAR IIR. In 1995, APT had net cash provided by
investing activities of HK$134.8 million, attributable mainly to a HK$1,241.5
million receipt of insurance compensation relating to the loss of APSTAR II
shortly after its launch. Satellite project progress payments for the year
aggregated HK$1,100.0 million. Net cash used in investing activities was
HK$1,428.3 million in 1994.
Net cash provided by financing activities was HK$1,000.8 million
(US$129.3 million) in the year ended December 31, 1996, including a HK$1,217.2
million (US$157.3 million) increase in secured syndicated bank loans. Financing
activities in 1995 resulted in net cash used of HK$387.8 million, resulting
mainly from reductions in
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<PAGE> 43
secured syndicated bank loans of HK$906.0 million. Net cash provided by
financing activities was HK$1,265.2 million in 1994.
The Company's principal sources of capital for the construction and
launch of its satellites, the construction of related facilities and necessary
working capital have been (i) equity provided by the Principal Shareholders,
(ii) a US$75.0 million term loan facility specifically relating to APSTAR I,
(iii) a US$232.0 million term loan facility supporting costs related to APSTAR
IA and APSTAR IIR, (iv) a lease financing with respect to APSTAR I, pursuant to
which the Company received a lump sum payment of HK$85.0 million, (v) loans to
the Company from the Principal Shareholders in an aggregate amount of U$35.0
million and (vi) cash flow from operations.
APT's principal use of capital in the last several years has been (and
will for the foreseeable future be) capital expenditures related to the
construction and launch of its satellites. The Company's business is
capital-intensive, requiring substantial capital outlays before any given
satellite is commissioned to commercial service and can begin providing a return
on capital.
The Company makes periodic satellite project progress payment relating
to construction of satellites, launching and related services, insurance costs
and finance costs on amounts borrowed to finance such expenses. Upon the
commencement of commercial service of an APT satellite, satellite project
progress payments relating to the satellite are transferred in full to property,
plant and equipment. As of December 31, 1996, satellite project progress
payments with respect to APSTAR IA (since transferred to property, plant and
equipment on September 1, 1996) were HK$989.2 million (US$127.9 million), and,
with respect to APSTAR IIR, were HK$947.4 million (US$122.5 million), and
property, plant and equipment were HK$1,851.6 million (US$239.3 million),
HK$785.9 million (US$101.6 million) of which related to APSTAR I.
In addition to relying on its historical sources of financing, the
Company used a portion of the net proceeds of its Global Offering to finance
further capital expenditures relating to satellite construction and launch.
With the successful launch and entry into commercial service of APSTAR
IA in 1996, APT's investment focus is now centered on APSTAR IIR, currently
anticipated to be launched in mid-1997. See "Business - Operation of the APSTAR
System - APSTAR IIR." The total estimated cost for the construction and launch
of APSTAR IIR, including launch insurance, ground facilities, related expenses
and capitalized interest, is approximately US$216.5 million, of which
approximately US$95.7 million had been expended at December 31, 1996. APT has
entered into contracts with SS/Loral and Great Wall in connection with the
construction and launch of APSTAR IIR. The Company has not entered into any such
contracts with respect to any of its future satellite projects. The total
estimated cost of future satellite projects is more likely to be subject to
substantial change than that of APSTAR IIR. In all of its contracts for capital
expenditures, the Company may incur additional costs due to cost overruns,
delays or other unanticipated expenses. If additional costs are incurred in
connection with any future projects, the Company may need to obtain additional
financing, unless its cash flow from operations is sufficient for such
financing. Currently, the Company plans to finance its future capital
expenditures through additional bank borrowings, cash flow from operations and
from a portion of the net proceeds of its Global Offering. There can be no
assurance that necessary financing will be available or that, if available, it
will be available on terms favorable to the Company.
OTHER
Exchange Rates
Substantially all of APT's historical revenues from transponder
leasing, premiums for satellite launch and in-orbit insurance coverage, debt
service and capital expenditures have been denominated in US Dollars. The
remaining revenues and expenses have been primarily denominated in Hong Kong
Dollars, which are fully convertible into US Dollars, and the exchange rates for
that currency against the US Dollar have been pegged since 1983. As the exchange
rate between the Hong Kong Dollar and the US Dollar has been pegged, the Company
does not engage in or plan to engage in hedging activities to offset risks of
exchange rate fluctuations. There can be no assurance that the exchange rates
will remain stabilized in the future. See "Exchange Rate Information." At
December 31, 1996, all of the Company's material contracts and obligations were
denominated in US Dollars.
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<PAGE> 44
Inflation
Inflation has not materially affected the Company's operations during
its operating history.
Taxation
The Company's profits for the year ended December 31, 1996 which is
deemed to be Hong Kong-sourced is subject to Hong Kong profits tax, which is
currently charged at the rate of 16.5% each year. Offshore interest income
derived by the Company is not subject to Hong Kong profits tax.
A subsidiary of the Company in the United States has been subject to
United States income tax. The Company does not expect this subsidiary to pay a
material amount of United States income tax for the foreseeable future.
US GAAP Reconciliation
The Company's financial statements are prepared in accordance with Hong
Kong GAAP, which differs in certain material respects from US GAAP. The
following table sets forth a comparison of the Company's net income and
shareholders' equity in accordance with Hong Kong GAAP and US GAAP.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------------
1993 1994 1995 1996
(In millions)
<S> <C> <C> <C> <C>
Net income (loss) for continuing operations
as reported under:
Hong Kong GAAP............................. HK$43.7 HK$0.2 HK$14.8 HK$76.5
US GAAP.................................... 46.4 2.8 16.9 89.3
Shareholders' equity as reported under:
Hong Kong GAAP............................. 38.9 581.9 596.7 1,942.5
US GAAP.................................... 42.7 588.1 605.0 1,963.5
</TABLE>
Note 21 of Notes to the Consolidated Financial Statements provides a
description of the principal differences between Hong Kong GAAP and US GAAP as
they relate to the Company, and a reconciliation to US GAAP of certain items,
including net income and shareholders' equity. Differences between Hong Kong
GAAP and US GAAP that have a material effect on the Company's net income and
shareholders' equity as reported under Hong Kong GAAP relate to recognition of
revenue, investment properties and deferred taxation, and are briefly summarized
below.
Certain of the Company's transponder lease agreements for transponder
capacity contain pre-determined escalations over the term of the agreement.
Under Hong Kong GAAP, the Company recognizes revenue on an accrual basis under
the contract terms. Under US GAAP, revenue under these agreements would be
recognized on a straight-line basis over the term of the agreement.
Under Hong Kong GAAP, interest on loans, including the related costs of
raising the loans, incurred specifically to finance construction of satellites
is capitalized as part of the satellite costs until the satellite commences
commercial operations. Under US GAAP, the interest capitalized is computed by
applying an average borrowing rate to the total amount of qualifying assets
under construction, not to exceed total interest costs incurred, and the related
costs of raising the loans are deferred and amortized over the life of the
loans. The application of US GAAP would not have a significant effect for the
periods presented.
Under Hong Kong GAAP, investment properties are stated at cost and are
not depreciated. Under HS GAAP, such investment properties would also be stated
at cost, but will have to be depreciated over the lease term.
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<PAGE> 45
Under Hong Kong GAAP, deferred taxation is provided, using the liability
method, on all significant timing differences to the extent it is probable that
the liability will crystallize in the foreseeable future. A deferred tax asset
is not recognized until its realization is assured beyond reasonable doubt.
Under US GAAP, the tax effects of both taxable and deductible temporary
differences are recognized as deferred tax liabilities and assets, respectively.
A valuation allowance is recorded to the extent it is considered more likely
than not that the deferred tax assets will not be realized.
Additionally, under US GAAP, the outstanding lease obligations to the
Partnership (as defined herein) would not be offset with a matching offshore
deposit which is being held by a subsidiary company. As a result, current assets
and liabilities would increase by HK$30.6 million and HK$34.6 million as of
December 31, 1995 and 1996, respectively, and long-term assets and liabilities
would increase by HK$901.8 million and HK$870.9 million at December 31, 1995 and
1996, respectively.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
All of the Company's current executive officers were originally seconded
from affiliates of the Principal Shareholders, principally affiliates of
ChinaSat, CLTC, China Aerospace and Chia Tai. A majority of APT's technical and
engineering staff employed at the satellite control center in Tai Po were
seconded from affiliates of CLTC, MPT and China Aerospace and became employees
of the Company.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of APT Holdings are set forth
below.
<TABLE>
<CAPTION>
DATE
FIRST
ELECTED
OR
NAME AGE POSITION APPOINTED
---- --- -------- ---------
<S> <C> <C> <C>
EXECUTIVE DIRECTORS
He Ke Rang...................... 61 Vice-Chairman and President 1992
Chen Ji Bin..................... 62 Director and Vice-President 1992
Qin Shen........................ 54 Director and Vice-President 1992
NON-EXECUTIVE DIRECTORS
Xie Gao Jue..................... 64 Chairman 1992
Li Bao Ming..................... 57 Vice-Chairman 1992
Ngai Man........................ 51 Vice-Chairman 1992
Wong Hung Khim.................. 58 Director 1993
Hsu Chih Chang.................. 38 Director 1996
Hou Zheng....................... 59 Director 1993
Chatchaval Jiravanon............ 34 Director 1996
Zhu You Jun..................... 61 Director 1996
Lim Toon........................ 53 Director 1993
Lee Hsiang Wei.................. 37 Director 1993
Wong Kit Ming................... 52 Director 1997
Ho Siaw Hong.................... 47 Alternate to Lim Toon and 1993
Wong Hung Khim
INDEPENDENT NON-EXECUTIVE DIRECTORS
Li Kwok Wing, Meocre............ 42 Director 1996
Yuen Pak Yiu, Philip............ 61 Director 1996
EXECUTIVE OFFICERS
Leng Yi Shun.................... 59 Vice-President 1992
Kung Yip Cheung................. 45 Vice-President 1994
</TABLE>
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<PAGE> 46
<TABLE>
<CAPTION>
DATE
FIRST
ELECTED
OR
NAME AGE POSITION APPOINTED
---- --- -------- ---------
<S> <C> <C> <C>
Bao Miao Qin.................... 57 Chief Engineer 1992
Ang Teck Leng................... 41 Financial Controller 1994
Lo Kin Hang, Brian.............. 40 Company Secretary 1996
</TABLE>
EXECUTIVE DIRECTORS
MR. HE KE RANG, aged 61, appointed as the Vice Chairman and President of
the Company in October 1996 and has been the Vice Chairman and President of APT
Satellite Company Limited ("APT"), a wholly-owned subsidiary of the Company,
since June 1992. Mr. He is responsible for the overall daily management and
operation of the Group. He graduated with a Master's Degree in Engineering from
Kharkov Polytechnical Institute of the then USSR. From 1959 to 1961 he served in
the Changchun Research Institute of Optics and Mechanics of the China Academy of
Science. In 1961, he joined the PRC Ministry of Aerospace Industry (presently
known as China Aerospace Corporation ("China Aerospace")). He later headed the
Ministry's Research Institute of Mechanics and Environment which was responsible
for the development of launch vehicle technology. From 1984 to 1992, he was the
Deputy Director of China Academy of Launch Vehicle Technology of China
Aerospace. During this period, he participated in the development and management
of the Long March series of launch vehicles and other launch vehicles. The PRC
government commended him in 1990 as a specialist who has contributed to the PRC.
He currently serves as a Visiting Professor at the Harbin Institute of
Technology.
MR. CHEN JI BIN, aged 62, appointed as Director and Vice President of
the Company in October 1996 and has been a Director and Vice President of APT
since June 1992. Mr. Chen is responsible for the management of the APSTAR
System. He graduated from the Radar Department of the PRC Institute of Military
Telecommunication Engineering. From 1953 to 1970, he conducted radar research as
the Deputy Chief Designer and Chief Designer in the Ministry of Communications
and Ministry of Weapons. From 1970 to 1985, he was the Head of Design and
Director of the Office of Satellite Communication System Engineering in the PRC
Ministry of Electronics Industry. From 1985 to 1992, he was the Chief Engineer
and Vice President of China Telecommunications Broadcast Satellite Corporation
("ChinaSat"). He has over 30 years' experience in telecommunications and
satellite applications and control. He was accredited as a Senior Engineer and
Research Fellow in 1980 and 1986 respectively, and was awarded the National
Science and Technology Advancement Award (First Grade) in 1985. He has co-edited
several technological publications on topics such as radar, microwave, satellite
television receiving systems and satellite telecommunications.
MR. QIN SHEN, aged 54, appointed as Director and Vice President of the
Company in October 1996 and has been a Director of APT since August 1996 and
Vice President since June 1992. He graduated from Department of Electrical
Instrumentation Measurement Technology of the Harbin Institute of Technology in
1965. Prior to joining the Group, he was the Co-Chief Designer of China Xichang
Satellite Launch Mission Command Control Centre, the Leader of the PRC
Ministerial Level Professional Planning Group of the Seventh Five-Year Economic
Plan of the PRC and the Deputy General Manager of the Development Department of
China Satellite Launch & Tracking Control General ("CLTC"). He has been granted
several State and Ministerial Level Research Awards. He has over 25 years'
experience in satellite telemetry, control and telecommunication system design.
He is a Senior Engineer and currently a Visiting Professor at the Harbin
Institute of Technology.
NON-EXECUTIVE DIRECTORS
MR. XIE GAO JUE, aged 64, appointed as the Chairman of the Company in
October 1996 and has been the Chairman of APT since June 1992. Mr. Xie graduated
from the Beijing Institute of Posts and Telecommunications in 1956 and further
obtained a postgraduate degree in 1958. He has worked in the fields of
telecommunication and telemetry and control systems, serving as the Supervisor
of a research laboratory, and later the Senior Engineer, Chief Engineer, and the
Head of a PRC Ministry of Electronic Industry research institute. In 1982 he was
appointed as the Department Director of Science and Technology of the PRC
Ministry of Electronic Industry and subsequently was promoted to the
Vice-Minister of the same Ministry in 1984. In 1988, he was appointed as the
Vice-Minister of the Ministry of Posts and Telecommunications of the PRC. He has
also served as Chairman of the China
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<PAGE> 47
Management Association of Posts and Telecommunications Enterprises since 1991
and Vice President of the Chinese Institute of Electronics since 1988.
MR. LI BAO MING; aged 57, appointed as the Vice Chairman of the Company
in October 1996 and has been the Vice Chairman of APT since June 1992. He
graduated from the University of Aeronautics and Astronautics and the Harbin
Institute of Military Engineering. He has many years of experience in launches
of various types of satellites. He was also the Division Manager of the
Technology Division and Planning Division of Jiuquan Satellite Launch Centre and
the Deputy Head of CLTC.
MR. NGAI MAN, (also known as Montree Navikapol) aged 51, appointed as
the Vice Chairman of the Company in October 1996 and has been the Vice Chairman
of APT since June 1992. He is a Director of Orient Telecom & Technology Holdings
Ltd. and Orient Telecom & Technology (China) Ltd. He joined the Charoen Pokphand
Group in 1988 and has extensive experience in telecommunications projects and
other investments in southeast Asia.
MR. WONG HUNG KHIM, aged 58, appointed as Director of the Company in
October 1996 and has been a Director of APT since February 1993. He graduated
from the University of Singapore with Honours in Physics and attended the
Advanced Management Programme at Harvard Business School. He spent two years in
teaching before joining the Administrative Service of Singapore in 1966. He
began his service in the then Ministry of Social Affairs ("MSA") and later
became the Deputy Secretary of the Ministry of Labour. In 1974, he served first
as a General Manager and then Executive Director of Singapore Bus Service Ltd.
In 1979, he became the General Manager of the Port of Singapore Authority. In
1984, he became the Permanent Secretary of the MSA, which subsequently became
the Ministry of Community Development. In 1987, he became head of the
Telecommunication Authority of Singapore and oversaw its privatisation into
Singapore Telecommunications Limited ("Singapore Telecom") in October 1993. In
recognition of his services, Mr. Wong was awarded a Public Administration
Meritorious Services Medal in 1992. Mr. Wong is currently the Group Chairman of
Singapore Bus Service (1978) Ltd., Chairman of Jurong Town Corporation and
Deputy Chairman of Singapore Telecom.
MR. HSU CHIH CHANG, aged 38, appointed as Director of the Company in
October 1996 and has been a Director of APT since September 1996. Mr. Hsu
graduated with a Master's degree in Business Administration from National Taiwan
University in 1983 and a Doctoral Degree in Managerial Economics and Decision
Sciences from Northwestern University in 1989. Mr. Hsu was a part-time Associate
Professor in the Department of Financial Administration, National Chengchi
University, Taiwan in 1989. From 1989 to 1991, Mr. Hsu served as a Special
Assistant to the President of the Ruentex Industries Ltd. From 1991 to 1995, he
was the General Auditor of the Ruentex Industries Ltd. Mr. Hsu is now a Special
Assistant to the Chief Executive Officer of the Ruentex Group (Ruentex
Construction & Development Company Limited and its affiliates), a Managing
Director of the China Development Corporation and an Associate Director of the
Yin Shu Tien Memorial Hospital Shu-Tien Urology & Ophthalmology Clinic in
Taiwan.
MR. HOU ZHENG, aged 59, appointed as Director of the Company in October
1996 and has been a Director of APT since June 1993. From 1954 to 1956, he
studied at the Harbin Institute of Technology. He graduated with a Master's
Degree in Engineering from Leningrad Engineering Institute in 1961. During the
years between 1961 and 1985, he taught at Qinghua University after which he
served as a senior designer of the then Ministry of Aerospace Industry. In 1992,
he was commended as an Overseas Fellow of the Russian Engineering Academy (St.
Petersburg).
MR. CHATCHAVAL JIARAVANON, aged 34, appointed as Director of the Company
in October 1996 and has been a Director of APT since July 1996. He graduated
from the University of Southern California in 1984. He is concurrently an
Executive Vice President of Telecom Holding Co. Ltd., a Director of TelecomAsia,
Metro Machinery Co. Ltd., the Thai Chamber of Commerce, the Federation of Thai
Industries, and of Thailand Management Association as well as Executive Director
of Radiophone Co. Ltd. and a Vice- President of Thai Kodama Co. Ltd.
MR. ZHU YOU JUN, aged 61, appointed as Director of the Company in
October 1996 and has been a Director of APT since February 1996. He graduated
from Fu Dan University. He was the Director of the USA Branch of the China News
Service, and has been a Deputy Director and Director of the China News Service.
He is
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<PAGE> 48
also Vice Chairman of both China Travel Service (Holdings) Hong Kong Ltd.,
Chinese Goods Centre Ltd., Chairman of China Travel Air Service Co., Ltd. and a
Director of Cathay Pacific Airways Ltd.
MR. LIM TOON, aged 53, appointed as Director of the Company in October
1996 and has been a Director of APT since February 1993. Mr. Lim graduated in
Engineering from University of Canterbury in New Zealand in 1966 and obtained a
Postgraduate Diploma in Business Administration from the University of Singapore
in 1975. He attended the Advanced Management Programme at Harvard Business
School in 1992. He has been an Executive Vice-President for International
Service of Singapore Telecom since April 1994 and has worked for Singapore
Telecom since 1970, serving as a Vice-President of engineering, radio services,
traffic operations, personnel training and information systems departments. He
became the Executive Vice President for Network Services in 1989. Mr. Lim was
awarded the Efficiency Medal in 1978 and the Public Administration Medal (Gold)
in 1991 by the Singapore government. He is presently a Director in a number of
overseas companies.
MR. LEE HSIANG WEI, aged 37, appointed as Director of the Company in
October 1996 and has been a Director of APT since June 1993. He is presently the
Chairman of Kwang Hua Securities Investment and Trust Co., Ltd. Mr. Lee
graduated in 1982 with a Bachelor of Science Degree from the National Taiwan
University. He later attained his Master's Degree in Business Administration
from Duke University. He joined Ruentex Industries Ltd. as a marketing manager
in 1987 and was promoted to Vice-President in 1989. Since 1991, Mr. Lee has been
a Director of Kwang Hua Securities Investment & Trust Co., Ltd. and is an
executive committee member of that company. Mr. Lee is also a President in
Ruentex International Holdings Ltd. which sponsors the Ruentex Group's offshore
investment activities. He also holds directorships of AETNA Life Insurance
Corporation of America and Shanghai International Asset Management (H.K.) Co.
Ltd.
MR. WONG KIT MING, aged 52, appointed as Director of the Company in
April 1997. He is presently the Chairman of Fine Source Investments Limited and
In System Investment Limited, and a Director of China Travel Fok Tai (Macau)
Limited and Safemerge Limited.
MR. HO SIAW HONG, aged 47, appointed as the Alternate Director to Mr. T.
Lim and Mr. H. K. Wong in October 1996. Mr. Ho graduated from the University of
Singapore with a Bachelor of Engineering (Electrical & Electronics) Degree in
1972. He has been employed with Singapore Telecom since August 1972 and has been
the Senior Director in charge of the Satellite Business Development Division
since July 1996. Prior to July 1996, he was the Division Manager of the same
division. From July 1991 to August 1993, he served as the Project Manager of the
Satellite System II Unit at Singapore Telecom. From March 1993 to March 1994, he
was a Director of American Mobile Satellite Corporation of the United States.
INDEPENDENT NON-EXECUTIVE DIRECTORS
MR. LI KWOK WING, Meocre, aged 42, appointed as an Independent
Non-executive Director of the Company in October 1996. He is the Chief Executive
of NatWest Markets Corporate Finance Asia Limited, and prior to that was the
managing partner of Arthur Anderson & Co.'s Hong Kong and China operations. Mr.
Li received a Bachelor of Commerce Degree, with distinction, and the Financial
Executive Institute Silver Medal from the University of Alberta, Canada. In
1988, Mr. Li completed the Program for Management Development offered by the
Harvard University Graduate School of Business Administration. Mr. Li is a
member of the Hong Kong Society of Accountants and of the Chartered Association
of Certified Accountants, United Kingdom.
MR. YUEN PAK YIU, Philip, aged 61, appointed as an Independent
Non-executive Director of the Company in October 1996. He graduated from Law
School in England in 1961 and commenced the practice of law in Hong Kong in
1962. In 1965, he established his solicitors' firm, Yung, Yu, Yuen & Co. and now
is the principal partner in the firm. Mr. Yuen has over 30 years' experience in
the legal field and has been a Director of a number of listed companies
including Henderson Investment Limited, Henderson China Holdings Limited,
Melbourne Enterprises Limited, Cheerful Holdings Limited, Tsingtao Brewery
Company Limited, Guangzhou Shipyard International Company Limited and Oriental
Metals (Holdings) Company Limited. He is a Director of the China Appointed
Attesting Officers Association in Hong Kong, a Standing Committee Member of the
China Chamber of Commerce of Hong Kong, a Member of the National Committee of
Chinese Peoples' Political Consultative Conference, an Arbitrator at the China
International Economic & Trade Arbitration Commission and an Adviser of Hong
Kong Affairs to the PRC government.
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<PAGE> 49
SENIOR MANAGEMENT
MR. LENG YI SHUN, aged 59, has been a Vice President for Finance of the
Group since July 1994. Mr. Leng is responsible for the corporate finance
division of the Group. He graduated from the Department of Electrical
Engineering of the Harbin Institute of Technology in 1960. Upon graduation, he
lectured in the Harbin Institute of Technology for two years. From 1962 to 1990,
he served in the China Academy of Launch Vehicle Technology ("CALT"). His
research topics, among others, included the power and reliability of guided
missiles and rockets, and terrain environmental tests. He was accredited as an
Engineering Research Fellow in 1993. From 1984 to 1990, he was the Supervisor of
the Beijing Centre of New Dynamic Equipment and Facilities for Reliability and
Environment Research of Rockets and Guided Missiles and the General Manager of a
corporation which was principally engaged in the production and operation of
dynamic equipment and facilities. From 1990 to 1992, he was the Chief Engineer
of the Department of Civil Products, CALT and the Deputy General Manager of
Beijing Wan Yuan Industry Corporation. He has over 30 years' experience in
launch vehicles research and over 20 years' experience in corporation
management.
DR. KUNG YIP CHEUNG, aged 45, has been a Vice President for Marketing
and External Affairs of the Group since June 1994. Prior to joining the Group,
Dr. Cheung was the President of Longtime (USA) Co. Ltd., a New York firm
specialising in US-China investment and trade. A native of Hong Kong, Dr. Cheung
received his undergraduate education at The Chinese University of Hong Kong. He
continued his postgraduate training in London and earned his M.Sc. in
Electrochemical Technology and Ph.D. in Materials Science from the City
University and Imperial College of Science and Technology, University of London,
respectively. From 1979 to 1987, Dr. Cheung pursued his technical career in the
US; first as a research fellow at University of Pennsylvania; then in the
research and development department with Allied Corporation (currently
Allied-Signal Corporation); followed by Du Pont Company where his main duties
were research and development and marketing support in the Electronic Materials
Division. Dr. Cheung has also taken management and marketing courses given by
companies and US educational institutions, and most recently he completed the
executive program in International Strategy at Columbia University.
PROFESSOR BAO MIAO QIN, aged 57, has been the Chief Engineer of the
Group since June 1992. Professor Bao is responsible for the technical aspects of
the development and operation of the APSTAR System and the related insurance
programs. He has over 30 years' experience in systems engineering and space
technology. He graduated from the Beijing Aeronautical Institute in 1963. Before
joining the Group, he was the Director of Systems Engineering and Research
Division of the Chinese Academy of Space Technology ("CAST"). Upon graduation,
he spent his first three years in the space industry in the design of
sub-orbital sounding rockets. Since 1968, he worked on several space projects
for CAST, which included an important feasibility study of manned spacecraft,
scientific satellite system engineering and research on the orbit and attitude
dynamics of communications satellites. From 1974, he directed the system
engineering of China's first communications satellite. In 1984, he joined
ChinaSat as a System Engineering Consultant for broadcasting satellites and
worked for two years. Professor Bao also spent more than one year in the United
Kingdom and served as a Research Professor at the British National Space Centre
before he took the post of Director of System Engineering Division at CAST in
1989.
MR. ANG TECK LENG, aged 41, has been the Financial Controller of the
Group since August 1994. He holds a Master's Degree in International Management
from University of South Australia. He is a certified public accountant of the
Institute of Certified Public Accountants of Singapore. After graduating from
Nanyang University of Singapore with a degree of Commerce (Accountancy) in 1980,
he practised accountancy by working in various companies in Singapore, Indonesia
and the PRC. Before joining the Group, he was an Assistant Vice-President of
Chia Tai International Telecommunication Co. Ltd., a subsidiary of Telecom
Holdings Co. Ltd. which is a member of the Charoen Pokphand Group, which he
joined in September 1989. He has over 16 years of financial and accounting
experience in industry ranging from manufacturing, shipping, construction and
telecommunications.
MR. LO KIN HANG, BRIAN, aged 40, is the Company Secretary of the
Company. Mr. Lo joined the Group in September 1996. He graduated with an
Associateship in Production and Industrial Engineering and an M.Sc. degree in
Information Technology from Hong Kong Polytechnic University, and a MBA Degree
from the University of Wales, UK. He has attained several professional
qualifications including Chartered Engineer, Member of the Institute of
Electrical Engineers, and is a Fellow of the Institute of Chartered Secretaries
and Administrators in the
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<PAGE> 50
United Kingdom and a Fellow of the Hong Kong Institute of Company Secretaries.
Prior to joining the Group, he was a Director and senior management executive
responsible for financial and investment management and the company secretary of
a publicly listed company in Hong Kong. He has over 13 years' experience in
corporate and project management including telecommunications projects.
SERVICE AGREEMENTS
In November 1996 the Company entered into service agreements with He Ke
Rang, Chen Ji Bin and Qin Shen (the "Contracted Directors"). The initial terms
of the service agreements are, in the case of He Ke Rang, three years, and, in
the case of Chen Ji Bin and Qin Shen, two years. All of the service agreements
commenced December 1, 1996 and will continue until terminated by either party
giving to the other not less than three months' notice expiring on or after the
relevant initial term. Each of the Contracted Directors will be entitled to a
basic salary payable monthly in arrears by the Company, with such basic salary
subject to annual review by the Company's board of directors. In addition, each
of the Contracted Directors will be entitled to receive an annual discretionary
bonus of such amount as shall be determined by the board of directors provided
that the amount of discretionary bonus payable to each of the Contracted
Directors by the Company in respect of any financial year shall not exceed an
agreed percentage of the audited consolidated net income after taxation and
minority interests but before extraordinary items of the Company for the
relevant financial year. Each of the Contracted Directors will be provided with
housing subject to an agreed maximum amount, which maximum amount may be revised
from time to time by the board of directors. Each of the Contracted Directors
will also be entitled to receive certain other benefits such as the use of an
automobile, the provision of club memberships and medical and life insurance,
and to participate in the Company's retirement scheme and any share option
scheme for its employees.
ITEM 11. COMPENSATION OF DIRECTORS.
The aggregate compensation paid by the Company to directors for the year
ended December 31, 1996 was approximately HK$1.2 million which included
HK$18,000 for pensions for its directors.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
In December 1996 the Company adopted a share option scheme (the "Share
Option Scheme"). Under the terms of the Share Option Scheme, the directors of
the Company may from time to time within 10 years invite full-time employees,
including executive directors and officers, of the Company or any of its
subsidiaries, to apply for options to subscribe for shares of Common Stock.
The maximum number of shares of Common Stock over which options may be
granted under the Share Option Scheme may not, when aggregated with any shares
subject to any other scheme involving the issue or grant of options over shares
or other securities by the Company, or for the benefit of directors, executives
or employees, exceed 10% of the issued share capital of the Company from time to
time (excluding those shares which have been issued pursuant to the exercise of
options under the Share Option Scheme). The number of shares over which an
option may be granted to any one person at any time is limited such that the
total number of shares issued or issuable under all options granted to such
person (whether exercised or not) upon such grant being made shall not exceed
25% of the total number of shares for the time being issued and issuable under
the Share Option Scheme.
The consideration for each option granted and the price for a share of
Common Stock payable by a participant upon the exercise of any option granted
under the Share Option Scheme will be determined by the directors of the Company
in their discretion, except that such price may not be less than the par value
of the share nor at a discount of more than 20% below the average closing price
of the shares on the Hong Kong Stock Exchange as stated in the Hong Kong Stock
Exchange's daily quotation sheets on the five dealing days immediately preceding
the date on which the directors resolve to invite the participant to apply for
options to subscribe for shares. The period during which an option may be
exercised will be determined by the directors in their discretion, except that
no option may be exercised later than 10 years after it has been granted or the
tenth anniversary of the date of adoption of the Share Option Scheme, whichever
is the earlier. As of December 31, 1996, no option has been granted or agreed to
be granted under the Share Option Scheme.
-48-
<PAGE> 51
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
The Company has used Great Wall's Long March launch vehicles to launch
all of its satellites to date and has contracted to use a Long March 3B launch
vehicle for the launch of APSTAR IIR. The Company may enter into further launch
services contracts with Great Wall (or other affiliates of China Aerospace) in
respect of the Company's future satellites. Negotiations for each of the launch
services contracts with Great Wall have been conducted on an arm's length basis
and any future negotiations with Great Wall would be similarly conducted.
Three of the Principal Shareholders or their affiliates are currently
customers of APT. ChinaSat has leased 12 transponders for the transmission of
television programming, private networks and PSTN services, eight on APSTAR I
and four on APSTAR IA. CLTC leases two transponders on APSTAR IA. Negotiations
for transponder leases with these Principal Shareholders and their affiliates
have been conducted on an arm's length basis and any future negotiations would
be similarly conducted. In connection with APSTAR IIR, the Company has agreed
with Great Wall that part of the contract price for the APSTAR IIR Launch
Services Contract may be satisfied by APT providing to Great Wall one C-band or
Ku-band transponder for the operational life of the satellite. The value
attributed to the transponder for the purposes of determining the portion of the
aggregate contract price to be satisfied by the provision of such transponder is
within the range representative of the Company's pricing for its other
customers.
The Company is aware that ChinaSat intends to operate a PRC domestic
satellite network. In addition, China Aerospace and CLTC each holds a 25%
interest in SinoSat, which does not currently operate any satellites. The
Company believes, however, that SinoSat intends to launch a satellite in the
fall of 1997 which would be devoted largely to providing telecommunications
services to the banking industry. Singapore Telecom, the parent company of
SingaSat, has holdings in a number of other satellite companies. As a result of
satellite design and coverage, the Company does not believe such satellite
companies compete with the Company, other than the ST-1 satellite system which
Singapore Telecom operates and in which it has an ownership interest. The ST-1
satellite system has the ability to compete with the Company in segments of the
Asia-Pacific market. Through the Telecommunications Authority of Singapore, a
signatory to the Intelsat treaty, Singapore Telecom also has an interest in
Intelsat.
Other than as described above, none of the directors, their associates
(as defined in the Rules Governing the Listing of Securities on the Hong Kong
Stock Exchange (the "Listing Rules")) or any shareholder of the Company which to
the knowledge of the directors owns more than 5% of the issued share capital of
the Company has any interest in any of the Company's five largest suppliers or
five largest customers.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
Not Applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.
Not Applicable
-49-
<PAGE> 52
PART IV
ITEM 17. FINANCIAL STATEMENTS.
Not Applicable
ITEM 18. FINANCIAL STATEMENTS.
-50-
<PAGE> 53
Audited Financial Statements
APT SATELLITE HOLDINGS LIMITED
December 31, 1996
-51-
<PAGE> 54
APT SATELLITE HOLDINGS LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Auditors...............................................................53
Consolidated Balance Sheets as of December 31, 1995 and 1996.................................54
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996.......55
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996...56
Notes to Consolidated Financial Statements...................................................57
</TABLE>
-52-
<PAGE> 55
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
APT Satellite Holdings Limited
We have audited the accompanying consolidated balance sheets of APT Satellite
Holdings Limited and its subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of income and cash flows for each of the years
in the three year period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Hong Kong and in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of APT Satellite
Holdings Limited and its subsidiaries at December 31, 1995 and 1996 and the
consolidated results of their operations and their cash flows for each of the
years in the three year period ended December 31, 1996 in conformity with
accounting principles generally accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong differ in certain material
respects from accounting principles generally accepted in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected the results of operations for each of the
years in the three year period ended December 31, 1996 and the shareholders'
equity as of December 31, 1994, 1995 and 1996, to the extent summarized in note
21 to the consolidated financial statements.
Hong Kong Ernst & Young
April 12, 1997 Certified Public Accountants
-53-
<PAGE> 56
APT SATELLITE HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1996
(Amounts stated in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1996 1996
HK$ HK$ US$
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 100,112 313,543 40,525
Accounts receivable 6,218 14,365 1,857
Prepayments, deposits and other receivables 50,802 61,140 7,902
--------- --------- -------
Total current assets 157,132 389,048 50,284
Property, plant and equipment, net (note 4) 1,000,744 1,851,572 239,314
Satellite project progress payments (note 5) 922,637 947,396 122,450
Other assets 1,686 5,556 718
--------- --------- -------
TOTAL ASSETS 2,082,199 3,193,572 412,766
========= ========= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payables and accrued expenses 39,727 16,806 2,172
Trade deposits received 26,892 11,044 1,427
Rental received in advance 52,596 40,849 5,280
Amount due to related parties 19,913 56,561 7,311
Income taxes payable (note 13) - 19,384 2,505
Bank loans - current portion (note 7) 114,423 70,130 9,064
--------- --------- -------
Total current liabilities 253,551 214,774 27,759
Trade deposits received 176,501 250,916 32,431
Bank loans (note 7) 696,108 400,127 51,716
Deferred taxation (note 13) 81,756 92,480 11,953
Loans from shareholders (note 6) 277,558 292,814 37,846
--------- --------- -------
1,485,474 1,251,111 161,705
--------- --------- -------
Contingencies and commitments (note 8)
Shareholders' equity:
Capital stock - Common stock
(HK$0.10 par value per share;
1,000,000,000 shares
authorized, 420,000,000
(1995: 315,000,000) shares
issued and outstanding) 31,500 42,000 5,428
Additional paid-in capital 511,000 1,826,522 236,076
Retained earnings (note 10) 54,225 73,939 9,557
--------- --------- -------
Total shareholders' equity 596,725 1,942,461 251,061
--------- --------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 2,082,199 3,193,572 412,766
========= ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-54-
<PAGE> 57
APT SATELLITE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1994, 1995 and 1996
(Amounts stated in thousands, except share data)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C>
Revenues:
Net sales of electronic products to
unaffiliated customers - discontinued
operations (note 16(c)) 17,925 - - -
Leasing of satellite transponders to:
Unaffiliated customers 56,021 197,154 249,489 32,246
Related parties (note 14) 13,057 87,653 118,139 15,269
------- -------- -------- -------
Total revenues 87,003 284,807 367,628 47,515
------- -------- -------- -------
Costs and expenses:
Discontinued operations (note 16(c)) (16,722) - - -
Cost of service (2,455) (17,276) (26,886) (3,475)
Depreciation and amortization (38,695) (113,220) (148,065) (19,137)
Selling, general and administrative (38,148) (48,921) (64,124) (8,288)
------- -------- -------- -------
Total costs and expenses (96,020) (179,417) (239,075) (30,900)
------- -------- -------- -------
Operating income (loss) (9,017) 105,390 128,553 16,615
Other income (expenses):
Interest income 8,701 22,531 16,998 2,197
Interest expense (12,426) (43,849) (52,690) (6,810)
Other income (note 16(b)) 14,120 508 6,259 809
------- -------- -------- -------
Income before exceptional item 1,378 84,580 99,120 12,811
Exceptional item (note 12) - (69,792) - -
------- -------- -------- -------
Income before income taxes 1,378 14,788 99,120 12,811
Provision for income taxes (note 13) (6) (6) (22,600) (2,921)
------- -------- -------- -------
Net income 1,372 14,782 76,520 9,890
======= ======== ======== =======
Earnings per share - 0.05 0.24 0.03
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-55-
<PAGE> 58
APT SATELLITE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1995 and 1996
(Amounts stated in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------
1994 1995 1996 1996
HK$ HK$ HK$ US$
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) 1,372 14,782 76,520 9,890
Adjustments to reconcile net income
(loss) to net cash provided:
Depreciation and amortization 38,695 113,220 148,065 19,137
Exceptional item - 69,792 - -
Others 1 3,010 7,524 973
Changes in working capital:
Accounts payables and accrued expenses 118,151 (86,264) (13,849) (1,790)
Accounts receivable 21,759 13,151 (8,147) (1,053)
Prepayments, deposits and other
receivables (1,290) (42,756) (13,105) (1,694)
Trade deposits received 119,005 29,266 58,567 7,570
Bills payable (39,250) - - -
Rental received in advance 35,359 17,237 (11,747) (1,518)
Tax payable (paid) (6) (6) 22,594 2,920
---------- ---------- ---------- --------
Net cash provided by operating activities 293,796 131,432 266,422 34,435
---------- ---------- ---------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (475,006) (5,458) (9,655) (1,248)
Investment in satellite project
progress payments (1,014,810) (1,099,988) (1,040,224) (134,448)
Compensation received 62,000 1,241,530 - -
Others (480) (1,264) (3,870) (500)
Net cash provided by (used in) investing ---------- ---------- ----------- --------
activities (1,428,296) 134,820 (1,053,749) (136,196)
---------- ---------- ---------- --------
Cash flows from financing activities:
Increase in bank loans 1,193,403 279,000 876,914 113,340
Payment of bank loans (435) (906,034) (1,217,189) (157,320)
Net proceeds from issue of shares - - 1,326,022 171,387
Amounts due from related parties (6,517) 58,810 - -
Amounts due from shareholders 177 - - -
Amounts due to related parties - 19,913 (245) (32)
Amounts due to shareholders (150) - - -
Increase in shareholders loan - 160,481 15,256 1,972
Initial cash benefit from lease arrangements 78,749 - - -
---------- ---------- ---------- --------
Net cash provided by (used in)
financing activities 1,265,227 (387,830) 1,000,758 129,347
---------- ---------- ---------- --------
Increase (decrease) in cash and cash equivalent 130,727 (121,578) 213,431 27,586
Cash and cash equivalent:
Beginning of year 90,963 221,690 100,112 12,939
---------- ---------- ---------- --------
End of year 221,690 100,112 313,543 40,525
========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-56-
<PAGE> 59
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
APT Satellite Holdings Limited (the "Company") was incorporated under
the laws of Bermuda on October 17, 1996 with limited liability. The
Company owns all the issued shares of APT Satellite Investment Company
Limited, which holds all the issued voting shares of APT Satellite
Company Limited ("APT").
The Company, through its indirectly wholly-owned subsidiary, APT, is a
provider of satellite services to broadcasting and telecommunication
customers in the People's Republic of China ("PRC") and throughout the
Asia-Pacific region. APT currently operates two satellites. APT's first
satellite, APSTAR I, was launched in July 1994 and commenced commercial
service in September 1994. APT's second satellite, APSTAR IA, was
launched in July 1996 and commenced commercial service in September
1996. APT's third satellite, APSTAR IIR, is currently under construction
and planned to be launched in mid 1997.
Details of the Company's subsidiary companies, which are all
wholly-owned, and an associated company at December 31, 1996, which is
50% owned by the Company, are as follows:
<TABLE>
<CAPTION>
Country of
incorporation/ Class of Principal
Name registration shares held activities
---- ------------ ----------- ----------
<S> <C> <C> <C>
Subsidiary companies:
APT Satellite Investment Company British Virgin Ordinary shares Investment holding
Limited Islands
APT Satellite Company Limited Hong Kong Ordinary shares Satellite
and non-voting transponder leasing
deferred shares
APT Satellite (USA), Limited United States Ordinary shares Provision of
of America management services
Haslett Investments Limited British Virgin Ordinary shares Investment
Islands
Acme Star Investment Limited Hong Kong Ordinary shares Investment holding
Telewell Investment Limited Hong Kong Ordinary shares Investment holding
APT Satellite Vision Limited Hong Kong Ordinary shares Not yet commenced
(formerly named as business
Norris Enterprise Limited)
APT Satellite Global Limited Cayman Islands Ordinary shares Investment holding
</TABLE>
-57-
<PAGE> 60
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (continued)
<TABLE>
<CAPTION>
Country of
incorporation/ Class of Principal
Name registration shares held activities
---- ------------ ----------- ----------
<S> <C> <C> <C>
Subsidiary companies:
Ying Fai Realty (China) Limited Hong Kong Ordinary shares Property holding
APT Satellite Enterprise Limited Cayman Islands Ordinary shares Not yet commenced
business
APT Satellite Link Limited Cayman Islands Ordinary shares Not yet commenced
business
Associated company:
CEAPT Limited Hong Kong Ordinary shares Dormant
</TABLE>
APT Satellite Investment Company Limited was incorporated under the laws
of the British Virgin Islands on October 14, 1996. On November 14, 1996,
700 shares of APT Satellite Investment Company Limited were allotted and
issued at par value of US$1.00 each to the then shareholders of APT. On
November 14, 1996, APT Satellite Investment Company Limited subscribed
for 100 ordinary shares in APT at par value of HK$1.00 each. On November
14, 1996, 700 shares of APT Satellite Investment Company Limited were
allotted and issued and credited as fully paid to the then shareholders
of APT as consideration for converting the 542,500,000 ordinary shares
of APT then in issue into non-voting deferred shares of HK$1.00 each.
These non-voting deferred shares are of nominal value and have no voting
rights attached to them.
On November 14, 1996 the Company acquired all the outstanding shares of
APT Satellite Investment Limited, and as consideration the Company
allotted and issued, credited as fully paid 280,000 shares of the
Company to the then shareholders of APT Satellite Investment Company
Limited. The Company also applied a sum of HK$122 out of its additional
paid-in capital account towards crediting as fully paid the 1,220,000
shares of the Company which had been issued nil - paid to APT Satellite
International Limited, a company owned by the shareholders of APT,
initially following the incorporation of the Company. On December 3,
1996, an additional 313,500,000 new shares of the Company, credited as
fully paid out of the additional paid-in capital account, were issued to
the shareholders of the Company. On December 14, 1996, 105,000,000 new
shares of the Company were allotted under an initial public offering for
a total net cash consideration of HK$1,326,022.
As before the acquisitions, the Company, APT Satellite Investment
Company Limited and APT have the same shareholders and therefore, under
common control, these reorganizations have been accounted for in a
manner similar to pooling of interests. The consolidated financial
statements reflect the reorganizations for all periods presented.
-58-
<PAGE> 61
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
2. BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Hong Kong ("HK GAAP")
which differ in certain material respects from accounting principles
generally accepted in the United States of America ("US GAAP"). The
significant differences between HK GAAP and US GAAP are summarized in
note 20 to the consolidated financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation principles
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiaries which are owned and
controlled by the Company. All material intra-group transactions
and balances are eliminated on consolidation.
(b) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation.
Depreciation of communication satellite is provided on the straight
line basis to write off the cost of the satellite over its
estimated useful life starting when the satellite commences
commercial operations. The estimated useful life of APSTAR I and
APSTAR IA is 10 years.
Depreciation of other property, plant and equipment is calculated
on a straight-line basis to write off the cost of these assets over
their estimated useful lives. The principal annual rates used for
this purpose are as follows:
<TABLE>
<S> <C>
Leasehold land Over the terms of the leases
Buildings 2%
Leasehold improvements Over the terms of the leases
Furniture and equipment 20%
Motor vehicles 20%
Computer equipment 20%
Communication satellite equipment 6-2/3% - 20%
Investment properties Nil
</TABLE>
-59-
<PAGE> 62
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Satellite project progress payments
Satellite project progress payments include progress payments for
communication satellites under construction, launching and related
services, insurance and finance costs on loans borrowed to finance
the above payments.
Finance costs incurred specifically to finance the construction and
launching of communication satellites are capitalized as satellite
project progress payments. Capitalization of finance costs ceases
when the satellite commences commercial operations.
Satellite project progress payments is transferred to property,
plant and equipment when the satellite commences commercial
operations.
(d) Launch and in-orbit insurance
The Company insures its satellites mainly through two types of
insurance, namely launch and initial in-orbit insurance and annual
in-orbit insurance.
The launch and initial in-orbit insurance cannot be segregated. The
initial in-orbit insurance forms an integral part of the launch
insurance and covers a certain period after the launching of the
satellite. The purpose is to test the normal functioning of the
launched satellite. As a result, the entire launch and in-orbit
insurance is capitalized as part of the cost of the satellite and
amortized over the respective satellite's operational life.
After the successful launching of a satellite and at the expiration
of the initial in-orbit insurance, the Company renews the in-orbit
insurance annually for the satellite. The annual in-orbit insurance
is dealt with in the statement of income as incurred.
(e) Trade deposits received
Trade deposits received represent reservation fees and deposits
received in connection with providing transponder capacity through
transponder lease agreements.
(f) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits with banks
and liquid investments with an original maturity of three months or
less.
(g) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those assumptions.
-60-
<PAGE> 63
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) Foreign currency translation
The Company's financial statements are prepared using Hong Kong
Dollars as the reporting currency. The functional currency is
United States Dollars.
Foreign currency transactions are recorded at the rates of exchange
ruling at the transaction dates. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are
translated at the rates of exchange ruling at that date. Exchange
differences are dealt with in the statement of income.
The Company does not utilize derivative investments to hedge
against its foreign currency exposure.
(i) Revenues
Revenues from the leasing of satellite transponders are recognized
on an accrual basis under the contract terms upon the commencement
of commercial operation of the satellites. For transponder leases
under which customers have obtained the right to use the
transponder capacity for the life of the satellite, revenues are
recognized, along with the related costs, on a straight line basis,
over the warranty period provided to the customers.
Net sales of electronic products are recognized upon delivery of
goods to customers.
(j) Income taxes
Provision for income taxes is based on the results for the year as
adjusted for items which are non-assessable or disallowed.
Deferred taxation is provided, using the liability method, on all
significant timing differences to the extent it is probable that
the liability will crystallize in the foreseeable future. A
deferred tax asset is not recognized until its realization is
assured beyond reasonable doubt.
(k) Earnings per share
The calculation of earnings per share is based on the weighted
average number of shares outstanding during the applicable period
after giving effect to the number of shares outstanding after the
Company's reorganisation.
The weighted average number of shares outstanding, after
adjustment, for each of the years ended December 31, 1994, 1995 and
1996 was 315,000,000 shares, 315,000,000 shares and 319,027,397
shares.
-61-
<PAGE> 64
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Convenience translation into United States Dollars
The consolidated financial statements of the Company are expressed
in Hong Kong Dollars. The translations of amounts from Hong Kong
Dollars into United States Dollars for convenience of the reader
has been made at the rate on December 31, 1996 of HK$7.737 =
US$1.00. No representation is made that the Hong Kong Dollar
amounts could have been, or could be, converted into United States
Dollars at that rate on December 31, 1996 or any other rate.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1996
HK$ HK$
<S> <C> <C>
At cost:
Investment properties 12,762 -
Leasehold land and buildings 31,940 52,327
Leasehold improvements 2,045 2,076
Furniture and equipment 16,732 16,837
Motor vehicles 4,317 4,502
Computer equipment 1,060 1,263
Communication satellite equipment 59,931 61,417
Communication satellite (note 9) 1,025,075 2,014,323
--------- ----------
1,153,862 2,152,745
Less: Accumulated depreciation 153,118 301,173
--------- ---------
1,000,744 1,851,572
========= =========
</TABLE>
The investment properties at December 31, 1995 were transferred to
leasehold land and buildings in year 1996.
The Company's investment properties and leasehold land and buildings are
situated in:
<TABLE>
<CAPTION>
Long term Medium term
leases leases Total
HK$ HK$ HK$
<S> <C> <C> <C>
Hong Kong 40,989 - 40,989
Elsewhere 3,713 7,625 11,338
------- ------- -------
44,702 7,625 52,327
======= ======= =======
</TABLE>
-62-
<PAGE> 65
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
5. SATELLITE PROJECT PROGRESS PAYMENTS
As analysis of the major components of satellite project progress
payments is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
HK$ HK$
<S> <C> <C>
Communication satellite construction cost 567,633 581,358
Launching and related service fees 299,150 280,550
Insurance and finance costs 55,854 85,488
-------- --------
922,637 947,396
======== ========
</TABLE>
The December 31, 1995 amount included HK$595,502 for APSTAR IA which was
launched in July 1996 and commenced commercial operations in September
1996. The December 31, 1996 amount represents solely the satellite
project progress payments for APSTAR IIR.
6. LOANS FROM SHAREHOLDERS
The loans from shareholders in 1995 and 1996 are denominated in US
Dollars and are subordinated to the syndicated bank loans for the
construction of satellites APSTAR IA and APSTAR IIR. The loans from
shareholders are unsecured and bear interest at LIBID (5.81% at December
31, 1995) up to December 23, 1996 and thereafter at LIBOR (5.60% at
December 31, 1996). Interest on loans from shareholders capitalized
amounted to HK$6,308 and HK$15,256 in the year ended December 31, 1995
and 1996, respectively.
-63-
<PAGE> 66
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
7. BANK LOANS
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
----------------- -----------------
Weighted Weighted
average average
Interest interest interest
rate rate rate
---- ---- ----
HK$ HK$
<S> <C> <C> <C> <C> <C>
Syndicated loans
denominated in
US Dollars:
Payable
semi-annually
through 2001 LIBOR+1.20% 6.900% 524,423 6.839% 463,739
Payable
semi-annually
through 2002 LIBOR+1.30% 7.000% 279,000 - -
------- -------
803,423 463,739
Mortgage loan
denominated in
HK Dollars:
Payable monthly Hong Kong
through 2004 Prime Rate
+1.50% 10.250% 7,108 10.102% 6,518
------- -------
810,531 470,257
Current portion (114,423) (70,130)
------- -------
Long term portion 696,108 400,127
======= =======
</TABLE>
For the syndicated loans, the Company has generally assigned by way of
legal charge, in favour of the syndicated loans lenders, all of its
rights, title, benefit and interest and insurances policies of APSTAR IA
and APSTAR IIR and a portion of the transponder receipts of APSTAR I,
APSTAR IA and APSTAR IIR.
-64-
<PAGE> 67
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
7. BANK LOANS (continued)
The syndicated loan agreements for APSTAR IA and APSTAR IIR contain
certain restriction on APT's ability to make dividend payments or any
other distributions to its shareholders unless APT maintains
satisfactory cash flow and financial ratios as stipulated in the
syndicated loan agreements. The loan agreement for APSTAR I does not
restrict the payment of dividends.
The syndicated loan agreements also impose restrictions on cash. The
amount of cash restricted as at December 31, 1995 and 1996 amounted to
HK$4,886 and HK$8,237, respectively.
The syndicated loans for the construction and launching of APSTAR IA and
APSTAR IIR are guaranteed by all the shareholders of the Group up to the
completion of the respective satellite projects.
In year 1996, the syndicated bank loans for financing APSTAR IA and
APSTAR IIR were repaid by the Company and, therefore, the legal charge
on APSTAR IA and APSTAR IIR, dividend payments and other distributions
restriction imposed on APT, and also shareholders' guarantee were all
released by the banks.
For the mortgage loan, the Company has also pledged certain properties
with net book value of HK$12,617 in respect of the credit facility.
Interest expense, net of the amounts capitalized, is as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Interest incurred 44,902 46,735 118,217
Interest capitalized (32,476) (2,886) (65,527)
------- ------- -------
Interest expense 12,426 43,849 52,690
======= ======= =======
</TABLE>
Commitment fees and other related cost of obtaining the loans
capitalized and included in satellite project progress payments as
follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Commitment fees 552 1,956 3,875
Other related cost of obtaining the loans 618 37,569 15,927
======= ======= =======
</TABLE>
-65-
<PAGE> 68
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
7. BANK LOANS (continued)
The aggregate annual repayments of bank loans for the next five years as
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
HK$
<S> <C>
1997 70,130
1998 80,269
1999 91,862
2000 105,141
2001 120,336
Thereafter 2,519
-------
Total 470,257
=======
</TABLE>
In addition, The 138 Leasing Partnership (the "Partnership") (see Note
8(c)) has outstanding bank loans totalling HK$1,013,077 and HK$982,456
at December 31, 1995 and 1996, respectively. These loans bear interest
at 12% per annum. All the rights, title and interest of the Partnership
under the satellite lease agreement and the sales agency agreement
entered into with the lessee has been assigned to the bank to secure the
payment of the Partnership's outstanding obligations to it. These loans
are repayable by eighteen semi-annual installments commencing on
December 29, 1994. They are also subject to a right of set-off against a
matching deposit of the same amount, which earns the same rate of
interest as the loan interest incurred. The Deposit is held by a
wholly-owned subsidiary of the Group. Accordingly the loans and the
related deposit have been offset in these financial statements.
Similarly, the interest income on the deposit has been offset with the
matching interest expense on the loans. The loans and the related
deposit are denominated in HK Dollars.
-66-
<PAGE> 69
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
8. CONTINGENCIES AND COMMITMENTS
(a) Capital commitments:
At December 31, 1996, the Group had contractual commitments
amounting to HK$380,704 with respect to the acquisition of
communication satellites, together with their launching fee and
related equipment.
At December 31, 1996, the Group had commitments, which is
authorized but not contracted for, amounting to H$K44,700 with
respect to the construction of a building and installation of
antennae and other satellite related equipment in the undeveloped
area adjacent to the Group's satellite control centre in Tai Po.
Such commitments is in accordance with the terms of the lease
agreements for the land in Tai Po.
(b) Operating leases:
At December 31, 1996, future minimum annual rental commitments in
respect of the Company's office premise and staff quarters under
non-cancellable lease obligations are as follows:
<TABLE>
<CAPTION>
HK$
<S> <C>
1997 3,966
1998 3,550
1999 1,996
-------
9,512
=======
</TABLE>
Rental expense for each of the years in the three year period ended
December 31, 1996 was HK$3,650, HK$4,624, and HK$4,550,
respectively.
(c) Leasing arrangement
On December 29, 1994, the Company entered into a sales and lease
back arrangement for the leasing of a communication satellite with
the Partnership. Starting from January 1997, the Partnership
becomes a wholly-owned subsidiary of the Company which at the same
time also assumes a bank loan liability of HK$269,887. The total
lease obligation to the Partnership amounts to HK$951,593 over the
life of the lease. The amount is payable by eighteen semi-annual
installment of HK$52,866 each, with the last payment repayable on
December 29, 2003.
As at December 31, 1996, the outstanding lease obligation on the
above lease amounting to HK$740,128 and this together with the bank
loan to be assumed by the Company in January 1997 are covered by a
fund amounting to HK$870,917 placed with a financial institution
under defeasance and other arrangements which have not been
included in these financial statements.
-67-
<PAGE> 70
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
8. CONTINGENCIES AND COMMITMENTS (continued)
(c) Leasing arrangement (continued)
The Company continues to remain the primary obligor under the lease
arrangement and as such, there is a contingent liability (secured)
of HK$740,128 in respect of the unpaid lease commitment.
(d) Use of orbital slot
The right of the Company's APSTAR IA to utilize certain designated
C-band frequencies in the orbital slot at 134 degrees East has been
licensed to the Company by the Kingdom of Tonga ("Tonga"), which
has responsibility for the International Telecommunication Union
("ITU") coordination process with respect to such orbital slots and
the frequencies covered by the Company's license. Another country
has made filings with the ITU with respect to the orbital slot at
134 degrees East. Tonga has confirmed to the Company that it has
not granted rights to any third party that would affect the
Company's license. Accordingly, the Company believes it is entitled
to use the frequencies at the orbital slot at 134 degrees East
covered by the Company's license. However, the Company cannot
determine that the country that has made ITU filings with respect
to the orbital slot at 134 degrees East or other parties will not
dispute Tonga's priority to the orbital slot at 134 degrees East
and the Company's entitlement to use such orbital slot. In
addition, other disputes may arise with respect to these and other
orbital slots used by or contemplated for the Company's satellites.
Any such disputes may have a material adverse effect on the
Company's business.
-68-
<PAGE> 71
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
9. TRANSPONDER LEASE AGREEMENTS
Communication satellite, APSTAR I, with a net book value of HK$888,399
and HK$785,892 as at December 31, 1995 and 1996; and APSTAR IA which was
transferred to fixed assets from the satellite project progress payment
in 1996 and with a net book value of HK$989,247 at December 31, 1996,
were held for use under transponder lease agreements. Generally, these
transponder lease agreements may be terminated by the customer by giving
not less than ninety days notice. Upon termination, the customer is
obligated to pay the Company specified liquidated damages based on the
contracts.
At December 31, 1996, future minimum transponder rental receivable
(after adjustment for terminations and renegotiations subsequent to the
year end) under transponder lease agreements relating to APSTAR I and
APSTAR IA (including deposits received by the Company in prior periods
and to be applied to payments due in future periods) were as follows:
<TABLE>
<CAPTION>
HK$
<S> <C>
1997 509,575
1998 520,057
1999 469,114
2000 283,402
2001 210,851
Thereafter 239,421
---------
Total 2,232,420
=========
</TABLE>
10. RETAINED EARNINGS
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
HK$ HK$
<S> <C> <C>
At beginning of year 39,443 54,225
Net income 14,782 76,520
Dividend in specie - (56,806)
------ -------
At end of year 54,225 73,939
====== =======
</TABLE>
The dividend in specie of HK$0.18 per share amounted to a total of
HK$56,806 was paid to the then shareholders of APT before its
acquisition by the Company. This dividend in specie was satisfied by the
distribution of all of APT's shareholdings in Super Asia
Telecommunications Company Limited which had a net asset value of
HK$56,806.
-69-
<PAGE> 72
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
11. STAFF PROVIDENT FUND
Prior to year 1996, the Group did not have any pension scheme.
Commencing May 1, 1996, the Company operates a defined contribution
staff provident fund (the "Fund") for its employees. The assets of the
Fund are held separately from those of the Company in an independently
administered fund. Under the Fund, employees are required to contribute
5% of their monthly salary to the Fund, and the Company contributes 5%
of the employee's monthly salary for employees. The Company
contributions are accrued and charged to the statement of income in
accordance with the rules of the Fund. Benefits are payable to an
employee on retirement, termination of employment, death or retirement
on health grounds, and are subject to vesting provisions in the case of
employees who leave employment (other than because of retirement, death
or ill-health) with less than 10 years' service. The terms of the Fund
permit forfeitures and unvested benefits to be used to reduce the level
of the Company's contributions.
The Company's contribution during the year ended December 31, 1996
amounted to HK$437.
12. EXCEPTIONAL ITEM
The exceptional loss for the year ended December 31, 1995 represented
the net loss of APSTAR II, the launching of which was unsuccessful. This
net loss was derived from deducting the insurance proceeds of
HK$1,241,460 from the total satellite progress payments of HK$1,311,252
which included payments for satellite construction, launching and
related services, insurance premium and finance costs on loans borrowed.
-70-
<PAGE> 73
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
13. INCOME TAXES
The income taxes, charged to the statement of income during each of the
years in the three year period ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Hong Kong - - 19,100
Overseas 6 6 290
------- ------- -------
6 6 19,390
Deferred taxation - - 3,210
------- ------- -------
6 6 22,600
======= ======= =======
</TABLE>
No provision for Hong Kong income tax was made for year ended December
31, 1994 as no assessable profit was earned during that year. The
estimated assessable profit earned for the year ended December 31, 1995
was wholly absorbed by tax losses brought forward from prior years. The
tax provision for the year ended December 31, 1996 was made by applying
the current tax rate of 16.5% to the estimated assessable profits earned
after offsetting the tax losses brought forward from year 1995.
The principal components of the provision for deferred taxation, and the
amounts not provided for are as follows:
<TABLE>
<CAPTION>
Provided Not provided
----------------- -----------------
December 31, December 31,
----------------- -----------------
1995 1996 1995 1996
HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C>
Tax effect of temporary
differences
attributable to:
Certain lease arrangements 81,756 89,270 - -
Tax losses - - (4,589) -
Accelerated depreciation - 3,210 - -
------ ------- ------ -------
81,756 92,480 (4,589) -
====== ======= ====== =======
</TABLE>
Certain lease arrangements provide the Company with an initial cash
inflow in return for being responsible for the future obligations to
make payments of taxation on behalf of the lessor in the lease
arrangements. Any differences between the initial benefit and the
eventual liability are provided for over the lives to the relevant
leases and charged to operating expenses.
-71-
<PAGE> 74
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
14. RELATED PARTY TRANSACTIONS
Related party transactions carried out during each of the years in the
three year period ended December 31, 1996 with shareholders and
affiliates:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Leasing of transponders to related parties (13,057) (87,653) (118,139)
Interest income from related parties (1,864) (4,385) (2,816)
Management fee paid to related parties 18,646 20,461 22,298
Launch service fee paid 308,505 386,338 244,900
Interest paid to related parties:
Interest incurred 9,429 6,308 15,256
Interest capitalized (9,429) (6,308) (13,090)
-------- -------- --------
Interest expenses - - 2,166
======== ======== ========
</TABLE>
15. MAJOR CUSTOMER
One customer, who is also a shareholder of the Company, accounted for
19%, 28% and 27% of the total transponder leasing revenues in the year
ended December 31, 1994, 1995 and 1996, respectively.
-72-
<PAGE> 75
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
16. SUPPLEMENTAL INFORMATION
(a) Cash flows
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Interest paid (net of capitalized
amounts) 12,727 40,740 52,255
======= ======= =======
Income taxes paid 13 6 6
======= ======= =======
</TABLE>
During 1994, the shareholders' loan amounting to HK$541,625 was
converted into capital stock of HK$31,449 and additional paid-in
capital of HK$510,176.
(b) Other income
Other income for the year ended December 31, 1994 and 1996 included
HK$13,718 and HK$5,822, respectively, for compensation received
from the cancellation of transponder lease agreements.
(c) Discontinued operations
The discontinued operations arose from the cessation of trading of
electronic products in 1994.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments classified as
current asset and liabilities approximates their fair values. The
carrying amounts of the bank loans approximate their fair value because
they have variable interest rates. The fair value of the loans from
shareholders is not determinable due to the related party nature of the
loans.
-73-
<PAGE> 76
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
18. CONCENTRATION OF RISKS
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments and trade accounts.
The Company maintains cash and cash equivalents with various financial
institutions. Substantially all of these financial institutions are
located in Hong Kong and Company policy is designed to limit exposure to
any one institution.
Substantially all of the Company's accounts receivable are due from
prominent broadcasters and telecommunication services providers.
Furthermore, as of December 31, 1995 and 1996, the three largest
accounts receivable amounted to HK$6,217 and HK$8,387, respectively. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral because it receives
trade deposits which represent a quarter of rental payable to the
Company. The transponder lease agreements are subject to termination by
the Company if lease payments are not made on a timely basis.
Technology in the satellite broadcasting and telecommunication industry
is in a rapid and continuing state of change, with technological
developments and innovations constantly emerging. Any technological lag
in the designs of the existing satellites could result in lower rental
fees after the expiration of the initial rental terms for the leased
transponders.
19. EXPORT SALES
Export sales from continuing operations, defined as sales to customers
located outside Hong Kong, were as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
People's Republic of China 13,057 80,908 148,030
Taiwan 3,423 33,557 34,413
British Virgin Islands 4,222 21,082 10,075
United States of America 18,712 66,125 79,477
Cook Islands 5,477 18,600 18,600
Netherlands 3,308 11,238 11,237
Philippines - - 3,409
------- ------- -------
48,199 231,510 305,241
======= ======= =======
</TABLE>
-74-
<PAGE> 77
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
20. SHARE OPTION SCHEME
Pursuant to the share option scheme (the "Scheme") of the Company
adopted on 3 December 1996, the directors of the Company may at any time
and from time to time within ten years after the date on which the
Scheme was adopted as aforesaid, invite any full-time employee,
including any executive director or officer, of the Company and its
subsidiaries to apply for options to subscribe for shares of the Company
at a price determined by the directors on a case-by-case basis and will
not be less than the nominal value of the share nor at a discount of
more than 20% below the average of the closing price of the shares on
The Stock Exchange of Hong Kong Limited (the "Stock Exchange") as stated
in the Stock Exchange's daily quotation sheets on the five dealing days
immediately preceding the date on which the invitation to apply for an
option under the Scheme is resolved by the directors to be given. The
maximum number of shares in respect of which options may be granted
under the Scheme may not exceed 10% of the issued capital of the
Company, excluding any shares issued pursuant to the Scheme from time to
time. An option may be exercised in accordance with the terms of the
Scheme at any time or times as determined by the directors, being not
later than 10 years after the date on which the option is granted or the
tenth anniversary of the date of adoption of the Scheme, whichever is
the earlier.
There were no share option granted during the period.
21. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company's consolidated financial statements are prepared in
accordance with HK GAAP which differ in certain significant respects
from US GAAP. Differences which have a significant effect on the
consolidated net income and shareholders' equity are set out below.
(a) Recognition of revenue
Certain of the Company's transponder lease agreements for
transponder capacity contain pre-determined escalations over the
term of the agreement. Under HK GAAP, the Company recognizes
revenue on an accrual basis under the contract terms. Under US
GAAP, revenue under these agreements are recognized on a
straight-line basis over the term of the agreement.
(b) Capitalization of finance costs
Under HK GAAP, interest on loans, including the related costs of
raising the loans, incurred specifically to finance construction of
satellites is capitalized as part of the satellite costs until the
satellite commences commercial operations. Under US GAAP, the
interest capitalized is computed by applying an average borrowing
rate to the total amount of qualifying assets under construction,
not to exceed total interest costs incurred, and the related costs
of raising the loans are deferred and amortized over the life of
the loans. The application of US GAAP would not have a significant
effect for the periods presented.
-75-
<PAGE> 78
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
21. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
(c) Investment properties
Under HK GAAP, investment properties are stated at cost and are not
depreciated. Under US GAAP, such investment properties would be
stated at cost and depreciated over the lease term of 50 years.
(d) Deferred taxation
Under HK GAAP, deferred taxation is provided, using the liability
method, on all significant timing differences to the extent it is
probable that the liability will crystallize in the foreseeable
future. A deferred tax asset is not recognized until its
realization is assured beyond reasonable doubt.
Under US GAAP, the tax effects of both taxable and deductible
temporary differences are recognized as deferred tax liabilities
and assets, respectively. A valuation allowance is recorded to the
extent it is considered more likely than not that the deferred tax
assets will not be realized.
-76-
<PAGE> 79
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
21. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Effect on net income of significant differences between HK GAAP and US
GAAP is as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Net income as reported
under HK GAAP 1,372 14,782 76,520
Less:Discontinued operations
under HK GAAP (1,203) - -
--------- --------- ---------
Net income from continuing
operations under HK GAAP 169 14,782 76,520
Adjustments:
Recognition of revenue 7,738 6,021 12,205
Investment properties (241) (241) (120)
Tax effect of reconciling items (1,277) (993) (2,014)
Deferred taxation (3,622) (2,620) 2,667
--------- --------- ---------
Approximate net income from:
Continuing operations under
US GAAP 2,767 16,949 89,258
Discontinued operations net of deferred
income taxes of HK$198 for 1994 1,005 - -
--------- --------- ---------
Approximate net income as
reported under US GAAP 3,772 16,949 89,258
======= ======= =======
Earnings per share from
continuing operations under US GAAP 0.01 0.05 0.28
======= ======= =======
Earnings per share under
US GAAP 0.01 0.05 0.28
======= ======= =======
</TABLE>
Under US GAAP, the exceptional items for 1995 would be classified as
operating costs. In addition, compensation received from cancellation of
transponder lease agreements would be classified as revenues.
-77-
<PAGE> 80
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
21. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
The effect on shareholders' equity of significant differences between HK
GAAP and US GAAP is as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Shareholders' equity as reported
under HK GAAP 581,943 596,725 1,942,461
Adjustments:
Recognition of revenue 7,738 13,759 25,964
Investment properties (241) (482) (602)
Tax effect of reconciling items (1,277) (2,270) (4,284)
Deferred taxation (47) (2,667) -
--------- --------- ---------
Shareholders' equity as reported
under US GAAP 588,116 605,065 1,963,539
======== ======== ========
</TABLE>
The changes in shareholders equity in accordance with US GAAP is as
follows:
<TABLE>
<CAPTION>
Capital Additional Retained
stock paid-in capital earnings
------- --------------- --------
HK$ HK$ HK$
<S> <C> <C> <C>
Balance at December 31, 1993 51 824 41,844
Conversion of shareholders' loan 31,449 510,176 -
Net income - - 3,772
------- --------- -------
Balance at December 31, 1994 31,500 511,000 45,616
Net income - - 16,949
------- --------- -------
Balance at December 31, 1995 31,500 511,000 62,565
Net proceeds from issue of
105,000,000 new shares 10,500 1,315,522 -
Net income - - 89,258
Dividend in specie - - (56,806)
------- --------- -------
Balance at December 31, 1996 42,000 1,826,522 95,017
======= ======= =======
</TABLE>
-78-
<PAGE> 81
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
21. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
A reconciliation of the expected tax with the actual tax expense under
US GAAP is presented below:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Hong Kong statutory income tax rate 16.5% 16.5% 16.5%
======= ======= =======
Statutory rate applied to income
from continuing operations before
income taxes under US GAAP 1,265 3,392 18,349
Expenses not deductible 207 2 3,198
Offshore interest income not taxable (8) (67) (142)
Overseas representative office's
and subsidiaries' losses not deductible 1,535 271 352
Others 48 21 190
------- ------- -------
Actual taxation under US GAAP 3,047 3,619 21,947
======= ======= =======
</TABLE>
Overseas representative office's losses not deductible represent losses
incurred by a representative office of a subsidiary which operates in
the People's Republic of China. Such losses are not deductible against
future profits. Subsidiaries' losses not deductible represent losses
incurred by several subsidiaries which do not carry out active business
operations. These subsidiaries also do not intend to carry out any
active business operations in the foreseeable future. As a result, full
valuation allowance is provided for the deferred tax assets derived from
these losses.
-79-
<PAGE> 82
APT SATELLITE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts stated in thousands, except share data)
21. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN HONG KONG AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
An analysis of the actual tax expense under US GAAP is presented below:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------
1994 1995 1996
HK$ HK$ HK$
<S> <C> <C> <C>
Current tax provision 6 6 19,390
Deferred tax 3,041 3,613 2,557
------ ------ ------
3,047 3,619 21,947
====== ====== ======
</TABLE>
Additionally, under US GAAP, the outstanding lease obligations to the
Partnership would not be offset with the matching offshore deposit held
by a wholly-owned subsidiary company. As a result, current assets and
liabilities would increase by HK$30,621 and HK$34,626 at December 31,
1995 and 1996, respectively, and long-term assets and liabilities would
increase by HK$901,830 and HK$870,917 at December 31, 1995 and 1996,
respectively. Similarly, the interest expense on the loan and the
matching interest income on the deposit would not be offset resulting in
increases in interest expense and interest income of HK$872, HK$105,246
and HK$105,696 in the year ended December 31, 1994, 1995 and 1996,
respectively.
Under HK GAAP, the prepaid launching fee of HK$31,000 and HK$28,233 at
December 31, 1995 and 1996, respectively, are included in prepayments,
deposits and other receivables. Under US GAAP such amounts would be
classified as non-current assets.
Under US GAAP, the Company's consolidated total assets would have been
HK$3,027,927 and HK$4,124,477 at December 31, 1995 and 1996
respectively. Consolidated total liabilities would have been
HK$2,422,862 and HK$2,160,938 at December 31, 1995 and 1996,
respectively.
-80-
<PAGE> 83
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
- ---------------------
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995
and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996
Notes to Consolidated Financial Statements
Exhibits:
- ---------
Not Applicable.
-81-
<PAGE> 84
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APT SATELLITE HOLDINGS LIMITED
By: /s/ Qin Shen
-----------------------------------
Name: Qin Shen
---------------------------------
Title: Director and Vice President
--------------------------------
Date: June 27, 1997
-82-
