AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 2006
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
|_| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________________
COMMISSION FILE NUMBER 1-14396
ASIA SATELLITE
TELECOMMUNICATIONS HOLDINGS LIMITED
(Exact Name of Registrant as Specified in Its Charter)
N/A Bermuda
(Translation of Registrant's (Jurisdiction of Incorporation
Name Into English) or Organization)
17th Floor, The Lee Gardens
33 Hysan Avenue
Causeway Bay
Hong Kong
852-2500-0888
(Address and Telephone Number of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
--------------------------------------------------------------------------------
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
--------------------------------------------------------------------------------
American Depositary Shares The New York Stock Exchange
Common Stock, par value The New York Stock Exchange*
HK $0.10 per share
* Not for trading, but only in connection with the registration of American
Depositary Shares. The Common Stock is also listed and traded on The Stock
Exchange of Hong Kong Limited.
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.
-- As of December 31, 2005, 390,265,500 shares of Common Stock were issued
and outstanding Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [_] No [X]
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 filing requirements for the
past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [_] Item 18 [X]
If this is an annual report, indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
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TABLE OF CONTENTS
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
PAGE
PART I........................................................................1
Item 1. Identity of Directors, Senior Management and Advisors...........1
Item 2. Offer Statistics and Expected Timetable.........................2
Item 3. Key Information.................................................2
Item 4. Information on the Company.....................................13
Item 5. Operating and Financial Review and Prospects...................34
Item 6. Directors, Senior Management and Employees.....................48
Item 7. Major Shareholders and Related Party Transactions..............57
Item 8. Financial Information..........................................59
Item 9. Stock Price History............................................60
Item 10. Additional Information.........................................61
Item 11. Quantitative and Qualitative Disclosures About Market Risk.....63
Item 12. Description of Securities Other than Equity Securities.........64
PART II......................................................................64
Item 13. Defaults, Dividend Arrearages and Delinquencies................64
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds..........................................64
PART III.....................................................................64
Item 15. Controls and Procedures........................................64
Item 16. Other Information..............................................64
PART IV......................................................................66
Item 17. Financial Statements...........................................66
Item 18. Financial Statements...........................................66
Item 19. Financial Statements and Exhibits..............................66
SUPPLEMENTAL INFORMATION AND EXCHANGE RATES
All references to the "Company" herein are references to Asia Satellite
Telecommunications Holdings Limited, a Bermuda company incorporated on May 10,
1996, and, unless the context otherwise requires, its subsidiaries. All
references to "AsiaSat" herein are to Asia Satellite Telecommunications Company
Limited, a Hong Kong company and a wholly-owned indirect subsidiary of the
Company and, unless the context otherwise requires, its subsidiaries. Any
discrepancies in any table between totals and sums of the amounts listed are
due to rounding.
The Company and AsiaSat prepare their financial statements in Hong Kong
Dollars. In this Annual Report references to "US Dollars," "US$" or "$" are to
United States Dollars and references to "Hong Kong Dollars," "HK Dollars" or
"HK$" are to Hong Kong Dollars. Solely for the convenience of the reader, this
Annual Report contains translations of certain Hong Kong Dollar amounts into US
Dollars at specified rates. These translations should not be construed as
representations that the Hong Kong Dollar amounts actually represent such US
Dollar amounts or could be converted into US Dollars at the rates indicated or
at all. Unless otherwise stated, the translations of Hong Kong Dollars into US
Dollars have been made at the rate of HK$7.80 to US$1.00, the approximate rate
of exchange on December 31, 2005. The noon buying rate in New York City for
cable transfers in Hong Kong Dollars as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate") was HK$7.7723 to
US$1.00 on December 31, 2005. The Noon Buying Rate on June 12, 2006 was
HK$7.7607 to US$1.00.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains certain forward-looking
statements. The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for certain forward-looking statements. When used in this Annual
Report on Form 20-F, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe" and similar expressions are intended to identify
forward-looking statements and information. The Company identifies the
following important factors which could cause its actual results to differ
materially from any results which might be projected, forecast, estimated or
budgeted by the Company in forward-looking information. All of such factors are
difficult to predict and many are beyond the control of the Company.
Accordingly, while the Company believes that the assumptions underlying the
forward-looking information are reasonable, there can be no assurance that such
assumptions will approximate actual experience, and in such event, actual
results could differ materially from the predictions contained in this Annual
Report on Form 20-F. These important factors include, but are not limited to:
(i) the continued operation of the existing in-orbit satellites and success in
constructing and launching new satellites as planned, (ii) future economic and
competitive conditions in the Asian regional satellite market in which AsiaSat
competes, (iii) the Company's success in obtaining necessary regulatory
approvals and licenses, and (iv) the continued ability of the Company to meet
its debt obligations and fund its capital expenditure programs.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
Not applicable.
1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL INFORMATION
The summary income statement data of the Company for the years ended
December 31, 2003, 2004 and 2005 and the summary balance sheet data of the
Company as of December 31, 2004 and 2005 set forth below are derived from, and
are qualified in their entirety by reference to, the audited consolidated
financial statements of the Company, including the notes thereto, included
elsewhere herein and in "Operating and Financial Review and Prospects." The
summary income statement data for the years ended December 31, 2001 and 2002
and the summary balance sheet data as of December 31, 2001, 2002 and 2003 set
forth below are derived from audited consolidated financial statements of the
Company not included herein. The consolidated financial statements of the
Company are prepared and presented in accordance with accounting principles
generally accepted in Hong Kong, or Hong Kong GAAP, which differ in certain
material respects from accounting principles generally accepted in the United
States, or U.S. GAAP. Note 32 to the Company's consolidated financial
statements contains descriptions of the significant differences between Hong
Kong GAAP and U.S. GAAP, a reconciliation of net income from Hong Kong GAAP to
U.S. GAAP for the years ended December 31, 2003, 2004 and 2005, and a
reconciliation of shareholders' equity from Hong Kong GAAP to U.S. GAAP as of
December 31, 2004 and 2005. In addition, Note 32 to the Company's consolidated
financial statements contains additional disclosures required under U.S. GAAP,
which are not disclosed elsewhere in the notes to the Company's consolidated
financial statements.
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2001 2002 2003 2004 2005 2005
HK$ HK$ HK$ HK$ HK$ US$
-----------------------------------------------------------------------------
(in millions, except for percentages and per share amounts)
INCOME STATEMENT DATA:
Hong Kong GAAP:
Revenues................... 969.5 950.8 896.2 1,005.0 879.7 112.8
Cost of services (240.0) (243.1) (313.3) (420.5) (419.0) (53.7)
Administrative expenses (58.6) (76.7) (56.1) (102.5) (83.9) (10.8)
Operating profit 687.2 637.4 532.6 504.0 420.5 53.9
Share of results of associates
(including goodwill
amortization) (47.5) (13.7) (15.6) (12.4) (3.9) (0.5)
Impairment loss recognized in
respect of goodwill of
associates (0.6) -- (1.9) -- -- --
Profit before taxation 633.6 623.8 512.1 491.6 416.6 53.4
Minority Interests......... -- -- -- (0.1) (0.8) (0.1)
Taxation (70.6) (69.1) (87.6) (60.5) (51.3) (6.6)
Profit for the year.......... 563.0 554.7 424.5 431.1 365.4 46.8
Earnings per share.........
Basic.................. 1.44 1.42 1.09 1.10 0.94 0.12
2
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2001 2002 2003 2004 2005 2005
HK$ HK$ HK$ HK$ HK$ US$
-----------------------------------------------------------------------------
(in millions, except for percentages and per share amounts)
Diluted................. 1.44 1.42 1.09 1.10 0.94 0.12
Earnings per ADS...........
Basic.................. 14.40 14.21 10.88 11.05 9.38 1.2
Diluted................. 14.40 14.21 10.88 11.05 9.38 1.2
Dividend declared per share:
Ordinary................... 0.20 0.25 0.32 0.35 0.35 0.04
Number of shares outstanding (in
thousands)............... 390,266 390,266 390,266 390,266 390,266 390,266
U.S. GAAP:
Profit for the year 562.5 538.1 408.3 424.1 358.8 46.0
Earnings per share.........
Basic................... 1.44 1.38 1.05 1.09 0.92 0.12
Diluted................. 1.44 1.38 1.05 1.09 0.92 0.12
Earnings per ADS...........
Basic.................. 14.41 13.79 10.46 10.86 9.19 1.18
Diluted................. 14.41 13.79 10.46 10.86 9.19 1.18
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RESTATED
-------------------------------------
2001 2002 2003 2004 2005 2005
HK$ HK$ HK$ HK$ HK$ US$
-----------------------------------------------------------------------------
BALANCE SHEET DATA:
Hong Kong GAAP:
Working capital............ 86.8 239.0 529.9 1,023.1 1,461.1 187.3
Property, plant and
equipment (1)......... 2,915.8 3,206.4 3,140.0 2,894.5 2,620.9 336.0
Total assets.................. 3,384.7 3,936.4 4,157.2 4,549.2 4,683.5 600.4
Long-term liabilities (2) 288.8 326.0 336.5 317.1 280.3 35.9
Total liabilities (excluding
minority interests) .. 514.2 589.1 588.5 668.3 573.8 73.6
Capital stock ............. 39.0 39.0 39.0 39.0 39.0 5.0
Total shareholders' equity 2,870.1 3,346.7 3,568.3 3,874.6 4,104.2 526.2
U.S. GAAP:
Property, plant and equipment
3,009.2 3,276.6 3,198.5 2,944.9 2,663.3 341.4
Total assets............... 3,478.1 4,011.2 4,215.7 4,599.9 4,726.1 605.9
Long-term liabilities (2) 300.1 335.4 345.8 325.6 288.1 36.9
Total liabilities (excluding
minority interests)... 525.4 598.5 597.7 676.8 581.6 74.6
Total shareholders' equity 2,952.2 3,412.2 3,617.5 3,916.7 4,138.9 530.6
-----------------
(1) Excludes leasehold land and land use rights which are reclassified as
prepaid operating lease payments with the adoption of revised Hong Kong
Accounting Standard 17.
(2) Excludes current portion of long-term liabilities.
HISTORICAL EXCHANGE RATE INFORMATION
The Hong Kong Dollar is freely convertible into other currencies,
including the US Dollar. Since October 17, 1983, the Hong Kong Dollar has been
linked to the US Dollar at the rate
3
of HK$7.80 to US$1.00. The central element in the arrangements that gives
effect to the link is an agreement between the Hong Kong Government and the
three Hong Kong banknote-issuing banks, The Hongkong and Shanghai Banking
Corporation Limited, Standard Chartered Bank and, since May 1, 1994, Bank of
China. Under this agreement, the Hong Kong Government Exchange Fund issues
certificates of its indebtedness to the banknote-issuing banks against payment
in US Dollars at the fixed exchange rate of HK$7.80 to US$1.00. The
banknote-issuing banks hold the certificates of indebtedness to cover the
issuances of banknotes. When the banknotes are withdrawn from circulation, the
banknote-issuing banks surrender the certificates of indebtedness to the Hong
Kong Government Exchange Fund and are paid the equivalent US Dollars at the
fixed exchange rate. Exchange transactions in the Hong Kong Dollar against the
US Dollar continue in the foreign exchange market.
The following table sets forth the average, high, low and period end Noon
Buying Rate between Hong Kong Dollars and US Dollars (in Hong Kong Dollars per
US Dollar) for the periods indicated. No representation is made that the Hong
Kong Dollar or US Dollar amounts referred to in this annual report have been,
could have been or could be converted into US Dollars or Hong Kong Dollars, as
the case may be, at the rates indicated below or at any other rate.
HONG KONG DOLLAR/US DOLLAR
NOON BUYING RATE
------------------------------------------------------------
AVERAGE (1) HIGH LOW PERIOD END
HK$ HK$ HK$ HK$
------------- --------- ----------- ---------------
2001 ................. 7.7997 7.8004 7.7970 7.7980
2002 ................. 7.7997 7.8095 7.7970 7.7988
2003 ................. 7.7875 7.8001 7.7085 7.7640
2004 ................. 7.7891 7.8010 7.7632 7.7723
2005 .................
December 2005 ........ 7.7536 7.7552 7.7522 7.7545
January 2006 ......... 7.7541 7.7573 7.7509 7.7573
February 2006......... 7.7596 7.7617 7.7565 7.7579
March 2006 ........... 7.7593 7.7621 7.7572 7.7597
April 2006 ........... 7.7563 7.7600 7.7534 7.7534
May 2006 ............. 7.7541 7.7584 7.7513 7.7584
(1) The average of the Noon Buying Rates on the last day of each month
during the period.
RISK FACTORS
RISK OF LAUNCH AND IN-ORBIT FAILURE, LOSS, REDUCED PERFORMANCE AND
SATELLITE DEFECTS
Satellites are subject to significant risks, including launch and in-orbit
failure, satellite defects, destruction and damage that may result in total or
partial loss or incorrect orbital placement or may prevent proper commercial
operation. The failure rate varies by launch vehicle, launch services provider
and satellite manufacturer. A total or constructive total loss of any of our
satellites would adversely affect the Company. In addition, any defects in
4
AsiaSat 2, AsiaSat 3S or AsiaSat 4 may also adversely affect the Company. See
"Information on the Company -- Satellites -- AsiaSat 2."
RISKS IN RELATION TO THE CONSTRUCTION AND LAUNCH OF ASIASAT 5
AsiaSat has entered into a construction contract and a launch contract for
the commissioning of AsiaSat 5. The Company plans to launch AsiaSat 5 in 2008.
AsiaSat 5 will replace AsiaSat 2, which is tentatively scheduled to retire in
2010. The Company has planned for the launch of AsiaSat 5 in 2008 so as to
allow sufficient time for the construction and launch of another satellite in
the event of an unsuccessful launch of AsiaSat 5. The total consideration under
the construction contract and launch contract, together with insurance cost, is
estimated at approximately HK$1,404.0 million (US$180.0 million). The
construction contractor, Space Systems/Loral, Inc., is a subsidiary of Loral
Space & Communications Inc., which emerged from chapter 11 of the federal
bankruptcy laws of the United States in November 2005. The predecessor of Loral
Space & Communications Inc. filed voluntary petitions for reorganization in
July 2003 together with some of its subsidiaries, including Space Systems/Loral
Inc. Space Systems/Loral, Inc. emerged from the reorganization debt-free.
However, any future financial difficulties of Space Systems/Loral, Inc. may
adversely affect its performance under the construction contract and may
adversely affect the quality or delay the launch of AsiaSat 5. In addition,
there can be no assurance that the launch of AsiaSat 5, including the
subsequent in-orbit testing, will be successful. In the event AsiaSat 5 does
not meet specifications, there are limited opportunities for the Company to
replace AsiaSat 5 and the failure to timely replace AsiaSat 5 may result in
interruption of services to our customers and adversely affect the operation
and financial results of the Company. Furthermore, a significant portion of the
total cost of the construction and launch of a satellite is the cost of
insurance, which generally will not be obtained until several months prior to a
scheduled launch. There can be no assurance that sufficient insurance can be
obtained at a reasonable price prior to the launch of AsiaSat 5.
RISK OF NOT SUCCESSFULLY RENEWING EXISTING TRANSPONDER CAPACITY AGREEMENTS
OR NOT RENEWING THEM ON TERMS SIMILAR TO THEIR CURRENT TERMS
The Company's existing transponder capacity agreements, also known as
transponder utilization agreements, have scheduled termination dates. If the
Company is unsuccessful in obtaining their renewal on similar commercial terms,
including price levels, and for similar duration, or in identifying alternate
users for returned capacity, the Company's revenues will be adversely affected.
LIMITED LIFE OF SATELLITES
A number of factors affect the estimated useful life of a satellite,
including the quality of their construction, the durability of their component
parts, the amount of fuel on-board, the launch vehicle used and the skill with
which the satellite is monitored and operated. There can be no assurance as to
the specific longevity of AsiaSat 2, AsiaSat 3S or AsiaSat 4. The Company's
results of operations would be adversely affected in the event the useful life
of AsiaSat 2, AsiaSat 3S or AsiaSat 4 were significantly shorter than the
estimates stated in "Information on the Company -- Satellites." See
"Information on the Company -- Insurance."
5
RISK OF LOSING SATELLITE SERVICE REVENUES IF OTHER SATELLITES OR SIGNALS
INTERFERE WITH THE COMPANY'S TRANSMISSIONS
Satellites operating from orbital slots that are adjacent to, and using
the same band of frequencies as, the Company's satellites could interfere with
the transmissions made by its satellites. Such interference could lead to the
loss of satellite service revenues if customers migrate to competitors who
operate satellites without such interference. The Company has entered into
frequency coordination agreements with certain other operators to avoid any
material interference and pursuant to which the Company has agreed to certain
operating constraints. The Company's ability to use its orbital slots could be
further constrained in order to avoid material interference with other
satellites and the Company could enter into disputes over interference in the
future. In addition, unintentional or intentional signals could interfere with
the transmissions of the Company's customers and could severely damage the
reputation of the Company. If not remedied, such signals could lead to a loss
of satellite service revenues if customers migrate to competitors. See
"Information on the Company -- Additional Orbital Slots and Use of Frequencies"
and "Information on the Company - Satellites - AsiaSat 3S."
RISK OF LOSS OR DAMAGE TO SATELLITES, GROUND BASED SATELLITE CONTROL
EQUIPMENT OR SATELLITE STATIONS FROM ACTS OF WAR, TERRORISM, ELECTROSTATIC
STORM, SPACE DEBRIS AND OTHER NATURAL DISASTERS
The loss, damage or destruction of AsiaSat 2, AsiaSat 3S or AsiaSat 4, or
damage or destruction to AsiaSat's ground based satellite control equipment and
satellite stations, as a result of military actions or acts of war, terrorism,
anti-satellite devices, electrostatic storm, collision with space debris, other
natural disasters or other causes would have an adverse effect on the Company.
AsiaSat's insurance policies include standard commercial satellite insurance
provisions and customary exclusions from losses resulting from (i) military or
similar actions, (ii) terrorism, (iii) laser, directed energy or nuclear
anti-satellite devices, (iv) insurrection and similar acts or governmental
action to prevent such acts, (v) governmental confiscation, (vi) nuclear
reaction or radiation contamination or (vii) willful or intentional acts of
AsiaSat or its contractors. See "Information on the Company -- Insurance."
RELIANCE UPON SIGNIFICANT CUSTOMER
The Company's largest customer is STAR Group Limited ("STAR"), which is a
Hong Kong-based international satellite television broadcasting company that
broadcasts over the greater Asian region and is wholly-owned by News
Corporation, a leading international media group. STAR accounted for
approximately 24.9%, 22.4% and 25.7% of AsiaSat's revenues in the years ended
December 31, 2003, 2004 and 2005, respectively. See "Information on the Company
- Services and Customers."
The Company could be adversely affected by the loss of STAR as a customer
or if STAR failed to perform its obligations in accordance with the terms of
its transponder utilization agreements. There can be no assurance that STAR
will enter into additional transponder utilization agreements with the Company
upon the expiration of existing transponder utilization agreements.
6
RISK OF TECHNOLOGICAL CHANGES
Technology in the satellite broadcasting and telecommunications industry
is in a rapid and continuing state of change. Technological developments may
have an adverse impact on the Company. First, because the Company's satellites
have an estimated useful life of approximately 15 years, the technology used in
the Company's satellites may not be the most advanced at some future date. As a
consequence, customers could migrate to satellite operators offering new
generations of competing satellite systems that incorporate more advanced
technologies, or more suitable satellite capabilities or configurations, after
the expiration of the Company's initial contract term, which would result in a
loss of revenues. In addition, the Company might be required to replace
satellites earlier than expected to address these developments. Second,
increased transponder efficiency resulting from advances in compression
technology, if not offset by increased applications for satellite capacity, may
cause an overall decrease in demand for such capacity.
RISK OF LIMITED MARKET DEMAND AND INCREASING COMPETITION
The business in which the Company operates is highly competitive. The
satellite services provided by the Company are used by its customers for point
to multipoint communication (principally television broadcasting, private
communication networks, Internet and multimedia services). The Company's
principal competitors are regional and domestic satellite companies operating
in the Asian region. 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. See "Information on the
Company - Competition."
TRANSPONDER OVERSUPPLY. It is expected that in 2006 the supply of
transponders continues to exceed the demand for transponders. The Company
believes that this imbalance cannot be corrected until global economic growth
and new applications and services increase demand for the existing capacity.
See "Information on the Company - Competition - Transponder Oversupply."
COMPETING SYSTEMS AND SATELLITES. AsiaSat competes with a number of
regional and domestic satellites and satellite systems such as APSTAR,
Chinasat, Indosat, INSAT, Intelsat, JSAT, Koreasat, MEASAT, New Skies
Satellites, PanAmSat, Singtel Optus, SINOSAT, Superbird, Thaicom and others.
The Company believes that most of the domestic systems are planning to add at
least some regional transponders to their next generation of satellites. The
increased competition could adversely affect the Company's business prospects.
See "Information on the Company - Competition - Competition Restriction from
Domestic Systems."
7
FIBER OPTIC SYSTEMS. Fiber optic systems have been widely installed within
the region for point to point trans-oceanic communications. In addition, point
to point fiber optic connections between major cities in Asia are common. As
fiber optic coverage increases, the competitiveness of satellites for point to
point communication will diminish. In addition, the transmission of television
programming via Asymmetric Digital Subscriber Line ("ADSL") and Digital
Subscriber Line ("DSL") technologies, commonly known as Internet Protocol
Television, is also an alternative for transmission of television programming
via direct broadcasting satellite and cable.
RISKS RELATING TO FUTURE SATELLITES
The construction, launch and operation of AsiaSat 5 and any future
satellites by the Company would be subject to substantially the same risks as
those set forth herein relating to AsiaSat 2, AsiaSat 3S and AsiaSat 4. In
addition, AsiaSat's ability to make capital expenditures in connection with the
construction and launch of future satellites could be subject to conditions of
future financing arrangements. See "Operating and Financial Review and
Prospects -- Liquidity and Capital Resources -- Planned Capital Expenditures."
THE COMPANY IS SUBJECT TO REGULATION BY A NUMBER OF DIFFERENT BODIES
The business in which the Company operates is highly regulated. Satellite,
broadcasting and telecommunications services are subject to international and
national law.
HONG KONG. As an operator of privately owned satellites, AsiaSat is
subject to the regulatory authority of the Office of the Telecommunications
Authority of Hong Kong ("OFTA"), which in turn is subject to the control and
supervision of the People's Republic of China ("China"). 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.
Licenses granted to AsiaSat are subject to conditions specified therein.
The conditions may include basic orbital parameters (and requirements to obtain
advance approval for any intended deviations and to notify any unintentional
deviation), requirements to avoid interference with the activities of other
users of outer space and requirements not to cause actions which may give rise
to liabilities on the part of China or Hong Kong. Breach of any such conditions
can give rise to a right of revocation of the relevant license.
The Company's operation of earth stations is subject to the
Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong) (the
"Telecommunications Ordinance"). The Telecommunications Ordinance contains
provisions for the taking of possession by the Hong Kong Government of
telecommunications stations if the Chief Executive in Council is of the opinion
that an emergency has arisen in which it is expedient for the public service
that the Hong Kong Government should have control over telecommunications
stations. See "Information on the Company - Regulation - Hong Kong Regulation."
The Company has been advised by OFTA that it is considering reassigning
part of the satellite C-band (specifically 3400 to 3600 MHz) for Broadband
Wireless Access (BWA) applications. Although the Company does not use this part
of the band the Company believes, based on analysis and limited testing, that
broad deployment of BWA transmitters in Hong Kong will disrupt or interfere
with all conventional (3700 to 4200 MHz) and extended C band
8
(3400 to 3700 MHz) satellite services in Hong Kong. The Company, other
satellite operators and users have raised objections to this allocation by
OFTA, but there can be no assurance that this objection will be successful. The
Company cannot be certain that in the event that such frequency band is
reassigned, techniques that may potentially be applied to mitigate any such
disruption or interference will be successful. This proposal by OFTA is part of
a worldwide trend to assign more frequency spectrum to mobile and nomadic
communications services users. Should this trend continue C band satellite
services will be disadvantaged, particularly in urban areas within the
Company's regional coverage.
OTHER NATIONAL REGULATORY SCHEMES. The customers of the Company are
subject to the regulatory authority in the countries in which they operate.
Many of the Company's customers must have authorization from the countries in
which such customers are located in order to uplink to and communicate by means
of the Company's satellites. Although the Company does not believe these
regulatory schemes will prevent the Company from pursuing its business, there
can be no assurance that such licenses and approvals are or will remain
sufficient in the view of national regulatory authorities and that these
authorities will not discourage or prevent potential customers from utilizing
transponders on the Company's satellites.
The laws of certain countries require television broadcasters and
satellite telecommunication users providing services in such countries
generally to use state-owned or locally-owned satellites. Punitive withholding
taxes are often applicable to payments made under non-domestic satellite
contracts. These legal requirements prevent the Company and other satellite
companies from competing to provide transponder capacity to these potential
customers. There can be no assurance that other countries in the Asian region,
including countries in which the Company already has customers, will not impose
similar requirements to use state-owned or locally-owned satellites in the
future. The imposition of such requirements could adversely affect the
Company's results of operations. See "Information on the Company -
Competition." The Company could be adversely affected by changes in laws and
regulations, or in the interpretation and application of existing laws and
regulations, relating to taxation or licensing fees in countries that may
assert jurisdiction over the Company's activities, including countries where
customers of the Company are located or where signals transmitted by the
Company's satellites are received. See "Operating and Financial Review and
Prospects - Taxation."
INTERNATIONAL TELECOMMUNICATION UNION. AsiaSat's use of orbital slots and
radio frequency is subject to the regulations of the International
Telecommunication Union ("ITU"). Nations are required by treaty to make a
filing of their proposed use of satellite orbital slots for geostationary
satellites with the Radiocommunication Bureau of the ITU. When a conflict or
potential conflict is noted, nations are obligated to negotiate in an effort to
coordinate the proposed uses and resolve any interference concerns. The
Radiocommunication Bureau, however, has no formal dispute resolution mechanism,
and if nations cannot agree on a resolution, a satellite system will not be
entitled to the full interference protection afforded under international law.
See "Information on the Company - Regulation - International Telecommunication
Union."
9
FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROL OVER FINANCIAL
REPORTING IN ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY
The United States Securities and Exchange Commission, or the SEC, as
required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every public company to include a management report on such company's
internal controls over financial reporting in its annual report, which contains
management's assessment of the effectiveness of the company's internal controls
over financial reporting. In addition, an independent registered public
accounting firm must attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting.
These requirements will first apply to our annual report on Form 20-F for the
fiscal year ending December 31, 2006. Our management may conclude that our
internal controls over our financial reporting are not effective. Moreover,
even if our management concludes that our internal controls over financial
reporting are effective, our independent auditor may still decline to attest to
our management's assessment or may issue a report that is qualified if it is
not satisfied with our controls or the level at which our controls are
documented, designed, operated or reviewed, or if it interprets the relevant
requirements differently from us. Furthermore, during the course of the
evaluation, documentation and attestation, we may identify deficiencies that we
may not be able to remedy in time to meet the deadline imposed by the
Sarbanes-Oxley Act for compliance with the requirements of Section 404. If we
fail to achieve and maintain the adequacy of our internal controls, we may not
be able to conclude that we have effective internal controls, on an ongoing
basis, over financial reporting in accordance with the Sarbanes-Oxley Act.
Moreover, effective internal controls are necessary for us to produce reliable
financial reports and are important to help prevent fraud. As a result, our
failure to achieve and maintain effective internal controls over financial
reporting could result in the loss of investor confidence in the reliability of
our financial statements, which in turn could harm our business and negatively
impact the trading price of our shares and ADSs. Furthermore, we anticipate
that we will incur considerable costs and use significant management time and
other resources in an effort to comply with Section 404 and other requirements
of the Sarbanes-Oxley Act.
POLITICAL, ECONOMIC AND OTHER REGIONAL RISKS
AsiaSat is a Hong Kong company. Substantially all of AsiaSat's revenues
are derived from its operations conducted in the Asian region. In 2003, 2004
and 2005, approximately 59.8%, 51.8% and 61.9%, respectively, of AsiaSat's
revenues, were derived from customers from Greater China, which includes
mainland China, Hong Kong, Macau and Taiwan. Furthermore, during 2003, 2004 and
2005, approximately, 24.9%, 22.4% and 25.7%, respectively, of AsiaSat's
revenues were attributable to transponder utilization agreements with STAR, a
Hong Kong company. As a result, the Company's financial condition and results
of operations may be influenced by the political situation in the Asian region
and by the general state of the economies in such region.
CHINA. General economic conditions in China could have a significant
impact on the financial prospects of the Company. The economy of China has been
changing dramatically with a gradual reduction in the role of state economic
plans in the allocation of resources, pricing and management of assets and an
increased reliance on market forces. Any slowdown in economic growth or return
to non-market policies could adversely affect business in China.
10
The Company may also be adversely affected by changes in the political and
social conditions in China, and by changes in laws, regulations and
governmental policies, with respect to broadcast media, telecommunications
services, inflationary measures, currency conversion or the rates and methods
of taxation, among other things. While the Chinese government is expected to
continue its economic reform policies, many of the reforms are new or
experimental and may be refined or changed.
Almost all payments under AsiaSat's transponder utilization agreements are
made in US Dollars. Since China has extensive foreign exchange controls, the
ability of Chinese companies to convert Renminbi (the currency of China) into
foreign currency and to purchase foreign currency is subject to various Chinese
laws and regulations. China's current or future foreign exchange controls could
adversely affect the ability of the Company's customers in China to make
payments to the Company in US Dollars.
HONG KONG. From July 1, 1997, Hong Kong ceased to be a Crown Colony of the
United Kingdom, and became a Special Administrative Region of China. Although
the Basic Law, which governs China's relationship with Hong Kong, provides that
Hong Kong will have a high degree of legislative, judicial and economic
autonomy, there can be no assurance that the Company's financial condition and
results of operations will not be adversely affected as a consequence of the
exercise of China's sovereignty over Hong Kong. In addition, political and
social developments in China have from time to time adversely affected the Hong
Kong economy.
SARS, AVIAN FLU OR SIMILAR OCCURRENCE. The Company's business could be
adversely affected by the re-emergence of Severe Acute Respiratory Syndrome (or
SARS) or the development of a possible pandemic such as the avian influenza or
a similar type of regional occurrence. Restrictions on travel resulting from
these possible events could adversely affect the Company's ability to market
and service new and existing customers throughout the Asian region. In
addition, sick employees or other employees who fear contracting such illness
could decide to not report for duty. The Company's results of operations could
be adversely affected to the extent that SARS, avian influenza or a similar
type of regional occurrence harms the economy in, or otherwise negatively
affects, China or the Asian region generally.
LIMITATIONS ON WARRANTIES AND INSURANCE
Pursuant to AsiaSat's satellite construction contracts with Boeing
Satellite Systems, International, Inc. (formerly known as Hughes Space and
Communications International, Inc.) ("Boeing"), Lockheed Martin and Space
Systems/Loral Inc. with respect to AsiaSat 2, AsiaSat 3S, AsiaSat 4 and AsiaSat
5, AsiaSat is the beneficiary of certain limited performance-based, operational
warranties on its satellites. However, the limited contractual warranties do
not cover a substantial portion of the risk inherent in satellite launches or
satellite operations. Furthermore, there has been a general rise in the cost of
insurance following a series of satellite failures. In addition, while the cost
of insurance has increased, insurance coverage has decreased as a result of the
increase in satellite in-orbit failures and the terrorist events on and after
September 11, 2001.
AsiaSat has in-orbit insurance coverage for AsiaSat 3S and AsiaSat 4 and
plans to obtain such coverage for AsiaSat 5. AsiaSat's in-orbit insurance must
be renewed annually. AsiaSat 2 is no longer insured for in-orbit failures. See
"Key Information - Satellites - AsiaSat 2".
11
There are circumstances in which AsiaSat's insurance will not fully
reimburse AsiaSat for its expenditures with respect to launching a replacement
satellite (for example, if the cost of replacement exceeds the sum insured),
and the insurance will not compensate AsiaSat for business interruption and
similar losses (including, among other things, loss of market share, loss of
revenue and incidental and consequential damages) which might arise from the
failure of a satellite launch and launch of a replacement satellite or a
failure of a satellite to perform to specifications. For a description of the
amounts and coverage of AsiaSat's launch, in-orbit and liability insurance, see
"Information on the Company -- Insurance."
RISKS RELATED TO U.S. EXPORT CONTROLS
The United States tightly restricts the export of commercial
communications satellites and satellite-related components and technology. U.S.
export control policy toward Hong Kong and the Company is affected by U.S.-Sino
relations, which can vary substantially from time to time. AsiaSat has sourced
all its satellites in the United States. There can be no assurance that U.S.
policy will not change in ways that will have a negative effect on the export
of future satellites, including the timing of such export, nor can there be any
assurance that future U.S. sourcing by the Company will be unimpeded by U.S.
export restrictions.
RISK OF LOSS OF RIGHTS TO ORBITAL SLOTS
In addition to the frequency bands currently used in the three primary
positions of 100.5 degrees East, 105.5 degrees East, and 122.2 degrees East, in
which the Company's satellites currently operate, China has filed requests with
the ITU on behalf of AsiaSat for a number of other frequency bands in the same
orbit locations and for enhanced operating parameters in the current frequency
bands. These filings are at different stages in the application process. There
is no assurance that AsiaSat will maintain its right to operate satellites in
its primary positions. There is also no assurance that AsiaSat will obtain
rights to launch and operate satellites with enhanced parameters or additional
frequency bands or that if it does obtain such rights, that it will be able to
fully use the allocated frequencies because of the limitations imposed by
coordination agreements with other satellite systems. See "Information on the
Company - Satellites - Orbital Slots and Use of Frequencies" and "Information
on the Company - Satellites - AsiaSat 4."
POTENTIAL FUTURE LEVERAGE
AsiaSat may incur borrowings under a loan facility in the future. Such a
loan facility may contain covenants, including financial covenants, which could
prevent the Company from undertaking certain acquisitions and purchases that
may be necessary for its growth. See "Operating and Financial Review and
Prospects - Liquidity and Capital Resources."
RISK OF NOT BEING ABLE TO HIRE AND RETAIN HIGH TECHNOLOGY EMPLOYEES IN THE
SATELLITE INDUSTRY
The Company's continued success depends substantially on its ability to
hire, retain and motivate highly skilled technology specialists. Because the
number of people with such skills is limited, satellite operators compete
vigorously for their services. The potential consequences of the Company's loss
of, or its inability to attract, key workers could include delays or inability
to launch, monitor or control satellites, with a consequent reduction in sales
and profits. Alternatively, the Company may have to offer more attractive
remuneration
12
packages than its competitors, which would increase the Company's personnel
expenses and could reduce its margins.
ITEM 4. INFORMATION ON THE COMPANY.
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company is an exempted company organized under the Companies Act 1981
of Bermuda (as amended) (the "Companies Act"). The Company was incorporated on
May 10, 1996. The Company's registered office is located at Canon's Court, 22
Victoria Street, Hamilton, HM12, Bermuda (phone: 441-295-2244) and its
principal place of business is located at 17th Floor, The Lee Gardens, 33 Hysan
Avenue, Causeway Bay, Hong Kong.
ORGANIZATIONAL STRUCTURE
The Company is the parent company of AsiaSat. AsiaSat holds a 47.3%
interest in SpeedCast Holdings Limited, a 49.0% interest in Beijing Asia Sky
Telecommunications Technology Company Limited and an 80.0% interest in Skywave
TV Company Limited. See Note 10 to the Company's consolidated financial
statements.
ACQUISITIONS, INVESTMENTS AND JOINT VENTURES
o In March 2002, the Company entered into an agreement to acquire an
additional 8.8% interest in SpeedCast Holdings Limited, which wholly
owns SpeedCast Limited ("SpeedCast") by making an aggregate
contribution of HK$31.2 million (US$4.0 million), of which HK$19.5
million (US$2.5 million) was in cash and HK$11.7 million (US$1.5
million) was by means of extending the usage of one C-band transponder
by SpeedCast Holdings Limited for a further period of 219 days from
February 4, 2003. In 2003, the Company extended payment terms to
SpeedCast allowing a deferment with interest of up to HK$8.6 million
(US$1.1 million) in transponder payments until the end of April 2004.
In May 2004, the Company entered into a further agreement to acquire
an additional 2% interest in SpeedCast Holdings Limited by making a
contribution of HK$11.7 million (US$1.5 million) in cash. See "-
Services and Customers - Expanded Services and Other Businesses."
o In March 2001, AsiaSat entered into an agreement with respect to the
lease of the Tai Po Site. For details with respect to the lease of the
Tai Po Site, see "Additional Information - Material Contracts", "-
Business Overview" and "- Property, Plants and Equipment - Land
Facilities." In March 2002, AsiaSat entered into a construction
agreement with Leighton Contractors Asia Limited with respect to the
construction of a satellite control center on the Tai Po Site. In
December 2002, AsiaSat entered into an agreement with Globecomm
Systems Europe Limited for the procurement of the telemetry, tracking
and control ("TT&C") radio frequency system to be installed at the
satellite control center at the Tai Po Site. In January 2004, AsiaSat
entered into an agreement with Integral Systems for satellite control
software. As at December 31, 2005, HK$215.2 million (US$27.6 million)
had been spent on the Tai Po Site. See "Additional Information -
Material Contracts."
o In March 2004, the Company entered into a joint venture arrangement
and formed Beijing Asia Sky Telecommunications Technology Company
Limited ("Beijing Asia") to provide corporate data networks and
services in China using very small
13
aperture terminal ("VSAT") technology. In exchange for a 49% interest
in Beijing Asia, the Company contributed HK$12.5 million (US$1.6
million) in cash to Beijing Asia and has committed to provide Beijing
Asia with transponder capacity in an amount of up to HK$13.0 million
(US$1.7 million) payable on a deferred basis over the next three to
five years. See "-- Services and Customers - Expanded Services and
Other Businesses" and "Additional Information - Material Contracts."
o In November 2004, the Company entered into an agreement with two
strategic partners pursuant to which the Company agreed to contribute
HK$24.0 million (US$3.1 million) in return for an 80% interest in
Skywave TV Company Limited ("Skywave") and each of the strategic
partners agreed to make an in-kind contribution equal to HK$3.0
million (US$0.4 million) in return for a 10% interest each in Skywave.
See "-- Services and Customers - Expanded Services and Other
Businesses" and "Additional Information - Material Contracts."
o In April 2006, AsiaSat entered into a construction contract with Space
Systems/Loral, Inc. ("Loral") for the design and construction of
AsiaSat 5. In May 2006, AsiaSat entered into a launch contract with
Sea Launch Limited Partnership ("Sea Launch") which will provide
launch services related to the launch of AsiaSat 5 from the Baikonur
Space Center in Kazakhstan. The total consideration payable under the
two contracts, together with insurance cost, is approximately
HK$1,404.0 million (US$180.0 million). See "-- Business Overview -
Satellites - AsiaSat 5."
BUSINESS OVERVIEW
The Company, through its wholly-owned subsidiary, AsiaSat, is a leading
provider of high quality satellite transponder capacity in Asia. The Company's
satellites are positioned over the Asian landmass and offer its customers
comprehensive coverage of approximately two-thirds of the world's population.
The Company operates three satellites -- AsiaSat 2, AsiaSat 3S and AsiaSat 4.
AsiaSat 2 was launched in 1995 and began commercial service in January
1996. AsiaSat 3S was launched from the Baikonur Cosmodrome in the Republic of
Kazakhstan and began commercial service in 1999. AsiaSat 3S has a similar
C-band footprint coverage to AsiaSat 2. Together, these two satellites provide
coverage to more than 50 countries, with approximately 3.3 billion people, from
Siberia to Australia and from Japan to the Middle East.
AsiaSat 4, launched from Cape Canaveral, United States in April 2003, is
located at the 122.2 degrees East orbital slot and began commercial service on
July 1, 2003. AsiaSat 4 is a high power satellite having C-band coverage and
power substantially similar to AsiaSat 2 and AsiaSat 3S. Because AsiaSat 4 has
a more easterly location, its C-band coverage favors the Pacific-Rim, Australia
and New Zealand to a greater degree than previous AsiaSat satellites. The
Ku-band coverage of AsiaSat 4 is designed to meet the requirements of both
broadcast satellite services ("BSS") frequencies and fixed satellite services
("FSS") frequencies for maximum flexibility. In June 2000, the Company received
a Telecommunication License from OFTA allowing AsiaSat to operate four of the
twelve BSS frequencies and the FSS frequencies on AsiaSat 4. In April 2005, the
Company obtained the right to make available the remaining eight BSS
frequencies on AsiaSat 4. See "-- Services and Customers - Expanded Services
and Other Businesses." Because AsiaSat 4 is a newly established satellite
14
without an existing customer base and viewership, AsiaSat can currently offer
its customers the option to utilize AsiaSat 4's high powered transponder
capacity at a lower cost than the rate demanded for capacity on AsiaSat 2 and
AsiaSat 3S. AsiaSat 3S demands a higher rate for its transponder capacity
because it has the largest viewership base of any commercial satellite in the
Asian region.
The Company has leased a site in Tai Po Industrial Estates, New
Territories, Hong Kong (the "Tai Po Site"), to support the growth of the
Company's business. The Tai Po Site houses a new satellite control center (the
"Tai Po Satellite Earth Station") that allows AsiaSat to offer its customers
additional and improved services. These services include uplink, technical
support and other value added services. For a general discussion on earth
stations, see "--Regulation - Hong Kong Regulation." Construction of the Tai Po
Satellite Earth Station was completed, and the final occupation permit was
received in January 2004 from the Hong Kong Building Authority. See "Additional
Information - Material Contracts."
As of December 31, 2005, the utilization rate for each of AsiaSat 2,
AsiaSat 3S and AsiaSat 4 was approximately 40.1%, 72.7% and 46.5%,
respectively, with an average of 54.0% under transponder utilization agreements
and transponder purchase agreements.
The Company provides transponder capacity primarily to the broadcasting,
telecommunications (including private communication networks), Internet and
multimedia markets. AsiaSat has entered into separate transponder utilization
agreements with over 100 customers from various countries and regions,
including Australia, British West Indies, China, France, Germany, Hong Kong,
India, Korea, Kuwait, Pakistan, Singapore, Taiwan, the United Kingdom, the
United States and Vietnam.
In 2003, 2004 and 2005, approximately 59.8%, 51.8% and 61.9%,
respectively, of the Company's revenues were derived from customers from
Greater China, which includes mainland China, Hong Kong, Macau and Taiwan.
The Company believes that both AsiaSat 2 and AsiaSat 3S are the leading
satellites for regional television programming distribution in Asia based on
the number of viewers watching programming distributed on these satellites. The
Company's largest customer, STAR, is a Hong Kong-based international satellite
television broadcasting company that broadcasts to the Asian region via these
two satellites.
SERVICES AND CUSTOMERS
During the last three years, the Company's revenues were derived from the
following markets:
------------------------------------------------
2003 2004 2005
------------------------------------------------
Broadcasting (video)....... 70.4% 70.6% 65.7%
Telecommunications, Internet 29.6% 29.4% 34.3%
and Multimedia...........
Total revenue from the Company's five largest customers in each of the
years ended December 31, 2003, 2004 and 2005 was HK$376.6 million, HK$462.5
million and HK$345.8 million, respectively, which represented 42.0%, 46.0%, and
39.3% respectively, of total
15
revenue. Revenues from the Company's largest customer represented 24.9%, 22.4%
and 25.7% of total revenue for the years ended December 31, 2003, 2004 and
2005, respectively.
BROADCASTING
Local, national and international broadcasters use satellite transponder
capacity for television programming distribution, contribution operations
(i.e., the transmission of video feeds from one location to another) and ad hoc
services such as the transmission of special events and live news reports from
the scene of the event. The largest market for broadcasting services is the
full-time leasing of transponder capacity by programmers to distribute
programming to television stations, local cable operators, master antenna
systems and directly to homes.
STAR offers a bouquet of digital services, including both subscription and
free-to-air television that, according to STAR, reaches more than 300 million
viewers across the Asian region.
STAR entered into capacity agreements for transponders on AsiaSat 3S. In
February 2004, the Company entered into an agreement with STAR to provide
facilities at the Tai Po Site to house STAR's back up play out, broadcast and
radio frequency equipment for downlinking and uplinking to AsiaSat 3S, and
other related services. STAR also utilises AsiaSat 2 C-band capacity to provide
programming primarily as backup capacity.
The Company's results of operations could be adversely affected by the
loss of STAR as a customer or if STAR failed to perform its obligations in
accordance with the terms of its transponder utilization agreements. There can
be no assurance that STAR will enter into additional transponder utilization
agreements with the Company, either for AsiaSat 3S or other satellites, upon
the expiration of existing transponder utilization agreements. See "Key
Information - Risk Factors - Reliance Upon Significant Customer."
AsiaSat currently is not subject to any exclusivity arrangement with any
of its customers. Other broadcasters on its satellite fleet using its
transponders include Pakistan TV, Associated Press Television News, the
Ministry of Information of Kuwait, , BBC World Service Radio, Voice of America,
Deutsche Welle of Germany, TV5, RAI of Italy, RTVE of Spain, RTPi of Portugal,
RTR Planeta of Russia, Fashion TV, TVB Satellite Broadcasting of Hong Kong, the
European Broadcasting Union, Sahara TV, Turner Broadcasting System, Sun TV,
Bloomberg TV, NOW TV, Indus Vision, Muslim TV, MATV, Channel NewsAsia and
Reuters TV.
In addition, governmental bodies seek to use satellites to expand their
coverage to remote and underdeveloped regions of their countries that would
otherwise be unserved. The signals are received at rebroadcast centers and
retransmitted to viewers. The State Administration of Radio, Film and
Television of China (formerly, the Ministry of Radio, Film and Television) uses
capacity on AsiaSat 3S to distribute domestic and international television
programming. A number of television channels from various provinces and regions
in China are broadcasting on AsiaSat's C-band transponders.
TELECOMMUNICATIONS, INTERNET AND MULTIMEDIA
The Company's telecommunications services include the provision of
transponder capacity for private communications networks for data and voice
communications and for communications service providers in Asia. The Company
believes that there will continue to
16
be opportunities in Asia to market transponder capacity to certain end users
that, due to poor telecommunications infrastructure or high costs of local
public networks, desire to operate their own private network for data and voice
transmission. These are often large multinational companies or agencies such as
financial news providers, newspapers, banks, paging companies, airlines, oil
companies and stock exchanges.
China represents one of the world's largest potential markets for
satellite communications. Private communications networks in China are numerous
and growing. Organizations in China in such businesses as banking, securities,
publishing and oil have established private networks utilizing AsiaSat's
satellites to link remote sites with their headquarters.
AsiaSat's Chinese telecommunications customers include the People's Bank
of China, the Shanghai Stock Exchange, the People's Daily, CITIC Guoan
Information Industry Company Limited and China Petrochemical Corporation. In
addition, Chinese ministries and agencies have entered into transponder
purchase agreements to use transponders on AsiaSat's satellites.
AsiaSat's telecommunications customers also include Vietnam Telecom
International, Reach, Corporate Access, Associated Press, Reuters, the
International Air Transport Association, Korea Telecom, Teleport Access
Services and Pakistan Telecom.
Customers including Telstra Corporation, Pacific Century Matrix and
SpeedCast use AsiaSat's satellites to offer broadband (which refers to the
provision of multiple channels of data over a single communications channel),
Internet and multimedia services. In addition, Connexion by Boeing entered into
an agreement for the use of Ku-band capacity on AsiaSat 3S to provide in-flight
broadband communication services on the Asia-to-Europe flight corridor, which
commenced in the first quarter of 2004.
EXPANDED SERVICES AND OTHER BUSINESSES
AsiaSat has launched digital broadcast platforms on AsiaSat 2 that offers
one stop shop services including satellite capacity, signal turnaround
facilities and analog/digital conversion to broadcast customers from Europe and
the Middle East for their services to Asia and Australia. The turnaround
facilities are supplied by teleport partners in Cyprus and Israel that are able
to receive signals from European and Middle East satellites and uplink the
signals to AsiaSat 2 .
OFTA granted AsiaSat a Fixed Carrier Services ("FC") license in May 2004.
A FC license allows license holders to uplink broadcasting programs and to
provide public telecommunication services linking Hong Kong and other countries
either on their own business initiatives, or for and on behalf of their
customers via satellites. AsiaSat's FC license has enabled AsiaSat to provide a
one-stop service to its customers, including high-quality satellite transponder
capacity, uplinking or downlinking broadcasting programs, and telecommunication
services to audiences or operators outside Hong Kong.
SpeedCast has installed a multimedia platform that enables distribution of
Internet services and other multimedia content. Customers may use this format
when distributing content on the AsiaSat satellite system. AsiaSat now holds a
47.3% interest in SpeedCast Holdings Limited, which was formed in 1999 to
principally provide high speed Internet, multimedia content delivery, and
corporate broadcast services such as data packages delivery and Internet
streaming. SpeedCast, in addition to providing the principal services, also
launched on-line
17
music distribution, on-line multimedia services and streaming encryption
system. In 2003, SpeedCast also launched a new service for two-way operation,
which provides more efficient connection for content delivery.
On June 27, 2000, the Company was granted a telecommunication license (the
"Telecommunication License") from OFTA allowing certain BSS frequencies to be
incorporated into the payload of AsiaSat 4 at the 122.2 degrees East orbital
position. It was subsequently granted the right to make available four BSS
frequencies on AsiaSat 4 by OFTA. These BSS frequencies were assigned to Hong
Kong by the 1997 World Radiocommunication Conference ("WRC '97") of the ITU.
The 2000 World Radiocommunication Conference ("WRC-2000") later revised these
assignments and further assigned eight more frequencies to Hong Kong. OFTA
granted AsiaSat the right in April 2005 to make available the additional eight
frequencies on AsiaSat 4. These frequencies are designated for satellite
broadcasting uses and are receivable in Hong Kong and surrounding areas with
very small antennas. They can be used to provide Direct-to-Home ("DTH")
satellite broadcasting services, which refers to a satellite service that
delivers television programming directly to consumer homes using a small
antenna and related equipment. Adding the BSS frequencies onto AsiaSat 4
enables AsiaSat to offer high power and wide coverage for broadcasting services
in Hong Kong and the surrounding areas. The main difference between the BSS and
the FSS in AsiaSat's case is that BSS gives access to additional spectrum for
the Company. Moreover, while the FSS frequency bands are used for a multitude
of services, the BSS frequency bands are normally used only for television
applications and with much more standardized parameters.
In April 2004, the Company's subsidiary Skywave applied for a non-domestic
television program service license, which was granted for 12 years by the
Broadcasting Authority of Hong Kong in May 2004, in order to use the BSS
frequencies on AsiaSat 4 to provide DTH satellite broadcasting services.
In November 2004, the Company entered into an agreement with two strategic
partners pursuant to which each of these strategic partners made an in-kind
contribution equal to HK$3.0 million in return for a 10% interest in Skywave.
See "-- Acquisitions, Investments and Joint Ventures" and "Additional
Information - Material Contracts." Skywave has set up a low cost regional DTH
service, providing selected programming to the markets of Macau, Hong Kong,
Taiwan and to subscribers in Southern China licensed to receive foreign
television services. This DTH service commenced trial services in December 2004
and uses the four BSS transponders on AsiaSat 4. By installing a very small
dish, viewers can enjoy a whole new range of programming.
In March 2004, the Company formed joint venture Beijing Asia to provide
corporate data networks and services in China using VSAT technology. Beijing
Asia commenced operation in October 2004 and is providing technical services
and equipment installation for the construction and operation of a trial
network to connect remotes sites in rural China using VSAT technology. See
"--Acquisitions, Investments and Joint Ventures" and "Additional Information -
Material Contracts."
On March 18, 2005, Auspicious Colour Limited, a wholly owned subsidiary of
the Company, was established and was granted a non-domestic television program
service licence on September 17, 2005 from the Television and Entertainment
Licensing Authority of
18
Hong Kong. Auspicious Colour Limited was set up to provide a one-stop service
that combines the provision of satellite capacity and uplink service to
broadcasters.
SATELLITES
The global communications market has historically been shared among three
major transmission technologies - fiber optic and coaxial cable, microwave
systems and satellites. Satellites have been, and continue to be, used for
global communications applications. Each of these transmission technologies has
advantages over the other two in specific market segments.
Although satellites initially were used for point to point long distance
telephone and television transmissions and continue to be used for these
applications, fiber optic cables have proven to be a more cost effective
transmission method for high volume point to point applications. Today, most
trans-oceanic transmissions are delivered via submarine fiber optic and coaxial
cables, which are ideally suited to carry large amounts of traffic between two
points. In developing countries, satellites carry a significant portion of
point to point traffic due to the lack of terrestrial fiber optic and coaxial
network. However, as more fiber optic and coaxial networks are established,
less of this traffic will be delivered via satellite. In many countries,
satellites are also used to supplement terrestrial transmission networks for
the distribution of television and radio programming.
Geostationary satellites are located in-orbit approximately 22,300 miles
above the Equator. When positioned in geostationary or geosynchronous orbit, a
satellite appears to hover over the same spot on the earth because it is moving
at a rate that matches the speed of the earth's rotation on its axis. These
high powered satellites have the ability to cover up to approximately 42% of
the earth's surface at one time. With broad coverage capabilities, these
satellites are well suited for point-to-multi-point applications (principally
television broadcasting, private communication network, Internet and multimedia
services). Satellites are commonly used for distribution of video and audio
signals to cable operators and local television and radio stations for
redistribution. In DTH applications, a high powered geostationary satellite
allows video transmissions to be received directly from the satellite to homes
using very small dishes.
A satellite can be accessed by an uplink for the transmission of a
satellite circuit extending from the earth to the satellite from virtually
anywhere within its coverage area. This flexibility makes satellites ideal for
private communications networks. Due to the high cost of local
telecommunications services or the lack of an adequate local telecommunications
infrastructure, an organization may wish to operate its own network. A VSAT
network, connecting a large number of widely dispersed locations via satellite,
is an efficient and cost effective method for many organizations to maintain
communications with a network of offices that spread over a large geographic
area.
Satellite transponders receive signals from the uplink earth stations and
then change the frequency of, amplify and transmit the signals to the downlink
earth stations. Transponder subsystems include low-noise receivers, frequency
converters, channel amplifiers, high power amplifiers, input/output
multipliers, various switches and other electronic components. Frequency
represents the measure of how frequently a periodic (repetitious)
electromagnetic wave form or signal regenerates itself at a given amplitude.
19
Communications satellites are of varying quality and usefulness depending
on (i) footprint, or coverage area, (ii) orbital location, (iii) transponder
power (EIRP), (iv) interference from adjacent satellites, (v) transponder
bandwidth, (vi) frequency band and (vii) other features, such as beam switching
and linearizers.
A beam represents one of the coverage patterns offered by a satellite. A
steerable beam allows the area of coverage to be changed based on market
demand. The footprint of a satellite refers to the geographic area covered by a
satellite, the outer edge of which defines area beyond where the quality of
communication degrades below an acceptable commercial level due to the
spacecraft antenna pattern, power of the signal and curvature of the earth. The
primary transponder characteristic is downlink power, which is expressed in
terms of EIRP. EIRP means equivalent isotropic radiated power and is a measure
of radio frequency power of each transponder. Transponder bandwidth, expressed
in terms of megahertz or MHz, a unit of frequency equal to one million cycles
per second, is a range of frequencies that can pass over a given transmission
channel. The greater the bandwidth, the more information that can be sent
through the circuit in a given amount of time.
C-band and Ku-band in the context of satellite communications are portions
of the radio frequency spectrum assigned for satellite transmission, and are
approximately in the three to seven and 11 to 15 gigahertz (or GHz) ranges,
respectively. Gigahertz is a measure of frequency equal to one billion cycles
per second. While Ku-band frequencies suffer from fading caused by rain, they
are more suitable for small antenna applications than C-band frequencies.
Ku-band is generally used for the same purposes as C-band. To compensate for
fading caused by rain, Ku-band transmitters generally have higher power margins
than C-band transmitters. Higher power, which permits the use of small
antennas, makes Ku-band transmission more suitable for DTH television.
The following table sets forth certain satellite specifications in
relation to AsiaSat 2, AsiaSat 3S, AsiaSat 4 and AsiaSat 5, which is planned to
be launched in 2008. For a discussion on certain risks related to satellites,
see "Key Information -- Risk Factors -- Risk of Launch and In-orbit Failure,
Loss, Reduced Performance and Satellite Defects", "Key Information -- Risk
Factors -- Limited Life of Satellites" and "Key Information -- Risk Factors --
Risk of Loss or Damage to Satellites, Ground Based Satellite Control Equipment
or Satellite Stations from Acts of War, Terrorism, Electrostatic Storm, Space
Debris and Other Natural Disasters."
SUMMARY SATELLITE DATA
--------------------------------------------------------------------------------------
ASIASAT 2 ASIASAT 3S ASIASAT 4 ASIASAT 5
--------------------------------------------------------------------------------------
Region
covered:
C-band Asia, Middle East, Asia, Middle East, Asia, Middle East, Asia, Middle East,
CIS and Australia CIS, Australia and CIS, Australia and CIS, Australia,
New Zealand New Zealand North East Africa
Ku-band China, Japan, Hong East Asia Beam China Beam, Australia China Beam, South
Kong, Taiwan and (from Japan to Beam (Australia and Asia Beam (inter
Korea Kazakhstan), South New Zealand alia, India,
Asia Beam (from (steerable)), Hong Pakistan and
Bangladesh to the Kong BSS Beam Bangladesh) and
Middle East), (steerable) Steerable Beam
Steerable Beam(1)
Launch date November 28, 1995 March 21, 1999 April 11, 2003 3rd quarter, 2008
(estimated)
Manufacturer Lockheed Martin Boeing Boeing Space Systems/Loral
Model Series 7000 BSS601HP BSS601HP SS L 1300
20
SUMMARY SATELLITE DATA
--------------------------------------------------------------------------------------
ASIASAT 2 ASIASAT 3S ASIASAT 4 ASIASAT 5
--------------------------------------------------------------------------------------
Stabilization Three Axis Three Axis Three Axis Stabilized Three Axis Stabilized
Stabilized Stabilized
Number of
Transponders 33 44 48 40
C-band 20 @ 36 MHz 28 @ 36 MHZ 28 @ 36 MHZ 24 @ 36 MHZ
4 @ 72 MHz 2 @ 72MHz
Ku-band 9 @ 54 MHZ 16 @ 54 MHZ 10 @ 54 MHz (FSS) 14 @ 54 MHz
6 @ 33 MHz (FSS)
4 @ 33 MHz (BSS)
Maximum 40 dBW (C-band) 41 dBW (C-band) 41 dBW (C-band) 42 dBW (C-band)
EIRP 53 dBW (Ku-band) 53 dBW (Ku-band) 53 dBW (Ku-band) 54 dBW (Ku-band)
((2)) 56 dBW (BSS Ku-band)
Payload FSS FSS BSS / FSS FSS
Power output 55 W_TWTAs (C-band) 55 W_TWTAs (C-band) 55 W_TWTAs (C-band) 65 W_TWTAs (C-band)
115 W_ TWTAs 140 W_TWTAs 140 W_TWTAs (Ku-band) 150 W_TWTAs (Ku-band)
(Ku-band) (Ku-band)
Estimated
Useful
Life 13 years 16 years 15 years 15 years
Estimated end
of useful life 2010 2015 2018 2023
-----------------
(1) AsiaSat 3S has 16 Ku-band transponders divided into two fixed beams and
a steerable beam.
(2) AsiaSat 2 has experienced power reductions in its Ku-band transponders
in relation to their design specifications. See "-- AsiaSat 2."
ASIASAT 2
AsiaSat 2 is located in the geostationary orbit at 100.5 degrees East. It
was designed and produced by Lockheed Martin and is a series 7000 model
satellite. It was launched on November 28, 1995 by a Long March 2E launch
vehicle under a contract with China Great Wall Industry Corporation. AsiaSat 2
commenced commercial service in January 1996.
AsiaSat 2 is equipped with twenty 36 MHz C-band and four 72 MHz C-band
transponders with a maximum signal power of 40 dBW. It is also equipped with
nine 54 MHz Ku-band transponders with a maximum signal power of 53 dBW.
However, at the time of the launch, AsiaSat 2 experienced a Ku-band power
reduction at certain points of its coverage area. Since 2002, the back-up
command receiver on AsiaSat 2 (a component used to communicate with and control
the satellite) has experienced intermittent outages. AsiaSat 2 can operate
normally on its primary command receiver. The satellite uses linear polarized
beams, with the C-band and Ku-band having distinct coverage areas. For the
C-band transponders, there are four spare amplifiers for each polarization of
12 C-band transponders in two separate 12 for 16 (12 working/16 total)
redundancy ring configurations. For the Ku-band transponders, there are three
spare amplifiers connected in a 9 for 12 (9 working/12 total) single redundancy
ring configuration. In December 2003, AsiaSat 2 experienced two related short
duration service outages. These outages caused no permanent damage to AsiaSat 2
and AsiaSat's engineers took the appropriate action to restore AsiaSat 2's
service. As a result of these outages, some customers moved to other AsiaSat
satellites, while three customers utilizing capacity representing in the
aggregate less than one C-band transponder moved to a competitor's satellite.
These outages were the first break in service of an AsiaSat satellite in the
21
history of the Company. In February 2005, one of the two bus power transformers
on AsiaSat 2 (which provides low voltage to the satellite) changed to "off"
status. While this change of status does not necessarily indicate a failure of
the transformer, it is impossible for the Company to verify the integrity of
this transformer. AsiaSat 2 can operate normally with only one bus power
transformer. See "Key Information -- Risk Factors -- Risk of Launch and
In-orbit Failure, Loss, Reduced Performance and Satellite Defects."
AsiaSat 2 has C-band coverage over virtually the entire Asian region, with
a footprint stretching from Russia to Australia and from Japan to the Middle
East and parts of Africa. The footprint of AsiaSat 2 covers approximately
two-thirds of the world's population. AsiaSat 2's C-band footprint provides
coverage over a large area with a single beam. The nine Ku-band transponders
provide coverage over China, the Korean peninsula and Japan.
AsiaSat 2 has an estimated useful life of 13 years, indicating that the
estimated end of its useful life will be in 2008.
In June 2000, Lockheed Martin obtained a Technical Assistance Agreement
from the U.S. Department of State to provide technical data and services for
in-orbit anomaly support for AsiaSat 2 until December 31, 2009. See " --
Regulation -- Export Regulations."
As a result of a number of reported mechanical failures of Lockheed Martin
series 7000 satellites, the same model as AsiaSat 2, the in-orbit insurance
rate for AsiaSat 2, without exclusions of coverage, increased significantly.
The Company has decided not to procure in-orbit insurance for AsiaSat 2 given
the low book value of AsiaSat 2 and the Company's cash position. In the event
of a failure resulting in a total loss of AsiaSat 2, the Company would incur a
loss that is equal to the net book value of AsiaSat 2 at the time of the total
loss as well as disruption of services carried out on AsiaSat 2.
ASIASAT 3S
In 1997, AsiaSat launched AsiaSat 3 from the Baikonur Cosmodrome in the
Republic of Kazakhstan. AsiaSat 3 failed as it did not reach its orbital slot
and was replaced, following the successful launch in March 1999, by AsiaSat 3S.
AsiaSat 3S is located in the geostationary orbit at 105.5 degrees East.
AsiaSat 3S was constructed by Boeing and is a BSS-601HP model satellite.
AsiaSat 3S was launched from the Baikonur Cosmodrome in the Republic of
Kazakhstan and commenced commercial service in 1999.
AsiaSat 3S has multiple beam coverage and is equipped with twenty-eight 36
MHz C-band transponders with a maximum signal power of 41 dBW. It is also
equipped with sixteen 54 MHz Ku-band transponders with a maximum signal power
of 53 dBW. AsiaSat 3S has transponder power output of 55 Watts for C-band and
140 Watts for Ku-band. It has an estimated useful life of 16 years, indicating
that the estimated end of its useful life will be in 2015.
The footprint for AsiaSat 3S is similar to the footprint of AsiaSat 2 with
two additional Ku-band beams designed to meet market demands. The C-band
footprint stretches from Japan to the Middle East and from Russia to Australia.
The footprint provides high powered service to the growing market areas in the
Greater China region, Japan and Korea and Southeast Asia. It covers about
two-thirds of the world's population.
22
The 16 Ku-band transponders can be allocated to two fixed beams and a
steerable beam. The first beam is an East Asia beam that includes coverage from
Japan to Kazakhstan. The second beam is a South Asia beam that has coverage
from Bangladesh to the Middle East. In order to compensate for rain fade, which
may occur in certain countries in this region, AsiaSat has designed the
coverage to direct higher power in heavy rain areas. The steerable Ku-band beam
allows a smaller, highly concentrated beam to be moved to any market region in
the coverage area. This beam could, for example, be placed over Australia or
over a specific region in Asia. Of the 16 Ku-band transponders on AsiaSat 3S,
eight transponders are fixed on East Asia and eight are switchable among the
three beams so that up to 16 transponders may be used for the East Asia beam,
up to eight transponders may be used for the South Asia beam and up to four
transponders may be used for the steerable beam.
In February 2001, Boeing obtained a Technical Assistance Agreement from
the U.S. Department of State to provide technical data and services for
in-orbit anomaly support for AsiaSat 3S until December 31, 2009. See
"--Regulation - Export Regulation."
In both November 2004 and March 2005, a transponder on AsiaSat 3S was
deliberately interrupted by signals carrying Falun Gong-related content. As a
result, the Company was forced to shut down the respective transponder's
transmission for a short period of time on November 26, 2004 and March 14,
2005. These breaks in service affected normal programming of certain customers'
satellite television channels. The Company views these deliberate interruptions
as "harmful interference" as such term is defined in the constitution of the
ITU, and accordingly, the Company has requested that OFTA report these
incidents to the Radiocommunications Sector of the ITU through the relevant
authority in China. For a general discussion on the ITU, see " -- Regulation --
International Telecommunication Union." Also, see "Risk Factors -- Risk of
Losing Satellite Service Revenues if Other Satellites or Signals Interfere with
the Company's Transmissions."
ASIASAT 4
AsiaSat 4 was launched on an Atlas IIIB launch vehicle on April 11, 2003
in Cape Canaveral, Florida. AsiaSat 4 commenced commercial service on July 1,
2003 and is operational at 122.2 degrees East.
AsiaSat 4 was constructed by Boeing and is a BSS-601HP model satellite.
AsiaSat 4 is the most powerful member of AsiaSat's satellite fleet carrying 28
C-band and 20-Ku-band transponders. Its footprint covers approximately
two-thirds of the world's population. AsiaSat 4's pan-Asian C-band footprint
covers more than 40 countries and regions spanning from New Zealand to the
Middle East. Its Ku-band coverage consists of two high-power focused beams for
East Asia and Australasia, as well as a new BSS beam for DTH services in Hong
Kong and the adjacent South China region. AsiaSat 4 is designed to provide
advanced satellite services including DTH television, broadband and IP
solutions, and telecommunications services such as private networks for
business and rural telephony (which refers to the construction and operation of
telephones and telephonic systems). It has an estimated useful life of 15
years, indicating that the estimated end of its useful life will be in 2018.
Under the AsiaSat 4 construction contract with Boeing, Boeing agreed to
provide off-site support services for the life of the satellite. Boeing has
obtained a Technical Assistance Agreement from the U.S. Department of State to
provide technical data and service for
23
in-orbit anomaly support for AsiaSat 4. See "-- Business Overview" and
"--Regulation - Export Regulation."
AsiaSat previously had a dispute with Shin Satellite in relation to Shin
Satellite's right to operate a satellite from 120 degrees East. As part of a
comprehensive agreement to limit potential mutual interference between AsiaSat
4 and the IPStar satellite operated by Shin Satellite, the responsible
administrations of China, OFTA and the Administration of the Kingdom of
Thailand (regulator and ITU notifying administration for Shin Satellite) agreed
to increase the orbital separation of IPStar and AsiaSat 4. Both satellites are
required to change orbital locations, with AsiaSat 4 shifting from 122 degrees
East to 122.2 degrees East. For a general discussion on regulations, see
"--Regulation - Hong Kong Regulation" and "--Regulation - International
Telecommunication Union."
ASIASAT 5
On April 28, 2006 and May 8, 2006, AsiaSat entered into a construction
contract and a launch contract, respectively, for the commissioning of AsiaSat
5. Under the terms of the construction contract, Loral, the construction
contractor, shall complete the construction of AsiaSat 5 within 25 months after
April 28, 2006. The launch contractor, Sea Launch, shall provide services
associated with the launch of AsiaSat 5 from the Baikonur Space Centre in
Kazakhstan. Under the terms of the launch contract, the launch services shall
be completed upon the launch of AsiaSat 5, which is scheduled to take place
between July 1, 2008 and December 31, 2008. Though the launch schedule can be
extended by AsiaSat in accordance with the terms of the launch contract, it is
expected that AsiaSat 5 will be launched in the second half of 2008.
AsiaSat 5 is a new satellite based on the well proven Space Systems/Loral
1300 satellite bus. It will carry 26 C-band and 14 Ku-band transponders and is
intended to replace AsiaSat 2 at the orbital location of 100.5 degrees East. It
will replace all current functions of AsiaSat 2 in both C and Ku-bands and will
provide additional coverage at Ku-band. This additional coverage consists of a
dedicated antenna for South Asia plus a steerable antenna that can be pointed
to other parts of Asia or Australia. AsiaSat 5 is expected to have an estimated
useful life of 15 years after launch.
The C-band payload of AsiaSat 5 will be similar to that of AsiaSat 2 other
than certain performance upgrades. The Ku-band coverage for China will be
significantly improved, additional coverage will also be provided for South
Asia, including India, Pakistan, Bangladesh and parts of the Middle East. The
steerable antenna will allow Ku-band capacity to be deployed in a manner
consistent with the market demand anywhere in Asia.
ADDITIONAL ORBITAL SLOTS AND USE OF FREQUENCIES
China has filed on behalf of AsiaSat applications with the ITU for
additional spectrum capacity and enhanced characteristics in the current
frequency bands for all three orbital slots where AsiaSat's satellites are
currently operating. See "- Regulation." The current capacity has significant
frequency and geographic coverage constraints resulting from the coordination
process. No assurance can be given that the additional capacity will be
obtained by AsiaSat.
AsiaSat has the option to co-locate additional satellites in the orbital
slots located at 100.5 degrees East, 105.5 degrees East and 122.2 degrees East
in order to provide additional
24
capacity or enhanced performance in these locations and to support the existing
satellites with redundant capacity. See "Key Information - Risk Factors - Risk
of Loss of Orbital Slot" and "-- AsiaSat 4."
TRANSPONDER CAPACITY OR UTILIZATION AGREEMENTS
A typical transponder capacity agreement, also known as transponder
utilization agreement, for AsiaSat 2, AsiaSat 3S and AsiaSat 4 has a term of
three years or more, requires utilization fees to be paid quarterly or
semi-annually in advance and provides for renewal options. Generally, AsiaSat's
transponder utilization agreements require payment in US Dollars. Typically,
the customer may terminate the transponder utilization agreement at any time
during the term of the agreement without further obligation if AsiaSat fails to
provide a fully operational transponder or by giving not less than 12 months'
notice to AsiaSat. Upon termination (other than for cause), the customer is
obligated to pay AsiaSat termination fees based on the remaining contract
period and the specific contractual terms. In addition, the transponder
utilization agreements generally provide for a specified reduction in the
utilization fees if transponder service is interrupted for reasons not caused
by the customer or by outages due to the effects of the sun or other reasons
beyond the control of AsiaSat. If such service interruptions continue without
correction and AsiaSat is unable to provide suitable alternative capacity, the
customer is entitled to terminate the transponder utilization agreement without
further obligation to AsiaSat. Under the terms of the transponder utilization
agreements, AsiaSat generally is not liable for the lost profits or other
indirect or consequential damages of any customers.
AsiaSat entered into transponder purchase agreements with ministries or
agencies of China under which the customer obtains the right to use Ku-band
capacity on AsiaSat 2, AsiaSat 3S and AsiaSat 4 for the life of the
transponder. The terms of these transponder purchase agreements are
substantially the same as those found in transponder utilization agreements,
except for certain differences such as the term of a transponder purchase
agreement is for the entire useful life of a satellite and payment for the
entire period of use is typically completed by the commencement of the second
year of the term of the agreement.
CUSTOMER TECHNICAL QUALIFICATIONS AND SUPPORT
Before uplink communication with its satellite is permitted, AsiaSat's
customers are required to meet AsiaSat's strict engineering performance and
operations specifications. The purpose of these requirements is to confirm that
the customer's equipment operates within AsiaSat's specifications in order to
minimize interference with other customers on the same satellite or users on
neighboring satellites. AsiaSat's engineers advise the customer with respect to
the adjustments required to be made to the customer's equipment in order to
minimize interference.
AsiaSat provides technical support to its customers. AsiaSat helps
customers determine and evaluate their equipment configuration, carrier
modulation, bandwidth and power requirements, design their networks and
calculate link budgets.
AsiaSat's Carrier Monitoring System ("CMS") was designed and implemented
by AsiaSat to monitor and measure communications parameters from AsiaSat's Tai
Po Satellite Earth Station. The CMS is also used to assist in customer earth
station qualification and analysis of
25
anomalies. The CMS measures power, frequency, bandwidth, carrier-to-noise ratio
and other communications performance characteristics.
INSURANCE
AsiaSat has satellite in-orbit insurance for AsiaSat 3S and AsiaSat 4 and
plans to obtain such coverage for AsiaSat 5. AsiaSat 2 is no longer insured for
in-orbit failures. See "Key Information-Satellites-AsiaSat 2". AsiaSat also has
obtained third-party liability insurance for AsiaSat 2, AsiaSat 3S and AsiaSat
4. There can be no assurance that AsiaSat will be able to obtain insurance in
the future on terms satisfactory to AsiaSat. See "Key Information -- Risk
Factors -- Limitations on Warranties and Insurance."
There are circumstances in which AsiaSat's insurance will not fully
reimburse AsiaSat for its expenditures with respect to launching a replacement
satellite, such as when the cost of the construction and launch of a
replacement satellite exceeds the aggregate amount of coverage provided by
AsiaSat's insurance policy. The amount of AsiaSat's insurance also will not
compensate it for business interruption and similar losses (including, among
other things, loss of market share, loss of revenue and incidental and
consequential damages) which might arise from a full or partial launch failure
or a failure of a satellite to perform to specifications. In addition,
AsiaSat's insurance policies include standard commercial satellite insurance
provisions and customary exclusions including, among other things, exclusions
from losses resulting from (i) military or similar actions, (ii) terrorism,
(iii) laser, directed energy, or nuclear anti-satellite devices, (iv)
insurrection and similar acts or governmental action to prevent such acts, (v)
governmental confiscation, (vi) nuclear reaction or radiation contamination or
(vii) willful or intentional acts of AsiaSat or its contractors.
Satellite in-orbit insurance covering a specified period after launch of a
satellite is typically purchased together with launch insurance. Subsequent
satellite in-orbit insurance is typically purchased on an annual basis.
Satellite in-orbit insurance, which has historically cost less than three
percent of the insured value of a satellite on an annual basis, provides
protection against partial or total loss of a satellite's communications
capability, including loss of transponders, power or ability to control the
positioning of the satellite and reduction in the useful life of the satellite.
AsiaSat obtained satellite in-orbit insurance for AsiaSat 3S covering the
launch and the first five years in-orbit of AsiaSat 3S in the amount of
HK$1,521.0 million (US$195.0 million), which provided coverage for (i) a total
failure of the launch of the satellite and (ii) the failure of the satellite to
obtain proper orbit or to perform in accordance with certain specifications
once in-orbit. AsiaSat renewed in-orbit insurance for AsiaSat 3S in the amount
of HK$780.0 million (US$100.0 million) at a cost of approximately HK$21.1
million (US$2.7 million) for the twelve month period beginning from March 21,
2006. AsiaSat obtained launch and the first year in-orbit insurance coverage
for AsiaSat 4 prior to its launch. The insurance amount was HK$1,443.0 million
(US$185.0 million) covering the total and partial loss of the satellite, and
HK$286.0 million (US$36.7 million) covering the cost of insurance premium in
the event of a total loss. This policy contained standard commercial satellite
insurance provisions and customary exclusions, as well as an exclusion of
losses in the event of a failure of XIPS (Xeon Ion Propulsion System) on the
satellite. A failure of XIPS could result in a reduction of the satellite's
life to less than 15 years. During the time when insurance for XIPS is
unavailable, AsiaSat has an alternative arrangement in place to cover the event
of a XIPS failure. Such arrangement will allow AsiaSat to purchase a
26
replacement satellite for AsiaSat 4 if XIPS fails at a pre-agreed price scaled
relative to the time of failure. The replacement satellite would be delivered
in-orbit before the end of life of AsiaSat 4. "See "Key Information - Risk
Factors - Limited Life of Satellites." AsiaSat renewed in-orbit insurance for
AsiaSat 4 in the amount HK$1,404.0 million (US$180.0 million) at a cost of
approximately HK$38.0 million (US$4.9 million) for the twelve month period
beginning from March 21, 2006. AsiaSat has obtained satellite in-orbit
third-party liability insurance for AsiaSat 2, AsiaSat 3S and AsiaSat 4 in an
aggregate amount of HK$390.0 million (US$50.0 million) for the twelve month
period beginning from June 2, 2006.
SALES AND MARKETING
The Company's sales and marketing department, which had 35 employees
(including two general managers) as of December 31, 2005, is divided into two
groups, one of which serves China and the other serves the remainder of the
world. The senior executive officers of the Company, including the Chief
Executive Officer and Deputy Chief Executive Officer, are directly involved in
marketing to key broadcasting and telecommunications customers. Marketing
activities include customer visits, selected trade advertising and
presentations at industry conferences.
EMPLOYEES
As of December 31, 2005, the Company had 95 permanent employees, of which
eight employees were in management, 40 employees were in engineering and
operations and 33 employees were in sales and marketing. The remaining 14
employees were engaged in administrative, accounting, legal, regulatory and
clerical activities. The Company has 80 employees in Hong Kong (including 1
employee for Skywave) and 15 employees in Beijing. The Company believes its
relations with its employees are good. See "Directors, Senior Management and
Employees - Employees."
COMPETITION
AsiaSat was founded in the late 1980s to serve the Asian regional
satellite communications market. While global satellite communications demand
was satisfied by Intelsat, Ltd. (the company formed in connection with the
privatization of the former International Telecommunications Satellite
Organization, an intergovernmental cooperative of more than 140 member nations
that owned and operated a global communications satellite system) and several
Asian countries that had developed domestic satellite communications, there was
no supplier of Asian region-wide satellite communications. Since the launch of
AsiaSat's first satellite in 1990, a number of international, regional and
domestic satellite operators have entered the Asian regional market. The
Company's primary market is Asian intra-regional broadcasting and
telecommunications.
INTERNATIONAL, REGIONAL AND DOMESTIC SYSTEMS
The business in which the Company operates is highly competitive. The
satellite services provided by the Company are used by its customers primarily
for point to multipoint communication (principally television broadcasting,
private communication network, Internet and multimedia). The Company competes
with several international, regional and domestic satellite companies operating
in the Asian region. Many of these competitors have long-standing customer
relationships and are substantially larger, and have financial resources that
27
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.
COMPETITION RESTRICTION FROM DOMESTIC SYSTEMS
In many cases customers are required by the laws of their countries to use
a state-owned or locally-owned satellite system for domestic communications.
These legal requirements prevent the Company and other satellite companies from
competing to provide transponder capacity to these potential customers. In
addition, AsiaSat currently has entered into transponder utilization agreements
for full transponders or partial transponders with various purely domestic
users in several countries. These customers could be lost if monopolies were
granted to state-owned or locally-owned satellite systems. All, or almost all,
of the domestic systems are planning to add at least some regional transponders
to their next generation of satellites. See "Key Information - Risk Factors -
Risk of Limited Market Demand and Increasing Competition - Competing Systems
and Satellites."
OTHER SATELLITE SYSTEMS
Other existing and proposed organizations are competing or might consider
competing in the Asian regional market. Some existing competitors offer
low-cost, high performance transponders which compete directly with AsiaSat's
satellites, while other potential competitors offer low-cost, low-performance
transponders which do not compete directly with AsiaSat's high-performance
transponders. New organizations face significant entry barriers including
scarcity of orbital slots and high cost of entry.
FIBER OPTIC SYSTEMS
Fiber optic systems have been widely installed within the region for point
to point trans-oceanic communications. In addition, point to point fiber optic
connections between major cities in Asia are common. As fiber optic coverage
increases, the competitiveness of satellites for point to point communications
will diminish.
TRANSPONDER OVERSUPPLY
It is expected that in 2006, the supply of transponders in the region will
continue to exceed the demand for transponders. The Company believes that this
imbalance cannot be corrected until global economic growth and new applications
and services increase demand for the existing capacity. See "Key Information -
Risk Factors - Risk of Limited Market Demand and Increasing Competition."
REGULATION
The international telecommunications industry is highly regulated.
Satellite services are subject to international space law while broadcasting
and telecommunications services are subject to international and national law.
The principal international law relating to the use of outer space is the Outer
Space Treaty. Countries that 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 these treaties or conventions. This
often results in the adoption
28
by 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.
HONG KONG REGULATION
As an operator of privately owned satellites, AsiaSat is subject to the
regulatory authority of Hong Kong through AsiaSat's principal regulator, OFTA.
AsiaSat's satellite operations are principally regulated by the Outer
Space Ordinance (Chapter 523 of the Laws of Hong Kong) (the "Outer Space
Ordinance"). The Outer Space Ordinance applies to all Hong Kong nationals and
entities incorporated under the laws of Hong Kong, including AsiaSat. This
prohibits any such person from, among other things, launching or procuring the
launch of a satellite, or operating a satellite, without obtaining an
appropriate license. The Outer Space Ordinance 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, among other things, basic orbital parameters (which include
requirements to obtain advance approval for any intended deviations and to
notify any unintentional deviation), requirements to avoid interference with
the activities of other users of outer space and requirements not to cause
actions which may give rise to liabilities on the part of China and Hong Kong.
Breach of any such conditions can give rise to a right of revocation of the
relevant license.
In Hong Kong, the ultimate authority to grant licenses and otherwise to
administer the Outer Space Ordinance is vested in the Chief Executive of Hong
Kong, acting in coordination with the Executive Council of Hong Kong. In
practice, all relevant matters are dealt with on a day-to-day basis by and
through OFTA. AsiaSat has the benefit of existing licenses covering current and
future operation of each of AsiaSat 2, AsiaSat 3S and AsiaSat 4, subject to the
conditions of the respective licenses. Each of these licenses was formally
granted shortly before or after launch of the satellite concerned following a
period of consultation between AsiaSat and OFTA.
In addition to the regulatory regime to which the Company's outer space
operations are subject, the Company's earth station operations involve the
operation and use of telecommunication apparatus at and from its earth stations
at Stanley and Tai Po, Hong Kong. An earth station includes the antennas,
receivers, transmitters and other equipment needed on the ground to transmit
and receive satellite communications signals. Establishment, possession and use
of such telecommunication apparatus from the Company's earth stations in Hong
Kong are regulated by the Telecommunications Ordinance. AsiaSat has the benefit
of licenses granted under the Telecommunications Ordinance covering all its
TT&C operations (which refers to a land based facility that monitors and
controls the position of the satellite in-orbit), as well as monitoring and
testing functions, for each of AsiaSat 2, AsiaSat 3S and AsiaSat 4, subject to
the terms and conditions of the respective licenses. The licenses require
AsiaSat, among other things, to avoid harmful interference to other
telecommunication apparatus operating within or outside Hong Kong and to ensure
compliance with all relevant requirements of the International
Telecommunication Convention (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). Such licenses for AsiaSat 2 and AsiaSat 3S were
formally granted contemporaneously with the grant of the licenses under the
Outer Space Ordinance. In contrast, because the Company successfully won a bid
for a Telecommunication License from OFTA allowing BSS frequencies to be
incorporated into the payload of AsiaSat 4, the
29
license for AsiaSat 4 under the Telecommunications Ordinance was granted prior
to the completion of AsiaSat 4. See "--AsiaSat 4." For a further discussion on
the Telecommunication License, the FC license and the non-domestic television
program service license, see "--Services and Customers - Expanded Services and
Other Businesses."
The Telecommunications Ordinance also contains provisions for the taking
of possession by the Hong Kong Government of telecommunications stations if the
Chief Executive in Council is of the opinion that an emergency has arisen in
which it is expedient for the public service that the Hong Kong Government
should have control over telecommunications stations. In addition, the
Telecommunications Ordinance contains provisions for the payment of
compensation should such taking of possession occur.
OVERSEAS NATIONAL TELECOMMUNICATIONS AUTHORITIES
The Company's customers in many of the countries covered by the Company's
satellites must have authorization from the countries in which they or their
uplink facilities are located in order to use the Company's satellites. 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
monopolistic 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. Although AsiaSat believes its customers presently hold the
requisite licenses and approvals in all relevant countries, there may be
instances of non-compliance of which AsiaSat is not aware. Although AsiaSat
does not believe these regulatory schemes will prevent it from pursuing its
business, there can be no assurance that such licenses and approvals are or
will remain sufficient in the view of foreign regulatory authorities and that
these authorities will not discourage or prevent potential customers from
utilizing transponders on AsiaSat's satellites.
The laws of certain countries require television broadcasters and
satellite telecommunication users providing services in such countries
generally to use state-owned or locally-owned satellites. For example, in
Japan, domestic broadcast using a foreign satellite is not permitted. In India,
if suitable capacity is available from a local satellite operator, operations
using a foreign satellite will not be permitted. The use of a foreign satellite
is subject to the authorization of the Department of Justice of India.
There are no specific restrictions on satellite operators providing
services in Australia. A radio communications license may be issued to a
satellite operator specifically to authorize transmissions (a Space License) or
one may be issued specifically to authorize reception of transmissions (a Space
Receive License). The satellite itself must be either an Australian or foreign
space object as determined by the Australian Communications Authority.
AsiaSat's satellites are determined as foreign space objects by the Australian
Communications Authority. When the space stations are licensed via the space
segment, the operation of ubiquitous earth stations that are communicating with
them may be authorized by another class license. AsiaSat has appointed an
authorized nominated carrier for its Ku-band Australian transponders in
Australia.
In Thailand, Shin Satellite's 8-year monopoly (which is part of a 30 year
concession from the country's government) ended in 1999. There are no specific
laws to regulate the activities
30
and operations of satellites in Thailand. At present, satellite activities in
Thailand are authorized and controlled by the National Telecom Commission of
Thailand.
China requires that all foreign satellite television broadcasters that
have been licensed to be downlinked in China be uplinked to a state-owned
satellite and multiplexed and downlinked to designated recipients and cable
headends from that state-owned satellite. No such requirement applies to
Chinese domestic satellite television broadcasters. Foreign satellite operators
are required to provide transponder capacity to domestic companies that have
been licensed to operate transponder capacity provision businesses or users
approved by the Ministry of Information Industry. Foreign satellite operators
are not allowed to provide transponder capacity to domestic users directly
without the approval of the Ministry of Information Industry.
With respect to telecommunications, Chinese regulations stipulate that all
matters relating to the lease or the procurement of the use of foreign
satellite transponders are under the Ministry of Information Industry's
jurisdiction. Domestic users must apply to the Ministry of Information Industry
to lease or procure the use of such transponders.
These legal requirements may prevent the Company and other satellite
companies from competing to provide transponder capacity to these potential
customers. There can be no assurance that other countries in the Asian region,
including countries in which the Company already has customers, will not impose
similar requirements to use state- or locally-owned satellites in the future.
The imposition of such requirements could adversely affect the Company's
results of operations.
INTERNATIONAL TELECOMMUNICATION UNION
The ITU was established in 1865 and became a specialized agency of the
United Nations in 1947. The ITU is an organization of sovereign member states
that aims at maintaining and extending international cooperation among all its
member states for the improvement and rational use of telecommunications of all
kinds. For this purpose, the ITU has developed and maintains international
procedures and requirements for use of telecommunications as well as technical
standards and recommendations. As of today, practically all countries in the
world are members of the ITU.
The ITU is organized in three sectors: the Telecommunication
Standardization Sector, the Radiocommunication Sector and the Telecommunication
Development Sector. For satellite communications, most of the activities and
regulations of relevance take place within the Radiocommunication Sector.
The objectives of the Radiocommunication Sector are to ensure rational,
equitable, efficient and economical use of, and access to, the radio-frequency
spectrum by all radio communication services and all countries. The main
instrument of the Radiocommunication Sector is the Radio Regulations, which
establishes procedures for member states. The Radio Regulations are updated
regularly by World Radio Conferences. In between the sessions of the World
Radio Conferences, the Radio Regulations Board, a group of elected members,
develop Rules of Procedure on the application of the Radio Regulations and also
consider other matters that cannot be resolved through a Rule of Procedure. The
Radiocommunication Sector also carries out technical studies and develops
recommendations on radio communication matters to assist member states and
users of the radio-frequency spectrum.
31
The Radiocommunication Bureau was established to facilitate the work of the
Radiocommunication Sector, in particular, to facilitate the technical studies,
meetings and conferences and the application of the procedures contained in the
Radio Regulations. The Radiocommunication Bureau has a group of permanent staff
with its headquarters in Geneva, Switzerland.
The Radio Regulations allocates certain frequency bands for various kinds
of satellite communication. It also contains procedures to be followed by its
member states to ensure that in bringing into use radio communication systems,
other users operating in accordance with these procedures are given the
required protection.
Details of the ITU, its instruments and working methods can be found in
the Constitution and Convention of the ITU, while radio communication matters
are dealt with in the Radio Regulations.
Nations are required by treaty to make a filing of their proposed use of
satellite orbital slots for geostationary satellites with the
Radiocommunication Bureau. After filing an orbital slot request with the
Radiocommunication Bureau, other nations are afforded the opportunity to inform
the Radiocommunication Bureau of any potential conflicts with their present or
planned use of orbital slots. When a conflict or potential conflict is noted,
nations are obligated to negotiate in an effort to coordinate the proposed uses
and resolve any interference concerns. The Radiocommunication Bureau, however,
has no formal enforcement mechanism, and if nations cannot agree on a
resolution, a satellite system may not be entitled to the full interference
protection afforded under international law.
The Hong Kong Special Administrative Region is mandated by China to file
and coordinate applications made by Hong Kong companies for orbital slots with
the Radiocommunication Bureau and to resolve interference concerns. The Chief
Executive of Hong Kong has delegated these responsibilities to OFTA. Use of the
orbital slots remains subject to the continuing oversight of OFTA and to a
variety of regulations generally applicable to all satellite and radio
licensees. OFTA has fulfilled its obligation to notify the Radiocommunication
Bureau of the proposed use of the orbital slots for all of AsiaSat's filings,
which include filings for AsiaSat 2, AsiaSat 3S and AsiaSat 4. After AsiaSat 2,
AsiaSat 3S and AsiaSat 4 reached their orbital positions and commenced
operations, AsiaSat notified OFTA, and OFTA in turn notified the ITU, that
AsiaSat 2, AsiaSat 3S and AsiaSat 4, as applicable, were on station and
operating as filed with the Radiocommunication Bureau, as coordinated and as
authorized by OFTA. The orbital locations of all of AsiaSat's satellites have
been entered into or are waiting to be entered into the Master Register of the
ITU. This concludes the process for the coordination of the orbital slots for
AsiaSat 2, AsiaSat 3S and AsiaSat 4. Moreover, to add more flexibility for the
utilization of the payloads of the current and future AsiaSat satellites in
positions at 100.5 degrees East, 105.5 degrees East and 122.2 degrees East,
additional filings have been submitted to, and are currently being coordinated
with, the ITU.
EXPORT REGULATION
In February 2001, Boeing obtained a Technical Assistance Agreement to
provide off-site support services for the life of AsiaSat 3S. On October 23,
2001, Boeing obtained a Technical Assistance Agreement to provide necessary
technical data and services to AsiaSat in connection with the AsiaSat 4
program. In addition, Boeing has obtained a Technical
32
Assistance Agreement from the U.S. Department of State to provide technical
data and service for in-orbit anomaly support for AsiaSat 4. See "-- Satellites
--AsiaSat 4."
In June 2000, Lockheed Martin obtained a Technical Assistance Agreement
from the U.S. Department of State to provide technical data and services for
in-orbit anomaly support for AsiaSat 2 until December 31, 2009.
PROPERTY, PLANTS AND EQUIPMENT
LAND FACILITIES
The Company's executive offices are located in Causeway Bay, Hong Kong.
The lease covering the Company's executive office space commenced in March 2005
for a term of three years. The rental amount (excluding rates, air-conditioning
and management charges) under this lease is approximately HK$2.7 million per
year. The Company finances this cost from internal resources. See "Additional
Information - Material Contracts."
In March 2000, the Company opened a representative office in Beijing,
China. The Company's Beijing office entered into a new lease for a period of
four years beginning in June 2004. The lease amount is approximately HK$0.7
million per year.
The Company has leased the Tai Po Site in Hong Kong to support the growth
of the Company's business. The Tai Po Site houses the Tai Po Satellite Earth
Station, which is the center for coordination of all technical customer-related
communication on the Company's satellite, including station testing, outage and
trouble shooting and real time scheduling of ad hoc broadcasting services
traffic. These services also include uplink, technical support and other value
added services. The Tai Po Satellite Earth Station became fully operational in
December 2003, and the complex received its final occupation permit from the
Hong Kong Building Authority in January 2004. The five full performance
antennas required for TT&C operations have been installed and are operational.
See "Additional Information - Material Contracts."
The Company is not currently the subject of any actions or proceedings for
environmental liabilities. As AsiaSat's satellites reach their "end of life"
and are de-orbited, it is conceivable that the Company could be subject in the
future to actions for environmental or other liabilities resulting from damages
caused by these satellites.
SATELLITE CONTROL FACILITIES
The Tai Po Satellite Earth Station has been fully operational for more
than two years and is now the Company's primary TT&C facility. The Tai Po
Satellite Earth Station is connected by dual, diversely routed leased lines to
the TT&C facility at the Reach Network (Hong Kong) Limited's ("Reach") teleport
located at Stanley on the south side of Hong Kong Island (the "Stanley TT&C
Facility"). The integrity of the delivery of the Company's services is achieved
through duplicating at the Tai Po Earth Station, the Company's circuits and
facilities provided at the Stanley TT&C Facility. A new satellite control and
monitor software program has been installed and is undergoing system testing.
AsiaSat's technical personnel staff the Tai Po Satellite Earth Station 24
hours a day. There are no full-time employees of AsiaSat located at the Stanley
TT&C Facility. Reach teleport
33
technicians are responsible for the routine maintenance of the antennas and
other equipment located at this facility.
Once a satellite is placed at its orbital location, it is controlled by
the Tai Po Satellite Earth Station until the end of its in-orbit life. The TT&C
subsystem for each satellite makes it possible for ground control to monitor
the position of the satellite in-orbit. AsiaSat's engineers at the Tai Po
Satellite Earth Station periodically correct a satellite's attitude and conduct
east-west and north-south stationkeeping maneuvers, thus ensuring that
AsiaSat's satellites maintain their proper orientation and orbital position. In
addition, commands from the Tai Po Satellite Earth Station can switch
transponders in and out of service, position a steerable beam, control the
charging and discharging of the batteries, activate back-up equipment and
engage other control functions.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and related notes thereto
included elsewhere herein.
OVERVIEW
The Company, through its wholly-owned subsidiary, AsiaSat, is a leading
provider of high quality satellite transponder capacity in the Asian region. As
of May 31, 2006, the Company had three satellites in operation:
--------------------------------------------------------------------------------------------------------
UTILIZATION
POSITION RATES(1) % CHANGE
--------------------------------------------------------------------------------------------------------
2003 2004 2005
---- ---- ----
AsiaSat 2 100.5(degree) East 54.3% 36.4% 40.1% 10.2%
AsiaSat 3S 105.5(degree) East 59.0% 73.3% 72.7% - 0.8%
AsiaSat 4 122.2(degree) East 10.3% 26.8% 46.5% 73.5%
System Utilization 39.0% 45.7% 54.0% 18.2%
-----------------
(1) There were 49 and 57 transponders respectively utilized on all AsiaSat
satellites at each of the year-end 2003 and 2004, and there were 67
transponders utilized on all AsiaSat satellites at year-end 2005. See "---
Results of Operations - Utilization Rates."
Our revenue by industry "segments" consist of video broadcasting and
telecommunications. The factors that drive demand for AsiaSat's satellite
services across the Asian region include video distribution, and the provision
of telecommunications networks to users who need last mile connectivity over
wide geographic coverage at a fixed cost. Satellites can provide this coverage
where cable cannot, particularly across the widespread and disparate Asian
region.
Due to overcapacity, the Company does not see material signs of
improvement among regional broadcast and telecommunications operators, nor does
it see new developments in the market that would enable the Company to deliver
stronger results in 2006. The Company does not expect to achieve significant
improvement in financial results in the near term. See "Key Information -- Risk
Factors - Political, Economic and Other Regional Risks" and "Key Information --
Risk Factors - Risk of Limited Market Demand and Increasing Competition."
34
In addition to this slow growth in new demand, continuing price pressure on new
transponder utilization agreements have limited the Company's growth. See
"Information on the Company - Business Overview." However, the Company's
business is long-term in nature, and the positive factors that drive demand
remain in place. These factors include television distribution (and
increasingly in more developed markets, High Definition Television), and
telecommunications networks that need connectivity over wide geographic
coverage, at a fixed cost. In addition, the Company has a strong existing
customer base with contracts representing approximately 73.9% of the Company's
2005 revenue remaining under contract for 2006. Furthermore, the Company has an
outstanding technical and customer service team as well as a premium client
base. Thus, operationally, 2006 will be another challenging year requiring
intense customer focus to maintain and expand existing businesses where
possible and to concentrate on identifying new opportunities for growth. The
Company will continue to investigate strategic opportunities that would support
and enhance the Company's core satellite business in order to position itself
to capitalize upon the recovery of the commercial satellite industry in the
Asian region.
REVENUE
SOURCES. Substantially all of the Company's revenues during the years 2001
through 2005 were derived from payments made in respect of transponder
utilization agreements and transponder purchase agreements for AsiaSat 2,
AsiaSat 3S and AsiaSat 4 and were almost entirely payable in US Dollars.
AsiaSat's transponder utilization agreements and transponder purchase
agreements in effect as of May 31, 2006 provided for total committed revenue
(including a portion of the deposits received by the Company in prior periods
and that will be recognized as revenue in the applicable future period) of
HK$2,680.0 million (US$343.6 million). The Company expects that most of such
committed revenue will be recognized over the remaining terms of the relevant
agreements up to 2014, assuming that the agreements are not terminated earlier.
See "Information on the Company - Transponder Utilization Agreements." In 2005,
approximately 2.8% of the Company's revenue from the provision of transponder
capacity was derived from transponder purchase agreements, and the remaining
portion was derived from transponder utilization agreements.
Payments under transponder utilization agreements are negotiated with each
individual customer and generally are influenced by various factors, including
market conditions that drive demand, satellite performance capabilities and the
reputation of AsiaSat as a reliable service provider. See "Information on the
Company - Business Overview." Generally, in the satellite transponder market,
transponders with greater coverage, wider bandwidth, more viewers and higher
power have commanded a premium price. These factors will impact our ability to
increase charges for transponder capacity in future periods with respect to new
and existing agreements.
SEGMENTS. The Company's primary industry "segments" consist of video
broadcasting and telecommunications. The majority of the Company's revenue is
attributable to video broadcasting. Due to the contracted nature of the
Company's revenue stream, year-to-year fluctuations are driven by customer
contract renewals and customer movements. See "Information on the Company -
Business Overview," "Information on the Company -Services and Customers -
Broadcasting," "Information on the Company - Services and Customers -
Telecommunications," "Information on the Company - Services and Customers -
Multimedia and Internet" and "Information on the Company - Services and
Customers -
35
Expanded Services and Other Businesses." The following table shows a breakdown
of revenue by segment:
---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------
2003 2004 2005
----------------------- --------------------- ----------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
----------------------- --------------------- ----------------------
HK$ HK$ HK$
(in millions, except for percentages)
Broadcasting (video) 631.2 70.4% 709.4 70.6% 578.4 65.7%
Telecommunications,
Internet and Multimedia 265.0 29.6% 295.6 29.4% 301.3 34.3%
------- ------- ------- ------- ------- -------
Total Revenue 896.2 100.0% 1,005.0(1) 100.0% 879.7 100.0%
-----------------
(1) See "-- Results of Operations - Revenues."
The following table shows the place of incorporation of the Company's
customers. However, due to the nature of the Company's business, the place of
incorporation of its customers are not reflective of their market activities as
broadcasting and telecommunication consumers may be located outside the
coverage area of AsiaSat's satellites.
---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------------
2003 2004 2005
----------------------- --------------------- ----------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
----------------------- --------------------- ----------------------
HK$ HK$ HK$
(in millions, except for percentages)
Hong Kong 323.2 36.1% 323.1 32.1% 341.7 38.8%
Greater China, including 212.8 23.7% 197.9 19.7% 202.7 23.0%
Macau and Taiwan
United States of America 71.2 7.9% 183.8(1) 18.3% 78.2 8.9%
British Virgin Islands 40.4 4.5% 40.9 4.1% 9.7 1.1%
United Kingdom 23.9 2.7% 46.1 4.6% 49.4 5.6%
Others 224.8 25.1% 213.2 21.2% 198.0 22.6%
Total Revenue 896.2 100.0% 1,005.0(1) 100.0% 879.7 100.0%
-----------------
(1) See "-- Results of Operations - Revenues."
REVENUE RECOGNITION. The Company recognizes revenues from all transponder
utilization agreements on a straight line basis over the term of the
agreements. As a result of the utilization fee escalation clauses in the
transponder utilization agreements, in the early years
36
of the term of any such agreement revenues are recognized in respect of
payments that are not yet due, and in the latter portion of the term of such
agreement revenues recognized will be less than payments due under the contract
terms. In the aggregate in 2003 and 2004, there was recognition of revenues
under the transponder utilization agreements in excess of payments due under
those agreements in the amounts of HK$16.6 million and HK$9.3 million,
respectively. In 2005, the total amount of payments due under the transponder
utilization agreements was in excess of revenues recognized under those
agreements in the amount of HK$0.7 million (US$0.1 million).
The Company recognizes revenue on the sale of transponder capacity under
transponder purchase agreements on a straight-line basis from the date of
delivery of the capacity until the end of the design life of the satellite.
RELIANCE UPON A SIGNIFICANT CUSTOMER. In the years ended December 31,
2003, 2004 and 2005, approximately 24.9%, 22.4% and 25.7%, respectively, of the
Company's revenues were attributable to transponder utilization agreements with
STAR. See "Information on the Company - Services and Customers" and "Key
Information -- Risk Factors --Reliance upon Significant Customer."
EXPENSES
The components of operating expenses are cost of services, selling,
general and administrative expenses and depreciation. Significant components of
cost of services include in-orbit insurance, staff costs, satellite operations
and turnaround service charges. Significant components of selling, general and
administrative expenses include staff costs, office rental expenses, provision
for doubtful debts, marketing and promotion expenses, business travel expenses,
dual listing expenses, professional fees and amortization of goodwill arising
from an acquisition of affiliates.
Staff costs (and associated travel expenses) and office rental expenses
are allocated by the Company between cost of services and selling, general and
administrative expenses depending on the function of such staff and use of the
office space. The cost of services category of operating expenses includes all
operating expenses incurred for engineering and the operation of the Company's
satellites, including the proportionate amount of office rental expense for the
office space used by the Company's engineers and the operations department. All
staff, travel and office space expenses not included in cost of services are
allocated to selling, general and administrative expenses.
INTEREST IN ASSOCIATES
The Company has accounted for its share of profit or loss arising from
associates on an equity accounting basis. In the case of a loss, the Company
will reflect its share in its income statement with a corresponding write down
of its investment in an affiliate. Once the investment has been written down to
zero the Company will not account for any further loss beyond its investment.
In 2003, 2004 and 2005, the Company recorded a HK$17.5 million, HK$12.4 million
and HK$3.9 million (US$0.5 million) loss, respectively, with respect to its
investment in associates, which includes amortization of goodwill and
impairment loss. In the case of a profit, the Company will reflect its share of
the profit in its income statement. In 2003, 2004 and 2005, the Company
recorded a positive contribution to the Company's income
37
statement in the amount of HK$HK$3.3 million, HK$6.4 million and HK$28.3
million (US$3.6 million), respectively.
TAXATION
The Company is subject to Hong Kong Profits Tax on its operations deemed
to be located in Hong Kong. It is also subject to overseas tax on its
operations in certain of the overseas jurisdictions. The Hong Kong profits tax
rate was increased to 17.5% per annum with effect from April 2003. Hong Kong
profits tax was previously charged at the rate of 16% per annum.
Under Indian tax regulations, the Company may be subject to Indian income
tax on revenues received by the Company in respect of income from the provision
of satellite transponder capacity to the Company's customers for purposes of
those customers carrying on business in India or earning income from any source
in India.
The Indian tax authorities have assessed the Company for income tax as
follows:
ASSESSMENTS (HK$ IN MILLIONS) (APPROXIMATELY)
-----------------------------------------------------------------------------------------------------
Assessment 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Total
Year
20.0 23.0 22.0 14.0 29.0 38.0 43.3 189.3
-----------------------------------------------------------------------------------------------------
The Company has filed appeals for each of the assessment years 1997-98 to
2003-04. No assessment has yet been made for the 2004-05 or 2005-06 assessment
years.
The Income Tax Appellate Tribunal (the "Tribunal") in an earlier appeal
filed against the original assessment for the assessment year 1997-98 held that
the Company is liable for Indian income tax under certain circumstances. The
Company does not believe that it is liable for the Indian income tax as held by
the Tribunal and has filed an appeal against the Tribunal's decision. The tax
authorities have also filed an appeal against the Tribunal's decision. Both
appeals have been admitted by the High Court.
In order to obtain a stay of recovery proceedings, the Company has made
payments as follows and has recorded these payments as an asset on the
assumption that the amounts are recoverable:
PAYMENT TO STAY RECOVERY PROCEEDINGS (HK$ IN MILLIONS) (APPROXIMATELY)
---------------------------------------------------------------------------------------------------------
Assessment 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Total
Year
13.0 15.0 10.0 9.0 20.0 27.0 23.7 117.7
---------------------------------------------------------------------------------------------------------
In addition, based on the general principles set forth by the Tribunal,
the amount of income taxable in India depends on the payments made by the
Company's customers to the Company for the purpose of those customers carrying
on business in India or earning income from any source in India. As such
information is proprietary in nature and has not been provided by the Company's
customers, the Company cannot reasonably estimate the taxable income and
38
therefore also cannot estimate the amount of Indian income tax for which the
Company may become liable. Accordingly, no provision has been recognized for
Indian income tax in the Company's financial statements. Furthermore, as stated
above, the Company has filed an appeal against the Tribunal's decision. The
appeal has been admitted by the High Court and is pending before the High
Court.
RESULTS OF OPERATIONS
The Company's revenues for 2005 amounted to HK$879.7 million (US$112.8
million), a decrease of HK$125.3 million (US$16.1 million) compared to that of
2004. The revenues for 2004 included a one-time lump sum receipt of HK$123.0
million (US$15.8 million) for early termination of a transponder utilization
agreement.
Operating profit decreased from HK$532.6 million in 2003 to HK$504.0
million in 2004 as a result of the full year effect on depreciation and
in-orbit insurance of AsiaSat 4. Operating profit in 2005 decreased 16.6% to
HK$420.5 million from HK$504.0 million in 2004. Operating profit as a result of
revenues decreased in 2005 to 47.8% from 50.1% in 2004, which in turn decreased
from 59.4% in 2003. The decrease in 2005 was the result of the one-time lump
sum receipt in 2004 referred to above.
The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain income and expense items in the Company's
Consolidated Statement of Operations.
YEAR ENDED DECEMBER 31,
------------------------------------------------
2003 2004 2005
-------------- ------------- -------------
Revenues 100% 100% 100%
Cost of services (35.0) (41.9) (47.6)
-------------- ------------- -------------
65.0 58.1 52.4
Other gains - net 0.7 2.2 4.9
Administrative expenses (6.3) (10.2) (9.5)
-------------- ------------- -------------
Operating profit 59.4 50.1 47.8
Finance costs (0.3) -- --
Share of results of associates (including (1.7) (1.2) (0.5)
goodwill amortization)
Impairment loss recognized in respect of (0.2) -- --
goodwill of associates
-------------- ------------- -------------
Profit before taxation 57.2 48.9 47.3
Taxation (9.8) (6.0) (5.8)
-------------- ------------- -------------
Profit for the year 47.4 42.9 41.5
============== ============= =============
REVENUES
Revenues in 2005 decreased 12.5% to HK$879.7 million (US$112.8 million)
from HK$1,005.0 million in 2004, which in turn increased from HK$896.2 million
in 2003. During 2005, the Company entered into transponder utilization
agreements totaling
39
approximately twenty transponders at lower rates for some new customers and
lost approximately fifteen transponders on non-renewal of some contracts upon
expiration or early termination. The increase in revenue in 2004 was primarily
due to a one-time contribution to revenues resulting from the early termination
of a transponder utilization agreement. In 2005, excluding the one-time
contribution of HK$107.6 million to the revenues of 2004 upon the early
termination of a transponder utilization agreement, revenues were down by
HK$17.7 million.
UTILIZATION RATE. As of December 31, 2005, the overall total utilization
rate of AsiaSat 2, AsiaSat 3S and AsiaSat 4 increased 18.2% over the prior year
from 45.7% to 54.0%, which in turn increased from the overall total utilization
rate of 39.0% as of December 31, 2003. See "--Overview." There were 49, 57 and
67 transponders utilized on all AsiaSat's satellites at the year-end 2003, 2004
and 2005, respectively. The decrease in the overall utilization rate in 2003
from the previous year was the result of the introduction of AsiaSat 4 to
AsiaSat's satellite fleet and the contraction of the business of certain of
AsiaSat's customers. The increase in 2004 and 2005 from the previous year was
the result of the leasing of additional transponders to new and existing
customers. See "Key Information - Risk Factors - Risk of Technological Changes"
and "Key Information - Risk Factors - Risk of Limited Market Demand and
Increasing Competition."
Utilization rates and the fees derived from its satellites are determined
by the terms of the Company's transponder agreements rather than the
transponder capacity actually used by the Company's customers at any given
time. The fees derived from the Company's satellites with respect to video
broadcasting services varies depending, in part, on whether the satellite has
an established viewer base. See "Information on the Company - Business
Overview."
COST OF SERVICES. Cost of services in 2005 decreased 0.4% to HK$419.0
million (US$53.7 million) from HK$420.5 million which in turn increased 34.2%
from HK$313.3 million in 2003. HK$65.7 million of the increase in 2004 was due
to depreciation and HK$26.4 million of the increase was due to insurance.
HK$7.3 million of the decrease in 2005 was primarily due to the decrease in
insurance costs resulting from the Company's decision not to procure the
in-orbit insurance for AsiaSat 2. This decrease was largely offset by increase
in depreciation expenses in 2005. See "Key Information - Risk Factors - Risk of
Loss or Damage to Satellites, Ground Based Satellite Control Equipment or
Satellite Stations from Acts of War, Terrorism, Electrostatic Storm, Space
Debris and Other Natural Disasters and Limitations on Warranties and
Insurance." Depreciation expenses, which are included in cost of services,
increased in 2005 to HK$295.1 million from HK$287.4 million in 2004. The
increase in depreciation expenses in 2005 represented expenses associated with
the additional facilities. HK$55.6 million of the increase in depreciation
expenses in 2004 was attributable to the full year depreciation of AsiaSat 4
and HK$55.6 million of the increase was attributable to the Tai Po Earth
Station.
ADMINISTRATIVE EXPENSES. Administrative expenses in 2005 decreased 18.1%
to HK$83.9 million (US$10.8 million) from HK$102.5 million in 2004, which in
turn increased 82.6% from HK$56.1 million in 2003. The increase in
administrative expenses in 2004 was largely attributable to the provision for
impairment of receivables and performance bonus. The decrease in administrative
expenses in 2005 was largely attributable to the decrease in the provision for
impairment of receivables and the total amount of performance bonuses compared
to 2004. The decrease in the provision for impairment of receivables was due to
40
improvement in payment by trade customers, while the total amount of
performance bonuses varies from year to year depending on whether performance
targets are achieved.
OTHER GAINS - NET. Other gains primarily consists of interest income.
Interest income in 2005 increased 100% to HK$43.6 million (US$5.6 million) from
HK$21.8 million in 2004, which increased 344.9% from HK$4.9 million in 2003.
The increase in interest income in 2004 and 2005 was primarily due to larger
cash balances and higher interest rates on structured deposits.
PROFIT BEFORE INCOME TAX
Profit before income tax in 2005 decreased 15.3% to HK$416.6 million
(US$53.4 million) from HK$491.6 million in 2004, which in turn decreased 4.0%
from HK$512.1 million in 2003. The decrease in profit before income tax in 2004
resulted from higher cost of services and administrative expenses. The decrease
in profit before income tax in 2005 resulted from lower revenues in 2005.
INCOME TAX EXPENSE
Income tax expense in 2005 decreased 15.2% to HK$51.3 million (US$6.6
million) from HK$60.5 million in 2004, which in turn decreased 30.9% from
HK$87.6 million in 2003. The decrease in income tax expense in 2004 and 2005
resulted primarily from lower assessable profit. For the years 2003, 2004 and
2005, the effective tax rates were 17.1%, 12.3% and 12.3%, respectively. The
higher effective rate in 2003 was mainly due to the additional provision for
deferred tax for prior years and for 2003 due to the increase of the profits
tax rate in Hong Kong by 1.5% in 2003.
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
Profit for the year in 2005 decreased 15.1% to HK$366.2 million (US$46.9
million) from HK$431.2 million in 2004, which increased 1.6% from HK$424.5
million in 2003.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF FINANCING
The Company's principal use of capital in 2003 was capital expenditures
related to the construction and launch of AsiaSat 4 and the construction of the
Tai Po Satellite Earth Station. The Company's principal use of capital in 2004
and 2005 was capital expenditures associated with the Tai Po Satellite Earth
Station and tracking facilities. Cash applied for the acquisition of property,
plant and equipment was HK$162.2 million in 2003, which in turn decreased to
HK$47.7 million in 2004 and decreased further to HK$23.7 million (US$3.0
million) in 2005. Cash applied for the acquisition of property, plant and
equipment has been financed through cash flows generated from operations.
As of December 31, 2005, the Company had no outstanding debt and
HK$4,104.2 million of shareholders' equity.
The satellite business is highly capital intensive. The Company's ability
to meet its future debt obligations, if any, will be dependent on a number of
factors, including its cash flow
41
from operations, its ability to secure future financing, if needed, and the
useful lives of the Company's satellites. See "-- Planned Capital
Expenditures."
PLANNED CAPITAL EXPENDITURES
The Company anticipates the need for additional capital to fund a
replacement satellite for AsiaSat 2. The following table sets forth the
Company's planned major capital expenditures for the periods indicated. Actual
capital expenditures may differ from the amounts indicated below.
PLANNED CAPITAL EXPENDITURES (IN MILLIONS)
--------------------------------------------------------------------------------------------------------------------------
2006 2007 2008 2009 2010 TOTAL TOTAL
HK$ HK$ HK$ HK$ HK$ HK$ US$
--------------------------------------------------------------------------------------------------------------------------
AsiaSat 5 365.0 558.1 480.9 - 1,404.0 180.0
Others 22.6 9.3 10.5 9.7 10.6 62.7 8.0
Skywave TV 0.4 1.5 0.5 0.5 0.5 3.4 0.4
--------- ------------ ---------- ---------- ----------- ----------- ------------
Total 388.0 ` 568.9 491.9 10.2 11.1 1,470.1 188.4
========= ============ ========== ========== =========== =========== ============
AsiaSat 5 will need to be constructed for launch in 2008 in order to
provide adequate opportunity to replace AsiaSat 2 at the end of its useful
life. The total costs for the construction and launch of AsiaSat 5 is estimated
to be approximately HK$1,404.0 million (US$180.0 million). The planned capital
expenditures indicated as "Others" in the table above consist of those planned
for furniture and fixture, office equipment, equipment and building upgrade at
the Tai Po site, motor vehicles, new business and test equipment and tools.
CONTRACTUAL OBLIGATIONS
As of December 31, 2005, the Company had various contractual obligations
which are more fully disclosed in Note 30 to the consolidated financial
statements of the Company. The following table aggregates the contractual
obligations of the Company as of December 31, 2005:
42
PAYMENTS (OR OTHER OBLIGATIONS WHICH MAY BECOME DUE)
BY PERIOD (HK$ IN MILLIONS)
-------------------------------------------------------------------------
LESS THAN 1-3 4-5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS
-------------------------------------------------------------------------
Commitment of Expenditure for
Operations and Maintenance
Capital Expenditures.................... 15.9 15.9 - - -
Operating Lease Obligations............. 9.1 4.3 4.8 - -
------- ------- ------- ------- -------
Total Contractual Obligations 25.0 20.2 4.8 - -
======= ======= ======= ======= =======
Deferred Revenue Disclosed on the
Company's Balance Sheet(1).............. 239.6 151.9 35.3 17.1 35.3
(1) Only reflects deferred revenue associated with the sale of transponder
capacity requiring the provision of on-going transponder capacity through the
relevant period of the transponder purchase agreement.
AsiaSat leases its premises under non-cancelable operating leases. At
December 31, 2005, commitments for future minimum lease payments which fall due
in 2006, 2007 and subsequent years are HK$4.3 million and HK$4.8 million,
respectively.
In the ordinary course of its business, AsiaSat enters into commercial
commitments for various aspects of operations, such as repair and maintenance.
However, the Company believes that those commitments will not have a material
effect on the Company's financial condition, results of operations or cash
flows.
CASH FLOWS
The Company has generally financed its short-term working capital
requirements from cash provided by operations. The Company has not borrowed any
amounts for the last three years. The Company had cash and cash equivalents of
HK$659.3 million, HK$1,234.4 million and HK$1,635.5 million (US$209.7 million)
as of December 31, 2003, 2004 and 2005, respectively.
43
Net cash generated from operating activities was HK$627.5 million,
HK$750.8 million and HK$514.4 million (US$65.9 million) in 2003, 2004 and 2005,
respectively. In 2004, the increased level of net cash provided by operating
activities resulted primarily from lower capital expenditures and lower amounts
of dividends paid. In 2005, the decreased level of net cash provided by
operating activities resulted from a lower level of cash generated from
operations and a larger payment of Hong Kong profits tax.
Net cash used in investing activities was HK$164.5 million, HK$50.9
million in 2003 and 2004, respectively. Net cash from investing activities was
HK$23.4 million (US$3.0 million) in 2005. Expenditures on the construction and
launch of AsiaSat 3S and AsiaSat 4 were HK$58.0 million in 2003. Expenditures
on other property and equipment were HK$104.2 million, HK$47.7 million and
HK$23.7 million in 2003, 2004 and 2005, respectively.
Net cash used in financing activities was HK$209.9 million, HK$124.9
million and HK$136.6 million (US$17.5 million) in 2003, 2004 and 2005,
respectively. In 2003, 2004 and 2005, net cash used in financing activities
primarily consisted of dividend payments.
The Company has sufficient working capital to cover its planned capital
expenditures and other operating needs. See "-- Planned Capital Expenditures."
The Company had a working capital of HK$529.9 million at December 31, 2003, a
working capital of HK$1,023.1 million at December 31, 2004 and a working
capital of HK$1,461.1 million (US$187.3 million) at December 31, 2005.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or resources that are
material to investors.
EXCHANGE RATES
During the past three years almost all of the Company's revenues, premiums
for satellite insurance coverage and debt service and substantially all capital
expenditures were denominated in US Dollars. The Company's remaining expenses
were primarily denominated in HK Dollars during these periods. As of December
31, 2005, almost all of AsiaSat's transponder utilization agreements,
transponder purchase agreements and obligations to construct and launch
satellites and to purchase TT&C equipment were denominated in US Dollars.
INFLATION
Inflation has not materially affected the Company's operations during the
past three years.
U.S. GAAP RECONCILIATION
The Company's financial statements are prepared in accordance with Hong
Kong GAAP, which differs in certain material respects from U.S. GAAP. The
following table sets forth a comparison of the Company's net income and
shareholders' equity in accordance with Hong Kong GAAP and U.S. GAAP.
------------------------------------------------
2003 2004 2005 2005
HK$ HK$ HK$ US$
------------------------------------------------
(IN MILLIONS)
Net income in accordance with:
Hong Kong GAAP........................ 424.5 431.2 366.2 46.9
U.S. GAAP............................. 408.5 424.1 358.8 46.0
Shareholders' equity in accordance with:
Hong Kong GAAP........................ 3,568.3 3,874.6 4,104.2 526.2
U.S. GAAP............................. 3,617.6 3,916.7 4,138.9 530.6
Note 32 to the Company's consolidated financial statements provides a
description of the principal differences between Hong Kong GAAP and U.S. GAAP
as they relate to the Company and a reconciliation to U.S. GAAP of certain
44
items, including net income and shareholders' equity. Differences between Hong
Kong GAAP and U.S. GAAP that have a material effect on the Company's net income
and shareholders' equity as reported under Hong Kong GAAP relate to
capitalization of interest, borrowing costs and deferred taxation.
RECENT U.S. ACCOUNTING PRONOUNCEMENTS
SFAS NO. 154. In May 2005, the Financial Accounting Standards Board
("FASB") issued the US Statement of Financial Accounting Standards ("SFAS") No.
154, Accounting Changes and Error Corrections, a replacement of APB Opinion No.
20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements (SFAS 154). SFAS 154 changes the requirements for the
accounting for, and reporting of, a change in accounting principles.
Previously, voluntary changes in accounting principles were generally required
to be recognized by way of a cumulative effect adjustment within net income
during the period of the change. SFAS 154 requires retrospective application to
financial statements of prior periods, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of the change. SFAS
154 is effective for accounting changes made in fiscal years beginning after 15
December 2005; but the statement does not change the transitional provisions of
any existing accounting pronouncements. The Company does not believe that the
adoption of SFAS 154 will have a material effect on its financial position,
cash flows or results of operations.
FASB NO. 109. In July 2005, the FASB issued a proposed Interpretation of
FASB Statement No. 109 (the "Interpretation"), "Accounting for Income Taxes"
which clarified accounting for uncertain tax positions. Under the
Interpretation, an enterprise is required to recognize, in its financial
statements, the best estimate of the impact of a tax position only if that
position would probably be sustained in an audit, based solely on the technical
merits of the position. In evaluating whether or not the "probable recognition"
threshold has been met, the Interpretation requires the presumption that the
tax position will be evaluated during an audit by taxing authorities. The term
probable, as defined in FASB Statement No. 5, "Accounting for Contingencies"
means "the future event or events are likely to occur." Individual tax
positions that fail to meet the probable recognition threshold will generally
result in either (a) a reduction in the deferred tax asset or an increase in a
deferred tax liability or (b) an increase in the liability for income taxes
payable or the reduction of an income tax refund receivable. The impact may
also include both (a) and (b). The increase in the income tax liability would
not be classified as a deferred tax liability unless it resulted from a taxable
temporary difference created by a tax position that has met the probable
recognition threshold. For enterprises that present classified statements of
financial position, the income tax liability would be classified as current to
the extent that a payment is anticipated within one year or the operating
cycle, if longer. The Interpretation also would provide guidance on disclosure,
accrual of interest and penalties, accounting in interim periods, and
transition. The Interpretation is currently in draft, and thus any effects on
the current accounting treatment of the Indian income tax liability or the PRC
withholding tax cannot be assessed at this point in time.
SAB 107 . In March 2005, the SEC issued Staff Accounting Bulletin ("SAB")
No. 107 Share Based Payment, which offers guidance on SFAS No. 123(R). SAB No.
107 was issued to assist preparers by simplifying some of the implementation
challenges of SFAS No. 123(R) while enhancing the information that investors
receive. SAB No. 107 creates a framework that is premised on two overarching
themes: (i) considerable judgement will be required by preparers to
successfully implement SFAS No. 123(R), specifically when valuing employee
stock options; and (ii) reasonable individuals, acting in good faith, may reach
45
different conclusions on the fair value of employee stock options. Key topics
covered by SAB No. 107 include valuation models, expected volatility and
expected term. The Company will adopt SAB No. 107 concurrently with the
adoption of SFAS No. 123(R) with effect from January 1, 2006. The Group does
not expect the adoption of this SAB to have a material impact on its
consolidated financial position or results of operations.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance
with Hong Kong GAAP. The preparation of these consolidated financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses as well as the disclosure
of contingent assets and liabilities. The Company continually evaluates these
estimates and judgments, including those related to estimated useful lives of
satellites, impairment losses on satellites, allowance for doubtful accounts,
and contingent liabilities related to tax assessments from Indian tax
authorities. The Company bases these estimates and judgments on its historical
experience and other factors that it believes to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. The Company has identified below the accounting
policies that are the most critical to its consolidated financial statements.
USEFUL LIVES OF IN-ORBIT SATELLITES. The Company has significant
investments in satellites. The carrying value of the Company's in-orbit
satellites represented 72%, 59% and 52% of its total assets as of December 31,
2003, 2004 and 2005, respectively. The Company estimates the useful lives of
satellites in order to determine the amount of depreciation expense to be
recorded during the reported period. The useful lives are estimated at the time
satellites are put into orbit and are based on historical experience with other
satellites as well as the anticipated technological evolution or other
environmental changes. If technological changes were to occur more rapidly than
anticipated or in a different form than anticipated, the useful lives assigned
to these satellites may need to be shortened, resulting in the recognition of
increased depreciation in a future period. Similarly, if the actual lives of
satellites are longer than what the Company has estimated, the Company would
have a smaller depreciation expense. As a result, if the Company's estimates of
the useful lives of its satellites are not accurate or are required to be
changed in the future, the Company's net income in future periods would be
affected.
REALIZABILITY OF THE CARRYING AMOUNTS OF LONG-LIVED ASSETS. The Company is
required to evaluate at each balance sheet date whether there is any indication
that the carrying amounts of long-lived assets (primarily its satellites) may
be impaired. The recoverable amount is the amount recoverable over the
remaining lives of the assets through undiscounted future expected cash flows.
If any such indication exists, the Company should estimate the recoverable
amount of the long-lived assets. An impairment loss is recognized based on the
excess of the carrying amount of such long-lived assets over their recoverable
amounts. The impairment charge is calculated using the discounted present value
of the cash flows expected to arise from the continuing use of long-lived
assets and cash arising from its disposal at the end of its useful life. The
estimates of the cash flows are based on the terms and period of existing
transponder utilization agreements ("Existing Agreements"). Likewise, changes
in estimated discount rates that result in lower recoverable amounts would
result in an impairment loss being recognized.
Modifications to the terms of the Existing Agreements that results in
shorter utilization period than previously agreed and/or those that result in
the reduction in agreed rates will result in a
46
lower recoverable amounts (if the discount rate used is not changed); which
may, in turn, result in the carrying amounts exceeding the recoverable amounts,
which in turn would result in an impairment loss being recognized.
INSURANCE. For each of its satellites, the Company obtains insurance
covering launch and first-year in-orbit loss at a blended rate. The launch
insurance is a one time charge and the in-orbit insurance is recurring
in-nature. The Company capitalizes a large portion of the insurance premium
relating to the launch as a cost of satellite and amortizes the cost over the
life of the satellite on a straight-line basis. The small portion of the
insurance premium relating to the first-year in-orbit is determined by
reference to an indicative rate obtained through an insurance broker in an open
market for satellites of similar type and configuration, and is recorded as
part of cost of services after commissioning of the satellite. The in-orbit
insurance cost usually represents 2.5% to 3.5% of the total amount insured for
such satellite.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains allowance for
doubtful accounts for estimated losses that result from the inability of its
customers to make the required payments. The Company bases its allowances on
the likelihood of recoverability of account receivables based on past
experience and current collection trends that are expected to continue. The
Company's evaluation also includes the length of time the receivables are past
due and the general business environment.
If changes in these factors occur, or the historical data the Company uses
to calculate the allowance for doubtful accounts as of December 31, 2005 does
not reflect the future ability to collect outstanding receivables, additional
provisions for doubtful accounts may be needed and the Company's future results
of operations could be adversely affected.
CONTINGENCY RELATED TO INDIAN TAX ASSESSMENTS. As of December 31, 2005 the
Indian tax authorities have assessed the Company for income tax of
approximately HK$146.0 million (US$18.7 million). Subsequently, the Company has
received an assessment for the 2003/2004 year in the amount of HK$43.3 million,
which increases the total amount of such contingent liabilities to HK$189.3
million (US$24.3 million). See "-- Taxation." The Company did not recognize
liabilities in connection with the foregoing assessments as the Company
believes that the criteria for recognition of a loss contingency under the US
SFAS 5, "Accounting for Contingencies" and Hong Kong Statement of Standard
Accounting Practice No. 28 "Provisions, Contingent Liabilities and Contingent
Assets" ("SSAP 28") were not met. SFAS 5 requires that "an estimated loss from
a loss contingency shall be accrued by a charge to income if both of the
following conditions are met: (a) information available prior to issuance of
the financial statements indicates that it is probable that an asset had been
impaired or a liability had been incurred at the date of the financial
statements; and (b) the amount of loss can be reasonably estimated. SSAP 28
states that a contingent liability is: (a) a possible obligation that arises
from past events and whose existence will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events not wholly within the
control of the enterprise; or (b) a present obligation that arises from past
events but is not recognized because: (i) it is not probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation: or (ii) the amount of the obligation cannot be measured with
sufficient reliability.
The Company cannot reasonably estimate the loss that will arise from the
assessment since the information needed to calculate such loss (if any) is
proprietary to the Company's customers and was not provided to the Company.
Further, the
47
Company believes it has a reasonable likelihood of success with respect to its
appeals against the Tribunal's decision. Therefore, the Company believes that
the criteria for recognition of a loss contingency under SSAP 28 or SFAS 5 were
not met. If the Company is finally held liable for such Indian tax, the
Company's future results of operations could be adversely affected.
NEW ACCOUNTING STANDARDS
In order to achieve convergence with the International Financial Reporting
Standards, the Hong Kong Institute of Certified Public Accountants issued a
number of new or revised Hong Kong Financial Reporting Standards ("HKFRS"),
which became effective January 1, 2005. The Company adopted some of those
standards that are relevant to its operation. The Company believes that the
adoption of those standards did not result in substantial changes to the
Company existing accounting policies under Hong Kong GAAP. For a discussion on
the newly adopted accounting standards, see Note 2 to the Company's
consolidated financial statements.
RESEARCH AND DEVELOPMENT
The Company does not incur any significant research and development
expenditures.
TREND INFORMATION AND PROSPECTS
Due to the nature of the Company's business with long-term commitments
being made for the purchase of satellites and long-term contracts entered into
by AsiaSat's customers, there are no immediate changes from one period to the
next which impact AsiaSat's business. See "Information on the Company -
Business Overview." For a further discussion on trends and prospects, see " --
Overview."
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
DIRECTORS AND SENIOR MANAGEMENT
The directors of the Company ("Directors") as of May 31, 2006 are set
forth below.
--------------------------------------------------------------------------------------------------------------------------
DATE FIRST ELECTED OR
APPOINTED DIRECTOR OF
NAME AGE POSITION ASIASAT (OR THE COMPANY) TERM OF OFFICE
--------------------------------------------------------------------------------------------------------------------------
Romain Bausch (2) 52 Chairman and Director January 15, 1999 May 14, 2007
Zeng Xin Mi (1) 55 Deputy Chairman and February 28, 2001 May 14, 2007
Director
Robert Bednarek (2) 48 Director March 14, 2002 May 13, 2008
Professor Edward Chen, 61 Director May 10, 1996 May 16, 2006
G.B.S., C.B.E., J.P. (3)
Yu Cheng Ding (1) 40 Director January 15, 1999 May 14, 2007
R. Donald Fullerton (3) 74 Director May 10, 1996 May 13, 2008
48
--------------------------------------------------------------------------------------------------------------------------
DATE FIRST ELECTED OR
APPOINTED DIRECTOR OF
NAME AGE POSITION ASIASAT (OR THE COMPANY) TERM OF OFFICE
--------------------------------------------------------------------------------------------------------------------------
Peter Jackson 57 Director May 10, 1996 May 16, 2006
Wei Min Ju (1) 43 Director October 12, 1998 May 14, 2007
Fai Wong Ko (1) 57 Director March 11, 2004 May 14, 2007
Mark Rigolle (2) 41 Director November 17, 2004 May 13, 2008
Robert Sze (3) 65 Director May 10, 1996 May 13, 2008
William Wade 49 Director May 10, 1996 May 16, 2006
Cynthia Dickins (2) 42 Director November 17, 2005 May 16, 2006
--------------------------
(1) Appointed by CITIC.
(2) Appointed by SES.
(3) Independent.
R. Donald Fullerton resigned from the Board on May 30, 2006.
The executive officers of the Company as of May 31, 2006 are set forth below.
--------------------------------------------------------------------------------------------------------------------------
DATE FIRST ELECTED OR
APPOINTED DIRECTOR OF
NAME AGE POSITION ASIASAT (OR THE COMPANY) TERM OF OFFICE
--------------------------------------------------------------------------------------------------------------------------
Peter Jackson 57 Chief Executive July 1, 1993 Indefinite
Officer
William Wade 49 Deputy Chief April 15, 1994 Indefinite
Executive Officer
Catherine Chang 38 Legal Counsel January 1, 2003 Indefinite
Liqun Chen 55 General Manager, China April 14, 1989 Indefinite
Ya Hui Chiu 56 General Manager, February 13, 1989 Indefinite
Operation
Sabrina Cubbon 44 General Manager, December 1, 1993 Indefinite
Marketing
Denis Lau 66 Secretary and General July 1, 1988 Indefinite
Manager, Finance and
Administration
Barry Turner 59 General Manager, May 1, 1998 Indefinite
Engineering
-----------------
49
The Board of Directors of the Company currently consists of 12 members.
Action can be taken by a majority of Directors present at a meeting at which a
quorum is present. Attendance by six Directors, or such other number as
determined by the Directors from time to time, constitutes a quorum. The
Bye-laws of the Company provide that any Director may call a board meeting. The
Directors all hold office until the next annual meeting of shareholders and
until their successors are elected and have qualified.
ROMAIN BAUSCH was appointed a Non-executive Director of the Company on
January 15, 1999. Since then, he acted as Deputy Chairman (1999-2000), Chairman
(2001-2002) and Deputy Chairman (2003-2004) of the Board on a rotational basis
biennially. For the current term (2005-2006), he acts as Chairman. He is the
President and CEO of SES GLOBAL S.A ("SES GLOBAL"). He started his career in
the Luxembourg civil service. After subsequent promotions, he became General
Administrator of the Ministry of Finance. He occupied key positions in the
banking and media sectors and spent a five-year term as a Director and Vice
Chairman of SES GLOBAL. He graduated with a Master of Arts degree in Economics
(specialization in Business Administration) from the University of Nancy
(France).
ZENG XIN MI was appointed a Non-executive Director of the Company on
February 28, 2001. Since then, he acted as Deputy Chairman (2001-2002) and
Chairman (2003-2004) of the Board on a rotational basis biennially. For the
current term (2005-2006), he acts as Deputy Chairman. He is Executive Director
and Vice President of CITIC Group ("CITIC"). Prior to his appointment to the
present position, he held executive management positions with various
subsidiaries of CITIC and was the Chief Executive Officer of CITISTEEL in the
United States from 1992 to 1997. He is also Chairman of the Board of CITIC USA
Holdings and CITIC Australia Pty Limited, and Executive Director of CITIC
Resources Holdings Limited in Hong Kong. He joined CITIC in 1985 and holds a
Master of Science degree.
ROBERT BEDNAREK was appointed a Non-executive Director of the Company on
March 14, 2002. He is Executive Vice-President Corporate Development and a
member of the Executive Committee of SES GLOBAL. Prior to joining SES GLOBAL,
he was the Executive Vice President and Chief Technology Officer of PanAmSat
Corporation. He graduated with a Bachelor of Science degree in Electronic
Engineering from the University of Florida.
PROFESSOR EDWARD CHEN, G.B.S., C.B.E., J.P., has been an Independent
Non-executive Director of the Company since May 1996. He was educated at Hong
Kong University (Bachelor of Arts, Master of Social Science) and Oxford
University (Doctor of Philosophy) and is currently President of Lingnan
University in Hong Kong. He was a member of the Executive Council of Hong Kong
from 1992 to 1997 and Chairman of the Consumer Council from 1991 to 1997. He is
now Chairman of the Press Council, a director of the First Pacific Company
Limited, a trustee of Eaton Vance Management Funds (Boston), a director of The
Wharf (Holdings) Limited and also a director of China Resources Peoples
Telephone Company.
YU CHENG DING was appointed a Non-executive Director of the Company on
January 15, 1999. He was the Assistant President of CITIC Securities Company
Limited and had been with the company from April 1998 to September 2004. CITIC
Securities Company Limited is a subsidiary of CITIC engaging in securities and
investment banking business. He has been an independent non-executive director
of SEEC Media Group Limited since June 2005. He
50
holds a Master of Business Administration degree from the University of
Pittsburgh and a Doctor of Philosophy degree in Economics from Tsinghua
University.
R. DONALD FULLERTON has been an Independent Non-executive Director of the
Company since May 1996. He was the Chairman and Chief Executive Officer of
Canadian Imperial Bank of Commerce ("CIBC") until his retirement in 1992.
Subsequently, he was Chairman of the Executive Committee of the CIBC's Board of
Directors until 1999. He retired from the CIBC's Board in February 2004. During
his career, he was a director of many national and multi-national corporations
as well as medical, cultural and educational institutions. He currently sits on
the board of Husky Energy Inc. and 3 Italia S.p.A. He resigned from the Board
of the Company on May 30, 2006.
WEI MIN JU was appointed a Non-executive Director of the Company on
October 12, 1998. He is a Director and the Chief Financial Officer of CITIC. He
is also a non-executive director of CITIC International Financial Holdings
Limited and a director of CITIC Ka Wah Bank. He holds a Bachelor of Arts degree
and a Master degree in Economics.
ROBERT SZE has been an Independent Non-executive Director of the Company
since May 1996. He is a fellow of the Institute of Chartered Accountants in
England and Wales and the Hong Kong Institute of Certified Public Accountants,
and was a partner in an international firm of accountants with which he
practiced for over 20 years. He is a non-executive director of a number of Hong
Kong listed companies. He is also a member of the Shanghai Committee of the
Chinese People's Political Consultative Conference.
FAI WONG KO was appointed a Non-executive Director of the Company on March
11, 2004. He is the Deputy General Manager of CITIC United Asia Investment
Limited, a wholly owned subsidiary of CITIC in Hong Kong and has over 20 years'
experience in banking and finance before joining CITIC. He holds a Bachelor of
Arts and a Master degree in Business Administration.
MARK RIGOLLE was appointed a Non-executive Director of the Company on
November 17, 2004. He is the Chief Financial Officer of SES GLOBAL. Prior to
joining SES GLOBAL, he held various positions in Belgacom in the financial and
strategic areas. He holds an Economic Sciences degree from the Catholic
University of Leuven, Belgium.
CYNTHIA DICKINS was appointed a Non-executive Director of the Company on
November 17, 2005. She is currently President of SES Asia S.A. ("SES Asia"), a
wholly-owned subsidiary of SES GLOBAL. She has been with SES GLOBAL since 1997,
when she joined GE Americom ("GE") as managing director of Americom Asia
Pacific. Prior to GE, she held international management positions with TV
Shopping Network, PanAmSat Corporation and Pharmacia (formerly Monsanto
Company). She holds a Masters of International Management degree from the
American Graduate School of International Management (Thunderbird) in Arizona
(USA) and a Bachelor of Arts degree in International Relations from Gonzaga
University in Washington (USA).
PETER JACKSON has been an Executive Director and the Chief Executive
Officer of the Company since May 1996, having served in that position with
AsiaSat since July 1993 prior to the listing of the Company. He has over 27
years' experience in the telecommunications field. Prior to his appointment as
the Chief Executive Officer in 1996, he was employed by Cable & Wireless plc
where he held engineering, marketing and management positions and
51
was responsible for several satellite telecommunications ventures. He has been
an independent non-executive director of Daum Communications Group since April
2006.
WILLIAM WADE has been an Executive Director and the Deputy Chief Executive
Officer of the Company since May 1996, having served in that position with
AsiaSat since April 1994 prior to the listing of the Company. He has over 26
years' experience in the satellite and cable television industry. He speaks
Mandarin Chinese and holds a Bachelor of Arts (Honors) degree in Communications
from the University of Utah, and a Masters of International Management degree
from Thunderbird (the Garvin School of International Management).
CATHERINE CHANG is Legal Counsel of the Company. She joined AsiaSat in
1994 and established the legal department to manage the legal affairs of the
Company. Prior to joining the Company, she was a solicitor at Ebsworth &
Ebsworth, an Australian law firm. She graduated from the University of New
South Wales, Australia with a Bachelor's degree in Laws and a Bachelor's degree
in Commerce, majoring in Accountancy.
LIQUN CHEN is General Manager, China, of AsiaSat, in which capacity he is
responsible for marketing transponder capacity and managing customer relations
in the China market. He had been on secondment to AsiaSat from his employer,
CITIC, since 1989 and became a permanent employee of AsiaSat in January 1997.
He graduated with a Master of Business Administration degree from the
University of Leuven in Belgium and a Bachelor of Science degree in Electronics
and Industrial Automation from Tsinghua University, China. Prior to being
seconded to the Company, he worked for CITIC.
DR. YA HUI CHIU is General Manager, Operations, of AsiaSat, in which
capacity he is responsible for maintaining and operating the Company's
satellites. He has 22 years experience in telecommunications engineering and
operations, with the last 19 years being in the satellite communications area.
He received his Bachelor of Science degree from National Taiwan University and
his M. Phil and Ph.D. degrees from Yale University, all in Physics.
SABRINA CUBBON is General Manager, Marketing, of AsiaSat, in which
capacity she is responsible for sales and marketing, business development,
corporate affairs and market research. She has over 21 years of marketing
experience in the telecommunications industry. Prior to joining AsiaSat in
August 1992, she was employed by Case Communications, a Hong Kong company,
between 1987 and 1992 as Regional Manager Asia-Pacific responsible for the
sales and marketing activities to multinational clients. She graduated from the
University of Manchester, United Kingdom with a Masters degree in Electronic
and Electrical Engineering, specializing in cryptography.
DENIS LAU is General Manager, Finance and Administration and the Secretary
of the Company. He joined Hong Kong Telecom (now known as PCCW) in 1974 and
held a number of senior positions, including the Assistant Group Chief
Accountant, before being seconded to AsiaSat in 1988. He became a permanent
employee of AsiaSat in September 1996. He is a qualified accountant and
secretary by profession and has over 34 years experience in the fields of
accounting and finance. He holds a Diploma in Management Executive Development
from the Chinese University of Hong Kong, a Fellowship of The Association of
Chartered Certified Accountants in the United Kingdom and the Hong Kong
Institute of Certified Public Accountants and is an Associate of The Institute
of Chartered Secretaries and Administrators in the United Kingdom. Prior to
joining Hong Kong Telecom, he worked for Esso, Union Carbide and Shaw Brothers.
52
BARRY TURNER is General Manager, Engineering of AsiaSat. He joined AsiaSat
in 1997 as Deputy General Manager of Engineering and was appointed to his
present position in May 1998. He has 31 years of experience in the satellite
communications industry and has held senior and executive management positions
in Engineering and in Sales and Marketing at Telesat Canada and in Strategic
Planning at TMI Communications Inc. He holds a Bachelor's degree in Electrical
Engineer from the Technical University of Nova Scotia, Canada, and a Masters
degree in Business Administration from the University of Ottawa, Canada.
Except for Mr. Bednarek and Ms. Dickins, who are brother-in-law and
sister-in-law, there is no family relationship between any director or
executive officer and any other director or executive officer of the Company.
COMPENSATION
The aggregate compensation paid by AsiaSat to all directors and officers
of the Company for 2004 and 2005 was approximately HK$35.8 million and HK$27.5
million, respectively. This compensation included payments of HK$0.5 million
(2004: HK$0.5 million) and HK$0.5 million (2004: HK$0.5 million) to SES GLOBAL
S.A. and a subsidiary of CITIC, the major shareholders of the Company,
respectively, for certain Non-Executive Directors representing SES GLOBAL S.A.
and CITIC. The decrease was largely attributable to a reduction in the amount
of performance bonus of HK$9.2 million.
CERTAIN SERVICE AGREEMENTS
PETER JACKSON. Mr. Jackson was seconded to the Company by Cable & Wireless
plc prior to June 1996, when he entered into a service agreement (the "Jackson
Service Agreement") with the Company pursuant to which he became its Chief
Executive Officer.
The Jackson Service Agreement was for an initial fixed term of three
years. Following the initial fixed term, the Jackson Service Agreement may be
terminated by either party giving not less than 12 months' notice. Mr. Jackson
currently is entitled to a gross annual salary of HK$2.7 million per annum,
together with a housing allowance including utilities of up to HK$1.5 million
per annum, which up to December 31, 2005 was paid directly by the Company to
the landlord. Mr. Jackson is also entitled to an additional annual bonus based
upon the Company's performance. Mr. Jackson is eligible to participate in the
Share Option Scheme (as defined herein). He is also entitled to participate in
the Company's medical scheme and in the Company's provident fund or any other
AsiaSat pension scheme.
Under the terms of the Jackson Service Agreement, Mr. Jackson is
restricted for a period of 12 months after the termination of his employment
with the Company from competing with the Company, attempting to deal with or
solicit any of the Company's customers with whom he had dealings during the
last 12 months of his employment or employing or attempting to entice away any
senior employees of the Company. Mr. Jackson will not act in any capacity for
Cable & Wireless plc under the terms of the Jackson Service Agreement.
WILLIAM WADE. Mr. Wade was seconded to the Company by Hutchison Whampoa
prior to June 1996, when he entered into a service agreement (the "Wade Service
Agreement") with the Company pursuant to which he became its Deputy Chief
Executive Officer of the Company.
The Wade Service Agreement was for an initial fixed term of two years.
Following the initial fixed term, the Wade Service Agreement may be terminated
by either party giving not less than six months' notice. Mr. Wade is entitled
to a gross annual salary of HK$2.1 million per annum, together with a housing
allowance including utilities of up to HK$1.1 million per annum, which is paid
directly by the Company to the landlord. Mr. Wade is also entitled to an
additional annual bonus based upon the Company's performance. Mr. Wade is
eligible to participate in the Share Option Scheme. He is also entitled to
participate in the Company's medical scheme and the Company's provident fund or
any other AsiaSat pension scheme.
53
Under the terms of Mr. Wade's service agreement, he is restricted for a
period of six months after the termination of his employment with the Company
from competing with the Company, attempting to deal with or solicit any of the
Company's customers with whom he had dealings during the last six months of his
employment or employing or attempting to entice away any senior employees of
the Company. Mr. Wade will not act in any capacity for Hutchison Whampoa under
the terms of the Wade Service Agreement.
BOARD PRACTICES
The Board of Directors of the Company (the "Board") is vested with the
broadest powers to perform all acts in the interest of the Company. The Board
has adopted certain corporate governance guidelines (the "Guidelines") relating
to Board membership, Board conduct and Board committee issues. A summary of the
significant differences between the Company's corporate governance practices
and those required by the NYSE Corporate Governance Standards for Domestic
Companies is available at http://www.asiasat.com/eng/04_investor/
governance/Comparison.pdf.
The Company has established an audit committee. The committee's primarily
objective is to assist the Board in fulfilling its oversight responsibility
with respect to (a) the accounting and financial reporting processes of the
Company, including the integrity of the financial statements and other
financial information provided by the Company to its stockholders, (b) the
Company's compliance with legal and regulatory requirements, (c) the
independent auditors' qualifications and independence, (d) the audit of the
Company's financial statements, and (e) the performance of the Company's
internal audit function and independent auditors. The audit committee shall (x)
have the sole authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors (or to nominate the independent
auditors for stockholder approval), (y) approve all audit engagement fees and
terms and all non-audit engagements with the independent auditors, and (z)
perform such other duties and responsibilities set forth under the Securities
Exchange Act of 1934 and any other applicable independence and regulatory
requirements. The audit committee shall also have the sole authority to review
in advance, and grant any appropriate pre-approvals, of (i) all auditing
services to be provided by the independent auditors and (ii) all non-audit
services to be provided by the independent auditors as permitted by Section 10A
of the Securities Exchange Act of 1934, and, in connection therewith, to
approve all fees and other terms of engagement. The audit committee shall also
review and approve disclosures required to be included in Securities and
Exchange Commission periodic reports filed under Section 13(a) of the
Securities Exchange Act of 1934 with respect to audit and non-audit services.
The audit committee shall have three or more members who shall be
independent non-executive directors unless an applicable exemption is available
under the rules promulgated by the U.S. Securities and Exchange Commission. The
quorum for the committee shall be
54
two voting members. The chairman of the committee shall be appointed by the
Board or, if it does not do so, the members of the audit committee shall elect
a chairman by a vote of the majority of the voting members of the audit
committee. The committee comprises Messrs. Robert Sze (Chairman), Edward Chen,
R. Donald Fullerton (resigned May 30, 2006), Wei Min Ju and Mark Rigolle.
Messrs. Wei Min Ju and Mark Rigolle have only observer status on the audit
committee and are non-voting members nominated by CITIC and SES GLOBAL under an
exemption to the independence requirement.
The Company has also established a remuneration committee. The committee
is responsible for, among other things, considering and reviewing the
remuneration packages of the executive directors and the emoluments of the
non-executive directors prior to approval of award by the Board. The committee
also reviews the remuneration packages of the employees of the Company. The
committee shall have three members and the quorum for the committee shall be
two. The chairman of the committee shall be an independent non-executive
director and appointed by the Board. The committee comprises Messrs. R. Donald
Fullerton (Chairman, resigned May 30, 2006), Wei Min Ju and Mark Rigolle.
The Company has also established a nomination committee. The committee is
responsible for, among other things, identifying individuals qualified to
become Board members, overseeing the evaluation of the Board and management,
and developing and recommending to the Board a set of corporate governance
guidelines applicable to the Company. The committee also develops a Chief
Executive Officer succession plan. The committee shall have three members and
the quorum shall be two. The chairman of the committee shall be an independent
non-executive director and appointed by the Board. The committee currently
comprises of Messrs. Edward Chen (Chairman), Romain Bausch and Zeng Xin Mi.
The Company has also established a business development committee. The
committee is responsible for reviewing all corporate plans, budgets and any new
and ongoing projects or ventures and make recommendations to the Board for
consideration and approval. The committee shall have no executive powers. The
committee shall have three members who shall be non-executive directors. The
committee currently comprises of Messrs. Robert Bednarek (Chairman), Yu Cheng
Ding and Fai Wong Ko.
The execution of the policies and decisions of the Board and the daily
management of the Company are vested with the management that comprises of the
Chief Executive Officer, the Deputy Chief Executive Officer and the General
Managers in the functional areas of Engineering, Finance, Marketing and
Operations, respectively. Furthermore, the Board mandates the management with
the preparation and planning of overall policies and strategies of the Company
as well as decisions reaching beyond the daily management, for discussion and
decision by the Board. The management meets on a regular basis on daily
business and reports to the Board at every board meeting.
EMPLOYEES
As of December 31, 2005, the Company had 95 permanent employees, of which
eight employees were in management, 38 employees were in engineering and
operations and 31 employees were in sales and marketing. The remaining 18
employees were engaged in administrative, accounting, legal and regulatory
activities. The Company has 80 employees in Hong Kong and 15 employees in
Beijing.
55
The Company does not employ a significant number of temporary employees.
The Company is not party to any collective bargaining agreement. The Company
believes its relations with its employees are good.
SHARE OWNERSHIP
Pursuant to the Company's new share option scheme adopted on January 25,
2002 (the "Share Option Scheme"), the Board of Directors of the Company may
grant options to any employees (including officers and directors) of the
Company or any of its subsidiaries to subscribe for shares in the Company. The
subscription price shall be such price as the Board of Directors of the Company
may in its absolute discretion determine at the time of grant but the
subscription price shall not be less than whichever is higher of (i) the
closing price of the shares as stated in The Hong Kong Stock Exchange Limited's
(the "Stock Exchange") daily quotations sheet on the date of grant; (ii) the
average closing price of the shares as stated in the Stock Exchange's daily
quotation sheets for the five business days immediately preceding the date of
the grant; and (iii) the nominal value of a share.
At December 31, 2005, outstanding options granted under the Share Option
Scheme (including those previously granted under the old scheme) were as
follows:
EXERCISE PERIOD OPTION PRICE NUMBER OF SHARES
HK$
------------------------------------------------------------------------------
Nov 26, 1999 to Nov 25, 2006 17.48 1,634,000
Oct 1, 2002 to Sept 30, 2009 17.48 1,655,000
Feb 4, 2004 to Feb 3, 2012 14.35 3,311,500
--------------------
6,600,500
====================
As of 31 May 2006, Romain Bausch, the Chairman and a Non-Executive
Director of the Company, has been granted 100,000 options, exercisable from
February 4, 2004 to February 3, 2012.
As of May 31, 2006, Zeng Xin Mi, the Deputy Chairman and a Non-Executive
Director of the Company, has been granted 100,000 options, exercisable from
February 4, 2004 to February 3, 2012.
As of May 31, 2006, Edward Chen, an Independent Non-Executive Director of
the Company, has been granted 50,000 options, exercisable from February 4, 2004
to February 3, 2012.
As of May 31, 2006, Yu Cheng Ding, a Non-Executive Director of the
Company, has been granted 50,000 options, exercisable from February 4, 2004 to
February 3, 2012.
As of May 30, 2006, R. Donald Fullerton, an Independent Non-Executive
Director of the Company, has been granted 75,000 options, exercisable from
February 4, 2004 to February 3, 2012. Mr. Fullerton's options expired
unexercised upon his resignation from the Company on May 30, 2006.
As of May 31, 2006, Wei Min Ju, a Non-Executive Director of the Company,
has been granted 50,000 options, exercisable from February 4, 2004 to February
3, 2012.
56
As of May 31, 2006, Robert Sze, an Independent Non-Executive Director of
the Company, has been granted 75,000 options, exercisable from February 4, 2004
to February 3, 2012.
As of May 31, 2006, Peter Jackson, an Executive Director and the Chief
Executive Officer of the Company, has been granted 915,000 options, exercisable
from November 26, 1999 to February 3, 2012.
As of May 31, 2006, William Wade, an Executive Director and the Deputy
Chief Executive Officer of the Company, has been granted 760,000 options,
exercisable from November 26, 1999 to February 3, 2012.
Under SES company policy, the options granted to directors of the Company
appointed by SES are held for the benefit of SES.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
MAJOR SHAREHOLDERS
The following table sets forth certain information regarding ownership of
the Company's voting securities as of May 31, 2006 by (i) all persons who are
known by the Company to be the beneficial owner of more than five percent (5%)
of any class of the Company's voting securities and (ii) the total number of
any class of the Company's voting securities owned by the officers and
directors of the Company as a group.
TITLE OF CLASS IDENTITY OF PERSON OR GROUP SHARES OWNED PERCENT OF CLASS
------------------------------------------------------------------------------------------------
Common Stock Bowenvale Limited 268,905,000 68.90%
Common Stock Aberdeen Asset Management Asia 21,188,000 5.43%
Limited
Common Stock Directors and Officers 290,000 0.07%
The Company is controlled by Bowenvale Limited, a limited liability
company incorporated in the British Virgin Islands ("Bowenvale Limited"), which
owns 68.9% of the outstanding shares of Common Stock of the Company. Until
January 15, 1999, Bowenvale Limited was owned by Cable & Wireless plc, Able
Star Limited, an indirect wholly-owned subsidiary of CITIC, and Dontech
Limited, an indirect wholly-owned subsidiary of Hutchison Whampoa Limited. On
January 15, 1999, Cable & Wireless plc and Hutchison Whampoa Limited sold their
holdings in Bowenvale Limited to CITIC and SES. As a result of this
transaction, CITIC increased its ownership of the voting share capital of
Bowenvale Limited from 41.67% to 49.5% and SES acquired the remaining 49.5%.
Voting rights in Bowenvale Limited are equally shared between CITIC and SES.
CITIC also holds 1% of the shares of Bowenvale Limited that are non-voting.
CITIC is China's leading state-owned investment corporation, with diversified
holdings in banking, securities, energy, telecommunications, real estate,
manufacturing, transportation and trading and extensive contact in China. The
information contained in this Item 7 does not include options granted to
current or former Directors appointed by SES which are beneficially owned by
SES pursuant to SES company policy. See "Directors and Senior Management -
Share Ownership." SES is based in Luxembourg and is the largest private
satellite service provider in the world. CITIC and SES
57
are each referred to herein as a Shareholder and Cable & Wireless plc and
Hutchison Whampoa Limited are each referred to herein as a former Shareholder.
The Company is not aware of any arrangement that may at a subsequent date
result in a change of control of the Company.
RELATED PARTY TRANSACTION
Certain members of the Board of Directors of the Company also serve as
directors and executive officers of the current Shareholders. These individuals
include Romain Bausch, Robert Bednarek, Zeng Xin Mi, Wei Min Ju, Mark Rigolle,
Fai Wong Ko and Cynthia Dickins. See "Directors, Senior Management and
Employees."
The Company has entered into transactions from time to time with its
current and former Shareholders, their affiliates and other connected persons
(as defined in the Listing Rules of the Hong Kong Stock Exchange). It is the
Company's policy that such transactions be effected on terms which the Company
believes to be comparable to those available with unaffiliated parties. For so
long as the Company is listed on the Hong Kong Stock Exchange, all transactions
between the Company and its directors or any of their respective affiliates (as
defined in the Listing Rules of the Hong Kong Stock Exchange) will constitute
connected transactions of the Company under the Listing Rules and unless
exemptions are applicable or waivers are granted, will be subject to
independent shareholders' approval in a general meeting.
AsiaSat has from time to time conducted transactions as described below
with the Shareholders, their affiliates and other connected persons. Unless
otherwise indicated, the following arrangements will continue to be conducted
on the same basis:
(i) Since 1996, CITIC Guoan Information Industry Company Limited
("Guoan"), a subsidiary of CITIC, has entered into capacity agreements to
utilize transponder capacity on the Company's satellites from time to time
on normal commercial terms. The two current agreements have a term of one
year starting from July 1, 2005 and June 1, 2005, respectively. The
transponder capacity utilized under both agreements is used to provide
domestic private network services within China. The total amount of
revenue recognized by the Company during 2004 and 2005, respectively,
under these agreements was approximately HK$3.1 million (US$0.4 million)
and HK$2.5 million (US$0.3 million).
(ii) In 2004 and 2005, respectively, the Company paid an agency fee of
HK$0.7 million and HK$0.7 million to CITIC Technology Company Limited, a
subsidiary of CITIC, for collecting money from China customers on behalf
of the Company.
(iii) In 2004, a software license fee amounting to HK$49,000 was paid to
SES ASTRA S.A.
(iv) The Company has granted or agreed to grant each of the Shareholders
demand and piggyback registration rights, exercisable under certain
circumstances and subject to certain conditions that require the Company
to register under the Securities Act Common Stock held by Bowenvale
Limited, the Shareholders and their affiliates. Under the registration
rights agreement, the Company will pay all expenses in connection with
registrations made at the request of the Shareholders and the Company will
pay all expenses in connection with any registration by the Shareholders
incidental to a registration by the Company. The exercise by the
Shareholders of their registration rights
58
could adversely affect the market price of the Shares and the ADSs and
could impair the Company's future ability to raise capital through an
offering of its equity securities.
(v) In 2004 and 2005, the Company recognized rental income from leasing
satellite transponder capacity amounting to approximately HK$18.8 million
and HK$32.2 million (US$4.1 million), respectively, and no maintenance and
other services income from SpeedCast Holdings Limited.
(vi) In 2005, the Company made payments to SES GLOBAL and a subsidiary of
CITIC amounting to HK$0.5 million (2004: HK$0.5 million; 2003: HK$0.5
million) and HK$0.5 million (2004: HK$0.5 million; 2003: HK$0.5 million)
respectively, for certain Non-Executive Directors representing SES GLOBAL
and CITIC.
(vii) In 2004, AsiaSat entered into an agreement with Beijing Asia
pursuant to which AsiaSat agreed to provide Beijing Asia with up to
HK$12.0 million (US$1.5 million) in transponder capacity payable on a
deferred basis.
Except for the arrangements referred to in paragraph (v), the transactions
mentioned above have been entered into in the ordinary course of business and
on normal commercial terms. Such transactions, which are of a continuing
nature, are expected to be continued in the future. Under the Listing Rules of
the Hong Kong Stock Exchange (the "HKSE Listing Rules"), such transactions are
considered to be "continuing connected transactions" and depending on their
respective value, may require full disclosure and/or prior independent
shareholders' approval on each occasion they arise. The Company has been
granted a conditional waiver by the Hong Kong Stock Exchange from these
requirements in the past. As a result of recent amendments to the HKSE Listing
Rules which came into effect on March 31, 2004, the Company is required to
comply with the new disclosure and shareholders' approval requirements (if
applicable) on "continuing connected transactions." The Company has applied to
the Hong Kong Stock Exchange for clarification and waivers with respect to the
disclosure and shareholders' approval requirements under the HKSE Listing Rules
(as amended).
In addition to the requirements under the HKSE Listing Rules relating to
"continuing connected transactions," the Companies Act subjects officers and
directors of the Company to certain fiduciary standards in the exercise of
their duties on behalf of the Company. Under the Companies Act, an officer of
the Company (which term includes directors of the Company) is subject to a duty
of care requiring him to act honestly and in good faith in the discharge of his
duties and to, among other things, give notice to the Board of Directors at the
first opportunity of any interest he has in any material contract or proposed
material contract with the Company or any of its subsidiaries. The Companies
Act also prohibits the Company from making loans to any Directors without
obtaining the consent of shareholders holding in the aggregate not less than
nine-tenths of the total voting rights of all the shareholders having the right
to vote at any shareholders meeting.
ITEM 8. FINANCIAL INFORMATION.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.
Information responsive to this Item is included in response to Item 18.
DIVIDENDS AND DIVIDEND POLICY
The Company has distributed annual cash dividends to shareholders for each
fiscal year since it commenced operations in 1996 and anticipates continuing to
do so in the future. The
59
Board has adopted a dividend policy to distribute approximately 30-40% of net
income as dividends. However, any future dividend payments are dependent on
future earnings, financial position, cash flow and levels of investments in the
satellite network and ground station equipment.
The following table details the total amount of annual dividends and the
gross dividends paid, together with certain additional information, for 2003,
2004 and 2005.
-----------------------------
FOR THE YEAR ENDED
DECEMBER 31
-----------------------------
2003 2004 2005
-----------------------------
Net income (in HK Dollars in millions)............................... 424 431 366
Ordinary dividend paid (in HK Dollars in millions)................... 105 125 137
Ordinary dividend paid per Share (in HK cents)....................... 27 32 35
Ordinary dividend proposed (in HK Dollars in millions)............... 94 105 105
Ordinary dividend proposed per Share (in HK cents) .................. 24 27 27
Special dividend paid (in HK Dollars in millions) ................... 98 - -
Special dividend paid per share (in HK cents) ....................... 25 - -
LEGAL AND REGULATORY PROCEEDINGS
Other than as described below, the Company is not involved in any
significant legal or regulatory proceedings.
TAX DISPUTES
The Indian tax authority has made assessments against the Company in
respect of certain capacity agreement payments for transponders used by the
Company. See "Operating and Financial Review and Prospects - Taxation."
OTHER DISPUTES
In addition, the Company is subject to various claims and proceedings in
the ordinary course of business. None of these claims and proceedings will have
a material adverse effect on the financial condition or results of operations
of the Company.
SIGNIFICANT CHANGES
There have been no significant changes in the Company's business,
operations or financial condition since December 31, 2005.
ITEM 9. STOCK PRICE HISTORY.
SHARE PRICE HISTORY AND MARKETS
The Company's American Depositary Shares ("ADS") representing its shares
(each ADS representing ten shares of the Company) are listed and traded on the
New York Stock Exchange (symbol: SAT) and the Company's shares are listed and
traded on the Hong Kong Stock Exchange (symbol: 1135.HK) since June 18, 1996
and June 19, 1996, respectively. The table below details, for the periods
indicated, the high and low closing market prices for its depositary receipts
on each of the New York Stock Exchange and the Hong Kong Stock Exchange, as
reported by the New York Stock Exchange and the Hong Kong Stock Exchange for
the last five fiscal years and the most recent six months. See "Key Information
-
60
Historical Exchange Rate Information" with respect to rates of exchange between
the US Dollar and the HK Dollar applicable during the periods set forth below.
NEW YORK STOCK EXCHANGE HONG KONG STOCK EXCHANGE
(IN US$) (IN HK$)
HIGH LOW HIGH LOW
---- --- ---- ---
2001 ......................................... 26.25 11.00 20.25 8.35
2002 ......................................... 18.90 10.95 15.00 8.90
2003 ......................................... 19.43 11.66 14.90 9.25
2004 ......................................... 22.11 15.20 17.30 11.70
Quarter Ending March 31, 2004................. 22.11 17.00 17.30 13.40
Quarter Ending June 30, 2004.................. 18.35 15.20 14.25 11.70
Quarter Ending September 30, 2004............. 19.50 16.40 15.10 12.75
Quarter Ending December 31, 2004.............. 19.78 18.27 15.60 14.50
2005 ......................................... 20.55 16.50 18.00 12.40
Quarter Ending March 31, 2005................. 19.09 18.20 15.10 14.15
Quarter Ending June 30, 2005.................. 19.38 17.11 15.15 13.50
Quarter Ending September 30, 2005............. 20.55 17.60 16.40 13.60
Quarter Ending December 31, 2005.............. 19.02 16.50 18.00 12.40
2006.......................................... 19.40 16.15 14.85 12.20
January 2006.................................. 18.10 16.28 14.00 12.40
February 2006................................. 17.30 16.15 13.70 12.20
March 2006.................................... 19.40 17.05 14.85 13.25
Quarter Ending March 31, 2006................. 19.40 16.15 14.85 12.20
April 2006.................................... 18.35 16.85 13.75 13.00
May 2006...................................... 17.66 16.71 14.00 13.05
There has been no significant trading suspension in the past three years.
ITEM 10. ADDITIONAL INFORMATION.
CHARTER DOCUMENTS.
Information relating to the Company's charter documents is incorporated
herein by reference to the Company's Annual Report on Form 20-F for fiscal year
2000, File No.3334856.
MATERIAL CONTRACTS.
The following is a summary of the material contracts concluded outside of
the ordinary course of business to which the Company and other members of its
group were a party. Copies of these contracts are filed as exhibits to this
Form 20-F. Directions on how to obtain copies of these contracts are provided
under "Item 10. -- Documents on Display."
o Lease Agreement, dated March 12, 2001, between AsiaSat and the Hong
Kong Industrial Estates Corporation (the "Tai Po Lease Agreement").
Pursuant to the Tai Po Lease Agreement, the Hong Kong Industrial
Estates Corporation agreed to grant to AsiaSat rights to the Tai Po
Site, for a period of sixty (60) months, for the purpose of
constructing a satellite earth station and other structures, and
thereafter to lease to
61
AsiaSat the Tai Po Site up to 2047. AsiaSat paid a lump sum of HK$25.9
million (US$3.3 million) for the lease of the Tai Po Site and agreed
to pay an annual rent of 3% of the ratable value of the Tai Po Site as
well as an annual sum of HK$36,824 for management and maintenance
charges.
o Construction Contract Agreement (the "Construction Contract"), dated
March 4, 2002, between AsiaSat and Leighton Contractors (Asia) Limited
(the "Contractor"). Pursuant to the Construction Contract, the
Contractor agreed to design and construct a new satellite earth
station on the Tai Po Site. Costs related to the construction of the
Tai Po Site (including consultancy fees but excluding amounts paid
under the Lease Agreement) are estimated to be approximately HK$119.7
million (US$15.3 million).
o Lease Agreement, dated January 26, 2005, between AsiaSat and Perfect
Win Properties Limited (the "Office Lease Agreement"). Pursuant to the
Office Lease Agreement, Perfect Win Properties Limited agreed to lease
to AsiaSat the office premises in Causeway Bay, Hong Kong for a period
of 36 months commencing March 1, 2005 for an annual rent of
approximately HK$2.7 million (US$0.3 million).
o Joint Venture Agreement, dated March 29, 2004, between AsiaSat and Sky
Networks Communications Group Company Limited (the "Beijing Asia Joint
Venture Agreement"). Pursuant to the Beijing Asia Joint Venture
Agreement, the two parties agreed to participate in the joint venture
Beijing Asia, and AsiaSat agreed to contribute HK$12.5 million (US$1.6
million) in cash to Beijing Asia and to provide transponder capacity
payable on a deferred basis.
o Subscription Agreement, dated November 30, 2004, among AsiaSat, Macau
Cable TV, Limited, Pacific Satellite International Limited and Skywave
(the "Skywave Subscription Agreement"). Pursuant to the Skywave
Subscription Agreement, AsiaSat agreed to make a HK$24.0 million
(US$3.1 million) contribution in return for an 80% interest in
Skywave.
o Shareholders Agreement, dated November 30, 2004, among AsiaSat, Macau
Cable TV, Limited and Pacific Satellite International Limited (the
"Skywave Shareholders Agreement"). The Skywave Shareholders Agreement
regulates the rights and obligations of each of the parties in
relation to their ownership in Skywave, including the transfer of
shares in Skywave and the management and operation of Skywave.
o AsiaSat 5 Contract for One Spacecraft Delivered On-Ground and
Associated Equipment and Services (the "Construction Agreement"),
dated April 28, 2006, between AsiaSat and Space Systems/Loral, Inc.
(the "Construction Contractor"). Pursuant to the Construction
Agreement, the Construction Contractor will design, assemble and
construct AsiaSat 5. The estimated total consideration for the project
and the launch is HK$1,404.0 million (US$180.0 million).
o Contract for Land Launch Services (the "Launch Contract"), dated May
8, 2006, between AsiaSat and Sea Launch Limited Partnership the
("Launch Contractor"). Pursuant to the Launch Contract, the Launch
Contractor will provide services associated with the launch of AsiaSat
5 in the Baikonur Space Centre in Kazakhstan.
62
EXCHANGE CONTROLS.
There are, except in limited embargo circumstances, no legal restrictions
in Bermuda on international capital movements and foreign exchange
transactions. There can be no assurance that the government of Bermuda will
maintain the current foreign exchange policies.
TAXATION.
The Company is not required to make any tax withholding with respect to
its shareholders.
For an additional discussion on taxation, see "Operating and Financial
Review and Prospects - Taxation."
DOCUMENTS ON DISPLAY
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934 and will file reports and other information
with the Securities and Exchange Commission ("SEC"). You may examine the
reports and other information that the Company files, without charge, at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C., 20549. You may also receive copies of these
materials by mail from the SEC's Public Reference Branch at 450 Fifth Street,
N.W., Washington, D.C., 20549. For more information on the public reference
rooms, call the SEC at 1-800-SEC-0330.
SUBSIDIARY INFORMATION.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of the Company's business, the Company's financial
position is routinely exposed to a variety of risks, including market risks
associated with interest rate movements on its outstanding debt, if any. The
Company does not have significant exposure to commodity price risks or other
market rate or price risks.
CURRENCY FLUCTUATIONS
A substantial portion of the Company's capital expenditure is denominated
in US Dollars and HK Dollars. Revenues are denominated principally in US
Dollars. A substantial portion of the cost of services and administrative
expenses of the Company is incurred in Hong Kong dollars and a significant
portion is incurred in Renminbi, the legal currency of the People's Republic of
China. There has been wide-spread speculation about the potential appreciation
of the Renminbi against the US Dollar in the near future and, given the close
tie between Hong Kong's economy and the People's Republic of China, the
potential impact of such appreciation on the link between the HK Dollar and US
Dollar that has been in place since 1983. See "Key Information - Historical
Exchange Rates Information." In the event of an appreciation of the Renminbi
and, in particular, the HK Dollar, against the US Dollar, the profits of the
Company will likely be adversely affected as the Company's revenues are
principally denominated in US Dollars.
63
INTEREST RATE FLUCTUATIONS
As of December 31, 2005, no borrowings consisted of floating rate
borrowings.
The Company will be exposed to interest rate fluctuations in the event of
any borrowings under a future loan arrangement and any change in interest rate
could affect its results of operations and cash flows. As of December 31, 2005
the Company had no outstanding borrowings.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
The Company has not had any material default in the payment of principal,
interest, or sinking purchase fund installments. The Company has not had any
material default not cured within 30 days relating to indebtedness of AsiaSat
or any of its significant subsidiaries that exceeds 5% of the Company's total
assets on a consolidated basis.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS.
Not Applicable.
PART III
ITEM 15. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
reviewed the Company's disclosure controls and procedures as of the end of the
period covered by this Annual Report on Form 20-F. Based upon this review,
these officers believe that the Company's disclosure controls and procedures
are effective in ensuring that material information related to the Company is
made known to them by others within the Company.
INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls during the period
covered by this Annual Report on Form 20-F or from the end of the fiscal period
to the date hereof, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 16. OTHER INFORMATION.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Mr. Robert Sze, a member of the
Company's audit committee, is a "financial expert" (as such term is used in
Item 16 of Form 20-F) and is an "independent" director (as such term is defined
under the listing rules of the NYSE).
64
CODE OF ETHICS
The Company has adopted a code of ethics that requires all of its
employees, particularly senior officers and general managers, including the
principal financial officer, to maintain, at all times, the highest standards
of integrity and honesty in conducting the Company's affairs. This code of
ethics is posted on the Company's website, which is located at www.asiasat.com.
The Company intends to satisfy the disclosure requirement under Item 16 of Form
20-F regarding an amendment to, or waiver from, a provision of this code of
ethics by posting such information on its website, at the address specified
above. Information contained in the Company's website, whether currently posted
or posted in the future, is not part of this document or the documents
incorporated herein by reference in this document.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Following the resignation of Deloitte Touche Tohmatsu ("DTT"),
PricewaterhouseCoopers ("PwC") was appointed in November 2004 as the Company's
principal accountant. As both DTT and PwC served as principal accountants of
the Company (the "Principal Accountants") during 2004, the fees incurred and
described below for 2004 were for both Principal Accountants.
AUDIT FEES
The aggregate fees incurred by the Company in each of 2004 and 2005 was
HK$0.7 million and HK$0.8 million, respectively, for professional services
rendered by the Principal Accountants, for the audit or review of the Company's
financial statements.
AUDIT-RELATED FEES
The aggregate fees incurred by the Company in each of 2004 and 2005 was
HK$9,000 and HK$142,000, respectively, for assurance and related services by
the Principal Accountants that are reasonably related to the performance of the
audit or review of the Company's financial statements and were not otherwise
reported under the paragraph entitled "Audit Fees" above.
TAX FEES
The aggregate fees incurred by the Company in each of 2004 and 2005 was
HK$529,000 and HK$89,000, respectively, for professional services rendered by
the Principal Accountant(s) for tax compliance, tax advice and tax planning.
The nature of the services includes services rendered in respect of tax in Hong
Kong and, for 2004, services rendered by DTT in respect of tax in other
jurisdictions amounted to HK$449,000.
ALL OTHER FEES
The aggregate fees incurred by the Company in each of 2004 and 2005 was
HK$0.3 million and HK$0.8 million, respectively, for products and services
provided by the Principal Accountant(s), other than for services described in
the paragraphs above. The nature of the services includes the provision of
professional advisory services in relation to internal control assessment
required by the Sarbanes-Oxley Act of the United States.
65
None of the services described above were provided under the de minimus
exception set forth in Rule 2-01(c)(7)(i)(c) under Regulation S-X.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
The audit committee has adopted terms of reference which address, among
other matters, pre-approval of audit and non-audit services provided by the
independent auditor. The terms of reference requires that all services to be
provided by the independent auditors must be approved by the audit committee.
To facilitate smaller projects that may arise between scheduled meetings of the
audit committee, the audit committee may pre-approve the provision of audit and
non-audit services by the independent auditors. For both types of
pre-approvals, the audit committee considers whether such services are
consistent with the rules of the U.S. Securities and Exchange Commission on
auditor independence.
EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
The audit committee of the Company currently comprises of Messrs. Robert
Sze (Chairman), Edward Chen, Wei Min Ju and Mark Rigolle. Messrs. Wei Min Ju
and Mark Rigolle have only observer status on the audit committee and are
non-voting members nominated by CITIC and SES GLOBAL, controlling shareholders
of the Company. Their appointment to the audit committee is in reliance on an
exemption from the audit committee independence requirements that is available
to foreign private issuers under Rule 10A-3(b)(1)((iv)(D) promulgated under the
Securities Exchange Act of 1934, as amended. Messrs. Wei Min Ju and Mark
Rigolle are not executive officers of the Company and satisfy the "no
compensation" requirement under Rule 10A-3(b)(1(ii)(A). The Company believes
that their appointment to the audit committee does not materially adversely
affect the ability of the audit committee to act independently and to satisfy
the other requirements of Rule 10A-3.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
The Company has elected to provide the information required under Item 18
in lieu of Item 17.
ITEM 18. FINANCIAL STATEMENTS.
See Index to Financial Statements for a list of all financial statements
filed as part of this Annual Report.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Index to Financial Statements:
Independent Auditors' Report (PwC)..............................F-2
Independent Auditors' Report (DTT)..............................F-3
Consolidated Statements of Operations...........................F-4
Consolidated Balance Sheets.....................................F-5
66
Consolidated Statement of Changes in Shareholders' Equity.......F-6
Consolidated Statements of Cash Flows...........................F-7
Notes to the Consolidated Financial Statements..................F-8
(b) Exhibits to this Annual Report:
NUMBER EXHIBIT
-------------------------------------------------------------------------------
1.1. Memorandum of Association and Bye-laws (incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form F-1, File No.3334856).
4.1. Service Agreement, dated June 5, 1996, between the Company
and Peter Jackson (incorporated by reference to Exhibit 10.16
of the Company's Registration Statement on Form F-1, File
No.3334856).
4.2. Service Agreement, dated June 3, 1996, between the Company
and William D. Wade (incorporated by reference to Exhibit
10.17 of the Company's Registration Statement on Form F-1,
File No.3334856).
4.3. Amendment 9 to Contract No. AsiaSat-3-001/95, dated March 6,
1998, between Hughes Space and Communications International,
Inc. Asia Satellite Telecommunications Company Limited
(incorporated by reference to Exhibit 1 on Form 20-F for
fiscal year 1997, File No.3334856).
4.4. Contract for Launch Services, dated March 17, 1998, between
Lockheed-Khrunichev-Energia International, Inc. and Asia
Satellite Telecommunications Company Limited (incorporated by
reference to Exhibit 2 on Form 20-F for fiscal year 1997,
File No.3334856).
4.5. Subscription Agreement made on March 21, 2000, between Tech
System Limited, Asia Satellite Telecommunications Company
Limited and PhoenixNet Holdings Limited (incorporated by
reference to Exhibit 2 on Form 20-F for fiscal year 1999,
File No.3334856).
4.6. Shareholders' Agreement dated as of April 6, 2000, among Asia
Satellite Telecommunications Company Limited, Tech System
Limited, TVG Asia Communications Fund II and PhoenixNet
Holdings Limited (incorporated by reference to Exhibit 3 on
Form 20-F for fiscal year 1999, File No.3334856).
4.9. Amendment 5 to Contract No. AsiaSat-3B/4 dated September 7,
2000, between Asia Satellite Telecommunications Company
Limited and Hughes Space and Communications International,
Inc. (incorporated by reference to Exhibit 4.9 on Form 20-F
for fiscal year 2000, File No.3334856).*
4.10. Contract for Launch Services LKEB-0009-0807 dated September
19, 2000, between AsiaSat and Lockheed Martin Commercial
Launch Services, Inc. (incorporated by reference to Exhibit
4.10 on Form 20-F for fiscal year 2000, File No.3334856).*
4.11. Amended and Restated Deposit Agreement (incorporated by
reference to Exhibit A to the Registration Statement on Form
F-6, File No.333-13900, relating to the Company's American
Depositary Shares).
4.12. Share Option Scheme, dated January 25, 2002, of the Company
(incorporated by reference to Exhibit 4.11 on Form 20-F for
fiscal year 2001).
4.13. Lease Agreement, dated March 12, 2001, between AsiaSat and
the Hong Kong Industrial Estates Corporation (incorporated by
reference to Exhibit 4.12 on Form 20-F for fiscal year 2002).
4.14. Construction Contract Agreement, dated March 4, 2002, between
AsiaSat and Leighton Contractors (Asia) Limited (incorporated
by reference to Exhibit 4.13 on Form 20-F for fiscal year
2002).
67
4.15. Lease Agreement, dated January 26, 2005, between Asia
Satellite Telecommunications Company Limited and Perfect Win
Properties Limited (incorporated by reference to Exhibit 4.15
on Form 20-F for fiscal year 2004).
4.16. Equity Joint Venture Contract, dated March 29, 2004, between
Asia Satellite Telecommunications Company Limited and Sky
Networks Communications Group Company Limited (incorporated
by reference to Exhibit 4.16 on Form 20-F for fiscal year
2004).
4.17. Subscription Agreement, dated November 30, 2004, among Asia
Satellite Telecommunications Company Limited, Macau Cable TV,
Limited, Pacific Satellite International Limited and Skywave
TV Company Limited (incorporated by reference to Exhibit 4.17
on Form 20-F for fiscal year 2004).
4.18. Shareholders Agreement, dated November 30, 2004, among Asia
Satellite Telecommunications Company Limited, Macau Cable TV,
Limited and Pacific Satellite International Limited
(incorporated by reference to Exhibit 4.18 on Form 20-F for
fiscal year 2004).
4.19 AsiaSat 5 Contract for One Spacecraft Delivered On-Ground and
Associated Equipment and Services, dated April 28, 2006
between AsiaSat and Space Systems/Loral, Inc.*
4.20 Contract for Land Launch Services, dated May 8, 2006 between
AsiaSat and Sea Launch Limited Partnership*
8.1. Subsidiaries of the Registrant (included on page 11 of this
Annual Report). 12.1 Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
13.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
13.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-----------------
* Confidential portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission with a request for confidential
treatment pursuant to Rule 24B-2.
68
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.
ASIA SATELLITE TELECOMMUNICATIONS
HOLDINGS LIMITED
By: /s/ Peter Jackson
-----------------------------------
Peter Jackson
Director and Chief Executive Officer
Date: June 19, 2006
==============================================================================
ASIA SATELLITE TELECOMMUNICATIONS
HOLDINGS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005 AND
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
==============================================================================
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm for the years ended
December 31, 2004 and 2005...............................................F-2
Report of Independent Registered Public Accounting Firm for the year ended
December 31, 2003........................................................F-3
Consolidated Balance Sheets at December 31, 2004 and 2005..................F-4
Consolidated Statements of Operations for the years ended
December 31, 2003, 2004 and 2005.........................................F-5
Consolidated Statements of Changes in Equity for the years ended
December 31, 2003, 2004 and 2005.........................................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2004 and 2005.........................................F-7
Notes to the Consolidated Financial Statements.............................F-8
F-1
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Asia Satellite Telecommunications Holdings Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in equity and cash flow
statements present fairly, in all material respects, the financial position of
Asia Satellite Telecommunications Holdings Limited and its subsidiaries at
December 31, 2005 and 2004, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 2005 in
conformity with accounting principles generally accepted in Hong Kong. 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 of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in note 2 to the consolidated financial statements, the Group
adopted the Revised Hong Kong Financial Reporting Standards ("HKFRS") in 2005,
which, with the exception of HKASs 2, 3 and 16, require retroactive
application.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of such
differences is presented in note 32 to the consolidated financial statements.
/s/ PricewaterhouseCoopers
Hong Kong
June 19, 2006
F-2
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Asia Satellite Telecommunications Holdings Limited
We have audited the accompanying consolidated statements of operations, changes
in equity and cash flows of Asia Satellite Telecommunications Holdings Limited
and subsidiaries for the year ended December 31, 2003, all expressed in Hong
Kong dollars. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results and the cash flows of Asia Satellite
Telecommunications Holdings Limited and its subsidiaries for the year ended
December 31, 2003, in conformity with accounting principles generally accepted
in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America. The application of the latter would have affected the
determination of net income for the year ended December 31, 2003, to the extent
summarized in Note 32.
/s/ Deloitte Touche Tohmatsu
Hong Kong
March 11, 2004, except for consolidated statement of changes in equity for the
year ended December 31, 2003 and notes 15, 19, 20, 23 and 27 which are dated
June 5, 2006
F-3
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31
----------------------------------------------------
NOTE RESTATED
2005 2005 2004
US$'000 HK$'000 HK$'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 7 336,014 2,620,911 2,894,467
Leasehold land and land use rights 6 3,102 24,199 24,782
Intangible assets 8 172 1,339 -
Unbilled receivable 22,380 174,563 175,267
Interests in associates 10 1,833 14,294 13,397
Amount paid to tax authority 11 12,008 93,666 67,023
--------------- ------------- ----------------
375,509 2,928,972 3,174,936
--------------- ------------- ----------------
CURRENT ASSETS
Inventories 13 56 434 416
Trade and other receivables 12 15,204 118,598 137,478
Other loan receivable - - 2,062
Cash and cash equivalents 14 209,683 1,635,526 1,234,355
--------------- ------------- ----------------
224,943 1,754,558 1,374,311
--------------- ------------- ----------------
TOTAL ASSETS 600,452 4,683,530 4,549,247
=============== ============= ================
EQUITY
Capital and reserves attributable to the
Company's equity holders
Share capital 15 5,003 39,027 39,027
Share premium 592 4,614 4,614
Retained earnings
- Proposed final dividend 26 13,509 105,372 105,372
- Others 507,074 3,955,175 3,725,584
--------------- ------------- ----------------
526,178 4,104,188 3,874,597
Minority interests 710 5,537 6,356
--------------- ------------- ----------------
TOTAL EQUITY 526,888 4,109,725 3,880,953
--------------- ------------- ----------------
LIABILITIES
NON-CURRENT LIABILITIES
Deferred income tax liabilities 17 24,699 192,654 205,258
Deferred revenue 16 11,238 87,654 111,844
--------------- ------------- ----------------
35,937 280,308 317,102
--------------- ------------- ----------------
CURRENT LIABILITIES
Construction payables 397 3,096 4,989
Other payables and accrued expenses 8,220 64,118 65,322
Deferred revenue 16 19,485 151,982 175,043
Current income tax liabilities 9,510 74,180 105,717
Dividend payable 15 121 121
--------------- ------------- ----------------
37,627 293,497 351,192
--------------- ------------- ----------------
TOTAL LIABILITIES 73,564 573,805 668,294
--------------- ------------- ----------------
TOTAL EQUITY AND LIABILITIES 660,452 4,683,530 4,549,247
=============== ============= ================
NET CURRENT ASSETS 187,316 1,461,061 1,023,119
=============== ============= ================
TOTAL ASSETS LESS CURRENT LIABILITIES 562,825 4,390,033 4,198,055
=============== ============= ================
Commitments and contingencies 28, 30
The accompanying footnotes are an integral part of these consolidated financial
statements.
F-4
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
NOTE 2005 2005 2004 2003
US$'000 HK$'000 HK$'000 HK$'000
Sales 5 112,783 879,705 1,004,982 896,233
Cost of services 19 (53,722) (419,029) (420,490) (313,265)
------------ -------------- ------------- ---------------
GROSS PROFIT 59,061 460,676 584,492 582,968
Other gains - net 18 5,604 43,711 21,982 5,793
Administrative expenses 19 (10,754) (83,880) (102,477) (56,125)
------------ -------------- ------------- ---------------
OPERATING PROFIT 53,911 420,507 503,997 532,636
Finance costs 21 - - (1) (3,029)
Share of loss of associates (496) (3,872) (12,380) (17,521)
------------ -------------- ------------- ---------------
PROFIT BEFORE INCOME TAX 53,415 416,635 491,616 512,086
Income tax expense 22 (6,573) (51,270) (60,536) (87,598)
------------ -------------- ------------- ---------------
PROFIT FOR THE YEAR 46,842 365,365 431,080 424,488
============ ============== ============= ===============
Attributable to:
Equity holders of the Company 24 46,947 366,184 431,216 424,488
Minority interests (105) (819) (136) -
------------ -------------- ------------- ---------------
46,842 365,365 431,080 424,488
============ ============== ============= ===============
EARNINGS PER SHARE FOR PROFIT
ATTRIBUTABLE TO THE EQUITY HOLDERS OF
THE COMPANY DURING THE YEAR
(expressed in US$/HK$ per share)
- basic 25 US$0.12 HK$0.94 HK$1.10 HK$1.09
============ ============== ============= ===============
- diluted 25 US$0.12 HK$0.94 HK$1.10 HK$1.09
============ ============== ============= ===============
DIVIDENDS 26 17,512 136,593 136,593 124,885
============ ============== ============= ===============
The accompanying footnotes are an integral part of these consolidated financial
statements.
F-5
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
ATTRIBUTABLE TO EQUITY HOLDERS MINORITY
NOTE OF THE COMPANY INTERESTS TOTAL
---------------------------------
NUMBER OF SHARE SHARE RETAINED
SHARES CAPITAL PREMIUM EARNINGS
(in thousand) HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
BALANCE AT JANUARY 1, 2003, as
previously reported as equity 390,266 39,027 4,614 3,303,075 - 3,346,716
BALANCE AT JANUARY 1, 2003, as
previously separately reported as - - - 492 492
minority interests
---------- ---------- ----------- ---------- ----------
BALANCE AT JANUARY 1, 2003, as restated 390,266 39,027 4,614 3,303,075 492 3,347,208
---------- ---------- ----------- ---------- ----------
Profit for the year - - 424,488 - 424,488
Final dividend relating to 2002 - - (74,151) - (74,151)
Special dividend relating to 2002 - - (97,566) - (97,566)
Interim dividend relating to 2003 26 - - (31,221) - (31,221)
Minority interests - - - - -
---------- ---------- ----------- ---------- ----------
- - 221,550 - 221,550
---------- ---------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 2003 390,266 39,027 4,614 3,524,625 492 3,568,758
========== ========== =========== ========== ==========
BALANCE AT JANUARY 1, 2004, as per above 390,266 39,027 4,614 3,524,625 492 3,568,758
Profit/(Loss) for the year - - 431,216 (136) 431,080
Final dividend relating to 2003 26 - - (93,664) - (93,664)
Interim dividend relating to 2004 26 - - (31,221) - (31,221)
Minority interests 29 - - - 6,000 6,000
---------- ---------- ----------- ---------- ----------
- - 306,331 5,864 312,195
---------- ---------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 2004 390,266 39,027 4,614 3,830,956 6,356 3,880,953
========== ========== =========== ========== ==========
BALANCE AT JANUARY 1, 2005, as per above 390,266 39,027 4,614 3,830,956 6,356 3,880,953
Profit/(Loss) for the year - - 366,184 (819) 365,365
Final dividend relating to 2004 26 - - (105,372) - (105,372)
Interim dividend relating to 2005 26 - - (31,221) - (31,221)
---------- ---------- ----------- ---------- ----------
- - 229,591 (819) 228,772
---------- ---------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 2005 390,266 39,027 4,614 4,060,547 5,537 4,109,725
========== ========== =========== ========== ==========
The accompany footnotes are an integral part of these consolidated financial
statements.
F-6
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED DECEMBER 31
------------------------------------------------------------
NOTE 2005 2005 2004 2003
US$'000 HK$'000 HK$'000 HK$'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 27 78,169 609,717 779,413 690,389
Hong Kong Profits Tax paid (10,152) (79,186) (10,934) (48,977)
Overseas tax paid (2,075) (16,181) (17,667) (13,878)
------------ ------------ ------------ ------------
Net cash generated from operating activities 65,942 514,350 750,812 627,534
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,033) (23,659) (47,672) (162,196)
Loan to an associate 31 - - (1,301) (7,279)
Loan to an independent third party - - (3,778) -
Repayment of loan from an associate 31 650 5,070 3,510 -
Repayment of loan from an independent third party 264 2,062 1,716 -
Interest received 5,107 39,833 20,290 4,858
Interest expense - - (1) -
Proceeds from disposal of property, plant and equipment 14 108 257 81
Purchase of interests in associates - - (23,930) -
------------ ------------ ------------ ------------
Net cash from/(used in) investing activities 3,002 23,414 (50,909) (164,536)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid 26 (17,512) (136,593) (124,885) (202,938)
Cost of raising bank borrowing facility - - - (6,951)
------------ ------------ ------------ ------------
Net cash used in financing activities (17,512) (136,593) (124,885) (209,889)
------------ ------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 51,432 401,171 575,018 253,109
Cash and cash equivalents at beginning of the year 158,251 1,234,355 659,337 406,228
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR,
REPRESENTING BANK BALANCES AND CASH 14 209,683 1,635,526 1,234,355 659,337
============ ============ ============ ============
The accompany footnotes are an integral part of these consolidated financial
statements.
F-7
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Asia Satellite Telecommunications Holdings Limited (the Company) and its
subsidiaries (together the Group) is engaged in the provision of
transponder capacity.
The Company is a limited liability company incorporated in Bermuda as an
exempted company under the Companies Act 1981 of Bermuda (as amended). The
address of its registered office is 17th Floor, The Lee Gardens, 33 Hysan
Avenue, Causeway Bay, Hong Kong.
The Company's shares are listed on the New York Stock Exchange and The
Stock Exchange of Hong Kong Limited (hereafter collectively referred to as
the "Stock Exchange").
These consolidated financial statements are presented in thousands of
units of HK dollars (HK$'000), unless otherwise stated. These consolidated
financial statements have been approved for issue by the Board of
Directors on March 16, 2006 and signed on its behalf by Mr. JU Wei Min
(Director) and Mr. Peter JACKSON (Director).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise
stated.
2.1 BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared in
accordance with Hong Kong Financial Reporting Standards (HKFRSs) and have
been prepared under the historical cost convention.
The preparation of financial statements in conformity with HKFRSs requires
the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Group's
accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to
the consolidated financial statements, are disclosed in note 4.
THE ADOPTION OF NEW / REVISED HKFRSS
In 2005, the Group adopted the new / revised standards and interpretations
of HKFRS below, which are relevant to its operations. The 2004
comparatives have been amended as required, in accordance with the
relevant requirements.
HKAS 1 Presentation of Financial Statements
HKAS 2 Inventories
HKAS 7 Cash Flow Statements
HKAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors
HKAS 10 Events after the Balance Sheet Date
HKAS 12 Income Taxes
HKAS 14 Segment Reporting
HKAS 16 Property, Plant and Equipment
HKAS 17 Leases
HKAS 18 Revenue
HKAS 19 Employee Benefits
HKAS 21 The Effects of Changes in Foreign Exchange Rates
HKAS 23 Borrowing Costs
HKAS 24 Related Party Disclosures
HKAS 27 Consolidated and Separate Financial Statements
HKAS 28 Investments in Associates
HKAS 31 Investments in Joint Ventures
HKAS 33 Earnings per Share
HKAS 36 Impairment of Assets
HKAS 37 Provisions, Contingent Liabilities and Contingent Assets
HKAS 38 Intangible Assets
HKFRS 2 Share-based Payments
HKFRS 3 Business Combinations
F-8
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 BASIS OF PREPARATION (continued)
The adoption of new / revised HKASs did not result in substantial changes
to the Group's existing accounting policies under HK GAAP. In summary:
- HKAS 1 has affected the presentation of minority interests, share of
net after-tax results of associates and other disclosures in the
consolidated balance sheet, consolidated statement of operations and
consolidated statement of changes in equity;
- HKASs 2, 8,16, 21, 28 and 36 have affected certain disclosures in the
financial statements;
- HKASs 7, 10, 12, 14, 18, 19, 23, 27, 31, 33 and 37 did not have any
material impact as the Group's existing accounting policies have
already complied with the standards in all material respects; and
- HKAS 24 has affected the identification of related parties and the
disclosure of related-party transactions.
The adoption of revised HKAS 17 has resulted in a change in the accounting
policy relating to the reclassification of leasehold land and land use
rights from property, plant and equipment to operating leases. The
up-front prepayments made for the leasehold land and land use rights are
expensed in the statement of operations on a straight-line basis over the
period of the lease. In prior years, the leasehold land was accounted for
at cost less accumulated depreciation.
The adoption of HKFRS 2 has resulted in a change in the accounting policy
for share-based payments. Until December 31, 2004, the provision of share
options to employees did not result in an expense in the statements of
operations. Effective on January 1, 2005, the Company expenses the cost of
share options in the statement of operations. As no share option was
granted after November 7, 2002, no adjustment was required in the
statement of operations of the respective years (note 2.15).
The adoption of HKFRS 3, HKASs 36 and 38 results in a change in the
accounting policy for goodwill. Until December 31, 2004, goodwill was:
- Amortized on a straight line basis over a period of 2 years; and
- Assessed for an indication of impairment at each balance sheet date.
In accordance with the provisions of HKFRS 3 (note 2.7):
- The Group ceased amortization of goodwill from January 1, 2005;
- Accumulated amortization as at December 31, 2004 has been eliminated
with a corresponding decrease in the cost of goodwill;
- For the year ended December 31, 2005 and onwards, goodwill is tested
annually for impairment, as well as when there is indication of
impairment.
The Group has reassessed the useful lives of its intangible assets in
accordance with the provisions of HKAS 38. No adjustment resulted from
this reassessment.
All changes in the accounting policies have been made in accordance with
the transition provisions in the respective standards. All standards
adopted by the Group require retrospective application other than:
- HKAS 16 - the initial measurement of an item of property, plant and
equipment acquired in an exchange of assets transaction is accounted
at fair value prospectively only to future transactions;
- HKFRS 2 - only retrospective application for all equity instruments
granted after November 7, 2002 and not vested at January 1, 2005;
- HKFRS 3 - prospectively after the adoption date.
There was no impact on opening retained earnings at January 1, 2004 from
the adoption of HKASs 31 and 38, HKFRSs 2 and 3.
F-9
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 BASIS OF PREPARATION (continued)
THE ADOPTION OF REVISED HKAS 17
2005 2004
HK$'000 HK$'000
Decrease in property, plant and equipment (24,199) (24,782)
Increase in leasehold land and land use rights 24,199 24,782
No early adoption of the following new Standards or Interpretations that
have been issued but are not yet effective. The adoption of such Standards
or Interpretations will not result in substantial changes to the Group's
accounting policies.
HKFRS-Int 4 Determining whether an Arrangement contains a Lease
HKFRS 7 Financial Instruments: Disclosures
2.2 CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and all its subsidiaries made up to December 31.
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over
which the Group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of
the voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that
control ceases.
The purchase method of accounting is used to account for the acquisition
of subsidiaries. The cost of an acquisition is measured as the fair value
of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at
their fair values at the acquisition date, irrespective of the extent of
any minority interest. The excess of the cost of acquisition over the fair
value of the Group`s share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair
value of the net assets of the subsidiary acquired, the difference is
recognized directly in the statement of operations.
Inter-company transactions, balances and unrealized gains on transactions
between group companies are eliminated. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of
the asset transferred. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by
the Group.
In the Company's balance sheet the investments in subsidiaries are stated
at cost less provision for impairment losses. The results of subsidiaries
are accounted for by the Company on the basis of dividend received and
receivable.
(b) Associates
Associates are all entities over which the Group has significant influence
but not control, generally accompanying a shareholding of between 20% and
50% of the voting rights. Investments in associates are accounted for by
the equity method of accounting and are initially recognized at cost. The
Group's investment in associates includes goodwill (net of any accumulated
impairment loss) identified on acquisition.
The Group's share of its associates' post-acquisition profits or losses is
recognized in the statement of operations, and its share of
post-acquisition movements in reserves is recognized in reserves. The
cumulative post-acquisition movements are adjusted against the carrying
amount of the investment. When the Group's share of losses in an associate
equals or exceeds its interest in the associate, including any other
unsecured receivables, the Group does not recognize further losses, unless
it has incurred obligations or made payments on behalf of the associate.
Unrealized gains on transactions between the Group and its associates are
eliminated to the extent of the Group's interest in the associates.
Unrealized losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with
the policies adopted by the Group.
In the Company's balance sheet the investments in associated companies are
stated at cost less provision for impairment losses. The results of
associated companies are accounted for by the Company on the basis of
dividend received and receivable.
F-10
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3 SEGMENT REPORTING
A business segment is a group of assets and operations engaged in
providing products or services that are subject to risks and returns that
are different from those of other business segments. A geographical
segment is engaged in providing products or services within a particular
economic environment that are subject to risks and returns that are
different from those of segments operating in other economic environments.
2.4 FOREIGN CURRENCY TRANSLATION
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities
are measured using the currency of the primary economic environment in
which the entity operates (`the functional currency"). The consolidated
financial statements are presented in HK dollars, which is the Company's
functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are
recognized in the statement of operations.
Translation differences on non-monetary items, such as equity instruments
held at fair value through profit or loss, are reported as part of the
fair value gain or loss. Translation difference on non-monetary items,
such as equities classified as available-for-sale financial assets, are
included in the fair value reserve in equity.
(c) Group companies
The results and financial position of all the group entities (none of
which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance sheet;
(ii) income and expenses for each statement of operations are translated
at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are
translated at the dates of the transactions); and
(iii) all resulting exchange differences are recognized as a separate
component of equity.
2.5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses.
Buildings in the course of development for production, rental or
administrative purposes or for purposes not yet determined, are carried at
cost, less an identified impairment loss. Depreciation of these assets, on
the same basis as other property assets, commences when the assets are
ready for their intended use. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or recognized
as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the
cost of the item can be measured reliably. All other repairs and
maintenance are expensed in the statement of operations during the
financial year in which they are incurred.
Depreciation of property, plant and equipment is calculated using the
straight-line method to allocate cost or revalued amounts to their
residual values over their estimated useful lives, at the following rates
per annum:
Satellites:
- AsiaSat 2 8%
- AsiaSat 3S 6.25%
- AsiaSat 4 6.67%
Buildings 4%
Tracking facilities 10%-20%
Furniture, fixtures and fittings 20%-33%
Other equipment 25%-33%
Motor vehicles 25%
Plant and machinery 20%
F-11
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5 PROPERTY, PLANT AND EQUIPMENT (continued)
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.
An asset's carrying amount is written down immediately to its recoverable
amount if the asset's carrying amount is greater than its estimated
recoverable amount.
Gains and losses on the disposal of property, plant and equipment are
included in other gains - net.
2.6 INTANGIBLE ASSETS - LICENCE
The licence is shown at historical cost. The licence has a definite useful
life and is carried at cost less accumulated amortization. Amortization is
calculated using the straight-line method to allocate the cost of the
licence over its estimated useful life (112 months).
2.7 IMPAIRMENT OF ASSETS
Assets that have an indefinite useful life are not subject to
amortization, which are at least tested annually for impairment and are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Assets that are
subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset's fair value less costs to sell and value
in use. For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash flows
(cash-generating units).
2.8 GOODWILL
Goodwill represents the excess of the cost of an investment over the fair
value of the Group's share of the net identifiable assets of the acquired
associates at the date of investment. Goodwill on investment of associates
is included in interests in associates. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. Gains
and losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of
impairment testing.
2.9 INVENTORIES
Inventories are stated at the lower of cost and net realizable value. Cost
is determined using the first-in, first-out (FIFO) method, comprises all
costs of purchase and other costs incurred in bringing the inventories to
their present locations and conditions. Net realizable value is the
estimated selling price in the ordinary course of business, less
applicable variable selling expenses.
2.10 TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognized initially at fair value less
provision for impairment. A provision for impairment of trade and other
receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original
terms of receivables. The amount of the provision is recognized in the
statement of operations.
2.11 CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities
of three months or less, and bank overdrafts. Bank overdrafts are shown
within borrowings in current liabilities on the balance sheet.
2.12 SHARE CAPITAL
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from the proceeds.
F-12
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.13 BORROWINGS
Borrowings are recognized initially at fair value, net of transaction
costs incurred. Transaction costs are incremental costs that are directly
attributable to the acquisition, issue or disposal of a financial asset or
financial liability, including fees and commissions paid to agents,
advisers, brokers and dealers, levies by regulatory agencies and
securities exchanges, and transfer taxes and duties. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds
(net of transaction costs) and the redemption value is recognized in the
statement of operations over the period of the borrowings using the
effective interest method.
2.14 DEFERRED INCOME TAX
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. However, if the deferred income tax arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss, it is not accounted for. Deferred
income tax is determined using tax rates (and laws) that have been enacted
or substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realized or the
deferred income tax liability is settled.
Deferred income tax assets are recognized to the extent that it is
probable that future taxable profit will be available against which the
temporary differences can be utilized.
Deferred income tax is provided on temporary differences arising on
investments in subsidiaries, associates and jointly controlled entities,
except where the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary difference
will not reverse in the foreseeable future.
2.15 EMPLOYEE BENEFITS
(a) Pension obligations
The Group participates in defined contribution plans, the Group pays
contributions to publicly or privately administered pension insurance
plans on a mandatory, contractual or voluntary basis. The pension plans
are generally funded by payments from employees and by the relevant Group
companies. The Group has no further payment obligations once the
contributions have been paid. The contributions are recognized as employee
benefit expense when they are due and are reduced by contributions
forfeited by those employees who leave the scheme prior to vesting fully
in the contributions. Prepaid contributions are recognized as an asset to
the extent that a cash refund or a reduction in the future payments is
available.
(b) Share-based compensation
The Group operates an equity-settled, share-based compensation plan. The
fair value of the employee services received in exchange for the grant of
the options is recognized as an expense. The total amount to be expensed
over the vesting period is determined by reference to the fair value of
the options granted, excluding the impact of any non-market vesting
conditions (for example, profitability and sales growth targets).
Non-market vesting conditions are included in assumptions about the number
of options that are expected to become exercisable. At each balance sheet
date, the entity revises its estimates of the number of options that are
expected to become exercisable. It recognizes the impact of the revision
of original estimates, if any, in the statement of operations, and a
corresponding adjustment to equity over the remaining vesting period.
(c) Profit-sharing and bonus plans
The expected cost of profit sharing and bonus payments are recognized as a
liability when the Group has a present legal or constructive obligation as
a result of services rendered by employees and a reliable estimate of the
obligation can be made.
Liabilities for profit sharing and bonus plans are expected to be settled
within 12 months and are measured at the amounts expected to be paid when
they are settled.
F-13
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 PROVISIONS
Provisions for environmental restoration, restructuring costs and legal
claims are recognized when: the Group has a present legal or constructive
obligation as a result of past events; it is more likely than not that an
outflow of resources will be required to settle the obligation; and the
amount has been reliably estimated. Restructuring provisions comprise
lease termination penalties and employee termination payments. Provisions
are not recognized for future operating losses.
Where there are a number of similar obligations, the likelihood that an
outflow will be required in settlement is determined by considering the
class of obligations as a whole. A provision is recognized even if the
likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.
2.17 REVENUE RECOGNITION
Revenue from transponder utilization is recognized on a straight-line
basis over the period of the agreements. The excess of revenue recognized
on a straight-line basis over the amount received and receivable from
customers in accordance with the contract terms is shown as unbilled
receivable.
Revenue from the sale of transponder capacity under transponder purchase
agreements is recognized on a straight-line basis from the date of
delivery of the transponder capacity until the end of the estimated useful
life of the satellite.
Deposits received in advance in connection with the provision of
transponder capacity are deferred and included in other payables.
Services under transponder utilization agreements are generally billed
quarterly in advance. Such amounts received in advance and amounts
received from the sale of transponder capacity under transponder purchase
agreements in excess of amounts recognized as revenue are recorded as
deferred revenue. Deferred revenue which will be recognized in the
following year is classified under current liabilities and amounts which
will be recognized after one year are classified as non-current.
Interest income is accrued on a time basis, by reference to the principal
amounts outstanding and at the interest rate applicable.
2.18 OPERATING LEASES (AS THE LESSEE)
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from
the lessor) are expensed in the statement of operations on a straight-line
basis over the period of the lease.
2.19 DIVIDEND DISTRIBUTION
Dividend distribution to the Company's shareholders is recognized as a
liability in the financial statements in the period in which the dividends
are approved by the Company's shareholders.
F-14
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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3. FINANCIAL RISK MANAGEMENT
3.1 FINANCIAL RISK FACTORS
The Group's activities expose it to a variety of financial risks: foreign
exchange risk, credit risk, and cash flow interest-rate risk. The Group's
overall risk management programme focuses on the unpredictability of
financial markets and seeks to minimize potential adverse effects on the
Group's financial performance.
(a) Foreign exchange risk
During the year, almost all of the Group's revenues, premiums for
satellite insurance coverage and substantially all capital expenditure
were denominated in U.S. Dollars. The Group's remaining expenses were
primarily denominated in Hong Kong Dollars. At December 31, 2005, almost
all the Group's transponder utilization agreements, transponder purchase
agreement, loan agreements, obligations to purchase telemetry, tracking
and control equipment were denominated in U.S. Dollars. Hence, the Group
does not have any significant currency exposure and does not need to
hedge.
(b) Credit risk
The Group has no significant concentrations of credit risk. The Group
maintains provision for impairment of receivables and for estimated losses
that result from the inability of its customers to make the required
payments. The Group bases its provision on the likelihood of
recoverability of account receivables based on past experience and current
collection trends that are expected to continue. The Group's evaluation
also includes the length of time the receivables are past due and the
general business environment.
(c) Cash flow interest-rate risk
As the Group has no significant interest-bearing assets or liabilities,
the Group's income and operating cash flows are substantially independent
of changes in market interest rates.
F-15
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
4.1 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The Group makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed
below.
(a) Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment, in
accordance with the accounting policy stated in note 2.7. The recoverable
amounts of cash-generating units have been determined based on
value-in-use calculations. These calculations require the use of
estimates.
(b) Income taxes
The Group is subject to income taxes in numerous jurisdictions.
Significant judgment is required in determining the worldwide provision
for income taxes. There are many transactions and calculations for which
the ultimate tax determination is uncertain during the ordinary course of
business. The Group recognizes liabilities for anticipated tax audit
issues based on estimates of whether additional taxes will be due. Where
the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income tax and
deferred tax provisions in the period in which such determination is made.
The issue of Indian tax is covered under Contingencies in note 28 below.
(c) Useful lives of in-orbit satellites
The Group's operations are capital intensive and it has significant
investments in satellites. The carrying value of the Group's in-orbit
satellites (AsiaSat 2, AsiaSat 3S and AsiaSat 4) represented 52% of its
total assets as of December 31, 2005 (December 31, 2004: 59%). The Group
estimates the useful lives of satellites in order to determine the amount
of depreciation expense to be recorded during the reported period. The
useful lives are estimated at the time satellites are put into orbit and
are based on historical experience with other satellites as well as the
anticipated technological evolution or other environmental changes. If
technological changes were to occur more rapidly than anticipated or in a
different form than anticipated, the useful lives assigned to these
satellites may need to be shortened, resulting in the recognition of
increased depreciation in a future period. Similarly, if the actual lives
of satellites are longer than the Group has estimated, the Group would
have a smaller depreciation expense. As a result, if the Group's
estimations of the useful lives of its satellites are not accurate or are
required to be changed in the future, the Group's net income in future
periods would be affected.
(d) Realizability of the carrying amounts of long-lived assets
The Group is required to evaluate at each balance sheet date whether there
is any indication that the carrying amounts of long-lived assets
(primarily its satellites) may be impaired. If any such indication exists,
the Group should estimate the recoverable amount of the long-lived assets.
An impairment loss is recognized for the excess of the carrying amount of
such long-lived assets over their recoverable amounts. The value in use is
the discounted present value of the cash flows expected to arise from the
continuing use of long-lived assets and cash arising from its disposal at
the end of its useful life. The estimates of the cash flows are based on
the terms and period of existing transponder utilization agreements
("Existing Agreements").
Modifications to the terms of the Existing Agreements that result in
shorter utilization periods than previously agreed and/or those that
result in the reduction in agreed rates will result in a lower recoverable
amount (if the discount rate used is not changed); which may, in turn,
result in a situation wherein the recoverable amounts are less than the
carrying amounts (therefore, an impairment loss would need to be
recognized).
(e) Provision for impairment of receivables
The issue is covered under credit risk in note 3.1 (b) above.
F-16
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. SALES AND SEGMENT INFORMATION
SALES:
The Group's sales is analyzed as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Income from provision of satellite 850,436 982,464 880,375
transponder capacity
Sales of satellite transponder capacity 24,491 20,518 15,858
Other revenue 4,778 2,000 -
-------------- -------------- ----------------
879,705 1,004,982 896,233
============== ============== ================
The Group has only one business segment, namely the operation, maintenance
and provision of satellite telecommunication systems for broadcasting and
telecommunications. The Group's primary reporting format for segment
reporting purposes under HKAS 14 "Segment Reporting" is the geographical
basis. For the purpose of classification, the country where the customer
is incorporated is deemed to be the source of sales. However, the Group's
operating assets consist primarily of its satellites which are used, or
are intended for use, for transmission to multiple geographical areas and
therefore cannot be allocated between geographical segments. Accordingly,
no geographical analysis of expenses, assets and liabilities has been
presented.
The following table provides an analysis of the Group's sales by
geographical markets:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Hong Kong 341,698 323,133 323,187
Greater China, including Taiwan 202,730 197,936 212,847
United States of America 78,205 183,750 71,164
United Kingdom 49,401 46,073 23,930
British Virgin Islands 9,706 40,897 40,351
Others 197,965 213,193 224,754
------------- -------------- ----------------
879,705 1,004,982 896,233
============= ============== ================
6. LEASEHOLD LAND AND LAND USE RIGHTS - GROUP
The Group's interests in leasehold land and land use rights represent
prepaid operating lease payments and their net book value are analyzed as
follows:
2005 2004
HK$'000 HK$'000
In Hong Kong held on:
Leases of over 50 years - -
Leases of between 10 to 50 years 24,199 24,782
-------------- ----------------
24,199 24,782
============== ================
2005 2004
HK$'000 HK$'000
Opening 24,782 25,365
Amortization of prepaid operating lease payment (583) (583)
-------------- ---------------
Closing 24,199 24,782
============== ===============
F-17
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
7. PROPERTY, PLANT AND EQUIPMENT - GROUP
SATELLITES AND TRACKING FACILITIES
FURNITURE,
FIXTURE PLANT
IN UNDER AND OFFICE MOTOR AND
OPERATION CONSTRUCTION BUILDINGS FITTINGS EQUIPMENT VEHICLES EQUIPMENT TOTAL
--------- ------------ --------- -------- --------- -------- --------- -----
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
AT JANUARY 1, 2004
Cost 4,167,029 41,837 117,866 10,558 6,925 3,427 2,524 4,350,166
Accumulated depreciation (1,191,719) - (393) (8,962) (5,335) (2,125) (1,598) (1,210,132)
----------- ---------- --------- -------- ---------- --------- ---------- ----------
Net book amount 2,975,310 41,837 117,473 1,596 1,590 1,302 926 3,140,034
=========== ========== ========= ======== ========== ========= ========== ==========
YEAR ENDED DECEMBER 31, 2004
Opening net book amount 2,975,310 41,837 117,473 1,596 1,590 1,302 926 3,140,034
Additions 14,953 22,826 34 1,291 1,055 1,722 22 41,903
Transfer 55,028 (55,028) - - - - - -
Disposals (note 27) - - - (16) (1) (71) - (88)
Depreciation (280,171) - (4,716) (716) (762) (797) (220) (287,382)
----------- ---------- --------- -------- ---------- --------- ---------- ----------
Closing net book amount 2,765,120 9,635 112,791 2,155 1,882 2,156 728 2,894,467
=========== ========== ========= ======== ========== ========= ========== ==========
AT DECEMBER 31, 2004
Cost 4,232,629 9,635 117,900 10,854 7,646 3,871 2,370 4,384,905
Accumulated depreciation (1,467,509) - (5,109) (8,699) (5,764) (1,715) (1,642) (1,490,438)
----------- ---------- --------- -------- ---------- --------- ---------- ----------
Net book amount 2,765,120 9,635 112,791 2,155 1,882 2,156 728 2,894,467
=========== ========== ========= ======== ========== ========= ========== ==========
YEAR ENDED DECEMBER 31,
2005
Opening net book amount 2,765,120 9,635 112,791 2,155 1,882 2,156 728 2,894,467
Additions 1,337 10,309 98 7,377 1,584 865 - 21,570
Transfer 19,539 (19,539) - - - - - -
Disposals (note 27) - - - (7) (2) - - (9)
Depreciation (286,032) - (4,716) (2,178) (1,068) (907) (216) (295,117)
----------- ---------- --------- -------- ---------- --------- ---------- ----------
Closing net book amount 2,499,964 405 108,173 7,347 2,396 2,114 512 2,620,911
=========== ========== ========= ======== ========== ========= ========== ==========
AT DECEMBER 31, 2005
Cost 4,253,504 405 117,998 11,142 8,928 4,137 2,371 4,398,485
Accumulated depreciation (1,753,540) - (9,825) (3,795) (6,532) (2,023) (1,859) (1,777,574)
----------- ---------- --------- -------- ---------- --------- ---------- ----------
Net book amount 2,499,964 405 108,173 7,347 2,396 2,114 512 2,620,911
=========== ========== ========= ======== ========== ========= ========== ==========
Depreciation expense of HK$295,117,000 (2004: HK$287,382,000) has been
expensed in cost of services.
F-18
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
8. INTANGIBLE ASSETS - GROUP
LICENCE
HK$'000
AT JANUARY 1, 2004 AND DECEMBER 31, 2004
Cost -
Accumulated amortization and impairment -
-------------
Net book amount -
=============
YEAR ENDED DECEMBER 31, 2005
Additions 1,500
Amortization expense (a) (note 19) (161)
-------------
Closing net book amount 1,339
=============
AT DECEMBER 31, 2005
Cost 1,500
Accumulated amortization and impairment (b) (161)
-------------
Net book amount 1,339
=============
Note:
(a) Amortization expense of HK$161,000 is included in the administrative
expenses in the statement of operations.
(b) The aggregate amortization expense for each of the next 5 fiscal years
is approximately HK$161,000.
9. INVESTMENTS IN SUBSIDIARIES
(a) Investments in subsidiaries
COMPANY
-------------------------
2005 2004
HK$'000 HK$'000
Unlisted shares in subsidiaries, at cost 429,054 429,054
============ ===========
The cost of the unlisted shares is based on the book value of the
underlying net assets of the subsidiaries attributable to the Group as at
the date on which the Company became the ultimate holding company of the
Group under the Group reorganization in 1996.
F-19
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. INVESTMENTS IN SUBSIDIARIES (continued)
The following is a list of the principal subsidiaries and a controlled
partnership at December 31, 2005:
PLACE OF PARTICULARS OF
INCORPORATION PRINCIPAL ISSUED SHARE
NAME AND KIND OF ACTIVITIES AND CAPITAL AND DEBT INTEREST
LEGAL ENTITY PLACE OF OPERATION SECURITIES HELD
--------------------------- --------------- ------------------- ------------------ ---------
AsiaSat BVI Limited British Virgin Investment holding 3,000 ordinary *100%
Islands, in Hong Kong shares of US$1 each
limited
liability
company
Asia Satellite Hong Kong, Provision of 30,000 ordinary 100%
Telecommunications limited satellite shares and 20,000
Company Limited liability transponder non-voting
company capacity worldwide deferred shares of
HK$10 each
Hanbury International British Virgin Inactive in Hong 1 ordinary share 100%
Limited Islands, Kong of HK$1 each
limited
liability
company
SAT Limited Republic of Inactive in 100 ordinary *100%
Mauritius, Republic of shares of US$1 each
limited Mauritius
liability
company
Skywave TV Company Hong Kong, Provision of DTH 3,000,002 ordinary 80%
Limited (formerly known limited broadcasting shares of HK$10
as Auspicious City liability services in Hong each
Limited) company Kong and Mainland
China
Sornico Limited Hong Kong, Inactive in Hong 2 ordinary shares 100%
limited Kong of HK$10 each
liability
company
The First Asian Satellite Hong Kong, Inactive in Hong N/A 1%
Leasing Limited limited Kong
Partnership (the liability
"Partnership") partnership
Auspicious Colour Limited Hong Kong, Inactive in Hong 1 ordinary share 100%
limited Kong of HK$1 each
liability
company
The Company continues to control the Partnership as it is a general
partner and accordingly continues to consolidate it.
*Shares held directly by the Company.
F-20
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. INTERESTS IN ASSOCIATES - GROUP
2005 2004
HK$'000 HK$'000
Share of net assets
Beginning of the year 11,551 24,151
Share of associates' losses (3,872) (12,380)
Amortization of goodwill - (220)
------------- ------------
End of the year 7,679 11,551
------------- ------------
Amount due from an associate
Beginning of the year 1,846 -
Additions 4,769 1,846
------------- ------------
End of the year 6,615 1,846
------------- ------------
Total 14,294 13,397
============= ============
Interests in associates at December 31, 2005 include goodwill of
HK$442,000 (2004: HK$442,000).
The Group's interest in its principal associates, all of which are
unlisted, were as follows:
PARTICULARS
OF ISSUED %
SHARES COUNTRY OF INTEREST
NAME HELD INCORPORATION ASSETS LIABILITIES REVENUES PROFIT/(LOSS) HELD
------------------ ------------ ------------- ------ ----------- ------- ------------- --------
HK$'000 HK$'000 HK$'000 HK$'000 %
2004
Beijing Asia N/A China 48,785 25,183 888 (2,289) 49
Sky
Telecommunications
Technology
Company Limited
SpeedCast Ordinary Cayman 35,418 21,740 49,825 (11,339) 47
Holdings Limited shares of Islands
US$0.0001
each
SpeedCast Ordinary Hong Kong N/A N/A N/A N/A 47
Limited (note 1) shares of
HK$0.01
each
------ ------ ------- --------
84,203 46,923 50,713 (13,628)
====== ====== ======= ========
2005
Beijing Asia Sky N/A China 42,011 25,945 2,721 (7,909) 49
Telecommunications
Technology
Company Limited
SpeedCast Ordinary Cayman 39,392 25,345 82,673 368 47
Holdings Limited shares of Islands
US$0.0001
each
SpeedCast Ordinary Hong Kong N/A N/A N/A N/A 47
Limited (note 1) shares of
HK$0.01
each
------ ------ ------- --------
81,403 51,290 85,394 (7,541)
====== ====== ======= ========
The Group has not recognized profit amounting to HK$174,000 (2004: loss
HK$5,363,000) for SpeedCast Holdings Limited as the Group's share of loss
exceeds its interest in SpeedCast. The accumulated losses not recognized
were HK$12,034,000 (2004: HK$12,208,000).
Note:
(1) SpeedCast Limited is the wholly-owned subsidiary of SpeedCast
Holdings Limited. Accordingly, assets, liabilities, revenues and
profit/(loss) are not disclosed again.
11. AMOUNT PAID TO TAX AUTHORITY - GROUP
At the balance sheet date, an amount of approximately HK$93,666,000 (2004:
HK$67,023,000) had been paid to the Government of India. For details,
please refer to note 28.
F-21
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. TRADE AND OTHER RECEIVABLES - GROUP
2005 2004
HK$'000 HK$'000
Trade receivables 90,653 91,364
Trade receivables from related parties (note 31) 7,678 4,574
Less: provision for impairment of receivables (30,930) (23,230)
------------- --------------
Trade receivables - net 67,401 72,708
Receivables from related parties (note 31) 15,503 14,628
Other receivables 10,831 7,846
Deposits and prepayments 24,863 37,226
Loan receivable from an associate (note 31) - 5,070
------------- --------------
118,598 137,478
Less non-current portion: loans to related parties - -
------------- --------------
Current portion 118,598 137,478
============= ==============
(a) The Group does not normally provide credit terms to its trade
customers. The Company usually bills its trade customers quarterly in
advance in accordance with its agreements. The aged analysis of trade
receivables is stated as follows:
2005 2004
HK$'000 HK$'000
0 to 30 days 27,768 34,047
31 to 60 days 8,652 18,318
61 to 90 days 14,315 11,424
91 to 180 days 10,074 3,796
181 days or above 6,592 5,123
------------- --------------
67,401 72,708
============= ==============
There is no concentration of credit risk with respect to trade
receivables, as the Group has a large number of customers, internationally
dispersed.
F-22
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. INVENTORIES - GROUP
2005 2004
HK$'000 HK$'000
Merchandise 434 416
============ ===========
The cost of inventories recognized as expense and included in cost of
services amounted to HK$500,000 (2004: Nil).
14. CASH AND CASH EQUIVALENTS - GROUP
2005 2004
HK$'000 HK$'000
Cash at bank and in hand 13,173 4,036
Short-term bank deposits 1,622,353 1,230,319
------------ -----------
1,635,526 1,234,355
============ ===========
The effective interest rate on short-term bank deposits was 3.1% (2004:
2.3%); these deposits have an average maturity of 17 days.
Cash includes the following for the purposes of the cash flow statement:
2005 2004
HK$'000 HK$'000
Cash and cash equivalents 1,635,526 1,234,355
============ ===========
15. SHARE CAPITAL
NUMBER OF ORDINARY SHARE
SHARES SHARES PREMIUM TOTAL
(thousands) HK$'000 HK$'000 HK$'000
AT DECEMBER 31, 2005 AND DECEMBER 31, 2004 390,266 39,027 4,614 43,641
========== =========== =========== ===========
The total authorized number of ordinary shares is 550,000,000 shares
(2004: 550,000,000 shares) with a par value of HK$0.10 per share (2004:
HK$0.10 per share). All issued shares are fully paid.
F-23
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE CAPITAL (continued)
SHARE OPTION SCHEME
A share option scheme is adopted to provide incentives to employees and
directors and to promote the long term financial success of the Company.
The details of the scheme are as follows:
SCHEME ADOPTED ON JUNE 3, 1996
In accordance with the Company's share option scheme (the "1996 Scheme")
adopted pursuant to a resolution passed on June 3, 1996, the Board of
Directors of the Company may at their discretion grant options to all
permanent, full-time employees of the Company and its subsidiaries, to
subscribe for shares in the Company. The primary purpose of the 1996
Scheme was to provide incentives to eligible employees.
The total number of shares in respect of which options may be granted
under the 1996 Scheme (including options already exercised) was not
permitted to exceed 10% of the issued share capital of the Company at any
point in time. The maximum number of share options issued to any employee,
based on the subscription price of the options, shall not exceed four
times the annual basic salary (excluding bonuses and allowances) of that
employee.
Options granted must be taken up within 28 days from the date of grant
upon payment of HK$1 per each grant of share options. An option may be
exercisable up to 50% on or after the third anniversary of the date of
grant, up to 75% on or after the fourth anniversary and fully on or after
the fifth anniversary but before the tenth anniversary of the date of
offer unless the Board of Directors specifies other periods. The exercise
price was determined by the Board of Directors and was based on the
average closing price of the shares for the five trading days immediately
preceding the date of grant.
The 1996 Scheme was terminated on January 25, 2002 pursuant to a
resolution passed on that date.
SCHEME ADOPTED ON JANUARY 25, 2002
A new share option scheme (the "2002 Scheme") was adopted pursuant to a
resolution passed on January 25, 2002 for the primary purpose of
attracting and retaining the best personnel for the development of the
Company's businesses, and providing incentives to employees, Directors,
consultants, agents, representatives and advisors, and promoting the long
term financial success of the Company. The 2002 Scheme will expire on
January 24, 2012.
Under the 2002 Scheme, the Board of Directors of the Company may at their
discretion grant options to the employees, including Directors, of the
Company or any company that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control
with, the Company, to subscribe for shares in the Company. Options granted
to a Director, chief executive or substantial shareholder of the Company
or any of their respective associates must be approved by the Independent
Non-executive Directors of the Company (excluding any Independent
Non-executive Director who is also the grantee).
No options have been granted during 2003. At December 31, 2002, the number
of shares in respect of which options had been granted under the 2002
Scheme was 7,149,500 representing 1.83% of the shares of the Company in
issue at that date.
The total number of shares in respect of which options may be granted
under the 2002 Scheme and any other schemes is not permitted to exceed 30%
of the issued share capital of the Company from time to time. In addition,
the total number of shares in respect of which options may be granted
under the 2002 Scheme and any other schemes must not, in aggregate, exceed
10% of the issued share capital of the Company at the adoption date of the
2002 Scheme, being 39,026,550 shares, without prior approval from the
Company's shareholders.
The number of shares in respect of which options may be granted to any
individual in any one year is not permitted to exceed 1% of the shares of
the Company in issue, without prior approval from the Company's
shareholders. Options granted to a substantial shareholder, or an
Independent Non-executive Director of the Company, or any of their
respective associates under the 2002 Scheme and any other schemes in any
one year in excess of 0.1% of the Company's issued share capital or with a
value in excess of HK$5 million must be approved in advance by the
Company's shareholders.
Options granted must be taken up within 28 days from the date of grant
upon payment of HK$1 per each grant of share options. The exercise period
of the share options granted under the 2002 Scheme shall be determined by
the Board of Directors when such options are granted, provided that such
period shall not end later than 10 years from the date of grant. The
exercise price is determined by the Board of Directors and will not be
less than the higher of the closing price of the Company's shares on the
date of grant, or the average closing price of the shares for the five
trading days immediately preceding the date of grant, or the nominal value
of a share of the Company.
No options were granted during 2003. Total consideration received in 2002
from employees for taking up the options granted amounted to HK$105.
The financial impact of share options granted is not recorded in the
Company's or the Group's balance sheet until such time as the options are
exercised, and no charge is recognized in the statement of operations in
respect of the value of options granted in the year. Upon the exercise of
the share options, the resulting shares issued are recorded by the Company
as additional share capital at the nominal value of the shares and the
excess of the exercise price per share over the nominal value of the
shares is recorded by the Company in the share premium account. Options
which are lapsed or are cancelled prior to their exercise dates are
deleted from the register of outstanding options.
F-24
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE CAPITAL (continued)
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
OPTION A:
2005 2004 2003
----------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE IN PRICE IN PRICE IN
HK$ PER OPTIONS HK$ PER OPTIONS HK$ PER OPTIONS
SHARE SHARE SHARE
AT JANUARY 1 17.48 1,691,500 17.48 1,691,500 17.48 1,718,500
Granted - - - - - -
Forfeited - - - - - -
Exercised - - - - - -
Lapsed 17.48 (57,500) - - - (27,000)
----------- ----------- -----------
AT DECEMBER 31 17.48 1,634,000 17.48 1,691,500 17.48 1,691,500
=========== =========== ===========
OPTION B:
2005 2004 2003
----------------------- ---------------------- -----------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE IN PRICE IN PRICE IN
HK$ PER OPTIONS HK$ PER OPTIONS HK$ PER OPTIONS
SHARE SHARE SHARE
AT JANUARY 1 17.48 1,753,000 17.48 1,768,000 17.48 1,838,000
Granted - - - - - - -
Forfeited - - - - - - -
Exercised - - - - - - -
Lapsed 17.48 (98,000) 17.48 (15,000) 17.48 (70,000)
----------- ----------- -----------
AT DECEMBER 31 17.48 1,655,000 17.48 1,753,000 17.48 1,768,000
=========== =========== ===========
OPTION C:
2005 2004 2003
----------------------- ---------------------- -----------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE IN PRICE IN PRICE IN
HK$ PER OPTIONS HK$ PER OPTIONS HK$ PER OPTIONS
SHARE SHARE SHARE
AT JANUARY 1 14.35 3,481,500 14.35 3,481,500 14.35 3,593,000
Granted - - - - - - -
Forfeited - - - - - - -
Exercised - - - - - - -
Lapsed 14.35 (170,000) - - - - (111,500)
----------- ----------- -----------
AT DECEMBER 31 14.35 3,311,500 14.35 3,481,500 14.35 3,481,500
=========== =========== ===========
Out of the 6,600,500 outstanding options (2004: 6,926,000 options; 2003:
6,941,000), no. of exercisable options are as follows:
2005 2004 2003
----------------------- ---------------------- -----------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE IN PRICE IN PRICE IN
HK$ PER OPTIONS HK$ PER OPTIONS HK$ PER OPTIONS
SHARE SHARE SHARE
Option A 17.48 1,634,000 17.48 1,691,500 17.48 1,691,500
Option B 17.48 1,655,000 17.48 1,753,000 17.48 1,326,000
Option C 14.35 1,655,750 14.35 870,375 14.35 -
----------- ----------- -----------
Total 4,944,750 4,314,875 3,017,500
=========== =========== ===========
F-25
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE CAPITAL (continued)
Share options outstanding at the end of the year have the following expiry
date and exercise prices:
EXERCISE PRICE
EXPIRY DATE IN HK$ PER SHARE SHARE OPTIONS
----------------------------------------------------------
2005 2004 2003
November 25, 2006 17.48 1,634,000 1,691,500 1,691,500
September 30, 2009 17.48 1,655,000 1,753,000 1,768,000
February 3, 2012 14.35 3,311,500 3,481,500 3,481,500
----------------- ----------------- ----------------
6,600,500 6,926,000 6,941,000
================= ================= ================
Details of specific categories of options are as follows:
Option Date of grant Vesting period Exercise period Exercise
type price
---------- ---------------- --------------------------------- -------------------------------- -------
2002 Scheme HK$
A (note a) February 4, 2002 - February 4, 2002 - November 17.48
25, 2006
B (note b) February 4, 2002 February 4, 2002 - September October 1, 2002 - September 17.48
30, 2002 30, 2009
C (note c) February 4, 2002 February 4, 2002 - February 3, February 4, 2004 - February 3, 14.35
2004 2012
1996 Scheme HK$
D (note a) November 26, November 26, 1996 - November November 26, 1999 - November 17.48
1996 25, 1999 25, 2006
E (note b) September 20, September 20, 1999 - September October 1, 2002 - September 17.48
1999 30, 2002 30, 2009
Notes:
a. Pursuant to a resolution passed in the special general meeting of the
Company held on January 25, 2002, the 1996 Scheme was terminated and
all existing options under that scheme were cancelled. New options
were issued on February 4, 2002 under the 2002 Scheme with the same
exercise price and exercise periods to replace the options granted
under the 1996 Scheme.
Option type A
100% between February 4, 2002 and November 25, 2006
The exercise periods of the following option types are divided into 3
tranches, as detailed below:
Option type D
1. Up to 50% between November 26,1999 and November 25, 2006 2. Up to
75% between November 26, 2000 and November 25, 2006 3. Up to 100%
between November 26, 2001 and November 25, 2006
Option types B and E
1. Up to 50% between October 1, 2002 and September 30, 2009 2. Up to
75% between October 1, 2003 and September 30, 2009 3. Up to 100%
between October 1, 2004 and September 30, 2009
b. Additional share options were issued on February 4, 2002 under the
2002 Scheme.
The exercise period is divided into 3 tranches, as detailed below:
Option type C
1. Up to 25% between February 4, 2004 and February 3, 2012 2. Up to
50% between February 4, 2005 and February 3, 2012 3. Up to 100%
between February 4, 2006 and February 3, 2012
F-26
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. DEFERRED REVENUE - GROUP
2005 2004
HK$'000 HK$'000
The maturity of deferred revenue is as follows:
Within one year 151,982 175,043
More than one year but not exceeding five years 87,654 111,844
-------------- --------------
239,636 286,887
Less: amount shown as current (151,982) (175,043)
-------------- --------------
87,654 111,844
============== ==============
17. DEFERRED INCOME TAX - GROUP
Deferred income tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes relate to the same fiscal
authority. The offset amounts are as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Deferred tax assets:
- Deferred tax assets to be recovered after more than 12 months - - -
- Deferred tax assets to be recovered within 12 months - - (76)
---------- ---------- ----------
- - (76)
---------- ---------- ----------
Deferred tax liabilities:
- Deferred tax liabilities to be recovered after more than 12 192,654 205,258 213,598
months
- Deferred tax liabilities to be recovered within 12 months - - -
---------- ---------- ----------
192,654 205,258 213,598
---------- ---------- ----------
192,654 205,258 213,522
========== ========== ==========
The gross movement on the deferred income tax account is as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Beginning of the year 205,258 213,522 185,949
Recognized in the statement of operations (note 22) (12,604) (8,264) 10,140
Effect of change in tax rate recognized in the statement of - - 17,433
operations
---------- ---------- ----------
End of the year 192,654 205,258 213,522
========== ========== ==========
F-27
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. DEFERRED INCOME TAX - GROUP (continued)
The movement in deferred tax liabilities/(assets) during the year is as
follows:
DEFERRED TAX LIABILITIES/(ASSETS):
ACCELERATED
TAX
DEPRECIATION OTHERS TAX LOSS TOTAL
HK$'000 HK$'000 HK$'000 HK$'000
AT JANUARY 1, 2003 185,949 - - 185,949
Recognized in the statement of 10,527 (311) (76) 10,140
operations
Effect of change in tax rate
recognized in the statement of 17,433 - - 17,433
operations
Charged to equity - - - -
Exchange differences - - - -
----------- ---------- ---------- ----------
AT DECEMBER 31, 2003 213,909 (311) (76) 213,522
Recognized in the statement of (6,884) (1,456) 76 (8,264)
operations
Charged to equity - - - -
Exchange differences - - - -
----------- ---------- ---------- ----------
AT DECEMBER 31, 2004 207,025 (1,767) - 205,258
Recognized in the statement of (13,730) 1,126 - (12,604)
operations
Charged to equity - - - -
Acquisition of subsidiary - - - -
Exchange differences - - - -
----------- ---------- ---------- ----------
AT DECEMBER 31, 2005 193,295 (641) - 192,654
=========== ========== ========== ==========
18. OTHER GAINS - NET
2005 2004 2003
HK$'000 HK$'000 HK$'000
Interest income 43,606 21,813 4,945
Gain on disposal of property, plant and equipment 99 169 76
other than transponders
Others 6 - 772
------------ ------------ -------------
43,711 21,982 5,793
============ ============ =============
19. EXPENSES BY NATURE
2005 2004 2003
HK$'000 HK$'000 HK$'000
Expenses included in cost of services and administrative expenses are
analyzed as follows:
Auditors' remuneration 769 697 679
Impairment of receivables 2,987 - -
Provision for impairment of receivables 7,700 17,690 -
Depreciation, amortization and impairment expenses 295,278 287,382 221,694
(notes 7 and 8)
Employee benefit expense (note 20) 65,092 75,427 59,225
Operating leases
- premises 5,872 5,380 5,965
- leasehold land & land use rights 583 583 583
Net exchange loss 547 288 672
=========== =========== =============
Expenses deducted from administrative expenses are analyzed as follows:
Write-back of provision for impairment of - - 6,279
receivables
=========== =========== =============
20. EMPLOYEE BENEFIT EXPENSE
2005 2004 2003
HK$'000 HK$'000 HK$'000
Salary and other benefits, including directors' 60,748 71,071 55,214
remuneration
Pension costs - defined contribution plans 4,344 4,356 4,011
----------- ----------- -------------
Total staff costs 65,092 75,427 59,225
=========== =========== =============
F-28
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. EMPLOYEE BENEFIT EXPENSE (continued)
(a) PENSIONS - DEFINED CONTRIBUTION PLANS
Forfeited contributions totaling HK$292,000 (2004: HK$37,000; 2003:
HK$178,000) were utilized during the year leaving HK$43,000 available at
the year-end to reduce future contributions.
No contributions (2004 and 2003: HK$Nil) were payable to the fund at the
year-end.
(b) DIRECTORS' AND SENIOR MANAGEMENT'S EMOLUMENTS
The remuneration of every Director for the year ended December 31, 2005 is
set out below:
EMPLOYER'S COMPENSATION
CONTRIBUTION FOR LOSS
TO OF OFFICE
DISCRETIONARY INDUCEMENT OTHER PENSION AS
NAME OF DIRECTOR FEES SALARY BONUSES FEES BENEFITS(a) SCHEME DIRECTOR TOTAL
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Romain BAUSCH (g) 200 - - - - - - 200
Robert BEDNAREK (g) 150 - - - - - - 150
Edward CHEN 225 - - - - - - 225
Cynthia DICKINS (b) & 12 - - - - - - 12
(g)
DING Yu Cheng (h) 100 - - - - - - 100
R. Donald FULLERTON 200 - - - - - - 200
JU Wei Min (h) 100 - - - - - - 100
KO Fai Wong (h) 100 - - - - - - 100
MI Zeng Xin (h) 200 - - - - - - 200
Mark RIGOLLE (g) 100 - - - - - - 100
Robert SZE 250 - - - - - - 250
Peter JACKSON - 2,672 390 - 1,961 401 - 5,424
William WADE - 2,074 302 - 1,485 311 - 4,172
-------- --------- ----------- --------- --------- ----------- ----------- ---------
Total 1,637 4,746 692 - 3,446 712 - 11,233
======== ========= =========== ========= ========= =========== =========== =========
The remuneration of every Director for the year ended December 31, 2004 is
set out below:
EMPLOYER'S COMPENSATION
CONTRIBUTION FOR LOSS
TO OF OFFICE
DISCRETIONARY INDUCEMENT OTHER PENSION AS
NAME OF DIRECTOR FEES SALARY BONUSES FEES BENEFITS(a) SCHEME DIRECTOR TOTAL
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Romain BAUSCH (g) 200 - - - - - - 200
Robert BEDNAREK (g) 150 - - - - - - 150
Edward CHEN 175 - - - - - - 175
DING Yu Cheng (h) 100 - - - - - - 100
R. Donald FULLERTON 175 - - - - - - 175
JU Wei Min (h) 125 - - - - - - 125
KO Fai Wong (c) & (h) 81 - - - - - - 81
LI Ting Zhou (d) & (h) 19 - - - - - - 19
MI Zeng Xin (h) 200 - - - - - - 200
Mark RIGOLLE (e) & (g) 15 - - - - - - 15
Jurgen SCHULTE (f) & 110 - - - - - - 110
(g)
Robert SZE 175 - - - - - - 175
Peter JACKSON - 2,619 2,619 - 1,817 393 - 7,448
William WADE - 2,033 2,033 - 1,405 305 - 5,776
-------- --------- ----------- --------- --------- ---------- ----------- ---------
Total 1,525 4,652 4,652 - 3,222 698 - 14,749
======== ========= =========== ========= ========= ========== =========== =========
The remuneration of every Director for the year ended December 31, 2003 is
set out below:
EMPLOYER'S COMPENSATION
CONTRIBUTION FOR LOSS
TO OF OFFICE
DISCRETIONARY INDUCEMENT OTHER PENSION AS
NAME OF DIRECTOR FEES SALARY BONUSES FEES BENEFITS(a) SCHEME DIRECTOR TOTAL
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Romain BAUSCH (g) 200 - - - - - - 200
Robert BEDNAREK (g) 150 - - - - - - 150
Edward CHEN 125 - - - - - - 125
DING Yu Cheng (h) 100 - - - - - - 100
R. Donald FULLERTON 175 - - - - - - 175
JU Wei Min (h) 125 - - - - - - 125
LI Ting Zhou (h) 100 - - - - - - 100
MI Zeng Xin (h) 200 - - - - - - 200
Jurgen SCHULTE (g) 125 - - - - - - 125
Robert SZE 175 - - - - - - 175
Peter JACKSON - 2,619 - - 1,802 393 - 4,814
William WADE - 2,033 - - 1,377 305 - 3,715
-------- --------- ----------- --------- --------- ---------- ----------- ---------
Total 1,475 4,652 - - 3,179 698 - 10,004
======== ========= =========== ========= ========= ========== =========== =========
F-29
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. EMPLOYEE BENEFIT EXPENSE (continued)
(b) DIRECTORS' AND SENIOR MANAGEMENT'S EMOLUMENTS (CONTINUED)
Notes:
(a) Other benefits include accommodation, car, leave passage, insurance
premium and club membership.
(b) Appointed on November 17, 2005.
(c) Appointed on March 11, 2004.
(d) Resigned on March 11, 2004.
(e) Appointed on November 17, 2004.
(f) Resigned on November 17, 2004.
(g) Paid to SES GLOBAL and its subsidiary.
(h) Paid to a subsidiary of CITIC.
(c) FIVE HIGHEST PAID INDIVIDUALS
The five individuals whose emoluments were the highest in the Group for
the year include two (2004 and 2003: two) directors whose emoluments are
reflected in the analysis presented above. The emoluments payable to the
remaining three (2004 and 2003: three) individuals during the years
presented are as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Basic salaries, housing allowances, share 8,450 8,313 8,268
options, other allowances and benefits in kind
Contributions to retirement benefits scheme 701 687 687
Performance related incentive payments 606 3,666 -
-------------- -------------- --------------
9,757 12,666 8,955
============== ============== ==============
The emoluments fell within the following bands:
NUMBER OF INDIVIDUALS
-------------------------------------------------
2005 2004 2003
Emolument bands
HK$2,500,001 - HK$3,000,000 1 - 1
HK$3,000,001 - HK$3,500,000 1 - 2
HK$3,500,001 - HK$4,000,000 1 1 -
HK$4,000,001 - HK$4,500,000 - 1 -
HK$4,500,001 - HK$5,000,000 - 1 -
-------------- -------------- --------------
3 3 3
============== ============== ==============
21. FINANCE COSTS
2005 2004 2003
HK$'000 HK$'000 HK$'000
Cost of raising bank borrowing facility - - 6,951
Less: Amount capitalized in assets under - - (3,922)
construction
-------------- -------------- --------------
- - 3,029
Interest expense:
- bank borrowings: bank loans and overdrafts - 1 -
-------------- -------------- --------------
- 1 3,029
============== ============== ==============
F-30
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. INCOME TAX EXPENSE
A significant portion of the Group's profit is treated as earned outside
Hong Kong and is not subject to Hong Kong profits tax. Hong Kong profits
tax has been provided at the rate of 17.5% (2004 and 2003: 17.5%) on the
estimated assessable profit for these years.
Overseas tax, including the Foreign Enterprises Income Tax in the People's
Republic of China, is calculated at 5% to 20% of the gross revenue earned
in certain of the overseas jurisdictions.
Details of deferred taxation are set out in note 17.
The Group currently has a tax case in dispute with the Indian tax
authorities. Details of this area set out in note 28.
2005 2004 2003
HK$'000 HK$'000 HK$'000
Current income tax
- Hong Kong profits tax 45,056 49,574 38,516
- Overseas taxation 18,818 19,226 21,509
-------------- ------------- --------------
63,874 68,800 60,025
-------------- ------------- --------------
Deferred income tax (note 17)
- Current year (12,604) (8,264) 10,140
- Attributable to an increase in tax rate in
Hong Kong - - 17,433
-------------- ------------- --------------
(12,604) (8,264) 27,573
-------------- ------------- --------------
51,270 60,536 87,598
============== ============= ==============
The tax on the Group's profit before tax differs from the theoretical
amount that would arise using the weighted average tax rate applicable to
profits of the consolidated companies as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Profit before tax 416,635 491,616 512,086
============= ============= ==============
Tax calculated at tax rate of 17.5% (2004 and 72,911 86,033 89,615
2003: 17.5%)
Tax effect of income not subject to tax (84,164) (91,475) (78,454)
Tax effect of expenses not deductible for tax 43,027 44,585 34,429
purposes
Tax effect of tax losses of associates not 678 2,167 2,734
recognized
Effect of income tax rate differential between
Hong Kong and overseas locations 18,818 19,226 21,509
Increase in deferred tax liability resulting from
an increase in Hong Kong Profits Tax rate - - 17,433
Other - - 332
------------- ------------- --------------
Tax expense 51,270 60,536 87,598
============= ============= ==============
23. NET FOREIGN EXCHANGE LOSSES
The exchange differences recognized in the statement of operations are
included as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Administrative expenses 547 288 672
============== ============ ==============
24. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
The profit attributable to equity holders of the Company is dealt with in
the financial statements of the Company to the extent of HK$136,977,000
(2004: HK$125,358,000; 2003: HK$202,578,000).
F-31
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. EARNINGS PER SHARE
BASIC
Basic earnings per share is calculated by dividing the profit attributable
to equity holders of the Company by the weighted average number of
ordinary shares in issue during the year.
2005 2004 2003
HK$'000 HK$'000 HK$'000
Profit attributable to equity holders of the 366,184 431,216 424,488
Company
============== ============ ==============
Weighted average number of ordinary shares in
issue (thousands) 390,266 390,266 390,266
============== ============ ==============
Basic earnings per share (HK$ per share) 0.94 1.10 1.09
============== ============ ==============
DILUTED
Diluted earnings per share is calculated adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has share options of dilutive
potential ordinary shares. The calculation is done to determine the number
of shares that could have been acquired at fair value (determined as the
average annual market share price of the Company's shares) based on the
monetary value of the subscription rights attached to outstanding share
options. The number of shares calculated as above is compared with the
number of shares that would have been issued assuming the exercise of the
share options.
2005 2004 2003
HK$'000 HK$'000 HK$'000
Profit used to determine diluted earnings per
share 366,184 431,216 424,488
============== ============= =============
Weighted average number of ordinary shares in
issue (thousands) 390,266 390,266 390,266
Adjustments for - share options (thousands) 26 - -
-------------- ------------- -------------
Weighted average number of ordinary shares for
diluted earnings per share (thousands) 390,292 390,266 390,266
============== ============= =============
Diluted earnings per share (HK$ per share) 0.94 1.10 1.09
============== ============= =============
26. DIVIDENDS
The dividends paid during the years ended 2005, 2004 and 2003 were
HK$136,593,000 (HK$0.35 per share), HK$124,885,000 (HK$0.32 per share) and
HK$202,938,000 (HK$0.52 per share included special dividend of HK$0.25 per
share) respectively. A dividend in respect of 2005 of HK$0.27 per share,
amounting to a total dividend of HK$105,372,0000 is to be proposed at the
Annual General Meeting on May 19, 2006. These financial statements do not
reflect this dividend payable.
2005 2004 2003
HK$'000 HK$'000 HK$'000
Interim dividend paid of HK$0.08 (2004: HK$0.08; 31,221 31,221 31,221
2003: HK$0.08) per ordinary share
Proposed final dividend of HK$0.27 (2004: HK$0.27;
2003: HK$0.24) per ordinary share 105,372 105,372 93,664
-------------- ------------- -------------
136,593 136,593 124,885
============== ============= =============
F-32
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. CASH GENERATED FROM OPERATIONS
2005 2005 2004 2003
US$'000 HK$'000 HK$'000 HK$'000
Profit for the year 46,842 365,365 431,080 424,488
Adjustments for:
- Tax (note 22) 6,573 51,270 60,536 87,598
- Bad debt expenses 383 2,987 - -
- Provision for impairment of receivables 987 7,700 17,690 (6,279)
(written back) made
- Depreciation (note 7) 37,836 295,117 287,382 221,694
- Amortization of prepaid operating lease 75 583 583 583
payment (note 6)
- Amortization of licence (note 8) 21 161 - -
- Profit on sale of property, plant and (13) (99) (169) (76)
equipment (see below)
- Impairment loss recognized in respect of - - - 1,896
goodwill of associates
- Interest income (note 18) (5,591) (43,606) (21,813) (4,945)
- Finance costs (note 21) - - 1 3,029
- Share of loss from associates (note 10) 496 3,872 12,380 15,625
Changes in working capital (excluding the
effects of acquisition and exchange
differences on consolidation):
- Unbilled receivable 90 704 6,357 (16,643)
- Amount paid to tax authority (3,416) (26,643) (42,535) (5,182)
- Inventories (2) (18) (416) -
- Trade and other receivables 100 779 (27,136) (16,416)
- Other payables and accrued expenses (154) (1,204) 47,964 4,597
- Deferred revenue (6,058) (47,251) 7,509 (19,580)
---------- --------- ----------- -----------
Cash generated from operations 78,169 609,717 779,413 690,389
========== ========= =========== ===========
In the cash flow statement, proceeds from sale of property, plant and
equipment comprise:
2005 2005 2004 2003
US$'000 HK$'000 HK$'000 HK$'000
Net book amount (note 7) 1 9 88 5
Profit on sale of property, plant and 13 99 169 76
equipment
---------- ---------- ---------- -----------
Proceeds from sale of property, plant and
equipment 14 108 257 81
========== ========== ========== ===========
F-33
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. CONTINGENCIES
Under Indian tax regulations, the Group may be subject to Indian income
tax on revenues received by the Group in respect of income from provision
of satellite transponder capacity to the Group's customers for purposes of
those customers carrying on business in India or earning income from any
source in India.
The Indian tax authorities have assessed the Group for income tax as
follows:
Assessment year Amount HK$ Amount INR
(approximate) (approximate)
1997-98 20 million 115 million
1998-99 23 million 141 million
1999-00 22 million 127 million
2000-01 14 million 84 million
2001-02 29 million 171 million
2002-03 38 million 210 million
2003-04 43 million 247 million
--------------- -------------
Total 189 million 1,095
million
=============== =============
The Group has filed appeals for each of the assessment years 1997-98 to
2003-04.
No assessment has yet been made for the 2004-05 or 2005-06 assessment
years.
The Income Tax Appellate Tribunal (the "Tribunal") in an earlier appeal
filed against the original assessment for the assessment year 1997-98 held
that the Group is liable for Indian income tax under certain
circumstances. The Group does not believe that it is liable for the Indian
income tax as held by the Tribunal and has filed an appeal against the
Tribunal's decision. The tax authorities have also filed an appeal against
the Tribunal's decision. Both the appeals have been admitted by the High
Court.
In order to obtain a stay of recovery proceedings, the Group has made
payments as follows and has recorded these payments as an asset on the
assumption that the amounts are recoverable:
Assessment year Amount HK$ Amount INR
(approximate) (approximate)
1997-98 13 million 78 million
1998-99 15 million 88 million
1999-00 10 million 62 million
2000-01 9 million 50 million
2001-02 20 million 119 million
2002-03 27 million 148 million
2003-04 24 million 135 million
--------------- -------------
Total 118 million 680 million
=============== =============
In addition, based on the general principles set forth by the Tribunal,
the amount of income taxable in India depends on the payments made by the
Group's customers to the Group for the purpose of those customers carrying
on business in India or earning income from any source in India. As such
information is proprietary in nature and has not been provided by the
Group's customers, the Group cannot reasonably estimate the taxable income
and therefore also cannot estimate the amount of income tax to which the
Group may be assessed. Furthermore, as stated above, the Group has filed
an appeal against the Tribunal's decision. The appeal has been admitted by
the High Court and is pending before the Court. Accordingly, no provision
has been recognized for Indian income tax in the Group's financial
statements. Any related legal costs are expensed as incurred.
29. MAJOR NON-CASH TRANSACTIONS
On November 30, 2004, the Group decreased its equity interest in Skywave
TV Company Limited ("Skywave") from 100% to 80% when two independent third
parties made a contribution in kind of HK$3 million each in return for 10%
stake in the Skywave. There was no major non-cash transaction during 2005
and 2003.
F-34
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. COMMITMENTS - GROUP
CAPITAL COMMITMENTS
Capital expenditure at the balance sheet date but not yet incurred is as
follows:
2005 2004
HK$'000 HK$'000
A satellite earth station
Contracted but not provided for - 15,561
Other investment projects
Authorized but not contracted for 10,140 5,486
Other assets
Contracted but not provided for 5,750 345
--------------- -------------
15,890 21,392
=============== =============
OPERATING LEASE COMMITMENTS - WHERE THE GROUP IS THE LESSEE
The Group leases certain of its office and residential premises under
non-cancellable operating leases. Leases are negotiated for an average
term of two to four years. The lease expenditure expensed in the
statements of operations during the years presented are disclosed in note
19.
The future aggregate minimum lease payments under non-cancellable
operating leases are as follows:
2005 2004
HK$'000 HK$'000
Not later than 1 year 4,376 6,504
Later than 1 year and not later than 5 years 4,773 10,647
Later than 5 years - -
--------------- -------------
9,149 17,151
=============== =============
OPERATING LEASE COMMITMENTS - WHERE THE GROUP IS THE LESSOR
The Group leases its office premises under non-cancellable operating
leases. The lease is negotiable for four years. The lease income
recognized in the statement of operations during the year was HK$552,000
(2004: HK$368,000; 2003: Nil).
The Group had contracted with the customer for the following future
minimum lease payments:
2005 2004
HK$'000 HK$'000
Within one year 552 552
One to two years 552 552
Two to three years 184 552
Three to four years - 184
--------------- -------------
1,288 1,840
=============== =============
F-35
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. RELATED-PARTY TRANSACTIONS
The Group is controlled by Bowenvale Limited (incorporated in British
Virgin Islands), which owns 68.9% of the Company's shares. The remaining
31.1% of the shares are widely held. The ultimate parents of the Group are
CITIC Group (incorporated in China) and SES GLOBAL S.A. (incorporated in
Luxembourg).
The following transactions were carried out with related parties:
i) INCOME FROM PROVISION OF SATELLITE TRANSPONDER CAPACITY
The Group has entered into agreements for the provision of transponder
capacity to a subsidiary of CITIC, CITIC Guoan Information Industry
Company Limited. CITIC is a substantial shareholder of the Company
throughout the years presented.
During the years presented, the Group recognized income from provision of
satellite transponder capacity from its associate, SpeedCast.
2005 2004 2003
HK$'000 HK$'000 HK$'000
CITIC Guoan Information Industry Company Limited 2,461 3,101 3,782
SpeedCast Limited (an associate) 32,202 18,793 20,829
--------------- -------------- ---------------
34,663 21,894 24,611
=============== ============== ===============
ii) AGENCY FEE
In addition, the Group has entered into an agreement with CITIC
Technology Company Limited, a subsidiary of CITIC, for collecting money
from China customers on behalf of the Group.
2005 2004 2003
HK$'000 HK$'000 HK$'000
CITIC Technology Company Limited 723 686 719
=============== ============== ===============
iii) KEY MANAGEMENT COMPENSATION
Information for other management personnel is set out in note 20.
The Group made payments to SES GLOBAL and its subsidiary and a
subsidiary of CITIC for certain Non-executive Directors representing
SES GLOBAL and CITIC.
2005 2004 2003
HK$'000 HK$'000 HK$'000
SES GLOBAL and its subsidiary 462 475 475
A subsidiary of CITIC 500 525 525
--------------- -------------- ---------------
962 1,000 1,000
=============== ============== ===============
iv) OTHER FEES
2005 2004 2003
HK$'000 HK$'000 HK$'000
Licence fee:
SES ASTRA S.A. - 49 -
=============== ============== ===============
Consultancy fee:
SES ASTRA S.A. - - 390
=============== ============== ===============
SES ASTRA S.A. is a wholly-owned subsidiary of SES GLOBAL. SES GLOBAL was
a substantial shareholder of the Company throughout the years presented.
F-36
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. RELATED-PARTY TRANSACTIONS (continued)
v) INTEREST INCOME ON LOAN RECEIVABLE FROM AN ASSOCIATE
2005 2004 2003
HK$'000 HK$'000 HK$'000
SpeedCast Limited (an associate) 176 419 86
=============== ============== ==============
vi) YEAR-END BALANCES ARISING FROM THESE TRANSACTIONS
2005 2004
HK$'000 HK$'000
Trade receivables from related parties (note 12):
CITIC Guoan Information Industry Company Limited 39 1,248
SpeedCast Limited (an associate) 7,639 3,326
-------------- --------------
7,678 4,574
============== ==============
Receivables from related parties (note 12):
CITIC Technology Company Limited 15,503 14,628
============== ==============
Payables to related parties:
CITIC Technology Company Limited 455 770
============== ==============
vii) LOAN RECEIVABLE FROM AN ASSOCIATE
2005 2004
HK$'000 HK$'000
Loan receivable from SpeedCast Limited:
Beginning of the year 5,070 7,279
Loans advanced during the year - 1,301
Loan repayments received (5,070) (3,510)
-------------- --------------
End of the year (note 12) - 5,070
============== ==============
The amount was secured, bearing interest at 6% per annum and was fully
repaid as at December 31, 2005.
The above transactions were entered into on commercial terms determined
and agreed by the Group and the relevant parties.
F-37
-------------------------------------------------------------------------------
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
-------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP")
The accompanying consolidated financial statements are prepared in
accordance with HK GAAP, which differs in certain significant respects
from USGAAP as follows:
The following table summarizes the effect on profit (net income) of
differences between HK GAAP and US GAAP for the years presented:
YEAR ENDED DECEMBER 31
--------------------------------------------------
2005 2005 2004 2003
US$'000 HK$'000 HK$'000 HK$'000
Profit for the year (net income) as 46,947 366,184 431,216 424,488
reported under
HK GAAP
US GAAP adjustments:
Amortization of interest and borrowing (1,035) (8,072) (8,072) (11,780)
costs (a)
Amortization of goodwill (b) - - 221 6,500
Impairment loss of goodwill (b) - - - (11,104)
Tax effect on reconciling items (c) 90 706 706 151
--------- ---------- ---------- ----------
Profit for the year (net income) under US 46,002 358,818 424,071 408,525
GAAP
========= ========== ========== ==========
Basic earnings per share under US GAAP US$0.12 HK$0.92 HK$1.09 HK$1.05
Diluted earnings per share under US GAAP US$0.12 HK$0.92 HK$1.09 HK$1.05
Basic earnings per American Depositary
Share ("ADS") under US GAAP US$1.18 HK$9.19 HK$10.86 HK$10.46
Diluted earnings per American Depositary
Share ("ADS") under US GAAP US$1.18 HK$9.19 HK$10.86 HK$10.46
Shares used in computation of basic earnings
per share (in thousands) 390,266 390,266 390,266 390,266
Shares used in computation of diluted
earnings 390,292 390,292 390,266 390,266
per share (in thousands)
The following table summarizes the effect on shareholders' equity of the
differences between HK GAAP and US GAAP:
AS AT DECEMBER 31
---------------------------------------
2005 2005 2004
US$'000 HK$'000 HK$'000
Shareholders' equity as reported under 526,178 4,104,188 3,874,597
HK GAAP
US GAAP adjustments:
Capitalization of interest and borrowing costs (a) 15,767 122,980 122,980
Amortization of interest and borrowing costs (a) (10,336) (80,617) (72,545)
Amortization of goodwill (b) 1,452 11,325 11,325
Impairment loss of goodwill (b) (1,424) (11,104) (11,104)
Tax effect of reconciling items (c) (1,004) (7,831) (8,537)
---------- ----------- ----------
Shareholders' equity under US GAAP 530,633 4,138,941 3,916,716
========== =========== ==========
F-38
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
(a) Capitalization of interest and borrowing costs
Under HK GAAP, interest on bank loans and related costs of obtaining the
loans (including costs incurred in connection with loan facilities) taken
out to finance construction of satellites is capitalized during the period
of construction. Under US GAAP, the interest cost incurred during the
period of construction that could have been avoided if the construction of
satellites had not been made, is capitalized. The interest capitalized is
computed by applying an average borrowing rate of outstanding debt to the
total amount of qualifying assets under construction, not to exceed total
interest costs incurred.
In addition, under US GAAP, certain related borrowing costs payable to
lenders are excluded from the amounts capitalized.
(b) Amortization and impairment loss of goodwill
Under HK GAAP, HKFRS 3 requires all business combinations for which the
agreement date is on or after January 1, 2005 to be accounted for using
the purchase method. Goodwill acquired in a business combination will no
longer be amortized but will be subject to impairment tests at least
annually in accordance with HKAS 36. Upon the adoption of HKFRS 3, the net
carrying amount of goodwill carried on the balance sheet is frozen and
will be tested for impairment. Goodwill previously taken directly to
reserves will no longer be subject to impairment testing and will not be
recognized in the statement of operations when all or part of the business
to which the goodwill relates is disposed of. Accordingly, goodwill
previously taken directly to reserves will not impact the statement of
operations in the future upon the adoption of HKAS 36.
Under US GAAP, effective from January 1, 2002, goodwill is: (i) no longer
amortized, (ii) assigned to a reporting unit and (iii) tested for
impairment at least annually. Prior to January 1, 2002, goodwill was
amortized over its estimated useful life, not to exceed 40 years under US
GAAP.
(c) The amounts included in the reconciliation show the income tax effects
of the differences between HK GAAP and US GAAP as described above.
(d) Interest income
Under HK GAAP, interest income is included in profit from operations.
Under US GAAP, interest income is excluded from operating income and is
included in net income as other income.
F-39
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
The changes in shareholders' equity based on US GAAP are as follows:
AS AT DECEMBER 31
---------------------------------------
2005 2005 2004
US$'000 HK$'000 HK$'000
Balance, beginning of year 502,143 3,916,716 3,617,530
Transactions during the year:
i) Net income 46,002 358,818 424,071
ii) Dividend paid (17,512) (136,593) (124,885)
---------- ----------- ----------
Balance, end of year 530,633 4,138,941 3,916,716
========== =========== ==========
Note: One ADS is equivalent to 10 ordinary shares.
A reconciliation of the significant balance sheet accounts under HK GAAP
and to the amounts determined under US GAAP is as follows:
AS AT DECEMBER 31
----------------------------------------
2005 2005 2004
US$'000 HK$'000 HK$'000
Property, plant and equipment
Amount under HK GAAP 336,014 2,620,911 2,894,467
US GAAP adjustments:
Capitalization of interest and borrowing costs 15,767 122,980 122,980
Amortization of interest and borrowing costs (10,336) (80,617) (72,545)
---------- ----------- -----------
Amount under US GAAP 341,445 2,663,274 2,944,902
========== =========== ===========
Interests in associates
Amount under HK GAAP 1,833 14,294 13,397
US GAAP adjustments:
Amoritsation of goodwill 1,452 11,325 11,325
Impairment loss of goodwill (1,424) (11,104) (11,104)
---------- ----------- -----------
Amount under US GAAP 1,861 14,515 13,618
========== =========== ===========
Deferred income tax liabilities
Amount under HK GAAP 24,699 192,654 205,258
US GAAP adjustments:
Tax effect of reconciling items 1,004 7,831 8,537
---------- ----------- -----------
Amount under US GAAP 25,703 200,485 213,795
========== =========== ===========
The amounts of total assets determined using US GAAP, as a result of the
foregoing adjustments, are HK$4,726,114,000 (US$605,912,000) and
HK$4,599,903,000 as of December 31, 2005 and 2004, respectively. The
amounts of total liabilities (excluding minority interests) determined
using US GAAP, as a result of the foregoing adjustments, are
HK$581,636,000 (US$74,569,000) and HK$676,831,000 as of December 31, 2005
and 2004, respectively.
F-40
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
AS AT DECEMBER 31
--------------------------------------------------------
2005 2005 2004 2003
US$'000 HK$'000 HK$'000 HK$'000
Net cash generated from operating
activities
Amount under HK GAAP 65,942 514,350 750,812 627,534
US GAAP adjustments:
Interest received 5,107 39,833 20,290 4,858
Cost of raising bank borrowing - - - (6,951)
facility
----------- ---------- ----------- ------------
Amount under US GAAP 71,049 554,183 771,102 625,441
=========== ========== =========== ============
Net cash used in investing activities
Amount under HK GAAP 3,002 23,414 (50,909) (164,536)
US GAAP adjustments:
Interest received (5,107) (39,833) (20,290) (4,858)
----------- ---------- ----------- ------------
Amount under US GAAP (2,105) (16,419) (71,199) (169,394)
=========== ========== =========== ============
Net cash used in financing activities
Amount under HK GAAP (17,512) (136,593) (124,885) (209,889)
US GAAP adjustments:
Cost of raising bank borrowing - - - 6,951
facility
----------- ---------- ----------- ------------
Amount under US GAAP (17,512) (136,593) (124,885) (202,938)
=========== ========== =========== ============
The reclassification for US GAAP consolidated statements of cash flows
pertains to interest received and costs for bank borrowings facility which
are presented as investing and financing activities under HK GAAP,
respectively (as opposed to operating activities and investing activities
under US GAAP, respectively).
Additional disclosures as required by US GAAP:
(a) US GAAP requires that all items that are required to be recognized as
components of comprehensive income be reported in a separate financial
statement. There are no material differences between total recognized
gains and losses for the periods shown in the consolidated statements
of changes in Equity presented under HK GAAP comprehensive income,
except for the differences between HK GAAP and US GAAP profit
attributable to shareholders shown above.
(b) The Company applies Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees", and related
Interpretations in accounting for options granted under the 1996
Scheme and 2002 Scheme (see note 20). No compensation cost has been
recognized on options granted under the 1996 Scheme and the 2002
Scheme.
The Company, on September 8, 1999, cancelled 2,161,000 share options
(granted under the 1996 Scheme) exercisable from November 26, 1999 to
November 25, 2006 at an exercise price of HK$19.00 per share. The
Company had, simultaneous to the cancellation, issued 2,022,000
replacement share options to the same employees with similar exercise
period but at a lower exercise price of HK$17.48 per share. The
139,000 share options cancelled but not replaced were those share
options held by resigned employees. There was no change in the number
of shares to be issued to satisfy the exercise of the replacement
share options. The Company, through December 31, 2002, did not account
for the option modification under a variable plan accounting that
would have been required under Financial Accounting Standards Board
Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation". There would be no impact on the Company's 2003
consolidated financial statements and on 2004 and 2005 consolidated
financial statements when the Company accounted for the option
modification under a variable plan required under FIN 44 as the fair
value of the underlying shares was less than the exercise price of the
share options as at December 31, 2003, 2004 and 2005, respectively.
F-41
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
Had compensation cost for the Company's share option schemes been
determined based on the fair value at the grant dates for awards under the
share option schemes consistent with the method of Statement of Financial
Accounting Standards ("SFAS") No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION", the Company's net income and earnings per share would have
been as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
Net income as reported under US GAAP 358,818 424,071 408,255
Add: Stock compensation as reported
Less: Stock compensation determined (3,589) (6,983) (10,952)
using the fair value method
------------- ------------ ---------------
Pro forma net income under US GAAP 355,229 417,088 397,303
============= ============ ===============
Shares used in computation of basic
earnings per share (thousands) 390,266 390,266 390,266
============= ============ ===============
Shares used in computation of diluted
earnings per share (thousands) 390,292 390,266 390,266
============= ============ ===============
Net income per share under US GAAP
Basic, as reported (HK$ per share) 0.92 1.09 1.05
Diluted, as reported (HK$ per share) 0.92 1.09 1.05
Basic, pro forma (HK$ per share) 0.91 1.07 1.02
Diluted, pro forma (HK$ per share) 0.91 1.07 1.02
The weighted average fair value of options granted during 2002 (Option
Types A, B and C) was HK$8, using the Black-Scholes option-pricing model
based on the following assumptions:
Expected life of options 10 years
Expected volatility 51.00%
Risk-free rate 5.99%
Expected annual dividend yield 1.62%
The Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the volatility of share price. Because
changes in subjective input assumptions can materially affect the fair
value estimate, in the directors' opinion, the existing model does not
necessarily provide a reliable single measure of the fair value of the
share options.
Share option with Option Types A and B issued in 2002 represent
replacement share options to Option Types D and E, respectively. There
would be no impact on pro forma net income, assuming SFAS No. 123 is used
with respect to issuance of the replacement share options as the fair
value of share options prior to and subsequent to the replacement remained
the same.
Compensation expense resulting from the fair value method of SFAS No. 123
may not be representative of compensation expense to be incurred on a pro
forma basis in future years.
F-42
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
A summary of the status of the Company's 2002 Scheme and 1996 Scheme as of
December 31, 2005, 2004 and 2003, and changes during the years then ended
is presented below:
2005 2004 2003
----------------------- ------------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------ ------
HK$ HK$ HK$
Outstanding, 6,926,000 15.91 6,941,000 15.91 7,149,500 15.91
beginning of
year
Granted - - - - - -
Exercised - - - - - -
Forfeited/cancelled/lapsed
(325,500) 15.85 (15,000) 17.48 (208,500) 15.81
--------- ----------- ---------- ----------- -------- ----------
Outstanding,
end of year 6,660,500 15.91 6,926,000 15.91 6,941,000 15.91
========= =========== ========== =========== ======== ==========
Options
exercisable at
year-end 4,944,750 17.48 4,314,875 17.48 3,017,500 17.48
========= =========== ========== =========== ======== ==========
Weighted-average N/A N/A N/A
fair value of
options
granted during
the year
The following table summarizes information on the 2002 Scheme and 1996
Scheme outstanding at December 31, 2005:
Options outstanding Options exercisable
---------------------------------------------------- -------------------------------------
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
EXERCISE PRICE NUMBER OF OPTIONS LIFE EXERCISE PRICE NUMBER OF OPTIONS
-------------- ----------------- ----------- -------------- -----------------
HK$ 14.35 3,311,500 6.09 years HK$ 14.35 1,655,750
HK$ 17.48 3,289,000 2.33 years HK$ 17.48 3,289,000
--------------- ------------- ------------------
6,600,500 4.22 years 4,944,750
=============== ============= ==================
(c) Recent changes in accounting standards
SFAS NO. 154. In May 2005, the Financial Accounting Standards Board
("FASB") issued the US Statement of Financial Accounting Standards
("SFAS") No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20, Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial Statements (SFAS
154). SFAS 154 changes the requirements for the accounting for, and
reporting of, a change in accounting principles. Previously, voluntary
changes in accounting principles were generally required to be
recognized by way of a cumulative effect adjustment within net income
during the period of the change. SFAS 154 requires retrospective
application to financial statements of prior periods, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 is effective for accounting
changes made in fiscal years beginning after 15 December 2005; but the
statement does not change the transitional provisions of any existing
accounting pronouncements. The Company does not believe that the
adoption of SFAS 154 will have a material effect on its financial
position, cash flows or results of operations.
F-43
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
(c) Recent changes in accounting standards (continued)
FASB NO. 109. In July 2005, the FASB issued a proposed Interpretation
of FASB Statement No. 109 (the "Interpretation"), "Accounting for
Income Taxes" which clarified accounting for uncertain tax positions.
Under the Interpretation, an enterprise is required to recognize, in
its financial statements, the best estimate of the impact of a tax
position only if that position would probably be sustained in an
audit, based solely on the technical merits of the position. In
evaluating whether or not the "probable recognition" threshold has
been met, the Interpretation requires the presumption that the tax
position will be evaluated during an audit by taxing authorities. The
term probable, as defined in FASB Statement No. 5, "Accounting for
Contingencies" means "the future event or events are likely to occur."
Individual tax positions that fail to meet the probable recognition
threshold will generally result in either (a) a reduction in the
deferred tax asset or an increase in a deferred tax liability or (b)
an increase in the liability for income taxes payable or the reduction
of an income tax refund receivable. The impact may also include both
(a) and (b). The increase in the income tax liability would not be
classified as a deferred tax liability unless it resulted from a
taxable temporary difference created by a tax position that has met
the probable recognition threshold. For enterprises that present
classified statements of financial position, the income tax liability
would be classified as current to the extent that a payment is
anticipated within one year or the operating cycle, if longer. The
Interpretation also would provide guidance on disclosure, accrual of
interest and penalties, accounting in interim periods, and transition.
The Interpretation is currently in draft, and thus any effects on the
current accounting treatment of the Indian income tax liability or the
PRC withholding tax cannot be assessed at this point in time.
SAB 107. In March 2005, the SEC issued Staff Accounting Bulletin
("SAB") No. 107 Share Based Payment, which offers guidance on SFAS No.
123(R). SAB No. 107 was issued to assist preparers by simplifying some
of the implementation challenges of SFAS No. 123(R) while enhancing
the information that investors receive. SAB No. 107 creates a
framework that is premised on two overarching themes: (i) considerable
judgment will be required by preparers to successfully implement SFAS
No. 123(R), specifically when valuing employee stock options; and (ii)
reasonable individuals, acting in good faith, may reach different
conclusions on the fair value of employee stock options. Key topics
covered by SAB No. 107 include valuation models, expected volatility
and expected term. The Company will adopt SAB No. 107 concurrently
with the adoption of SFAS No. 123(R) with effect from January 1, 2006.
The Group does not expect the adoption of this SAB to have a material
impact on its consolidated financial position or results of
operations.
(d) Details of the movements of the provision for impairment of
receivables made for the years ended December 31, 2005, 2004 and 2003
are as follows:
2005 2004 2003
HK$'000 HK$'000 HK$'000
At beginning of year 23,230 5,540 15,012
Bad debt expense 7,700 17,690 -
Bad debt recovered - - (6,279)
Amount written off - - (3,193)
----------- ------------ -----------
At end of year 30,930 23,230 5,540
=========== ============ ===========
(e) Major customers
The Company has one customer accounting for 10% or more of its service
revenue. Service revenue from such customer represents 25.7%, 22.4%
and 24.9% of revenues in 2005, 2004 and 2003, respectively.
(f) Income tax
The Company is subject to Hong Kong Profits Tax on its operations
deemed to be located in Hong Kong. It is also subject to an overseas
tax on its operations in certain overseas jurisdictions.
The Group's operating assets consist primarily of its satellites which
are used, or are intended for use, for transmission to multiple
geographical areas and therefore cannot be allocated between tax
jurisdictions. Accordingly, no analysis of income tax and profit from
operations by jurisdiction has been presented.
(g) Fair value of financial instruments
The carrying value of cash and cash equivalents, other receivables,
other payables and customer deposits approximates fair value because
of the relatively short maturities of these financial instruments. It
is not practical to determine the fair value of unbilled rental
receivable as it involves high volume of transactions.
F-44
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ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
(h) Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risks consist principally of cash and cash
equivalents and trade receivables. The Company believes that no
significant credit risk exists relative to cash and cash equivalents
as substantially all of these financial instruments are held in the
form of term deposits at a major bank.
The Company performs on-going credit evaluations of its customers. The
Company believes that no significant credit risk exists for these
assets as credit losses, when realized, is expected to be within the
range of management's expectations.
(i) Concentration - industry and major customers
2005 2004 2003
---- ---- ----
Broadcasting 65.7% 70.6% 70.4%
Telecommunications, Internet and Multimedia 34.3% 29.4% 29.6%
The five largest customers accounted for 39.3%, 46.0% and 42.0% of the
Company's total revenue for the years ended December 31, 2005, 2004
and 2003, respectively.
The trade receivables from the five customers with the largest
receivables balances represent 75.9% and 71.5% of total trade
receivables as of December 31, 2005 and 2004, respectively.
(j) 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 reported amounts of assets and
liabilities and certain disclosures at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
(k) Earnings per share
As of December 31, 2005, 2004 and 2003 the Company had share options
outstanding of 6,600,500, 6,926,000 and 6,941,000, which could
potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted earnings per share in such
periods, as their effect would have been antidilutive.
(l) Segment information
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about
operating segments and related disclosures products and services,
geographic areas, and major customers. Operating segments are
components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance. The chief operating decision-maker of the Company
allocates resources and assess performance on the basis its
consolidated financial statements. No other financial information that
presents segment profit or loss is generated by the Company that is
used by its chief operating decision-maker in allocating resources and
assessing performance. Thus, the Company is a single operating segment
under SFAS No. 131 and the geographical segments disclosed in note 5
do not represent operating segments under SFAS No. 131.
33. SUBSEQUENT EVENTS
On March 16, 2006, the Board approved to procure a new satellite, AsiaSat
5, to replace AsiaSat 2 before its retirement. On April 28, 2006 and May
8, 2006, the Group entered into a Construction Agreement and a Launch
Contract respectively with two independent third parties for the
construction and launching of AsiaSat 5. The consideration of the above
contracts together with the insurance cost is estimated at approximately
US$180 million (approximately HK$1,404 million).
34. CONVENIENT TRANSLATION TO UNITED STATES DOLLARS
The translation of Hong Kong dollar amounts into United States dollars are
for convenience and have been made at a rate of HK$7.8 to US$1, the
approximate rate of exchange at December 31, 2005. Such transactions
should not be construed as representations that the Hong Kong dollars
amounts represent, or have keen, or could be converted into United States
dollars at that or any other rate.
F-45