AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 2007
================================================================================
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, 2006
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
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(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 HK$0.10 per share The New York Stock Exchange*
* 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, 2006, 390,265,000 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
EXCHANGE RATES................................................................1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS..........................2
PART I........................................................................2
Item 1. Identity of Directors, Senior Management and Advisors...........2
Item 2. Offer Statistics and Expected Timetable.........................2
Item 3. Key Information.................................................2
Item 4. Information on the Company.....................................14
Item 5. Operating and Financial Review and Prospects...................36
Item 6. Directors, Senior Management and Employees.......................
Item 7. Major Shareholders and Related Party Transactions..............59
Item 8. Financial Information..........................................61
Item 9. Stock Price History............................................62
Item 10. Additional Information.........................................64
Item 11. Quantitative and Qualitative Disclosures About Market Risk.....65
Item 12. Description of Securities Other than Equity Securities.........66
PART II......................................................................66
Item 13. Defaults, Dividend Arrearages and Delinquencies................66
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds............................................66
Item 15. Controls and Procedures........................................66
Item 16. Other Information..............................................67
PART III.....................................................................69
Item 17. Financial Statements...........................................69
Item 18. Financial Statements...........................................69
Item 19. Financial Statements and Exhibits..............................69
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.
On May 25, 2007, Asiaco Acquisitions Ltd. ("Asiaco"), a company jointly
owned indirectly by CITIC Group ("CITIC") and General Electric Capital
Corporation ("GECC"), launched mandatory general offers (the "Offers") for our
outstanding ordinary shares (the "Shares") not held by Bowenvale Limited, the
controlling shareholder of the Company whose indirect shareholders are CITIC and
GECC. The Offers are structured as two separate offers in order to comply with
differences in U.S. and Hong Kong law in respect of withdrawal rights of
shareholders and settlement for tendered shares. The mandatory general offers
were triggered by an exchange transaction completed between SES S.A. ("SES") and
GECC on March 29, 2007, pursuant to which SES redeemed approximately 19 per cent
of the issued share capital of SES held by GECC in exchange for shares of a new
company holding a number of assets and cash, including SES's entire shareholding
in Bowenvale. The exchange transaction is deemed to have resulted in the
formation of a new concert group between CITIC and GECC that has statutory
control over Bowenvale and thus AsiaSat.
The Offers followed the termination of a proposal to privatize (the
"Privatization") the Company by way of a scheme of arrangement (the "Scheme")
under Bermuda law. The Scheme was terminated by Asiaco by invoking the
authorization condition to the Scheme after the U.S. Department of State (the
"State Department") had in correspondence with GECC indicated that it would not
grant the approval necessary to implement the Privatization by way of the
Scheme. In the opinion of Asiaco, the consequences of proceeding with the Scheme
without obtaining approval from the State Department would be materially adverse
to the business of AsiaSat as it would result in AsiaSat being deemed in breach
of important approvals previously granted to AsiaSat by the State Department in
relation to its satellites.
In the documentation relating to the Privatization, Asiaco cited the heavy
financial and administrative burden imposed on the Company by its dual listings
on the Hong Kong Stock Exchange and the New York Stock Exchange. If, following
completion of the Offers, the Company becomes eligible to delist from the New
York Stock Exchange and to terminate its reporting obligations under the
Securities Exchange Act of 1934 (the "Exchange Act"), the Company is likely to
seek the delisting and deregistration under the Exchange Act.
If, following the Offers the Company's public float is less than 25%,
either the Company will issue additional Shares or the Company's principal
shareholders will sell Shares so that at least 25% of the Shares are held by
unaffiliated shareholders as required by the listing rules of the Hong Kong
Stock Exchange. See Item 4 "Information on the Company - Privatization Scheme
and Mandatory General Offers."
EXCHANGE RATES
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
1
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, the approximate rate of
exchange on December 31, 2006. 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$7.7771 to US$1 on
December 31, 2006. The Noon Buying Rate on June 14, 2007 was HK$7.8169 to US$1.
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.
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, 2004, 2005 and 2006 and the summary balance sheet data of the
Company as of December 31, 2005 and 2006 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, 2002 and 2003 and
the summary balance sheet data as of December 31, 2002, 2003 and 2004 set forth
below are derived from audited consolidated financial statements of the Company
not included herein. The consolidated financial statements of the Company are
2
prepared and presented in accordance with Hong Kong Financial Reporting
Standards, or HKFRS, 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 HKFRS and U.S. GAAP, a reconciliation of net
income from HKFRS to U.S. GAAP for the years ended December 31, 2004, 2005 and
2006, and a reconciliation of shareholders' equity from HKFRS to U.S. GAAP as of
December 31, 2005 and 2006. 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.
2002 2003 2004 2005 2006 2006
------- ------- ------- ------- ------- -------
HK$ HK$ HK$ HK$ HK$ US$
(in millions, except for percentages and per share amounts)
INCOME STATEMENT DATA:
HKFRS:
Revenues........................ 950.8 896.2 1,005.0 879.7 929.9 119.2
Cost of services................ (243.1) (313.3) (420.5) (419.0) (410.6) (52.6)
Administrative expenses......... (76.7) (56.1) (102.5) (83.9) (94.6) (12.1)
Operating profit................ 637.4 532.6 504.0 420.5 517.5 66.3
Share of results of
associates (including
goodwill amortization)....... (13.7) (15.6) (12.4) (3.9) (8.4) (1.1)
Impairment loss recognized in
respect of goodwill of
associates................... - (1.9) - - - -
Profit before taxation 623.8 512.1 491.6 416.6 508.9 65.2
Minority Interests.............. - - (0.1) (0.8) (0.6) (0.1)
Taxation........................ (69.1) (87.6) (60.5) (51.3) (55.5) (7.1)
Profit for the year............. 554.7 424.5 431.1 365.4 453.4 58.1
Earnings per share
Basic........................ 1.42 1.09 1.10 0.94 1.16 0.15
Diluted...................... 1.42 1.09 1.10 0.94 1.16 0.15
Earnings per ADS
Basic........................ 14.21 10.88 11.05 9.38 11.62 1.49
Diluted...................... 14.21 10.88 11.05 9.38 11.62 1.49
Dividend declared per share:
Ordinary........................ 0.25 0.32 0.35 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 538.1 408.3 424.1 358.8 446.3 57.2
3
Earnings per share
Basic........................ 1.38 1.05 1.09 0.92 1.14 0.15
Diluted...................... 1.38 1.05 1.09 0.92 1.14 0.15
Earnings per ADS
Basic........................ 13.79 10.46 10.86 9.19 11.43 1.46
Diluted...................... 13.79 10.46 10.86 9.19 11.43 1.46
2002 2003 2004 2005 2006 2006
------- ------- ------- ------- ------- -------
HK$ HK$ HK$ HK$ HK$ US$
BALANCE SHEET DATA:
HKFRS:
Net current assets 239.0 529.9 1,023.1 1,461.1 1,770.9 227.0
Property, plant and
equipment (1)................ 3,206.4 3,140.0 2,894.5 2,620.9 2,630.8 337.3
Total assets....................... 3,936.4 4,157.2 4,549.2 4,683.5 5,091.2 652.7
Long-term liabilities (2)....... 326.0 336.5 317.1 280.3 336.1 43.1
Total liabilities (excluding
minority interests).......... 589.1 588.5 668.3 573.8 664.7 85.2
Capital stock .................. 39.0 39.0 39.0 39.0 39.0 5.0
Total shareholders' equity...... 3,346.7 3,568.3 3,874.6 4,104.2 4,421.6 566.9
U.S. GAAP:
Property, plant and equipment... 3,276.6 3,198.5 2,944.9 2,663.3 2,665.1 341.7
Total assets.................... 4,011.2 4,215.7 4,599.9 4,726.1 5,125.7 657.1
Long-term liabilities (2)....... 335.4 345.8 325.6 288.1 343.2 44.0
Total liabilities (excluding
minority interests).......... 598.5 597.7 676.8 581.6 671.8 86.1
Total shareholders' equity...... 3,412.2 3,617.5 3,916.7 4,138.9 4,448.7 570.3
----------------
(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.
4
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 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 Hong Kong 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$
2002 ...................... 7.7996 7.8095 7.7970 7.7988
2003 ...................... 7.7864 7.8001 7.7085 7.7640
2004 ...................... 7.7891 7.8010 7.7632 7.7723
2005 ...................... 7.7755 7.7999 7.7514 7.7533
2006....................... 7.7685 7.7928 7.7506 7.7771
December 2006.............. 7.7723 7.7787 7.7665 7.7771
January 2007............... 7.8000 7.8112 7.7797 7.8078
February 2007.............. 7.8114 7.8141 7.8041 7.8119
March 2007................. 7.8132 7.8177 7.8093 7.8137
April 2007................. 7.8154 7.8212 7.8095 7.8212
May 2007................... 7.8187 7.8236 7.8044 7.8087
-------------
(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
5
and satellite manufacturer. A total or constructive total loss of any of our
satellites would adversely affect the Company. In addition, any defects in
AsiaSat 2, AsiaSat 3S or AsiaSat 4 may also adversely affect the Company. See
"Information on the Company -- Satellites."
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 2009.
AsiaSat 5 will replace AsiaSat 2, which is tentatively scheduled to be retired
in 2010. The Company originally 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. However, due to the
potential delay in launch until 2009, caused by a production shortage of the
Ukrainian supplied Zenit rocket and the formal investigation of the recent Sea
Launch failure, the Company will explore other means to address the potential
negative impact of an AsiaSat 5 launch failure. The total consideration under
the construction and launch contracts, together with insurance costs, is
estimated at approximately HK$1,404.0 million (US$180.0 million). There can be
no assurance that alternative means to address the risk will be available or
feasible.
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. Any future financial
difficulties of Space Systems/Loral, Inc. may adversely affect its performance
under the construction contract and may adversely affect the success of, or
delay, the launch of AsiaSat 5. In addition, there can be no assurance that a
launch vehicle will be available or that the launch of AsiaSat 5 will otherwise
occur in 2009 as currently planned or that 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 hence AsiaSat 2)
and the failure to timely replace AsiaSat 5 (and hence AsiaSat 2) may result in
interruption of services to our customers and adversely affect the operation and
financial results of the Company. The Company's legal right to use the orbital
location from which AsiaSat 5 was to operate may not be maintained. 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 OR CUSTOMERS
SWITCHING TO OTHER PROVIDERS OF SATELLITE TRANSPONDER CAPACITY
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.
In order to discourage the unlawful interruption and interference of
transmission of Chinese television programs, the Chinese government plans to
launch and operate satellites with "anti-attack" technology that may help
prevent such unlawful interruption or interference. Two such satellites are
scheduled for launch in 2007. Should those satellites be launched and tested
successfully, Chinese television broadcasters presently transmitting via the
Company's satellites may switch to these satellites. If that occurs, it will
6
have a negative impact to the revenue of the Company. Chinese television
broadcasters accounted for approximately 8.8% of the Company's total revenue in
2006. AsiaSat 5, when launched in 2009, will also have "anti-attack" features,
but there can be no assurance that Chinese television broadcasters, if they have
switched to those satellites, will switch back to AsiaSat 5 after its launch.
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."
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
signals transmitted 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.
Disputes over interference could arise with other operators 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 interference 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. Uninsured losses are likely to have a material
adverse effect on the Company. See "Information on the Company -- Insurance."
7
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 22.4%, 25.7% and 24.3% of AsiaSat's revenues in the years ended
December 31, 2004, 2005 and 2006, 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.
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 are licensed by the local
governments and have de facto monopolies in their countries. Many of these
competitors also are substantially larger in fleet size, and have financial
resources that are substantially greater, than those of the Company. See
"Information on the Company - Competition."
TRANSPONDER OVERSUPPLY. The supply of transponders continues to exceed the
demand for transponders and, due to persistent oversupply of transponder
capacity and the slow introduction of new applications in the region, the
Asia-Pacific satellite market remains particularly competitive. 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, Singtel
Optus, SINOSAT, Superbird, Thaicom and others. The Company believes that most of
8
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."
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."
OUR CONTROLLING SHAREHOLDERS HAVE INTERESTS THAT MAY CONFLICT WITH THE
INTERESTS OF THE COMPANY OR OTHER SHAREHOLDERS
The Company is controlled by Bowenvale Limited ("Bowenvale"), which owns
68.75% of the outstanding Shares. As a result of the Exchange Transaction,
effective March 29, 2007, Bowenvale is jointly owned indirectly by CITIC and
GECC. The interests of CITIC and GECC as our controlling shareholders could
conflict with our interests or with the interests of our other shareholders. As
a result, they may take actions or cause the Company to take actions that may
not be in the best interests of other shareholders. In addition, the business of
our controlling shareholders may be in competition with ours. For example, as
part of the Exchange Transaction, GECC also acquired a new satellite, GE-23,
from SES Global. Part of the footprint of GE-23 overlaps with that of the
Company's satellites, and as such competes or may compete with our business. We
cannot assure you that such conflict of interests and competing business
activities will not have a material adverse effect on our business operations,
financial condition or results of operations.
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.
9
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 extended 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 (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. While the initial
comment by OFTA on the objection raised towards the frequency reassigning
proposal was positive, OFTA has stated that it will re-assess the position
following the upcoming meeting of the ITU (as defined below) on frequency
assignment in October 2007. 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
regulated by 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
freely and fairly 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."
10
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"). Countries 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 countries 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."
FAILURE TO MAINTAIN EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING IN
ACCORDANCE WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 COULD RESULT IN
THE LOSS OF INVESTOR CONFIDENCE IN THE RELIABILITY OF THE COMPANY FINANCIAL
STATEMENTS, WHICH IN TURN COULD HARM THE COMPANY'S BUSINESS AND NEGATIVELY
IMPACT THE TRADING PRICE OF THE SHARES AND ADSS
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 control 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. Based on the amended rules of the SEC, these requirements
will not apply to the Company until its annual report on Form 20-F for the
fiscal year of 2007. Nevertheless, the management has completed an assessment of
the effectiveness of its internal controls over financial reporting and its
independent auditor has attested to the management's assessment. If management
fails to maintain the adequacy of the Company's internal controls, the Company
may not be able to conclude that it has effective internal control over
financial reporting on an ongoing basis in accordance with the Sarbanes-Oxley
Act. Moreover, effective internal control is necessary to produce reliable
financial reports and are important to help prevent fraud. As a result, the
failure to maintain effective internal control over financial reporting could
result in the loss of investor confidence in the reliability of the Company's
financial statements, which in turn could harm the Company's business and
negatively impact the trading price of the Shares and ADSs. Furthermore,
management anticipates that it will continue to 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 2004, 2005 and
2006, approximately 51.8%, 61.9% and 57.6%, respectively, of AsiaSat's revenues,
were derived from customers from Greater China, which includes mainland China,
Hong Kong, Macau and Taiwan. Furthermore, during 2004, 2005 and 2006,
approximately, 22.4%, 25.7% and 24.3%, respectively, of AsiaSat's revenues were
attributable to transponder utilization agreements with STAR, a Hong Kong
11
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.
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. Also see " - Risk of Not Successfully Renewing Existing
Transponder Capacity Agreements or Not Renewing Them on Terms Similar to Their
Current Terms or Customers Switching to Other Providers of Satellite Transponder
Capacity."
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. Hong Kong is 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 work. 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
12
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".
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.-PRC relations, which
can vary from time to time. AsiaSat has sourced all its satellites in the United
States, including the new AsiaSat 5. 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. The Company obtained approvals from the State Department in
connection with its initial sourcing of satellites. The State Department's
approval is required when there is a change in ownership of the satellites. In
connection with the Privatization, the State Department indicated to GECC that
it viewed the proposed Privatization as causing a significant change of control
of a party owning and controlling previously exported satellites that would
require its approval and that it was not prepared to grant such approval in the
context of the Scheme. Asiaco is proceeding with the Offers on the understanding
that the Offers will not require similar approval, provided that if necessary to
maintain a public float of 25% either the Company will issue additional Shares
or its controlling shareholders will sell Shares so that at least 25% of the
Shares are held by public shareholders. The State Department has not stated any
restriction on the ability of the Company to delist the Shares and ADSs from the
New York Stock Exchange or to deregister the Shares and ADSs with the SEC.
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
13
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 TECHNOLOGY SPECIALISTS 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 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 ("Beijing Asia") and an 80.0%
interest in Skywave TV Company Limited as at 31 December 2006. See Notes 9 and
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 to increase its interest in SpeedCast Holdings
Limited from 36.5% to 45.3%, 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
14
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. In September 2006, another agreement between AsiaSat and
Integral Systems was entered into for the procurement of satellite
control software for AsiaSat 5. As at December 31, 2006, HK$223.4
million (US$28.6 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 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. As at December 31, 2006, 88%
of the HK$13.0 million has been utilized. 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 an estimate of insurance costs, is
approximately HK$1,404.0 million (US$180.0 million), out of which
HK$298.0 million was paid in 2006. See "-- Business Overview -
Satellites - AsiaSat 5."
15
PRIVATIZATION SCHEME AND MANDATORY GENERAL OFFERS
On February 13, 2007, Asiaco (formerly named Modernday Limited), a company
jointly owned by Able Star (a subsidiary of CITIC ) and GE Equity Investments
Inc. (a subsidiary of GECC) , submitted a proposal to the Company's Board of
Directors to privatize the Company by way of a scheme of arrangement under
Section 99 of the Companies Act of Bermuda. Upon completion of the Scheme, the
Company would become wholly owned by Asiaco and Bowenvale Limited and indirectly
owned by CITIC and GECC.
On March 19, 2007, the Company dispatched Asiaco's proposal and the terms
and conditions of such proposal to its shareholders (including ADS holders) and
holders of options. In connection with the Scheme, the Company, among other
parties, filed a Schedule 13E-3 with the SEC.
The Company obtained approvals from the State Department in connection with
its initial sourcing of satellites. The State Department's approval is required
when there is a change in ownership of the satellites. In connection with the
Privatization, the State Department indicated to GECC that it viewed the
proposed Privatization as causing a significant change of control of a party
owning and controlling previously exported satellites that would require its
approval and that it was not prepared to grant such approval in the context of
the Scheme. The obtaining of relevant authorizations was one of the conditions
to the implementation of the Scheme which had to be satisfied or waived. Asiaco
did not waive this condition and the Scheme was discontinued.
One of the conditions precedent to the completion of the Scheme was the
completion of a transaction pursuant to which SES (a shareholder of Bowenvale)
redeemed GECC's entire indirect holding of SES shares in exchange for shares of
a new company holding assets and cash, including SES's entire shareholding in
Bowenvale (the "Exchange Transaction"). The Exchange Transaction was completed
on March 29, 2007 and, upon such completion, Bowenvale became jointly and
indirectly owned by CITIC (through Able Star) and GECC through GE Equity.
By reason of a regulatory position taken by the regulators in Hong Kong to
the effect that the Exchange Transaction resulted in the formation of a new
concert group thereby triggering an obligation to launch an unconditional,
mandatory offer, on May 25, 2007 Asiaco launched the Offers for all Shares and
ADSs and outstanding options of the Company.
If, following the Offers the Company's public float is less than 25%,
either the Company will issue additional Shares or the Company's principal
shareholders will sell Shares so that at least 25% of the Shares are held by
unaffiliated shareholders, as required by the listing rules of the Hong Kong
Stock Exchange.
In addition, the Company understands that if, following the Offers, the
number of holders of AsiaSat Shares resident in the United States falls below
300 or the Company otherwise becomes eligible for de-registration under the
Exchange Act, the Company intends to file a Form 15 or Form 15F with the SEC to
request that the Company's reporting obligations under the Exchange Act be
suspended or terminated.
16
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 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, 2006, the utilization rate for each of AsiaSat 2,
AsiaSat 3S and AsiaSat 4 was approximately 46.9%, 74.2% and 48.4%, respectively,
with an average of 57.1% 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, Hong Kong, India, Korea, Kuwait,
Pakistan, Singapore, Taiwan, the United Kingdom, the United States and Vietnam.
17
In 2004, 2005 and 2006, approximately 51.8%, 61.9% and 57.7%, 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:
2004 2005 2006
Broadcasting (video)....... 70.6% 65.7% 67.8%
Telecommunications, Internet
and Multimedia................. 29.4% 34.3% 32.2%
Total revenue from the Company's five largest customers in each of the
years ended December 31, 2004, 2005 and 2006 was HK$462.5 million, HK$345.8
million and HK$391.4 million respectively, which represented 46.0%, 39.3%, and
42.1% respectively, of total revenue. Revenues from the Company's largest
customer represented 22.4%, 25.7% and 24.3% of total revenue for the years ended
December 31, 2004, 2005 and 2006, 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 utilizes 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
18
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, Zee TV, 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 under served. The signals are received at rebroadcast centers and
retransmitted to viewers. The State Administration of Radio, Film and Television
of China 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 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 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.
19
EXPANDED SERVICES AND OTHER BUSINESSES
AsiaSat has launched digital broadcast platforms on AsiaSat 2 that offers
one stop shop services including satellite capacity and signal turnaround
facilities 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 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.
20
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 wide 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 remote 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 license on September 17, 2005 from the Television and Entertainment
Licensing Authority of 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
21
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.
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 2009. 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 --
22
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, CIS Asia, Middle East, CIS, Asia, Middle East, CIS, Asia, Middle East, CIS,
and Australia Australia and New Zealand Australia and Australia, North East
New Zealand Africa
Ku-band China, Japan, Hong Kong, East Asia Beam (from Japan China Beam, Australia Beam China Beam, South Asia Beam
Taiwan and Korea to Kazakhstan), South Asia (Australia and New Zealand (inter alia, India,
Beam (from Bangladesh to (steerable)), Hong Kong BSS Pakistan and Bangladesh)
the Middle East), Steerable Beam (steerable) and Steerable Beam
Beam(1)
Launch date November 28, 1995 March 21, 1999 April 11, 2003 2009 (estimated)
Manufacturer Lockheed Martin Boeing Boeing Space Systems/Loral
Model Series 7000 BSS601HP BSS601HP FS 1300
Stabilization Three Axis Stabilized Three Axis Stabilized Three Axis Stabilized Three Axis 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) ((2)) 53 dBW (Ku-band) 53 dBW (Ku-band) 54 dBW (Ku-band)
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 (Ku-band) 140 W_TWTAs (Ku-band) 150 W_TWTAs (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.
23
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 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 2010.
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.
24
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.
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 and off-site support services 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. Since then, there have been a few other occasions of harmful interference
detected. 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."
25
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.
AsiaSat 4 is equipped with four (4) on-board Xenon Ion Thrusters (XITs);
two (2) on the north side and two (2) on the south side. In October 2006, one
XIT on the north side failed. There is no impact to the estimated useful life of
AsiaSat 4 with this anomaly. However, if the remaining XIT on the north side
also failed in the future, there will be a reduction of the useful life of
AsiaSat 4 by several years. The exact magnitude of reduction depends on if and
when the north side XIT failed.
Under the AsiaSat 4 construction contract with Boeing, Boeing agreed to
provide off-site support services for the life of the satellite. On July 5,
2000, Boeing obtained a Technical Assistance Agreement from the U.S. Department
of State to provide technical data for AsiaSat 4 until December 31, 2010. On
July 20, 2000, Boeing obtained another Technical Assistance Agreement from the
U.S. Department of State to provide in-orbit anomaly support for AsiaSat 4 until
December 31, 2010. 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 was originally scheduled to take
26
place between July 1, 2008 and December 31, 2008. The launch date has been
extended to 2009 because of the limited availability of a launch vehicle.
AsiaSat 5 is a new satellite based on the well proven Space Systems/Loral
1300 satellite bus. It will carry 26 C-band and 16 Ku-band transponders and is
intended to replace AsiaSat 2 at the orbital location of 100.5 degrees East.
(AsiaSat 5 has the capability of operation across all of the available frequency
band, equivalent to 16 Ku-band transponders and 26 C-band transponders. However,
the power and thermal design of AsiaSat 5 may be just sufficient for 14 Ku-band
transponders and 26 C-band transponders at the end of the satellite's useful
life.) 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, and 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 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 "Satellites
- 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 advance 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
27
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 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
28
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 renewed in-orbit insurance for AsiaSat 3S and AsiaSat 4 in the
amount of HK$6.87 million (US$0.88 million) and HK$1,255.8 million (US$161.0
million), respectively, at a combined cost of approximately HK$25.0 million
(US$3.2 million) for the twelve month period beginning from March 21, 2007. The
policy for AsiaSat 3S and AsiaSat 4 contained standard commercial satellite
insurance provisions and customary exclusions. In the case of AsiaSat 4, it also
contains an exclusion of losses in the event of a failure of XIPS (Xeon Ion
Propulsion System) on the satellite. A failure of the XIPS system 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 risk of an XIPS failure. Such arrangement will allow
AsiaSat to purchase a replacement satellite for AsiaSat 4 at a pre-agreed price
scaled based on the time of XIPS 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."
SALES AND MARKETING
The Company's sales and marketing department, which had 24 employees
(including two general managers) as of December 31, 2006, 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 events and presentations at
industry conferences.
EMPLOYEES
As of December 31, 2006, the Company had 102 permanent employees, of which
9 employees were in management, 41 employees were in engineering and operations
and 24 employees were in sales and marketing. The remaining 28 employees were
engaged in administrative, accounting, legal, regulatory and clerical
activities. The Company has 85 employees in Hong Kong (including 1 employee for
Skywave) and 17 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
29
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 in fleet size, and have financial
resources that are substantially greater, than those of the Company. The Company
believes that its ability to compete with these organizations depends on its
existing customer relationships and the quality of its customer service, its
reputation as a reliable operator of commercial satellites and the technical
advantages of its satellites.
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 freely and fairly 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.
30
TRANSPONDER OVERSUPPLY
The supply of transponders in the region 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 "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 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
31
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
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.
32
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 government) ended in 1999. There are no specific laws to
regulate the activities 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. See Item 3 "Risk Factors - Risk of Not Successfully Renewing
Existing Transponder Capacity Agreements or Not Renewing Them on Terms Similar
to Their Current Terms or Customers Switching to Other Providers of Satellite
Transponder Capacity."
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.
33
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. 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
34
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 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. In February
2001, Boeing obtained a Technical Assistance Agreement to provide technical data
and services for in-orbit anomaly support and off-site support services for
AsiaSat 3S until 31 December 2009. On July 5, 2000, Boeing obtained a Technical
Assistance Agreement to provide necessary technical data to AsiaSat 4 until 31
December 2010. On July 20, 2000, Boeing obtained another Technical Assistance
Agreement from the U.S. Department of State to provide in-orbit anomaly support
for AsiaSat 4. See "-- Satellites -AsiaSat 4."
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 entered into an agreement with respect to the lease of 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.
35
SATELLITE CONTROL FACILITIES
The Tai Po Satellite Earth Station has been fully operational for more than
three 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 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 station keeping 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 December 31, 2006, the Company had three satellites in operation:
POSITION UTILIZATION RATES(1) % CHANGE
2004 2005 2006
---- ---- ----
AsiaSat 2 100.5(degree) East 36.4% 40.1% 46.9% 17.0%
AsiaSat 3S 105.5(degree) East 73.3% 72.7% 74.2% 2.1%
AsiaSat 4 122.2(degree) East 26.8% 46.5% 48.4% 4.1%
System Utilization 45.7% 54.0% 57.1% 5.7%
-------------
(1) There were 57 and 67 transponders respectively utilized on all AsiaSat
satellites at each of the year-end 2004 and 2005, and there were 71 transponders
utilized on all AsiaSat satellites at year-end 2006. See "--- Results of
Operations - Utilization Rates."
36
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.
MARKET REVIEW
The effects of the growing strength of some of the Asian economies have not
yet improved the short-term outlook of the Asia-Pacific satellite market. New
demand is being absorbed by existing oversupply that, concurrently, is being
increased by new satellite launches. Additionally, the satellite sector
typically lags behind other sectors in responding to overall shifts in the
economy.
In 2006, nine new satellites that cover portions of Asia were launched, but
two suffered a total loss at launch. After the retirement or relocation of five
other satellites, the seven additional satellites brought the total number of
satellites covering the region to 77, a net increase of two. The net effect was
a decrease of 13 C-band transponders and an increase of 34 Ku-band transponders
that are in competition with AsiaSat.
The Company is competing for contracts with new strategic customers and for
renewing existing customer contracts. In 2006, there was intense competition but
the Company was able to maintain its premium pricing over its competitors
because of outstanding service quality. However, the Company entered into
certain shorter and more competitive contracts in order to secure or retain
strategic relationships. This strategy did not enhance the Company's revenue or
significantly increase its backlog, but the Company was successful in retaining
customers and raising overall utilization in the current difficult market.
Emerging trends for the medium to long term are more positive. Much of the
new capacity that has been or is scheduled to be launched in the near term is
replacing existing satellites or is dedicated to specific domestic initiatives.
New applications and deregulation are expected to increase demand.
Short-term
Due to the persistent oversupply of transponder overcapacity and the slow
introduction of new applications in the Asia-Pacific satellite market, the
Company does not see material signs of improvement in the short to medium term
and does not see new developments in the market that would enable the Company to
deliver stronger results in 2007. Therefore, the Company does not expect to
achieve significant improvement in financial results in the near term. In
addition, the slow demand and the downward pressure on pricing continue to hold
back growth while only a few new video channels are entering the market. Few
operators of existing TV channels have made any commitment to expand, although
some are looking to do so.
Demand in telecommunications is growing steadily but the strong competition
and competitive pricing present enormous challenges to the Company. See "Key
Information -- Risk Factors - Political, Economic and Other Regional Risks" and
"Key Information -- Risk Factors - Risk of Limited Market Demand and Increasing
Competition." In addition to this slower growth in new demand, continuing price
pressure on new transponder utilization agreements have limited the Company's
37
growth. See "Information on the Company - Business Overview." The year of 2007
is another challenging year requiring intense customer focus to maintain and
expand existing businesses where possible and to concentrate on identifying new
opportunities for growth.
Medium to Long-term
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. Furthermore, the Company has an
outstanding technical and customer service team as well as a premium client
base.
There are signs of positive domestic regulatory activities in certain
markets, and these bode well for the future. New DTH services are also planned
for a number of important markets over the next few years, but existing
regulations that limit foreign ownership and prevent new DTH services from using
non-domestic satellites are discouraging foreign investment and creating
barriers for foreign satellite operators. Nevertheless, these developments are
positive as the overall surplus capacity in the region reduces as a result of
domestic capacity being absorbed. In addition, as markets over time slowly open
up to DTH, the eventual entry of foreign operators and investment is expected to
promote competition with the local operators. The forecast for DTH systems in
the Asia-Pacific region indicates that domestic satellite operators will not be
able to meet the demand for DTH capacity. This is expected to have a positive
impact on the business of the Company.
The Asia-Pacific region's competing television platforms also have a
growing appetite for high quality programming, which will drive the demand for
greater satellite capacity regardless of the delivery methods, which may be
cable, DTH or Internet Protocol Television (IPTV) delivered over broadband
services offered by the telephone operator. Competition is also forcing
television platform operators to differentiate themselves through new
applications and technology. In addition, economic development in countries that
lack traditional communications infrastructure, is forcing governments to
examine the latest technology, including satellite capacity. There are early
positive signs of increased activity, include many associated with the 2008
Beijing Olympics. There is some progress in the area of new technology,
including HDTV, video to mobile, and service bundling, all of which will drive
demand for satellite capacity. Developments in China's DTH market were
negatively affected by the launch failure of SinoSat 2, which was designed
exclusively for China's DTH. This failure and subsequent delay in the launch of
DTH in China is expected to delay the lifting of the ban on private satellite
dish ownership in China.
The extended period of little growth in the satellite industry in the
Asia-Pacific region is presenting challenges as well as opportunities for the
Company. 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 longer term recovery of the commercial
satellite industry in the Asia-Pacific region.
REVENUE
SOURCES. Substantially all of the Company's revenues during the years under
review were derived from payments made in respect of transponder utilization
38
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, 2007 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$2,510.8 million (US$321.9 million). The Company expects that most of such
committed revenue will be recognized over the remaining terms of the relevant
agreements up to 2014, assuming that the agreements are not terminated earlier.
See "Information on the Company - Transponder Utilization Agreements." In 2006,
approximately 2.6% of the Company's revenue from the provision of transponder
capacity was derived from transponder purchase agreements, and the remaining
portion was derived from transponder utilization agreements.
Payments under transponder utilization agreements are negotiated with each
individual customer and generally are influenced by various factors, including
market conditions that drive demand, satellite performance capabilities and the
reputation of AsiaSat as a reliable service provider. See "Information on the
Company - Business Overview." Generally, in the satellite transponder market,
transponders with greater coverage, wider bandwidth, more viewers and higher
power have commanded a premium price. These factors will impact our ability to
increase charges for transponder capacity in future periods with respect to new
and existing agreements.
SEGMENTS. The Company's primary industry "segments" consist of video
broadcasting and telecommunications. The majority of the Company's revenue is
attributable to video broadcasting. Due to the contracted nature of the
Company's revenue stream, year-to-year fluctuations are driven by customer
contract renewals and customer movements. See "Information on the Company -
Business Overview," "Information on the Company -Services and Customers -
Broadcasting," "Information on the Company - Services and Customers -
Telecommunications," "Information on the Company - Services and Customers -
Multimedia and Internet" and "Information on the Company - Services and
Customers - Expanded Services and Other Businesses." The following table shows a
breakdown of revenue by segment:
YEAR ENDED DECEMBER 31,
2004 2005 2006
(HK$) (HK$) (HK$)
(in millions, except for percentages)
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
Broadcasting (video) 709.4 70.6% 578.4 65.7% 630.3 67.8%
Telecommunications, Internet and 295.6 29.4% 301.3 34.3% 299.6 32.2%
Multimedia
Total Revenue 1,005.0(1) 100.0% 879.7 100.0% 929.9 100.0%
--------------
(1) See "-- Results of Operations - Revenues."
39
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,
2004 2005 2006
(HK$) (HK$) (HK$)
(in millions, except for percentages)
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
Hong Kong 323.1 32.1% 341.7 38.8% 341.6 36.7%
Greater China, including
Macau and Taiwan 197.9 19.7% 202.7 23.0% 194.8 21.0%
United States of America 183.8(1) 18.3% 78.2 8.9% 79.8 8.6%
British Virgin Islands 40.9 4.1% 9.7 1.1% 2.8 0.3%
United Kingdom 46.1 4.6% 49.4 5.6% 53.2 5.7%
Others 213.2 21.2% 198.0 22.6% 257.7 27.7%
----- ----- ----- ------ ----- -----
Total Revenue 1,005.0(1) 100.0% 879.7 100.0% 929.9 100.0%
======== ====== ===== ====== ===== ======
-------------
(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 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 2004, there was
recognition of revenues under the transponder utilization agreements in excess
of payments due under those agreements in the amounts of HK$9.3 million. In 2005
and 2006, 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 HK$3.5 million (US$0.5 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, 2004,
2005 and 2006, approximately 22.4%, 25.7% and 24.3%, 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."
40
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.
Operating expenses decreased to HK$207 million, which is similar to the
operating expense in 2005.
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
2004, 2005 and 2006, the Company recorded a HK$12.4 million, HK$3.9 million and
HK$8.4 million (US$1.1 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 2004, 2005 and 2006, the Company recorded a net
positive contribution to the Company's income statement in the amount of, HK$6.4
million, HK$28.3 million and HK$37.9 (US$4.9 million), respectively.
TAXATION
The Company is subject to Hong Kong Profits Tax on its operations deemed to
be located in Hong Kong. It is also subject to overseas tax on its operations in
certain of the overseas jurisdictions. The Hong Kong profits tax rate was
increased to 17.5% per annum with effect from April 2003. Hong Kong profits tax
was previously charged at the rate of 16% per annum.
Under Indian tax regulations, the Company may be subject to Indian income
tax on revenues received by the Company in respect of income from the provision
of satellite transponder capacity to the Company's customers for purposes of
those customers carrying on business in India or earning income from any source
in India.
41
The Indian tax authorities have assessed the Company for income tax as
follows:
ASSESSMENTS (HK$ IN MILLIONS) (APPROXIMATELY)
-------------------------------------------------------------------------------------------------------------------------------
Assessment Year 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Total
20.0 23.0 22.0 14.0 29.0 38.0 50.0 58.0 254.0
-------------------------------------------------------------------------------------------------------------------------------
The Company has filed appeals for each of the assessment years 1997-98 to
2004-05. No assessment has yet been made for the 2005-06 or 2006-07 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 as they believe
that the amounts are recoverable:
PAYMENT TO STAY RECOVERY PROCEEDINGS (HK$ IN MILLIONS) (APPROXIMATELY)
-------------------------------------------------------------------------------------------------------------------------------
Assessment Year 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Total
13.0 14.0 11.0 9.0 20.0 27.0 39.0 22.0 155.0
-------------------------------------------------------------------------------------------------------------------------------
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 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 2006 amounted to HK$929.9 million , an increase
of HK$50.2 million compared to that of 2005.
Operating profit decreased from HK$504.0 million in 2004 to HK$420.5
million in 2005. Operating profit in 2006 increased to HK$517.5 million from
HK$420.5 million in 2005. Operating profit as a percentage of revenues increased
in 2006 to 55.6% from 47.8% in 2005, which in turn decreased from 50.1% in 2004.
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.
42
YEAR ENDED DECEMBER 31,
2004 2005 2006
-------------- --------------- -------------
Revenues 100% 100% 100%
Cost of services (41.9) (47.6) (44.2)
-------------- --------------- -------------
58.1 52.4 55.8
Other gains - net 2.2 4.9 10.0
Administrative expenses (10.2) (9.5) (10.2)
-------------- --------------- -------------
Operating profit 50.1 47.8 55.6
Finance costs - - -
Share of results of associates (including
goodwill amortization) (1.2) (0.5) (0.9)
Impairment loss recognized in respect of
goodwill of associates - - -
-------------- --------------- -------------
Profit before taxation 48.9 47.3 54.7
Taxation (6.0) (5.8) (5.9)
-------------- --------------- -------------
Profit for the year 42.9 41.5 48.8
REVENUES
Revenues in 2006 increased 5.7% to HK$929.9 million from HK$879.7 million
in 2005, which in turn decreased from HK$1,005.0 million in 2004. During 2005,
the Company entered into transponder utilization agreements totaling
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 higher 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. The
increase in revenue in 2006 was due to one-time receipts of HK$50 million for
early termination of contracts. Excluding the receipts, recurring revenue were
almost the same as 2005.
UTILIZATION RATE. As of December 31, 2006, the overall total utilization
rate of AsiaSat 2, AsiaSat 3S and AsiaSat 4 increased 5.7% over the prior year
from 54.0% to 57.1%, which in turn increased from the overall total utilization
rate of 45.7% as of December 31, 2004. See "--Overview." There were 57, 67 and
71 transponders utilized on all AsiaSat's satellites at the year-end 2004, 2005
and 2006, respectively. This utilization rate did not include the transponder
capacity used for occasional service on an ad-hoc basis and it was difficult for
the Company to quantify this usage and translate it into equivalent
transponders. The revenue generated from occasional service was US$37 million,
representing approximately 4% of the recurring revenue. The increase in 2005 and
2006 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
43
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 2006 decreased 2.0% to HK$410.6
million (US$52.6 million) from HK$419.0 million which in turn decreased 0.4%
from HK$420.5 million in 2004. 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. The decrease in
2006 was due mainly to savings in the premium on self-insuring AsiaSat 2
following the imposition of unacceptable exclusions upon renewal of the in-orbit
insurance. 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 2006 to HK$297.6 million
from HK$295.1 million in 2005 which in turn increased from HK$287.4 million in
2004, which was mainly due to the increase in the depreciation of miscellaneous
assets. 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 2006 increased 12.8% to
HK$94.6 million (US$12.1 million) from HK$83.9 million in 2005, which in turn
decreased 18.1% from HK$102.5 million in 2004. 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
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. The increase in 2006 was due mainly to an increase of headcount and
salary revisions, and provisions for performance bonus, leave compensation and
long-term incentives.
OTHER GAINS - NET. Other gains primarily consists of interest income.
Interest income in 2006 increased 112.6% to HK$92.7 million from HK$43.6 million
in 2005 which in turn increased 100% from HK$21.8 million in 2004. The increase
in interest income in 2006, 2005 and 2004 was primarily due to larger cash
balances and higher interest rates on term deposits.
PROFIT BEFORE INCOME TAX
Profit before income tax in 2006 increased 22.2% to HK$508.9 million
(US$65.2 million) from HK$416.6 million in 2005, which in turn decreased 15.3%
from HK$491.6 million in 2004. The increase in profit before income tax in 2006
resulted from higher revenues and higher interest income in 2006.
INCOME TAX EXPENSE
Income tax expense in 2006 increased 8.2% to HK$55.5 million (US$7.1
million) from HK$51.3 million in 2005, which in turn decreased 15.2% from
HK$60.5 million in 2004. The increase in income tax expense in 2006 resulted
primarily from higher assessable profit. For the years 2004, 2005 and 2006, the
effective tax rates were 12.3%, 12.3% and 10.9%, respectively.
44
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
Profit for the year in 2006 increased 24.0% to HK$454.0 million (US$58.2
million) from HK$366.2 million in 2005, which decreased 15.1% from HK$431.2
million in 2004. This increase was mainly attributable to one-time receipts with
the balance coming from interest income.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF FINANCING
The Company's principal use of capital in 2006 was capital expenditures
associated with the construction of AsiaSat 5. Cash applied for the acquisition
of property, plant and equipment was HK$47.7 million in 2004, which in turn
decreased to HK$23.7 million in 2005 and increased to HK$306.7 million (US$39.3
million) in 2006. Cash applied for the acquisition of property, plant and
equipment has been financed through cash flows generated from operations.
As of December 31, 2006, the Company had no outstanding debt and HK$4,421.6
million of shareholders' equity.
The satellite business is highly capital intensive. The Company's ability
to meet its future debt obligations, if any, will be dependent on a number of
factors, including its cash flow from operations, its ability to secure future
financing, if needed, and the useful lives of the Company's satellites. See "--
Planned Capital Expenditures."
PLANNED CAPITAL EXPENDITURES
The Company anticipates the need for additional capital to fund the
construction and launch of AsiaSat 5 . The following table sets forth the
Company's planned major capital expenditures for the periods indicated. Actual
capital expenditures may differ from the amounts indicated below.
----------------------------------------------------------------------------------------------------------------------------
PLANNED CAPITAL EXPENDITURES (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
2007 2008 2009 2010 2011 TOTAL TOTAL
HK$ HK$ HK$ HK$ HK$ HK$ US$
AsiaSat 5 501.7 269.4 264.3 - - 1,035.4 132.7
Others 11.2 12.3 8.8 9.9 10.4 52.6 6.7
Skywave TV - 1.0 - 1.0 - 2.0 0.3
Total 512.9 ` 282.7 273.1 0.9 0.4 1,090.0 139.7
----------------------------------------------------------------------------------------------------------------------------
----------------
AsiaSat 5 is currently under construction for launch in 2009 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$180.0 million). The planned
capital expenditures indicated as "Others" in the table above consist
of those planned for furniture and fixture, office equipment,
equipment and building upgrade at the Tai Po site, motor vehicles, new
business and test equipment and tools.
45
CONTRACTUAL OBLIGATIONS
As of December 31, 2006, the Company had various contractual obligations
which are more fully disclosed in Note 30 to the consolidated financial
statements of the Company. The following table aggregates the contractual
obligations of the Company as of December 31, 2006:
-------------------------------------------------------------
PAYMENTS (OR OTHER OBLIGATIONS WHICH MAY BECOME DUE)
BY PERIOD (HK$ IN MILLIONS)
-------------------------------------------------------------
LESS THAN 1-3 4-5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS
-------- --------- -------- ------- -------
Repairs and Maintenance and
Capital Expenditure................... 1,106.7 820.4 286.3 - -
Operating Lease Obligations............. 4.8 4.1 0.7 - -
-------- --------- -------- ------- -------
Total Contractual Obligations........... 1,111.5 824.5 287.0 - -
======== ========= ======== ======= =======
-------------------------------------------------------------
Deferred Revenue ....................... 295.7 153.1 55.8 30.0 56.8
-------------------------------------------------------------
Asset Retirement Obligation............. 1.8 - 1.8 - -
-------------
(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, 2006, commitments for future minimum lease payments which fall due
in 2007, 2008 and subsequent years are HK$4.1 million and HK$0.7 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$1,234.4 million, HK$1,635.5 million and HK$1,979.5 million (US$253.8 million)
as of December 31, 2004, 2005 and 2006 respectively.
Net cash generated from operating activities was HK$750.8 million, HK$514.4
million and HK$698.5 million (US$89.6 million) in 2004, 2005 and 2006,
respectively. In 2004, the 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. In 2006, the increased level of net
cash provided by operating activities resulted primarily from a higher level of
cash generated from operations.
46
Net cash used in investing activities was HK$50.9 million, HK$23.4 million
and HK$218.0 million (US$28.0 million) in 2004, 2005 and 2006 respectively.
Expenditures on AsiaSat 5 was HK$297.4 million in 2006. Expenditures on other
property and equipment were HK$47.7 million, HK$23.7 million and HK$9.3 million
in 2004, 2005 and 2006, respectively.
Net cash used in financing activities was HK$124.9 million, HK$136.6
million and HK$ 136.6 million (US$17.5 million) in 2004, 2005 and 2006,
respectively. In 2004, 2005 and 2006, 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$1,023.1 million at December 31, 2004, a
working capital of HK$1,461.1 million at December 31, 2005 and a working capital
of HK$1,770.9 million (US$227.0 million) at December 31, 2006.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or resources that are
material to investors.
EXCHANGE RATES
During the past three years almost all of the Company's revenues, premiums
for satellite insurance coverage and substantially all capital expenditures were
denominated in US Dollars. The Company's remaining expenses were primarily
denominated in HK Dollars during these periods. As of December 31, 2006, almost
all of AsiaSat's transponder utilization agreements, transponder purchase
agreements and obligations to construct and launch satellites and to purchase
TT&C equipment were denominated in US Dollars.
INFLATION
Inflation has not materially affected the Company's operations during the
past three years.
U.S. GAAP RECONCILIATION
The Company's financial statements are prepared in accordance with HKFRS,
which differs in certain material respects from U.S. GAAP. The following table
sets forth a comparison of the Company's net income and shareholders' equity in
accordance with HKFRS and U.S. GAAP.
2004 2005 2006 2006
HK$ HK$ HK$ US$
(IN MILLIONS)
Net income in accordance with:
HKFRS................................. 431.2 366.2 454.0 58.2
U.S. GAAP............................. 424.1 358.8 446.3 57.2
Shareholders' equity in accordance with:
HKFRS................................. 3,874.6 4,104.2 4,421.6 566.9
U.S. GAAP............................. 3,916.7 4,138.9 4,448.7 570.3
47
Note 32 to the Company's consolidated financial statements provides a
description of the principal differences between HKFRS and U.S. GAAP as they
relate to the Company and a reconciliation to U.S. GAAP of certain items,
including net income and shareholders' equity. Differences between HKFRS and
U.S. GAAP that have a material effect on the Company's net income and
shareholders' equity as reported under HKFRS relate to capitalization of
interest, borrowing costs and deferred taxation.
RECENT U.S. ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48), an Interpretation of SFAS 109, Accounting
for Income Taxes. FIN 48 was issued to clarify the accounting for uncertainty in
tax positions taken or expected to be taken in a tax return. Under FIN 48, the
tax benefit from an uncertain tax position may be recognized only if it is more
likely than not that the tax position will be sustained upon examination by tax
authorities. The Group plans to adopt FIN 48 for annual periods beginning
January 1, 2007. The Group is currently evaluating the potential impact that the
adoption of FIN 48 will have on its consolidated financial statements.
In September 2006, the FASB issued FAS 157, Fair Value Measurements. FAS
157 provides guidance on the measurement of fair value in US GAAP and expands
fair value measurement disclosures. FAS 157 is applicable whenever other
accounting pronouncements require or permit fair value measurements and does not
expand the use of fair value in any new circumstances. The Group will apply this
standard for annual periods beginning January 1, 2007. The Group is currently
evaluating the potential impact that the adoption of FAS 157 will have on its
consolidated financial statements.
In February 2007, the FASB issued FAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115 (FAS 159). FAS 159 permits entities to measure many financial
instruments and certain other assets and liabilities at fair value on an
instrument-by-instrument basis. The Group will apply this standard for annual
periods beginning January 1, 2008. The Group is currently evaluating the
potential impact that the adoption of FAS 159 will have on its consolidated
financial statements.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are prepared in accordance
with HKFRS. 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 59%, 52% and 43.6% of its total assets as of December 31,
2004, 2005 and 2006 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
48
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 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% to 3% 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, 2006 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.
49
CONTINGENCY RELATED TO INDIAN TAX ASSESSMENTS. As of December 31, 2006 the
Indian tax authorities have assessed the Company for income tax of approximately
HK$254.0 million (US$32.6 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 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
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, 2007 are set forth
below.
50
DATE FIRST
ELECTED OR APPOINTED
DIRECTOR OF ASIASAT
NAME AGE POSITION (OR THE COMPANY) TERM OF OFFICE
------------------------------------------------------------------------------------------------------------------------
Zeng Xin Mi (1) 56 Chairman and Director February 28, 2001 May 18, 2007
(2006-2008)
Deputy Chairman and Director
(2005-2006)
Professor Edward Chen,
G.B.S., C.B.E., J.P. (3) 62 Director May 10, 1996 May 15, 2009
Mark Chen (2) 32 Director March 29, 2007 May 18, 2007
John Connelly (2) 63 Director March 29, 2007 May 18, 2007
Yu Cheng Ding (1) 41 Director January 15, 1999 May 18, 2007
Ronald Herman (2) 44 Director March 29, 2007 May 18, 2007
Peter Jackson 58 Director May 10, 1996 May 15, 2009
Wei Min Ju (1) 44 Director October 12, 1998 May 18, 2007
Fai Wong Ko (1) 58 Director March 11, 2004 May 18, 2007
Nancy Ku (2) 50 Director March 29, 2007 May 18, 2007
Robert Sze (3) 66 Director May 10, 1996 May 16, 2008
William Wade 50 Director May 10, 1996 May 15, 2009
James Watkins (3) 61 Director June 30, 2006 May 17, 2007
-------------
(1) Appointed by CITIC.
(2) Appointed by GECC.
(3) Independent.
The executive officers of the Company as of May 31, 2007 are set forth
below.
DATE FIRST
ELECTED OR APPOINTED
DIRECTOR OF ASIASAT
NAME AGE POSITION (OR THE COMPANY) TERM OF OFFICE
------------------------------------------------------------------------------------------------------------------------
Peter Jackson 58 Chief Executive Officer July 1, 1993 Indefinite
William Wade 50 Deputy Chief Executive Officer April 15, 1994 Indefinite
Catherine Chang 39 Legal Counsel January 1, 2003 Indefinite
Liqun Chen 56 General Manager, China April 14, 1989 Indefinite
51
DATE FIRST
ELECTED OR APPOINTED
DIRECTOR OF ASIASAT
NAME AGE POSITION (OR THE COMPANY) TERM OF OFFICE
------------------------------------------------------------------------------------------------------------------------
Ya Hui Chiu 57 General Manager, Operation February 13, 1989 Indefinite
Sabrina Cubbon 45 General Manager, Marketing December 1, 1993 Indefinite
Barry Turner 60 General Manager, Engineering May 1, 1998 Indefinite
Sue Yeung 43 General Manager Finance and January 1, 2007 Indefinite
Administration and Company
Secretary
----------------
The Board of Directors of the Company currently consists of 13 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 By-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.
In the annual general meeting held on May 18, 2007, some directors of the
Company including Ronald Herman, John Connelly, Mark Chen, Yu Cheng Ding, Wei
Min Ju, Fai Wong Ko, Nancy Ku, Zeng Xin Mi and James Wakins retired by rotation
in accordance with the Company's Bye-laws. In the same meeting, the resolution
for their re-election was approved.
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), Chairman
(2003-2004) and Deputy Chairman (2005-2006) of the Board on a rotational basis
biennially. For the current term (2007-2008), he acts as Chairman. He is an
Executive Director and Vice President of CITIC Group ("CITIC"). He is an
Executive Director of CITIC Resources Holdings Limited, Chairman of CITIC USA
Holdings Limited, CITIC Australia Pty Ltd, CITIC Resources Australia Pty Limited
and Karazhanbaemunai JSC (KBM), and a Director of CITIC United Asia Investments
Limited. He also holds executive management positions in several other
subsidiaries of CITIC He has over 23 years' experience in multi-national
business, corporate management and various other industries.
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
a Director of the First Pacific Company Limited and a Director of The Wharf
(Holdings) Limited.
MARK CHEN was appointed as the Non-executive Director of the Company on
March 29, 2007. He is the Managing Director of GE Commercial Finance - Equity,
Asia Pacific. Since June 2006, Mr. Mark Chen has been the business leader and
subsequently Managing Director, Asia Pacific of GE Commercial Finance - Equity.
Prior to this role, Mr. Mark Chen held positions as an associate, assistant vice
president, vice president and senior vice president in GE Commercial Finance -
Equity. Mr. Mark Chen has worked for GE for seven years.
52
JOHN CONNELLY was appointed as the Non-executive Director of the Company on
March 29, 2007. He served with GE for over 37 years in a variety of positions.
From 1992 to 2001 he served as Chairman and CEO of GE Americom, Inc., which was
subsequently sold to SES. In 2001 he was named Vice Chairman of SES, a position
he held until March 2007.
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 was 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 holds a Master of Business
Administration degree from the University of Pittsburg and a Doctor of
Philosophy degree in Economics from Tsinghua University.
RONALD HERMAN was appointed a Non-executive Director of the Company on 29
March 2007. Since May 2003, Mr. Ronald J. Herman, Jr. has been the President and
CEO of GE Commercial Finance - Equity and Vice President of GECC. Prior to this
role, Mr. Ronald J. Herman spent 10 years, starting in January 1993, in GE's
headquarters as the general manager of Mergers and Acquisitions. Mr. Ronald J.
Herman has worked for GE for 23 years, his entire business career.
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 and also a
Non-executive Director of China CITIC Bank, CITIC International Financial
Holdings Limited, CITIC Ka Wah Bank and as Chairman of CITIC Trust and
investment Co. Ltd. He served in various management positions in CITIC including
Deputy Head and Head of the Finance Department. He has over 20 years of
experience in finance and corporate management.
MS. NANCY KU appointed a Non-executive Director of the Company on 29 March
2007. She is the President and CEO, Asia Pacific of Corporate Financial
Services, GE Commercial Finance and has held this position since March 2006.
Prior to this role, Ms. Nancy Ku was the Managing Director, Asia Pacific of GE
Equity. Ms. Ku has worked for GE for eight years.
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.
He was a partner in an international firm of accountants with which he practiced
for over 20 years and 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.
JAMES WATKINS was appointed as an Independent Non-executive Director of the
Company on June 30, 2006. He qualified as a solicitor in 1969 and was for 20
years a Partner in Linklaters, a leading international English law firm. From
1997-2003, he was a Director and General Counsel of the Jardine Matheson Group
in Hong Kong. He is a non-executive director of a number of Hong Kong and
overseas listed companies. He holds a degree in Law from the University of
Leeds, United Kingdom.
53
The board of directors (the "Board") of Asia Satellite Telecommunications
Holdings Limited (the "Company", together with its subsidiaries, the "Group")
announces that Mr. Watkins has been appointed as an Independent Non-executive
Director ("INED"), the Chairman of Remuneration Committee and a member of the
Audit Committee with effect from 30 June 2006. Mr. Watkins does not hold any
other positions with the Company or any member of the Group.
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 30
years' experience in the telecommunications field. Prior to his appointment as
the Chief Executive Officer in 1993, he was employed by Cable & Wireless plc
where he held engineering, marketing and management positions and was
responsible for several satellite telecommunications ventures. He is a
Non-executive Director of Daum Communications Group, a company that is listed in
Korea. He has also served on Board of the Cable & Satellite Broadcasting
Association of Asia (CASBAA) in various positions since 1997 and is currently
the Treasurer.
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 22
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 Master of International Management degree from
Thunderbird - School of Global Management.
CATHERINE CHANG is Legal Counsel and Assistant Company Secretary 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 Law 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 was 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 degree in Business Administration from the University of
Leuven in Belgium and a Bachelor of Science degree in Electronics and Industrial
Automation from Tsinghua University, China.
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 23 years experience in telecommunications engineering and
operations, with the last 20 years being in the satellite communications area.
He received his Bachelor of Science degree from the 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 22 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 Master degree in Electronic and Electrical
Engineering, specializing in cryptography. She is also a Non-executive Director
of our subsidiary, Skywave TV Company Limited.
54
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 33 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
Engineering from the Technical University of Nova Scotia, Canada, and a Master
degree in Business Administration from the University of Ottawa, Canada.
SUE YEUNG is General Manager Finance and Administration and the Company
Secretary of AsiaSat on January 1, 2007. She is a member of the Institute of
Chartered Accountants in England and Wales. In 1993, she joined British
Telecommunications (HK) Limited ("BT") and held various senior positions
including Chief Financial Officer of Smartone in 1999, when BT acquired an
equity interest in Smartone. Subsequently, she joined Wavecome Asia Pacific
Limited, a company listed in Paris and NASDAQ, as the Regional Finance Director
for the Asia Pacific region. Prior to joining AsiaSat, she was the Regional
Chief Financial Officer of Pearson Education Asia Limited with the overall
responsibilities of its Asia Operations. She holds a Bachelor of Science Degree
in Chemical Engineering from London University and is a fellow member of Hong
Kong Institute of Certified Public Accountants.
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 2005 and 2006 was approximately HK$27.5 million and HK$40.2
million, respectively. This compensation included payments of HK$0.5 million
(2005: HK$0.5 million) and HK$0.5 million (2006: HK$0.5 million) to SES S.A. and
a subsidiary of CITIC, the major shareholders of the Company, respectively, for
certain Non-Executive Directors representing SES S.A. and CITIC.
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
55
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.
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
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
56
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 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, James Watkins, Wei Min Ju and Mark Chen. Messrs.
Wei Min Ju and Mark Chen have only observer status on the audit committee and
are non-voting members nominated by CITIC and GE Equity 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. James Watkins (Chairman), Wei Min Ju,
and Nancy Ku.
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), Ronald Herman 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. John Connelly (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.
57
EMPLOYEES
As of December 31, 2006, the Company had 102 permanent employees, of which
9 employees were in management, 41 employees were in engineering and operations
and 24 employees were in sales and marketing. The remaining 28 employees were
engaged in administrative, accounting, legal and regulatory activities. The
Company has 85 employees in Hong Kong and 17 employees in Beijing.
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
"Hong Kong Stock Exchange") daily quotations sheet on the date of grant; (ii)
the average closing price of the shares as stated in the Hong Kong 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, 2006, outstanding options granted under the Share Option
Scheme (including those previously granted under the old scheme) were as
follows:
OPTION PRICE
EXERCISE PERIOD HK$ NUMBER OF SHARES
------------------------------------------------------ -------------------
Oct 1, 2002 to Sept 30, 2009 17.48 1,630,000
Feb 4, 2004 to Feb 3, 2012 14.35 3,211,500
------------------
4,841,500
==================
As of March 31, 2007, Romain Bausch, the then Chairman and Non-Executive
Director of the Company, has been granted 100,000 options, exercisable from
February 4, 2004 to February 3, 2012. Such options lapsed in accordance with the
terms of the Share Option Scheme, upon Mr. Bausch's resignation from the Board
on March 29, 2007.
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, 2007, Mr. Mi has not exercised any of his
options or accepted the Offers with respect to his options. Options that are not
exercised or accepted will lapse after June 26, 2007.
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, 2007, Mr. Chen has not exercised any of his options or accepted
the Offers with respect to his options. Options that are not exercised or
accepted will lapse after June 26, 2007.
58
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
31, 2007, Mr. Ding has not exercised any of his options or accepted the Offers
with respect to his options. Options that are not exercised or accepted will
lapse after June 26, 2007.
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. As of May
31, 2007, Mr. Ju has not exercised any of his options or accepted the Offers
with respect to his options. Options that are not exercised or accepted will
lapse after June 26, 2007.
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, 2007, Mr. Sze has not exercised any of his options or accepted the
Offers with respect to his options. Options that are not exercised or accepted
will lapse after June 26, 2007.
Peter Jackson, an Executive Director and the Chief Executive Officer of the
Company, has been granted 150,000 B options, exercisable from October 1, 2002 to
September 30, 2009 and 430,000 C options exercisable from February 4, 2004 to
February 3, 2012. As of May 31, 2007, Mr. Jackson has exercised 50,000 C options
and made an acceptance on all the remaining options (150,000 B options and
380,000 C options).
William Wade, an Executive Director and the Deputy Chief Executive Officer
of the Company, has been granted114,000 B options, exercisable from October 1,
2002 to September 30, 2009 and 330,000 C options exercisable from February 4,
2004 to February 3, 2011. As of May 31, 2007, Mr. Wade has not exercised any of
his options but has made an acceptance of all his options.
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, 2007 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.
IDENTITY OF PERSON PERCENT
TITLE OF CLASS OR GROUP SHARES OWNED OF CLASS
--------------------------------------------------------------------------------
Common Stock Bowenvale Limited 268,905,000 68.75%
Common Stock Directors and Officers 704,500 0.18%
The Company is controlled by Bowenvale Limited, a limited liability company
incorporated in the British Virgin Islands ("Bowenvale Limited"), which owns
68.75% of the outstanding Shares. As a result of the Exchange Transactions,
effective March 29, 2007, Bowenvale is jointly owned indirectly by CITIC and
GECC.
On May 25, 2007, Asiaco, which is owned indirectly by the same shareholders
that control Bowenvale, launched the Offers. As a result of the Offers, CITIC
and GECC could indirectly hold 100% of the Shares (including the Shares
underlying the ADSs). However, due to the position of the State Department, in
the event that less than 25% of the Shares would be held by shareholders
unaffiliated with CITIC or GECC, it is expected that either the Company would
59
issue additional Shares, or that the controlling shareholders would sell Shares,
such that at least 25% of the Shares would be held by shareholders unaffiliated
with CITIC or GECC.
RELATED PARTY TRANSACTION
The Company is controlled by Bowenvale Limited, which owns 68.75% of the
outstanding shares of the Company. As at May 31, 2007, the ultimate controlling
shareholder of Bowenvale Limited and the Company are CITIC Group and GECC.
Certain members of the Board of Directors of the Company also serve as
directors and executive officers of the controlling shareholders of the Company.
These individuals include Zeng Xin Mi, Wei Min Ju, and Fai Wong Ko in relation
to CITIC Group and Ronald J. Herman, Nancy Ku and Mark Chen in relation to GECC.
See "Directors, Senior Management and Employees."
AsiaSat 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.
(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. Two agreements have a term of one year until
May 31, 2006 and June 30, 2006 respectively. One agreement has a term of
half year from July 1, 2006 to December 31, 2006. 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 2005 and 2006, respectively, under these agreements was
approximately HK$2.5 million (US$0.3 million) and HK$1.4 million (US$0.2
million).
(ii) In 2005 and 2006, respectively, the Company paid an agency fee of
HK$0.7 million and HK$0.6 million to CITIC Technology Company Limited, a
subsidiary of CITIC, for collecting money from China customers on behalf of
the Company.
(iii) 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 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.
(iv) In 2005 and 2006, the Company recognized rental income from leasing
satellite transponder capacity amounting to approximately HK$32.2 million
and HK$46.3 million (US$5.9 million), respectively, and no maintenance and
other services income from SpeedCast Holdings Limited.
60
(v) In 2006, the Company made payments to SES and a subsidiary of CITIC
amounting to HK$0.5 million (2005: HK$0.5 million; 2004: HK$0.5 million)
and HK$0.5 million (2005: HK$0.5 million; 2004: HK$0.5 million)
respectively, for certain Non-Executive Directors representing SES and
CITIC. During 2006, SES was still a shareholder of Bowenvale).
(vi) 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.
The transactions mentioned above have been entered into in the ordinary
course of business and on normal commercial terms and have not exceeded the caps
allowed by the Hong Kong Stock Exchange and such transactions, which are of a
continuing nature, are expected to be continued in the future.
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 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 2004,
2005 and 2006.
FOR THE YEAR ENDED
DECEMBER 31
2004 2005 2006
---- ---- ----
Net income (in HK Dollars in millions)........................ 431 366 454
Ordinary dividend paid (in HK Dollars in millions)............ 137 137 137
Ordinary dividend paid per Share (in HK cents)................ 35 35 35
Ordinary dividend proposed (in HK Dollars in millions)........ 105 105 105
Ordinary dividend proposed per Share (in HK cents)............ 27 27 27
Special dividend paid (in HK Dollars in millions)............. - - -
Special dividend paid per share (in HK cents)................. - - -
61
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
None
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 - 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.
62
NEW YORK STOCK EXCHANGE HONG KONG STOCK EXCHANGE
(IN US$) (IN HK$)
HIGH LOW HIGH LOW
---- --- ---- ---
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
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
Quarter Ending March 31 2006.................. 19.40 16.15 14.95 12.20
Quarter Ending June 30, 2006.................. 18.35 16.65 14.50 12.90
Quarter Ending September 30, 2006............. 17.19 16.05 13.30 12.22
Quarter Ending December 31, 2006.............. 18.85 16.21 15.00 12.20
January 2007.................................. 18.41 17.50 14.36 13.30
February 2007(a).............................. 23.00 17.60 18.10 13.88
March 2007.................................... 23.55 22.33 18.10 17.50
Quarter Ending March 31, 2007................. 23.55 17.50 18.10 13.30
April 2007(b)................................. 23.19 20.69 17.90 15.80
May 2007(c)................................... 21.75 20.89 17.10 15.00
-------------
(a) On February 9, 2007, the Privatization was announced at a share offer
price of HK$18.30 per Share.
(b) On April 23, 2007, the Company announced the receipt of the State
Department position and on April 24, 2007, the Scheme was terminated.
(c) On May 25, 2007, the Offers were launched at an offer price of
HK$16.00 per Share less the final dividend of $0.27 per share paid for
the fiscal year of 2006.
SIGNIFICANT TRADING SUSPENSION
On 9 February 2007 (both Hong Kong and New York time), the Company
suspended its trading in its Shares on the Hong Kong Stock Exchange and the
trading in ADSs on the New York Stock Exchange, pending the release of an
announcement in relation to the proposed privatization of the Company and the
possible mandatory general offers which were described earlier under the heading
"Privatization Scheme and Mandatory General Offers" in Item 4. Trading was
resumed on both stock exchanges on the same day on 14 February 2007 (Hong Kong
and New York Time) after the publication of this announcement.
On 23 April 2007 (both Hong Kong and New York time), the Company suspended
its trading in its Shares on the Hong Kong Stock Exchange and trading in ADSs on
the New York Stock Exchange, pending the release of an announcement in relation
to the indefinite adjournment of the court meeting and special general meeting
conducting for the approving of the Privatization Scheme. Trading was resumed on
both exchanges on the same day on 25 April 2007 (Hong Kong and New York Time)
after the publication of this announcement.
63
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 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.
64
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.
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.
65
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.
INTEREST RATE FLUCTUATIONS
As of December 31, 2006, 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, 2006
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.
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.
66
REPORT OF THE COMPANY'S MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in the United States Exchange Act Rules 13a-15(e) and 15d(e)) as of
the end of the period covered by this Annual Report on Form 20-F, have concluded
that, as of such date, the Company's disclosure controls and procedures were
effective to ensure that material information required to be disclosed in the
reports that we file and furnish under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and regulations..
REPORT OF THE COMPANY'S MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The
Company's internal control system is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
and fair presentation in accordance with generally accepted accounting
principles of its published consolidated financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
The Company's management, including the Chief Executive Officer and the
Chief Financial Officer, assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2006. In making this
assessment, it used the criteria established in INTERNAL CONTROL--INTEGRATED
FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on the results of the assessment, the Company's
management has concluded that, as of December 31, 2006, the Company's internal
control over financial reporting is effective based on those criteria.
The management's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2006 has been audited by
PricewaterhouseCoopers, an independent registered public accounting firm, as
stated in their report which is included under "Item 18. Financial Statements"
on page F-2.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes to the Company's internal control over financial
reporting that occurred during the period covered by this Annual Report on Form
20-F that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
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).
67
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
PricewaterhouseCoopers served as the principal accountant of the Company
(the "Principal Accountant"). The fees incurred and described below for the
Principal Accountant.
AUDIT FEES
The aggregate fees incurred by the Company in each of 2005 and 2006 were
HK$0.8 million and HK$1.8 million respectively, for professional services
rendered by the Principal Accountant, for the audit or review of the Company's
financial statements, which includes the audit of internal controls over
financial reporting in compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act 2002.
AUDIT-RELATED FEES
The aggregate fees incurred by the Company in each of 2005 and 2006 were
HK$142,000 and HK$12,000 respectively, for assurance and related services by the
Principal Accountant 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 2005 and 2006 were
HK$89,000 and HK$85,000 respectively, for professional services rendered by the
Principal Accountant for tax compliance, tax advice and tax planning.
ALL OTHER FEES
The aggregate fees incurred by the Company in each of 2005 and 2006 were
HK$0.8 million and HK$0.1 million, respectively, for products and services
provided by the Principal Accountant, other than for services described in the
paragraphs above. Services comprising the fees disclosed involve principally the
consultation services rendered in connection with Section 404 of the
Sarbanes-Oxley Act of 2002 in 2005 and the performance of services relating to
our circular for the acquisition of AsiaSat 5 filed with the Hong Kong Stock
Exchange in 2006.
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.
68
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, James Watkins, Mark Chen and Wei Min Ju. Messrs.
Mark Chen and Wei Min Ju have only observer status on the audit committee and
are non-voting members nominated by GE Equity and CITIC , 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. Mark
Chen and Wei Min Ju 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 III
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
Consolidated Statements of Operations..........................F-3
Consolidated Balance Sheets....................................F-4
Consolidated Statement of Changes in Shareholders' Equity......F-5
Consolidated Statements of Cash Flows..........................F-6
Notes to the Consolidated Financial Statements.................F-7
69
(b) Exhibits to this Annual Report:
NUMBER EXHIBIT
--------------------------------------------------------------------------------
1.1. Memorandum of Association and By-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).
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).
70
NUMBER EXHIBIT
--------------------------------------------------------------------------------
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 (incorporated by reference to
Exhibit 4.19 on Form 20-F for fiscal year 2005).*
4.20 Contract for Land Launch Services, dated May 8, 2006 between AsiaSat
and Sea Launch Limited Partnership (incorporated by reference to
Exhibit 4.20 on Form 20-F for fiscal year 2005)*
8.1. Subsidiaries of the Registrant (included on page 14 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.
71
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 15, 2007
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006 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, 2005 and 2006..........................................F-2
Consolidated Balance Sheets at December 31, 2005 and 2006...................F-4
Consolidated Statements of Operations for the years ended
December 31, 2004, 2005 and 2006..........................................F-5
Consolidated Statements of Changes in Equity for the years ended
December 31, 2004, 2005 and 2006..........................................F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2005 and 2006..........................................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:
We have completed an integrated audit of Asia Satellite Telecommunications
Holdings Limited's 2006 consolidated financial statements and of its internal
control over financial reporting as of December 31, 2006 and audits of its 2005
and 2004 consolidated financial statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.
CONSOLIDATED FINANCIAL STATEMENTS
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operation, changes in equity and cash flows present
fairly, in all material respects, the financial position of Asia Satellite
Telecommunications Holdings Limited and its subsidiaries at December 31, 2006
and December 31, 2005, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2006 in conformity
with accounting principles generally accepted in Hong Kong .
These financial statements are the responsibility of Asia Satellite
Telecommunications Holdings Limited's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these 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 of
financial statements 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.
Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the
United States of America ("US GAAP"). Information relating to the nature and
effect of such differences is presented in Note 32 to the consolidated
financial statements.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Also, in our opinion, management's assessment, included in the accompanying
"Report of the Company's Management on Internal Control Over Financial
Reporting" appearing under item 15, that Asia Satellite Telecommunications
Holdings Limited maintained effective internal control over financial reporting
as of December 31, 2006 based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), is fairly stated, in all material respects, based
on those criteria. Furthermore, in our opinion, Asia Satellite
Telecommunications Holdings Limited maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control - Integrated Framework issued
by the COSO.
Asia Satellite Telecommunications Holdings Limited's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management's assessment and on the
effectiveness of the Asia Satellite Telecommunications Holdings Limited's
internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting 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 effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding
of internal control over financial reporting, evaluating management's
assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we consider necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our opinions.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding
F-2
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/S/ PRICEWATERHOUSECOOPERS
HONG KONG
JUNE 15, 2007
F-3-
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31
---------------------------------------------------------
NOTE 2006 2006 2005
US$'000
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 7 337,288 2,630,847 2,620,911
Leasehold land and land use rights 6 3,028 23,616 24,199
Intangible assets 8 164 1,276 1,339
Unbilled receivable 21,929 171,047 174,563
Interests in associates 10 1,289 10,057 14,294
Amount paid to tax authority 11 19,860 154,911 93,666
--------------- --------------- -----------------
TOTAL NON-CURRENT ASSETS 383,558 2,991,754 2,928,972
--------------- --------------- -----------------
CURRENT ASSETS
Inventories 13 45 354 434
Trade and other receivables 12 15,339 119,647 118,598
Cash and cash equivalents 14 253,777 1,979,457 1,635,526
--------------- --------------- -----------------
TOTAL CURRENT ASSETS 269,161 2,099,458 1,754,558
--------------- --------------- -----------------
TOTAL ASSETS 652,719 5,091,212 4,683,530
=============== =============== =================
EQUITY
Capital and reserves attributable to the
Company's equity holders
Ordinary shares 15 5,003 39,027 39,027
Share premium 15 592 4,614 4,614
Retained earnings
- Proposed final dividend 26 13,509 105,372 105,372
- Others 547,768 4,272,591 3,955,175
--------------- --------------- -----------------
566,872 4,421,604 4,104,188
Minority interests 632 4,933 5,537
--------------- --------------- -----------------
TOTAL EQUITY 567,504 4,426,537 4,109,725
--------------- --------------- -----------------
LIABILITIES
NON-CURRENT LIABILITIES
Deferred income tax liabilities 17 24,582 191,739 192,654
Deferred revenue 16 18,285 142,624 87,654
Other payables 227 1,770 -
--------------- --------------- -----------------
TOTAL NON-CURRENT LIABILITIES 43,094 336,133 280,308
--------------- --------------- -----------------
CURRENT LIABILITIES
Construction payables 223 1,736 3,096
Amount received from customer 7,500 58,500 46,800
Payroll related accruals 2,405 18,759 3,656
Other payables and accrued expenses 2,466 19,236 13,662
Deferred revenue 16 19,628 153,101 151,982
Current income tax liabilities 9,883 77,089 74,180
Dividend payable 16 121 121
--------------- --------------- -----------------
TOTAL CURRENT LIABILITIES 42,121 328,542 293,497
--------------- --------------- -----------------
TOTAL LIABILITIES 85,215 664,675 573,805
--------------- --------------- -----------------
TOTAL EQUITY AND LIABILITIES 652,719 5,091,212 4,683,530
=============== =============== =================
NET CURRENT ASSETS 227,040 1,770,916 1,461,061
=============== =============== =================
TOTAL ASSETS LESS CURRENT LIABILITIES 610,598 4,762,670 4,390,033
=============== =============== =================
Commitments and contingencies 28, 30
The accompanying footnotes are an integral part of these consolidated financial
statements.
F-4
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------
NOTE 2006 2006 2005 2004
US$'000
Sales 5 119,218 929,902 879,705 1,004,982
Cost of services 19 (52,646) (410,640) (419,029) (420,490)
-------------- ---------------- --------------- ---------------
GROSS PROFIT 66,572 519,262 460,676 584,492
Other gains - net 18 11,896 92,793 43,711 21,982
Administrative expenses 19 (12,126) (94,585) (83,880) (102,477)
-------------- ---------------- --------------- ---------------
OPERATING PROFIT 66,342 517,470 420,507 503,997
Finance costs 21 (19) (152) - (1)
Share of loss of associates 10 (1,076) (8,391) (3,872) (12,380)
-------------- ---------------- --------------- ---------------
PROFIT BEFORE INCOME TAX 65,247 508,927 416,635 491,616
Income tax expense 22 (7,118) (55,522) (51,270) (60,536)
-------------- ---------------- --------------- ---------------
PROFIT FROM CONTINUING OPERATIONS AND
FOR THE YEAR 58,129 453,405 365,365 431,080
============== ================ =============== ===============
ATTRIBUTABLE TO:
- equity holders of the Company 24 58,206 454,009 366,184 431,216
- minority interests (77) (604) (819) (136)
-------------- ---------------- --------------- ---------------
58,129 453,405 365,365 431,080
============== ================ =============== ===============
EARNINGS PER SHARE FOR PROFIT ATTRIBUTABLE
TO THE EQUITY HOLDERS OF THE COMPANY
DURING THE YEAR
(expressed in US$/HK$ per share)
- basic 25 US$0.15 HK$1.16 HK$0.94 HK$1.10
============== ================ =============== ===============
- diluted 25 US$0.15 HK$1.16 HK$0.94 HK$1.10
============== ================ =============== ===============
DIVIDENDS 26 17,512 136,593 136,593 136,593
================ ================ =============== ===============
The accompanying footnotes are an integral part of these consolidated financial
statements.
F-5
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
ATTRIBUTABLE TO EQUITY HOLDERS
NOTE OF THE COMPANY
------------------------------------------
NUMBER OF SHARE SHARE RETAINED MINORITY
SHARES CAPITAL PREMIUM EARNINGS TOTAL INTERESTS TOTAL
(in thousand)
BALANCE AT JANUARY 1, 2004 390,266 39,027 4,614 3,524,625 3,568,266 492 3,568,758
Profit/(Loss) for the year - - 431,216 431,216 (136) 431,080
Final dividend relating to 2003 - - (93,664) (93,664) - (93,664)
Interim dividend relating to 2004 26 - - (31,221) (31,221) - (31,221)
Minority interests 29 - - - - 6,000 6,000
-----------------------------------------------------------------
- - 306,331 306,331 5,864 312,195
-----------------------------------------------------------------
BALANCE AT DECEMBER 31, 2004 390,266 39,027 4,614 3,830,956 3,874,597 6,356 3,880,953
=================================================================
BALANCE AT JANUARY 1, 2005, as per above
390,266 39,027 4,614 3,830,956 3,874,597 6,356 3,880,953
Profit/(Loss) for the year - - 366,184 366,184 (819) 365,365
Final dividend relating to 2004 - - (105,372) (105,372) - (105,372)
Interim dividend relating to 2005 26 - - (31,221) (31,221) - (31,221)
-----------------------------------------------------------------
- - 229,591 229,591 (819) 228,772
-----------------------------------------------------------------
BALANCE AT DECEMBER 31, 2005 390,266 39,027 4,614 4,060,547 4,104,188 5,537 4,109,725
=================================================================
BALANCE AT JANUARY 1, 2006, as per above
390,266 39,027 4,614 4,060,547 4,104,188 5,537 4,109,725
Profit/(Loss) for the year - - 454,009 454,009 (604) 453,405
Final dividend relating to 2005 26 - - (105,372) (105,372) - (105,372)
Interim dividend relating to 2006 26 - - (31,221) (31,221) - (31,221)
-----------------------------------------------------------------
- - 317,416 317,416 (604) 316,812
-----------------------------------------------------------------
BALANCE AT DECEMBER 31, 2006 390,266 39,027 4,614 4,377,963 4,421,604 4,933 4,426,537
=================================================================
The accompanying footnotes are an integral part of these consolidated financial
statements.
F-6
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
CONSOLIDATED STATEMENT OF CASH FLOW
YEAR ENDED DECEMBER 31
--------------------------------------------------------
NOTE 2006 2006 2005 2004
US$'000
CASH FLOWS FROM OPERATING ACTIVITIES:
- continuing operations 27 96,418 752,062 609,717 779,413
- Hong Kong Profits Tax paid (5,161) (40,260) (79,186) (10,934)
- overseas tax paid (1,701) (13,268) (16,181) (17,667)
------------- ------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES - NET 89,556 698,534 514,350 750,812
------------- ------------- ------------ ------------
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES:
- purchase of property, plant and equipment (39,325) (306,736) (23,659) (47,672)
- purchase of intangible assets (13) (97) - -
- loan to an associate 31 - - - (1,301)
- loan to an independent third party - - - (3,778)
- repayment of loan from an associate 31 - - 5,070 3,510
- repayment of loan from an independent third party - - 2,062 1,716
- interest received 11,378 88,747 39,833 20,290
- interest expense - - - (1)
- proceeds from disposal of property, plant and equipment
10 76 108 257
- purchase of interests in associates - - - (23,930)
------------- ------------- ------------ ------------
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES - NET (27,950) (218,010) 23,414 (50,909)
------------- ------------- ------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
- dividends paid 26 (17,512) (136,593) (136,593) (124,885)
------------- ------------- ------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES - NET (17,512) (136,593) (136,593) (124,885)
------------- ------------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 44,094 343,931 401,171 575,018
Cash and cash equivalents at beginning of the year 209,683 1,635,526 1,234,355 659,337
------------- ------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR, REPRESENTING
BANK BALANCES AND CASH 14 253,777 1,979,457 1,635,526 1,234,355
============= ============= ============ ============
The accompany footnotes are an integral part of these consolidated financial
statements.
F-7
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 Canon's Court, 22 Victoria Street,
Hamilton HM12, Bermuda.
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 Hong Kong dollars (HK$'000), unless otherwise stated. These consolidated
financial statements have been approved for issue by the Board of Directors
on March 5, 2007 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.
NEW STANDARDS AND AMENDMENTS TO PUBLISHED STANDARDS
The following new standards, amendments to standards and interpretations
are mandatory for the financial year ended December 31, 2006:
o Amendment to IAS/HKAS 19, 'Actuarial gains and losses, group plans and
disclosures', effective for annual periods beginning on or after
January 1, 2006. This amendment is not relevant for the Group;
o Amendment to IAS/HKAS 39, Amendment to 'The fair value option',
effective for annual periods beginning on or after January 1, 2006.
This amendment is not relevant for the Group;
o Amendment to IAS/HKAS 21, Amendment 'Net investment in a foreign
operation', effective for annual periods beginning on or after January
1, 2006. This amendment has no impact on the Group;
o Amendment to IAS/HKAS 39, Amendment 'Cash flow hedge accounting of
forecast intragroup transactions', effective for annual periods
beginning on or after January 1, 2006. This amendment is not relevant
for the Group;
o Amendment to IAS/HKAS 39 and IFRS/HKFRS 4, Amendment 'Financial
guarantee contracts', effective for annual periods beginning on or
after January 1, 2006. This amendment is not relevant for the Group;
o IFRS/HKFRS 6, 'Exploration for and evaluation of mineral resources',
effective for annual periods beginning on or after January 1, 2006.
This standard is not relevant for the Group;
o IFRIC/HK(IFRIC)-Int 4, 'Determining whether an arrangement contains a
lease', effective for annual periods beginning on or after January 1,
2006. The Group has reviewed its contracts. Some of them are required
to be accounted for as leases in accordance with IAS/HKAS 17, 'Leases'.
However, these leases are operating leases, and their reclassification
has had no impact on the expense recognized in respect of them;
o IFRIC/HK(IFRIC)-Int 5, 'Rights to interests arising from
decommissioning, restoration and environmental rehabilitation funds',
effective for annual periods beginning on or after January 1, 2006.
This interpretation is not relevant for the Group; and
o IFRIC/HK(IFRIC)-Int 6, 'Liabilities arising from participating in a
specific market - waste electrical and electronic equipment', effective
for annual periods beginning on or after December 1, 2005. This
interpretation is not relevant for the Group.
The following new standards, amendments to standards and interpretations
have been issued but are not effective for 2006 and have not been early
adopted:
o IFRIC/HK(IFRIC)-Int 7, 'Applying the restatement approach under
IFRS/HKFRS 29', effective for annual periods beginning on or after
March 1, 2006. Management does not expect this interpretation to be
relevant for the Group;
o IFRIC/HK(IFRIC)-Int 8, 'Scope of IFRS/HKFRS 2', effective for annual
periods beginning on or after May 1, 2006. Management does not expect
this interpretation to be relevant for the Group;
o IFRIC/HK(IFRIC)-Int 9, 'reassessment of embedded derivatives',
effective for annual periods beginning on or after June 1, 2006.
Management does not expect this interpretation to be relevant for the
Group;
o IFRIC/HK(IFRIC)-Int 10, 'Interim financial reporting and impairment',
effective for annual periods beginning on or after November 1, 2006.
Management is currently assessing the impact of this interpretation on
the Group's operations.
F-8
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 BASIS OF PREPARATION (CONTINUED)
o IFRS/HKFRS 7, 'Financial instruments: Disclosures', effective for
annual periods beginning on or after January 1, 2007. IAS/HKAS 1,
'Amendments to capital disclosures', effective for annual periods
beginning on or after January 1, 2007. Management is currently
assessing the impact of this standard on the Group's operations;
o IFRIC-Int 11-IFRS 2, 'Group and treasury share transactions', effective
for annual periods beginning on or before March 1, 2007. Management
does not expect this interpretation to be relevant for the Group;
o IFRIC-Int 12, 'Service concession arrangements', effective for annual
periods beginning on or before January 1, 2008. Management is currently
assessing the impact of this interpretation on the Group's operations;
and
o IFRS 8, 'Operating segments', effective for annual periods beginning on
or before January 1, 2009. Management is currently assessing the impact
of this standard on the Group's operations.
o Amendment to IAS 23, 'Borrowing Costs', effective for annual periods
beginning on or before January 1, 2009. Management does not expect this
amendment to affect the Group.
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 dividends 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
dividends received and receivable.
F-9
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 Hong Kong 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 any 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-10
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 disposals are determined by comparing proceeds with
carrying amounts. These are included in the income statement. When revalued
assets are sold, the amounts included in other reserves are transferred to
retained earnings.
2.6 INTANGIBLE ASSETS - LICENCES
The licences are shown at historical cost. One licence has a finite 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). The other licence does
not have a finite useful life.
2.7 IMPAIRMENT OF ASSETS
Assets that have an indefinite useful life are not subject to amortization,
are tested at least 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).
Non-financial assets other than goodwill that have suffered an impairment
are reviewed for possible reversal of the impairment at each reporting
date.
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 and 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. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments (more than 180 days
overdue) are considered indicators that the trade receivable is impaired.
The amount of the provision is recognized in the statement of operations
within administrative expenses.
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.
F-11
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 income statement, 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-12
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 PROVISIONS
Provisions for environmental restoration, asset retirement obligations,
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 equity holders is recognized as a
liability in the financial statements in the period in which the dividends
are approved by the Company's equity holders.
F-13
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 minimise 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, 2006, 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 as long as the Hong Kong dollars and US
dollars remain linked 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
The Group has no significant interest-bearing assets or liabilities,
however, the Group earns interest income from short term deposits which are
affected by the changes in market interest rates.
F-14
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 2.8. 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 42% of its
total assets as of December 31, 2006 (2005: 52%). 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-15
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. SALES AND SEGMENT INFORMATION
SALES:
The Group's sales is analyzed as follows:
2006 2005 2004
Income from provision of satellite transponder capacity
- recurring 850,425 850,436 870,092
- non-recurring 49,911 - 112,372
Sales of satellite transponder capacity 24,491 24,491 20,518
Other revenue 5,075 4,778 2,000
---------------- -------------- ---------------
929,902 879,705 1,004,982
================ ============== ===============
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:
2006 2005 2004
Hong Kong 341,567 341,698 323,133
Greater China, including Taiwan 194,831 202,730 197,936
United States of America 79,813 78,205 183,750
United Kingdom 53,211 49,401 46,073
Australia 37,317 27,927 37,605
Others 223,163 179,744 216,485
--------------- -------------- ---------------
929,902 879,705 1,004,982
=============== ============== ===============
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:
2006 2005
In Hong Kong held on:
Leases of over 50 years - -
Leases of between 10 to 50 years 23,616 24,199
-------------- ---------------
23,616 24,199
============== ===============
2006 2005
Opening 24,199 24,782
Amortization of prepaid operating lease payment (583) (583)
-------------- ---------------
Closing 23,616 24,199
============== ===============
F-16
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. PROPERTY, PLANT AND EQUIPMENT - GROUP
SATELLITES AND TRACKING FACILITIES
FURNITURE,
FIXTURES
IN UNDER AND OFFICE MOTOR PLANT AND
OPERATION CONSTRUCTION BUILDINGS FITTINGS EQUIPMENT VEHICLES EQUIPMENT TOTAL
---------------------------------------------------------------------------------------------
AT JANUARY 1, 2005
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
=============================================================================================
YEAR ENDED DECEMBER 31, 2006
Opening net book amount 2,499,964 405 108,173 7,347 2,396 2,114 512 2,620,911
Additions 6,332 297,537 81 1,747 728 1,111 4 307,540
Transfer - (538) 538 - - - - -
Disposals (note 27) - - - (5) - - (1) (6)
Depreciation (286,448) - (4,743) (3,951) (1,196) (1,077) (183) (297,598)
---------------------------------------------------------------------------------------------
Closing net book amount 2,219,848 297,404 104,049 5,138 1,928 2,148 332 2,630,847
=============================================================================================
AT DECEMBER 31, 2006
Cost 4,259,836 297,404 118,617 12,879 9,198 4,806 2,372 4,705,112
Accumulated depreciation (2,039,988) - (14,568) (7,741) (7,270) (2,658) (2,040) (2,074,265)
---------------------------------------------------------------------------------------------
Net book amount 2,219,848 297,404 104,049 5,138 1,928 2,148 332 2,630,847
=============================================================================================
Depreciation expense of $297,598 (2005: $295,117) has been expensed in cost
of services.
F-17
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. INTANGIBLE ASSETS - GROUP
LICENCES
AT JANUARY 1, 2005 AND DECEMBER 31, 2005
Cost 1,500
Accumulated amortization and impairment (161)
---------
Net book amount 1,339
=========
YEAR ENDED DECEMBER 31, 2006
Opening net book amount 1,339
Additions (a) 97
Amortization expense (b) (note 19) (160)
---------
Closing net book amount 1,276
=========
AT DECEMBER 31, 2006
Cost 1,597
Accumulated amortization and impairment (321)
---------
Net book amount 1,276
=========
Notes:
(a) Additions refer to the Direct-to-Home (DTH) broadcasting licence fee at
Macau which has an infinite useful life, as the Macau government
granted a broadcasting right until the end of the DTH project and is
carried at cost. The carrying value as at December 31, 2006 was $97
(2005: Nil).
(b) Amortization expense of $160 (2005: $161) is included in the
administrative expenses in the statement of operations.
(c) The estimated aggregate amortization expense is as follows:
For the year ended December 31, 2007 160
For the year ended December 31, 2008 161
For the year ended December 31, 2009 161
For the year ended December 31, 2010 161
For the year ended December 31, 2011 161
-------
804
=======
9. INVESTMENTS IN SUBSIDIARIES
(a) Investments in subsidiaries
COMPANY
----------------------------
2006 2005
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-18
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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, 2006:
PLACE OF PARTICULARS OF ISSUED
NAME INCORPORATION AND PRINCIPAL ACTIVITIES AND SHARE CAPITAL AND DEBT
KIND OF LEGAL PLACE OF OPERATION SECURITIES INTEREST HELD
ENTITY
---------------------------------- ------------------- ------------------------- ------------------------ -------------
AsiaSat BVI Limited British Virgin Investment holding in 3,000 ordinary shares of *100%
Islands, limited Hong Kong US$1 each
liability company
Asia Satellite Telecommunications Hong Kong, limited Provision of satellite 30,000 ordinary shares 100%
Company Limited liability company transponder capacity and 20,000 non-voting
worldwide deferred shares of HK$10
each
Hanbury International Limited British Virgin Inactive in Hong Kong 1 ordinary share of HK$1 100%
Islands, limited each
liability company
SAT Limited Republic of Inactive in Republic of 100 ordinary shares of *100%
Mauritius, limited Mauritius US$1 each
liability company
Skywave TV Company Limited Hong Kong, limited Provision of DTH 3,000,002 ordinary 80%
(formerly known as Auspicious liability company broadcasting services in shares of HK$10 each
City Limited) Hong Kong and Mainland
China
Sornico Limited Hong Kong, limited Inactive in Hong Kong 2 ordinary shares of 100%
liability company HK$10 each
The First Asian Satellite Hong Kong, limited Inactive in Hong Kong N/A 1%
Leasing Limited Partnership (the liability
"Partnership") partnership
Auspicious Colour Limited Hong Kong, limited Inactive in Hong Kong 1 ordinary share of HK$1 100%
liability company each
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-19
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. INTERESTS IN ASSOCIATES - GROUP
2006 2005
Beginning of the year 14,294 13,397
Share of associates' losses (8,391) (3,872)
Additions 4,154 4,769
--------------- ------------
End of the year 10,057 14,294
=============== ============
Note:
Interests in associates at December 31, 2006 include goodwill of $442
(2005: $442).
The Group's interest in its principal associates, all of which are
unlisted, were as follows:
PARTICULARS OF %
ISSUED SHARES COUNTRY OF PROFIT/ INTEREST
NAME HELD INCORPORATION ASSETS(2) LIABILITIES(2) REVENUES(2) (LOSS)(2) HELD
--------------------- ---------------- ------------- --------- ------------- ----------- ----------- --------
%
2005
Beijing Asia Sky N/A China 42,011 25,945 2,721 (7,909) 49
Telecommunications
Technology Company
Limited
SpeedCast Holdings Ordinary Cayman 39,392 25,345 82,673 368 47
Limited shares of Islands
US$0.0001 each
SpeedCast Limited Ordinary shares Hong Kong N/A N/A N/A N/A 47
(note 1) of HK$0.01 each
--------- ---------- ----------- -----------
81,403 51,290 85,394 (7,541)
========= ========== =========== ===========
2006
Beijing Asia Sky N/A China 25,829 26,406 9,235 (17,124) 49
Telecommunications
Technology Company
Limited
SpeedCast Holdings Ordinary shares Cayman 46,441 27,167 111,889 5,228 47
Limited of US$0.0001 each Islands
SpeedCast Limited Ordinary shares Hong Kong N/A N/A N/A N/A 47
(note 1) of HK$0.01 each
--------- ---------- ----------- -----------
72,270 53,573 121,124 (11,896)
========= ========== =========== ===========
The Group has not recognized profit amounting to $2,473 (2005: $174) for
SpeedCast Holdings Limited as the Group's share of loss exceeds its
interest in SpeedCast. The accumulated losses not recognized were $9,561
(2005: $12,034).
Note:
(1) SpeedCast Limited is the wholly-owned subsidiary of SpeedCast Holdings
Limited. Accordingly, assets, liabilities, revenues and profit/(loss)
are not disclosed again.
(2) Represents 100% of the associates operation and financial results.
11. AMOUNT PAID TO TAX AUTHORITY - GROUP
At the balance sheet date, an amount of approximately $154,911 (2005:
$93,666) had been paid to the Government of India. For details, please
refer to note 28.
F-20
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. TRADE AND OTHER RECEIVABLES - GROUP
2006 2005
Trade receivables 81,888 90,653
Trade receivables from related parties (note 31) 10,660 7,678
Less: provision for impairment of receivables (22,462) (30,930)
---------- -----------
Trade receivables - net 70,086 67,401
Receivables from related parties (note 31) 14,629 15,503
Other receivables 14,068 10,831
Deposits and prepayments 20,864 24,863
---------- -----------
119,647 118,598
Less non-current portion: loans to related parties - -
---------- -----------
Current portion 119,647 118,598
========== ===========
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:
2006 2005
0 to 30 days 29,329 27,768
31 to 60 days 15,967 8,652
61 to 90 days 15,717 14,315
91 to 180 days 7,884 10,074
181 days or above 1,189 6,592
---------- -----------
70,086 67,401
========== ===========
There is no concentration of credit risk with respect to trade receivables,
as the Group has a large number of customers, internationally dispersed.
As of 31 December 2006, trade receivables of $22,462 (2005: $30,930) were
impaired and fully provided. The impaired receivables mainly relate to
customers' failure to make payment for more than six months. The ageing of
these receivables is as follows:
2006 2005
3 to 6 months 9,830 1,682
Over 6 months 12,632 29,248
---------- -----------
22,462 30,930
========== ===========
Movements on the provision for impairment of trade receivables are as
follows:
2006 2005
At 1 January 30,930 23,230
Provision for impairment of receivables - 7,700
Unused amounts reversed (8,468) -
---------- -----------
At 31 December 22,462 30,930
========== ===========
The creation and release of provision for impaired receivables have been
included in administrative expenses in the income statement.
F-21
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. INVENTORIES - GROUP
2006 2005
Merchandise 354 434
============ ==========
The cost of inventories recognized as expense and included in cost of
services amounted to $87 (2005: $500).
14. CASH AND CASH EQUIVALENTS - GROUP
2006 2005
Cash at bank and in hand 4,506 13,173
Short-term bank deposits 1,974,951 1,622,353
------------ ----------
1,979,457 1,635,526
============ ==========
The effective interest rate on short-term bank deposits was 4.9% (2005:
3.1%); these deposits have an average maturity of 21 days (2005: 17 days).
Cash includes the following for the purposes of the cash flow statement:
2006 2005
Cash and cash equivalents 1,979,457 1,635,526
============ ==========
15. SHARE CAPITAL
NUMBER OF ORDINARY SHARE
SHARES SHARES PREMIUM TOTAL
(thousands)
AT DECEMBER 31, 2006 AND DECEMBER 31, 2005 390,266 39,027 4,614 43,641
=========== ========= ========== =======
The total authorized number of ordinary shares is 550,000,000 shares
(2005: 550,000,000 shares) with a par value of HK$0.10 per share
(2005: HK$0.10 per share). All issued shares are fully paid.
F-22
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 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 and onwards. 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. Total consideration received in 2002 from employees
for taking up the options granted amounted to HK$105.
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$1 per each grant of share options. The exercise period of the
share options granted under the 2002 Scheme shall be determined by the
Board of Directors when such options are granted, provided that such period
shall not end later than 10 years from the date of grant. The exercise
price is determined by the Board of Directors and will not be less than the
higher of the closing price of the Company's shares on the date of grant,
or the average closing price of the shares for the five trading days
immediately preceding the date of grant, or the nominal value of a share of
the Company.
The financial impact of share options granted is not recorded in the
Company's or the Group's balance sheet until such time as the options are
exercised, and no charge is recognised in the statement of operations in
respect of the value of options granted in the year. Upon the exercise of
the share options, the resulting shares issued are recorded by the Company
as additional share capital at the nominal value of the shares and the
excess of the exercise price per share over the nominal value of the shares
is recorded by the Company in the share premium account. Options which are
lapsed or are cancelled prior to their exercise dates are deleted from the
register of outstanding options.
F-23
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE CAPITAL (continued)
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
OPTION A:
2006 2005 2004
---------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE IN HK$ PRICE IN HK$ PRICE IN
PER SHARE OPTIONS PER SHARE OPTIONS HK$ PER OPTIONS
SHARE
AT JANUARY 1 17.48 1,634,000 17.48 1,691,500 17.48 1,691,500
Granted - - - - - -
Forfeited - - - - - -
Exercised - - - - - -
Lapsed 17.48 (1,634,000) 17.48 (57,500) - -
------------ ------------ -------------
AT DECEMBER 31 17.48 - 17.48 1,634,000 17.48 1,691,500
============ ============ =============
OPTION B:
2006 2005 2004
---------------------------- --------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE EXERCISE EXERCISE
IN HK$ PER PRICE IN HK$ PRICE IN HK$
SHARE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS
AT JANUARY 1 17.48 1,655,000 17.48 1,753,000 17.48 1,768,000
Granted - - - - - - -
Forfeited - - - - - - -
Exercised - - - - - - -
Lapsed 17.48 (25,000) 17.48 (98,000) 17.48 (15,000)
------------ ------------ -------------
AT DECEMBER 31 17.48 1,630,000 17.48 1,655,000 17.48 1,753,000
============ ============ =============
OPTION C:
2006 2005 2004
---------------------------- --------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE EXERCISE EXERCISE
IN HK$ PER PRICE IN HK$ PRICE IN HK$
SHARE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS
AT JANUARY 1 14.35 3,311,500 14.35 3,481,500 14.35 3,481,500
Granted - - - - - - -
Forfeited - - - - - - -
Exercised - - - - - - -
Lapsed 14.35 (100,000) - 14.35 (170,000) - -
------------ ------------ -------------
AT DECEMBER 31 14.35 3,211,500 14.35 3,311,500 14.35 3,481,500
============ ============ =============
Out of the 4,841,500 options outstanding (2005: 6,600,500 options; 2004: 6,926,000 options), the number of
exercisable options are as follows:
2006 2005 2004
---------------------------- --------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
EXERCISE PRICE EXERCISE EXERCISE
IN HK$ PER PRICE IN HK$ PRICE IN HK$
SHARE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS
Option A 17.48 - 17.48 1,634,000 17.48 1,691,500
Option B 17.48 1,630,000 17.48 1,655,000 17.48 1,753,000
Option C 14.35 3,211,500 14.35 1,655,750 14.35 870,375
------------ ------------ -------------
Total 4,841,500 4,944,750 4,314,875
============ ============ =============
F-24
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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
----------------------------------------------------------
2006 2005 2004
November 25, 2006 17.48 - 1,634,000 1,691,500
September 30, 2009 17.48 1,630,000 1,655,000 1,753,000
February 3, 2012 14.35 3,211,500 3,311,500 3,481,500
---------------- ----------------- ----------------
4,841,500 6,600,500 6,926,000
================ ================= ================
Details of specific categories of options are as follows:
Option type Date of grant Vesting period Exercise period Exercise
price
-----------------------------------------------------------------------------------------------------------------------------
2002 Scheme HK$
A (note a) February 4, 2002 - February 4, 2002 - November 25, 2006 17.48
B (note a) February 4, 2002 February 4, 2002 - September 30, 2002 October 1, 2002 - September 30, 2009 17.48
C (note b) February 4, 2002 February 4, 2002 - February 3, 2004 February 4, 2004 - February 3, 2012 14.35
1996 Scheme HK$
D (note a) November 26, 1996 November 26, 1996 - November 25, 1999 November 26, 1999 - November 25, 2006 17.48
E (note a) September 20, 1999 September 20, 1999 - September 30, 2002 October 1, 2002 - September 30, 2009 17.48
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-25
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. DEFERRED REVENUE - GROUP
2006 2005
The maturity of deferred revenue is as follows:
Within one year 153,101 151,982
More than one year but not exceeding five years 142,624 87,654
----------- ------------
295,725 239,636
Less: amount shown as current (153,101) (151,982)
----------- ------------
142,624 87,654
=========== ============
17. DEFERRED INCOME TAX
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:
2006 2005 2004
Deferred tax assets - - -
Deferred tax liabilities:
- Deferred tax liabilities to be recovered after more than 12 months 191,739 192,654 205,258
--------- --------- ----------
191,739 192,654 205,258
========= ========= ==========
The gross movement on the deferred income tax account is as follows:
2006 2005 2004
Beginning of the year 192,654 205,258 213,522
Recognized in the statement of operations (note 22) (915) (12,604) (8,264)
--------- --------- ----------
End of the year 191,739 192,654 205,258
========= ========= ==========
The movement in deferred tax liabilities/(assets) during the year is as
follows:
DEFERRED TAX LIABILITIES/(ASSETS):
ACCELERATED
TAX
DEPRECIATION OTHERS TAX LOSS TOTAL
AT JANUARY 1, 2004 213,909 (311) (76) 213,522
Recognized in the statement of operations (6,884) (1,456) 76 (8,264)
----------------------------------------------
AT DECEMBER 31, 2004 207,025 (1,767) - 205,258
Recognized in the statement of operations (13,730) 1,126 - (12,604)
----------------------------------------------
AT DECEMBER 31, 2005 193,295 (641) - 192,654
Recognized in the statement of operations (1,556) 641 - (915)
----------------------------------------------
AT DECEMBER 31, 2006 191,739 - - 191,739
==============================================
F-26
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. OTHER GAINS - NET
2006 2005 2004
Interest income 92,710 43,606 21,813
Gain on disposal of property, plant and equipment other than
transponders 70 99 169
Others 13 6 -
---------- ---------- ----------
92,793 43,711 21,982
========== ========== ==========
19. EXPENSES BY NATURE
Expenses included in cost of services and administrative expenses are
analyzed as follows:
2006 2005 2004
Auditors' remuneration 1,775 769 697
Bad debts written off 11,997 2,987 -
(Write back)/provision for impairment of receivables made (8,468) 7,700 17,690
Depreciation, amortization and impairment expenses 297,758 295,278 287,382
(notes 7 and 8)
Employee benefit expense (note 20) 87,555 65,092 75,427
Operating leases
- premises 4,383 5,872 5,380
- leasehold land & land use rights 583 583 583
Net exchange loss 404 547 288
========== ========== ==========
20. EMPLOYEE BENEFIT EXPENSE
2006 2005 2004
Salary and other benefits, including directors' remuneration 82,930 60,748 71,071
Pension costs - defined contribution plans 4,625 4,344 4,356
---------- ---------- ----------
Total staff costs 87,555 65,092 75,427
========== ========== ==========
Number of employees 102 95 89
(a) PENSIONS - DEFINED CONTRIBUTION PLANS
Forfeited contributions totaling $268 (2005: $292; 2004: $37) were utilized
during the year leaving $74 (2005: $43) available at the year-end to reduce
future contributions.
No contributions (2005 and 2004: Nil) were payable to the fund at the
year-end.
F-27
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. EMPLOYEE BENEFIT EXPENSE (continued)
(b) DIRECTORS' EMOLUMENTS
The remuneration of every Director for the year ended December 31, 2006 is
set out below:
EMPLOYER'S
CONTRIBUTION
DISCRETIONARY OTHER TO PENSION
NAME OF DIRECTOR FEES SALARY BONUSES BENEFITS(A) SCHEME TOTAL
Romain BAUSCH (c) 200 - - - - 200
Robert BEDNAREK (c) & (e) 125 - - - - 125
Edward CHEN 225 - - - - 225
Cynthia DICKINS (c) 100 - - - - 100
DING Yu Cheng (d) 100 - - - - 100
R. Donald FULLERTON (f) 83 - - - - 83
JU Wei Min (d) 100 - - - - 100
KO Fai Wong (d) 100 - - - - 100
MI Zeng Xin (d) 200 - - - - 200
Mark RIGOLLE (c) 100 - - - - 100
Robert SZE 250 - - - - 250
James WATKINS (g) 113 - - - - 113
Peter JACKSON - 2,766 2,489 2,270 415 7,940
William WADE - 2,146 1,931 1,631 322 6,030
------------------------------------------------------------------------------------------
Total 1,696 4,912 4,420 3,901 737 15,666
==========================================================================================
The remuneration of every Director for the year ended December 31, 2005 is set out below:
EMPLOYER'S
CONTRIBUTION
DISCRETIONARY OTHER TO PENSION
NAME OF DIRECTOR FEES SALARY BONUSES BENEFITS(A) SCHEME TOTAL
Romain BAUSCH (c) 200 - - - - 200
Robert BEDNAREK (c) & (e) 150 - - - - 150
Edward CHEN 225 - - - - 225
Cynthia DICKINS (b) & (c) 12 - - - - 12
DING Yu Cheng (d) 100 - - - - 100
R. Donald FULLERTON 200 - - - - 200
JU Wei Min (d) 100 - - - - 100
KO Fai Wong (d) 100 - - - - 100
MI Zeng Xin (d) 200 - - - - 200
Mark RIGOLLE (c) 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
CONTRIBUTION
DISCRETIONARY OTHERS TO PENSION
NAME OF DIRECTOR FEES SALARY BONUSES BENEFITS(A) SCHEME TOTAL
Romain BAUSCH (c) 200 - - - - 200
Robert BEDNAREK (c) & (e) 150 - - - - 150
Edward CHEN 175 - - - - 175
DING Yu Cheng (d) 100 - - - - 100
R. Donald FULLERTON 175 - - - - 175
JU Wei Min (d) 125 - - - - 125
KO Fai Wong (d) 81 - - - - 81
LI Ting Zhou (d) & (h) 19 - - - - 19
MI Zeng Xin (d) 200 - - - - 200
Mark RIGOLLE (c) & (i) 15 - - - - 15
Jurgen SCHULTE (c) & (j) 110 - - - - 110
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
==========================================================================================
F-28
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. EMPLOYEE BENEFIT EXPENSE (continued)
(b) DIRECTORS' EMOLUMENTS (CONTINUED)
Notes:
(a) Other benefits include accommodation, car, leave passage, insurance
premium and club membership and are short term in nature.
(b) Appointed on November 17, 2005.
(c) Paid to SES and its subsidiary.
(d) Paid to a subsidiary of CITIC.
(e) Resigned on October 31, 2006.
(f) Resigned on May 30, 2006.
(g) Appointed on June 30, 2006.
(h) Resigned on March 11, 2004.
(i) Appointed on November 17, 2004. (j) Resigned on November 17, 2004.
(c) FIVE HIGHEST PAID INDIVIDUALS
The five individuals whose emoluments were the highest in the Group for the
year include two (2005: two) directors whose emoluments are reflected in
the analysis presented above. The emoluments payable to the remaining three
(2005: three) individuals during the year are as follows:
2006 2005 2004
Basic salaries, housing allowances, share options, other allowances and 9,189 8,450 8,313
benefits in kind
Contributions to retirement benefits scheme 726 701 687
Performance related incentive payments 4,357 606 3,666
----------- -------------- -------------
14,272 9,757 12,666
=========== ============== =============
The emoluments fell within the following bands:
NUMBER OF INDIVIDUALS
-------------------------------------------
2006 2005 2004
Emolument bands
HK$2,500,001 - HK$3,000,000 - 1 -
HK$3,000,001 - HK$3,500,000 - 1 -
HK$3,500,001 - HK$4,000,000 1 1 1
HK$4,000,001 - HK$4,500,000 - - 1
HK$4,500,001 - HK$5,000,000 1 - 1
HK$5,000,001 - HK$5,500,000 - - -
HK$5,500,001 - HK$6,000,000 1 - -
----------- -------------- -------------
3 3 3
=========== ============== =============
21. FINANCE COSTS
2006 2005 2004
Interest expense:
- assets retirement obligation 152 - -
- bank borrowings: bank loans and overdrafts - - 1
----------- -------------- -------------
152 - 1
=========== ============== =============
F-29
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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% (2005: 17.5%) on the estimated
assessable profit for the year.
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 are set out in note 28.
2006 2005 2004
Current income tax
- Hong Kong profits tax 38,856 45,056 49,574
- Overseas taxation 17,581 18,818 19,226
Deferred income tax reversal (note 17) (915) (12,604) (8,264)
----------- ---------- -----------
55,522 51,270 60,536
=========== ========== ===========
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:
2006 2005 2004
Profit before tax 508,927 416,635 491,616
=========== ========== ===========
Tax calculated at tax rate of 17.5% (2005: 17.5%) 89,062 72,911 86,033
Tax effect of income not subject to tax (96,999) (84,164) (91,475)
Tax effect of expenses not deductible for tax purposes 45,440 43,027 44,585
Tax effect of tax losses of associates not recognized 438 678 2,167
Effect of income tax rate differential between Hong Kong and overseas
locations 17,581 18,818 19,226
----------- ---------- -----------
Tax expense 55,522 51,270 60,536
=========== ========== ===========
The effective tax rate of the Group was 10.9% (2005: 12.3%; 2004: 12.3%).
23. NET FOREIGN EXCHANGE LOSSES
The exchange differences recognized in the statement of operations are
included as follows:
2006 2005 2004
Administrative expenses 404 547 288
========== ========== ===========
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 $137,225 (2005:
$136,977; 2004: $125,358).
F-30
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. EARNINGS PER SHARE
BASIC
Basic earnings per share is calculated by dividing the profit attributable
to equity holders of the Company by the weighted average number of ordinary
shares in issue during the year.
2006 2005 2004
Profit attributable to equity holders of the Company 454,009 366,184 431,216
========== ========== ==========
Weighted average number of ordinary shares in issue (thousands)
390,266 390,266 390,266
========== ========== ==========
Basic earnings per share (HK$ per share) 1.16 0.94 1.10
========== ========== ==========
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.
2006 2005 2004
Profit used to determine diluted earnings per share 454,009 366,184 431,216
========== ========== ==========
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) 390,266 390,292 390,266
========== ========== ==========
Diluted earnings per share (HK$ per share) 1.16 0.94 1.10
========== ========== ==========
26. DIVIDENDS
The dividends paid during the years ended 2006, 2005 and 2004 were $136,593
(HK$0.35 per share), $136,593 (HK$0.35 per share) and $124,885 (HK$0.32 per
share) respectively. A dividend in respect of 2006 of HK$0.27 per share,
amounting to a total dividend of $105,372 is to be proposed at the Annual
General Meeting on May 18, 2007. These financial statements do not reflect
this dividend payable.
2006 2005 2004
Interim dividend paid of HK$0.08 (2005: HK$0.08; 2004: HK$0.08) per 31,221 31,221 31,221
ordinary share
Proposed final dividend of HK$0.27 (2005: HK$0.27; 2004: HK$0.27)
per ordinary share 105,372 105,372 105,372
---------- ---------- ----------
136,593 136,593 136,593
========== ========== ==========
PAYMENT OF FINAL DIVIDEND
Reference is made to the joint announcement issued by the Company and
AsiaCo Acquisition Ltd. (formerly known as Modernday Limited) in relation
to the privatisation of the Company by way of a scheme of arrangement under
Section 99 of the Companies Act of Bermuda dated 13 February 2007.
The Board would like to bring to the attention of the shareholders of the
Company that the final dividend for the financial year ended 31 December
2006 is declared by the Board subject to the following:
(i) the amount of the final dividend shall not affect the Share Offer
Price if the Scheme becomes effective and binding on or before 10 May
2007;
(ii) the amount of the final dividend will be deducted from the Share
Offer Price if the Scheme becomes effective after 10 May 2007;
(iii) if the Scheme becomes effective and binding on or before 10 May 2007,
the final dividend shall not be paid; and
(iv) if the Scheme does not become effective, the dividend will be paid to
shareholders of the Company on the register of members of the Company
at 4:30 p.m. on 10 May 2007.
F-31
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS
2006 2006 2005 2004
US$'000
Profit for the year 58,129 453,405 365,365 431,080
Adjustments for:
- Tax (note 22) 7,118 55,522 51,270 60,536
- Bad debts written off 1,538 11,997 2,987 -
- (Write back)/provision for impairment of receivables made (1,086) (8,468) 7,700 17,690
- Depreciation (note 7) 38,154 297,598 295,117 287,382
- Amortization of prepaid operating lease payment (note 6)
75 583 583 583
- Amortization of licence (note 8) 21 161 161 -
- Profit on sale of property, plant and equipment (see (9) (70) (99) (169)
below)
- Interest income (note 18) (11,886) (92,710) (43,606) (21,813)
- Finance costs (note 21) 19 152 - 1
- Share of loss from associates (note 10) 1,076 8,391 3,872 12,380
Changes in working capital:
- Unbilled receivable 450 3,516 704 6,357
- Amount paid to tax authority (7,852) (61,245) (26,643) (42,535)
- Inventories 10 80 (18) (416)
- Trade and other receivables (681) (5,316) 779 (27,136)
- Other payables and accrued expenses 4,151 32,377 (1,204) 47,964
- Deferred revenue 7,191 56,089 (47,251) 7,509
---------- ----------- ------------ ------------
Cash flows from operating activities - continuing operations
96,418 752,062 609,717 779,413
========== =========== ============ ============
In the cash flow statement, proceeds from sale of property, plant and equipment comprise:
2006 2006 2005 2004
US$'000
Net book amount (note 7) 1 6 9 88
Profit on sale of property, plant and equipment 9 70 99 169
---------- ---------- ----------- -----------
Proceeds from sale of property, plant and equipment
10 76 108 257
========== ========== =========== ===========
F-32
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. CONTINGENCIES
Under Indian tax regulations, the Group may be subject to Indian income tax
on revenues received by the Group in respect of income from provision of
satellite transponder capacity to the Group's customers for purposes of
those customers carrying on business in India or earning income from any
source in India.
The Indian tax authorities have assessed the Group for income tax as
follows:
Assessment year Amount HK$ 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 50 million 316 million
2004-05 58 million 330 million
--------------- ---------------
Total 254 million 1,494 million
=============== ===============
The Group has filed appeals for each of the assessment years 1997-98 to
2004-05.
No assessment has yet been made for the 2005-06 or 2006-07 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 (refer to note 11):
Assessment year Amount HK$ Amount INR
(approximate) (approximate)
1997-98 13 million 78 million
1998-99 14 million 88 million
1999-00 11 million 62 million
2000-01 9 million 50 million
2001-02 20 million 119 million
2002-03 27 million 148 million
2003-04 39 million 226 million
2004-05 22 million 125 million
--------------- ---------------
Total 155 million 896 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 2006.
F-33
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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:
2006 2005
AsiaSat 5
Contracted but not provided for 810,048 -
Authorized but not contracted for 296,548 -
Other investment projects
Authorized but not contracted for - 10,140
Other assets
Contracted but not provided for 111 5,750
------------ ----------
1,106,707 15,890
============ ==========
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 statement of
operations during the year is disclosed in note 19.
The future aggregate minimum lease payments under non-cancellable operating
leases are as follows:
2006 2005
Not later than 1 year 4,068 4,376
Later than 1 year and not later than 5 years 745 4,773
Later than 5 years - -
------------ ----------
4,813 9,149
============ ==========
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 $552 (2005: $552).
The Group had contracted with the customer for the following future minimum
lease payments:
2006 2005
Within one year 552 552
One to two years 184 552
Two to three years - 184
Three to four years - -
------------ ----------
736 1,288
============ ==========
F-34
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 (refer to the updated comments in note
33). The ultimate parents of the Group are CITIC Group (incorporated in
China) and SES 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
year.
During the year, the Group recognized income from provision of satellite
transponder capacity from its associate, SpeedCast.
2006 2005 2004
CITIC Guoan Information Industry Company Limited 1,424 2,461 3,101
SpeedCast Limited (an associate) 46,264 32,202 18,793
---------- ----------- -----------
47,688 34,663 21,894
========== =========== ===========
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.
2006 2005 2004
CITIC Technology Company Limited 564 723 686
========== =========== ===========
iii) KEY MANAGEMENT COMPENSATION
2006 2005 2004
Salaries and other short-term employee benefits 38,455 25,942 34,335
========== =========== ===========
The Group made payments to SES and its subsidiary and a subsidiary of CITIC
for certain Non-executive Directors representing SES and CITIC.
2006 2005 2004
SES and its subsidiary 525 462 475
A subsidiary of CITIC 500 500 525
---------- ----------- -----------
1,025 962 1,000
========== =========== ===========
iv) INCOME FROM PROVISION OF UPLINK SERVICES AND CERTAIN EQUIPMENTS
The Group has entered into an agreement for the provision of uplink
services and certain equipments for Ku-Band monitoring capacity to a
subsidiary of SES, SES AMERICOM, Inc.
The Group has also provided temporary uplink services to its associate,
SpeedCast.
2006 2005 2004
SES AMERICOM, Inc. 239 - -
SpeedCast Limited (an associate) 5 - -
---------- ----------- -----------
244 - -
========== =========== ===========
F-35
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31. RELATED-PARTY TRANSACTIONS (continued)
v) OTHER FEES
2006 2005 2004
Licence fee:
SES ASTRA S.A. - - 49
========= ======== =========
SES ASTRA S.A. is a wholly-owned subsidiary of SES. SES was a substantial
shareholder of the Company throughout the years presented.
vi) INTEREST INCOME ON LOAN RECEIVABLE FROM AN ASSOCIATE
2006 2005 2004
SpeedCast Limited (an associate) - 176 419
========= ======== =========
vii) YEAR-END BALANCES ARISING FROM THESE TRANSACTIONS
2006 2005
Trade receivables from related parties (note 12):
CITIC Guoan Information Industry Company Limited - 39
SpeedCast Limited (an associate) 10,660 7,639
----------- ----------
10,660 7,678
=========== ==========
Receivables from related parties (note 12):
CITIC Technology Company Limited 14,629 15,503
=========== ==========
Payables to related parties:
CITIC Technology Company Limited 479 455
=========== ==========
Deferred revenue to related parties:
SES AMERICOM, Inc. 22 -
=========== ==========
The trade receivables from related parties are payable in accordance with
the agreements. The receivables from and payables to related parties have
no fixed terms of payment. The receivables and payables are unsecured in
nature and bear no interest.
viii) LOAN RECEIVABLE FROM AN ASSOCIATE
2006 2005
Loan receivable from SpeedCast Limited:
Beginning of the year - 5,070
Loans advanced during the year - -
Loan repayments received - (5,070)
----------- ----------
End of the year (note 12) - -
=========== ==========
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-36
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 HKFRS, which differs in certain significant respects from
US GAAP. The significant differences relating principally to the following
items and the adjustments considered necessary to restate profit for the
year (net income) and shareholders' funds (shareholders' equity) in
accordance with US GAAP are shown in the tables set out below.
The following table summarizes the effect on profit (net income) of
differences between HKFRS and US GAAP for the years presented:
YEAR ENDED DECEMBER 31
-------------------------------------------------------
2006 2006 2005 2004
US$'000
Profit for the year (net income) as reported under
HKFRS 58,206 454,009 366,184 431,216
US GAAP adjustments:
Amortization of interest and borrowing costs (a)
(1,035) (8,072) (8,072) (8,072)
Amortization of goodwill (b) - - - 221
Stock compensation using the fair value method (c)
(41) (323) - -
Tax effect on reconciling items (d) 91 706 706 706
------------ ------------ ------------ ------------
Profit for the year (net income) under US GAAP 57,221 446,320 358,818 424,071
============ ============ ============ ============
Basic earnings per share under US GAAP US$0.15 HK$1.14 HK$0.92 HK$1.09
Diluted earnings per share under US GAAP US$0.15 HK$1.14 HK$0.92 HK$1.09
Basic earnings per American Depositary
Share ("ADS") under US GAAP US$1.46 HK$11.43 HK$9.19 HK$10.86
Diluted earnings per American Depositary
Share ("ADS") under US GAAP US$1.46 HK$11.43 HK$9.19 HK$10.86
Shares used in computation of basic earnings per
share (in thousands) 390,266 390,266 390,266 390,266
Shares used in computation of diluted earnings per
share (in thousands) 390,266 390,266 390,292 390,266
The following table summarizes the effect on shareholders' equity of the
differences between HKFRS and US GAAP:
AS AT DECEMBER 31
-------------------------------------------
2006 2006 2005
US$'000
Shareholders' equity as reported under 566,872 4,421,604 4,104,188
HKFRS
US GAAP adjustments:
Capitalization of interest and borrowing costs (a) 15,767 122,980 122,980
Amortization of interest and borrowing costs (a) (11,370) (88,689) (80,617)
Amortization of goodwill (b) 1,452 11,325 11,325
Impairment loss of goodwill (b) (1,424) (11,104) (11,104)
Stock compensation using the fair value method (c) (41) (323) -
Tax effect of reconciling items (d) (914) (7,125) (7,831)
------------- ------------- -------------
Shareholders' equity under US GAAP 570,342 4,448,668 4,138,941
============= ============= =============
F-37
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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 HKFRS, 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 HKFRS, 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) Stock compensation
Under HKFRS, it is not required to apply HKFRS 2 to share options granted
on or before November 7, 2002 and vested before January 1, 2005 (the
effective date of HKFRS 2). The Company has chosen not to apply HKFRS 2 to
share options issued prior to January 1, 2005.
Under US GAAP, effective January 1, 2006, the Company adopted SFAS 123R
using the modified prospective approach and accordingly prior periods have
not been restated to reflect the impact of SFAS 123R. Under SFAS 123R,
stock-based awards granted prior to its adoption will be expensed over the
remaining portion of their vesting period. Under US GAAP, fair value of
unvested options using the modified prospective method are expensed as
compensation cost for the unrecognized options, taking into account the
estimated forfeiture of options. The fair value options granted was
estimated using the Black-Scholes option-pricing model.
(d) The amounts included in the reconciliation show the income tax effects
of the differences between HKFRS and US GAAP as described above.
(e) Interest income
Under HKFRS, 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-38
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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
--------------------------------------
2006 2006 2005
US$'000
Balance, beginning of year 530,633 4,138,941 3,916,716
Transactions during the year:
i) Net income 57,221 446,320 358,818
ii) Dividend paid (17,512) (136,593) (136,593)
------------ ------------ -----------
Balance, end of year 570,342 4,448,668 4,138,941
============ ============ ===========
Note: One ADS is equivalent to 10 ordinary shares.
A reconciliation of the significant balance sheet accounts under HKFRS and
to the amounts determined under US GAAP is as follows:
AS AT DECEMBER 31
---------------------------------------
2006 2006 2005
US$'000
Property, plant and equipment
Amount under HKFRS 337,288 2,630,847 2,620,911
US GAAP adjustments:
Capitalization of interest and borrowing costs 15,767 122,980 122,980
Amortization of interest and borrowing costs (11,370) (88,689) (80,617)
----------- ------------ -----------
Amount under US GAAP 341,685 2,665,138 2,663,274
=========== ============ ===========
Interests in associates
Amount under HKFRS 1,289 10,057 14,294
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 1,317 10,278 14,515
=========== ============ ===========
Deferred income tax liabilities
Amount under HKFRS 24,582 191,739 192,654
US GAAP adjustments:
Tax effect of reconciling items 914 7,125 7,831
----------- ------------ -----------
Amount under US GAAP 25,496 198,864 200,485
=========== ============ ===========
The amounts of total assets determined using US GAAP, as a result of the
foregoing adjustments, are $5,125,724 (US$657,144,000) and $4,726,114 as of
December 31, 2006 and 2005, respectively. The amounts of total liabilities
(excluding minority interests) determined using US GAAP, as a result of the
foregoing adjustments, are $671,800 (US$86,129,000) and $581,636 as of
December 31, 2006 and 2005, respectively.
F-39
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
AS AT DECEMBER 31
-----------------------------------------------------
2006 2006 2005 2004
US$'000
Cash flows from operating activities - net
Amount under HKFRS 89,556 698,534 514,350 750,812
US GAAP adjustments:
Interest received 11,378 88,747 39,833 20,290
------------ ------------ ------------ -----------
Amount under US GAAP 100,934 787,281 554,183 771,102
============ ============ ============ ===========
Cash flows (used in)/from investing
activities - net
Amount under HKFRS (27,950) (218,010) 23,414 (50,909)
US GAAP adjustments:
Interest received (11,378) (88,747) (39,833) (20,290)
------------ ------------ ------------ -----------
Amount under US GAAP (39,328) (306,757) (16,419) (71,199)
============ ============ ============ ===========
The reclassification for US GAAP consolidated statements of cash flows
pertains to interest received which is presented as investing activities
under HKFRS, 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 HKFRS comprehensive
income, except for the differences between HKFRS 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.
Effective January 1, 2006, the Company adopted SFAS 123R using the
modified prospective approach and accordingly prior periods have not
been restated to reflect the impact of SFAS 123R. Under SFAS 123R, as
at the adoption date, any unvested stock-based awards granted prior
to its adoption will be expensed over the remaining portion of their
vesting period. Under US GAAP, fair value of unvested options using
the modified prospective method are expensed as compensation cost for
the unrecognized options, taking into account the estimated
forfeiture of options. The fair value options granted was estimated
using the Black-Scholes option-pricing model.
F-40-
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
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
Net income as reported under US GAAP 358,818 424,071
Add: Stock compensation as reported
Less: Stock compensation determined using
the fair value method (3,589) (6,983)
----------- ---------
Pro forma net income under US GAAP 355,229 417,088
=========== =========
Shares used in computation of basic earnings
per share (thousands) 390,266 390,266
=========== =========
Shares used in computation of diluted earnings
per share (thousands) 390,292 390,266
=========== =========
Net income per share under US GAAP
Basic, as reported (HK$ per share) 0.92 1.09
Diluted, as reported (HK$ per share) 0.92 1.09
Basic, pro forma (HK$ per share) 0.91 1.07
Diluted, pro forma (HK$ per share) 0.91 1.07
The weighted average fair value of options granted during 2002
(Option Types A, B and C) was HK$8, using the Black-Scholes
option-pricing model based on the following assumptions:
Expected life of options 10 years
Expected volatility 51.00%
Risk-free rate 5.99%
Expected annual dividend yield 1.62%
The Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the volatility of share price.
Because changes in subjective input assumptions can materially affect
the fair value estimate, in the directors' opinion, the existing
model does not necessarily provide a reliable single measure of the
fair value of the share options.
Share option with Option Types A and B issued in 2002 represent
replacement share options to Option Types D and E, respectively.
There would be no impact on pro forma net income, assuming SFAS No.
123 is used with respect to issuance of the replacement share options
as the fair value of share options prior to and subsequent to the
replacement remained the same.
F-41
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
A summary of the status of the Company's 2002 Scheme and 1996 Scheme
as of December 31, 2006, 2005 and 2004, and changes during the years
then ended is presented below:
2006 2005 2004
--------------------------- --------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------ ------
HK$ HK$ HK$
Outstanding, 6,600,500 15.91 6,926,000 15.91 6,941,000 15.91
beginning of year
Granted - - - - - -
Exercised - - - - - -
Forfeited/cancelled
/lapsed (1,759,000) 17.30 (325,500) 15.85 (15,000) 17.48
------------ ------------- ------------- ------------ ----------- -------------
Outstanding, end of
year 4,841,500 15.40 6,600,500 15.91 6,926,000 15.91
============ ============= ============= ============ =========== =============
Options exercisable
at year-end
4,841,500 15.40 4,944,750 16.43 4,314,875 16.85
============ ============= ============= ============ =========== =============
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, 2006:
Options outstanding Options exercisable
------------------------------------------------------------- -------------------------------------
Weighted-
average
remaining
Exercise Price Number of Options Contractual Life Exercise Price Number of Options
-------------- ----------------- -------------- -----------------
HK$ 14.35 3,211,500 5.09 years HK$ 14.35 3,211,500
HK$ 17.48 1,630,000 2.75 years HK$ 17.48 1,630,000
-------------------- ------------------ --------------------
4,841,500 4.30 years 4,841,500
==================== ================== ====================
The aggregate intrinsic value of options outstanding and exercisable
was zero as at December 31, 2006.
(c) Recent changes in accounting standards
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (FIN 48), an Interpretation of SFAS
109, Accounting for Income Taxes. FIN 48 was issued to clarify the
accounting for uncertainty in tax positions taken or expected to be
taken in a tax return. Under FIN 48, the tax benefit from an
uncertain tax position may be recognized only if it is more likely
than not that the tax position will be sustained upon examination by
tax authorities. The Group plans to adopt FIN 48 for annual periods
beginning January 1, 2007. The Group is currently evaluating the
potential impact that the adoption of FIN 48 will have on its
consolidated financial statements.
In September 2006, the FASB issued FAS 157, Fair Value Measurements.
FAS 157 provides guidance on the measurement of fair value in US GAAP
and expands fair value measurement disclosures. FAS 157 is applicable
whenever other accounting pronouncements require or permit fair value
measurements and does not expand the use of fair value in any new
circumstances. The Group will apply this standard for annual periods
beginning January 1, 2007. The Group is currently evaluating the
potential impact that the adoption of FAS 157 will have on its
consolidated financial statements.
In February 2007, the FASB issued FAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment of
FASB Statement No. 115 (FAS 159). FAS 159 permits entities to measure
many financial instruments and certain other assets and liabilities
at fair value on an instrument-by-instrument basis. The Group will
apply this standard for annual periods beginning January 1, 2008. The
Group is currently evaluating the potential impact that the adoption
of FAS 159 will have on its consolidated financial statements.
F-42
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
(d) Major customers
The Company has one customer accounting for 10% or more of its
service revenue. Service revenue from such customer represents 24.3%,
25.7% and 22.4% of revenues in 2006, 2005 and 2004, respectively.
(e) 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.
(f) 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.
(g) 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.
(h) Concentration - industry and major customers
2006 2005 2004
---- ---- ----
Broadcasting 67.8% 65.7% 70.6%
Telecommunications, Internet and Multimedia 32.2% 34.3% 29.4%
The five largest customers accounted for 42.1%, 39.3% and 46.0% of
the Company's total revenue for the years ended December 31, 2006,
2005 and 2004, respectively.
The trade receivables from the five customers with the largest
receivables balances represent 59.7% and 75.9% of total trade
receivables as of December 31, 2006 and 2005, respectively.
F-43
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. SUMMARY OF DIFFERENCES BETWEEN HONG KONG ("HK") AND UNITED STATES("US")
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (continued)
(i) 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.
(j) Earnings per share
As of December 31, 2006, 2005 and 2004 the Company had share options
outstanding of 4,841,500, 6,600,500 and 6,926,000, 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.
(k) 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 February 13, 2007, Asiaco (formerly named Modernday Limited), a company
jointly owned by Able Star (a subsidiary of CITIC) and GE Equity
Investments Inc. (a subsidiary of GECC), submitted a proposal to the
Company's Board of Directors to privatize the Company by way of a scheme of
arrangement under Section 99 of the Companies Act. Upon completion of the
Scheme, the Company would become wholly owned by Asiaco and Bowenvale
Limited and indirectly owned by CITIC and GECC.
On March 19, 2007, the Company despatched Asiaco's proposal and the terms
and conditions of such proposal to its shareholders (including ADS holders)
and holders of options. In connection with the Scheme, the Company, among
other parties, filed a Schedule 13E-3 with the SEC.
The Company obtained approvals from the U.S. State Department in connection
with its initial sourcing of satellites. The State Department's approval is
required when there is a change in ownership of the satellites. In
connection with the Privatization, the State Department indicated to GECC
that it viewed the proposed Privatization as causing a significant change
of control of a party owning and controlling previously exported satellites
that would require its approval and that it was not prepared to grant such
approval in the context of the Scheme. The obtaining of relevant
authorizations was one of the conditions to the implementation of the
Scheme which had to be satisfied or waived. Asiaco did not waive this
condition and the Scheme was discontinued.
One of the conditions precedent to the completion of the Scheme was the
completion of a transaction pursuant to which SES (a shareholder of
Bowenvale) redeemed GECC's entire indirect holding of SES shares in
exchange for shares of a new company holding assets and cash, including
SES's entire shareholding in Bowenvale (the "Exchange Transaction"). The
Exchange Transaction was completed on March 29, 2007 and, upon such
completion, Bowenvale became jointly and indirectly owned by CITIC (through
Able Star) and GECC through GE Equity.
By reason of a regulatory position taken by the regulators in Hong Kong to
the effect that the Exchange Transaction resulted in the formation of a new
concert group thereby triggering an obligation to launch an unconditional,
mandatory offer, on May 25, 2007 Asiaco launched the "offers" for all
Shares and ADSs and outstanding options of the Company.
F-44
ASIA SATELLITE TELECOMMUNICATIONS HOLDINGS LIMITED
(ALL AMOUNTS IN HONG KONG DOLLAR THOUSANDS UNLESS OTHERWISE STATED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
33. SUBSEQUENT EVENTS (continued)
If, following the Offers the Company's public float is less than 25%,
either the Company will issue additional Shares or the Company's principal
shareholders will sell Shares so that at least 25% of the Shares are held
by unaffiliated shareholders, as required by the listing rules of the Hong
Kong Stock Exchange.
In addition, the Company understands that if, following the Offers, the
number of holders of AsiaSat Shares resident in the United States falls
below 300 or the Company otherwise becomes eligible for de-registration
under the Exchange Act, the Company intends to file a Form 15 or Form 15F
with the SEC to request that the Company's reporting obligations under the
Exchange Act be suspended or terminated.
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, 2006. 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