NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Revenue and Cost of Revenue Recognition - The Company and its subsidiary recognize income from mobile phone and pager services when said services are rendered to customers. All service costs incurred during the period are treated as period cost. - The subsidiary recognizes sale and cost of sale when merchandise is delivered to customer. - Revenue from equipment rental is recognized over the period of and at the rate prescribed in each agreement. Accounts and Notes Receivable The Company and its subsidiary provide allowance for doubtful accounts which is equivalent to the estimated collection losses. The estimated losses are based on collection experience and the management estimates. Inventories Inventories are valued at the lower of cost or net realizable value. Cost of inventories is determined on the moving average method. In considering the realizable value, due allowance is made for all obsolete and slow-moving items. Investments Method of recording of Investments in the Company's separate financial statements Investments in the subsidiary company is recorded by using the equity method of accounting, while investments in share capital of companies, which are not subsidiaries or associates, are recorded by using the cost method and less adjustments relating to the decline in values of investments. The excess of the cost of investment in the subsidiary company over its book value at the date near the acquisition is included in investments, and is amortized by the straight-line method over a period of 15 years. The proportionate share in net income of the subsidiary company for the three month periods ended March 31, 1998 and 1997, after eliminating all significant gains or losses deriving from intercompany transactions incurred by the Company and its subsidiary, and less amortization of the excess of the cost of investment in the subsidiary company over its book value at the date near the acquisition, are shown as net result of investment in the subsidiary company in the statements of income. The recording of investment in the subsidiary company by using the equity method has been made for the purpose of reflecting the status of and return on investment in the said company. The Company, therefore, does not take into consideration the net result of investment in the subsidiary company for the three month periods ended March 31, 1998 and 1997 in the income tax computation for such periods. Method of recording of Investments in the consolidated financial statements Investment in share capital of companies, which are not subsidiaries or associates, are recorded by using the cost method and less adjustments relating to the decline in values of investments. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed by the straight-line method based on the estimated useful lives of assets of 1 - 20 years. In considering the recoverability of equipment, due allowance is made for all obsolete equipment items. Depreciation and amortization for the three month periods ended March 31, are summarized as follows: Million Baht 1998 1997 Recorded in the consolidated statements of income 108.84 47.48 Recorded in the Company's separate statements of income 92.76 38.61 The Company has entered into a number of financial lease agreements to obtain vehicles for its business operations. For the financial reporting purpose, vehicle under each financial lease and its related obligation are recorded at the discounted minimum lease amount, using the discount rate as prescribed in each lease agreement, or the fair market value at the date of each agreement, whichever is lower. Depreciation of vehicles under financial leases is computed by the straight-line method based on the estimated useful lives of vehicles of 5 years. Depreciation of vehicles under financial leases for the three month periods ended March 31, 1998 and 1997, amounting to approximately Baht 0.24 million and Baht 0.25 million, respectively, are included in the total depreciation and amortization for the three month periods ended March 31, 1998 and 1997 as disclosed in the preceding paragraph. Goodwill Goodwill in the consolidated financial statements represents the excess of the cost of investment in shares of a subsidiary company over its book value at the date near the acquisition. Goodwill is amortized by the straight-line method over a period of 15 years. Amortization of goodwill for the three month periods ended March 31, 1998 and 1997 amount to approximately Baht 9.15 million each period. Costs of Mobile Phone and Pager Networks Under Concession Agreements Costs of mobile phone and pager networks under concession agreements represent costs of certain equipment and other assets which have been transferred and/or have to be transferred to the Telephone Organization of Thailand. Costs of certain equipment and other assets which have been transferred and/or ready to be transferred to the Telephone Organization of Thailand are amortized over the remaining period of each agreement until September 30, 2015 for Advanced Info Service Public Company Limited, and until June 11, 2005 for Shinawatra Paging Company Limited. Amortization of costs of mobile phone and pager networks under concession agreements for the three month periods ended March 31, are summarized as follows: Million Baht 1998 1997 Recorded in the consolidated statements of income 349.34 223.81 Recorded in the Company's separate statements of income 320.41 199.11 Deferred Charges Deferred charges represent expenditure relating to the increase of share capital, commitment fees of long-term loans, costs of long-term leases for spaces for base stations, expenditure relating to the increase of power of electricity at base station, cost of additional supplementary equipment for the operation of pager network other than those specified in the concession agreement and have been transferred to the Telephone Organization of Thailand, and cost of computer software. The following amortization methods are used: - Expenditure relating to the increase of share capital is amortized over a period of five years. - Commitment fees of long-term loans are amortized over the period of each loan agreement. - Costs of long-term leases for spaces for base stations are amortized over the period of each lease agreement. - Expenditure relating to the increase of power of electricity at base stations are amortized over the remaining period of concession agreement. - Cost of additional supplementary equipment for the pager network other than those specified in the concession agreement and have been transferred to the Telephone Organization of Thailand are amortized over a period of five years. - Cost of computer software are amortized over a period of ten years. Amortization of deferred charges for the three month periods ended March 31, are summarized as follows: Million Baht 1998 1997 Recorded in the consolidated statements of income 20.38 7.48 Recorded in the Company's separate statements of income 20.37 7.48 Foreign Currency Transactions Foreign currency transactions are recorded in baht at the rates of exchange ruling on the transaction dates. Outstanding assets and liabilities in foreign currencies at the balance sheet date are translated into baht at the exchange rates ruling on that date. Translation gain or loss is included as revenue or expense in the statements of income. Assets, liabilities and transactions in foreign currencies, covered under forward exchange contracts, are recorded and reflected in the financial statements in accordance with the US Financial Accounting Standard No. 52. Earnings Per Share Earnings per share is computed by using the following methods: - Earnings per share in the consolidated financial statements for the three month periods ended March 31, 1998 and 1997 are computed by dividing consolidated net income for each period, after considering minority interests in subsidiary, by the number of common shares outstanding at the end of each period. - Earnings per share in the Company's separate financial statements for the three month periods ended March 31, 1998 and 1997 are computed by dividing net income for each period by the number of common shares outstanding at the end of each period. NOTE 5 - SEGMENT INFORMATION The business operations of the Company and its subsidiary, as reflected in the consolidated financial statements, are classified into four major segments; the operations of a 900-MHz CELLULAR TELEPHONE SYSTEM network; the operations of a DIGITAL DISPLAY PAGING SYSTEM network; pagers rental; and the trading of pagers. Financial information by business segment for the three month periods ended March 31, 1998 and 1997 are shown as follows: Million Baht 1998 1997 Service Income Mobile phone service 3,781.71 3,026.49 Pager service 356.90 371.49 Pager rental income 2.62 - Adjustments of intercompany transactions (0.68) (0.61) Total 4,140.55 3,397.37 Revenues from Sales Sales of pagers 59.74 - Total Revenues from Services and Sales Mobile phone service 3,781.71 3,026.49 Pager service 356.90 371.49 Pager rental income 2.62 - Sales of pagers 59.74 - Adjustments of intercompany transactions (0.68) (0.61) Total 4,200.29 3,397.37 Million Baht 1998 1997 Operating Profit (Loss) Mobile phone service 1,204.39 1,313.79 Pager service 120.49 51.07 Pager rental income (5.20) - Sales of pagers (7.89) - Adjustments of intercompany transactions - - Total 1,311.79 1,364.86 Gain on exchange 1,436.57 - Other income 171.26 62.29 Interest expense (326.67) (52.69) Directors' remuneration (1.00) (1.37) Other expenses (11.11) (14.24) Net income before income tax 2,580.84 1,358.85 Income tax (812.97) (436.43) Net income before considering minority interests in subsidiary 1,767.87 922.42 Less Share of net income of subsidiary to minority interests 26.74 14.04 Net income 1,741.13 908.38 Classifications of assets by business segment as at March 31, Property and Equipment - net Segment-Mobile phone service 1,625.58 718.06 Segment-Pager service 71.82 92.81 Segment- Pagers rental 48.38 - Segment-Sales of pagers 20.76 - Adjustments of intercompany transactions (0.05) (0.05) Total 1,766.49 810.82 Million Baht 1998 1997 Other Assets Net book value of equipment and other assets which have been or have to be transferred to the Telephone Organization of Thailand Mobile phone service 24,582.86 15,861.70 Pager service 836.14 814.35 Other assets 10,635.90 6,428.09 Adjustments of intercompany transactions - - Total 36,054.90 23,104.14 Total Assets 37,821.39 23,914.96 Operating profit (loss) by each segment represents revenue by each segment less the related cost of revenue and selling and administrative expenses. There is no intertransaction among those segments. Property and equipment by segment are those assets used in the operations of each segment. Other assets comprise: cash in hand and at banks, short-term investments, accounts and notes receivable, short-term loans and advances to related parties, inventories, other current assets, investments, costs of mobile phone and pager networks, deferred charges, goodwill and others. (More)