NOTE 18 - FOREIGN CURRENCY RISK MANAGEMENT The Company and its subsidiary, in terms of approved policy limit of Shinawatra Computer and Communications Group, enter into various types of foreign exchange contracts to hedge their transaction risk both in short-term and long-term foreign currency exposures. Short-term foreign currency exposures are related to trade import, short-term foreign borrowings and interest flows on long-term foreign borrowings. Long-term foreign currency exposure is related to long-term foreign borrowings. The currency risks of the Company and its subsidiary occur in various currency combinations, but mostly in the United States dollars, due to the fact that the Company and its subsidiary involves in transactions with different countries. The Company and its subsidiary hedging policy is to hedge currency risk mostly based on their net exposure and the structure of their revenues. The Company and its subsidiary focus more on hedging when their revenue are on local currency base whereas it will do less when their revenues are on foreign currency base due to the natural hedge phenomenon. The senior executives in Group Finance meet on a monthly basis to analyze currency exposures and re-evaluate forex management strategies against revised currency forecasts. NOTE 19 - CHANGE IN EXCHANGE RATE SYSTEM On July 2, 1997, the Ministry of Finance issued its notification, dated July 2, 1997, to change the exchange rate system to the managed float system. The Shinawatra Computer and Communications Group has its policy to recognize all exchange gains or losses derived from the change in exchange rate system incurred during the reporting period as income or expense in the statements of income. As at June 30, 1998, the Company and its subsidiary have significant outstanding foreign currency liabilities as follows: Million Consolidated Company's Separate Liabilities by type of currencies Balance Sheets Balance Sheets US dollar 337.97 311.36 Deutschmark 30.08 30.08 Hong Kong dollar 10.63 10.63 Norway krone 6.20 6.20 Singapore dollar 1.53 1.53 Australian dollar 0.72 0.72 UK pound sterling 0.56 0.56 From the foreign currency liabilities as shown above, balances to be settled within June 30, 1999 and to be settled after June 30, 1999 are shown as follow: Million Consolidated Company's Separate Payment periods by type of currencies Financial Statements Financial Statements Within June 30, 1999 US dollar 167.70 141.09 Deutschmark 30.08 30.08 Hong Kong dollar 10.63 10.63 Norway krone 6.20 6.20 Singapore dollar 1.53 1.53 Australian dollar 0.72 0.72 UK pound sterling 0.56 0.56 After June 30, 1999 US dollar 170.27 170.27 Foreign currency liabilities as shown above represent long-term loans and related accrued interest expense and foreign trade accounts payable. Long-term loans and related accrued interest in US dollars are repayable and payable in accordance with conditions in loan agreements as described in Note 14, while foreign trade accounts payable are payable within June 30, 1999. From the foreign currency liabilities as shown above, a total amount of US$ 69.12 million in the book of Advanced Info Service Public Company Limited and a total amount of US$ 26.49 million in the book of Shinawatra Paging Company Limited have been hedged against the risk of currency losses on future repayments and payments. Effects derived from the change in exchange rates, incurred between July 1, 1998 and July 31, 1998, to the financial position and results of operations of the Company and its subsidiary based on their outstanding unhedged foreign currency liabilities as at June 30, 1998 are as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements Decrease in liabilities 396.85 396.63 Gain on exchange 396.85 396.63 NOTE 20 - APPROPRIATION OF EARNINGS OF ADVANCED INFO SERVICE PUBLIC COMPANY LIMITED The shareholders of Advanced Info Service Public Company Limited at the Annual General Meeting held on April 25, 1997 approved the interim dividend and legal reserve appropriated during 1996 of Baht 702 million and Baht 89.50 million, respectively. Additional dividend and legal reserve for 1996 of Baht 702 million and Baht 88.70 million, respectively, were also approved by such meeting. The shareholders of Advanced Info Service Public Company Limited at the Annual General Meeting held on April 29, 1998 approved the interim dividend during 1997 of Baht 702 million. Additional dividend and legal reserve for 1997 of Baht 257.40 million and Baht 15.30 million, respectively, were also approved by such meeting. NOTE 21 - LEGAL RESERVE Legal reserve of Advanced Info Service Public Company Limited was established in accordance with the provision of the Public Limited Company Act B.E. 2535, which requires the appropriation as legal reserve of at least 5% of net income each year until the reserve reaches 10% of the authorized share capital. This reserve is not available for dividend distribution. NOTE 22 - PROVIDENT FUND The provident fund of Advanced Info Service Public Company Limited and its subsidiary complies with the Provident Fund Act B.E. 2530. The fund is independently maintained and therefore does not appear in the consolidated balance sheets and the Company's separate balance sheets. NOTE 23 - COMMITMENTS Lease Agreements Other than those commitments under lease agreements as described in Note 3 to the financial statements, the Company and its subsidiary have entered into lease agreements covering spaces for branch offices, base stations and others for periods ranging from 8 months to 15 years with options to renew. The Company and its subsidiary are committed to pay for monthly rental in respect of the said agreements as follows: Million Baht Per Month Advanced Info Service Public Company Limited 13.75 Advanced Info Service Public Company Limited and subsidiary 15.84 Bank Guarantees At June 30, 1998, the Company and its subsidiary had commitments with banks whereby the latter issued letters for guaranteeing the Company and its subsidiary in respect of business contracts, electricity use, customs duties and others in the following amounts: Million Baht For Advanced Info Service Public Company Limited 3,597.45 For Advanced Info Service Public Company Limited and subsidiary 3,768.34 Contracts for Construction and Equipment Installation of Mobile Phone Network At June 30, 1998, the Company had outstanding commitments under contracts relating to the construction and installation of equipment for the operations of mobile phone network amounting to approximately Baht 1,888.60 million. Data Broadcast Via Satellite Agreement The Company's subsidiary has entered into a Data Broadcast via Satellite agreement with the Telephone Organization of Thailand for a period of 5 years with option to renew. The subsidiary is committed to pay for rental in respect of the said agreement in the amount of Baht 35,000 per site per month for master network and Baht 6,000 per site per month for remote network. Interest Rate and Currency Exchange Agreements In order to hedge against the risk of possible losses from future repayments of loans and the payments of related interest, deriving from exchange rates and interest rates under loans in foreign currencies, the Company and its subsidiary have entered into nine interest rate and currency exchange agreements to exchange the US dollar loan principals from US$ 120,106,558.58 to Baht 3,076,293,049.15, and to exchange the related loan interest rates on US dollar principals (comprise a fixed rate of 5.90 - 6.88% per annum, 6 month LIBOR and 6 month SIBOR plus the rate per annum as prescribed in each agreement) to the fixed rates on Baht principals ranging from 9.35 - 10.935% per annum. Value dates of those nine agreements are covering from January 15, 1997 to January 15, 2001. As of June 30, 1998, outstanding loan principals under those agreements amounted to US$ 92,536,944.64, and their value dates are covering from July 15, 1998 to January 15, 2001. Forward Exchange Contracts In order to hedge against the risk of exchange losses from future repayments of loans and the payments of related interest, the Company and its subsidiary have entered into two currency exchange agreements to exchange the total loan and interest amounts from US$ 1,595,919.45 to Baht 70,394,018.45. Value dates of these two agreements are covering from July 15, 1998 to July 31, 1998. Interest Rate Exchange Agreements In order to hedge against the risk of losses from interest payments, which may derive from the fluctuation of interest rates under foreign loans, the Company and its subsidiary have entered into six interest rate exchange agreements, to exchange the related interest rates on US dollar loan principals of US$ 112,000,000 (comprise 6 month LIBOR and 6 month SIBOR plus the rate per annum as prescribed in each agreement) to the fixed rates on US dollar loan principals ranging from 5.90 - 6.34% per annum. Periods of those six agreements are covering from March 15, 1996 to October 2, 2000. As of June 30, 1998, outstanding loan balances relating to those interest rate agreements amounted to US$ 109,000,000, and are covering from March 31, 1998 to October 2, 2000. NOTE 24 - RECLASSIFICATION OF ACCOUNTS Certain accounts in the financial statements for the three-month and six-month periods ended June 30, 1997 have been reclassified to conform with the presentation in the financial statements for the three-month and six-month periods ended June 30, 1998.