ADVANCED INFO SERVICE PUBLIC COMPANY LIMITED AND SUBSIDIARY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) NOTE 1 - ECONOMIC ENVIRONMENT AND BASIS OF PRESENTATION Since July 1997, certain Asia Pacific countries, including Thailand, have experienced economic difficulties relating to currency devaluation and slowdown in growth. Accordingly, the Thai government sought assistance from the International Monetary Fund to alleviate the economic crisis and improve the economy over time. The financial statements of Advanced Info Service Public Company Limited (" the Company ") and subsidiary for the three-month and nine-month periods ended September 30, 1998 and 1997 have been presented on a going concern basis and in conformity with generally accepted accounting principles applied on a consistent basis and reflect the management's current assessment of the possible impact of this economic situation on the financial position of the Company and its subsidiary. The operations of the Company and its subsidiary since July 1997 have been affected and may continue to be influenced for the foreseeable future by the economic conditions in Thailand and the Asia Pacific Region in general. The ultimate effect that these uncertainties will have on stated values or classifications of assets and liabilities at the balance sheet date cannot presently be determined. The financial statements for the three-month and nine-month periods ended September 30, 1998 and 1997 therefore may not necessarily include all adjustments that might ultimately result from these economic conditions due to such adjustments being both uncertain and unquantifiable. The accompanying interim consolidated financial statements of the Company and its subsidiary and the separate interim financial statements of the Company have been prepared in conformity with generally accepted accounting principles and in accordance with the requirements of the Stock Exchange of Thailand. The consolidated financial statements for the three-month and nine- month periods ended September 30, 1998 and 1997 include the financial statements of the Company and its only subsidiary, Shinawatra Paging Company Limited, which the Company has 59.99% shareholding in such company. All significant intercompany transactions between the Company and its subsidiary have been eliminated in the preparation of these consolidated financial statements. NOTE 2 - GENERAL INFORMATION The Company and its subsidiary are parts of the Shinawatra Computer and Communications Group. Shinawatra Computer and Communications Public Company Limited is the Company's parent company with 54.34% and 57.69% shareholding as at September 30, 1998 and 1997, respectively. The Company and its subsidiary are principally engaged in four main business operations; the operations of a 900-MHz CELLULAR TELEPHONE SYSTEM under a concession received from the Telephone Organization of Thailand, under an agreement dated March 27, 1990; the operations of a DIGITAL DISPLAY PAGING SYSTEM under a concession received from the Telephone Organization of Thailand, under an agreement dated December 19, 1989; pagers rental and the trading of pagers. Under the aforesaid agreements made with the Telephone Organization of Thailand, the Company and its subsidiary have to pay annual fees to the Telephone Organization of Thailand based on certain percentage of certain service income or at the minimum fees as specified in those agreements, whichever is higher. However, under the letter dated March 4, 1997 from the Telephone Organization of Thailand, no annual fee for the operations of pager service will be charged to the subsidiary company as from March 1, 1997 since the said fee has been waived by the Telephone Organization of Thailand, while the said subsidiary has to reduce fee of pager service charging to its customers. In addition, the Company and its subsidiary, according to the aforesaid agreements, have to transfer their ownership of certain equipment and other assets procured by the Company and its subsidiary for the operations of a 900-MHZ CELLULAR TELEPHONE SYSTEM and a DIGITAL DISPLAY PAGING SYSTEM to the Telephone Organization of Thailand on the dates of their completion of installation. As at September 30, book values of the aforementioned equipment and other assets, which have been transferred or have to be transferred to the Telephone Organization of Thailand, presented in the financial statements are as follows: Million Baht Type of Concessions' Consolidated Company's Separate Projects Expiry Date Balance Sheets Balance Sheets 1998 1997 1998 1997 Cost of mobile phone service network September 30, 2015 28,526.50 18,975.69 28,526.50 18,975.69 Cost of pager service network June 11, 2005 796.15 882.49 - - Total 29,322.65 19,858.18 28,526.50 18,975.69 The aforementioned equipment and other assets are presented as costs of mobile phone and pager networks under concession agreements under other assets in the balance sheets and amortized over the remaining period of each agreement. Periods of concessions obtained from the Telephone Organization of Thailand have been granted until September 30, 2015 for the Company, and until June 11, 2005 for Shinawatra Paging Company Limited. NOTE 3 - TRANSACTIONS WITH RELATED PARTIES The accompanying consolidated financial statements of the Company and its subsidiary and the separate financial statements of the Company include transactions with related parties. The basis of transactions occurred among the Company and related parties is similar to the basis of those transactions dealt with non-related parties. Outstanding balances with related parties as at September 30 are summarized as follows: - Accounts and notes receivable, as shown in Note 7 to the financial statements, include balances with related parties as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 0.15 0.24 0.06 0.13 A subsidiary company - - 0.02 0.03 Other related companies 1.83 1.02 0.68 0.36 Total 1.98 1.26 0.76 0.52 - Accounts and notes payable and accrued expenses, as shown in Note 12 to the financial statements include balances with related parties as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 28.32 112.76 28.32 112.76 A subsidiary company - - 0.21 0.23 Other related companies 85.58 226.22 71.30 220.67 Accrued interest expense on bonds payable to a director of the Company - 0.32 - 0.32 Accrued interest expense on bonds payable to a major shareholder of the parent company 38.68 71.77 38.68 71.77 Accrued interest expense on bonds payable to executives of the parent company and directors of a subsidiary company 0.55 0.65 0.55 0.65 Total 153.13 411.72 139.06 406.40 - Balances with related parties which are included in deposits received from customers comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 The parent company 129.27 - 129.27 - Other related companies 227.17 - 227.17 - Total 356.44 - 356.44 - - Short-term loan and advances to related parties comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 Short-term loan to an other related company - 4.50 - - Advances to the parent company 8.62 16.65 8.62 16.65 Advances to a subsidiary company - - 0.11 - Advances to other related companies 11.56 31.89 0.60 0.61 Amounts received from customers by other related companies on behalf of the Company and subsidiary such as deposits, registration fees, service fees and sales of pagers 102.50 252.66 95.00 233.49 122.68 305.70 104.33 250.75 Less Allowance for loss on collection of advances to related parties 0.37 0.37 0.37 0.37 Total 122.31 305.33 103.96 250.38 Short-term loan to an other related company represents loan with interest at the approximate minimum rate of bank overdraft and loan from bank. Advances to parent and other related companies in the consolidated balance sheets and advances to a subsidiary in the Company's separate balance sheets mainly derived from payments made by the Company and its subsidiary on behalf of those companies. Advances to an other related company in the consolidated balance sheets as at September 30, 1997 amounting to approximately Baht 26.47 million, had been financially supported by the shareholders of the said related company based on their proportionate shareholdings. - Advances from related parties comprise: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 Advances from the parent company 0.12 1.48 0.03 1.47 Advances from other related companies 2.76 7.32 0.81 5.55 Amounts received from customers on behalf of an other related company relating to sales of pagers 13.39 5.85 - - Total 16.27 14.65 0.84 7.02 Advances from parent and other related companies mainly derived from payments made by those companies on behalf of the Company and its subsidiary. Balances with related companies in the Company's separate financial statements do not represent balances with the subsidiary company . - Short-term Bonds: Short-term bonds at September 30, 1998 represent unsecured bonds totaling 20,000 units, Baht 1,000 per unit. The said short-term bonds are repayable on January 26, 1999 with interest rate at the average rate of Minimum Loan Rate of the Thai Farmers Bank Public Company Limited and the Bangkok Bank Public Company Limited. Short-term bonds at September 30, 1997 represent unsecured bonds totaling 3,965,600 units, Baht 1,000 per unit. The said short-term bonds are repayable as from October 2, 1997 through March 27, 1998. Interest and discount rates of the said bonds are fixed at 13% per annum. Short-term bonds at September 30, 1997 were shown net of discount, determined from the remaining periods of certain lot of bonds issued, in the amount of Baht 246,126.91. Under the agreements between the Company and the Thai Farmers Bank Public Company Limited, whereas the latter has been appointed as bonds registrar and has been authorized to offer and to sell the said short-term unsecured bonds, the Company agrees to pay fees and other expenses to the said bank as prescribed in those agreements. Bondholders as at September 30 are summarized as follow: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1998 1997 1998 1997 A director of the Company - 10.00 - 10.00 A major shareholder of the parent company - 3,250.00 - 3,250.00 Executives of the parent company and directors of the subsidiary 20.00 20.00 20.00 20.00 Related companies - 274.81 - 274.81 Other bondholders - 410.54 - 410.54 Total 20.00 3,965.35 20.00 3,965.35 - Long-term Bonds: Long-term bonds at September 30, 1998 represent unsecured bonds totaling 2,000,000 units, Baht 1,000 per unit, invested by a major shareholder of the parent company. The said long-term bonds are repayable as from December 15, 2000 through June 12, 2001. Interest rate of the said bonds is at the average rate of Minimum Loan Rate of the Thai Farmers Bank Public Company Limited and the Bangkok Bank Public Company Limited. Under the agreements between the Company and the Thai Farmers Bank Public Company Limited, whereas the latter has been appointed as bonds registrar and has been authorized to offer and to sell the said long-term unsecured bonds, the Company agrees to pay fees and other expenses to the said bank as prescribed in those agreements. Significant transactions with related parties for the three-month periods ended September 30, are summarized as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 The parent company Revenues - Service 0.68 0.95 0.48 0.72 - Sales of pagers 0.01 0.02 - - - Interest 2.41 1.89 2.41 1.89 Expenses - Rental and other services 25.76 33.77 25.76 33.77 - Consulting and management services 33.50 42.00 33.50 42.00 Purchases of equipment for general operations - 0.21 - 0.21 Purchases of equipment for the operations of mobile phone and pager networks - 16.51 - 16.51 Subsidiary company Revenues - Service - - 0.08 0.11 Expenses - Rental and other services - - 0.57 0.63 Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 Other related parties Revenues - Service 2.89 1.70 2.46 1.24 - Sales of pagers 3.89 2.51 - - - Interest 0.09 0.25 - - Expenses - Rental and other services 165.13 126.73 151.67 110.20 - Advertisement 5.42 87.49 0.80 81.53 - Consulting and management services 2.50 - - - - Interest on bonds payable to a director of the Company - 0.32 - 0.32 - Interest on bonds payable to a major shareholder of the parent company 96.97 71.77 96.97 71.77 - Interest on bonds payable to executives of the parent company and directors of the subsidiary company 0.77 0.65 0.77 0.65 - Interest on bonds payable to related companies - 8.35 - 8.35 Purchases of property, equipment and other assets (Note 25) - 154.86 - - Purchases of equipment for general operations 19.74 2.60 18.54 2.60 Million Baht Consolidated Company's Separate Financial Statements Financial Statements 1998 1997 1998 1997 Purchases of equipment for the operations of mobile phone and pager networks 0.74 28.86 0.32 28.86 Significant transactions with related parties for the nine-month periods ended September 30, are summarized as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements The parent company 1998 1997 1998 1997 Revenues - Service Income 2.45 3.28 1.83 2.35 - Sales of pagers 0.11 0.05 - - - Interest 2.41 1.89 2.41 1.89 Expenses - Rental and other services 76.48 93.44 76.48 93.45 - Consulting and management services 116.02 126.00 116.02 126.00 - Interest on bonds payable to the parent company 13.84 - 13.84 - Purchases of equipment for general operations - 0.55 - 0.55 The parent company Purchases of equipment for the operations of mobile phone and pager networks - 226.57 - 226.57 Purchase of computer software 65.00 - 65.00 - Subsidiary company Revenues - Service Income - - 0.25 0.29 Million Baht Consolidated Company's Separate Financial Statements Financial Statements Expenses - Rental and other services - - 1.74 1.77 Purchases of equipment for general operations - - 0.04 - Other related parties Revenues - Service Income 9.56 7.53 8.10 6.41 - Sales of pagers 9.37 3.75 - - - Interest 0.47 8.42 - - Expenses - Rental and other services 520.59 343.13 476.52 299.58 - Advertisement 19.00 254.82 7.49 247.66 - Consulting and management services 7.50 - - - - Interest on bonds payable to a director of the Company - 0.32 - 0.32 - Interest on bonds payable to a major shareholder of the parent company 282.18 71.77 282.18 71.77 - Interest on bonds payable to executives of the parent company and directors of the subsidiary company 2.08 0.65 2.08 0.65 - Interest on bonds payable to related companies - 8.35 - 8.35 Purchases of property, equipment and other assets (Note 25) - 154.86 - - Million Baht Consolidated Company's Separate Financial Statements Financial Statements Purchases of equipment for general operations 23.89 65.97 22.69 65.97 Purchases of equipment for the operations of mobile phone and pager networks 133.64 61.67 133.22 60.26 Transactions other than those mentioned previously are as follows: - The Company has issued a Letter of Comfort to a bank to support credits obtained by a subsidiary in the amount of Baht 75 million. - The Company has entered into agreements with other related companies to hire them for the construction and installation of equipment for the operations of mobile phone network, and to receive satellite transponder services. As at September 30, 1998, the Company was committed to pay for the construction, installation and transponder services in the total amount of Baht 216.32 million. - The Company has entered into agreements with its parent company to receive consulting and management services for periods ranging from 11 months to 12 months with options to renew. The Company is committed to pay for services in respect of the said agreements amounting to approximately Baht 11.16 million per month. (More)