EXPLANATION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS 1. OVERVIEW As of the second quarter in 2003, the company and its subsidiaries had the total of 12,263,200 mobile phone subscribers, comprising of 2,235,700 GSM Advance and GSM 1800 subscribers and 10,027,500 One-2-Call subscribers.The subscriber base grew 6.3% from the previous quarter or 56.5% higher compared to the year before. For market share is 62% same as the first quarter in 2003. During the second quarter, the popular in prepaid system still expanded over previous quarter. The company and its subsidiaries had increased in operating profit by 3.1% and net profit by 11.2% compared to the previous quarter. In the second quarter of 2003,the company and its subsidiaries wrote off Baht 297 million worth of its spare-parts with more than one-year aging for conservative accounting (due to potential obsolescent due to technological changes) including in cost of service (maintenance).Moreover, income tax was adjusted down by Baht 251 million for prior periods due to change of calculation method, in tax accounting, for concession fee on refill card from the basis of usage to volume sales. 2. ANALYSIS OF OPERATION RESULTS 2.1. CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE-MONTH ENDED JUNE 2003, COMPARING TO THE THREE-MONTH ENDED MARCH 2003. Revenue from services and equipment rental In the second quarter in 2003, the company and its subsidiaries generated Baht 18,406 million of revenue from services and equipment rental, increased Baht 584 million or 3.3% when compared to previous quarter. The result was from notably larger customer bases, especially the prepaid service. Revenue from sales Revenue from sales decreased from Baht 4,850 million to Baht 4,228 million in this quarter by Baht 622 million or 12.8% due to lower unit of handset sold. Concession fee and excise tax In the second quarter in 2003, the company and its subsidiaries recorded concession fee and excise tax of Baht 4,512 million, an increased of Baht 240 million or 5.6% because of higher service and equipment rental revenues. Cost of services and equipment rental Cost of services and equipment rental was Baht 4,796 million slightly increased from the previous quarter due mainly to the following factors: (1) The company wrote off Baht 297 million in this quarter (first quarter: Baht 170 million) worth of its spare-parts with more than one-year aging including in cost of maintenance. (2) In the first quarter, since the company changed an estimated useful life of Intelligence Network Equipment from 5 to 3 years, the amortization expense of the equipment increased Baht 124 million for the year 2002. Costs of sales Costs of sales decreased by Baht 162 million or 4.5% from the previous quarter to Baht 3,418 million due to the lower unit of handsets sold. Selling and administrative expenses Selling and administrative expenses of the company and its subsidiaries were Baht 2,667 million, a decrease of Baht 375 million or 12.3% from the previous quarter. AIS booked a write-off in mobile phone equipment of Baht 294 million in the previous quarter. Moreover, doubtful and bad debt account decreased by Baht 44 million, quarter on quarter. Income tax As of the second quarter in 2003, the company and its subsidiaries recorded income tax of Baht 1,757 million, decreased from previous quarter. In this quarter, income tax was adjusted down by Baht 251 million for prior periods due to change of calculation method, in tax accounting, for concession fee on refill card from the basis of usage to volume sales. Moreover, the company has continued to utilize loss carry forward of a subsidiary. Net profit From the aforesaid, the company and its subsidiaries reported net profit of Baht 5,125 million, an increase of Baht 518 million, or 11.2% compared to the previous quarter. 2.2. CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE-MONTH ENDED JUNE 2003, COMPARING TO THE THREE-MONTH ENDED JUNE 2002. Revenue from services and equipment rental The company and its subsidiaries recorded Baht 18,406 million of revenue from services and equipment rental in the second quarter 2003, increased by Baht 3,782 million or 25.9% when compared with those of the second quarter 2002. The result came from the competitive intensity in this industry peaked in second half year 2002 and the popular in prepaid service which is given in lower tariff and convenience to purchase. Revenue from sales When compared with revenue as of the second quarter 2002, revenue from sales slightly decreased from Baht 4,262 million to Baht 4,228 million. Mobile phone trading was more competitive since May 2002 mainly due to unlock of phone ID (IMEI - International Mobile Equipment Identity) which effected higher mobile unit sold at competitive selling price. Concession fee and excise tax As of the second quarter 2003, the concession fee and excise tax increased by Baht 774 million or 20.7% because of an increase in service and equipment rental revenues. Cost of services and equipment rental Cost of services and equipment rental was up by Baht 1,239 million, or 34.8%. It increased to Baht 4,796 million from Baht 3,557 million in the same period last year. This was mainly from 3 components: (1) The amortization of mobile phone networks was up Baht 602 million when compared to last year. The company had invested more in mobile phone network to support its subscriber growth (2) The cost of maintenance increased Baht 335 million was primarily due to having written off Baht 297 million in this quarter worth of its spare-parts with more than one-year aging. (3) The cost of base rental & electricity increased by Baht 265 million due to expansion of base station and more usage by larger customers base. Costs of sales Costs of sales increased by Baht 181 million or 5.6% from Baht 3,237 million to Baht 3,418 million as higher unit of handsets sold. Selling and administrative expenses Selling and administrative expenses of the company and its subsidiaries were Baht 2,667 million, which decreased by Baht 1,162 million or 30.3% from those of the second quarter in previous year because of the following reasons: (1) A decrease in allowance for doubtful accounts by Baht 980 million. (2) A decreased from marketing expense by Baht 214 million. Income tax In the second quarter this year, the company and its subsidiaries recorded Baht 1,757 million in income tax. Compared to the second quarter in previous year, income tax slightly decreased despite that the company and subsidiaries generated more pretax-profit as the following reasons: (1) The company and its subsidiaries utilized loss carry forward of a subsidiary. (2) In this quarter, income tax was adjusted down by Baht 251 million for prior periods due to change of calculation method, in tax accounting, for concession fee on refill card from the basis of usage to volume sales. Net profit From the above mentioned, the company and its subsidiaries reported a net profit Baht 5,125 million, an increase of Baht 3,599 million, or 235.8% when compared to the net profit of the second quarter 2002. 3. ANALYSIS OF FINANCIAL POSITION 3.1ANALYSIS OF ASSETS Cash on hand and cash equivalents and short-term investments At the end of this quarter, the company and its subsidiaries' cash on hand and cash equivalents were Baht 7,662 million and current investments were Baht 104 million. By the ended of year 2002, the amount of cash on hand and cash equivalents was Baht 4,069 million and current investments were Baht 62 million. The increase was primarily from the net cash flow received from operating activities (from expansion of revenue from service and sales revenue) more than the net cash outflow from investing and financing activities. Trade accounts receivable net At the end of this quarter, net trade accounts receivable decreased from Baht 7,239 million as of the end of 2002, to Baht 5,811 million. The decrease was primarily due to higher proportion of prepaid revenue and then results in the decline of average receivable collection period from 33 days (year ended 2002) to 28 days. Net inventories Net inventories increased to Baht 3,034 million at the end of this quarter. This amount increased Baht 1,073 million from the end of the year 2002 to support potentially higher sales in the future. Although the subsidiaries hold a larger amount of inventories, inventory turnover decreased from 43 days (year ended 2002) to 31 days. Property and equipment net Net property and equipment totaled Baht 9,486 million as at June 2003, decreased from Baht 9,748 million at the year ended 2002. The decrease was mainly due to the change of estimated life of Intelligence network from 5 to 3 years. Asset under concession agreements net Asset under concession agreements had increased from Baht 79,795 million at the end of year 2002 to Baht 81,260 million at the end of June 2003. It was caused by the larger investment in mobile service network to accommodate a larger customer base. 3.2 ANALYSIS OF LIABILITIES Long-term debentures and long-term loans During six month of this year, the company and its subsidiaries repaid for debenture principal and long term loan Baht 5,500 million and Baht 4,930 million respectively, totaling Baht 10,430 million. However, a subsidiary borrowed a new loan amounting Baht 3,943 million. At the end of this quarter 2003, the company and its subsidiaries had a total of Baht 45,247 million of the long-term debentures and loans. The portion of long-term debentures and loans can be divided into - : 1) Maturing within 1 year amounted to Baht 2,968 million and Baht 2,286 million, respectively, and 2) Over 1 years amounting to Baht 39,993 million. Current portion of accrued Concession & Excise tax Fee The company and subsidiary recorded current portion of accrued concession and excise tax fee of Baht 7,674 million which increased from Baht 4,474 million at year ended 2002. As stipulated in concession agreement, the company has to pay to TOT at minimum charges in January, April, July and October every year. Additional amount from minimum payment will be paid in November. Therefore, the accrued concession and excise tax fee will be lower by yearend. 3.3 ANALYSIS OF SHAREHOLDERS' EQUITY As of the end of this quarter, the company and its subsidiaries had Baht 56,542 million of equities, increased from Baht 51,241 million at the end of 2002. The followings reason:- 1. The retained earning increased by Baht 9,732 million from net profit. 2. In this quarter, the company had issued and fully paid up share capital (0.12 million shares) and premium on share capital equaled to Baht 6 million and recorded share subscription received in advance from management at Baht 67 million from exercise ESOP (Employee Stock Option Program). 3. During the first half of 2003, the company repurchased 0.38 million shares at the average price of Baht 33.08 per share. As of the end of this quarter the company repurchased totaling 2.54 million shares at the average price of Baht 32.73 per share. 4. In second quarter of 2003, the company had paid dividend to shareholder amounting to Baht 4,541 million at Baht 1.55 per share on May 23, 2003. 3.4 ANALYSIS OF LIQUIDITY For the first half of 2003, the company and its subsidiaries grew their service and equipment rental revenues continuously. Net cash flow from operating activities increased from Baht 13,313 million in the second quarter 2002 to Baht 22,585 million in the second quarter 2003. The company and its subsidiaries had net cash flow from financing activities of Baht 10,968 million and net cash payment from investing activities of Baht 8,008 million. Thus, cash and cash equivalent of the company and its subsidiaries increased by Baht 3,609 million.