Significant transactions with related parties for the years ended December 31, are summarized as follows: Million Baht Consolidated Company's Separate Financial Statements Financial Statements The parent company 1998 1997 1998 1997 Revenues - Service Income 3.14 4.11 2.31 2.96 - Sales of pagers 0.18 0.05 - - - Interest 6.86 1.89 6.86 1.89 Expenses - Rental and other services 101.99 127.03 101.82 127.03 - Consulting and management services 150.34 168.00 150.34 168.00 - Interest on bonds payable to the parent company 16.58 12.43 16.58 12.43 Investment in share capital of a subsidiary (Note 1) 600.00 - - - Purchases of equipment for general operations - 0.56 - 0.56 Purchases of equipment for the operations of mobile phone and pager service networks - 226.57 - 226.57 Purchase of computer software 65.00 - 65.00 - Subsidiary company Revenues - Service Income - - 0.31 0.39 Expenses - Rental and other services - - 2.35 2.39 Other related parties Revenues - Service Income 12.45 10.42 10.39 8.74 - Sales of pagers 14.66 13.55 - - - Interest 1.68 8.58 1.20 - Expenses - Rental and other services 681.50 480.41 624.17 423.30 - Advertisement 21.53 312.74 7.62 304.23 - Consulting and management services 10.00 10.00 - - - Interest on bonds payable to - A major shareholder of the parent company 387.31 160.96 387.31 160.96 - Executives of parent company and directors of subsidiaries 2.72 - 2.72 - - Other related companies - 8.54 - 8.54 Purchases of property, equipment and other assets - 217.15 - - Purchases of equipment for general operations 24.26 96.51 23.06 96.51 Purchases of equipment for the operations of mobile phone and pager service networks 142.80 189.67 142.37 188.26 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 271 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. The Company was committed to pay for the construction, installation and transponder services in the total amount of Baht 185.71 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. - The Company and its subsidiaries have entered into lease and related service agreements with other related companies covering their office spaces, cars and spaces for base stations for periods ranging from 4 months to 17 years with options to renew. The Company and its subsidiaries are committed to pay for rental and related services in respect of the said agreements as follows: Million Baht Per Month Advanced Info Service Public Company Limited 17.51 Advanced Info Service Public Company Limited and subsidiaries 20.18 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 year are treated as period cost. - Revenue from equipment rental is recognized over the period of and at the rate prescribed in each agreement. - The subsidiary recognizes sale and cost of sale when merchandise is delivered to customer. Accounts and Notes Receivable The Company and its subsidiaries 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. Costs of inventories are determined by the following method: - Cost of pager and spare parts are determined on the moving average method. - Cost of mobile phone is determined by using the first-in, first-out method while spare parts are determined on the moving average method. In considering the realizable value, due allowance is made for all obsolete and slow-moving items. Investments Subsidiaries and associated companies Investments in subsidiary and associated companies in the Company's separate financial statements and investments in an associated company in the consolidated financial statements are recorded by using the equity method. Differences between costs of investments in subsidiary and associated companies and their book values at the dates near the acquisition are included in investments, and are amortized by the straight-line method over periods 5 - 15 years. The proportionate share in net income or net losses of subsidiary and associated companies for the years ended December 31, 1998 and 1997, after eliminating all significant gains or losses deriving from intercompany transactions incurred among the Company and its subsidiary and associated companies, less or add the amortization of differences between costs of investments in subsidiary and associated companies and their book values at the dates near the acquisition, are shown as net result of investments in subsidiary and associated companies in the statements of income. The recording of investments in subsidiary and associated companies by using the equity method has been made for the purpose of reflecting the status of and return on investments in those companies. Accordingly, the net result of investments in subsidiary and associated companies for the years ended December 31, 1998 and 1997 had not been considered in the income tax computation for each year. Other company Investment in share capital of a company, which is not a subsidiary or an associate and does not represent marketable securities, is recorded by using the cost method and less adjustment relating to the decline in value of investment, determined from the said company's financial status. Property and Equipment Land is stated at cost while no depreciation is considered for land. Buildings and building improvements, leasehold building improvements 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 to certain equipment items. Depreciation and amortization for the years ended December 31, are summarized as follows: Million Baht 1998 1997 Recorded in the consolidated statements of income 482.27 279.24 Recorded in the Company's separate statements of income 418.73 236.28 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 years ended December 31, 1998 and 1997 are equally recorded by approximately Baht 0.96 million, are included in the total depreciation and amortization for the years ended December 31, 1998 and 1997 as discussed previously. 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 years ended December 31, 1998 and 1997 are equally recorded by approximately Baht 36.60 million. Excess of Book Value of Investment in Subsidiary Over Cost Excess of book value of investment in a subsidiary over cost, in the 1998 consolidated balance sheet, at the date near the acquisition (December 31, 1998) is amortized by the straight-line method over a period of 5 years commencing January 1999. 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 concession agreement until September 30, 2015 for the Company, and until June 11, 2005 for Shinawatra Paging Company Limited. Amortization of costs of mobile phone and pager networks under concession agreements for the years ended December 31, are summarized as follows: Million Baht 1998 1997 Recorded in the consolidated statements of income 1,615.32 1,020.43 Recorded in the Company's separate statements of income 1,497.37 912.58 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, cost of computer software, and expenditure relating to the improvement project of mobile phone service network. 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. - Costs 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 periods of five years. - Cost of computer software are amortized over a period of ten years. - Expenditure relating to the improvement project of mobile phone service network is amortized over the remaining period of concession agreement. Amortization of deferred charges for the years ended December 31, are summarized as follows: Million Baht 1998 1997 Recorded in the consolidated statements of income 69.38 33.40 Recorded in the Company's separate statements of income 69.33 33.35 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. The Company's forward exchange contracts are intended to hedge the risks of changes in foreign currency exchange rates. Forward exchange contract receivables and payables are recorded in Baht at the spot rate on the date of contract inception, and the balances on the balance sheet date are translated into Baht at the prevailing spot rate. Premiums or discounts under forward exchange contracts for hedging losses on assets and liabilities in foreign currencies are amortized to the profit and loss accounts over the period of the forward exchange contract. Earnings Per Share Earnings per share is computed by using the following methods: - Earnings per share in the consolidated financial statements for the years ended December 31, 1998 and 1997 are computed by dividing consolidated net income for each year, after considering minority interests in subsidiary, by the number of common shares outstanding at the end of each year. - Earnings per share in the Company's separate financial statements for the years ended December 31, 1998 and 1997 are computed by dividing net income for each year by the number of common shares outstanding at the end of each year. NOTE 5 - SEGMENT INFORMATION The business operations of the Company and its subsidiaries, as reflected in the consolidated financial statements, are classified into two major segments; 1) the operations of a 900-MHz CELLULAR TELEPHONE SYSTEM network, trading mobile phones, rendering repair services for mobile phones and providing mobile phones for rent; 2) the operations of a DIGITAL DISPLAY PAGING SYSTEM network, trading pagers and providing pagers for rent. As of December 31, 1998, no operating income and expenses from trading of mobile phones and rendering repair services for mobile phones and providing mobile phones for rent were reflected in the consolidated financial statements as the Company just acquired Shinawatra Wireless Marketing Company Limited, which is operating the aforesaid business activities, by the end of 1998 as discussed in Note 1 to the financial statements. (More)