investments in subsidiaries, net of cash acquired 38 (1,228,037,858) (323,670,687) (1,230,600,000) (651,508,848) Proceeds from disposals of fixed assets 27,214,866 6,091,382 18,023,766 1,906,008 Purchases of property and equipment (957,260,994) (588,831,453) (871,299,855) (562,130,007) Cash invested in cost of mobile phone and pager service networks and Datanet tools and equipment under concession agreements (7,057,909,344) (8,510,570,220) (6,899,046,147) (8,412,923,309) Net cash (payments) to investing activities (9,215,993,330) (9,462,480,978) (8,332,922,236) (9,674,656,156) Cash flows from financing activities Increase in short-term loans from banks 1,068,341,353 678,450,000 1,255,900,000 678,450,000 Receipts from short-term debentures - 2,000,000,000 - 2,000,000,000 Receipts from long-term debentures 1,500,000,000 2,000,000,000 1,500,000,000 2,000,000,000 Receipts from long-term liabilities 2,084,293,871 3,283,401,578 2,084,293,871 3,283,401,578 Proceeds from capital increase 22 8,280,000,000 - 8,280,000,000 - Repayments of short-term debentures (2,000,000,000) (2,130,000,000) (2,000,000,000) (2,130,000,000) Repayments of long-term debentures (2,000,000,000) (1,000,000,000) (2,000,000,000) (1,000,000,000) Repayments of long-term liabilities (7,378,560,827) (2,001,747,516) (7,378,560,827) (1,338,747,516) Dividends paid 32 - (257,400,000) - (257,400,000) Net cash receipts from financing activities 1,554,074,397 2,572,704,062 1,741,633,044 3,235,704,062 Net (decrease) in cash and cash equivalents (896,634,740) (235,120,580) (978,152,379) (448,564,945) Cash and cash equivalents - beginning balance 4,587,747,398 4,822,867,978 3,856,922,827 4,305,487,772 Cash and cash equivalents - ending balance 3,691,112,658 4,587,747,398 2,878,770,448 3,856,922,827 The notes to the consolidated and company financial statements on pages 11 to 54 form an integral part of these financial statements. Auditor's report pages 1 and 2 Supplemental disclosures of cash flow information Cash and cash equivalents Cash and cash equivalents included in cash flow statements for the years ended 31 December 1999 and 1998 comprise: Consolidated Company 1999 1998 1999 1998 Restated Restated Million Baht Million Baht Million Baht Million Baht Cash on hand and at banks 880.98 2,099.22 525.85 1,690.92 Short-term investments 2,810.13 2,488.53 2,352.92 2,166.00 Total cash and cash equivalents 3,691.11 4,587.75 2,878.77 3,856.92 Interest expenses and income tax Interest expenses and income tax paid during the years ended 31 December 1999 and 1998 comprise: Consolidated Company 1999 1998 1999 1998 Restated Restated Million Baht Million Baht Million Baht Million Baht Interest expenses 870.91 1,299.32 864.65 1,173.57 Income tax 1,676.28 390.00 1,451.60 326.30 Non-cash investing activities in 1999 and 1998 in consolidated statements of cash flows Additions to investments in property and equipment for general business operation, which are included in property and equipment, and additions to investments in mobile phone and pager service networks and Datanet tools and equipment, which are included in costs of mobile phone and pager service networks and Datanet tools and equipment under concession agreements, were approximately Baht 5,235.12 million in 1999 and Baht 8,397.67 million in 1998. Outstanding debts in the balance sheets relating to the aforesaid investments, were approximately Baht 1,140.49 million in 1999 and Baht 3,920.49 million in 1998. Non-cash investing activities in 1999 and 1998 in the company's separate statements of cash flows Additions to investments in property, plant and equipment for general business operation, which are included in property, and equipment, and additions to investments in mobile phone networks, which are included in costs of mobile phone networks under concession agreements, were approximately Baht 4,989.52 million in 1999 and Baht 8,273.32 million in 1998. Outstanding debts in the balance sheets relating to the aforesaid investments, amounting to approximately Baht 1,139.67 million in 1999 and Baht 3,920.49 million in 1998. The notes to the consolidated and company financial statements on pages 11 to 54 form an integral part of these financial statements. Auditor's report pages 1 and 2 1 General information Advanced Info Service Public Co., Ltd. ("the Company") is a public company limited and is incorporated and domiciled in Thailand. The address of its registered office is as follows: 414 Shinawatra Tower 1, Phaholyothin Road, Phayathai, Bangkok 10400 The Company is listed on the Stock Exchange of Thailand. The principal business operations of the Company and its subsidiaries ("the Group") are summarised as follows: 1) The operation of a 900-MHz CELLULAR TELEPHONE SYSTEM under a concession granted from the Telephone Organization of Thailand ("TOT"), under the agreement dated 27 March 1990, trading mobile phones, rendering repair services for mobile phones and providing mobile phones for rent. 2) The operation of a DIGITAL DISPLAY PAGING SYSTEM under a concession granted from TOT, under the agreement dated 19 December 1989, trading pagers and providing pagers for rent. 3) The operation of a DATAKIT VIRTUAL CIRCUIT SWITCH under a concession granted from TOT, under the agreement dated 19 September 1989, rendering services for data network. Under the above agreements made with TOT, the Company, Advanced Paging Co., Ltd. and Shinawatra Datacom Co., Ltd. have to pay annual fees to TOT 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 4 March 1997 from TOT, no annual fee for the operations of pager service will be charged to Advanced Paging Co., Ltd. as from 1 March 1997 since the fee has been waived by TOT, while the said subsidiary has to reduce fee of pager service charging to its customers. Under the joint venture agreement between Shinawatra Datacom Co., Ltd. and TOT dated 25 September 1997, TOT has extended the period of the service agreement to 25 years and waived annual fee under the agreements effective from 25 September 1997, in exchange for annual fee, the subsidiary has issued the additional 10.75 million ordinary shares at the par value of Bht 10 each to TOT on 17 March 1998. In addition, the Company and the subsidiaries, according to the concessions, have to transfer their ownership of certain equipment and other assets procured by the Company and the subsidiaries for the operations of a 900 MHz CELLULAR TELEPHONE SYSTEM, DIGITAL DISPLAY PAGING SYSTEM and DATAKIT VIRTUAL CIRCUIT SWITCH to TOT upon completion of equipment installation. 2 Significant accounting policies The principal accounting policies adopted in the preparation of these consolidated and company financial statements are set out below: 2.1 Basis of preparation The consolidated and company financial statements are prepared in accordance with and comply with generally accepted accounting principles in Thailand. The consolidated and company financial statements are prepared under the historical cost convention. 2.2 Consolidation Subsidiary undertakings, which are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the financial and operating policies, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date of disposal. All intercompany transactions, balances and unrealised surpluses and deficits on transactions between group companies have been eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Separate disclosure is made for minority interests. A list of the Group's principal subsidiaries is set out in Note 10. The financial effect of the acquisition of subsidiaries is shown in Note 38. 2.3 Investments in subsidiaries Investments in subsidiary undertakings are accounted for in the non-consolidated financial statements by the equity method of accounting. These are undertakings over which the Company has over 50% of the voting rights, and over which the Company exercises control. Provisions are recorded for impairment in value (if any). Equity accounting involves recognising in the income statement the Company's share of the subsidiaries' profit or loss for the year. The Company's interest in the subsidiary is carried in the balance sheet an amount that reflects its share of the net assets of the subsidiary and includes goodwill on the acquisition. Where a subsidiary undertaking is acquired and held exclusively with a view to be subsequently disposed in the near future; or a subsidiary undertaking operates under severe long-term restrictions that significantly impair its ability to transfer funds to the Group, the interest in the subsidiary undertaking is accounted for in the consolidated and company financial statements by using the cost method of accounting. 2.4 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of net assets of the acquired subsidiary undertaking at the date of acquisition. Goodwill on acquisitions is reported in the consolidated balance sheet as an intangible asset and is amortised using the straight-line method over its estimated useful life. Goodwill arising on acquisitions of the Group is amortised over a maximum period of 15 years. The carrying amount of goodwill is reviewed annually and written down for impairment where it is considered necessary. 2.5 Revenue recognition Revenue from equipment sales is recognised when goods are delivered to customers. Revenue from equipment rentals is recognised over the period and at the rate prescribed by each agreement. Revenues from the provision of mobile phone and pager services are recognised when services are rendered to customers. Revenue from rendering voice/data communications via telephone line network services is recognised when service is rendered and billed. Interest income is recognised on an accrual basis unless collectibility is in doubt. 2.6 Cash and cash equivalents For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand and deposits held at banks, as defined in the Thai Accounting Standard with respect to the preparation of the statement of cash flows, which is in line with the definition prescribed in the regulation relating to the financial statements issued under the Ministerial Regulation No. 7 (B.E. 2539) under the Public Company Limited Act B.E. 2535. Cash and cash equivalents, therefore, represents cash at banks and short-term investments with original maturities of three months or less. 2.7 Trade accounts receivable Trade accounts receivable are carried at anticipated realisable value. An estimate is made for doubtful accounts receivable based on a review of all outstanding amounts at every month end. Bad debts are written off during the year in which they are identified. 2.8 Allowance for doubtful accounts The Group's management estimates the allowance for doubtful accounts based on the ending balance of accounts receivable. The estimate encompasses the consideration of past collection experience and other factors, such as changes in the composition and volume of the receivable, the relationship of the allowance to the accounts receivable, and the local economic conditions. 2.9 Pension obligations and employee benefits The Group operates a provident fund under a defined contribution plan, which the assets are held in a separate trustee-administered fund. The provident fund is funded by payments from employees and the relevant group companies. The Group's contributions to the provident fund are charged to the statement of income in the related period. 2.10 Inventories Inventories comprise pager and mobile phone stocks and spare parts used for repairs and services. Inventories are stated at the lower of cost or net realisable value. Cost is determined as follows: Pagers - Moving weighted average method Mobile phones - First-in, first-out (FIFO) method Spare parts (pagers, phones) - Moving weighted average method Datanet equipment - First-in, first-out (FIFO) method Net realisable value is the estimated selling price in the ordinary course of business less costs of completion and selling expenses. A provision is made for obsolete, slow-moving or defective inventories when necessary. 2.11 Related companies Companies are considered to be related if one company has the ability to control or exercise significant influence over the other company in making financial and operating decisions, or most of the shareholders or executive management of both companies are the same people or relatives. 2.12 Property and equipment Property and equipment are recorded at cost. The property and equipment, except land, are stated in the balance sheet at historical cost less accumulated depreciation. Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual value over its estimated useful life as follows: Acquisition date Years Buildings and improvements - 5, 20 Leasehold rights - lease period Leasehold building improvements - 5, 10 Tools and equipment - 5 Furniture, fixtures and office equipment before 1 January 1999 5, 10 1 January 1999 onward 5 Pagers and mobile phones for rent - 2-5 Vehicles (including vehicles under finance leases) - 5 2.12 Property and equipment (continued) The Group's policy is to review asset values annually and to adjust depreciation schedules to match estimated useful lives. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Estimated recoverable amount is the higher of the anticipated discounted cash flows from the continuing use of the asset and the amount obtainable from the sale of the asset less any costs of disposal. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining operating income. 2.13 Accounting for leases - where the Group is the lessee Leases of property and equipment, where the Group assumes substantially all the benefits and risks of ownership, are classified as finance leases. Finance leases are capitalised at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges in order to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payable. The interest element of the finance charge is charged to the income statement over the lease period. The property and equipment acquired under finance leasing contracts are depreciated over the useful life of the asset. Leases of assets, under which all the risks and benefits of ownership are effectively retained by the lessor, are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any penalty payment required of the lessor is recognised as an expense in the period in which the termination takes place. 2.14 Long-lived assets The Group annually evaluates the carrying value of long-lived assets to be held and used, including goodwill and other intangible assets, when events and circumstances warrant such a review. The carrying value of long-lived assets is considered impaired when the anticipated recoverable value of such assets is separately identifiable and is less than its carrying value. In that event, a loss is recognised based on the amount by which the carrying value exceeds the higher of the net selling price of the long-lived assets or the recoverable value derived from the value of the asset in use. Value in use is determined primarily using anticipated cash flows discounted at a rate commensurate with the risk involved. Long-lived assets to be disposed of are recorded at net selling price, which is reduced by the estimated costs of disposal. 2.15 Computer software development costs Generally, costs associated with developing computer software programmes are recognised as an expense as incurred. However, costs that are clearly associated with an identifiable and unique product which will be controlled by the Group and has a probable benefit exceeding the costs beyond one year, are recognised as an intangible asset. Expenditure which enhances and extends the benefits of computer software programmes beyond their original specifications and lives is recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their estimated useful lives, not exceeding 10 years. Costs associated with the maintenance of existing computer software programmes and for modifications for the Year 2000 are expensed as incurred. 2.16 Intangible assets Cost of mobile phone and pager networks and Datanet tools and equipment under concession agreements The costs of mobile phone and pager networks and Datanet tools network and equipment under concession agreements represent costs of certain equipment and other assets which have been or have to be transferred to TOT. The costs of mobile phone networks under concession agreements are amortised as expense on the straight-line method over a period of 10 years not exceeding the remaining concession period for the digital system and the straight-line method over a period 10 years not exceeding year 2005 for the analogue system. The cost of Datanet tools and equipment under concession agreement is amortised as expense on the straight-line method over the period of 10 years not exceeding the remaining concession period. This accounting policy was adopted in 1999 (refer to Note 3). Previously, the costs of mobile phone networks and Datanet tools and equipment under concession agreements were amortised over the remaining concession period. Cost of pager network under concession agreement are amortised on the straight-line method over the remaining concession period until year 2005. Deferred charges Deferred charges represent commitment fees of long-term loans, costs of long-term leases of spaces for base stations, expenditures relating to the increase of power of electricity at base stations, costs of additional supplementary equipment for the operation of pager networks other than those specified in the concession agreement and which have been transferred to TOT, cost of computer software, expenditures relating to the improvement project of mobile phone service network and license fees from the joint venture agreement between the subsidiary and TOT. The following amortisation methods are used: - Commitment fees of long-term loans are amortised over the period of each loan agreement. - Costs of long-term leases for base stations are amortised over the period of each lease agreement. - Expenditures relating to the increase of power of electricity at base stations are amortised over the remaining period of the concession agreements. - Costs of additional supplementary equipment for the pager network, other than those specified in the concession agreement and that have not been transferred to TOT, are amortised over a period of five years. - Cost of computer software is amortised over a period of ten years. - Expenditures relating to the improvement project of mobile phone service network are amortised over a period of five years. - License fees are amortised over the period of concession agreement. 2.17 Foreign currencies Transactions denominated in foreign currencies are translated into Baht at the rates of exchange ruling on the transaction dates. Realised gains and losses on exchange are recognised as income or expense as incurred. Monetary assets and liabilities at the balance sheet date denominated in foreign currencies are translated into Baht at the rates of exchange ruling at that date. Unrealised gains and losses on exchange are recognised in the income statement as incurred. 2.18 Financial instruments Financial instruments carried on the balance sheet include cash and bank balances, investments, trade receivables, trade creditors, leases and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The Group uses financial instruments that reduce exposure to fluctuations in foreign currency exchange and interest rates. These instruments, which mainly comprise forward foreign currency contracts and interest rate swap agreements, are recorded in the financial statements on the contract date. The purpose of these instruments is to reduce risk. Forward foreign exchange contracts protect the Group from fluctuations in exchange rates by establishing the rate at which a foreign currency asset or liability will be settled. Forward contract transactions are recorded as forward contracts receivable and forward contracts payable. Premiums or discounts are amortised in the statement of income on a straight-line basis over the contract period. 2.18 Financial instruments (continued) Interest rate swap agreements protect the Group from fluctuations in floating interest rates. Any differential to be paid or received on an interest rate swap agreement is recognised as a component of interest revenue or expense over the period of the agreement. Gains and losses on early termination of interest rate swaps or on repayment of the borrowing are charged to the income statement. Disclosures about financial instruments to which the Group is a party are provided in Note 34. 2.19 Segment reporting The segmental reporting has been prepared based on the Group's method of internal reporting, which desegregates business by service or product. 2.20 Earnings per share Basic consolidated earnings per share is calculated by dividing the consolidated net earnings after considering minority interests in subsidiaries, attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Basic company earnings per share is calculated by dividing the Company's net earnings by the weighted average number of ordinary shares in issue during the year. 2.21 Comparatives Where necessary, comparative figures have been adjusted or reclassified to conform with changes in presentation in the current year. In particular, the comparatives have been adjusted or extended to take into account the requirements of the following revised or new accounting standards which the Group implemented in 1999, in advance of their effective dates: TAS 44 - Consolidated Financial Statements and Accounting for Investment in Subsidiaries TAS 47 - Related Party Disclosures TAS 48 - Financial Instruments: Presentation and Disclosure In 1999, the Group implemented the new Thai Accounting Standards, namely: TAS 32 - Property, Plant and Equipment TAS 33 - Borrowing Costs TAS 35 - Presentation of Financial Statements TAS 36 - Impairment of Assets TAS 37 - Revenue Recognition TAS 38 - Earnings Per Share TAS 39 - Net Profit or Loss for the Period, Fundamental Errors and Accounting Changes There are no changes in accounting policy that affect operating income resulting from the adoption of the above standards in these financial statements, as the Group was already following the recognition and measurement principles in those standards. 3 Adjustments Accounting for cost of mobile phone networks under concession agreements The Company uses 2 systems to provide mobile phone services: a Nordic Mobile Telephone ("NMT") analogue system and a Global System for Mobile ("GSM") digital system. The cost of this system equipment is presented as cost of mobile phone networks under concession agreements under other assets in the balance sheet. Previously the Company amortised the cost of such equipment over the remaining period of the concession agreement, commencing from the date of equipment installation, to September 2015 . On 1 July 1999, the Company's management reviewed its accounting for the cost of such mobile phone networks and now amortises such cost over the period the underlying systems equipment assets are expected to contribute revenue and cash to the business. The Company's management considers that this presents more fairly the economic substance and benefits expected to flow from use of these assets under the terms of the concession agreement. Therefore, the cost of mobile phone network equipment for the NMT analogue system is amortised on a straight-line basis over a period of 10 years not exceeding year 2005, and for the GSM digital system is amortised on a straight-line basis over a period of 10 years not exceeding the concession period. (more)