AUDITOR'S REPORT ON REVIEW OF INTERIM FINANCIAL STATEMENTS To the Shareholders and the Board of Directors of TelecomAsia Corporation Public Company Limited I have reviewed the accompanying consolidated and Company balance sheets of TelecomAsia Corporation Public Company Limited as at 30 September 2000, and the consolidated and Company statements of income (loss) for the three-month and nine-month periods, and of changes in shareholders' equity, retained earnings (deficit) and cash flows for the nine-month period ended 30 September 2000. These financial statements are the responsibility of the Company's management. My responsibility is to issue a report on these financial statements based on my review. I conducted my review in accordance with the auditing standard applicable to review engagements. This standard requires that I plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of Company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. I have not performed an audit, and, accordingly, I do not express an audit opinion. Based on my review, nothing has come to my attention that causes me to believe that the consolidated and Company interim financial statements referred to above are not presented fairly in accordance with generally accepted accounting principles. I draw attention to the Note 16.1 to the interim consolidated and Company financial statements. The Company is currently under dispute with the Telephone Organization of Thailand (TOT) regarding the computation of rentals of leased circuits and conduits. The Company claims that the rental as charged by TOT, is not in compliance with condition under the joint agreement with TOT which allows TOT to charge the Company a reasonable and fair rental, considering the Company is a joint partner with TOT. The Company records rental charges on long distance leased circuit for direct traffic, for mixed traffic and for conduit according to the basis and methodology of the Company totalling Baht 3,182.68 million up to 30 September 2000. These amounts did not include the difference between the rental charges recorded by the Company and those calculated according to the basis and methodology of the TOT and do not include damages and default interest charges that may be claimed by TOT should the Company have to pay rental charges according to the basis and methodology of TOT. The Company is still in the process of negotiation with TOT on the basis and methodology of the above rental charges for leased circuits and conduits. The management is confident that the Company's basis and methodology are fair to the Company as a joint partner under the spirit of the Joint-Undertaking of and Investment Agreement with TOT. The outcome of the uncertainty as to the results of the negotiation cannot presently be determined. As stated in note 2 to the consolidated and Company interim financial statements, during the nine- month period ended 30 September 2000, the Company and its subsidiaries changed their accounting policies and also accounted for correction of errors in respect of: (a) Accounting for deferred charges; (b) Accounting for equity accounting of associated companies; (c) Accounting for change of depreciation policy of network equipment; (d) Accounting for acquisition of equity investment; (e) Accounting for debt and equity issuance costs; (f) Accounting for borrowing cost; (g) Accounting for interest in joint venture; (h) Accounting for presentation of revenue and cost of services; (i) Accounting for capitalizing drop wire; (j) Accounting for share issue with no cash; and (k) Accounting for deferred income taxes The Company and its subsidiaries have accounted for these changes in accounting policies and correction of errors on a retrospective basis. Accordingly the consolidated and Company financial statements for the year ended 31 December 1999 and the consolidated and Company interim financial statements for the three-month and nine-month periods ended 30 September 1999 have been restated. I have reviewed the adjustments, set out in note 3, relating to the restatement of the consolidated and Company financial statements for the year ended 31 December 1999 and the consolidated and Company interim financial statements for the three-month and nine-month periods ended 30 September 1999, and found that the adjustments have been appropriately made. The consolidated and Company financial statements of TelecomAsia Corporation Public Co., Ltd. for the year ended 31 December 1999, before restatement, were audited by another independent auditor whose report dated 16 February 2000 was qualified in respect of the limitation of audit scope concerning certain subsidiaries and associated companies. The net equity gain totalling Baht 588.6 million or 9.25 % of the net equity loss for the year 1999, total assets and liabilities, equivalent to 4.1% of total assets and 0.9 % of total liabilities in the consolidated balance sheet, were based on financial statements of the subsidiaries and associates which were not subject to audits by their auditors. As explained in paragraph 6 above, these audited consolidated and Company financial statements have been restated following the changes in accounting policies and correction of errors. The consolidated and Company balance sheets as at 31 December 1999, presented for comparative purposes, are components of those restated financial statements. The interim consolidated and Company financial statements for the three-month and nine-month periods ended 30 September 1999, before restatement, were reviewed by another independent auditor, whose report dated 30 October 1999 was qualified in respect of the limitation of review scope concerning the investments in subsidiaries and associated companies. The loss of Baht 237.1 million and gain of Baht 254.4 million for the three-month and nine-month periods, respectively, and total assets and liabilities of the subsidiaries, equivalent to 4.23 % of total assets and 0.99 % of total liabilities in the consolidated balance sheet, were based on financial statements which were not subject to reviews by their auditors. As explained in paragraph 6 above, these interim consolidated and Company financial statements have been restated following the changes in accounting policies and correction of errors. The consolidated and Company statements of income, changes in shareholders' equity, retained earnings and cash flows for the three-month and nine-month periods ended 30 September 1999, presented for comparative purposes, are components of those restated interim financial statements. Somchai Jinnovart Certified Public Accountant (Thailand) No. 3271 PricewaterhouseCoopers ABAS Limited Bangkok 10 November 2000 Consolidated Company (Audited) (Audited) (Unaudited) (Restated) (Unaudited) (Restated) 30 September 31 December 30 September 31 December 2000 1999 2000 1999 Notes Baht Baht Baht Baht ASSETS CURRENT ASSETS Cash and cash equivalents 893,647,956 1,297,871,976 138,039,453 65,604,752 Restricted cash 15 4,701,525,513 2,721,921,590 4,018,286,595 2,317,853,472 Available-for-sale securities 19,344,450 728,311,850 - - Short-term investments 15,567,848 1,780,745 - - Trade accounts receivable, net 5,921,110,724 5,606,484,279 5,511,184,330 5,223,333,665 Inventories 1,039,889,027 689,203,076 505,469,895 305,380,694 Due from related parties 14 185,126,025 205,875,586 66,667,350 65,358,704 Other current assets 7 1,202,913,933 2,329,262,859 853,848,656 1,712,387,725 Total Current Assets 13,979,125,476 13,580,711,961 11,093,496,279 9,689,919,012 NON-CURRENT ASSETS Investments in subsidiaries and associates 14 5,750,864,215 9,411,425,541 14,182,813,492 10,516,065,356 Available-for-sale security 8 6,801,646,798 - - - Investment property 61,822,148 63,898,148 - - Property, plant and equipment, net 9 66,044,007,565 70,252,927,332 52,112,728,757 55,528,714,642 Intangible asset, net 520,000,317 541,086,710 - - Other non-current assets 587,590,098 766,445,702 364,335,422 539,781,594 Total Non-Current Assets 79,765,931,141 81,035,783,433 66,659,877,671 66,584,561,592 TOTAL ASSETS 93,745,056,617 94,616,495,394 77,753,373,950 76,274,480,604 Consolidated Company (Audited) (Audited) (Unaudited) (Restated) (Unaudited) (Restated) 30 September 31 December 30 September 31 December 2000 1999 2000 1999 Notes Baht Baht Baht Baht LIABILITIES CURRENT LIABILITIES Borrowings 10 2,012,676,710 4,228,803,135 - - Trade accounts payable 1,450,591,362 1,726,191,083 435,821,951 339,237,272 Accrued expenses 2,360,224,153 4,360,023,281 1,202,689,591 3,513,187,035 Due to related parties 14 60,790,436 45,519,924 1,488,772,151 983,562,453 Other current liabilities 11 1,562,169,940 1,532,522,811 1,396,462,837 1,369,843,358 Total Current Liabilities 7,446,452,601 11,893,060,234 4,523,746,530 6,205,830,118 NON-CURRENT LIABILITIES Borrowings 10 63,255,876,988 64,987,687,193 60,369,468,018 62,410,161,144 Long-term trade accounts payable 9,563,648,995 9,601,835,920 - - Other non-current liabilities 757,031,224 15,253,244 598,314,054 - Total Non-Current Liabilities 73,576,557,207 74,604,776,357 60,967,782,072 62,410,161,144 TOTAL LIABILITIES 81,023,009,808 86,497,836,591 65,491,528,602 68,615,991,262 Consolidated Company (Audited) (Audited) (Unaudited) (Restated) (Unaudited) (Restated) 30 September 31 December 30 September 31 December 2000 1999 2000 1999 Notes Baht Baht Baht Baht SHAREHOLDERS' EQUITY Share capital Authorized share capital 2,983.15 million shares Preferred shares 702 million shares issued and fully paid 12 7,020,000,000 - 7,020,000,000 - Common shares 2,223 million shares issued and fully paid 12 22,230,000,000 22,230,000,000 22,230,000,000 22,230,000,000 Discount on preferred shares 12 (1,498,478,153) - (1,498,478,153) - Premium on common shares 12 11,432,046,462 11,432,046,462 11,432,046,462 11,432,046,462 Appropriated legal reserve 34,880,969 34,880,969 34,880,969 34,880,969 Deficit (31,095,170,894) (26,281,434,111) (31,095,170,894) (26,281,434,111) Minority interest in subsidiaries 460,201,461 460,169,461 - - Unrealized gain on available- for-sale securities 3,557,411,456 9,844,400 3,557,411,456 9,844,400 Cumulative translation adjustment 581,155,508 233,151,622 581,155,508 233,151,622 Total Shareholders' Equity 12,722,046,809 8,118,658,803 12,261,845,348 7,658,489,342 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 93,745,056,617 94,616,495,394 77,753,373,950 76,274,480,604 Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Notes Baht Baht Baht Baht Revenues 14 Revenues from telephone and other services 4,666,602,477 3,440,415,529 4,364,939,083 3,155,800,609 Revenues from product sales 598,655,956 38,797,894 43,091,385 38,853,829 Total revenues 5,265,258,433 3,479,213,423 4,408,030,468 3,194,654,438 Operating expenses 14 Cost of services 3,334,937,836 2,463,983,209 3,133,486,707 2,241,425,193 Cost of sales 535,746,111 52,689,400 54,288,646 49,215,846 Selling and administrative expenses 913,160,834 630,369,627 702,107,309 519,764,463 Directors' remuneration 11,921,375 9,369,750 6,750,000 4,050,000 Total operating expenses 4,795,766,156 3,156,411,986 3,896,632,662 2,814,455,502 Operating profit 469,492,277 322,801,437 511,397,806 380,198,936 Gain on sale of investment - 64,684,941 - - Interest income 10,716,184 15,923,933 2,145,806 12,365,603 Other income 37,287,605 35,038,005 19,365,719 28,296,934 Share of loss in subsidiaries and associates (314,555,288) (742,842,150) (1,178,931,203) (2,992,384,407) Interest expense (1,387,100,080) (1,404,765,652) (1,122,356,045) (1,172,437,365) Foreign exchange loss (3,459,707,658) (5,900,486,781) (2,850,558,570) (3,813,030,801) Other non-operating income (expenses) 6,946,882 (16,696,273) - - Profit (loss) before income tax (4,636,920,078) (7,626,342,540) (4,618,936,487) (7,556,991,100) Income tax 15,321,692 62,771,326 - - Profit (loss) before minority interest (4,621,598,386) (7,563,571,214) (4,618,936,487) (7,556,991,100) Loss attributable to minority interest 2,661,899 6,580,114 - - Net profit (loss) for the period (4,618,936,487) (7,556,991,100) (4,618,936,487) (7,556,991,100) Basic and diluted earnings (loss) per share 6 Net profit (loss) for the period (2.08) (3.40) (2.08) (3.40) Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Notes Baht Baht Baht Baht Revenues 14 Revenues from telephone and other services 13,227,695,000 10,324,386,944 12,370,919,781 9,279,387,043 Revenues from product sales 1,083,915,498 105,147,857 75,200,475 62,984,451 Total revenues 14,311,610,498 10,429,534,801 12,446,120,256 9,342,371,494 Operating expenses 14 Cost of services 9,421,954,906 7,413,856,888 8,690,810,560 6,597,624,885 Cost of sales 891,494,201 123,115,322 95,323,122 79,018,441 Selling and administrative expenses 2,527,030,733 1,936,008,069 2,005,460,972 1,592,845,415 Directors' remuneration 34,665,112 27,385,461 18,863,987 12,750,000 Total operating expenses 12,875,144,952 9,500,365,740 10,810,458,641 8,282,238,741 Operating profit 1,436,465,546 929,169,061 1,635,661,615 1,060,132,753 Gain on sale of investment 2,336,452,301 135,915,077 - - Interest income 26,838,369 89,893,738 7,020,621 72,004,795 Other income 117,019,036 131,958,109 60,487,660 89,860,431 Share of loss in subsidiaries and associates (808,811,607) (628,133,543) (228,822,807) (3,173,816,663) Interest expense (4,216,714,958) (4,418,515,647) (3,403,645,019) (3,761,112,110) Foreign exchange loss (5,038,297,015) (5,716,229,091) (4,262,494,591) (3,885,888,571) Other non-operating income (expenses) 10,774,181 (100,648,234) - - Profit (loss) before income tax (6,136,274,147) (9,576,590,530) (6,191,792,521) (9,598,819,365) Income tax (55,486,374) (42,152,735) - - Profit (loss) before extraordinary item (6,191,760,521) (9,618,743,265) (6,191,792,521) (9,598,819,365) Extraordinary item - Gain from debt restructuring 4 1,378,055,738 - 1,378,055,738 - Profit (loss) before minority interest (4,813,704,783) (9,618,743,265) (4,813,736,783) (9,598,819,365) (Profit) loss attributable to minority interest (32,000) 19,923,900 - - Net profit (loss) for the period (4,813,736,783) (9,598,819,365) (4,813,736,783) (9,598,819,365) Basic and diluted earnings (loss) per share 6 Profit (loss) from ordinary activities (2.79) (4.32) (2.79) (4.32) Extraordinary item - Gain from debt restructuring 0.62 - 0.62 - Net profit (loss) for the period (2.17) (4.32) (2.17) (4.32) Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Notes Baht Baht Baht Baht Preferred Shares 12 Beginning balance - - - - Increase during the period 7,020,000,000 - 7,020,000,000 - Decrease during the period - - - - Ending balance 7,020,000,000 - 7,020,000,000 - Common Shares 12 Beginning balance 22,230,000,000 22,230,000,000 22,230,000,000 22,230,000,000 Increase during the period - - - - Decrease during the period - - - - Ending balance 22,230,000,000 22,230,000,000 22,230,000,000 22,230,000,000 Discount on Preferred Shares 12 Beginning balance - - - - Increase during the period (1,498,478,153) - (1,498,478,153) - Decrease during the period - - - - Ending balance (1,498,478,153) - (1,498,478,153) - Premium on Common Shares 12 Beginning balance: - as previously reported 11,835,000,000 11,835,000,000 11,835,000,000 11,835,000,000 - prior year adjustments 2.5 (402,953,538) (402,953,538) (402,953,538) (402,953,538) Beginning balance, as restated 11,432,046,462 11,432,046,462 11,432,046,462 11,432,046,462 Increase during the period - - - - Decrease during the period - - - - Ending balance 11,432,046,462 11,432,046,462 11,432,046,462 11,432,046,462 Appropriated legal reserve Beginning balance 34,880,969 34,880,969 34,880,969 34,880,969 Increase during the period - - - - Decrease during the period - - - - Ending balance 34,880,969 34,880,969 34,880,969 34,880,969 Deficit Beginning balance: - as previously reported (21,924,581,069) (15,678,154,545) (21,924,581,069) (15,678,154,545) - prior year adjustments 3 (4,356,853,042) (3,121,545,696) (4,356,853,042) (3,121,545,696) Beginning balance, as restated (26,281,434,111) (18,799,700,241) (26,281,434,111) (18,799,700,241) Increase during the period (4,813,736,783) (9,598,819,365) (4,813,736,783) (9,598,819,365) Decrease during the period - - - - Ending balance (31,095,170,894) (28,398,519,606) (31,095,170,894) (28,398,519,606) Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Baht Baht Baht Baht Minority Interest Beginning balance : - as previously reported 462,619,867 462,627,053 - - - prior year adjustment (2,450,406) 35,705,179 - - Beginning balance, as restated 460,169,461 498,332,232 - - Increase during the period 32,000 - - - Decrease during the period - (19,923,900) - - Ending balance 460,201,461 478,408,332 - - Unrealized Gain on Available-for- Sale Securities Beginning balance 9,844,400 - 9,844,400 - Increase during the period 3,547,567,056 - 3,547,567,056 - Decrease during the period - - - - Ending balance 3,557,411,456 - 3,557,411,456 - Cumulative Translation Adjustment Beginning balance 147,684,741 129,464,795 147,684,741 129,464,795 Increase during the period 433,470,767 55,757,622 433,470,767 55,757,622 Decrease during the period - - - - Ending balance 581,155,508 185,222,417 581,155,508 185,222,417 Total Shareholders' Equity 12,722,046,809 5,962,038,574 12,261,845,348 5,483,630,242 Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Note Baht Baht Baht Baht Deficit Beginning balance -as previously reported (21,924,581,069) (15,678,154,545) (21,924,581,069) (15,678,154,545) -prior year adjustments 3 (4,356,853,042) (3,121,545,696) (4,356,853,042) (3,121,545,696) Beginning balance, as restated (26,281,434,111) (18,799,700,241) (26,281,434,111) (18,799,700,241) Net profit (loss) for the period (4,813,736,783) (9,598,819,365) (4,813,736,783) (9,598,819,365) Ending balance (31,095,170,894) (28,398,519,606) (31,095,170,894) (28,398,519,606) Appropriated legal reserve 34,880,969 34,880,969 34,880,969 34,880,969 Total Deficit (31,060,289,925) (28,363,638,637) (31,060,289,925) (28,363,638,637) Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September Note 2000 1999 2000 1999 Baht Baht Baht Baht Cash flows from operating activities 13 2,322,064,566 856,308,403 3,181,208,292 539,186,707 Cash flows from investing activities (Increase) decrease in restricted cash (1,979,603,923) 154,555,018 (1,700,433,123) 156,159,793 Increase in short-term investment (13,787,104) (15,366,208) - - Acquisition of property, plant and equipment (1,465,299,241) (338,776,797) (1,032,683,200) (166,793,995) Increase in long-term investments in associated companies - (500,653,268) - - Payments to liquidate subsidiaries (133,111) (17,365,536) - - Proceeds from sale of investment 3,003,508,766 1,200,487,720 - - Disposal of property and equipment 45,123,986 83,126,607 361,232 626,712 Dividend received - 556,000,000 - - Net cash (used in)/receipts from investing activities (410,190,627) 1,122,007,536 (2,732,755,091) (10,007,490) Cash flows from financing activities Issue of preferred shares 5,521,521,847 - 5,521,521,847 - Additional borrowings 913,847,728 1,091,461,255 1,469,628 - Repayment of borrowings (8,724,836,860) (1,656,822,707) (5,899,009,975) (522,956,395) Net cash used in financing activities (2,289,467,285) (565,361,452) (376,018,500) (522,956,395) Effects of exchange rate changes (26,630,674) (67,848,173) - - (Decrease) increase in cash and cash equivalents (404,224,020) 1,345,106,314 72,434,701 6,222,822 Beginning balance 1,297,871,976 641,177,321 65,604,752 45,807,970 Ending balance 893,647,956 1,986,283,635 138,039,453 52,030,792 Supplementary information for cash flows: Interest paid 3,495,327,583 4,117,359,697 2,964,363,432 3,609,585,099 Tax paid 181,438,486 84,301,986 99,600,563 76,223,934 1. Accounting Policies The interim consolidated and Company financial statements are prepared in accordance with accounting principles generally accepted in Thailand, as required by Thai Accounting Standard No. 41, "Interim Financial Reporting". Additionally, the primary statements (i.e. balance sheets, statements of income, changes in shareholders' equity, retained earnings and cash flows) are presented in the full format as prescribed by the Ministerial Regulation No. 7 (B.E. 2539) in accordance with the Securities and Exchange Commission's and the Stock Exchange of Thailand's requirements. Where Thai GAAP does not provide specific accounting guidance, management has adopted International Accounting Standards (IAS) in order to improve comparability of its financial information with other international companies. The additional accounting principles adopted under IAS relate primarily to accounting for certain acquisitions, treatment of costs incurred in issuing debt and equity securities, application of the full liability method for taxes and recognition of post-retirement benefits. These changes have been given retroactive effect for all periods presented. See note 2 for a description of principle changes and note 3 for their financial impact, if any. The Group has implemented the following new Thai Accounting Standards, effective 1 January 2000, in these interim financial statements:- TAS 43 - Business Combinations TAS 44 - Consolidated Financial Statements and Accounting for Investment in Subsidiaries TAS 45 - Accounting for Investment in Associates TAS 46 - Financial Reporting for Interests in Joint Ventures TAS 47 - Related Party Disclosures TAS 48 - Financial Instruments : Disclosure and Presentation The comparatives, where appropriate, have been adjusted or extended to take into account the requirements of those newly effective standards. Where necessary, comparative figures have also been adjusted to conform with the changes in presentation in the current year. Costs that incur unevenly during the financial year are recognized as expense or defer in the interim report only if it would be also appropriate to recognize or defer such costs at the end of the financial year. Income tax expense is recognized based on the best estimate of the weighted average annual income tax rate expected for the full financial year. These interim financial statements should be read in conjunction with the financial statements ended 31 December 1999. 2. Accounting Changes The Group has implemented certain new Thai Accounting Standards and Interpretations during the nine months ended 30 September 2000. Additionally, starting from the second quarter of fiscal year 2000, the Group has adopted IAS where Thai GAAP does not provide prescriptive accounting treatment. As a result, the Group has changed some accounting policies and made some corrections to previously reported balances. The major changes and their impact on the financial statements include the following: 2.1 Deferred charges The Group has given retroactive effect to the change in accounting for certain deferred charges previously recorded as assets, to be expense in order to comply with the Accounting Standard Interpretation No. 4 issued by the Institute of Certified Accountant and Auditors of Thailand dated 20 January 2000 (effective for financial statements covering periods ended on or after 31 December 1999). For the nine-month period ended 30 September1999, the effect of this adjustment was to increase net loss by Baht 767.92 million. 2.2 Results of operations of an associated company The 1998 results of operations of an associated company (which the Company, through a wholly-owned subsidiary, currently holds 40.96% of its share capital) based on its latest audited financial statements subsequently made available to the Company on 24 February 2000, reported a net loss of approximately Baht 3,092.5 million. This net loss was approximately Baht 1,392.4 million lower than the amount as per previous financial statements (which were audited by auditors whose report was dated 29 January 1999) which was previously used by the Company in calculation of its share in the equity loss in such associated company in 1998. In addition, the balance of deficit at 1 January 1998 as per such latest audited financial statements was Baht 3,239.9 million, approximately Baht 913.4 million greater than the amount previously used by the Company in 1998. Such differences represented the cumulative effect on the 1998 financial statements and on the financial statements for the periods prior to 1998 of certain changes in accounting principles, adopted in 1999 and applied retroactively by the associated company. The effect of the restatement on the deficit (as previously reported) at 1 January 1999 is a decrease of Baht 230.9 million (Baht 0.10 per share). For the nine-month period ended 30 September 1999, the effect of this adjustment was to increase net loss by Baht 109.9 million. 2.3 Change of depreciation policy of network equipment The Group is engaged in providing telephone services under the concession granted by the Telephone Organization of Thailand (TOT). The Group is obligated to transfer the ownership of network equipment procured for the operation of the Group's business to TOT. Previously, the Group depreciated the cost of such network equipment by the straight-line method over the concession agreement period ending 30 September 2017. In the second quarter of fiscal year 2000, the Group's management reviewed its depreciation policies for the cost of telephone network. As a result of this review, the Group's management determined that the concession assets should be accounted for in substance as normal operating equipment to reflect the underlying risks and rewards arising under the concession agreement. Therefore, the Group has made a correction by depreciating the concession assets using the straight-line method over their estimated useful economic lives. For the nine-month period ended 30 September 1999, the effect of this adjustment was to increase net loss by Baht 1,725.4 million . The revised economic useful lives are as follows: Years of Useful Lives Wireline Multimedia Wireless Outside Plant & Building 20 - 25 12 - 20 20 Cable & Drop Wire 13 - 15 5 - 13 15 Inside Plant 8 - 12 8 - 15 5 - 12 The effects of the change in accumulated depreciation for the year ended 31 December 1999 are as follows:- Amount : Baht Million Wireline Multimedia Wireless Accumulated depreciation - previously stated 13,301.3 539.8 264.8 - as adjusted 21,876.0 1,588.6 127.5 Net increase (decrease) 8,574.7 1,048.8 (137.3) 2.4 Acquisition of equity investment On 4 May 1998, the Group acquired a 49.45% equity interest in United Broadcasting Corporation Public Company Limited (UBC) in exchange for the Group's shares of certain subsidiaries and assets. Previously, the Group had reported a gain of Baht 876.6 million on the disposal of the subsidiaries and assets. The gain was calculated as the difference between the fair market value of the UBC common shares at the date the terms of the agreement were negotiated and the Group's carrying value of the subsidiaries and assets. The market price of UBC shares quoted on the Stock Exchange of Thailand was Baht 15 per share at this date. TAS 43 and IAS 22 "Business Combinations" requires that the gain on disposal of the partial interest in the subsidiaries and assets should be calculated with reference to the quoted market price of UBC common shares at the closing date of this transaction. The quoted market price of UBC common shares at the closing date was Baht 34.75 per share, resulting in a total gain of Baht 7,701.7 million. Subsequently, in 1998 the Group suffered a dilution of its investment due to the issuance of new common shares by UBC. This dilution resulted in a loss of Baht 769.5 million. Accordingly, the Group has decreased deficit at 31 December 1999 by Baht 4,462.6 million. The Group's investment in UBC has been recorded using the fair value of the shares acquired plus the historical basis of the retained earnings in its subsidiaries and assets. The difference between the fair value of the shares acquired and the underlying assets in UBC resulted in goodwill of Baht 8,812.1 million which is being amortized on a straight-line basis over a period of 15 years. In 1999, the Group purchased additional UBC common shares from a third party at Baht 13.0 per share, resulting in additional goodwill of Baht 252 million. At 31 December 1999, deficit have been increased by Baht 73.4 million to reflect the amortization of goodwill. 2.5 Debt and equity issuance costs The Group previously treated the costs associated with the acquisition of corporate capital and acquisition of borrowings as organization costs which were capitalized and amortized over a period of five years. The Group changed its accounting policy for equity issuance costs by offsetting the costs against the related proceeds. Debt issuance costs are amortized by an effective interest method over the terms of the related borrowings. This change has an effect on a decrease of deficit at 1 January 1999 amounting to Baht 402.9 million and Baht 207.6 million for equity issuance costs and debt issuance costs, respectively. For the nine months ended 30 September 1999, the effect of this adjustment was to decrease net loss by Baht 24.0 million. 2.6 Borrowing cost capitalization One of the Group's subsidiaries previously expensed in the period incurred all interest costs on borrowings to finance the construction of its network and acquisition of an investment. This subsidiary changed its accounting policy to capitalize such cost in order to comply with guidance allowed under TAS 33 and IAS 23 "Borrowing Costs" and for consistency with the Group's policy to capitalize such interest costs. During the period of construction that is required to complete and prepare assets for its intended use, interest costs on borrowings to finance the construction of assets are capitalized as part of the cost of the asset. Borrowing costs totaling of Baht 345.7 million arising on financing specifically entered into for the construction of a network and investment are capitalized. 2.7 Share issue with no cash In 1996, a subsidiary, Telecom Holding Co., Ltd. entered into a shareholders agreement with Telephone Organization of Thailand (TOT) for providing of multimedia network. Under the terms of the agreement, TOT received 40 million shares at par value of Baht 10 per share of Asia Multimedia Co., Ltd. (AM) for consideration. AM subsequently was granted a concession agreement from TOT for providing nation wide Non-Pots services. TOT received another 18.52 million shares of AM at par value of Baht 10 per share. The Group previously recorded assets and share capital for both transactions at par value, totaling Baht 585.25 million. The Group's management adopt IAS 38 "Intangible Assets" where the standard requires that the intangible assets and shares issued are recorded using fair value of the assets which is more clearly identifiable. This change has an effect of an increase of deficit at 1 January 2000 and a decrease of deficit as at January 1999 by Baht 2.0 million and Baht 0.9 million, respectively. The net loss for the three-month and nine-month periods ended 30 September 1999 increased by Baht 0.7 million and Baht 2.1 million, respectively. 2.8 Capitalized dropwire A subsidiary operating the multimedia network recorded costs of dropwire installed for cable television subscribers as expense in the statement of income when it was installed for providing services to the subscriber. The Group's management reviewed the accounting policy for the telecom industry and determines to capitalize dropwire costs as operating network assets by being depreciated over its estimated useful life or customer life which ever one is shorter. The effect of this change was to decrease deficit as at 1 January 2000 and 1999 by Baht 173.7 million and Baht 165.7 million, respectively. The net loss for the three-month and nine-month periods ended 30 September 1999 decreased by Baht 4.7 and Baht 8.2 million, respectively. 2.9 Proportional consolidation of one of the Group's investment In 1996, the Group entered into an agreement with the Communication Authority of Thailand (CAT) to establish a new company for the purpose of providing internet services. Under the terms of the agreement, the Group holds 65% of the common shares of this company with the remaining shares held by CAT and its employees. The agreement also provides CAT with veto rights over all significant operating and financial decisions of such company. These rights have never been exercised, nor does the Group anticipate that they will be exercised in the future. Previously, the Group had consolidated 100% of this company in its financial statements and reported CAT's share of earnings as a minority interest. In accordance with TAS 46 and IAS 31 "Financial Reporting of Interests in Joint Ventures" the Group's interest in this company has now been proportionately consolidated. This change in accounting policy does not impact retained earnings for the periods presented. 2.10 Presentation of revenue and cost of services 2.10.1 Reporting revenue gross The presentation of revenue has been adjusted to reflect the gross receipt of telephone and related services due to the Company having assumed substantially all of the risks and rewards of providing such services. Revenue from telephone and other services are reported based on the total amount billed to customers. The amount representing TOT's share of revenues is treated as cost of services. Previously, the net of these two items was reported as revenue, with no recognition of expense. 2.10.2 Cash discounts net against installation revenue Installation revenue has been adjusted net of cash discounts and related cash-based promotions which were previously classified as selling and administrative expenses. The following table discloses the effects on revenue of Note 2.10.1 and 2.10.2 Consolidated Company Nine-month ended 30 September Nine-month ended 30 September 1999 1999 Original Restated Original Restated Baht Million Baht Million Baht Million Baht Million Revenue from telephone services 7,628.9 9,042.3 7,628.9 9,042.3 Other services 237.1 237.1 237.1 237.1 Total 7,866.0 9,279.4 7,866.0 9,279.4 2.10.3 Cost of services Cost of services account has been established to cover major operating and administrative expenses directly related to the provision of telephone and other services. Consolidated Company Nine-month ended 30 September Nine-month ended 30 September 2000 1999 2000 1999 Baht Million Baht Million Baht Million Baht Million Cost of services: Revenue sharing 2,132.69 1,513.00 2,861.59 1,513.00 Network operating expenses 1,709.25 1,413.88 1,431.59 1,183.96 Depreciation 5,580.01 4,486.98 4,397.63 3,900.66 Total 9,421.95 7,413.86 8,690.81 6,597.62 There is no effect of these changes on presentation of operating income, net income and balance sheet items. However, the revenue and cost accounts have changed significantly in equal, offsetting amounts as indicated above. These changes are reflected in the restated financial statements. 2.11 Deferred income taxes The Group has implemented deferred taxation accounting in these interim financial statements. Provision is made for all taxes payable in respect of taxable profits earned in the year. The Group also provides at current rates for taxation on all temporary differences between income for financial reporting and fiscal tax purpose under the liability method. Currently enacted tax rates are used to determine deferred income tax. The principal temporary differences arise from depreciation of assets under concession agreements, provisions and tax losses carried forward. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences and unused tax losses can be utilised. Management assesses the need for valuation allowance against deferred tax assets on an annual basis. No provision is made for taxes which may be withheld on possible future distribution of earnings retained by subsidiaries as there is no intention to distribute such retained earnings. The Group has raised a valuation allowance against its net deferred taxation asset as in management's estimate it is more likely than not that the deferred taxation asset will not be realized due to the historical operating losses incurred by the Group's operations and the time limits on the tax loss carried forwards that arose on these losses. 3. Prior Year Adjustments Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Baht million Baht million Baht million Baht million Changes in accounting policies: 2.1 Deferred charges - (116.87) - (25.40) 2.2 Results of operations of an associated company 230.96 230.96 - - 2.3 Changes in amortization of network equipment (9,260.94) (7,334.81) (8,596.74) (6,651.40) 2.4 Acquisition of equity investment 4,462.59 4,445.37 - - 2.5 Debt and equity issuance costs 610.56 641.40 610.56 641.40 2.6 Borrowing costs capitalization 345.79 286.76 - - 2.7 Share issue with no cash (2.02) 0.89 - - 2.8 Capitalized dropwire 173.68 165.68 - - Cumulative effect from the changes to the investments in subsidiaries - - 3,685.76 3,979.30 Correction of errors: 3.1 Debt restructuring 400.46 - 400.46 - 3.2 Provisions and others (1,317.93) (1,440.92) (456.89) (1,065.44) (4,356.85) (3,121.54) (4,356.85) (3,121.54) 3.1 Debt restructuring In 1999, one of the Group's subsidiaries had entered into the debt restructuring agreement with the creditors for liability pertaining to the Personal Communication Telephone equipment, by which the subsidiary was liable to pay a debt restructuring fee at the amount as stipulated in the agreement which is due for installment on quarterly basis from November 1999 to September 2004. The whole amount of restructuring fee was charged to the statement of income for the year ended 31 December 1999. However, in the first quarter of year 2000, management made an adjustment of such transaction to comply with the Thai Accounting Standard No. 34 - Accounting for Troubled Debt Restructuring (effective 30 September 1998). The adjustment had an effect to decrease the deficit as at 31 December 1999 by approximately Baht 400.5 million. 3.2 Provisions and other The Group reviewed the carrying value of certain assets and decided to establish appropriate provisions to reflect obsolete, impaired, and unutilized inventories, network equipment and other operating assets. Investments in certain subsidiaries and associates have also been reviewed for any impairment. The effects of these provisions are as follows: Consolidated Company 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Baht Million Baht Million Baht Million Baht Million - Inventories (154.07) (6.02) (27.55) - - Network equipment (519.63) (1,103.66) (519.63) (1,103.66) - Other operating assets (5.97) (225.70) - - - Investments (104.21) (24.29) - - - Others (534.05) (81.25) 90.29 38.22 (1,317.93) (1,440.92) (456.89) (1,065.44) 4. Debt Restructuring 4.1 Debt restructuring of the Company On 22 December 1999, the Company entered into debt restructuring agreements with its creditors, comprising both secured and unsecured creditors. The principal provisions include the following : Secured creditors (a) on 31 March 2000, the Company issued 702,000,000 convertible preference shares to a secured creditor for cash proceeds of U.S. dollars 150 million. The cash proceeds from the offering were used to repay unsecured liabilities under the debt restructuring plan. The preference shares have Baht 10 par value with conversion rights to common shares in the second to eighth year from issue at a ratio of 1:1. The preference shares are entitled to a dividend for the first eight years set at the rate of 10% per annum, cumulative plus dividend payable, if any, to the holders of common shares. With effect from the eighth anniversary of issue, the preference shares are entitled to a non-cumulative dividend at the rate of 0.1% per annum, plus dividend payable, if any, to the holders of common shares ; (b) the secured creditors have agreed to defer the repayment term of their long-term loans. The repayment will be first due in the second quarter of the year 2002, and repaid through the year 2008. Interest rates were changed from the fixed rates to rates based on the average MLR of the certain local banks plus 0.75% per annum for the Baht loans and on LIBOR plus agreed margins ranging from 1%-1.75% per annum for the U.S Dollar loans, payable on a monthly basis ; (c) the secured creditors agreed to extend the repayment term of their overdraft credit facilities to be due in December 2008. Interest rates are based on the average MOR of banks specified in the agreement; and (d) the Company was granted permission to withdraw the loan facility under a Standby Letter of Credit, which certain local banks issued to a subsidiary under the conditions of a joint-loan agreement entered into between the subsidiary and the said banks, of Baht 5,000 million to finance the Company's operations under certain conditions. Unsecured creditors Two options of repayment were offered to unsecured creditors, the principal terms which were as follows: 1 the Company offered to repay unsecured creditors 50% of the principal amount outstanding with the condition that the remaining balance of principal and the defaulted accrued interest were waived; alternatively 2 the Company offered to repay the unsecured creditors 40% of the principal amount outstanding. The remaining amount 60% would be repaid in eight semi-annual installments starting from January 2014, with compound interest of 2% per annum. The remaining amount owing to the unsecured creditors is subordinated to the repayments of debt payable to the secured creditors and the preference dividend referred above. The debt restructuring agreements for both secured and unsecured creditors were effective 31 March 2000 by which all concerned parties had successfully complied with all conditions precedent. The financial result of the debt restructuring of the Company is summarized as follows: Secured creditors Debt before Debt after Restructuring Restructuring Baht Million Baht Million Loans in U.S. Dollars (millions) 770.5 770.5 Loans in Baht (millions) 18,833.7 18,833.7 Restructuring of the secured liabilities only represented changes to the terms of loan repayments and changes in interest rates. Therefore, there has been no change in the carrying value of liabilities. Unsecured creditors In millions, except per share amount Debt before Debt after Gain on Restructuring Restructuring Restructuring Baht Million Baht Million Baht Million Creditors without gain from restructuring 8,869.5 9,737.3 - Creditors with gain from restructuring 6,600.8 5,021.9 1,578.9 Gain from debt restructuring, net of related expenses 1,378.1 Gain from debt restructuring, net of related expenses per share 0.6 Debt before restructuring included principal amount and accrued interest. Debt after restructuring represents principal amount payable at restructuring or to be paid after restructuring, future interest until full settlement and withholding taxes absorbed by the Company. 4.2 Debt restructuring of subsidiaries On 2 March 2000, a subsidiary of the Group entered into a debt restructuring agreement for the amount of Baht 4,033.2 million with certain local banks and financial institutions. The principal provisions included the following: - the group of creditors agreed to extend the repayment date to 31 December 2002, and to allow the due date to be extended on a yearly basis. The said extended date will not be extended beyond 31 December 2009. The subsidiary must pay for an extension fee of 0.5% - 2% of the loan as stipulated in the agreement; - the subsidiary agreed to pay interest at the rate of MLR + 2% (MLR being the average MLR of four principal banks) at the month end; and - under the provision of the debt restructuring agreement, the subsidiary has pledged the shares of its four subsidiaries as collateral. A subsidiary of the Group is in the process of finalizing negotiating the debt restructuring terms with its main contractor for the amount of Baht 215 million. The restructuring terms have been substantially agreed and the subsidiary has accounted for them accordingly. 5. Segment Information The Group has modified the presentation of segment information in order to provide more useful information to the users of these financial statements. Business segments For the nine-month period ended 30 September 2000 Baht Million Wireline DDN Wireless Multimedia Internet Other Group Revenues 10,862.2 244.3 2,284.3 656.6 71.1 193.1 14,311.6 Segment result 3,623.1 111.1 173.4 74.1 29.5 (13.0) 3,998.2 Unallocated costs (2,561.7) Operating profit 1,436.5 For the nine-month period ended 30 September 1999 Baht Million Wireline DDN Wireless Multimedia Internet Other Group Revenues 9,140.6 138.7 0.9 683.3 42.3 423.7 10,429.5 Segment result 2,619.5 68.2 (10.6) 102.1 21.5 91.9 2,892.6 Unallocated costs (1,963.4) Operating profit 929.2 6. Earnings (Loss) Per Share Basic earnings (loss) per share is calculated by dividing the net profit (loss) attributable to common shareholders by the weighted average number of common shares outstanding during the period (2,223 million shares during the three-month and nine-month period ended 30 September 2000 and 1999). Diluted earnings (loss) per share for the three-month and nine-month periods ended 30 September 2000 and 1999 does not include the effect of 702,000,000 shares of convertible preferred stock and 58,150,000 stock options on an as-if-converted method and treasury stock method respectively, as the effect of their inclusion is antidilutive. For the three-month and nine-month periods ended 30 September 1999, there were no potentially dilutive common equivalent shares. 7. Other Current Assets Consolidated Company 30 September 31 December 30 September 31 December 2000 1999 2000 1999 Baht Million Baht Million Baht Million Baht Million Claimable value added tax 277.82 533.48 39.45 7.44 Income tax deducted at source 469.23 359.12 458.45 358.85 Value added tax pending receipt of tax invoices 85.76 1,000.07 72.47 984.15 Others 370.10 436.59 283.48 361.95 1,202.91 2,329.26 853.85 1,712.39 8. Available-For-Sale Security At 30 September 2000 Consolidated Paid-up % At Cost At Market Carrying capital Ownership Method Price value Business Relationship Thousand interest Baht'000 Baht'000 Baht'000 Available-for-sale security FLAG Telecom Holdings Limited Telecommunication Shareholder USD 80 10.92 3,433,866 6,801,647 6,801,647 Total 3,433,866 6,801,647 6,801,647 A subsidiary of Telecom Holding Company Limited has deposited 1,500,000 common shares of FLAG Telecom Holdings Limited in a Collateral Account with Credit Suisse First Boston International in accordance with the provisions stipulated in SAILS Pledge Agreement executed on 5 September 2000 (Note 10). 9. Capital Expenditure and Commitments Consolidated Company For the nine-month period Non- Non- ended 30 September 2000 Network Network Total Network Network Total Baht Baht Baht Baht Baht Million Baht Million Million Million Million Million Opening amount 2,054.44 68,198.48 70,252.92 313.98 55,214.73 55,528.71 Additions 620.14 853.63 1,473.77 352.59 680.09 1,032.68 Increasing adjustment 3.38 1,337.01 1,340.39 3.38 1,343.42 1,346.80 Disposals (19.35) (0.21) (19.56) (2.92) - (2.92) Decreasing adjustment (18.87) (1,332.43) (1,351.30) (2.77) (1,310.65) (1,313.42) Depreciation/amortisation and Other movements (877.04) (4,775.18) (5,652.22) (106.87) (4,372.26) (4,479.13) Closing amount 1,762.70 64,281.30 66,044.00 557.39 51,555.33 52,112.72 Capital commitments as at 30 September 2000: The Company has entered into contracts with various contractors to supply and install additional network and expansion of network equipment capability. Total commitment as at 30 September 2000 is approximately Baht 286.70 million. In addition the Company has commitments with the TOT to construct and transfer buildings and network equipment amounting to approximately Baht 248 million. 10. Borrowings Consolidated Company (Restated) (Restated) 30 September 2000 31 December 1999 30 September 2000 31 December 1999 Baht Million Baht Million Baht Million Baht Million Current 2,012.68 4,228.80 - - Non-Current 63,255.87 64,987.69 60,369.47 62,410.16 65,268.55 69,216.49 60,369.47 62,410.16 The movements in borrowings can be analyzed as follows: For the nine-month period ended Consolidated Company 30 September 2000 Baht Million Baht Million Opening amount 69,216.49 62,410.16 Additional borrowings 938.80 26.42 Repayment of long-term borrowings (8,724.80) (5,899.00) Haircut/Write off (1,342.87) (1,342.87) Currency translation 4,425.35 4,419.18 Reclassification 778.80 778.80 Less:Unamortized debt issuance cost (23.22) (23.22) Closing amount 65,268.55 60,369.47 The borrowing amounts are net of unamortized debt issuance costs. The Group has reclassified bank overdraft and other current borrowings in the financial statements as at 31 December 1999 to non-current borrowings as a result of the debt restructuring agreements. On 5 September 2000, K.I.N. (Thailand) Company Limited (K.I.N.), registered under the laws of the British Virgin Islands, a subsidiary of Telecom Holding Company Limited, entered into the Terms and Conditions for Private SAILS (Shared Appreciation Income Linked Securities) and SAILS Pledge Agreement with Credit Suisse First Boston International (CSFBI) for the SAILS scheme in relation to 1,500,000 common shares of K.I.N. in FLAG Telecom Holdings Limited. The principal provisions include, among others, the following : (a) K.I.N. agreed to deposit in a Collateral Account with CSFBI 1,500,000 common shares of FLAG Telecom Holdings Limited, registered in the name of CSFBI, in exchange for the proceeds amount of 81.6% of the aggregate contract price, less 2.0% of the front end as stipulated in the contracts. The partial proceeds amount of US$ 13,500,000 was derived by K.I.N. on 6 September, 2000 and the remainder of the proceeds amount shall be paid to K.I.N. on the closing date. (b) K.I.N. agreed to assign and pledge 1,500,000 common shares to CSFBI and grant to CSFBI all of its rights, title and interest to such common shares including income, proceeds and collection received or to be received on the date the shares were delivered to the Custodian or anytime thereafter. On 3 October 2000, K.I.N. entered into two additional contracts with CSFBI, namely the SAILS Mandatorily Exchangeable Securities Contract and the Amended and Restated Pledge Agreement. The principle provisions include, among others, the following: (a) The Pledged Shares can be further pledged. (b) Unless K.I.N. has elected to exercise its Cash Settlement Option, K.I.N. shall on the maturity date of 11 October 2003 deliver to CSFBI 1,500,000 common shares in FLAG Telecom Holding Limited. If K.I.N. fails to deliver the said shares, then delivery shall be effected by delivery of the pledged shares to CSFBI from the Collateral Account. (c) In the event K.I.N. exercises its Cash Settlement Opinion, it must deliver to CSFBI the Cash Settlement Amount in accordance with the provisions in the agreement on the maturity date. Therefore, the pledge over the said shares in favor of CSFBI would be released. (d) KIN has the right, in 3 years time, to receive a percentage of the proceeds from any appreciation in the price of the FLAG shares. If at the end of the 3 year period the price of the FLAG shares appreciates up to 120% of the initial sale price, then KIN will receive 100% of this gain. If the price of the shares appreciates beyond 120%, then KIN will receive an additional 16.67% of the gain over 120%. 11. Other Current Liabilities Consolidated Company 30 September 31 December 30 September 31 December 2000 1999 2000 1999 Baht Million Baht Million Baht Million Baht Million Other payable 882.22 899.14 867.34 816.49 Output VAT pending tax invoice 254.56 188.73 171.77 145.73 Unearned income 223.43 320.18 207.23 293.90 Others 201.96 124.47 150.12 113.72 1,562.17 1,532.52 1,396.46 1,369.84 12. Share Capital, Premium and Discount on Share Capital For the nine-month period Authorized Common Preferred Share ended Number of Shares Shares Premium 30 September 2000 Shares Baht Baht (Discount) Total Million Million Million Baht Million Baht Million Opening balance 3,000 22,230 - 11,432 33,662 - Common shares (777) - - - - - Preferred shares 702 - 7,020 (1,498) 5,522 - Stock options 58 - - - - Closing balance 2,983 22,230 7,020 9,934 39,184 On 14 February 2000, at the extraordinary shareholders' meeting of 1/2000, the shareholders approved the following changes of capital : 1. The decrease of authorized share capital from 3,000 million common shares with par value of Baht 10 per share to 2,223 million common shares with par value of Baht 10 per share by canceling 777 million authorized but not issued common shares with a par value of Baht 10 per share. The Company registered the decreased share capital with the Ministry of Commerce on 22 February 2000. 2. The increase of authorized share capital 2,223 million common shares with a par value of Baht 10 per share to 2,223 million common shares with par value of Baht 10 per share and 702 million preferred shares with par value of Baht 10 per share. The Company received a subscription to 702 million preferred shares at Baht 10 par value priced at Baht 8.068 per share on 30 March 2000 resulting in authorized and paid-up preferred share capital of Baht 7,020 million issued at a discount of Baht 1,498 million. The Company registered the increase of share capital with the Ministry of Commerce on 30 March 2000. 12. Share Capital, Premium and Discount on Share Capital (Continued) The preferred shares of the Company shall confer the following rights on the holders thereof: Dividends : Dividends for the first eight years is set at the rate of 10% p.a., cumulative plus the dividend payable to the holders of common shares, if any, and thereafter at the rate of 0.1% p.a. non- cumulative plus the dividend payable to the holders of common shares, if any. Liquidation : Upon liquidation or dissolution of the Company, any amount remaining after payment of preference all amounts payable in respect of indebtedness and other obligations of the Company shall be divided among the holders of the preferred shares pro rata to the number of the preferred shares held by each holder and paid in equal amount per share to such holders of the preferred shares in priority to the holders of the common shares. Redemption : The preferred shares shall not be redeemable by the Company. Conversion : The preferred shares have a conversion right to common shares at ratio of 1:1 during any period from the 2nd to the 8th anniversary of the issuance of the preferred shares. To the extent that the preferred shareholders have not exercised, their conversion right will expire. Voting rights : Each preferred share shall carry the right to one vote at any meeting of the shareholders of the Company. Stock option plan At the annual general meeting of 1/2000 held on 27 April 2000, the shareholders approved the Company's Stock Option Plan 2000 (the "Plan") and the increase of 58.15 million authorized common shares with per value of Baht 10 per share. The Plan is open to senior executives and directors of the Company and under the terms of the Plan non- transferable warrants in respect of 58.15 million shares will be issued to these senior executive and directors within the three year period commencing 27 April 2000. Stock options have been granted with an exercise price determined on one of the following two bases : a) Warrant group 1, amounting to 39.6 million with an exercise price of Baht 30; one third of these options vest on the last trading day of the second quarter of 2000, one third on the last trading day of the second quarter of 2001 and one third on the last trading day of the second quarter of 2002; and b) Warrant group 2, amounting to 18.55 million with an exercise price of Baht 51.55; one third of these options vest on the last trading day of the fourth quarter of 2000, one third on the last trading day of the fourth quarter of 2001 and one third on the last trading day of the fourth quarter of 2002. Stock option rights expire 10 years from the date of issuance of the options. Stock options which have not been exercised are subject to cancellation upon expiration or termination of employment. On 9 June 2000, 58.15 million options in respect of 58.15 million common shares had been issued. None of the eligible stock options have been exercised as of 30 September 2000. 13. Cash Flows from Operating Activities Reconciliation of net profit (loss) to cash flows from operating activities: Consolidated Company (Restated) (Restated) 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Baht Baht Baht Baht Profit (loss) before minority interest (4,813,704,783) (9,618,743,265) (4,813,736,783) (9,598,819,365) Adjustments to reconcile net profit (loss) to net cash generated from operating activities: Depreciation and amortization 5,721,216,375 4,730,267,686 4,499,735,035 4,075,536,367 (Gain) loss on disposal of property, plant and equipment (27,626,485) (23,513,588) 443,569 3,333,467 Provision loss on decline in value of investment - 960,991 - - Provision for doubtful accounts 43,084,349 25,590,703 30,654,881 24,457,229 Provision for loss on decline in value of land - 9,418,738 - - Provision for loss on decline in value of inventories 5,933,929 57,095,347 - - Provision for loss on write-off withholding tax 673,303 1,571,577 - - Other operating asset write-off 4,395,250 2,808,524 2,114,776 - (Reverse) provision for loss on decline in value of property and equipment (7,082,438) 14,658,041 - - Gain from sales of investment (2,336,452,301) (135,915,077) Loss from liquidation of subsidiaries and other 1,522,338 4,567,803 - - Unrealized loss on foreign exchange 4,969,232,040 5,718,004,478 4,293,702,235 3,872,078,846 Gain from debt restructuring (1,378,055,738) - (1,378,055,738) - Gain from forgivingness (25,964,413) (54,880,044) (25,964,413) (54,880,044) Deferred interest on notes 24,950,364 - 24,950,364 - Share of loss in subsidiaries and associated companies 808,811,607 628,133,543 228,822,807 3,173,816,663 Changes in operating working capital -Trade accounts receivable (359,527,423) (368,634,734) (318,505,545) (194,233,408) -Due from related companies 14,461,552 238,590,342 (1,308,646) (2,738,388) -Inventories (350,326,718) (12,048,404) (200,089,202) (34,208,807) -Other current assets 548,452,141 (121,269,604) 275,521,151 (215,357,633) -Other non-current assets (6,032,882) (1,375,608) 7,617,294 12,765,452 -Trade accounts payable (356,285,605) (395,300,207) 128,059,181 (225,125,304) -Due to related companies 15,270,207 (25,757,221) 505,209,699 (242,977,999) -Accrued expenses and other current liabilities 235,902,934 310,060,331 (77,962,373) (54,460,369) -Other non-current liabilities 143,463,928 (3,949,328) - - -Long-term trade accounts payable (554,246,965) (124,032,621) - - Cash generated from operating activities 2,322,064,566 856,308,403 3,181,208,292 539,186,707 14. Related Party Transactions The following material transactions were carried out with related parties: i) Sales of goods and services Consolidated Company For the nine-month periods 30 September 30 September 30 September 30 September 2000 1999 2000 1999 Baht'000 Baht'000 Baht'000 Baht'000 Sales of goods: Asia Wireless Communication Co., Ltd. - - 192.5 1,090.4 Asia Multimedia Co., Ltd. - - - 3.8 Wire & Wireless Co., Ltd. - - 962.8 3,680.2 W7 Rental Services Ltd. - - 42.1 - UBC Cable Network Public Co., Ltd. 1,263.7 276.6 - - 1,263.7 276.6 1,197.4 4,774.4 Sales of services: Asia Wireless Communication Co., Ltd. - - 4.8 - Asia Infonet Co., Ltd. - - 120.3 129.4 Tele Engineering and Services Co., Ltd. - - - 9,278.3 Wire & Wireless Co., Ltd. - - - 972.8 UBC Cable Network Public Co., Ltd. 645,835.9 676,523.6 70.9 - CP Group of companies 15,590.9 20,628.0 896.7 628.4 661,426.8 697,151.6 1,092.7 11,008.9 ii) Purchases of goods and services Consolidated Company 30 September 30 September 30 September 30 September For the nine-month periods 2000 1999 2000 1999 Baht'000 Baht'000 Baht'000 Baht'000 Purchases of goods: Telecom Holding Co., Ltd. - - - 191.5 Asia Wireless Communication Co., Ltd. - - - 21.8 Tele Engineering and Services Co., Ltd. - - - 11,465.0 Yai Kaew Co., Ltd. - - 8,469.0 - Asia Multimedia Co., Ltd. - - 16.4 150.0 Wire & Wireless Co., Ltd. - - 11,753.5 1,899.1 Telecom Training and Development Co., Ltd. - - - 4,097.5 Interactive Media Services Co., Ltd. - - - 37.5 CP Group of companies 4,421.8 1,819.5 4,421.8 1,819.5 4,421.8 1,819.5 24,660.7 19,681.9 Purchases of services: Telecom Holding Co., Ltd. - - - 33.5 Asia Wireless Communication Co., Ltd. - - 730,779.7 0.5 Interactive Media Services Co., Ltd. - - 5,354.1 2,571.8 Nilubon Co., Ltd. - - 262,289.3 247,114.8 Telecom Training and Development Co., Ltd. - - 13,500.0 13,500.0 W7 Rental Services Ltd. - - 96,544.3 84,469.6 Asia Multimedia Co., Ltd. - - 16.7 31.4 Wire & Wireless Co., Ltd. - - 2,345.3 267.3 Asia Infonet Co., Ltd. - - 2,393.8 1,093.8 UBC Cable Network Public Co., Ltd. 359.5 - 28.1 - CP Group of Companies 31,919.3 25,430.3 20,651.4 22,778.7 32,278.8 25,430.3 1,133,902.7 371,861.4 iii) Outstanding balances arising from sales and purchases of goods and services Consolidated Company 30 September 31 December 30 September 31 December 2000 1999 2000 1999 Baht'000 Baht'000 Baht'000 Baht'000 Receivables from related parties: Telecom Holding Co., Ltd. - - 695.9 695.9 Asia Wireless Communication Co., Ltd. - - 18,049.1 18,133.5 Nilubon Co., Ltd. - - 46,667.9 46,039.5 Wire & Wireless Co., Ltd. - - 1,030.2 - W7 Rental Services Ltd. - - 45.1 - Asia Infonet Co., Ltd. 10,437.4 19,039.7 14.5 56.9 Asia Multimedia Co., Ltd. - - 7.0 - UBC Cable Network Public Co., Ltd. 162,916.5 169,863.1 64.5 - CP Groups of Companies 5,221.0 688.8 93.2 371.1 Others 6,551.1 16,283.9 - 61.8 185,126.0 205,875.5 66,667.4 65,358.7 Payables to related parties: Telecom Holding Co., Ltd. - - 231,460.4 192,843.9 Asia Wireless Communication Co., Ltd. - - 1,110,587.3 668,659.0 Interactive Media Services Co., Ltd. - - 920.0 1,476.6 Nilubon Co., Ltd. - - 44,203.5 45,033.8 Telecom Training and Development Co., Ltd. - - 1,605.0 3,543.7 Tele Engineering and Services Co., Ltd. - - 170.1 - W7 Rental Services Ltd. - - 23,231.2 23,690.5 Yai Kaew Co., Ltd. - - 15,450.0 14,381.0 Asia Multimedia Co., Ltd. - - - 16.9 Wire & Wireless Co., Ltd. - - 2,069.0 3,592.3 UBC Cable Network Public Co., Ltd. 18.0 235.3 - - Asia Infonet Co., Ltd. 115.6 2,367.6 2,022.8 2,912.6 CP Groups of Company 57,958.2 27,810.2 57,052.9 27,386.6 Others 2,698.6 15,106.8 - 25.5 60,790.4 45,519.9 1,488,772.2 983,562.4 iv) Investments in subsidiaries and associates At 30 September 2000 Consolidated Investment Investment Paid-up % -At Cost -At Equity Capital Ownership Method Method Business Relationship Baht'000 interest Baht'000 Baht'000 Associated Companies Public Radio Network Co., Ltd. Telecommunication Shareholder 10,000 32.00 3,200 - UBC Public Company Limited Pay Television Shareholder 7,407,736 40.96 4,619,750 5,724,647 Other Telecommunication Shareholder - - 371,625 26,217 Total 4,994,575 5,750,864 At 31 December 1999 Consolidated Investment- Investment- Paid-up % At Cost At Equity Capital Ownership Method Method Business Relationship Baht'000 interest Baht'000 Baht'000 Associated Companies Public Radio Network Co., Ltd. Telecommunication Shareholder 10,000 32.00 3,200 - UBC Public Company Limited Pay Television Shareholder 7,407,736 40.96 4,619,750 6,533,459 FLAG Telecom Holding Telecommunication Shareholder - - - 2,851,430 Other Telecommunication Shareholder - - 371,944 26,536 Total 4,994,894 9,411,425 At 30 September 2000 Company Investment- Investment- Paid-up % At Cost At Equity Capital Ownership Method Method Business Relationship Baht'000 interest Baht'000 Baht'000 Subsidiary Telecom Holding Co., Ltd. Investment Holding Shareholder 12,000,000 99.99 12,000,000 14,182,813 Total 12,000,000 14,182,813 At 31 December 1999 Company Investment- Investment- Paid-up % At Cost At Equity Capital Ownership Method Method Business Relationship Baht'000 interest Baht'000 Baht'000 Subsidiary Telecom Holding Co., Ltd. Investment Holding Shareholder 12,000,000 99.99 12,000,000 10,516,065 Total 12,000,000 10,516,065 v) Loan from related party As at 30 September 2000, the Group and the Company has a loan amounting to Baht 21.2 billion from Kreditanstaly Fur Wiederaufrau (KfW). For the three-month and nine-month periods ended 30 September 2000, the interest amount of Baht 433.9 million and Baht 1,216.7 million was paid, respectively, which was calculated according to the rate as stipulated in the Restructuring Agreement. 15. Contracts and Commitments 15.1 The Company entered into the agreement for Joint-Operation and Investments for Expansion of 2.6 million lines Telephone Services with TOT and other supplements to the Agreement for the following services: - Wireline Services - Value Added Services - Personal Communication Telephone Services - Public Telephone Services - Receiving telephone service orders, and receiving payment for installation charges, deposits and monthly usage - Fault notification and dropwire maintenance - TOT lease of fibre optic network from a subsidiary in order to sublease to the Company - Personal Communication Telephone Service for TOT subscribers Under the provisions of the "Agreement", the "Amendment" and the Supplementary Agreements, TOT and the Company will share the gross revenues collected from operating the telephone network in accordance with the percentages stipulated in the agreements. Among the Company's responsibilities are the acquisition, installation, project management, operation and maintenance of the system as set forth in the agreements. In addition, the Company is required to transfer to TOT certain equipment pertaining to such system together with the land and buildings acquired by the Company related to the project. In compliance with the terms of the agreements, the Company has placed letters of guarantee issued by certain local banks in favor of TOT totaling Baht 300 million. 15.2 Two subsidiaries have agreements with state enterprises, namely the Communication Authority of Thailand (CAT) and the Telephone Organization of Thailand (TOT) to provide internet service and the lease of long distance circuits, respectively. Under the terms of the agreements, the subsidiaries have certain commitments to acquire, install, manage and maintain all equipment. The subsidiaries are also committed to transfer to TOT and CAT all equipment pertaining to such systems as the installations are completed. During the term of the agreements, the subsidiaries are entitled to collect the deposits, membership fees and other service fees from customers as stipulated in the agreements. In addition, the subsidiaries were contingently liable to certain local banks for letters of guarantee totaling Baht 5.5 million issued by said banks in favor of TOT and CAT. The letters of guarantee covered the guarantee for the subsidiaries in compliance with the provisions of the agreements referred to above. 15.3 The Company and its subsidiaries were contingently liable to certain local banks for letters of guarantee in favor of certain government agencies, certain state enterprises and companies amounting to Baht 391.8 million for the Company and Baht 291.1 million for the subsidiaries. 15.4 The Company had issued a letter to a finance company to support the business of one of its subsidiaries (wholly owned by the Company) and to confirm to that finance company that the Company holds 99.99% of the total shares in said subsidiary. The Company has also committed that the Company and/or its affiliates will maintain their holding percentage in the subsidiary at no less than 51% of the total shares until all obligations of the subsidiary liable to the said finance company are settled. As at 30 September 2000, the subsidiary's credit line with the finance company amounted to Baht 300 million. 15.5 A subsidiary entered into a credit facility agreement with certain local banks for the latter to issue a Standby Letter of Credit in the amount of Baht 5,000 million to finance the Company's project. The Company is required to reimburse the subsidiary all expenses incurred related to the loan. The Company's investment in shares in this subsidiary of 1,199,999,994 shares (carrying value amounted to Baht 14,182.8 million at 30 September 2000 at equity in the balance sheet of the Company). Up to 30 September 2000, the subsidiary had not utilized this facility. 15.6 Under the terms of various agreements, the Company's and certain subsidiaries' assets have been pledged and/or mortgaged as collateral with the contracted parties, details of which are as follows: Carrying Value at 30 September 2000 Consolidated Company Mortgaged Value Baht Million Baht Million Baht Million Fixed and savings deposits 4,701.5 - 4,018.3 Investment in shares of subsidiaries and associates (excluding investment in Investment in shares of subsidiaries and associates (excluding investment in shares of certain subsidiaries pledged as collateral, which have been eliminated in the consolidated financial statements) 12,522.2 - 14,182.8 Land, building and machinery 1,022.9 1,000.0 - 16. Contingencies 16.1 Dispute with TOT on leased circuits and conduit rentals The Company is currently under dispute with the TOT regarding the computation of rentals of leased circuits and conduits. The Company claims that the rental as charged by TOT, is not in compliance with a condition under the joint agreement with TOT which allows TOT to charge the Company a reasonable and fair rental, considering the Company is a joint partner with TOT. The details of the amount of leased circuits and conduit rentals which have been recorded by the Company and the amounts charged by TOT are as follows: Financial information ended 30 September 2000 Amount billed by Amount booked by the TOT Company Duration Baht Million Baht Million Leased Circuit Rental Direct Route 1992 - Sep 2000 1,347.50 952.81 Mixed Traffic Jan 1994 - Dec 1999 987.29 537.09 Mixed Traffic Jan 2000 - Sep 2000 No information 47.85 Conduit Rental 1992 - Sep 2000 4,364.06 1,644.93 The amounts billed by TOT do not include damages and default interest charges that may be claimed by TOT should the Company have to pay rental charges according to the basis and methodology of TOT. The Company is still in the process of negotiation with TOT on the basis and methodology of the above rental charges for leased circuits and conduits. Management is confident that the Company's basis and methodology are fair to the Company as a joint partner under the spirit of the Joint-Undertaking of and Investment Agreement with TOT. The outcome of the uncertainty as to results of the negotiation cannot presently be determined. 16.2 Agreement for PCT operation The Company is finalizing terms to enter into an agreement with one of its subsidiaries to jointly implement and operate the PCT network by which the subsidiary will invest in and maintain the major portion of PCT network. The Company has agreed to share revenue with the subsidiary out of the revenue sharing, which the Company receives from TOT. Such agreement is under consideration for consent of the Company's secured creditors and expected to be completed within the fourth quarter of year 2000. . 17. Concession Conversion In November 1997, the Thai Government adopted the Telecommunications Master Plan that calls for several liberalization initiatives. Amongst those are the privatization of TOT and CAT and conversion of the concessions under their operation. In responding to the request of the Sub-Committee on Concession Conversion of the Ministry of Transportation and Communication (the Sub-Committee), the Company submitted a letter stating that it was interested in the concession conversion on terms and conditions, which are mutually acceptable. For the Company, the process of concession conversion will involve comprehensive negotiation with the TOT. According to the official timetable, the Sub-Committee plans to conclude the negotiation between TOT and the Company and submit the final report to the government by the end of 2000. Thus, the privatization of TOT is expected to be completed before the concession conversion. Since the conversion shall be on a voluntary basis, the Company will choose to convert the concession into a license if and only if the conversion does not yield materially negative impacts to the Company. TelecomAsia Corporation Public Company Limited Interim Financial Statements (Unaudited) 30 September 2000 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Balance Sheets As at 30 September 2000 and 31 December 1999 The notes to the interim consolidated and Company financial statements on pages 12 to 31 form an integral part of these interim financial statements. 3 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Balance Sheets As at 30 September 2000 and 31 December 1999 The notes to the interim consolidated and Company financial statements on pages 12 to 31 form an integral part of these interim financial statements. 7 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Statements of Income (Loss) (Unaudited) For the three-month periods ended 30 September 2000 and 1999 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Statements of Income (Loss) (Unaudited) For the nine-month periods ended 30 September 2000 and 1999 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Statements of Changes in Shareholders' Equity (Unaudited) For the nine-month periods ended 30 September 2000 and 1999 The notes to the interim consolidated and Company financial statements on pages 12 to 31 form an integral part of these interim financial statements. 9 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Statements of Changes in Shareholders' Equity (Unaudited) (Continued) For the nine-month periods ended 30 September 2000 and 1999 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Statements of Retained Earnings (Deficit) (Unaudited) For the nine-month periods ended 30 September 2000 and 1999 The notes to the interim consolidated and Company financial statements on pages 12 to 31 form an integral part of these interim financial statements. 10 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Statements of Cash Flows (Unaudited) For the nine-month periods ended 30 September 2000 and 1999 The notes to the interim consolidated and Company financial statements on pages 12 to 31 form an integral part of these interim financial statements. 11 TELECOMASIA CORPORATION PUBLIC COMPANY LIMITED Notes to the Interim Consolidated and Company Financial Statements (Unaudited) For the nine-month periods ended 30 September 2000 and 1999 34