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Shin Satellite Plc. (SATTEL) operates and provides satellite communications services under a 30-year concession granted by Ministry of Transport and Communications. SATTEL’s 3 Thaicom satellites in orbit offer a total of 47 C-Band transponders and 20 Ku-Band Transponders with footprints spanning over four continents : Asia, Europe, Australia, and Africa. The Company is preparing to launch the region’s first true broadband satellite, iPSTAR-1, which is expected to be fully operational in 2004. Table of Contents Financial Highlights ........................................................................................................................................... 2 Chairman’s Report ............................................................................................................................................. 3 10 Largest Shareholders ................................................................................................................................... 4 Major Events of 2002 ......................................................................................................................................... 4 Strategic Direction in 2003 ............................................................................................................................... 4 Shareholding Structure of the Group .............................................................................................................. 5 General Background ......................................................................................................................................... 6 iPSTAR: Laying the Foundation for Future Growth ....................................................................................... 9 Social Contribution .......................................................................................................................................... 12 Industry and Competition ............................................................................................................................... 14 Technological and Operational Risks ........................................................................................................... 17 Other Factors Affecting Investment ............................................................................................................... 19 Corporate Governance .................................................................................................................................... 20 Management and Directors’ Biodata ............................................................................................................. 27 Related Transactions ...................................................................................................................................... 30 Report of the Audit Committee ....................................................................................................................... 33 Board of Directors’ Responsibility for Financial Reporting ........................................................................ 34 Management Discussion and Analysis ......................................................................................................... 35 Auditor’s Report .............................................................................................................................................. 39 Balance Sheets ................................................................................................................................................ 40 Statements of Income ..................................................................................................................................... 43 Statements of Changes in Shareholders’ Equity ......................................................................................... 44 Statements of Cash Flows .............................................................................................................................. 45 Notes to the Consolidated and Company Financial Statements ................................................................ 47 Subsidiaries and Associated Companies ..................................................................................................... 78 Glossary ............................................................................................................................................................ 79 Financial Highlights Consolidated Financial Statement In million Baht 2002 2001 2000 1999 Service and Sales Revenue 4,997 4,817 4,016 2,910 Gross Profit 2,112 2,258 1,946 1,352 Operating Profit 1,251 1,688 1,403 989 Net Profit 1,411 1,563 711 263 EBITDA 2,338 2,737 2,382 1,876 Financial Position Total Asset 20,307 14,377 11,832 10,402 Total Liabilities 13,103 8,581 7,594 6,903 Shares’ holder equity 7,204 5,796 4,238 3,499 Financial Ratio Current Ratio 0.43 0.28 0.35 0.72 Debt to Equity Ratio 1.50 1.12 1.34 1.55 Gross Profit Margin 42.3% 46.9% 48.4% 46.5% Operating Profit Margin 25.0% 35.0% 34.9% 34.0% EBITDA Margin 46.8% 56.8% 59.3% 64.5% Net Profit Margin 28.23% 32.45% 17.69% 9.04% Return on Asset 6.16% 11.74% 11.86% 9.51% Return on Shareholders’ Equity 19.58% 26.97% 16.77% 7.52% Earning per share 3.22 3.57 1.62 0.71 Dividend per Share - - - - Book Value per Share 16.43 13.20 9.69 9.37 As of December 31, 2002 EARNINGS PER SHARE SERVICE AND SALES REVENUE NET PROFIT (Baht) (Millions of Baht) (Millions of Baht) 1,563 3.57 1,411 4,997 3.22 4,817 4,016 2,910 711 1.62 0.71 263 1999 2000 2001 2002 1999 2000 2001 2002 1999 2000 2001 2002 2 Chairman’s Report Dear Shareholders, The year 2002 was a year of renewal for Shin Satellite. Following many years of project development and hard work, the company successfully gained financial backing for its iPSTAR project from the US Export Import Bank that will allow it to push forward with the project under very favorable conditions. This success signifies the progress the company has made in its efforts to revolutionize the satellite market, and was doubly rewarded by winning an award for Asia Telecom Deal of Year 2002. While the company was able to soft launch the sale of its first generation of iPSTAR ground equipment within 2002, there were still research and development challenges to overcome. However, the product is now being warmly received by the small to medium enterprise market at which it is aimed in this early stage. We expect to achieve the strategic acquisition of regulatory permissions by countries within the region in 2003 and rollout the terrestrial infrastructure required to operate the iPSTAR system in turn. Conventional business in 2002 saw stable growth last year, with service income rising 4% throughout the year, from 4,818 million Baht in 2001 to 4,996.98 million Baht in 2002, while total revenue gained 5% over the previous year, to 5,429 million Baht. This resulted in a net profit decline of 9% from 1,563 million Baht last year to 1,420 million Baht in 2002, due in part to a 13% increase in costs. Much of this can be attributed to the cost of sales required to produce the first generation equipment for the iPSTAR project. Utilization of C-band transponders softened from 93% in 2001 to 92% in 2002 as the company was compelled to terminate some non-performing contracts. Ku-band transponders however did increase in utilization, from 50% to 54%, due mainly to the introduction and sale of the first generation of iPSTAR satellite modems. However, further expansion of Ku-band utilization in 2003 is likely to be limited due to bandwidth constraints on Thaicom 3. However, the company has a strategy to continue the soft launch of the product as a means of creating a market for iPSTAR over 2003 that includes the utilization of foreign satellites in areas that Thaicom could not normally cover with its own footprint. While the satellite transponder business is expected to continue to remain relatively stable over the next year also, the company is fortunate in having invested in non-core businesses that are now beginning to bear fruit and promising to play a stronger role in the company’s progress. Cambodia Shinawatra introduced a vigorous network expansion plan in 2002 that resulted in revenue of 673.1 million Baht and almost a hundred thousand subscribers by year end. Lao Telecom again provided SATTEL with a dividend of US$1.5 million while increasing its subscriber base to approximately 116,700. The company was also successful in negotiating a merger of Thailand’s prime Internet service providers, C. S. Communications (“CS Internet”) and Loxley Information (“Loxinfo”) that should see them commence operations in 2003 as the largest ISP in Thailand under the new name CS Loxinfo. Economies of scale are expected to reduce their combined costs and make the new company profitable in the near future. Shin Satellite expects all its subsidiary and associate company businesses to continue to grow in 2003 and make up a larger proportion of consolidated net profit in the future. Shareholders can expect the company to continue to seek ways to make its businesses more profitable. However, we are in a period of high investment in a new generation of satellite technology. This will be the basis for strengthening the company in the long term and creating healthy fundamental value. Paron Israsena Chairman of the Board of Directors 3 Strategic Direction in 2003 The Company expects to lay the foundation for its new broadband satellite project, iPSTAR, in the Asia Pacific Region by building the infrastructure required to operate the system in 2004. This includes forming partnerships with local and regional communications companies, ensuring compliance with local laws and licensing regulations, and putting into place gateways and other critical technology. To ensure stable and strong corporate growth, the Company expects its subsidiaries and associate com- panies to play a greater role in its consolidated performance. In Cambodia and Lao PDR, the Company seeks to increase its subscriber base and offer more modern and efficient services to the public. In Thai- land, the Company will contribute its expertise and experience to the development of the Internet busi- ness, keep costs low and benefit from economies of scale through its partnership in CS Loxinfo. Major Events of 2002 2002 • Completed iPSTAR financing with Export-Import Bank of the United States and COFACE (Compagnie Francaise d’Assurance pour la Commerce Extrieur de France) with loan guarantee facilitiy of USD 265 million. The Company also signed a syndicated commercial bank facility arranged jointly by BNP Paribas and Citibank/Salomon SmithBarney for another USD 125 million in November. • Announced France’s Arianespace to launch new broadband satellite, iPSTAR-1 in 2004. • Signed a Framework Agreement with Shanghai VSAT Network Systems Co., Ltd. (SVC) to be an iPSTAR National Service Provider (NSP) in China. • Signed agreements with SiamSat Network and Samart Telcom, VSAT providers, to provide services using iPSTAR terminals to SME customers. • Signed a Memorandum of Understanding with EdNet (National Education Network of Thailand) to pro- vide iPSTAR technology for school interconnection. • Signed an agreement with Videsh Sanchar Nigam Ltd (VSNL), India’s leading ISP, to provide teleport/ uplink services including iPSTAR services to the Indian Market. • Signed Thaicom Satellite Service Contract and a Procurement Contract with Bagan Cybertech IDC &Teleport, Myanmar. • Introduced new features of iPSTAR technology:DLA (Dynamic Link Allocation) for a better Ku-band link performance to be tolerant to severe bad weather; DCA (Dynamic Coding Allocation) for efficient utiliza- tion of bandwidth; Nettgain (accelerated TCP/IP technology) for high throughput of Internet traffic over the satellite. • Demonstrated iPSTAR technology at ITU (International Communication Union) Conference 2002 in Hong Kong. • Completed a USD16.6 Million (697 Million Baht) deal with Nera ASA for 18 iPSTAR gateways to be installed in the Asia-Pacific region. 2003 • Signed an agreement with the Communications Authority of Thailand (CAT) for the provision of iPSTAR broadband service to organizations, enterprises and individual users throughout Thailand. No. of Shares Proportion of 10 Largest Shareholders Holding (%) 1. Shin Corporation Plc 225,435,467 51.53 Source: Thailand Securities Depositary 2. HSBC (Singapore) Nominees Pte Ltd. 19,562,275 4.47 Co. Ltd., (TSD) 20 January 2003. 3. Deutsche Bank AG, Singapore 19,099,975 4.37 Note: As of 20 January 2003, 3,978,284 4. Boston Safe Deposit and trust Company 7,737,335 1.77 shares held by the TSD for depositors 5. Thai NDVR Company Limited 7,353,825 1.68 (local) appeared on the share registration 6. N.C.B. Trust Limited-Pensioenfonds PGGM (EMM) 4,027,500 0.92 book. This was due to the fact that there 7. Thailand Securities Depositary Co.,Ltd. for Depositors (Local) 3,978,284 0.91 were non-Thai shareholder and foreign 8. Citybank Nominees Depository Singapore Pte Ltd-Taipei Bank shareholdershaving shares that did not ABN AMRO Thailand Fund 3,455,350 0.79 comply with the rules and regulations of 9. Chase Manhattan (Singapore) Nominees Pte Limited 25 3,211,500 0.73 the TSD. 10. National Finance Public Company Limited 2,939,000 0.67 Total 296,800,511 67.84 4 Shareholding Structure of the Group S hin Corporation Plc W ireless S atellite E -Business M edia O ther Communications & International & Advertising Business Business Business Business Advanced Shin Satellite Plc. Teleinfo Media ITV Plc. Merry International Info Service Plc 51.53% Co. Ltd. 55.53% Investment Corp. 43.06% 38.25% 100% Shin Broadband I.T. Applications & Artware Media Advanced Internet (Thailand) Services Co. Ltd. Co. Ltd. Wireless Marketing Co. Ltd. 99.99% 99.93% Co. Ltd. 99.99% 99.99% Advanced C.S. Loxinfo Shinawatra SC Matchbox Co. Ltd. Contact Center Co. Ltd. Information 99.96% Co. Ltd. 50.02% Technology 99.99% Co. Ltd. 99.99% Advanced C.S. Satellite Data Network Phone Co. Ltd. Communications 80% Co. Ltd. 67.95% Loxley Information Service Co. Ltd. 94.19% Data Network AD Venture Co. Ltd. Solutions Co. Ltd. 90.91% 49% Shenington Investments Pte. Ltd. Digital Phone 100% Shineedotcom Co. Ltd. Co. Ltd. 98.55% 60% Cambodia Shinawatra Co. Ltd. 100% ArcCyber Co. Ltd. 47.50% Lao Telecommuni- cations Co. Ltd. 49% iPSTAR Co. Ltd. 100% As of 6 March 2003 5 General Background Thailand’s Only Satellite Shin Satellite Plc. had been granted a 30-year concession from the Ministry of Transport and Commu- Operator nications (Currently, Ministry of Information Communication Technology) on 11th September, 1991 The company transferred its assets after construction to the state, including satellites and related equip- 1,411 ment, and received the sole right to operate them. His Majesty King Bhumiphol Adulyadej graciously 2001 2002 1,563 provided a name for our satellite series, Thaicom, symbolizing the link between Thailand and modern 599 communications technology. The Company registered as a listed company in 1994. 501 31 In 2000, the company began discussions with the Thai Government with the aim of converting the Revenue Sharing Income Tax Net Income concession to a license. This process seeks to achieve a level playing field for the company and future Amount of revenue shared with competitors as envisioned under the Thai Constitution. The Thai Government intends to complete liber- Thai Government in 2001 and alization within the timeframe agreed with the World Trade Organization (WTO) as part of the process 2002, in millions of Baht. of complete liberalization in 2006. The negotiations were continuing at end of 2002. Satellite Fleet SATTEL has three satellites in geostationary orbit over Asia: Thaicom 1A, launched in 1993; Thaicom 2, launched in 1994 and Thaicom 3, launched in 1997. Thaicom 1A and Thaicom 2 have 28 satellite transponders (22 C-band and 6 Ku-band) each. These have proven ideal for the domestic needs of the Thai market and surrounding Indochina area where there has been high demand for satellite services. With the success of its first two satellites, SATTEL management formed a strategy to expand the company's business into the region. Thaicom 3, launched in 1997, was the first of SATTEL's satellites to target an international market. The 25 C-band and 14 Ku-band transponders of Thaicom 3 cover Europe, Africa, Asia and Australasia - almost a third of the Earth's surface. SATTEL management strategy was to diversify the client base and product mix so as not to rely on the domestic market only and to meet the growing demand from international markets. The economic slow- down since 1997 has not seriously affected SATTEL; the company has continued to increase revenues impressively while establishing a global client base. Under the concession, SATTEL pays the Ministry of ICT an agreed percentage of the company's annual gross revenue earned from the transponder business, or a minimum remuneration, whichever is higher. The revenue share increases incrementally over the period of the concession. After September 11, Subsidiaries and Associate 2001, revenue sharing was at 15.5 per cent. Companies: CS Loxinfo Co. Ltd. CS Loxinfo is a joint venture originally formed by SATTEL (51%) and the Communications Authority of Thailand (49%) under the name C.S. Communications. In October 2001, Shin Broadband Internet, another subsidiary of SATTEL, purchased outright the 49% of shares held by SATTEL and paid up the total remaining capital to a total of 970 million baht and held 99.5% of the company. In March 2003, the Company merged C.S. Communications with Loxley Information Services Co. Ltd. (Loxinfo), to form Thailand’s largest Internet Service Provider (ISP), CS Loxinfo. The merger was achieved on a noncash basis by means of an exchange of shares among the shareholders of C.S. Communica- tions and Point Asia Dot Com (Thailand) Co. Ltd., the largest shareholder of Loxinfo. The shareholding structure as of March 6, 2003 was: Shin Broadband Internet (Thailand) Co. Ltd. 50.02% (99.99% owned by the Company) Point Asia Group 49%, Divided into: Point Asia Dot Com (Thailand) Co. Ltd. 17.17% Singapore Telecommunications Limited (SingTel) 16.81% Zesiger Capital Group LLC 8.65% Citicapital Limited (Citicapital) 3.68% Other minority shareholders 2.69% The Communications Authority of Thailand 0.98% The Company conducts two broad types of business. The first is the operation of a state-of-the-art teleport in Pathum Thani Province and the second is an Internet Service Provider business under the new brand name CS Loxinfo. 6 At the end of 2002, CS Loxinfo (C. S. Communications, as it was then known) had a total of 199,698 subscribers. Teleport Services The teleport offers complete value-added services to broadcasting and telecommunications customers, with a license to provide international services. The teleport was one of the first in the world to offer MPEG2/DVB compression to customers, and has remained in the forefront of technical innovation, offering uplink services, satellite news gathering and automatic tape-play, among other services. The company also offers a turnaround service that arranges for broadcasts to transmit to other satellites around the globe. This enables coverage to the United States, Canada, Latin America or any other region not covered by Thaicom 3. Shin Satellite makes all arrangements as an end-to-end package for the customer. Narrowband and Broadband CS Loxinfo is a licensed Internet Service Provider (ISP). It offers commercial Internet access through Internet Service Provider ground and satellite networks. The new company is expected to be the largest ISP in Thailand and expects to benefit from the huge savings derived from economies of scale. CS Loxinfo is the official distributor of iPSTAR equipment in Thailand. Together with Shin Broadband Internet, it offers Thailand’s first true satellite broadband application, iPTV, for watching television, recall- ing programs and new movies on demand. The company commenced a hotspot wireless broadband service at ten locations in early 2003. Shin Broadband Internet SATTEL owns 99.99% of Shin Broadband Internet. It was set up in 2000 with a registered and paid-up (Thailand) Co., Ltd. capital of 947.29 million baht to provide services related to the Internet business, such as a website hosting service, server co-location, e-commerce, domain name registration and web development. One of its foremost successes was to develop Thailand’s first broadband Internet portal, www.ip-tv.tv, and iPTV (Internet Protocol TV), an application that allows customers to view television programs and movies on demand via satellite. Shenington Investments Pte Shenington Investments Pte Ltd. was incorporated in Singapore in late 1997 with paid up capital of Ltd. (Shenington). S$14.7 million. Its main objective is to invest in international telecommunications. The company acquired Lao Telecom and Cambodia Shinawatra in 1998. Shin Satellite acquired Shenington for 50 million baht on September 27, 1999. The acquisition gives Shin Satellite a 49 per cent shareholding in Lao Telecom Co., Ltd., which operates fixed line, cellular, paging networks and Internet service in Laos, and 100 per cent in Cambodia Shinawatra Limited, which has fixed line wireless local loop and mobile phone service in Cambodia. Currently, Shenington has invested in two companies i.e., Cambodia Shinawatra Co., Ltd. and Laos Telecommunications Co., Ltd. Lao Telecommunications Company Limited (LTC) is a joint venture with the government of the Lao Peoples Democratic Republic for the portion of 49% and 51% respectively, having registered capital $25.95 of US$96.84 million. The company offers telecommunication services in Laos accordingly. • Public Switched Telephone Network (PSTN) $15.98 • Digital Phone Service (GSM) 900 $9.09 • Public Phone • Paging PSTN GSM Post GSM Pre Lao Telecom’s Average Revenue Per User • Internet Service Provider (ISP) (ARPU) averages for PSTN, GSM 900 postpaid and prepaid Customers in US dollars • International Direct Dialling (IDD) At the end of 2002, LTC had 61,509 basic phone subscribers, 55,160 cellular phone subscribers, and 2,466 Internet subscribers. The company has been a profitable investment, providing SATTEL with a dividend of 56 million baht in 2002. Cambodia Shinawatra Company Limited (Camshin) was established on March 4, 1993 as a joint venture with 30% held by Ministry of Posts and Telecommunications of Cambodia, and 70% by 7 Shinawatra International Plc under a 15-year license. On March 4, 1997, the Government amended the $70.85 $55.90 original Joint Venture Agreement to extend the scope of operations and expand the term of the license period from 15 years to 35 years i.e. until March 4, 2028. The amendment extended the scope of operations to cover transmission networks, other digital services and value added services, including permission to $11.08 distribute telecommunications equipment. The contractual modifications also allowed the transfer of all shares from the government to the operator. Shin Satellite acquired 100% of shares in the holding company WLL 450 1800 Pre 1800 Post Cambodia Shinawatra’s Average Revenue per of Camshin, Shenington Investments, in 1999. It has a registered capital of US$ 17 million. User for Fixed Line, 1800 Prepaid and 1800 Postpaid Mobile Phone Businesses in 2002 in US dollars The company currently covers all major towns and cities, especially tourist sites and Cambodian-Thai cross-border trade areas. In 2002, the Company expanded its network to cover 150,000 subscribers all over the country. The services currently offered by the company in Cambodia are: • Fixed NMT 450 MHz telephone. • Fixed Digital 1800 MHz telephone. • Mobile GSM 1800 MHz. • Postpaid • Prepaid E-card • International Roaming • Phone Rent (available in Phnom Penh and Siem Reap Provinces) At the end of 2002, the company had 96,790 mobile phone customers, and 1,689 fixed line customers. C.S. Satellite Phone Co., Ltd. (CSP) is a joint venture held 80% by CS Loxinfo, 12% by Sahaviriya OA C.S. Satellite Phone Co., Ltd. Plc., and Universal Communiications Systems Co. Ltd., with 8% ,to provide satellite telecom services via the global ICO satellite system. CSP has paid up capital of 125 million baht. The ICO system has not yet commenced service. Income Structure SATTEL’s core business is the leasing of satellite capacity to customers. This represents about 77 per cent of the company’s total revenue. In 2002, of those leasing capacity, the customers can be classified into two major groups as follows. Broadcasting customers accounts for 42.2 %, which would be break downed accordingly. • 21.1 % were analog television broadcasters Income Structure of SATTEL in 2002 • 8.8 % were Ku-band Direct-to-Home TV broadcasters • 6.9 % were Digital TV broadcasters Transponder Lease 13% Internet • 1.3 % were Quarter TV broadcasters Telephone-related • 4.1 % were other types of broadcasters (including radio). 10% Telecommunications customers leased 57.8 % of capacity over 2002. Of these: • 36.6 %were domestic VSAT customers • 6.2 % were rural telephony customers • 11 % were Internet customers • 3.8 % were cellular phone operators • 0.1 % were other telecommunications customers. 77% Type of Business Operating CompanyPortion of Revenue (%) Transponder Leasing Shin Satellite Plc., C.S. Communications Co., Ltd. 77% Internet C.S. Communications Co., Ltd. & Shin Broadband Internet (Thailand) Co., Ltd. 10% Telephone–related Shenington Investments Pte. Ltd. 13% 8 iPSTAR: Laying the Foundation for Future Growth iPSTAR Co. Ltd. The iPSTAR project was conceived in 1997 as a new generation of satellites and ground systems that were designed specifically to handle broadband or high-speed Internet access. Management realized that conventional satellites and technologies were unable to compete effectively against the threat from terrestrial systems like cable modem and DSL (Digital Subscriber Line) in a very important sector of global communications, specifically in terms of cost and efficiency. Conventional satellites cover a vast area and are therefore suitable for transmitting signals to a mass audience. This instant coverage to many customers at the same time made satellites the obvious solution for television and radio broadcasts. However, two way communications were inherently expensive and limited satellites to the role of telecommunications backup systems or trunking, that is bulk delivery of telecommunications between countries or across oceans. The only organizations that could afford to utilize them are govern- ments or telephone companies. Faced with the fact that while broadcasting is lucrative, growth from broadcasting is limited, the Company Enterprise level iPSTAR satellite forecast that communications using Internet Protocol would lower costs and make data communications modem over great distances practical, making satellites a viable alternative to terrestrial systems. The company faced some major challenges. It wanted to use Ku-band frequencies as there is still a glut of bandwidth available and much of the technology to use this frequency had been tested in the field for some time; plus it wanted to put the bulk of the new technology on the ground so that it could be constantly developed throughout the life of the satellite. To do this, SATTEL decided that a geostationary satellite would be the most suitable - large enough to handle the increased bandwidth and able to cover a large area relatively inexpensively compared to alternative low and medium orbit concepts. The Company felt that for data communications, the delay time of the signal was within acceptable limits. The Company evolved a satellite cellular system, similar in concept to cellular telephone networks and utilized turbo coding, well-known in other applications but adapted to satellite use. The satellite now under construction by SS/Loral of the United States will also be able to dynamically change the power and bandwidth to its cellular beams in order to overcome one of the notable weaknesses of the Ku-band frequency, its tendency to be affected by rain. Adaptive power and bandwidth will mitigate this so that customers operations will rarely be affected by rainfall. Incorporating much of the technology in satellite modems and gateway switching on the ground made the system suitable for use with conventional satellites also, improving the efficiency of the Thaicom Professional series fleet. The system is used today as a replacement for current VSAT technology, costing almost a third of i P S TA R s a t e l l i t e the price and making it attractive for VSAT customers. Current strategy is to complete the implementa- modem tion of the ground network required by the iPSTAR-1 satellite and users. The Company expects to place gateways in 14 countries around the Asia Pacific Region before commercial use of the satellite begins in 2004 and is cooperating with interested parties to ensure future partners and the Company itself have the necessary licenses and permissions. Thus far, Company’s iPSTAR activities have been utilizing the Ku-band footprint of Thaicom 3 using first generation equipment. In order to offer services further afield, the company is starting to secure bandwidth on other satellites with which to serve its customers. At this time, the Company’s target is to promote brand recognition of the iPSTAR technology and build the infrastructure needed for its new satellite to operate regionally. SATTEL expects to be able to launch iPSTAR-1 in early 2004, after which some time will be used for testing and commissioning in orbit. The business plan for iPSTAR follows similar lines to earlier Thaicom satellites in that most revenue is expected to be derived from the bulk sale of bandwidth to large national or regional communications companies. This lessens the market risk to the Company itself. However, SATTEL expects that approxi- mately half of its bandwidth sales are likely to support consumers while the rest will be used by corpo- rate customers. Over time, the Company expects the cost of its satellite modems and dishes to come down to reasonable levels, while bandwidth prices on iPSTAR-1 are expected to be equal or better than 9 those for competing terrestrial systems. The Company does not view current satellites as being competitive with iPSTAR. Although there are several broadband satellite systems on the drawing board, none have yet been able to complete financing like iPSTAR. New Products and Services IPSTAR can be viewed as an open application platform supporting IP-base applications eithor from in- house development or from our content and application partners (CAP). This strategy is critical for the expansion of satellite broadband service. Based on the open technology, IPSTAR Hotspots and IP2TV are 2 of our application suite aimed to be launched this year. IPSTAR Hotspot A “Hotspot” is a crowded public location where visitors can access Broadband Internet using their own devices, notebooks or PDAs, via local Wireless LAN. The iPSTAR Hotspot service is a Common Public High Speed Broadband Internet Access Service that allows clients to access the Internet with a typical service rate of 512 Kbps, using the IEEE 802.11b standard with Wi-Fi. The iPSTAR Hotspot service was launched in the first quarter of 2003 in Thailand. One of the iPSTAR hotspot’s main features is its roaming service, which enables customers to access the iPSTAR Hotspot Service anywhere under a satellite’s footprint with a single account; by doing so, the customer has mobility and convenience. IP2TV With IP2TV, one of the iPSTAR applications’ suite, viewers will enjoy watching video streaming, Video- on-Demand (VOD), and even using Internet Access, and E-mail directly from their TVs. For video streaming, a live video signal is multicast and delivered to all subscribers under iPSTAR’s footprint coverage. For VOD, video content is pushed into local servers nearest to end users. During low traffic periods, iPSTAR’s gateway will keep pushing the new video content to the local server for effective bandwidth utilization. IP2TV technology allows viewers to enjoy browsing on-demand streaming content from any server via various last-inch solutions, e.g. Ethernet LAN, instead of requesting the video content directly from web sites. IPSTAR IP2TV is the most suitable Internet solution for hotels, serviced apartments and condominiums. Challenges & Opportunities The broadband market in the region is considered to be at an early stage, and broadband service models are being explored to match the demand in potential markets. While there is much opportunity for market growth, there is also a risk as the market is new and consumers may need to be more educated and experienced about broadband services. To overcome the barriers, SATTEL sees the need to educate both the consumer and its own partners so that the new service is fully understood and served. Technology: Technical Hurdles Some applications via satellite have technical hurdles that will need to be addressed. Firstly, there is a need for high-speed spoofing to compensate for satellite latency, especially for video streaming and video conferencing. However, the state-of-the-art compression technology can be viewed as the answer to this question. Secondly, investment in satellite user terminals seems to be much higher than other subsitute technologies such as ADSL and cable modem. Nevertheless, such a high price can be offset by the satellite’s advantages over its competitors. In addition, the greater the number of sales volume, the cheaper the price of the user terminal. (Space and Advanced Communications Research Institute – SACRI) Lastly, heavy rain is always one of critical problems for satellite communication. iPSTAR proprietary technology, Dynamic Link Allocation (DLA), is specifically designed to maintain continuity of the connection between gateway and user terminal. The technology has been tested by our partners in many countries. These issues are currently being addressed by the iPSTAR engineering team, and acceptable solutions seem likely to arise. Obstacles for the growth of satellite services in such a sunrise industry as broadband communications are the oversupply of existing fiber optic terrestrial networks, cable modem, ADSL (heritage of the Dot Com era) as well as reluctance by Asian telcos due to their huge investment in existing telecommunica- tions networks. In addition, the dynamic changes in the market, for instance changing technologies, Technology: Substitute shifting demands and regulations, and competition due to globalisation of operations and industry Products consolidation, will have an impact on the satellite industry. (Space and Advanced Communications Research Institute – SACRI) 10 Nevertheless, the fact that the majority of Asian countries have poor communications infrastructure in rural areas might be seen as a new window of opportunity for the spread of satellite operations, when all the advantages of satellites over existing technologies such as cable modem or ADSL are taken into account. Firstly, multicasting allows fast and flexible delivery of content and application. When coupled with Bandwidth-on-Demand (BOD), satellites seems to be the best choice for the deployment of telecommunication services in suburban area, as the costs of providing conventional services to these areas would be tenfold in comparison. 11 Social Contribution As SATTEL is part of the community, it has a clear policy to help society and benefit the community through projects and activities. The Company focuses on education, information, and knowledge about space and communication via satellite.These forces shape our society and help to develop the country and the quality of life of people. The Company, as the operator of the national communication satellite project, disseminates knowledge and information about these subjects into the national education system as much as possible. To achieve this, the Company has the following projects and activities: Foundation The Thaicom Foundation was established on 30 December 1993 to support, disseminate and develop education using modern methods. From 1994 to 2000, the Company gave financial support of 121 million baht to develop education in rural areas. The Foundation has thus far provided 15,590 distance education via satellite kits and provided finances of 21 million baht. The Company supports the broadcast of educa- tional programs via Thaicom satellite from Wang Klaikangwon School, Hua Hin in Prachuab Kiri Khan Province. The Foundation also supports the education of underprivileged children around the country. Museum The Satellite Museum… a knowledge center for information about communi- cations satellites Originally an exhibition room providing knowledge about space and communications satellites for visitors, people from all walks of life, from the public and private sector, educational institutions, and associations. Their interest is in visiting the operations of satellite communications as there is insufficient educational equipment or information about satellite communications available in the country to create knowledge about a fast changing technology. The Company therefore provided a budget, personnel and resources to create this satellite museum. It mainly acts as a center of information about space and satellite communi- cations to provide young people and other interested persons with knowledge. It is a part of other commu- nity projects, such as Children’s Day, which is held every year and attended by tens of thousands of people. Shin Corporation also arranges a youth camp to bring young people closer to technology. Repre- sentatives of young people around the country join learning activities about communications technology. Children’s Day The Company arranges activities on National Children’s Day every year at Thaicom satellite station. On that day, there are demonstrations of satellite broadcasting, and knowledge about satellites as well as entertainment. Supporting the National Science Museum with financing, information, and knowledge about space and satellites. The Company provided about 5 million baht for the National Science Museum, especially knowledge about the three Thaicom satellites. Books Production of books and educational materials relating to space and satellite communications The Company produced a book named “Learn About Satellites” as well as educational materials using the national communication satellite as a model. There is also a video with information about space and communication satellites, which is donated to school around the country. This is to provide educa- tion nationally offering a source of knowledge and communicating knowledge efficiently. This will have an impact on young people and individuals in the communications business, creating qualitative and systematic knowledge to international levels. Kids The iPSTAR Project for Kids In 2002, the Company donated iPSTAR equipment and broadband Internet connection to Pakhinee Srichumpabal Center, which is an organization that helps poor children and those who are underprivi- leged. The Center’s project includes adult education, non-formal education department, and workshops on skill training for women’s leaders in the countryside. Such iPSTAR equipment and services help to implement the work of the center much more efficiently. 12 Cambodia Rural Internet via Satellite in Cambodia In July 2000, Cambodia Shinawatra Co., Ltd., a subsidiary company, donated VSAT equipment and free access to the Internet to a charity called American Assistance for Cambodia/Japan Relief for Cambodia. The VSAT equipment and the satellite link is to villages in remote areas. In Cambodia, the village supported has no electricity or telephones. A solar panel was donated to supply electricity for the computers and satellite modems. In 2002, the Company changed the VSAT equipment used in a local school for iPSTAR equipment instead and provided one more set to another school. These schools and villages are examples to show the benefit of Internet communications in developing our daily lives. These villages are able to use technology for business, education, and medicine in rural areas that have no telephone. Telemedicine allows doctors to provide consultation to the schools acting as health care centers in the village. The faculty of medicine of Harvard University in America acts as a consultant. Villages now conduct e-business - selling handicrafts like silk via the Internet while sending the goods by post. For further information see http://www.villageleap.com/ Lao PDR Social Assistance in Laos Lao Telecommunications, in which SATTEL hold 49%, makes substantial contributions to society each year. One example is the government efforts in the Lao People’s Democratic Republic to overcome drug abuse. Educational assistance in 2001 was aimed at underprivileged students mostly in remote areas. Other contributions are assistance to social events like the celebration of the Lao New Year. In each year, the Company provides support for the community, to youth centers, women’s groups, and labor associations. Other than the above activities, the Company supports other organizations in order to help the country and its people, such as financial support for an elephant project in cooperation with the French Embassy, and sponsorship of an historical investigation group. 13 Industry and Competition Industry Outlook Satellites are now playing a crucial role in the Asia-Pacific region. Communications in remote areas used to be costly due to inefficient telecommunications infrastructure. The convergence among media, telecommunications and information sectors continues to shape the satellite industry with new applica- tions being devised at an increasing speed. While satellite networks are already being used for multi- media transmissions and Internet access, the possibility of future convergence of TV programming and Internet content coupled with the growth of electronic commerce will be the driving applications for broadband communications. The International Telecommunications Union (ITU) said strong economic growth and more consumer spending were responsible for the positive growth of telecommunications services in the Asia-Pacific region in the future. Asia, with 160 million users, now accounts for one-third of the total Internet users in the world, more than any other region. There is no doubt that the Asia-Pacific region is an emerging satellite market instrumental to the growth and future development of the international satellite industry. Asia-Pacific also leads the world in broadband Internet, since capacity on Internet bandwidth has risen nearly ten- fold over the last two years. (www.satnewsasia.com) Satellite Industry Shin Satellite Plc. (SATTEL) is Thailand’s first, and only, commercial communications satellite operator since 1991, under a 30-year Build–Transfer–Operate concession from the Ministry of Transport and Communications (Currently known as Ministry of Information and Communications Technology, or ICT). SATTEL has three satellites in geostationary orbit over Asia: Thaicom 1A, launched in 1993; Thaicom 2, launched in 1994 and Thaicom 3, launched in 1997. SATTEL is preparing to launch the first broadband satellite, iPSTAR-1, expected to be fully operational in early 2004. Fixed orbits are limited resources. Therefore, it is important that the orbits and frequency bands be properly allocated. The UN International Telecommunication Union (ITU) is in charge of such role, in which Thailand is one of the members, represented by the Post and Telegraph Department, taking care of negotiation and coordination of satellite orbital slots. There are currently 105 satellites over Asia Pacific (source: 2002 International Satellite Directory and www.tbs-satellite.com). The major satellite competitors in Asia are: Foremost Satellite Company Country Competitors in Asia (Alpha- APT Satellite Holdings (Apstar) Hong Kong (China) betical Order) Asia Satellite Telecommunications (Asiasat) Hong Kong (China) PanAmSat Corporation USA Satelindo (Palapa) Indonesia For more information, please visit www.lyngsat.com The two frequency bands mostly used by satellite operators are C-band and Ku-band operating in the frequency range of 4 - 8 GHz and 12 - 18 GHz. Since C-band has been used in satellite service for more than ten years, it is in high demand compared to other frequency bands. Given the limited fixed orbital slot, the newly constructed satellites cannot use the C-band, but have to wait for the end of life of the existing satellites in those slots, thus making the C-band naturally limited. This environment keeps the competition not too intense and focusing more on quality of service, determine by EIRP (Effective Isotropic Radiated Power), and coverage area. SATTEL’s three Thaicom satellites offer a total of 47 C-band transponders and 20 Ku-band transponders spanning over four continents: Asia, Europe, Australia, and Africa, and its C-band can give maximum EIRP for Thailand, India and countries in Indo-China, thus making Thaicom satellites widely recognized in those regions. As the second largest commercial satellite company in Asia, SATTEL has conceived a new generation of Internet Protocol (IP) satellite that would serve the demand for high speed broadband Internet access in the future. Broadband via satellite has always suffered from high cost compared to other systems available. SATTEL developed iPSTAR technology to increase system capacity and efficiency 14 such that the cost of service would be considerably lower than that currently provided by conventional satellites. iPSTAR-1 will be the first of a new generation of broadband satellites that will act both as an Internet backbone connection to fiber optic cables for ISPs and as a last-mile broadband Internet service to consumers, competing with cable modem and ADSL. Once iPSTAR-1 is launched, it will be one of the largest communications satellites ever built, with a mas- sive bandwidth capacity of 40 Gbps, almost equivalent to all satellites serving Asia today. In addition, iPSTAR-1 will make Shin Satellite one of fourteen 2-way satellite operators worldwide. (Source: SATTEL) Satellite Broadband Last November (2002) Shin Satellite completed a financial deal with the Export-Import Bank of the United States (US Ex-Im Bank) and COFACE (Compagnie Francaise d’Assurance pour la Commerce Extrieur de France) for loan guarantee facilities of USD 265 million. Shin Satellite also signed a syndi- cated commercial bank facility arranged jointly by BNP Paribas and Citibank/Salomon SmithBarney. The credit support from the Ex-Im Bank and Coface will be in the form of a guarantee facility offered by Citibank and BNP Paribas. IPSTAR Project is now ready to move ahead with this financial backing. iPSTAR’s mission for 2003 is complete installation of 18 gateways in 14 countries to enlarge its footprint over Asia-Pacific. All gateways are set to be ready for the launch of iPSTAR in early 2004 (to date, Shin Satellite has alreay deployed three gateways, in Thailand, Myanmar and India). The company plans to build another four gateways within the first quarter of year 2003 in Taipei (Taiwan), Beijing (China), Jakarta (Indonesia), and Bendingo (Australia). Meanwhile, Shin Satellite will focus on both above-the-line and below-the-line marketing activities in every region, for instance iPSTAR roadshows and Mini Conferences throughout 2003, starting with India, China, Vietnam, Indonesia and Australia within the first quarter. Another iPSTAR strategy for this year is to establish strategic partnerships with expertise in the area of infrastructure, commercial, application and deployment. This is to ensure that our certified partners will be able to deliver the best quality of service to the end users. Our flexible business model allows multiple partners to cooperate for their mutual benefit. Simultaneously, Shin Satellite will continue developing new applications for both mass and vertical market i.e. Hotspot, IP2TV, VPN, etc. in order to provide varieties of products and services for end users. Broadband Services in CS Loxinfo Co. Ltd., the leading ISP in Thailand with more than 200,000 customers, has been appointed to Thailand provide Internet services over the iPSTAR platform for the whole country. The service was launched at the end of 2001. The following service packages are designed to serve key market segments of users: ♦ StarLink to serve organizations requiring heavy use of Internet services similar to a leased line service. ♦ StarExpress to serve SMEs, SOHOs and residential users for broadband internet access on a shared basis ♦ StarNet to serve the corporate need for building their own network with extranet/ intranet access. Services planned for 2003 include iPSTAR hotspots or hybrid satellite/wireless Internet/services, content streaming for hotels, condominiums and serviced apartments. Transponder Leasing Economic conditions in 2002 had slightly improved. Demand for C-Band was still more than demand in Business other bands – Samart Comtec Co., Ltd. signed a transponder leasing contract for 10 years. Mean- while, the DOS’s (India’s Department of Space) contract on C-Band Regional Beam may end in June. The Company has provisionally searched for new customers from whom the Company would have increased revenue compared to the DOS, which is a big customer with bargaining power for quantity discount. Most of the customers that the Company has in hand are TV broadcasters in Asia who are expected to lease at least 4 –5 C-Band transponders in 2003. 15 Broadcasting The Company had signed an important contract with a partner in 2002 that it regards as an increase in its customer base in the broadcasting market for the year. That was the contract to serve a Digital MCPC platform in India with VSNL, by which VSNL will provide uplink services for broadcasters in India. Shin Satellite will lease out transponders but serve channel by channel until the customers utilize all the platform. The Company terminated services for some TV broadcast customers who could not follow their contract’s conditions last year. As a result, the number of TV channels on Thaicom satellites has decreased. However, broadcasting revenue had increased as there was an increase in the number of new TV channels on Thaicom satellites. The increase consisted of both new customers and existing customers who expanded their transponder utilization by increasing the number of TV channels, hours of usage, and occasional usage. These also included additional services such as system integration services by which the Company procures and installs equipment and transmission system for customers. ProTrunk In 2003, the Company maintained its success in providing ProTrunk services, which is a direct interna- tional connection to the Internet for corporations to any geographical location under the footprint of Thaicom. Major markets for broadband ISP and corporate customers of the Company are IndoChina, India, Pakistan, Bangladesh, and Thailand. Broadband services for ISPs belonging to the Company in the past year were stable. There was a dramatic decrease in market prices and intense price competition by satellite companies in China, Singapore, as well as under-the-sea fiber optic companies from Singapore, Japan and Hong Kong, which are the biggest Internet centers in Asia Pacific region. In the past year, the Company connected networks directly to the Internet Backbone using both Thailand’s gateway, and Hong Kong’s. Thaicom 1A, Thaicom 2, and Thaicom 3 receive and broadcast signals to customers worldwide. However, the Company planned to move its customer service base to Hong Kong’s gateway only in order to increase the efficiency of the process and the competitiveness of iPSTAR as some customers already switched to utilize iPSTAR services in 2003. 16 Technological and Operational Risks Possible Factors Affecting Investments Technological and Operational Technology Risks There can be no guarantee that new technologies will not affect the Company's operations. However, we have not only adopted new advances to benefit customers, but in certain areas, such as iPSTAR, we are global leaders in developing satellite-related technology. Satellite Capability Satellites are open to problems due to solar discharges or collision with objects in space. While manu- facturers design satellites so that they can withstand the rigors of space, the probability of damage that could cause complete failure of a satellite in orbit is very small, i.e. less than one per cent. To minimize risk, we take commercial insurance against potential loss, with ourselves and the Ministry of Transport and Communications nominated as joint beneficiaries under the insurance policy. Service Lives of Satellites Current projections show that the service life of Thaicom 1A, 2 and 3 should end in 2008, 2009 and 2011 respectively. The factors affecting their service lives are their construction, strength and durability, fuel consumption and our skill in controlling them under different conditions. Their service lives may be shorter than expected even under normal operations. The natural end of life of a satellite or satellites may be accompanied by the launch of replacements depending on our business plan at the time. The Engineering Department ensures compliance with the standards laid down by the company under ISO 9001. Launch of New Satellites The Company's business is mainly satellite services. New satellites will be launched in the future. Shin Satellite has always minimized launch risk by choosing a launch company with a good history of successful launches. The satellite manufacturer will usually insure a satellite until it is delivered to the launch site. We then insure the satellite for the launch as well as against loss when the satellite is in orbit. Reservation of Satellite's As the satellite's position at geostationary orbit is limited, both reservation and frequency coordination Orbit and Frequency are very important. International Telecommunications Union (ITU) is an organization under the United Coordination Nations responsible for telecommunications. Thailand is a member, having The Department of Posts and Telegraphs, Ministry of Information Communications and Technology, as an agent to negotiate and coordinate with others. Anyone requesting an orbit reservation will be considered if having the right to utilize such orbit. However, the satellite must be launched within 7 years after receiving such right. Due to limited orbital slots proper frequency coordination increases efficient use of resources. Nevertheless, frequency coordination becomes more complicated, and takes some time as transponder demand increases, which increases the number of satellites, and satellites become closer to each other. To eliminate the issue or minimize frequency disturbances, satellite manufacture may need slight adaptation, or a change in service region, or ground equipment that is larger than normal. Management Risk Major Shareholder Hold over 50% in SATTEL Shin Corporation Plc. held 51.53% of all SATTEL stocks sold as at January 20, 2003. As a result, Shin Corporation has the power to control almost all resolutions in shareholder meetings, which includes the appointment of the Board as well as other resolutions that require a vote except matters prescribed ac- cording to the law and other company regulations which require three fourths of shareholders to approve. Consequently, other shareholders might not able to accumulate all votes under some matters opposed by the major shareholder. However, Shin Corporation's holding in SATTEL is conditional under the concession agreement, which requires Shin Corporation to hold no less than 51% in SATTEL through the concession period. Financial and Economic Risk After Thailand changed its exchange rate system to a managed float, the Company started to collect its Fluctuation of Exchange Rates revenue from some customers in Thailand in US dollars. Currently, the Company collects approximately 91% of its revenue in US dollars. However, the Company manages exchange rate fluctuations by pro- portionately adjusting its loans to revenue ratio in US dollars and Thai Baht (a “natural hedge”). To mitigate the effect of the exchange rate fluctuation, the Company sometimes uses widely accepted methods such as "swap" and "forward" deals in financial markets. 17 Regional Economies We are a regional company, therefore regional economies affect the demand for satellite services. Whenever the regional economy declines, so does the region's purchasing power. The result is sometimes that fewer people can afford cable television or direct-to-home television and companies offering those services reduce their use of satellite transponders accordingly. Although a regional economic slowdown has had a minor effect on the Company's business, sound fiscal policy and management controls have resulted in very good financial performance over the past three years. Markets and Competition The telecommunication business is highly lucrative and therefore very competitive. SATTEL competes New Operators and Alterna- in each market on quality of service and is considered the leader for satellite services in Indochina and tive Services South Asia, but this lead cannot be guaranteed as new competitors enter the market. To counter this, the Company has taken every measure, in terms of marketing strategies, technology, sales strategies and quality of service etc., to keep clients and seek new ones. The Company also continues developing new products, constantly improves its services, and stresses quality and high standards for reasonable prices rather than competing on price alone. Potential Loss of Major Some major customers have 3-10 year contracts. Failure on their part to comply with the terms and Customers conditions of their contracts may adversely affect the Company's revenue. Major customer in Thailand, UBC (United Broadcasting Corporation accounts for 17.7 per cent of total transponder revenue, while the major customer overseas is DOS (Department of Space) who accounts for 16% of total transponder revenue. However, the Company has planned to offset any potential loss of major customers by refilling transponders with new broadcast and high-speed Internet trunking (ProTrunk) customers. Thaicom's position as a “Hotbird” in India, for instance, leads SATTEL to believe it could replace over 50% of revenue from the loss of a major customer within a reasonable period. Shin Satellite is legally obliged to provide services in exchange for money paid to the Company. However, the Company is not liable for estimated future loss of business should a transponder or satellite fail. Legal and Political Risks SATTEL operates globally and complies with the laws, rules and regulations of each country, where International those laws apply to this Company. The Company's international legal department advises management on any issues that could have a negative impact on it. Generally, the Company avoids or preempts legal problems and complies fully with the laws of all countries where it has business. In certain cases, local partners or legal advisers can be hired to offer the best advice. SATTEL has customers in many countries from a diverse political spectrum. Sometimes there may be some political risk involved, such as protectionism or market entry barriers. However, with the political wind lending itself more to liberalization around the world, this risk is decreasing. As a Thai company, Shin Satellite is assisted by the neutral stance Thailand has taken on numerous issues globally. The Company therefore finds that it has less political concerns than other competitors. Domestic The Company was founded and registered in Thailand and operates domestic satellite communications services under a concession granted by the Ministry of Transport and Communications (now called the Ministry of Information, Communications and Technology) to Shin Corporations Plc, the parent company of Shin Satellite Plc. In September 1999, the eight-year exclusive period awarded to the company expired and in theory competitors were to be allowed to enter the market. In practice, no competitor has been awarded a license as the official licensing body, the National Telecommunications Commission (as stipulated in Section 40 of the Constitution), has not been set up. Talks with the government on the conversion of our concession to a license were still continuing at the end of 2002. However, there is no obligation for Shin Satellite to accept a conversion deal that we believe may have a negative impact on the Company's current or future financial health. The conversion process must be acceptable to all parties before it can be implemented. There is a general acknowledgment that the purpose of the conversion and the transfer of licensing power to an independent body is to ensure free and fair competition for the benefit of consumers. 18 After World Trade Organization (WTO) agreements on free competition in the services sector in 2006, Shin Satellite may face competition in the domestic market. However, our success in competing within the Asia Pacific region suggests that competition at home will have minimal impact on the Company's revenues. New competitors also face certain barriers to entry. Thailand has no pool of skilled satellite engineers for hire; the number of satellite dishes pointed at Thaicom satellites is such that to move them all at one time to point at a competitor is unfeasible; customers who consider changing operators mid-contract face penalties for cancellation, and so on. The Company has spent many years building a strong relationship with our clients in Thailand as well as continues to raise the standard of service to international levels. Therefore, the Company believes that the risk of losing a significant proportion to competitors is negligible. Other Factors Affecting Investment Legal Proceedings 1. The Company brought bankruptcy proceedings against Thaisky Cable TV Company Limited (Thaisky) which failed to discharge its debts to Shin Satellite and C.S. Communications Company Limited (currently known as CS Loxinfo Company Limited), the aggregate amount of approximately 245.67 million Baht together with interest rate at 7.5% p.a. from the default date to the repayment date, commencing in 1997. On July 27 2001, the Court ordered that the debtor (Thaisky)'s assets be auctioned for the first time. Consequently, some of those assets were sold, and the remainder was auctioned on August 30, 2001. On May 13, 2002, SATTEL and C.S. Communications received repayment from the proceeds of the said sales worth 1,838.57 baht, and 103.5 baht respectively. The Thaisky case has now been completed. SATTEL has requested a refund of the revenue sharing payment made under the concession to the Ministry of Information and Communications Technology. This is currently under consideration. SATTEL had already written off Thaisky's debt in the second quarter of 2002. However, the Company had provisioned such debt to the full amount. The write off, therefore, had no effect on the Company's performance. 2. In the second quarter, 2002, SATTEL brought Criminal and Civil action against Mr. Sirichoke Sopha, a Democrat Member of Parliament. During a no confidence debate against the Government in March 2002, Mr. Sirichoke Sopha had stated that SATTEL had imported uplink-downlink television signals equipment without paying correct import duties. Such statement was not true and caused damage to the Company's reputation, as the Customs Department had already completed its investigation of the matter and clearly stated that SATTEL had paid correct import duties on such equipment. Currently, the action is pending in both the Civil and Criminal Court. 19 Corporate Governance Compliance with Good Corporate Governance Policies Corporate Governance Policy The Company believes that the principles of good corporate governance are essential factors in maximizing long-term shareholders' wealth. The Company has established a Policy of Good Corporate Governance covering five major areas. 1. The Board of Directors 2. The Rights and Equitable Treatment of Shareholders and the Role of Stakeholders in Corporate Governance 3. Information Disclosure and Transparency 4. Internal Control and Risk Management 5. Corporate Philosophy and Code of Conduct The Board of Directors Composition and Independence The Company's Board of Directors consists of nine experienced directors covering various fields of knowledge. Two are representatives of the major shareholders; two are Executive Directors; four —over one third of the Board—are Independent Directors, while one is the representative of the Ministry of Information, Communications, and Technology (ICT). This structure balances the business direction and management functions of the Board. The authorized directors are Dr. Dumrong Kasemset or Mr. Boonklee Plangsiri or Mrs. Siripen Sitasuwan: two of the three directors are authorized to sign on behalf of the Company together with the Company seal. Responsibilities The major duties and responsibilities of the Board of Directors are: • To work honestly according to laws and regulations, business objectives, Company Articles of Association, and shareholders' meeting resolutions, as well to be conscious of what is to the Company's benefit. • To establish policies, assign the business direction, lead management to operate effectively and efficiently toward that direction and any policies assigned in order to maximize shareholders' wealth, and ensure continuous improval of the business. • To consider and decide upon significant issues, whether conflicts of interest, acquisitions and disposal of assets and investments, managerial policy, as well as issues required by law to review and approve. • To evaluate the performance of the Chairman of the Executive Committee and the Executive Committee regularly, as well as determine remuneration. • To be responsible for the performance of management and operations by exercising due professional care. • To ensure the Company has a reliable accounting system, financial reports, and accounting audit; to supervise the internal control evaluation process; to ensure effective and efficient internal audit, risk management, and follow up. • To ensure there are no conflicts of interest among stakeholders. 20 • To govern the Company to operate ethically. • To take responsibility in preparing financial reports equal to the report of the auditor in the annual report Appointment of the Board The Board should be qualified through experience according to Company requirements, having no prohibited conditions according to the Public Company Act or other related laws. The Board shall have sufficient time to devote its knowledge and ability to work for the Company. The Chairman of the Board has assigned a nomination sub-committee to be responsible for directors' nominations and propose them for approval at a Shareholders' Meeting. According to the Articles of Association, the term of one third of the directors shall expire every Annual General Meeting of Shareholders. The longest serving directors shall be due first, and may be re-elected to resume duty. In case of vacancy (ies) due to other reasons, the Board, by a vote in which three fourths of its members agree, shall elect someone who has qualifications and no prohibited conditions according to clause 68 of the Public Companies Act, B.E. 2535 (1992). The Board can thereby appoint him/her a director in the next Meeting. An exception is the case of a term with less than 2 months remaining, where the term of the newly appointed director shall expire at the same time as the preceding director. The Company does not determine the maximum times a director(s) may be re-elected, or the age of the directors, but their working capability. Chairmen The Company has a policy of Segregation of Duties between the Chairman of the Board, and the Chairman of the Executive Committee, that they shall not be the same person, in order to maintain a balance of power between direction and management functions. • The Chairman of the Board, is the directors' head and is responsible for monitoring and supervising the Executive Committee members' performance in achieving assignments, as well as chairing the Board of Directors and Shareholders' meetings. • The Chairman of the Executive Committee is the head of the Company's management team, responsible to the Board for achieving planned assignments. Board Meetings The Board of Directors' Meeting schedule is determined in advance at least once a quarter. Additional meetings may be held as required. At the meeting, the Chairman of the Board will allocate sufficient time for management to give a presentation for discussion on significant issues between management and the Board. All directors can independently show their opinion and present meeting agenda. The Secretary of the Board is responsible for making appointments, preparing sufficient documentation for the meeting, and distributing the Invitation to the Meeting not less than 7 days before the meeting for the Board to study the documents in advance, except in the case of unavoidable circumstances, and taking the Minutes of the Meeting. In year 2002, the Board met 8 times, with the participation of following directors. Directors Title No. of Participated Meetings 1. Mr. Paron Israsena Chairman of the Board 8 7 2. Mr. Rianchai Reowvilaisuk Vice Chairman 8 5 3. Mr. Boonklee Plangsiri Director 8 6 4. Dr. Dumrong Kasemset Director 8 8 5. Mrs. Siripen Sitasuwan Director 8 7 21 6. Dr. Nongluck Phinainitisart Director 8 8 7. Prof. Hiran Radeesri Chairman of the Audit Committee 8 8 8. Mrs. Nilaya Malakul Na Ayudhya Audit Committee 8 4 9. Mrs. Charintorn Wongphutorn Audit Committee 8 8 -- Dr. Nongluck Phinainitisart: Secretary to the Board of Directors The Sub-Committees The Board of Directors has set up three subcommittees, an Audit Committee, Remuneration Sub- Committee and Nomination Sub-Committee. Audit Committee 1. Mr. Hiran Radeesri Chairman 2. Mrs. Nilaya Malakul Na Ayudhya Member 3. Mrs. Charintorn Wongphutorn Member All three audit committee members are independent directors. Two are knowledgeable in Finance and Accounting. The committee met 12 times in 2002. Their scope of work and responsibilities are: — To review the Company's Financial Statements under Generally Accepted Accounting Principles and ensure accountability and appropriate information disclosure. — To review the Company's Internal Control and Internal Audit for appropriateness and effectiveness. — To review the Company's compliance with the Securities and Exchange Act, regulations of the Stock Exchange of Thailand, or other laws related to the Company's business. — To consider, select, propose for appointment, and propose the remuneration of the Company's external auditors — Where there are related transactions, or potential conflict of interest transactions, to consider the accuracy and completeness of information disclosure. — To monitor the Company's risk management for effectiveness and appropriateness. — To review and give an opinion on the internal audit plan and the performance of the Internal Audit Office, as well as cooperate with external auditors. — To review the Company's good corporate governance best practice reporting before disclosure in the annual report. — To consider and evaluate the job performance of the Manager of the Internal Audit Office annually. — To approve the Internal Audit plan, budget, and manpower. — To report the results of the Audit Committee's work to the Board at least four times a year — Authorized to invite management, executives, or staff of the Company to give opinions, join meetings, or submit documents deemed necessary or relevant according to their work. — Authorized to hire a consultant, or external individual to give opinions or offer best advice according to Company's rules, when necessary. — Other work as assigned by the Board with the consent of the Audit Committee. Remuneration Sub-Committee 1. Mr. Paron Israsena Chairman 2. Mr. Boonklee Plangsiri Member 3. Mrs. Charintorn Wongphutorn Member The Remuneration Sub-Committee consists of three members, two being Independent Directors. The Sub-committee's scope of work and responsibilities are: 22 • Appropriately determine necessary remuneration, both monetary and non-monetary, annually in order to be incentives and maintain the Board, Sub-Committees, and Senior Management of the Company. • To prepare policies and criteria to determine remuneration of the Board and Senior Management for approval by the Shareholders' meeting, and/or the Board, depending on the case. • Report to the Board, and be responsible for providing explanations and clarifications about remuneration of the Board of Directors, and Senior Management in Shareholders' meetings. Nomination Sub-Committee 1. Mr. Paron Israsena Chairman 2. Mr. Boonklee Plangsiri Member 3. Mrs. Charintorn Wongphutorn Member The Nomination Sub-Committee consisted of three members, two being Independent Directors. The Sub-committee's scope of work and responsibilities are: — To determine policies and criteria for nominating the Board and Sub-Committees of the Company. — To nominate directors by considering suitable persons for approval by the Board, and/or Shareholders' meeting, depending on the case. — To consider suitable persons to be nominated as Chairman of the Executive Committee, if there is a vacancy, as well as to determine criteria for succeeding Senior Management. Executive Committee The Executive Committee consists of the Chairman of the Executive Committee of the Group of Companies, the Chairman of the Executive Committee of Business Lines, the President, and/or the suitable person(s), as approved by the Board of Directors. The current Executive Committee comprises: 1. Dr. Dumrong Kasemset Chairman 2. Mrs. Siripen Situsawan Member 3. Dr. Nongluck Phinainitisart Member 4. Mr. Somprasong Boonyachai Member The Board has assigned responsibilities and delegated the following duties and authority to the Executive Committee: — To determine the policies, directions, strategies, and core management structure for business operations in line with economic and competitive conditions that have been defined and declared to Shareholders, for approval by the Board. — To determine the business plans, budgets, and working authority limits of the Company for approval by the Board. — To monitor efficient policy implementation and operating procedures according to favorable business conditions. — To monitor the Company's operating performance to be in compliance with the approved business plan. — To consider any significant investment projects. — Others, as assigned by the Board. • The Executive Committee may delegate power to individuals to perform one or more businesses, according to the Executive Committee's discretion. However, the power of delegation does not cover the authority to approve transactions where he/she or any individual may have a conflict of interest (according to Company rules, and those defined in the notifications of the SEC) with the Company, or subsidiary (ies). Exempted are situations where approval is in accordance with the policies and criteria set by the Board. • The Executive Committee has the authority to approve financial transactions of less than 800 million 23 baht. This includes general expenses in normal business operations, project investment, capital asset or fixed assets investments, borrowings, lending, credit line facilities, debt instrument offerings, guarantees, loans or credit guarantees. Exceptions to this are transactions of money deposits and withdrawal, and foreign exchange and interest rate risk hedging instruments. The limits on its authority to approve these issues are set at 2,500 million baht and 1,500 million baht, respectively. The Executive Committee may delegate authority to Company managerial staff to approve one or more such financial transactions according to the Executive Committee's discretion. The approval of the Executive Committee or its delegates shall not include any transaction(s) by which he/she or any individual may have a conflict of interest (under Company rules, and those defined in the notifications of the SEC) with the Company, or its subsidiary (ies). Exceptions are approvals made according to the policy and criteria already approved by the Board. Committee Self Evaluation In the Board of Directors' Meeting no. 2/2546 on February 26, 2003, the Audit Committee proposed a Self-Evaluation Questionnaire suggested by the Stock Exchange of Thailand. The meeting concluded that the self-evaluation of the Board is an important step for the development of Good Corporate Governance. The Board agreed to continue to apply this evaluation. Management Team 1. Dr. Dumrong Kasemset Chairman of the Executive Committee - Satellite & International 2. Dr. Nongluck Phinainitisart President 3. Dr. Avudh Ploysongsang Vice President - Business Development 4. Mr. Paiboon Panuwattanawong Vice President - iPSTAR Operations 5. Mr. Yongsit Rojsrivichaikul Vice President - Marketing 6. Mr. Tanadit Charoenchan Vice President - Finance & Accounting 7. Mr. Kamonmit Vudhijumnong Vice President - Legal Remuneration of Directors • The remuneration of five members of the Board of Directors in year 2002 was 2,875,000 Baht, comprising salary, bonus, and meeting allowance. The remuneration did not include those of Executive Directors and management. The remuneration of five directors and management in year 2002 was 20,863,000 Baht, comprising salary, bonus, provident fund, and other fringe benefits. The remuneration did not include that of the Vice President for Finance and Accounting. • The Company, with the resolution of the Board of Directors' Meeting no. 2/2545 on 26 March 2002, approved the allotment of warrants to the Executive Directors, staff, and consultants of the Company. The first allotment was for the management. The warrant allotment objective is to be a working incentive and remuneration for the recipients to have strengthened determination in their work and to bring the greatest benefit to the Company. The Board of Directors proposed a name list of selected management and the number of warrants allotted. The allotment criteria were the position of the management, experience, number of years' service, as well as potential. The exercise price of the warrant is 26.75 Baht. The management selected to benefit under the scheme are: Management allotted Allotted Warrants % of the allotment scheme Warrants 1. Dr. Dumrong Kasemset 2,436,400 30.46 2. Dr. Nongluck Phinainitisart 1,692,800 21.16 3. Mr. Yongsit Rojsrivichaikul 700,000 8.75 4. Dr. Avudh Ploysongsang 204,300 2.55 24 5. Mr. Kamonmit Vudhijumnong 203,600 2.55 6. Mr. Tanadit Charoenchan 162,000 2.03 The Rights and Equitable Treatment of Shareholders The Company has a policy to conduct shareholders' meetings according to the laws and guidelines prepared by regulatory authorities. In 2002, there was one shareholders' meetings at the Company; i.e. one Annual General Meeting. The invitation letter to each meeting, together with information on the meeting agenda, was distributed to shareholders approximately 10 working days before the meeting date. In each meeting, every shareholder has rights, including equitable treatment, to acknowledge the information, show opinions, query the meeting, all according to meeting regulations and the issue under discussion. The Chairman of the meeting allocates an appropriate period for and promotes discussion and questions in the meeting. In each shareholders' meeting, the Company appoints at least one independent director to be the proxy for shareholders who cannot attend the meeting, and who were informed earlier in the invitation letter to meeting. The Role of Stakeholders in Corporate Governance The Company is aware of the rights of stakeholders, and has a policy to ensure awareness by appropriately prioritizing stakeholders such as shareholders, employees, executives, customers, partners, creditors, society and the public. There is also cooperation between stakeholders about their roles and responsibilities in order that the Company can run its business smoothly, strongly, and fairly entertain the benefit of all stakeholders. Information Disclosure and Transparency The Company values accurate, complete, thorough, and timely disclosure of financial, operational, and other relevant information for investors and concerned persons to use in investment decisions. This disclosure is made through communication channels via the Stock Exchange of Thailand (SET), the Securities and Exchange Commission (SEC), and the Company's Internet web site. The Company has also established an Investors Relations Department to be responsible for communicating useful information to shareholders, investors, analysts, as well as preparing policies and handbooks for investor relations activities and information disclosure to the Exchange in order to ensure that the Company fully complies with laws, rules and regulations. Other than information disclosure according to the law, the Company also holds quarterly Mini Info Meeting to disclose operational performance to investors, analysts, fund managers, and interested persons, by a member of the Executive Committee to give explanations and reply to queries as they arise. Interested persons can contact and request information from the Investors Relations Department, tel. no. 02-591-0736 extension 5072-3, or search the website, www.thaicom.net Internal Control and Risk Management The Company has an independent Internal Audit Office, reporting directly to the Audit Committee, evaluating, assuring and consulting about internal control system, risk management, and good corporate governance. In the Board of Directors' Meeting no. 2/2546 on February 26, 2003 with the contribution of the Audit Committee, the Board evaluated sufficiency five areas of internal control; the organization and environment, risk management system, management control, information and communication system, and the monitoring system. The evaluation concluded that the Company has sufficient internal control and an appropriate risk management system. Price Waterhouse Coopers ABAS Co., Ltd. also did not find any Company material in non-conformance with the internal control system. 25 In the past year, the Company published a Risk Management Handbook and Guidelines of Shin Corporation Public Co., Ltd. to educate the staff, as well as conducted workshops. On February 1, 2003, the Chairman of the Executive Committee established a Risk Management Committee, consisting of a management team to determine the policies, assess risks, and determine risk management strategies and a monitoring system to report to the Chairman of the Executive Committee, The Executive Committee, and The Audit Committee. The above Risk Management Process is structured to be in compliance with the Company's current operations, beginning with Vision Determination, Internal & External Risk Assessment, Measurement Determination, and Business Planning, in order to manage the risk and follow up. Through this process, Risk Management will be a continuous process. Corporate Philosophy and Code of Conduct In order to maintain operational standards and business ethics, the Company has established a written policy and Code of Conduct, in order to become a Company recognized as following Best Practice at both local and international levels. The Company wishes to be recognized as responsible to employees, shareholders, customers, competitors, partners, creditors, and society, including the use of information, information disclosure, conflict of interest, safeguarding of Company assets, participation in political activities, legal and regulatory compliance, good corporate governance, and reporting. Regarding issues concerning conflicts of interest, and related transactions, the Company pays special attention by using prices and conditions the same as when dealing with outside parties (Arm's Length Transactions) or by making use of reports from independent external appraiser(s). The Audit Committee also reviews the transactions regularly to ensure fairness to all relevant parties, including minority shareholders. 26 Management and Directors’ Biodata Name Age Title Shares (%) Highest Education Experience Mr. Paron Israsena 76 Chairman of the Board of None Bachelor Degree, Mechanical 1992-present Chairman of the Board of Directors, Shin Satellite Plc. Directors and Electrical Engineering, 1992-2002 Director, Shin Corporation Plc. Chulalongkorn University 1985-1992 President and Chief Executive Officer, The Siam Cement Plc. Master of Science (ME), MIT. Ph.D. (Hon.) Chulalongkorn University Mr. Rianchai 59 Vice Chairman of the Board of None Master of Engineering, Present Vice Chairman of the Board of Directors, Shin Satellite Plc. Reowilaisuk Directors Chulalongkorn University Director General, Post and Telegraph Department Mr. Dumrong 49 Director and Chairman of the 0.2857 Ph.D., Electrical Engineering 2000-present Group Vice Chairman of the Group Executive Committee, Kasemset Executive Committee-Satellite Massachusetts Institute of Shin Corporation Plc. (Ph.D.) Communications and Technology Member of the Executive Committee, Advanced Info Service Plc. International Business 1997-present Chairman of the Executive Committee, Satellite Communica tions and International Business, Shin Corporation Plc. 1995-1997 Vice Chairman of the Executive Committee, Policy, Shinawatra Group 1994-2000 President, Shinawatra Satellite Plc. 1993-1994 Executive Vice President, International Broadcasting Corporation Plc. 1991-1992 Senior Manager - Business Development, Shinawatra Computer and Communications Group General Manager - International Broadcasting Corporation Plc. 1989-1991 Program Manager Integrated Optoelectronics, GE Aerospace, New York, USA. 1986-1989 Manager, Ga As IC Materials, Microwave Semiconductor Co., Ltd. Siemens Group, New Jersey, USA. Mr. Boonklee 52 Director and Chairman of the 0.0001 M.A. in Computer Engineering, 2001-present Chairman of the Board of Directors a, ITV Plc. Plangsiri the Group Executive Committee University of Illinois 2001-2002 Chairman of the Board of Directors and Chairman of the (Urbana Champaign), U.S.A. Executive Committee, ITV Plc. 2000 -present Director, Advanced Info Service Plc., Shin Satellite Plc. 1999 -present Director and Chairman of the Group Executive Committee, Shin Corporation Plc. 1997 - 2000 Director and Member of the Executive Committee, Shin Corporation Plc. Advanced Info Service Plc. Shin Satellite Plc. Mr. Somprasong 48 Director and Member of the 0.0172 Master of Engineering, Asian 2000 - Present Group Vice Chairman of the Group Executive Committee, Boonyachai Executive Committee Institute of Technology (AIT) Shin Corporation Plc. 2000-2002 Director and Member of the Executive Committee, Shin Satellite Plc. 1999 - Present Chairman of the Executive Committee - Wireless Communications, Shin Corporation Plc. 1997 - 1998 Vice Chairman of the Executive Committee -Wireless Communications 1995 - 1996 Senior President, Advanced Info Service Plc. 1994 - 1995 President, Advanced Info Service Plc. 1993 - 1994 President, Shin Satellite Plc. 1993 President, Advanced Info Service Plc. 1992 - 1993 Executive Vice President (Operation 4), Shinawatra Group Mrs. Siripen 55 Director and Member of the None MBA, Wichita State 2001-present Director and Member of the Executive Committee, ITV Plc. Sitasuwan Executive Committee University, Wichita, Kansas, 2000-present President, Shin Corporation Plc. U.S.A. 1998-present Director and Member of the Executive Committee, Shin Corporation Plc. Advanced Info Service Plc. Shin Satellite Plc. 1998-2000 Chief Finance Officer, Shin Corporation Plc. 1994-1998 Executive Vice President - Finance, Shinawatra Group 1991-1993 Vice President - Finance, Shinawatra Group Miss Nongluck 44 Director, Member of the Executive 0.0079 Doctor of Electrical Engineering, 2000-Present Member of the Executive Committee and President, Phinainitisart Committee and President Chulalongkorn University Shin Satellite Plc. (D. Eng.) 1995-Present Director, Shin Satellite Plc. 1999-2000 Executive Vice President, Shin Satellite Plc. 1995-1998 Vice President, Shinawatra Satellite Plc. 1991-1995 General Manager, Shinawatra Satellite Plc. 1986-1987 Telecommunication Engineer, Operations Division, International Telecommunication Satellite Organization (INTELSAT), Washington D.C., U.S.A. 1982-1991 Telecommunications Engineer, Planning, Post and Telegraph Department Professor Hiran 74 Director and Chairman of the None Honorary Doctorate in Accounting, Present Director and Chairman of the Audit Committee, Shin Satellite Plc. Radeesri Audit Committee Thammasat University Chairman of the Board of Directors, Aberdeen Asset Management Ltd. MBA, Wharton School, University Director, Thai Institute of Directors Association of Pennsylvania, U.S.A. Exchange of Thailand B-Com; Higher Diploma in Chairman Corporate Governance center Accounting, Thammasat University The Stock Exchange of Thailand Graduate Member, I.O.D. Chairman - Tax Auditor Examination Committee, Revenue Department Chairman of the Audit Committee, Ministry of Finance Past Chairman of Price Waterhouse Ltd. Governor, The Stock Exchange of Thailand Chairman of the Audit Committee, The Stock Exchange of Thailand Director, Thailand Securities Depository Co., Ltd. NOTE: 1. All shareholding data Includes holding by spouse and minor children 2. None of the management or directors listed here have a criminal record within the last 10 years. 27 Name Age Title Shares (%) Highest Education Experience Mrs. Nilaya Malakul 58 Director and Member of the None B.A. (Accounting), 1999-Present Director and Member of the Audit Committee, Shin Satellite Plc. Na Ayudhaya Audit Committee Chulalongkorn University 1994-1999 Director, Shin Satellite Plc. 1990-Present Managing Director, Siam Niti Law Office Co., Ltd. Mrs. Charintorn 57 Director and Member of the None B.A. (Accounting) , 1999-Present Director and Member of the Audit Committee, Shin Satellite Plc. Vongspootorn Audit Committee Chulalongkorn University 2001-2002 Director and Member of the Audit Committee, Advanced Info Service Plc. MBA, Creighton University, U.S.A. 1997-1999 Director, Thai Equity Fund Directors Certification 1997-1999 Senior Executive Vice President, MFC Program Class 8/2001 Mr. Avudh 54 Vice President- Business 0.0024 M. Eng and Ph.D. (Eng), 1999-Present Vice President-Business Development, Shin Satellite Plc. ( Ploysongsang Development University of Texas at Arlington 1994-1999 Managing Director, C.S. Communications Co., Ltd. Ph.D.) Top Management Program, 1993-1994 Senior Manager, Marketing and Sales, Shin Satellite Plc. The Asian Institute of 1998-1989 President, Thai Association of North Texas Management in Bali, Indonesia 1989-1993 Senior Member of Technical Staff, Texas instruments Inc. 1989-1993 Chairman of the Technology Committee, ATRWG working group of DARPA Mr. Yongsit 39 Vice President-Marketing None Master of Business Administration, 2001-Present Vice President-Marketing & Sales, Shin Satellite Plc. Rojsrivichaikul & Sales California State University, USA. 1991-2001 Shin Satellite Plc. Bachelor of Science in Electrical - Business Development Manager Engineering, - Marketing and Sales Manager Chulalongkorn University - Assistant Vice President-Marketing and Sales - Assistant Vice President-International Sales - Vice President – International Sales Mr. Paiboon 43 Vice President - 0.0004 Master of Engineering 2000-Present Vice President-Advanced Satellite Systems, Shin Satellite Plc. Panuwattanawong Advanced Satellite Carnegie Mellon University, 2000 Vice President-Product Engineering, Shin Satellite Plc. System Pittsburgh, U.S.A. 1997-2000 Assistant Vice President-Product Engineering, Shin Satellite Plc. Bachelor of Science in 1995-1996 General Manager, Shin Satellite Plc. Engineering, Yale University 1995-1997 Senior Manager, Shin Satellite Plc. Mr. Kamonmit 52 Vice President - Legal LL.M University of London 2002-present Vice President-Legal, Shin satellite Plc. Vudhijumnonk LL.M (Magna Cum Laude) 1999-2001 Assistant Vice President-Legal, Shin satellite Plc. University of Brussels 1995-1998 Assistant Vice President-Legal, Shinawatra Computer & Communication Plc. Barrister-at-laws Gray s Inns, 1994-1995 Lawyer - Couderts Brothers, Bangkok Office Thai Barrister Thai Bar 1993-1994 Lawyer - Baker & McKenzie, Bangkok Office 1978-1993 Legal Officer - Office of the Juridical Council Association (Office of the Council of State) Mr. Tanadit Charoenchan 36 Vice President - Finance and None MBA, Sloan School of 2002-Present Vice President - Finance and Accounting, Shin satellite Plc. Accounting Management, Massachusetts 2000-2001 Assistant Vice President – Finance and Accounting, Shin Satellite Plc. Institute of Technology, 1995- 1999 Department Manager-Finance & Accounting, Shin satellite Plc. Master of Science (Computer), 1992-1995 Accounting Manager, IBC Plc. Chulalongkorn University 1989-1992 Senior Auditor, SGV Na-Thalang & Co., Ltd. Bachelor of Science (Accounting), Thammasat University NOTE: 1. All shareholding data Includes holding by spouse and minor children 2. None of the management or directors listed here have a criminal record within the last 10 years. 28 Report of Director’s Securities Holdings in the Company, its Subsidiaries and Associate Companies Name Shin C.S. C.S. Satellite Shin Broadband Shenington Lao Cambodia iPSTAR Satellite Plc. Communications Phone Co., Ltd. Internet (Thailand) Investments Telecommunications Shinawatra Co., Ltd. Co. Ltd. Co. Ltd. Pte. Ltd. Co. Ltd. Ltd. 1 Mr. Paron Israsena Na Ayudhaya - - - - - - - - 2 Mr. Rianchai Reowvilaisuk - - - - - - - - 3 Mr. Boonklee Plangsiri 250 1 - 1 - - - - 4 Mrs. Siripen Sitasuwan - - - - - - - 5 Mr. Somprasong Boonyachai 75,100 - - - - - - - 6 Mr. Dumrong Kasemset 1,250,000 - 1 1 - - - - 7 Ms. Nongluck Phinainitisart 34,500 1 1 - - - - 8 Mr. Hiran Radeesri - - - - - - - - 9 Mrs. Nilaya Malkul Na Ayudhaya - - - - - - - - 10 Mrs. Charinton Vongspootorn - - - - - - - - Remark : 1. As of December 31, 2002 2. The information of securities holdings has not changed from December 31, 2000 3. The report includes securities holding of directors' spouses and any minor children. Other Reference Persons Security Registrar Thailand Securities Depository Company Limited 62 Ratchadapisek Road, Klongtoey Bangkok 10110 Tel : (662) 229-2800 Fax : (662) 359-1262-3 Auditor Mr. Prasan Chuapanich Certified Public Accountant Registration Number 3051 Mr. Suchart Luengsurasawat Certified Public Accountant Registration Number 2807 Miss Nangnoi Charoenthaveesub Certified Public Accountant Registration Number 3044 PricewaterhouseCoopers ABAS Ltd. 179/74-80 Bangkok City Tower, 15th Floor South Sathorn Road, Bangkok 10120 Tel : (662) 286-9999 , 344-1000 Fax : (662) 286-5050 29 Related Transactions Shin Satellite, listed on the Stock Exchange of Thailand, seeks to create the maximum benefit for its shareholders. It has a policy to disclose sufficient information to investors and to abide by the rules, regulations and laws of the countries in which it conducts business. In order to undertake related transactions correctly among its groups of companies and with individuals or through activities that are related and fairly, and to provide investors with sufficient information to make an investment decision, the company has formed a list of companies in the group and individuals or activities that are related for consideration as provided in the following. Methods of Related Transactions Related Transactions are a normal part of business and are conducted in a same way as with external customers. This includes payment and benefits such as telephone expenses among companies in the group, which are at a rate informed to the TOT and CAT. Advertising in telephone directories is priced at the rate informed to the TOT. The leasing cost of Data Net leased line follows the rate informed to the TOT. Purchasing is undertaken in the same way, that is, it must be conducted according to the financial rules of the Company and must pass a vendor selection process always. This ensures the Company provides an opportunity to outside vendors who may provide the company with more advantage. They are an outside reference source to compare commercial pricing and conditions. The Company and its subsidiaries have a policy on related transaction procedures based on the arm's length principle. The prices are normally charged at market rates. The Company authorizes management by setting a limit on the transaction budget according to level. If there is an important point and the transaction is not normal business, the Company will propose that the Audit Committee or a person not related to the transaction, to consider the transaction. The Company follows the rules of the Securities Exchange Commission (SEC) and the Stock Exchange of Thailand (SET). The Audit Committee examines important related transactions each quarter to ensure no conflict to the benefit of the Company. The Company discloses information about related transactions in accordance with Thai Accounting Principles, especially No. 47 regarding the disclosure of information about related individuals or activities, as well as the regulations of the SEC and SET. The Accounting Department lists all related transactions each quarter for the consideration of the Audit Committee to comment on the necessity and reasonableness. The Audit Committee will decide if the transaction is in the best interest of the Company or not before it is forwarded to the Board of Directors. In 2002, the Company and its subsidiaries had related transactions as shown in note 27 of the audited financial statements for 2002. The auditor remarked that these were considered a normal part of business. The Company set a sale or purchase price and services that have commercial price or conditions the same as customers in their normal business. For consultation and management fee, the Group has agreed on certain rate based on percentage of asset. Financial management fee that has been included in consultation and management fee is paid on percentage of transaction value. Under-the-process transaction between the Company and related companies was calculated at an hourly rate plus actual expenses. The following provides details about related transactions. 30 Value of related transaction at 31 Related Companies/ December 2002 (millions of Baht) relationship Transaction Company Consolidated Reason Shin Corporations Public a) The Company hires SHIN for consultancy at This is a policy for Company Limited / major 1,797,071.05 Baht per month and manage- overseeing subsidiaries shareholder with joint ment on an actual cost basis (the monthly when holding shares and directors consultancy charge come from the cost of the managing them so that they consulting executive while the financial can be operated for management fee is fixed according to market maximum benefit for the rates for the actual work done). parent company and b) Interest rate on loan is at 6.5% p.a., with shareholders semi-annually repayment for 5 times starting from September 2002. 1. Revenues from sales and services - 1.8 2. Expenses and other payments - Consultancy and Management Fee. 36.99 37.35 - Interest - 10.34 - Others 13.40 13.40 3. Amount owed as payment for goods and services Debtor - 0.12 Creditor 3.39 3.44 Other creditors - 0.81 Expenses owed. 20.29 22.67 4. Long-term debt - 142.84 Advance Info Service AIS leases transponders on Thaicom. Shin Satellite is the only Public Company Limited 1. Revenues from sales and services. 73.44 84.86 service provider in the (AIS) / SHIN is a major 2. Amount owed as payment for goods and country. shareholder with 43.06% services and joint directors - Accrued income 10.05 10.05 ITV Company Limited / ITV leases transponders on Thaicom. Shin Satellite is the only SHIN is a major share- 1. Revenues from sales and services. 39.13 40.66 service provider in the holder with 55.53% and 2. Amount owed as payment for goods and country. joint directors services - Accrued income 3.26 3.26 Pramaisuree Property Shin Satellite leases the Thaicom Teleport & This provides the Company Company Limited /Major DTH Center at Ladlumkaew, Pathum Thani for with an earth station and shareholder of SHIN holds 135,000 baht per month and equipment for backup station for the 100%. 495,000 baht per month. Thaicom Satellite Station, Rattanathibet. Ladlumkaew 1. Expenses and other payments is suitable geographically as - Rent 7.56 7.56 it is in a different rain cover area from Rattanathibet. The Company pays a fair market price. This is approved by the Audit Committee each year. 31 Value of related transaction at 31 Related Companies/ December 2002 (millions of Baht) relationship Transaction Company Consolidated Reason Advanced Data Network CSC leases lines, equipment This provides CSC with Communications Company and domestic circuits in leased telephone lines and Limited (ADC) / SHIN is a order to offer Internet connect telephone in major shareholder through services. Bangkok and the provinces AIS, holding 67.95%. 1. Expenses and other to provide an Internet payments service. CSC pays the rate - Rent - 100.74 provided by ADC to the 2. Amount owed as payment TOT. for goods and services - Creditor - 13.71 Codespace Inc / Shin Shin Satellite hired Satellite holds 12% of a Codespace for product An expert in broadband Codespace subsidiary development in the iPSTAR technology called Spacecode with the project. commitment to increase 1. Expenses and other this to 70% by the end of payments 2003. - Product development fee 239.31 239.31 32 Report of the Audit Committee Dear Shareholders of Shin Satellite Plc, The Audit Committee was established by a resolution of the Board on December 8 , 1999 . It consists of three independent directors : Professor Hiran Radeesri, its chairman, Mrs. Nilaya Malakul Na Ayudhaya and Mrs. Charintorn Vongpootorn, Mr. Sivaraks Phinicharomna is the Internal Audit Department Manager of Shin Satellite and Secretary to the Audit Committee. In 2002, the Audit Committee met 12 times. Some of these meetings were held jointly with the auditor and the relevant executive of Shin Satellite. Issues discussed can be summarized as follows: 1. Review quarterly and annual financial statements before presentation to the Board of Directors to insure they follow accepted accounting principles; and reports of related companies, including those that may have conflict of interest for the Company. 2. Consider the report of the Internal Audit Department , which audits the company according to an annual plan , in order to assess the overall efficiency of internal controls. Following the work of the Internal Audit Department , the Audit Committee is satisfied that the internal control system is sufficient. 3. Review whether the Company has followed the best practices of corporate governance issued by the Stock Exchange of Thailand and according to official rules and regulations. 4. Suggest to the Executive Committee and the Board of Directors ways of improving the internal control system. Besides this, monitoring the company to bring in the process of risk management and develop good corporate governance continuously. The Audit Committee has unlimited access to information. It can request advice and discuss matters with management, the Internal Audit Department and the external auditor without restriction. The Audit Committee is of the opinion that Shin Satellite has an adequate internal control system and current business system as evaluated by the committee. The Audit Committee has recommended PriceWaterhouse Coopers ABAS Co.Ltd., remain the Company's auditors for another year in 2003 and that this be proposed to a shareholders meeting for approval. ( Prof. Hiran Radeesri ) Chairman of the Audit Committee 26 February 2003 33 Board of Directors’ Responsibility for Financial Reporting The Board of Directors is responsible for Shin Satellite Public Company Limited’s financial statements and Shin Satellite Public Company Limited and its subsidiaries’ consolidated financial statements, including the financial information presented in this annual report. The aforementioned financial statements are prepared in accordance with generally accepted accounting principles, using careful judgment and the best estimation. Important information is adequately and transparently disclosed in the notes to financial statements to the Company’s shareholders and investors. The Board of Directors has provided and maintained a risk management system with appropriate and efficient internal controls to ensure that accounting records have accuracy, integrity and adequacy to protect its assets and uncover weakness in order to prevent fraud or materially irregular operation. In this regard, the Board of Directors has entrusted an Audit Committee responsible for review of the accounting policy and financial reports, internal controls, internal audit and risk management system. Such comments on these issues have been included in the Audit Committee Report presented in this annual report. The financial statements of the Company and the consolidated financial statements of the Company and its subsidiaries have been examined by an external auditor, PricewaterhouseCoopers ABAS Limited. In order to conduct their work and to express an opinion in accordance with generally accepted auditing standards, the Company has supported the auditor with all of the Company’s records and related data. The auditor’s opinion is presented in the auditor’s report as part of this annual report. The Board of Directors believes that the Company’s overall internal control system has functioned up to a satisfactory level and rendered credibility and reliability to Shin Satellite Public Company Limited’s financial statements and Shin Satellite Public Company Limited and its subsidiaries’ consolidated financial statements. These have been prepared according to generally accepted principles and related regulations. Mr. Paron Israsena Mr. Dumrong Kasemset Chairman of the Board of Directors Director 34 Management Discussion and Analysis 1. Overview Shin Satellite Plc successfully developed the iPSTAR Project in 2002 with financial support from the US Export Import Bank. Apart from the benefits brought by this success for the company's technologically revolutionary new satellite, the Company also received an award called the Asia Telecom Deal of the Year 2002. The Company commenced the rollout of the First Generation of its terrestrial equipment in 2002,which increased the utilization of transponder capacity leased to customers. Its research and development of its equipment found acceptance in the Company's small and medium enterprise (SME) markets. This is one of the targets for the initial phase of the project. It also laid the infrastructure for the iPSTAR system. The Company's business continued to grow in 2002. Sales from core operations grew 4%, up from 4,818 million Baht in 2001 to 4,997 million Baht in 2002. Total revenue grew 5% from the previous year, to 5,429 million Baht. Net profit declined slightly by 10%, from 1,563 million Baht to 1,411 million Baht in 16.43 2002. One of the reasons for this was an increase of costs by 13% which largely came from an increase 13.20 in the revenue sharing paid under the concession, cost of sales and cost of production of the First Generation equipment for iPSTAR. 9.37 9.69 Cambodia Shinawatra Co. Ltd., expanded its telephone network in 2002. This increased revenue to 673 million Baht, with almost 100,000 telephone subscribers. Besides this, Lao Telecom Co. Ltd., paid the Company a dividend of USD1.5 million. It has a subscriber base of 116,700. 1999 2000 2001 2002 The Company successfully arranged the merger of its Internet business C.S. Communications Co. Ltd., Book value per share (CS Internet) and Loxley Information Service (Loxinfo), which commenced joint operations in March 2003. 1999-2002 This merger makes it the largest Internet business in Thailand under the brand name "C.S. Loxinfo." It is expected that the merger will enable to Company to lower its costs and expenses and therefore increase its profitability in the near future. 1.1 Operational Results In 2002, the Company had a consolidated net profit of 1,411 million Baht, a decrease of 152 million Baht or 10% compared to the previous year's 1,563 million Baht. The following are details to explain the changes: 32.45% 28.23% 1.1.1 Revenue Sales and Service revenue in 2002 amounted to 4,997 million Baht, an increase of 180 million Baht or 4%, 17.69% up from 4,817 million Baht in 2002. This can be segemented according to the Company's businesses as 9.04% follows: Satellite Transponder Leasing and Related Services 1999 2000 2001 2002 Revenue from the Company's satellite and satellite-related businesses in 2002 came to 3,857 million Baht, Net profit margin 1999-2002 stable from the previous year. There was some impact from the Baht exchange rate, which strengthened against the dollar. This appreciation of the Baht had an impact on revenues. However, the Company saw an increase in utilization of its Ku-band transponders and revenue from the sale of its First Generation iPSTAR terminals and from the sales and service of its gateways commencing from 2002. Internet Business Revenue from the Internet business in 2002 was 467 million Baht, an increase of 31 million Baht or 7% up from 436 million Baht compared with the same period last year. This was a result of an increase in revenue from broadband satellite Internet services provided by C. S. Communications Co., Ltd. However, the Company has emphasized product development utilizing its competitive advantage in satellite technology, that is broadband satellite Internet, to satisfy customer needs in terms of service quality rather than price. Moreover, this year Internet revenue generated by Shin Broadband Internet (Thailand) Co., Ltd. also increased from last year. Telephone Business The Company experienced an increase in revenue from its telephone business operated by Cambodia 35 Shinawatra. In 2002, revenue from the telephone business was 673 million Baht, an increase of 205 million Baht or 44% from 468 million Baht of the same period in 2001, resulting from an increase in telephone subscribers, especially prepaid mobile, of 134% compared with the year 2001. Moreover, an increase in average minute utilization per subscriber was another factor leading to an increase in airtime revenue per subscriber. 1.1.2 Costs In 2002, the Company's total costs were 2,885 million Baht, an increase of 325 million Baht or 13% compared with 2,560 million Baht in the same period last year. This was substantial due to: Increased satellite transponder business costs. — A 5% increase in revenue sharing with the Ministry of Information and Communications Technology to 15.5% from September 11, 2001. — An increase due to expenditure on the First Generation of iPSTAR, which comprises iPSTAR terminals, high-speed satellite modems compatible with Thaicom 3, together with gateways that could also be used with both iPSTAR and Thaicom. The Company started this business in 2002. — An increase in the cost of depreciation of its network, maintenance costs and rental costs for the locations of its network equipment. Also, depreciation costs for telephone equipment, which increased as the Company expanded its network to serve and increasing number of subscribers. There was also an increase in the revenue sharing with the Cambodian government accompanying the increase in revenue. 1.1.3 Selling and Administrative Expenses Selling and administrative expenses for the year 2002 was 861 million Baht , increased by 291 million Baht or 51% from 570 million Baht in 2001. This came from an increase in the number of staff and an increase in selling expenses in order to support business expansion, especially telephone services in Cambodia. 1.1.4 Gain (Loss) from Foreign Exchange In 2002, the Company lost 8 million Baht from foreign exchange, down by 95 million Baht or 92% compared to the loss in 2001. This is due to greater Baht weakness in 2001 compared to 2002. The Company also has a policy to mitigate risk from exchange by using appropriate financial instruments. 1.1.5 Interest Expenses Interest expenses were 235 million Baht, decreased by 124 million Baht or 34% from 359 million Baht in 2001. This was due to the repayment of high interest rate loans and a debenture and interest expenses for iPSTAR project being capitalized to the cost of the project. 1.1.6 Other Income and Share of Profit from Investment in Associate Company The Company received 431 million Baht from other income and its investment in its associate company in 2002. This was an increase of 88 million Baht, that is an increase of 25% compared to the 345 million Baht received in the previous year. 2. Financial Position 2.1 Assets 2.1.1 Asset Components At the end of 2002, the Company had assets of 20,307 million Baht, an increase from 2001 of 41% (14,377 million Baht). This came from an increase of telephone equipment to provide telephone services in Cambodia. The rest of the increase was for iPSTAR equipment and an increase in investment in the iPSTAR project. The Company's assets consist of current assets of 2,272 million Baht and non-current assets of 18,035 million Baht. Most of the current assets comprises cash and cash equivalents if 519 million Baht. Accounts receivable of 760 million Baht, inventory of 408 million Baht and other current assets of 526 million Baht. Most of the non-current assets comprise property and equipment, including the iPSTAR project under construction at the amount of 11,649 million Baht, and satellite project costs under the terms of the concession amounting to 5,357 million Baht. 36 2.1.2 Asset Quality As of 31 December 2002, the Company had no assets for which it had to make provision for asset impairment. Most of the company's assets are fixed and generate revenue for the Company. Investment by subsidiaries and associate companies increased by 300 million Baht over the previous year. Most of this came from profit sharing to the amount of 207 million Baht. 2.1.3 Accounts Receivable In 2002, the Company had an average accounts receivable collection period of 55 days, an increase from 50 days in the previous year. The total amount of accounts receivable over 12 months amounted to 288 million Baht, a decrease of 464 million Baht at the end of 2001. This is largely due to the Company writing off the amount owed by one cable television company to the amount of 199 million Baht. This was the result of the final judgement brought in a court case against the customer, which the Company can use as a taxable expense. The Company has a policy to closely follow and evaluate its collection performance. The Company analyses individual customers using the specific method and believes it has sufficient provision as of December 31, 2002, for doubtful accounts. 2.2 Liquidity 2.2.1 Current Ratio and Short-term Liabilities At the end of 2002, the Company had a current ratio of 0.43 times, increased from 0.28 at the end of 2001. This was due to full bond redemption for the remaining amount of 1,500 million Baht due in November 2002. The Company anticipates the improvement of this ratio in 2003 since it signed long-term loan agreements for the iPSTAR Project in November 2002. These loans will be used to repay existing short- term loans and accounts payable, consequently reducing current liabilities. At the end of 2002 the Company received approval for a credit line from commercial banks for 700 million Baht and US$ 257 million. 2.2.2 Cash Flow At the end of 2002, the Company had cash and cash equivalents of 519 million Baht, which comprised: 1. Net cash flows from operations - 1,572 million Baht. 2. Net cash flows used in investing activities, 6,119 million Baht, of which most cash payments were invested in iPSTAR; and telecommunications equipment for an expansion of network coverage for mobile phones in Cambodia. In addition, the Company received a dividend of 56 million Baht from its investment in Lao Telecommunications. 3. Net cash flows from financing activities amounted to 4,257 million Baht. The Company has cash flow from long-term loans, most of which came from a loan for the iPSTAR Project. 2.3 Capital Expenditures The current major investing expense is for the iPSTAR project, for which estimated project cost is approximately US$ 390 million. Sources of funds to proceed with the project are derived from the company's operating cash flows as well as loans from financial institutions and guarantee facilities from the Export and Import Bank of the United States of America and France’s COFACE. The iPSTAR project is the first broadband satellite project in Asia Pacific. The Company is confident that the project will start operating at the beginning of 2004. 2.4 Sources of Funds 2.4.1 Capital Structure At the end of 2002, the Company had a debt to equity ratio of 1.50, which was comprised of 60% debt finance, and 40% equity. The Company increased its debt finance from 53%, and 47% equity at the end of 2001. Such increase was due to an increase in net borrowings after loan repayments. Such borrowings were for the iPSTAR project, and the expansion of telephone network coverage in Cambodia. 2.4.2 Shareholder's Equity At the end of 2002, the Company had surplus retained earnings of 546 million Baht, compared with a deficit of 836 million Baht at the end of 2001. This was the first surplus after the Company had taken a significant loss on the exchange rate due to a change in the foreign exchange rate system in 1997. This was attributable to the Company having continuous growth in net profit over the past four years . Due to 37 retained earnings, the Company set additional legal reserves of 29 million Baht, to 56 million Baht at the end of 2002. 2.4.3 Liabilities At the end of 2002, the Company had short-term borrowings and long-term loans (net effect after hedging) of 10,773 million Baht, an increase of 4,294 million Baht from 6,479 million Baht at the end of 2001. That resulted from borrowings for the iPSTAR project and the expansion of the telephone network coverage in Cambodia. In 2002, the Company received an approval of long-term loan facilities from financial institutions, details as follows: Types of loan Facility Amount Tenor 1. Guaranteed Loan by Export-Import Bank of the United States of America (US Exim Bank) US$184.5 m. 9.5 Years 2. Guaranteed Loan by Compagnie Francaise d'Assurance pour le Commerce Exterieur of France (COFACE) US$ 79.8 m. 9.5 Years 3. Term loan from Commercial Syndicated Lenders US$125.0 m. 6 Years The first date of repayment will start from 2004. (The details of the facilities are provided in the Notes to Financial Statements number 15 - Borrowings) 3. Major factors which impact future performance or financial position 3.1 Power Anomaly on Thaicom-3 On 7 February 2003, the Thaicom-3 satellite of the Company experienced an anomaly in its power supply system causing temporary outages for some of its customers. The Company has investigated the background of the failure and restored normal service. The Company is in the process of claiming from its Insurer. 3.2 Cambodia Incident On 29 January 2003, Cambodia Shinawatra Co., Ltd. experienced the effects of disturbances in Phnom Penh, Cambodia. The Company's building was damaged and some personal computers were looted, however, operations have continued as normal as there was no damage to any control center or transmission equipment. The Company is now claiming damages from the Cambodian government. 3.3 Merger between C. S. Communications Co. Ltd. and Loxley Information Services Co. Ltd C. S. Communications Co. Ltd. and Loxley Information services Co. Ltd. merged on March 6, 2003. The Company foresees increased cost efficiency and synergy after the merger. 3.4 IPSTAR Project As the iPSTAR Project is under construction, success of the project depends on various factors e.g., ability to construct and launch the satellite within the time frame, success of the launch, and the ability to attract new customers to the new satellite. The Company undertakes a business plan to support the above factors as follows. 1. The Company has selected one of the best satellite manufacturers in the world, i.e. Space System / Loral. Meetings with the Company have been conducted on a regular basis. Moreover, the Company's specialized engineers have been sent to such manufacturer to cooperate and control the manufacturing process in accordance with the schedule. 2. The Company has acquired satellite insurance. The insurance will cover risk that could arise during the launch as well as 12-months in orbit. In addition, the Company also acquired insurance for a replacement rocket from the launcher in case of the loss (Launch Risk Guarantee). 3. In order to reduce risk to attract new customers, the Company has designed the First Generation of iPSTAR terminals to be compatible with Ku-band on existing satellites. In this way, the Company can create the customer base for iPSTAR in the future. 38 Auditor’s Report To the Shareholders of Shin Satellite Public Company Limited I have audited the accompanying consolidated and company balance sheets as at 31 December 2002, and the related consolidated and company statements of income, changes in shareholders' equity and cash flows for the year then ended of Shin Satellite Public Company Limited and its subsidiaries, and of Shin Satellite Public Company Limited, respectively. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit. The consolidated and company financial statements for the year ended 31 December 2001, presented herewith for comparative purposes, were audited by another auditor in the same firm as myself and the other auditor expressed an unqualified opinion on those statements in her report dated 11 February 2002. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the consolidated and company financial position as at 31 December 2002, and the consolidated and company results of operations, and cash flows for the year then ended of Shin Satellite Public Company Limited and its subsidiaries, and of Shin Satellite Public Company Limited, respectively, in accordance with generally accepted accounting principles. PRASAN CHUAPHANICH Certified Public Accountant (Thailand) No. 3051 PricewaterhouseCoopers ABAS Limited Bangkok 20 February 2003 39 Balance Sheets Shin Satellite Public Company Limited As at 31 December 2002 and 2001 Consolidated Company Notes 2002 2001 2002 2001 Baht Baht Baht Baht ASSETS Current Assets Cash and cash equivalents 3 519,703,421 819,066,011 362,388,089 457,364,256 Current investments 4 10,420,000 10,425,000 420,000 420,000 Trade accounts receivable and accrued income, net 5 759,671,478 662,934,813 643,465,612 532,696,218 Amounts due from related parties 27 46,513 245,435 1,195,339 12,447,794 Short-term loans and advances to related parties 27 48,448,540 - 40,384,485 40,676,820 Inventories, net 6 407,870,474 39,789,527 393,323,377 23,340,381 Other current assets, net 8 526,000,902 349,620,133 470,226,021 300,075,757 Total Current Assets 2,272,161,328 1,882,080,919 1,911,402,923 1,367,021,226 Non-Current Assets Investments in subsidiaries and associates 9 777,792,180 477,237,397 1,273,578,511 792,739,705 Other investments 11 18,900,000 18,900,000 18,900,000 18,900,000 Property and equipment, net 12 11,649,328,796 5,664,443,758 9,529,958,309 4,452,726,323 Cost of satellite projects under the concession agreement, net 13 5,357,480,096 6,065,892,237 5,357,480,096 6,065,892,237 Deferred charges, net 13 82,197,956 100,385,574 76,634,765 96,339,739 Intangible assets, net 13 123,252,426 150,291,480 - - Other non-current assets, net 14 26,153,754 17,337,038 569,820 1,100,283 Total Non-Current Assets 18,035,105,208 12,494,487,484 16,257,121,501 11,427,698,287 Total Assets 20,307,266,536 14,376,568,403 18,168,524,424 12,794,719,513 The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 40 Balance Sheets (cont’d) Shin Satellite Public Company Limited As at 31 December 2002 and 2001 Consolidated Company Notes 2002 2001 2002 2001 Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Short-term loans from financial institutions 15 2,617,011,897 2,509,965,781 2,617,011,897 2,509,965,781 Trade accounts payable 27 1,094,422,844 941,038,731 967,065,675 791,567,953 Amounts due to related parties 27 804,932 12,263 - - Current portion of long-term loans from the parent company 27 71,423,167 178,507,647 - - Current portion of long-term borrowings, net 15 606,340,842 581,970,055 184,839,485 422,764,776 Current portion of long-term debentures 1,500,000,000 - 1,500,000,000 Current portion of forward and swap - contracts payable, net 200,334,663 - 200,334,663 Current portion of advances 7 - from customers 82,203,515 167,253,806 67,779,372 Accrued expenses 27 533,200,192 385,515,838 344,632,982 156,615,186 Other current liabilities 16 323,140,670 155,011,887 60,122,884 288,885,526 Total Current Liabilities 5,328,548,059 6,619,610,671 4,241,452,295 49,885,777 5,920,019,662 Non-Current Liabilities Forward contracts payable, net 7 25,564,030 - 25,564,030 - Long-term loans from the parent company 27 71,415,191 - - - Long-term borrowings 15 7,524,453,999 1,687,208,291 6,091,519,084 617,685,117 Provision for liabilities 10 - - 532,659,464 377,961,519 Advances from customers 3,974,870 12,828,337 3,974,870 12,828,337 Other liabilities 149,197,531 261,167,969 86,551,399 89,382,879 Total Non-Current Liabilities 7,774,605,621 1,961,204,597 6,740,268,847 1,097,857,852 Total Liabilities 13,103,153,680 8,580,815,268 10,981,721,142 7,017,877,514 The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 41 Balance Sheets (cont’d) Shin Satellite Public Company Limited As at 31 December 2002 and 2001 Consolidated Company Notes 2002 2001 2002 2001 Baht Baht Baht Baht Shareholders’ Equity Share capital Authorized share capital - common stock 17 5,500,000,000 5,500,000,000 5,500,000,000 5,500,000,000 Issued and paid-up share capital - common stock 4,375,000,000 4,375,000,000 4,375,000,000 4,375,000,000 Premium on share capital 2,190,000,000 2,190,000,000 2,190,000,000 2,190,000,000 Cumulative foreign currency translation adjustment 19,780,211 20,339,028 19,780,211 20,339,028 Retained earnings (Deficit) Appropriated Legal reserve 18 56,299,821 27,577,545 56,299,821 27,577,545 Unappropriated 545,723,250 (836,074,574) 545,723,250 (836,074,574) Total parent's shareholders’ equity 7,186,803,282 5,776,841,999 7,186,803,282 5,776,841,999 Minority interests 17,309,574 18,911,136 - - Total Shareholder's Equity 7,204,112,856 5,795,753,135 7,186,803,282 5,776,841,999 Total Liabilities and Shareholders’ Equity 20,307,266,536 14,376,568,403 18,168,524,424 12,794,719,513 The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 42 Statements of Income Shin Satellite Public Company Limited For the years ended 31 December 2002 and 2001 Consolidated Company NOTES 2002 2001 2002 2001 Baht Baht Baht Baht Revenues Revenues from sales and services 4,996,988,075 4,817,474,860 3,903,224,496 3,983,243,174 Other income 19 224,238,928 19,075,549 51,411,571 67,716,854 Share of net results from investments- equity method 9, 10 207,642,634 324,848,064 326,699,677 225,044,337 Total revenues 5,428,869,637 5,161,398,473 4,281,335,744 4,276,004,365 Expenses Cost of sales and services 2,884,966,044 2,559,922,607 2,112,447,366 1,978,640,220 Selling and administrative expenses 856,332,781 567,827,243 585,492,902 356,269,451 Directors’ remuneration 27 4,583,770 1,780,706 2,875,000 1,040,000 Foreign exchange loss 7,900,788 103,304,990 12,560,560 99,707,921 Total expenses 3,753,783,383 3,232,835,546 2,713,375,828 2,435,657,592 Profit before interest expense and tax 1,675,086,254 1,928,562,927 1,567,959,916 1,840,346,773 Interest expense 235,153,798 358,556,200 157,439,816 277,198,697 Income tax 31,013,918 11,805,147 - - Profit before minority interests 1,408,918,538 1,558,201,580 1,410,520,100 1,563,148,076 Share of net results from subsidiaries to minority interests 1,601,562 4,946,496 - - Net profit for the year 1,410,520,100 1,563,148,076 1,410,520,100 1,563,148,076 Basic and diluted earnings per share 21 Net income for the year 3.22 3.57 3.22 3.57 The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 43 Statements of Changes in Shareholders’ Equity Shin Satellite Public Company Limited For the years ended 31 December 2002 and 2001 Consolidated (Baht) Foreign Issued and currency Retained paid up translation Legal earnings Minority share capital Premium adjustment reserve (Deficit) interest Total Opening balance 2002 4,375,000,000 2,190,000,000 20,339,028 27,577,545 (836,074,574) 18,911,136 5,795,753,135 Foreign currency translation adjustment - - (558,817) - - - (558,817) Net profit for the year - - - - 1,410,520,100 - 1,410,520,100 Legal reserve increase during the year - - - 28,722,276 (28,722,276) - - Minority interests decrease during the year - - - - - (1,601,562) (1,601,562) Closing balance as at 31 December 2002 4,375,000,000 2,190,000,000 19,780,211 56,299,821 545,723,250 17,309,574 7,204,112,856 Opening balance 2001 4,375,000,000 2,190,000,000 20,786,378 27,577,545 (2,399,222,650) 23,857,632 4,237,998,905 Foreign currency translation adjustment - - (447,350) - - - (447,350) Net profit for the year - - - - 1,563,148,076 - 1,563,148,076 Minority interests decrease during the year - - - - - (4,946,496) (4,946,496) Closing balance as at 31 December 2001 4,375,000,000 2,190,000,000 20,339,028 27,577,545 (836,074,574) 18,911,136 5,795,753,135 Company (Baht) Foreign Issued and currency Retained paid up translation Legal earnings Minority share capital Premium adjustment reserve (Deficit) interest Total Opening balance 2002 4,375,000,000 2,190,000,000 20,339,028 27,577,545 (836,074,574) - 5,776,841,999 Foreign currency translation adjustment - - (558,817) - - - (558,817) Net profit for the year - - - - 1,410,520,100 - 1,410,520,100 Legal reserve increase during the year - - - 28,722,276 (28,722,276) - - Closing balance as at 31 December 2002 4,375,000,000 2,190,000,000 19,780,211 56,299,821 545,723,250 - 7,186,803,282 Opening balance 2001 4,375,000,000 2,190,000,000 20,786,378 27,577,545 (2,399,222,650) - 4,214,141,273 Foreign currency translation adjustment - - (447,350) - - - (447,350) Net profit for the year - - - - 1,563,148,076 - 1,563,148,076 Closing balance as at 31 December 2001 4,375,000,000 2,190,000,000 20,339,028 27,577,545 (836,074,574) - 5,776,841,999 The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 44 Statements of Cash Flows Shin Satellite Public Company Limited For the years ended 31 December 2002 and 2001 Consolidated Company Notes 2002 2001 2002 2001 Baht Baht Baht Baht Net cash flows from operating activities 22 1,572,083,560 2,204,978,277 1,596,037,420 2,103,803,938 Cash flows from investing activities Investment in subsidiaries 9 - - - (572,464,970) Current investments 5,000 32,982 - - Loans and advances to associates and subsidiaries - - - (15,072,576) Receipt of repayment of loans to subsidiary 9,999,818 - - 452,585,892 Purchases for property and equipment (6,169,472,284) (2,882,854,932) (5,377,453,255) (2,456,213,129) Investments in intangible assets 13 (319,000) (6,310,389) - - Payments for deferred charges 13 (24,417,211) (4,853,704) (24,417,211) (4,027,166) Dividends received from subsidiaries and associates 56,429,472 59,640,972 - 59,640,972 Proceeds from sale of property and equipment 8,397,195 2,916,206 8,365,195 2,685,206 Net cash flows used in investing activities (6,119,377,010) (2,831,428,865) (5,393,505,271) (2,532,865,771) Cash flows from financing activities Proceeds from loan from subsidiary - - - 10,000,000 Proceeds from short-term borrowings 9,022,094,138 3,368,516,755 9,022,094,138 2,943,106,755 Proceeds from long-term loans net of financial expenses 6,426,983,282 1,260,199,652 5,621,398,166 613,718,361 Repayments of loan from subsidiary and parent company (35,730,000) - - (10,000,000) Repayments of long-term debentures (1,655,579,149) (1,631,700,114) (1,655,579,149) (1,631,700,114) Repayments of short-term borrowings (8,835,241,109) (2,045,211,339) (8,835,241,109) (1,467,794,500) Repayments of long-term borrowings (665,962,589) (233,487,266) (441,547,862) (111,607,641) Net cash flows from financing activities 4,256,564,573 718,317,688 3,711,124,184 345,722,861 Net increase (decrease) in cash and cash equivalents and at banks (290,728,877) 91,867,100 (86,343,667) (83,338,972) Cash and cash equivalents, opening balance 819,066,011 729,113,735 457,364,256 542,550,058 Unrealised loss on exchange rate (8,633,713) (1,914,824) (8,632,500) (1,846,830) Cash and cash equivalents, closing balance 3 519,703,421 819,066,011 362,388,089 457,364,256 The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 45 Statements of Cash Flows (Cont’d) Shin Satellite Public Company Limited Supplementary disclosures of Statements of Cash flows : For the years ended 31 December 2002 and 2001 Consolidated Company Note 2002 2001 2002 2001 Baht ’000 Baht ’000 Baht ’000 Baht ’000 Interest paid 387,306 346,236 273,198 277,583 Income tax paid 5,685 9,839 - - Non-cash transactions Acquisition of property and equipment 874,183 709,755 585,685 709,755 Acquisition of investment in associates 9 134,602 - - - The notes to the consolidated and company financial statements on pages 47 to 76 are an integral part of these financial statements. 46 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 1. General information Shin Satellite Public Company Limited ("the Company") is a public limited company and is incorporated and domiciled in Thailand. The registered office of the Company is: 414 Phaholyotin Road, Samsen Nai, Phayathai, Bangkok 10400. The Company is listed on the Stock Exchange of Thailand. Its principal business, and those of its subsidiaries, and associates of the Company (collectively called "the Group") are given below: The Company has obtained concessions from the Ministry of Transport and Communications for a period of thirty years to operate and administer satellite projects and to render transponder services for domestic and international communications as well as the right to collect, for a thirty year period, service charges from users of the transponders. These concessions agreement have transfer to Ministry of Information Communication and Technology. The Company's subsidiaries and its associates, being Shenington Investments Pte Ltd., Cambodia Shinawatra Co., Ltd., Shin Broadband Internet (Thailand) Co., Ltd., C.S. Communications Co., Ltd., C.S. Satellite Phone Co., Ltd., iPSTAR Co., Ltd. and Lao Telecommunications Co., Ltd., are primarily involved in Internet data centre services, Internet services, satellite uplink-downlink services for domestic and international communications and telephone networks services in Laos and Cambodia. The Group has operations in four countries, Thailand, Singapore, Cambodia and Laos PDR and employs 730 people (2001: 644 people). 2. 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 have been prepared in accordance with Thai Generally Accepted Accounting Principles under the Accounting Act B.E. 2543, being those Thai Accounting Standards issued by the Institute of Certified Accountants and Auditors of Thailand and approved under law by the Board of Supervision of Auditing Practice appointed by the Minister of Commerce under the Auditor Act B.E. 2505, and the financial reporting requirements of the Securities and Exchange Commission. In the absence of an effective Thai Accounting Standard on intangible assets, the Company has applied International Accounting Standard 38 "Intangible assets", effective 1 January 2000. The consolidated and company financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below: 2.2 Group accounting a) Subsidiary undertakings 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 otherwises has power to exercise control over the operations, 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 which the Group, directly or indirectly, has an interest of less than one half of the voting rights or otherwise ceases to have the power to exercise control over the operations. All inter-company 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 Company. Separate disclosure is made for minority interests. The interest of third parties in subsidiaries is accounted for on the basis of their share in the underlying equity of these undertakings. A list of the principal subsidiaries is set out in note 9. 47 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 The Company is the guarantor of all loans of its subsidiary, C.S. Communication Co., Ltd. The Company, therefore, makes provision for the potential amount that may not be recoverable in respect of the accumulated losses in this subsidiary. In the Company's separate financial statements, the Company accounts for its interest in subsidiaries on an equity basis. b) Associated undertakings Investments in associated undertakings are accounted for using the equity method of accounting. These are undertakings over which the Group has between 20% and 50% of the voting rights, and over which the Group exercises significant influence but which it does not control. Equity accounting involves recognising in the consolidated statement of income the Group's share of the associates' profit or loss for the year. The Group's interest in the associate is carried in the balance sheet at an amount that reflects its share of the net assets of the associate and includes goodwill on acquisition. A list of the principal associates is set out in note 9. In the Company's separate financial statements, the Company accounts for its interest in associates on an equity basis. 2.3 Related companies Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, a company, including holding companies, subsidiaries and fellow subsidiaries are related parties of the company. Associates and individuals owning, directly or indirectly, an interest in the voting power of the company that gives them significant influence over the enterprise, key management personnel, which are directors and officers of the company and close members of the family of these individuals and companies associated with these individuals also constitute related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. 2.4 Foreign currencies translation Transactions denominated in foreign currencies are translated into Baht at the rate of exchange prevailing 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 rate of exchange prevailing at the balance sheet date. Unrealised gains and losses on exchange are recognised as income or expense as incurred. Income statements of foreign entities are translated into the Group's reporting currency at average exchange rates for the year and the balance sheets are translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising from the translation of the net investment in foreign subsidiaries and associated undertakings, is taken to 'Cumulative foreign currency translation adjustment' in shareholders' equity. On disposal of the foreign entity, such translation differences are recognised in the income statement as part of the gain or loss on sale or disposal. 48 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 2.5 Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash in 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 Ministerial Regulation No. 7 (B.E. 2539) under the Public Companies Limited Act B.E. 2535. Cash and cash equivalents represent cash and short-term highly liquid investments with original maturities of three months or less. 2.6 Current investments Current investments represent time deposits, bills of exchange and promissory notes with original maturities more than 3 months but less than twelve months. 2.7 Trade accounts receivable Trade accounts receivable are carried at anticipated realisable value. An allowance is recorded for doubtful accounts receivable, which is equivalent to the estimated collection losses that may be incurred. The estimated losses are based on historical collection experience combined with a review of the current status of the existing receivables at the balance sheet date. 2.8 Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method for the Group and the Company. Net realisable value is the estimate of the selling price in the ordinary course of business, less selling expenses. Provision is made, where necessary, for obsolete, slow-moving and defective inventory. 2.9 Investments Investments in non-marketable equity securities, which are classified as general investments, are carried at cost. A test for impairment is carried out when there is a factor indicating that such investment might be impaired. If the carrying value of the investment is less than its recoverable amount, impairment loss is charged to the income statement. When disposing of part of the Group's holding of a particular investment in equity securities, the carrying amount of the disposed part is determined from the weighted average carrying amount of the total holding of the investment. On disposal of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income statement. 2.10 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable tangible and intangible assets of the acquired associated or subsidiary or joint venture at the date of acquisition. Goodwill is capitalised and is amortised using the straight-line method over its estimated useful life not exceeding 20 years. The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of. 49 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 2.11 Costs of the satellite projects under the concession agreement The costs of satellite projects under the concession agreement represent the cost of all satellites (Thaicom 1, Thaicom 2 and Thaicom 3), telemetry, tracking, command and monitoring stations and other opera- tional equipment which have been transferred to the Ministry of Transport and Communications and expenditure relating to satellite project arrangements. Costs of satellites and other assets which have been transferred to the Ministry of Transport and Communications and expenditure relating to satellite project arrangements are amortised by the straight-line method over the estimated useful lives of satellites and other assets, and over the concession period, ranging from 5 to 27.5 years. Borrowing costs to finance the construction of satellite projects under the concession agreement are capitalised, during the period of time that is required to complete and prepare the property for its intended use, as part of the cost of the asset. The borrowing cost includes interest on bank overdrafts, short-term and long-term borrowings, and related taxes. 2.12 Deferred charges Deferred charges principally represent costs of computer software and costs of equipment provided to certain overseas customers in connection with the utilisation of transponder services obtained from the Company. The cost of computer software is amortised by straight-line method over 5 years. The cost of equipment provided to certain overseas customers in connection with the utilisation of transponder services obtained from the Company is amortised by straight-line method over the period of each service agreement. 2.13 Intangible assets The cost of intangible assets comprises Internet networks, servers, fiber optic networks and other operational equipment which has been transferred to the Communications Authority of Thailand under the concession agreement. The cost of intangible assets is amortised by the straight-line method over the estimated useful lives of these assets, ranging from 5 to 10 years. 2.14 Leases - where the group company is the lessee Leases of assets 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 so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance charge is charged to the income statement over the lease period. The equipment acquired under finance leasing contracts is depreciated over the useful life of the assets. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statements on a straight-line basis over the period of the lease. 50 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 2.15 Leases - where a group company is the lessor Assets leased out under operating leases are included in property and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar fixed assets. Rental income is recognised on a straight-line basis over the lease term. 2.16 Property and equipment All property and equipment is initially recorded at cost, and subsequently stated at historical cost, less accumulated depreciation. Depreciation is calculated by the straight-line method to write off the cost of each asset to their residual values over their estimated useful life as follows: Leasehold land 30 years Buildings and improvements 5 - 10 years Equipment 5 - 10 years Furniture and fixtures 5 years Office equipment 5 years Motor vehicles (includes finance leases of motor vehicles) 5 years Borrowing costs to finance the construction of property and purchase of equipment are capitalized; during the period of time that is required to complete and prepare the property for its intended use, as part of the cost of the asset. The borrowing cost includes interest on bank overdrafts, short-term and long-term borrowings, amortisation of discounted bill of exchange, amortisation of deferred financial expenses and related taxes. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. The 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 cost 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 profit. 2.17 Financial instruments Financial instruments carried on the balance sheet include cash and bank balances, investments, trade receivables, trade creditors finance leases, borrowings and certain derivative financial instruments. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The Group and the Company are also parties to financial instruments that reduce exposure to fluctuations in foreign currency exchange and interest rates. These instruments mainly comprise foreign currency forward contracts, cross currency and interest rate swap agreements and option contracts. The foreign currency forward contracts, cross currency agreements are recognised in the financial statements on inception. The purpose of these instruments is to reduce risk. Foreign currency forward contracts Foreign currency forward contracts protect the Group from movements in exchange rates by establish- ing the rate at which a foreign currency asset and liability will be settled. Forward contract transactions are recorded as forward contracts receivable or forward contracts payable on inception, and translated at the year end rate. Unrealised gains and losses on translation are recognised in statements of income. Premiums or discounts are amortised in the statements of income on the straight-line basis over the contract periods. 51 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Cross-currency and interest rate swaps In cross-currency and interest rate swap contracts, the Group agrees with a counter party to exchange their respective currency and interest rate positions between an agreed pair of currencies. An exchange of principal in the different currencies occurs at the inception of the cross-currency and interest rate swap at a predetermined exchange rate, with an equal but opposite exchange of principal at the maturity of the contract. The foreign currency receivable/payable under these contracts is translated at the year-end exchange rate and the unrealised gains or losses are recognised in the income statement. Each party also pays and receives interest on a pre-determined amount of principal in different currencies over the contract period. Any differential to be paid or received on the interest rate swaps is recognised as a component of interest income or expense over the period of the agreement. Option contracts Foreign currency option are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at a set date, a specific amount of a foreign currency at a pre-determined exchange rate. In consideration for the assumption of foreign exchange risk, the seller receives a premium from the purchaser. The principal of option contracts is not recognised on the balance sheets. Premiums are amortised in the statements of income on the straight-line basis over the period of the contract. Options are accordingly not adjusted to fair value or recorded on the balance sheet. Disclosures related to financial instruments to which the Group is a party are provided in Note 23. 2.18 Employee benefits The Group operates a provident fund, being a defined contribution plan, the assets for which are held in a separate trustee-administered fund. The provident fund is funded by payments from employees and by the Group. The Group's contributions to the provident fund are charged to the income statement in the year to which they relate. 2.19 Revenue recognition Revenues from rendering transponder services and services related to the satellite business are recognised when said services are rendered and provided to customers. All costs of services incurred during the relevant periods are treated as period cost. Sales are recognised upon delivery of products and customer acceptance, if any, or performance of services net of sales taxes and discounts. Advances from customers will be released to income when services are provided. Interest income is recognised as it accrues unless collectibility is in doubt. Dividend income is recognised when the shareholder's right to receive payment is established. 2.20 Income tax The Group calculates income tax in accordance with the Revenue Code and records them on accrual basis. The Group does not recognise income tax payable or receivable in future periods in respect of temporary differences. 52 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 2.21 Segment reporting The segmental reporting has been prepared based on the Group's method of internal reporting, which desaggregates its business by service or product. 2.22 Earnings per share Basic consolidated earnings per share are calculated by dividing the consolidated net earnings after considering minority interest in subsidiaries, attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Basic company earnings per share are calculated by dividing the Company's earnings by the weighted average number of ordinary shares in issue during the year. 2.23 Presentation of comparative information The comparative figures have been amended to conform with reclassification of certain items in the financial statements for the year ended 31 December 2002. 53 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 3. Cash and cash equivalents Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Cash in hand 26,092 3,864 18,848 496 Savings deposits and deposits held at call with banks 493,611 815,202 343,540 456,868 519,703 819,066 362,388 457,364 The weighted average effective interest rate of deposits held with banks was 0.72% per annum (2001: 0.93% per annum). 4. Current investments Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Time deposits with local banks 10,420 10,425 420 420 10,420 10,425 420 420 The weighted average effective interest rates of time deposits was 0.51 % per annum (2001: 2.03% per annum ). As at 31 December 2002, Baht 10.42 million of time deposits was pledged as collateral in respect of bank guarantees. 5. Trade accounts receivable and accrued income, net Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Trade accounts receivable -Third parties 809,990 829,686 476,606 510,824 -Related parties (Note 27) 2,556 1,327 11,525 1,103 Accrued income -Third parties 223,797 226,748 214,454 218,290 -Related parties (Note 27) 13,322 13,420 27,391 14,227 Total trade accounts receivable and accrued income 1,049,665 1,071,181 729,976 744,444 Less Allowance for doubtful accounts (289,994) (408,246) (86,510) (211,748) Total trade accounts receivable and accrued income, net 759,671 662,935 643,466 532,696 54 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Outstanding trade accounts receivable - third parties as at 31 December can be analysed as follows: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Current 168,518 69,230 91,224 18,597 Over-due less than 3 months 151,401 123,239 115,856 100,468 Over-due 3-6 months 101,426 117,832 83,857 107,570 Over-due 6-12 months 100,647 55,782 86,118 45,067 Over-due over 12 months 287,998 463,603 99,551 239,122 809,990 829,686 476,606 510,824 Less Allowance for doubtful accounts - third parties (289,994) (408,246) (86,510) (211,748) Trade accounts-third parties, net 519,996 421,440 390,096 299,076 6. Inventories, net Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Finished goods 408,087 40,013 393,323 23,340 Less Allowance for obsolete stock (217) (223) - - 407,870 39,790 393,323 23,340 7. Forward and swap contracts As at 31 December, the Group has entered into cross-currency and interest rate swaps and forward foreign exchange contracts to cover loans and bonds issued. Cross-currency and interest rate swaps and forward foreign exchange contracts receivable and payable under these contracts are shown below: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Forward and swap contracts payable, net Contracts receivable 6,727,083 3,343,902 6,727,083 3,343,902 Contracts payable (6,752,647) (3,544,237) (6,752,647) (3,544,237) Total Forward and swap contracts payable, net (25,564) (200,335) (25,564) (200,335) Less Current portion of forward and swap contracts payable, net - (200,335) - (200,335) Non-current portion, net (25,564) - (25,564) - 55 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 8. Other current assets Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Withholding taxes and other taxes 179,855 245,324 142,725 212,749 Prepaid expenses 48,029 44,856 30,810 32,618 Advance payment 255,627 27,830 250,681 23,139 Deposits 39,547 23,196 39,034 23,196 Others 19,024 8,414 23,057 8,374 542,082 349,620 486,307 300,076 Less Allowance for non refundable withholding taxes (16,081) - (16,081) - 526,001 349,620 470,226 300,076 9. Investments in subsidiaries and associates a) Long-term investments in subsidiaries and associates as at 31 December comprise of: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Investments in subsidiaries - - 1,273,578 792,740 Investments in associates 777,792 477,237 - - Total long-term investments 777,792 477,237 1,273,578 792,740 b) Movements in investment in subsidiaries, and associates for the years ended 31 December 2002 and 2001 comprise of: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Opening net book value 477,237 237,981 792,740 334,905 Investment in subsidiaries and associates 134,602 - - 572,465 Share of net results from investments 207,643 324,848 481,667 377,076 Dividends received (62,699) (66,241) - (59,641) Impairment charge - - - (432,694) Foreign currency translation adjustment Closing net book value 21,009 (19,351) (829) 629 777,792 477,237 1,273,578 792,740 c) The details of investments in subsidiaries and associates can be summarised as follows: 56 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Name Business Country Currency Subsidiaries Shin Broadband Internet Providing Internet data center Thailand Baht (Thailand) Company Limited services Shenington Investments Pte Holding company Singapore S$ Company Limited Cambodia Shinawatra Company Providing fixed line and mobile Cambodia US$ Limited phones services C.S. Communications Providing Internet and satellite Thailand Baht Company Limited. uplink-downlink services C.S. Satellite Phone Providing mobile personal com- Thailand Baht Company Limited munication services via satellite iPSTAR Company Limited Providing broadband satellite The British US$ services Virgin Islands Associates of the company Providing fixed phone, mobile Lao Telecommunications phone, international facilities, Laos US$ Company Limited internet and paging services As at 31 December 2002, C.S. Satellite Phone Company Limited and iPSTAR Company Limited have not yet commenced business operations. d) Carrying value of investments in subsidiaries and associates Consolidated 31 December 2002 Accumulated share of net Paid-up Investment result of capital portion(%) Cost investment Equity Dividend Million Million Million Million Million Baht Baht Baht Baht Associated company Lao Telecommunications Company Limited US$ 96.84 49 187.31 590.48 777.79 62.70 Consolidated 31 December 2001 Accumulated share of net Paid-up Investment result of capital portion(%) Cost investment Equity Dividend Million Million Million Million Million Baht Baht Baht Baht Associated company Lao Telecommunications Company Limited US$ 91.84 49 52.71 424.53 477.24 66.24 57 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Company 31 December 2002 Accumulated share of net Paid-up Investment result of capital portion(%) Cost investment Equity Dividend Million Million Million Million Million Baht Baht Baht Baht Subsidiaries Shenington Investments Company Limited S$ 14.66 100 269.88 1,003.70 1,237.58 - Company 31 December 2001 Accumulated share of net Paid-up Investment result of capital portion(%) Cost investment Equity Dividend Million Million Million Million Million Baht Baht Baht Baht Subsidiaries Shenington Investments Company Limited S$ 14.66 100 269.88 522.74 792.74 59.64 e) Significant movements in investments during the year ended 31 December 2002 were as follows: Subsidiaries i) C.S. Communications Co.,Ltd. ("CSC") At the CSC extraordinary shareholders' meetings on 24 September and 10 October 2002, the shareholders passed a resolution to approve the registered share capital reduction from Baht 970 million (97 million shares at 10 Baht each) to Baht 242.5 million (24.25 million shares at 10 Baht each) for the purposes of eliminating the deficit. The share capital reduction was made to the portion of share held by Shin Broadband Internet (Thailand) Co., Ltd. ("SBI") only. This resulted in the percentage of shareholding in CSC by SBI decreasing from 99.5% to 98.0%. The share capital reduction was finalised on 21 January 2003. At the CSC extraordinary shareholders' meetings on 17 December 2002 and 15 January 2003, the shareholders passed a resolution to approve the registration of the new official company name of CSC as "CS Loxinfo Company Limited". On 29 January 2003, the new official company name was registered with the Ministry of Commerce. In addition, the shareholders also passed a resolution to approve an increase of the authorised share capital from 24,250,000 ordinary shares with a par value of Baht 10 per share to 50,000,000 ordinary shares with a par value of Baht 10 per share. The shareholders passed a resolution to approve the issuance of 25,750,000 additional shares at a par value of Baht 10 per share. 1,250,000 of the shares were priced at Baht 563.20 per share, and 24,500,000 shares were priced at par value. All new additional shares were offered to existing shareholders. Associates ii) Lao Telecommunications Co., Ltd. ("LTC") At a shareholders' meeting of Lao Telecommunications Co., Ltd. on 24 October 2002, the shareholders passed a resolution to approve the increase of authorised share capital from 91,840,000 ordinary shares with a par value of US$ 1 per share to 96,840,000 ordinary shares with a par value of US$ 1 per share. 2,550,000 new shares were issued to Laos PDR and 2,450,000 new shares were issued to Shenington Investments Pte Ltd. All new shares were fully paid up by being offset against an inter-company loan. 58 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 10. Provision for liabilities The Company has provided a loan guarantee in respect of C.S. Communications Co.,Ltd's bank loans amounting to Baht 827.7 million. Accordingly, the Company has equity accounted for the full net deficit of C.S. Communications Co.,Ltd's at 31 December 2002 and 2001 to reflect the extent of its obligations. On an annual basis the Company assesses the probability that it will incur an outflow of resources in respect of its guarantee of liabilities in respect of these particular borrowings and records the necessary provision. For the years ended 31 December 2002 and 2001, C.S. Communications Co.,Ltd's had negative shareholders' equity and negative cash outflows from operations; accordingly, the Company recognised a provision under the loan guarantees to be extent of the net shareholders' deficit of C.S. Communications Co.,Ltd's. For the year ended 31 December 2002 and 2001, iPSTAR Co., Ltd. ("iPSTAR") had negative shareholders' equity and the Company has recognised a provision for liabilities on its investment in iPSTAR. The movements of provision for liabilities in respect of C.S. Communications Co.,Ltd's and IPSTAR Co.,Ltd's for the year ended 31 December 2002 and 2001 are as follows: Company 2002 2001 Baht '000 Baht '000 Opening net book value (377,962) (657,548) Investment - 470,400 Share of net loss from investments (154,967) (152,032) Provision for share of net losses in subsidiary in excess of investment - (37,705) Foreign Currency translation adjustment 270 (1,077) Closing net book value (532,659) (377,962) Company 31 December 2002 Accumulated share of net Paid-up Investment result of capital portion(%) Cost investment Equity Dividend Subsidiaries Million Million Million Million Million Baht Baht Baht Baht Baht Shin Broadband Internet (Thailand) Company Limited 947.29 100 947.29 (1,468.92) (521.63) - iPSTAR Company Limited US$ 0.02 100 0.87 (11.89) (11.02) - Total 948.16 (1,480.81) (532.65) 59 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Company 31 December 2001 Accumulated share of net Paid-up Investment result of capital portion(%) Cost investment Equity Dividend Subsidiaries Million Million Million Million Million Baht Baht Baht Baht Baht Shin Broadband Internet (Thailand) Company Limited 947.29 100 947.29 (1,314.06) (366.77) - iPSTAR Company Limited US$ 0.02 100 0.87 (12.06) (11.19) - Total 948.16 (1,326.12) (377.96) 11. Other investments Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Opening net book amount 18,900 18,900 18,900 18,900 Acquisitions - - - - Closing net book amount 18,900 18,900 18,900 18,900 On 30 April 1999, the Company entered into a Membership Purchase Agreement with Codespace, Inc., to acquire a 70% shareholding in a company, Spacecode LLC, for the total price of US$ 3 million over a period of 3 years. The payment for the 70% shareholding in Spacecode LLC was to be made by way of a cash payment of US$ 500,000, and the remaining US$ 2.5 million, will be paid by way of the allotment of 2.5 million shares in iPSTAR Co., Ltd.( a subsidiary) valued at US$ 2.5 million. An initial payment of US$ 500,000 has been paid to Codespace Inc. and 12% of the shares in Spacecode LLC have been transferred to the Company, which represent the other investment amounting to Baht 18.9 million. 60 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 12. Property and equipment Property and equipment comprise: Consolidated Leasehold Motor vehicles Assets Lands & & office under buildings Equipment equipment construction Total Baht '000 Baht '000 Baht '000 Baht '000 Baht '000 As at 31 December 2001 Cost 52,984 1,797,501 151,339 4,735,603 6,737,427 Less Accumulated depreciation (19,366) (970,463) (83,154) - (1,072,983) Net book Value 33,618 827,038 68,185 4,735,603 5,664,444 Transactions during the year ended 31 December 2002 Opening net book Value 33,618 827,038 68,185 4,735,603 5,664,444 Additions 1,556 278,320 47,264 6,008,326 6,335,466 Transfer, net(Note 13) - 286,402 15,034 (307,969) (6,533) Write-offs, net - - - (6,884) (6,884) Disposals, net - (4,138) (5,086) - (9,224) Foreign currency translation adjustment (9) (16,433) (205) (8,943) (25,590) Depreciation charges (3,962) (269,807) (28,581) - (302,350) Closing net book Value 31,203 1,101,382 96,611 10,420,133 11,649,329 As at 31 December 2002 Cost 54,421 2,328,516 203,887 10,420,133 13,006,957 Less Accumulated depreciation (23,218) (1,227,134) (107,276) - (1,357,628) Net book Value 31,203 1,101,382 96,611 10,420,133 11,649,329 As at 31 December 2002, property and equipment included a project in progress of Baht 8,782 million relating to the iPSTAR project. The iPSTAR project will be fully operational with the launch of iPSTAR -1 at the end of 2003. According to the concession agreement made with Ministry of Information Communication and Technology, the Company must transfer its ownership in iPSTAR Satellite to the Ministry on the date of the completion of construction and installation. Borrowing costs of Baht 356 million (2001:Baht 13 million), arising on financing specifically entered into for assets under construction, were capitalised during the year . Property and equipment include property and equipment under concession agreements of a subsidiary, Cambodia Shinawatra Co., Ltd., of approximately Baht 1,992 million. According to the concession agreement, Cambodia Shinawatra must transfer its ownership of this related property and equipment to the government of Cambodia on the expiration date of the concession agreement, on 4 March 2028. 61 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Company Leasehold Motor vehicles Assets Lands & & office under buildings Equipment equipment construction Total Baht '000 Baht '000 Baht '000 Baht '000 Baht '000 As at 31 December 2001 Cost 43,210 768,150 86,828 3,975,686 4,873,874 Less Accumulated depreciation (13,053) (362,464) (45,631) - (421,148) Net book Value 30,157 405,686 41,197 3,975,686 4,452,726 Transactions during the year ended 31 December 2002 Opening net book Value 30,157 405,686 41,197 3,975,686 4,452,726 Additions 273 218,155 24,703 5,011,819 5,254,950 Transfers, net (Note 13) - 196,062 59 (198,555) (2,434) Write-offs, net - - - (6,884) (6,884) Disposals, net - (4,126) (5,083) - (9,209) Depreciation charges (2,786) (140,429) (15,976) - (159,191) Closing net book Value 27,644 675,348 44,900 8,782,066 9,529,958 As at 31 December 2002 Cost 43,483 1,173,068 102,827 8,782,066 10,101,444 Less Accumulated depreciation (15,839) (497,720) (57,927) - (571,486) Net book Value 27,644 675,348 44,900 8,782,066 9,529,958 13. Cost of satellite projects under concession agreements, deferred charges and Intangible assets Consolidated Satellite projects under concession Deferred Intangible agreements charges assets As at 31 December 2001 Baht '000 Baht '000 Baht '000 Cost Less Accumulated amortisation 10,591,117 236,831 209,543 Net book value (4,525,225) (136,445) (59,252) 6,065,892 100,386 150,291 Transactions during the year ended 31 December 2002 Opening net book value 6,065,892 100,386 150,291 Additions - 24,417 319 Transfers, net 3,636 2,897 - Foreign currency translation adjustment - (26) - Amortisation charges (712,048) (45,476) (27,358) Closing net book value 5,357,480 82,198 123,252 As at 31 December 2002 Cost 10,594,753 263,416 209,861 Less Accumulated amortisation (5,237,273) (181,218) (86,609) Net book value 5,357,480 82,198 123,252 62 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Company Satellite projects under concession Deferred agreements charges Baht '000 Baht '000 As at 31 December 2001 Cost 10,591,117 212,389 Less Accumulated amortisation (4,525,225) (116,049) Net book value 6,065,892 96,340 Transactions during the year ended 31 December 2002 Opening net book value 6,065,892 96,340 Additions - 24,417 Transfers, net 3,636 (1,202) Amortisation charges (712,048) (42,920) Closing net book value 5,357,480 76,635 As at 31 December 2002 Cost 10,594,753 235,604 Less Accumulated amortisation (5,237,273) (158,969) Net book value 5,357,480 76,635 Commitments related to rendering transponder service As at 31 December 2002, the future revenues from rendering transponder services under non- cancellable service contracts in respect of the satellite business are as follows: Baht '000 Not later than 1 year 2,456,401 Later than 1 year and not later than 5 years 5,458,440 Later than 5 years 1,320,459 9,235,300 14. Other non-current assets Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Deposits 39,613 31,559 15,326 15,326 Accounts receivable other 1,297 534 - 530 Less Allowance for impairment asset (14,756) (14,756) (14,756) (14,756) 26,154 17,337 570 1,100 63 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 15. Borrowings Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Short-term borrowings Short-term loans from financial institutions 2,617,012 2,509,966 2,617,012 2,509,966 Total short-term borrowings 2,617,012 2,509,966 2,617,012 2,509,966 Current portion of long-term borrowings Bank borrowings 606,341 581,970 184,840 422,765 Debentures - 1,500,000 - 1,500,000 Total current portion of long-term Borrowings 606,341 2,081,970 184,840 1,922,765 Long-term borrowings Bank borrowings 7,520,166 1,683,294 6,088,885 613,771 Other 4,288 3,914 2,634 3,914 Total long-term borrowings 7,524,454 1,687,208 6,091,519 617,685 Total borrowings 10,747,807 6,279,144 8,893,371 5,050,416 As at 31 December 2002, the Company has provided guarantees relating to long - term borrowings of a subsidiary amounting to Baht 828 million (2001 : Baht 789 million). The movements in the borrowings can be analysed as follows: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 For the year ended 31 December 2002 Opening net book value 6,279,144 5,439,328 5,050,416 4,590,845 Proceeds from short-term borrowings 9,022,095 3,368,517 9,022,095 2,943,107 Proceeds from long-term borrowings net of financial expenses 6,473,657 1,260,200 5,622,596 613,719 Repayment of borrowings (9,501,204) (2,358,779) (9,276,789) (1,659,482) Repayment of long-term debentures (1,500,000) (1,500,000) (1,500,000) (1,500,000) Discounted bills of exchange 70,382 59,046 70,382 57,149 Capitalisation of discounted bills of exchange 370 - 370 - Realised gain on exchange (100,911) (239) (100,911) (239) Unrealised loss on exchange 5,212 5,316 5,212 5,317 Foreign currency translation adjustment (938) 5,755 - - Closing net book value 10,747,807 6,279,144 8,893,371 5,050,416 After taking into account of interest rate swaps, the interest rate exposure of the borrowings of the Group and the Company are as follows: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Total borrowings: - at fixed rates 3,002,187 3,231,668 3,000,245 3,231,668 - at floating rates 7,745,620 3,047,476 5,893,126 1,818,748 10,747,807 6,279,144 8,893,371 5,050,416 64 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Weighted average effective interest rates: - bank borrowings 2.83% 4.83% 2.25% 4.80% - bonds - 7.65% - 7.65% As at 31 December 2002, the carrying amounts and fair value of long-term bank borrowings is as follows: Consolidated Company Carrying Carrying Amount Fair value amount Fair value Baht'000 Baht'000 Baht'000 Baht'000 Long-term bank borrowings 7,520,166 7,596,632 6,088,885 6,138,880 The value of non-current borrowings is estimated using discounted cash flows based on the Company's incremental borrowing rates for similar types of borrowings. Maturity of non-current borrowings as at 31st December is as follows: Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Later than 1 year but not later than 2 years 1,554,684 448,755 908,019 176,802 Later than 2 years 5,969,770 1,238,453 5,183,500 440,883 7,524,454 1,687,208 6,091,519 617,685 Credit facilities The available credit facilities for loans from local and overseas banks as at 31 December 2002 are Baht 700 million and US$ 257 million. Facility agreements in relation to the financing of the iPSTAR satellite project On 7 November 2002 the Company entered into a US$ 389.3 million credit agreement with 3 groups of banks. A. Loan credit agreement for US$ 184.5 Million. The guarantor is the Export-Import Bank of the United States. The loan is repayable within 9.5 years. B. Loan credit agreement for US$ 79.8 Million. The guarantor is a French export and import bank (Compagnie Francaise d' Assurance pour le Commerce Exterieur). The loan is repayable within 9.5 years. C. Loan credit agreement from another group of commercial banks for US$ 125 Million. The loan is repayable within 6 years. This has no guarantors. The loan under each loan credit agreement bear interest at various rates. These are based on margins over the London Inter-bank Offer Rate ("LIBOR") for period of six months and have fixed rate. The Company pays a commitment fee on the unused portion of the facilities. In addition, regarding the aforementioned credit agreements, the Company must comply with the conditions in the credit agreements concerning maintaining certain financial ratios, dividend payment policy, guarantee, sales or transfer of assets, and investment. The amounts of principal begin to be repayable in 2004 , with repayment on a semi-annual basis. 16. Other current liabilities Consolidated Company 2002 2001 2002 2001 Baht '000 Baht '000 Baht '000 Baht '000 Deposits from customers 78,874 67,101 36,428 25,021 Other taxes 28,540 32,121 15,467 16,795 Other payables 215,727 55,790 8,228 8,070 323,141 155,012 60,123 49,886 65 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 17. Share capital and premium on share capital For the year ended 31 December 2002 Number of shares Ordinary Share Thousand shares premium Total Issued and paid-up share shares Baht '000 Baht '000 Baht '000 capital As 31 December 2000 437,500 4,375,000 2,190,000 6,565,000 Issue of shares - - - - As 31 December 2001 437,500 4,375,000 2,190,000 6,565,000 Issue of shares - - - - As 31 December 2002 437,500 4,375,000 2,190,000 6,565,000 The Company's registered share capital as at 31 December 2002 comprised of 550 million ordinary shares of Baht 10 each. On 19 December 2001, an Extraordinary General Meeting of shareholders approved the issuance and offer of warrants to managing directors, employees and advisors of the Company under an Employees Shares Option Program ("ESOP"). The total number of warrants to be issued and offered during the 5-year period is approximately 21.87 million units, or approximately 21.87 million ordinary shares (at a par value of Baht 10 each), or approximately 5% of total paid-up capital (before dilution), are to be reserved for the exercise of rights pursuant to the warrants. Each annual issuance and offer is subject to approval by the Shareholders 'Meeting. Share capital and premium on share capital On 26 March 2002, a meeting of the Board of Directors meeting approved the issue and offering of 8 million warrants, or equivalent to 1.83% of the Company's total paid up share capital (before dilution) to managing directors, employees and advisors who are eligible for such allocation. The warrants are in registered form and non-transferable. The term of the warrant does not exceed 5 years and there is no offering price. The Securities and Exchange Commission of Thailand approved this offer on 13 March 2002. Warrants were granted to managing directors and employees on 27 March 2002 at Baht nil per unit. The exercise price is set at Baht 26.75 per unit, which is the closing share price as of 26 March 2002. Movements in the number of warrants outstanding are as follows: For the year ended 31 December 2002 Unit: Thousand At the beginning of the year - Granted to - directors 4,129 - employees 3,871 Exercised - At the end of the year 8,000 At the end of 31 December 2002 Directors 4,129 Employees 3,871 At the end of the year 8,000 Additionally, Shin Corporation Public Company Limited, a major shareholder, granted 3,244,500 units of its warrants to a managing director of the Company at Baht nil per unit. The warrants are in registered form and non-transferable. The term of the warrant does not exceed 5 years and there is no offering price. The exercise price is set at Baht 17.80 per unit, which was Shin Corporation Public Company Limited's closing share price as of 26 March 2002. Compensation costs related to the warrants is not recognised in these financial statements for the fair value or intrinsic value of warrants granted. 66 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 18. Legal reserve Under the Public Company Limited Act B.E.2535, the Company is required to set aside a statutory reserve of at least 5 percent of its net profit after the accumulated deficit brought forward (if any) until the reserve is not less than 10 percent of the registered capital. The reserve is non-distributable. 19. Other operating income Consolidated Company 2002 2001 2002 2001 Baht'000 Baht'000 Baht'000 Baht'000 Consulting and Management fees - - 30,537 25,497 Interest income 7,754 17,820 7,977 40,247 Other income from transfer accounts receivable 190,559 - - - Surcharge 6,658 - 6,658 - Other 19,268 1,256 6,240 1,973 224,239 19,076 51,412 67,717 Other income from transfer accounts receivable is a subsidiary company and the Government of the Lao PDR have agreed to recognise the amount of US$ 1.05 million (Baht 45.6 million), which an associated company of the group owes to the subsidiary, and Baht 145 million, which such associate borrowed from the subsidiary. This amount has been transferred from a third party company to the subsidiary com- pany under a share purchase agreement signed between the subsidiary and the third party company. 20. Operating profit The following expenditures, classified by nature, have been credited/(charged) to arrive at operating profit: Consolidated Company 2002 2001 2002 2001 Baht’000 Baht’000 Baht’000 Baht’000 Depreciation on property and equipment (302,350) (263,995) (159,191) (131,297) Amortisation of cost of the satellite projects under the concession agreement, deferred charges, and intangible assets (784,882) (785,129) (754,968) (756,973) Staff costs (309,593) (271,197) (209,184) (181,078) 21. Basic and diluted earnings per share Basic and diluted earnings per share is calculated by dividing the net income for the period attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Consolidated Company 2002 2001 2002 2001 Net profit attributable to shareholders (Baht ’000) 1,410,520 1,563,148 1,410,520 1,563,148 Weighted average number of ordinary shares issued during the year (Thousand shares) 437,500 437,500 437,500 437,500 Basic and diluted earnings per share (Baht per share) 3.22 3.57 3.22 3.57 The warrants outstanding are in connection with the managing directors’, employees’ and advisors’ share option plan and did not affect the diluted earnings per share since the average share price calculated from the date the warrants were granted to the reporting year was below the exercise price of the outstanding warrants. 67 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 22. Cash flows from operating activities Reconciliation of net profit for the year to cash flows from operating activities: Note Consolidated Company 2002 2001 2002 2001 Baht Baht Baht Baht Net profit for the year 1,410,520,100 1,563,148,076 1,410,520,100 1,563,148,076 Adjustments for: Depreciation of property and equipment 12 302,350,906 263,995,489 159,190,825 131,297,402 Allowance for doubtful accounts 97,739,118 23,736,686 77,273,790 5,382,276 Write-off of withholding tax 22,350,649 - 16,080,708 - Write off of doubtful accounts (3,897,818) - (3,897,818) - Other income from transfer accounts receivable 19 (190,558,975) - - - Amortisation of costs of satellite projects 13 712,048,555 711,919,780 712,048,555 711,919,780 Amortisation of deferred charges 13 45,475,851 46,054,714 42,920,045 45,052,833 Amortisation of intangible assets 13 27,358,054 27,154,580 - - Discount bills of exchange 15 70,382,404 59,046,411 70,382,404 57,149,870 Loss (profit) on sale of property and equipment (318,521) 150,804 (301,421) 284,757 Asset transfer to cost of sales and services 12 6,884,339 - 6,884,339 - Unrealised loss on exchange rate 40,280,812 65,384,109 40,860,771 50,443,882 Realised gain on exchange rate (145,666,199) (32,392,185) (145,666,199) (32,392,185) Minority interest (1,601,562) (4,946,496) - - Net result from subsidiaries, associates and joint venture 9,10 (207,642,634) (324,848,064) (326,699,677) (225,044,337) Changes in operating assets and liabilities - trade accounts receivable and accrued income (187,490,301) (46,355,041) (185,309,486) 27,759,545 - amount due from related parties (2,288,200) 26,959,599 11,256,827 34,197,103 - inventories (368,081,288) (13,246,332) (369,983,641) (8,420,222) - other current assets (192,461,476) (95,842,231) (186,230,971) (86,505,094) - other non-current assets (8,816,716) (2,774,699) 530,462 - - accounts payable and accrued expenses 426,284,753 168,632,709 356,461,462 61,499,511 - amount due to related parties - (9,292,157) - (1,562,667) - advance from customers (93,903,759) (167,135,504) (97,689,281) (173,334,312) - other current liabilities (74,894,095) (35,553,500) 10,237,106 (40,412,368) - other liabilities (111,970,437) (18,818,471) (2,831,480) (16,659,912) Cash flows from operating activities 1,572,083,560 2,204,978,277 1,596,037,420 2,103,803,938 68 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 23. Financial instruments The principal financial risks faced by the Group are interest rate risk and exchange rate risk. The Group borrows at fixed and floating rates of interest to finance its operations. Sales, purchases and a portion of borrowings are transacted in foreign currencies. In order to manage the risks arising from fluctuations in exchange rates and interest rates, the Group and the Company make use of derivative financial instruments. The objectives in using financial instruments are to reduce uncertainty over future cash flows arising from movements in interest and exchange rates, and to manage the liquidity of cash resources. The following strategies are employed to achieve these objectives. Interest rate exposures are managed through interest rate swaps taken out with commercial banks and foreign exchange forward contracts and foreign currency options are taken out to manage the currency risks in future sales, purchases and loan repayments. Decisions on the level of risk undertaken are confined to the Management Committee of Shin Corporation Group which has established limits by transaction type and by counter party. Trading for speculative purposes is prohibited. All derivative transactions are subject to approval by management before execution. Foreign currency risk As at 31 December the Company and its subsidiaries had outstanding foreign currency assets and liabilities after cross-currency and interest rate swaps and forward foreign exchange contracts as follows : Consolidated 2002 2001 Currency Baht Currency Baht Million Million Million Million Assets US Dollars 20.50 883.28 15.59 688.87 Australian Dollars 0.36 8.74 0.21 4.77 Pounds Sterling 0.03 1.99 0.21 13.73 894.01 707.37 Liabilities US Dollars 37.68 1,631.78 57.67 2,558.01 Australian Dollars - - 0.13 2.94 Hong Kong Dollars - - 0.41 2.33 1,631.78 2,563.28 Foreign currency assets represent US dollars cash in hand and deposits with foreign and local banks for the future payments of foreign currency liabilities, trade accounts receivable and accrued income. Foreign currency liabilities represent trade accounts payable and forward contracts payable. Cross currency and interest rate swaps The Group enters into cross-currency and interest rate swaps ranging from approximately 3 years. As of 31 December 2001 the fixed exchange rates is 44.36 Baht per US$ and fixed interest rate is 7.65% per annum. The remaining receivables of the outstanding cross-currency and interest rate swap contracts at 31 December were as follows: 2002 2001 Baht’000 Baht’000 US$ 35.85 million in 2001 - 1,400,000 69 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Forward foreign exchange contracts Forward foreign exchange contracts are entered into to manage exposure to fluctuations in foreign currency exchange rates related to short-term and long-term borrowings in US Dollar currency. At 31 December 2002 the settlement dates on open forward contracts were within ranged within of 2 years. (2001: 1 month - 6 months) The local currency amounts to be received and contractual exchange rates of the outstanding contracts were as follows: Consolidated/Company 2002 2001 US$ ’ 000 Baht ’000 US$ ’ 000 Baht ’000 Current - - 44,000 1,943,902 Non – current 156,100 6,752,647 - - Total 156,100 6,752,647 44,000 1,943,902 Net fair values The net fair values of the Company’s deriviative financial instruments at the balance sheet date were as follows: Consolidated Company 2002 2001 2002 2001 Baht ’000 Baht ’000 Baht ’000 Baht ’000 Favourable forward foreign exchange contracts 49,268 - 49,268 - Unfavourable cross currency and interest rate swap contracts - (196,077) - (196,077) Unfavourable forward foreign exchange contracts - (3,347) - (3,347) Unfavourable option contracts 51,272 - 51,272 - 51,272 (199,424) 51,272 (199,424) The net fair values of cross-currency and interest rate swaps, foreign currency forward contracts and option contracts have been calculated based on rates quoted by the Group’s bankers to terminate the contracts at the balance sheet date. Fair value The carrying amount of cash and cash equivalents, receivables, accounts payables and short-term borrowings approximates the fair value due to the short maturities of these instruments. 24. Contingencies Bank guarantees and letter of credit At 31 December, the Group had contingencies with banks whereby the banks issued letters of guarantee in respect of business contracts and others for the following amounts: 70 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Consolidated Company Currency 2002 2001 2002 2001 ‘000 ‘000 ‘000 ‘000 Bank guarantees Minimum concession fee to Ministry of Information Communication and Technology Baht 81,000 70,000 81,000 70,000 Satellite space segment leasing of customers Baht 3,360 3,360 3,360 3,360 US$ 624 8,250 624 8,250 AUD 1,028 1,028 1,028 1,028 Satellite space segment leasing with suppliers Euro 92 92 92 92 ICO Gateway Baht 10,000 10,000 - - Others Baht 13,641 15,014 2,845 4,494 Letter of credit US$ 10,841 - 10,841 - Import duties for the importation of the telecommunications equipment C.S. Communications Co., Ltd. (CSC) a subsidiary, was investigated by the Customs Department in relation to the payment of import duties on the import of telecommunications equipment in 1997. The investigation was completed in March 2002. The outcome of the investigation had no any material adverse effect on CSC. Assessment for the withholding tax in India The Income Tax Authority of India made an assessment against the Company for withholding tax for the period 1 April 1996 - 31 March 1997. However, tax consultant company in India commented that this assessment will have no adverse impact on the Company and a favourable decision by the Commissioner of Income Tax (Appeals) is expected by the end of February 2003. 25. Commitments a) Concession contracts The Company is permitted by the Ministry of Transport and Communications, under an agreement dated 11 September 1991 and an amendment thereto dated 22 March 1992, to operate and administer certain satellite projects and to render transponder services for domestic and international communications as well as the right to collect, for a thirty year period, service charges from users of the transponders. These concessions agreement have transfer to Ministry of Information Communication and Technology. The Company had the monopoly rights to operate and administer satellite projects and to render transponder services for domestic and international communications from the Ministry of Transport and Communications. The said rights had a period of 8 years and expired on 11 September 2000. Under the aforesaid agreement, the Company must pay an annual fee to the Ministry of Information Communication and Technology based on a certain percentage of certain service incomes or at the minimum level specified in the agreement, whichever is higher. In addition, the Company, according to the aforesaid agreement, must transfer its ownership of all satellites, telemetry, tracking, command and monitoring stations and other operating equipment to the Ministry of Information Communication and Technology on the dates of completion of construction and installation. b) Assets transfer commitment under telephone network agreement in Cambodia Cambodia Shinawatra Co., Ltd., a subsidiary in Cambodia, has obtained a concession from the directorate of Posts and Telecommunica- tions of Cambodia to operate a domestic telephone network under an agreement dated 4 March 1993 and an amendment thereto dated 4 March 1997, for a period of 35 years. Under the agreement Cambodia Shinawatra Co., Ltd. will transfer its ownership of all fixed assets to the Government of Cambodia on the expiration date of the agreement, in 2028. c) Capital commitments Capital expenditure contracted for at the balance sheet date, but not recognised in the financial statements is as follows: 71 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Consolidated Company 2002 2001 2002 2001 Currency ‘000 ‘000 ‘000 ‘000 Relating to iPSTAR Project US$ 150,689 122,719 150,689 122,719 NOK 10,750 267 10,750 267 Relating to GSM 1800 Network US$ 7,771 4,351 - - Others US$ - 46 - - Baht 2,851 4,100 - - Total US$ 158,460 127,116 150,689 122,719 NOK 10,750 267 10,750 267 Baht 2,851 4,100 - - d) Shareholder agreement (“LTC”) is an associated company, which was established under the terms of a Master Agreement dated 8 October 1996 signed by the Government of the Laos People’s Democratic Republic and Shinawatra Computer and Communications Public Company Limited, the former name of Shin Corporation Public Company Limited. According to the Master Agreement, LTC has the right to provide telecommunications services - fixed phone, mobile phone, international facilities, Internet and paging - within the Laos PDR for 25 years and has 5 years exclusive rights. At the end of the 25th year, Shinawatra Computer and Communications Public Company Limited will transfer all of its shares in Lao Telecommunications Co., Ltd. to the Government of the Laos PDR, without any charges. e) Commitments with related parties As at 31 December 2002, the Company has provided guarantees relating to borrowings of a subsidiary amounting to Baht 828 million. (2001: Baht 789 million). In addition, the Company has issued a letter of comfort to banks to provide financial support to Cambodia Shinawatra Co., Ltd. Under the terms of the letter of comfort, the Company must hold an interests in the subsidiary of not less than 80% of the share capital until the loans are fully paid. 26. Segment information Financial information by business segment Consolidated Year ended Transponder Internet Telephone Group 31 December 2002 Services Services Network Baht’000 Baht’000 Baht’000 Baht’000 Revenues 3,856,938 466,949 673,101 4,996,988 Allocation costs and expenses (2,714,541) (421,032) (506,323) (3,641,896) Segment result 1,142,397 45,917 166,778 1,355,092 Other income 224,239 Unallocated costs and expenses (103,988) Earnings before interest and tax 1,475,343 Interest expenses (235,153) Foreign exchange loss (7,901) Share of net result from associate 207,643 Operating profit 1,439,932 Income tax (31,014) Minority interest 1,602 Net profit for the year 1,410,520 Segment assets 16,829,138 320,052 2,203,023 19,352213 Associate 777,792 Unallocated assets 177,262 Consolidated total assets 20,307,267 72 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 Financial information by business segment Consolidated Year ended Transponder Internet Telephone Group 31 December 2001 Services Services Network Baht ’000 Baht ’000 Baht ’000 Baht ’000 Revenues 3,913,543 436,362 467,570 4,817,475 Allocation costs and expenses (2,284,262) (435,071) (319,768) (3,039,101) Segment result 1,629,281 1,291 147,802 1,778,374 Other income 19,076 Unallocated costs and expenses (90,430) Earnings before interest and tax 1,707,020 Interest expenses (358,556) Foreign exchange loss (103,305) Share of net result from associate 324,848 Operating profit 1,570,007 Income tax (11,805) Minority interest 4,946 Net profit for the year 1,563,148 Segment assets 12,085,143 256,126 1,438,487 13,779,756 Associate 477,237 Unallocated assets 119,575 Consolidated total assets 14,376,568 Thailand is the home country of the parent company, which is also the main operating company. The Group is organised into the following business segments: • Services relating to the satellite business and the transponder services’ segment • Sales and services relating to the Internet business • Sales and services relating to the telephone network business in Cambodia The share of profit from the associate is the Company’s share of profit from Lao Telecommunications Co., Ltd. which operates and provides services relating to fixed phone, mobile phone, international facilities, Internet and paging services. Unallocated costs and expenses represent corporate expenses. Segment assets consist primarily of property and equipment, intangible assets, inventories, receivables and operating cash, and exclude investments. 27. Related party transactions The Company is controlled by Shin Corporation Public Company Limited (incorporated in Thailand) which owns 51.53% of the Company’s shares. Transaction related to companies within Shin Corporation Group are recognised as related party transactions to the Company. During the year, the Group entered into a number of transactions with related parties, the terms of which were negotiated on an arm’s length basis in the ordinary course of business and according to normal trade conditions. Consulting and management service fees are charged on a mutually agreed basis as a percentage of assets. Treasury fees which are included in consulting and management service fees are charged on a percentage of transaction amounts. Transactions of work in progress between a company and related parties were carried out based on hourly rates plus reimbursement of actual expenses. The following material transactions were carried out with related parties: 73 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 a) Revenues Consolidated Company 2002 2001 2002 2001 Baht’000 Baht’000 Baht’000 Baht’000 Sales and services income: The parent company 1,806 693 - - Subsidiaries - - 88,007 69,025 Joint ventures - - - 43,502 Associates 3,503 533 3,503 533 Related parties 128,565 125,832 112,573 115,594 Other operating income: Subsidiaries - - 31,682 25,398 Joint ventures - - - 25,153 Related parties 19 - 19 - 133,893 127,058 235,784 279,205 b) Expenses Consolidated Company 2002 2001 2002 2001 Baht ’000 Baht ’000 Baht ’000 Baht ’000 Purchase of services and goods: Subsidiaries - - 41,711 34,013 Joint ventures - - - 58,816 Related parties 110,952 111,701 8,046 7,818 Other expenses: The parent company 37,351 32,537 36,990 32,537 Subsidiaries - - 1,447 620 Joint ventures - - - 614 Related parties 16,667 21,299 8,448 6,662 Purchase of fixed assets: The parent company 13,403 - 13,403 - Related parties 91 768 91 566 Interest expenses: The parent company 10,342 9,630 - - Subsidiaries - - - 12 Payment for work in progress: Related parties 239,309 223,187 239,309 223,187 428,115 399,122 349,445 364,845 74 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 c) Outstanding balances arising from sales/purchases of goods/services/and expenses Consolidated Company 2002 2001 2002 2001 Baht’000 Baht’000 Baht’000 Baht’000 Trade accounts receivable The parent company 118 61 - - Subsidiaries - - 11,457 994 Associates 68 109 68 109 Related parties 2,370 1,157 - - Total trade accounts receivable 2,556 1,327 11,525 1,103 Amounts due from related parties Subsidiaries - - 1,149 12,202 Associates 41 192 41 192 Related parties 5 53 5 54 Total amounts due from related parties 46 245 1,195 12,448 Interest receivable Subsidiaries - - 2,574 1,163 Accrued income Subsidiaries - - 14,069 807 Associates 9 - 9 - Related parties 13,313 13,420 13,313 13,420 Total accrued income 13,322 13,420 27,391 14,227 Consolidated Company 2002 2001 2002 2001 Baht’000 Baht’000 Baht’000 Baht’000 Trade accounts payable The parent company 3,443 3,553 3,396 3,374 Subsidiaries - - 13,653 34,341 Related parties 15,367 11,519 1,558 883 Total trade accounts payable 18,810 15,072 18,607 38,598 Amounts due to related parties The parent company 805 12 - - Accrued expenses The parent company 22,673 3,660 20,297 1,410 Subsidiaries - - 15,885 6,223 Related parties 7,286 3,466 4,632 458 Total accrued expenses 29,959 7,126 40,814 8,091 Advance from related parties Subsidiaries - - - 8,686 75 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 d) Short-term loans and advances to related parties Consolidated Company 2002 2001 2002 2001 Baht ’000 Baht ’000 Baht ’000 Baht ’000 Short-term loans to related parties Subsidiaries - - 28,772 28,772 Associates 48,449 - - - Advances to related parties Subsidiaries - - 11,612 11,905 Total short-term loans and advances to related parties 48,449 - 40,384 40,677 The movements of short-term loans and advances to related parties can be analysed as follows: Consolidated Company Baht ’000 Baht ’000 For the year ended 31 December 2002 Opening balance - 40,677 Loans during the year (Note 19) 145,000 - Repayment of loans during the year (10,000) Conversion of loan to investment (87,767) - Realised loss on exchange (545) - Unrealised loss on exchange (929) - Foreign Currency translation adjustment 2,690 (293) Closing balance 48,449 40,384 The loans to subsidiaries bear interest at the rate of 4.5-5.0% per annum. The term of repayment is at call. In addition, according to the loan agreement from last year, loan to associate is non-bear interest. The term of repayment is at call. e) Long-term loans from the parent company Consolidated Company 2002 2001 2002 2001 Baht ’000 Baht ’000 Baht ’000 Baht ’000 Current 71,423 178,508 - - Non-current 71,415 - - - Total long-term loans from the parent company 142,838 178,508 - - The movements of long-term loans from the parent company can be analysed as follows: Consolidated Company Baht ’000 Baht ’000 For the year ended 31 December 2002 Opening balance 178,508 - Repayment of loans (35,730) - Unrealised loss on exchange 60 - Closing balance 142,838 - 76 Notes to the Consolidated and Company Financial Statements for the years ended 31 December 2002 and 2001 e) Long-term loans from the parent company The loans from Shin Corporation Public Company Limited bear interest at the rate of 6.5% per annum (2001: 5% per annum). The terms of repayment is semi-annually repayment with 5 consecutive installments. (2001: The terms of repayment was at call).The first installment was due in September 2002. The loans were made directly to a subsidiary. e) f) Warrants granted to directors (Note 17) g) Directors’ remuneration In 2002, the remunerations of the directors was Baht 4.6 million (2001: Baht 1.8 million). Directors’ remuneration represents salaries, meetings fees and gratuities as approved by the shareholders of the Group and the Company at their Annual General Meeting. h) Commitments with related parties( See Note 25 e) 28. Promotion privileges The Company was granted promotion privileges under the Investment Promotion Act (B.E. 2520) by the Board of Investment (BOI) in respect of earnings derived from rendering telecommunication services to customers outside Thailand. Promotion privileges include exemption from corporate income tax for a period of 8 years commencing from March 1997, when its revenue was first earned from the promoted business. The Company must comply with certain terms and conditions required for the promoted industries. In 2002, total revenue derived from BOI-promoted activities amounted to Baht 1,238 million (2001: Baht 1,273 million). 29. The merger of businesses of (“CSC”) and Loxley Information Services Co., Ltd. On 16 October 2002, CSC and Shin Broadband Internet (Thailand) Co., Ltd. (“SBI”) signed a share purchase agreement and a shareholders’ agreement with Point Asia Dot Com Co., Ltd. (the parent company of Loxley Information Services Co., Ltd.) and other related shareholders in order to merge the internet businesses of CSC and Loxley Information Services Co., Ltd. The agreement is in the process of being implemented. 30. Subsequent events Cambodia incident On 29 January 2003, Cambodia Shinawatra Co.,ltd. experienced the effects of the disturbances in Phnom Penh, Cambodia, Its building was damaged and some personal computers were looted however, the operation has continued as normal as there was no damage to any control centre or transmission equipment. It is now claiming damages from the Cambodian government. These financial statements accordingly do not take account of any costs or damages claims related to the Cambodia incident. Satellite Thaicom 3 incident On 7 February 2003, the Thaicom-3 satellite of the Company experienced an anomaly in its power supply system causing temporary outages for some of its customers. At present, the Company is in the process of checking the background to the failure and to restoring normal service. At the date of these financial statements, the Company is not able to determine the financial impact of this incident on the consolidated and company financial results and financial positions. 77 Subsidiaries and Associated Companies Company Type of Business Registered Par Value Paid Up Capital % of Investment Capital (millions of (Baht, or as stated) (millions of Baht, or shares) as stated) Shin Satellite Plc. Operator of satellite lease 550 10 4,375 - Head Office : 414 Phaholyothin Rd. transponders to public Samsennai, Phayathai, Bangkok 10400 and private telecoms and Tel : (662) 299-5000 broadcasters Fax : (662) 299-5224 Branch 1 : 41/103 Rattanathibet Rd., Nonthaburi 11000 Tel : (662) 591-0736 Fax : (662) 591-0705 Homepage : www.thaicom.net C.S. Loxinfo Co., Ltd. Providing internet & 97 10 970 99%* Head Office : 414 Phaholyothin Rd. satellite uplink-downlink Samsennai Phayathai, Bangkok 10400 services Tel : (662) 299-5000 Fax : (662)299-5224 Branch 1 : 50 Moo 1 Bho Ngeng Ladlumkaew Pathumthani Tel : (662) 976-3007-17 Fax : (662) 976-3001 Homepage : www.cscoms.com C.S. Satellite Phone Co., Ltd. ** Providing mobile personal 50 10 125 80% Head Office : 414 Phaholyothin Rd. communications services Samsennai, Phayathai, Bangkok 10400 by satellite Tel : (662) 299-5000 Fax : (662)299-5224 Shin Broadband Internet (Thailand) Co., Ltd. Providing internet, mobile 94.7285 10 947.285 100% 41/103 Rattanathibet Rd., Nonthaburi 11000 satellite phone, and Tel : (662) 591-0736 related telecommunica- Fax : (662) 591-0705 tion services www.shinbroadband.com Shenington Investments Pte Ltd. Holding Company 15 1 SGD 14.66 MSGD 100% 1 Temasak Ave., #27-01 Millenia Tower, Singapore 039192 Tel : (65) 338-1888 Fax : (65) 337-5100 Lao Telecommunications Co., Ltd.*** Providing fixed phone, 96.84 1 USD 96.84 MUSD 49% Lane Xang Avenue, No. 100, Vientiane, mobile phone, interna- Lao People's Democratic Republic tional facilities, internet, Tel : (007) 856-2121-6465 and paging service in Lao Fax : (007) 856-2121-4486 www.laotel.com Cambodia Shinawatra Ltd.*** Providing fixed phone and 17 1 USD 17 MUSD 100% 66 Mao Tse Toung Boulevard mobile phone in Phnom Penh, Kingdom of Cambodia Cambodia Tel : (855)233-60001-5 Fax : (855) 11-90-0999 www.camshin.com IPSTAR Co.,Ltd. Operator of IPSTAR 2 0.01 USD 0.02 MUSD 100% Trident Chambers, P.O. Box 146, satellite, leases tran- Road Town, Tortola, British Virgin Islands sponders As at December 31, 2002 Remarks 1. C.S. Loxinfo Co.Ltd. was 99.49% held by Shin Broadband Internet (Thailand) Co. Ltd. As of March 6, 2003, this was reduced to 50.02%. 2. C.S. Satellite Phone Co.Ltd. is 80% held by C.S. Loxinfo Co.,Ltd 3. Lao Telecommunications Co., Ltd. and Cambodia Shinawatra Ltd. are held by Shenington Investments Pte Ltd. 78 Glossary Analog Images or sounds are converted to electrical signals (like the action of a microphone). Bandwidth How fast data flows on a given transmission path. The width of the range of frequencies that an elec- tronic signal occupies. Any digital or analog signal has a bandwidth. Bandwidth is measured in Megabits per second. Broadband In general, this means any speed that will send and receive video and sound smoothly. C- and Ku-bands C and Ku-bands are ranges of frequencies used for communication via satellite. The differences are summarized here: C-band Ku-band Frequency Range 4-8 GHz 12-18 GHz Coverage Large footprint Small footprint Dish Size Large dish (expensive) Small dish (inexpensive) Rain Interference Not much rain fade More rain fade Power Standard power Higher power Availability Most Transponders full Still many Transponders available Price Low Transponder cost High Transponder cost (but dropping to C levels) Cable Modem A modem attached to a cable of the type used by cable TV companies. Can achieve up to 4 Mbps. Everyone in the neighborhood shares the bandwidth, therefore, the more people using the Internet, the slower it becomes. Compression A way of squeezing more data through a transponder. Digital Data converted to numbers 0 and 1. Digital Broadcasting Converting TV pictures to numbers when transmitting and re-converting them to pictures when they are received. Digital Direct-to-Home (DTH) Digital signals transmitted by Thaicom to a small satellite dish attached to a customer’s television Digital Subscriber Line (DSL) A technology using standard copper telephone lines to provide high-speed Internet access. Speeds vary between 144 Kbps to 9 Mbps. Distance from exchanges is a factor that affects cost and availability. Downlink A satellite to ground link. Digital Video Broadcast (DVB) A technical standard for digital broadcasting. Encryption The process of encoding, as in the scrambling of TV signals. Fiber Optics A glass cable used to send data as light. Generally used for international links due to high rollout costs. Free-to-Air Television channels that do not charge the viewer. Money comes from advertisers. Frequency The number of times that an alternating current goes through its complete cycle in one second of time. Geostationary Earth Orbit (GEO) Satellites placed over the equator appear continuously over a certain spot at 36,000 km from the surface. It takes only three or four satellites to cover the Earth’s surface. Hertz (Hz) The number of cycles per second of a sound wave or electromagnetic wave. Gigahertz (GHz): One billion Hertz, or cycles per second. Megahertz (MHz): One million Hertz, or cycles per second. 79 Integrated Services Digital Network (ISDN) Digital, high-bandwidth lines that can deliver data over the Internet. Data travels at 64-128K bits per second. Local Multipoint Distribution Service (LMDS) A wireless broadband point-to-multipoint wireless technology for Internet and data services. Low Earth Orbit (LEO) Satellites in low Earth orbit are about 800-1,600 kilometers above the Earth’s surface. They can circle the Earth in about an hour and a half but require at least 32 satellites to cover the Earth. Medium Earth Orbit (MEO) A medium altitude orbit, approximately 10,000-16,000 km, requiring 10-20 satellites to cover the Earth. Microwave Line-of sight, point-to-point transmission of high-frequency radio signals (about 1 GHz and above). Multipoint microwave distribution system (MMDS) Another wireless technology, similar to LMDS (see above), but operating at lower frequencies. Point-to-Multipoint A Thaicom satellite circuit connecting one place to many places. Point-to-Point A single Thaicom circuit connecting two locations. Quarter TV Broadcasts of approximately one quarter of the normal quality. Most often used by customers for in-house training course. Radio Frequency (RF) Frequencies from 100 kHz to 20 GHz. Teleport A teleport (telecommunications port) is an earth station providing a comprehensive range of broadcast- ing and telecommunications services. Terminal The end point of a network. In the iPSTAR project it refers to the satellite modem (indoor equipment) and the satellite dish, including cables (outdoor unit). Transponder In a Thaicom satellite, a device that receives a earth-based signal, shifts the signal’s frequency, amplifies the signal, and retransmits the signal to receivers on the earth. It can be shaped to cover a particular area. Several transponders aimed at a target area are called a beam, hence “India Beam” for the group of transponders that cover India. Turnaround Service A teleport takes a signal from one satellite and “turns it around” (re-sends it) to go to another satellite. Uplinking Transmitting a signal up to a Thaicom satellite. Very Small Aperture Terminal (VSAT) VSAT refers to receive/transmit terminals installed at dispersed sites connecting to a central hub via satellite using small diameter antenna dishes (0.6 to 3.8 meter). 80 Investor Information: Investor Relations Investors should contact the Investor Relations Department to request information about Shin Satellite or its subsidiaries and associate companies: Investor Relations Department Shin Satellite Plc. 41/103 Rattanathibet Road Nonthaburi 11000 Tel: +66 (0)2 591 0736-49 Ext. 5072-3 Fax: +66 (0)2 591 0724 E-mail: firstname.lastname@example.org Online information: http://www.thaicom.net Shin Satellite is listed on the Stock Exchange of Thailand (SET) SET ticker: SATTEL Reuters: SATTEL.BK Bloomberg: SATTEL.TB Foreign limit : 40% Free float : 49% Fiscal year ends December 31 The Company and its subsidiaries have a policy to issue a dividend of not less than 40% and not more than 60% of net profit after tax if the funds are not required elsewhere or when the payment would have no significant effect on the running of the company or its subsidiaries.
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