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NOTE 3 - BASIS OF CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements of CH. Karnchang Public Co., Ltd., subsidiaries and joint ventures have been prepared in accordance with generally accepted accounting principles and Ministerial Regulations No.7 (1996) dated October 25, 1996. Joint ventures including in the consolidation by proportionate method are those having major responsibility and significant in success of result being responsible by CH. Karnachang Public Co., Ltd. and or its subsidiaries. The consolidated financial statements for the years ended December 31, 1998 and 1997 were consisted of the financial statements of CH. Karnchang Public Co., Ltd., subsidiaries and joint ventures by proportion of holding by the parent company as follows: Percentage Holding by Parent Company or Percentage of profit sharing in Joint Ventures Subsidiaries CH. Karnchang Real Estate Co., Ltd. and Partnerships Limited 99.00% Bangkok Metro Co., Ltd. 79.94% (in 1998) CH. Karnchang-Tokyu Construction Co., Ltd. and Joint Ventures 55.00% Equity in Joint Ventures Joint Venture Phuket Consortium Consists of CH. Karnchang Public Co., Ltd., Thames Water International (Thailand) Co., Ltd, Index International Group Co., Ltd. and Trio Consultant Co., Ltd. 93.00% Joint Venture CH. Karnchang Public Co., Ltd Tokyu Construction Co., Ltd. in joint venture with CH. Karnchang - Tokyu Construction Co., Ltd. - Highway Project 60.00% - Expressway Project 40.00% Joint Venture CH. Karnchang Public Co., Ltd., Bilfinger and Berger Bauaktiengesellschaft, Tokyu Construction Co., Ltd. and CH. Karnchang - Tokyu Construction Co., Ltd - Second Stage Expressway Project Part B Route Phayathai - Bangkhlo 53.20% - Second Stage Expressway Project Part C+ Route Chaeng Watthana - Bang Phun and Bang Sai 59.99% - Second Stage Expressway Project Part D Route Asoke - Srinakarin 59.99% - Second Stage Expressway Project Part C1A Route Ngam Wong Wan - Chaeng Watthana 59.99% Percentage Holding by Parent Company or Percentage of profit sharing in Joint Ventures Joint Venture TWCK (Thames Water International (Thailand) Ltd. and CH. Karnchang Public Co., Ltd.) 50.00% Joint Venture BBCD (Bilfinger and Berger Bauaktiengesellschaft , CH. Karnchang Public Co., Ltd. and Dyckerhoff & Widmann AG) 35.00% Joint Venture BCKT (Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd. Kumagai Gumi Co., Ltd., and Tokyu Construction Co., Ltd.) 25.00% CH. Karnchang Public Co., Ltd. in joint venture with Thames Water International (Thailand) Co., Ltd. Index International Group Co., Ltd. and Trio Consultant Co., Ltd. made agreement with The Civil Department, the Ministry of Interior to design and construct drainage system and waste water treatment system for Phuket Municipality of Phuket Province as contract date May 31, 1994, and sent the last invoice to employer in the second quarter 1997. CH. Karnchang Public Co., Ltd. in joint venture with CH. Karnchang - Tokyu Construction Co., Ltd and Tokyu Construction Co.,Ltd. made agreement with - The Department of Highways to construct Bangkok - Chon Buri New Highway Project from Anuj to Klong Kalong as contract dated September 30, 1993, and Bangkok - Chonburi new highway Bang Bo Interchange and road to Highway No 34 as contract dated August 30, 1994. The Joint Venture has completed construction work, Bangkok - Chon Buri highway project from Anuj - Klong Kalong, and Bangkok Chonburi new highway, Bang Bo interchange project and road to highway No 34, and delivered to the employer in the forth quarter 1997 and the first quarter 1998. - The Expressway and Rapid Transit Authority of Thailand to construct Ramindra - Atnarong Expressway System and BMAS Road project contract No. 7 : Lat Phrao Rd. - Soi Sukha as contract dated December 3, 1993, November 3 and 18, 1994. The Joint Venture has completed contraction work, Ramindra - Atnarong Expressway and BMAS Road project; Lat Phrao Rd., Soi Sukha, and delivered to contractor in the third quarter 1996. The amount of completed construction is less than contract price which has already accepted by the employer. CH. Karnchang Public Co., Ltd in joint venture with Bilfinger and Berger Bauaktiengesellschaft, Tokyu Construction Co., Ltd. and CH. Karnchang - Tokyu Construction Co., Ltd. made agreement with - Bangkok Expressway Public Co., Ltd. to construct Second Stage Expressway System Sector B, from Phayathai interchange to Bangkhlo as contract dated March 14, 1994, which has completed and submitted to the employer in the third quarter 1996. - Northern Bangkok Expressway Co., Ltd. to construct Second Stage Expressway Sector C+ Bang Pa-in to Pak Kret, Sector 1, from Chaeng Wattana to Bang Pun and Bang Sai as contract dated September 27, 1996, which the first stage had been completed and submitted in December 1998 and the second stage will be completed within November 30, 1999. - Bangkok Expressway Public Co., Ltd. to construct Second Stage Expressway System Sector D from Asoke - Srinakarin as contract dated April 17, 1997, .which the first stage had been completed and submitted in December 1998 and the second stage will be completed within April 21, 2000. - Bangkok Expressway Public Co., Ltd. to construct Second Stage Expressway System Sector C1A to expand lanes, from Ngam Wong Wan to Chaeng Wattana from a dual two - lane to dual three - lane carriageway as contract dated April 17, 1997. This project will be completed within April 21, 2000 CH. Karnchang Public Co., Ltd. in joint with Thames Water international (Thailand) Co., Ltd. have made agreement with Pathumthani Water Company Ltd. to construct water producing and distribution plant in the Prathumthani Province as contract dated November 21, 1995, which construction work will be completed and submitted within Febuary 1999. CH. Karnchang Public Co., Ltd. in joint with Bilfinger and Berger Bauaktiengesellsehaft, and Dyckerhoff &Widmann AG to construct Bang na-Bang Pli - Bang Pakong Expressway Project as contract dated June 28, 1995. The project will be completed and submitted within January 2000. CH. Karnchang Public Co., Ltd. in joint with Bilfinger and Berger Bauaktiengesellschaft, Kumagai Gumi Co., Ltd. and Tokyu Construction Co., Ltd. to construct of the initial underground transit section from Hua Lamphong to Bang-Su as contract date November 5, 1996 and the project is schedule to be completed within 260 weeks commencing the date of contract. CH. Karnchang - Tokyu Construction Ltd. in joint with CH. Karnchang Public Co., Ltd. made agreement with the Police Department for the design and construction the police department office building, together with car park and other related constructions as contract dated September 30, 1996, which the joint venture will finish its work within December 24, 1999. CH. Karnachang - Tokyu Construction Co., Ltd. in joint with Tokyu Construction Co., Ltd. made agreement with Joint Venture CH. Karnchang Public Co., Ltd. Bilfinger and Berger Bauaktiengesellschaft, Tokyu Construction Co., Ltd. and CH. Karnchang - Tokyu Construction Co., Ltd. to construct Bang Pa-In-Pak-Kret Expressway sector 15 & 16 as contract dated August 14, 1997 and as at December 31, 1998 the joint venture had an additional construction and had received revenue over the contract price. This new contract had not yet been signed because the estimated cost of construction by engineers are in process. The result of subsidiarys operation was presented in this consolidated financial statements since acquisition date. The significant related transaction, investment of parent company and shareholders equity of subsidiaries were eliminated from this consolidated financial statements. Excess in book value over cost of investment in limited partnership of subsidiaries is adjusted to retained earnings at the beginning of year. NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition for Construction Company recognized revenue from construction on percentage of completion. Revenue from additional work and the construction that have working period not over 1 year are recognized on work done and billed to customer. Subsidiary company and joint ventures which subsidiary have joint control recognized revenue on work done and billed to customer Joint ventures and partnership limited recognized revenue on percentage of completion. Revenues from moving infrastructure, additional work and other contract work are recognized on work done and billed to customer. In 1998 the joint ventures which have contract price in foreign currency, recognized revenue on percentage of completion included gains and losses from exchange rate between exchange rate identified in construction contract and exchange rate as billing date. Revenue and Expenses Recognition Revenue and expenses are recognized on an accrual basis. Allowance for Doubtful Accounts Allowance for doubtful accounts is provided based on the review of the current status of each account. Construction contract in progress The cost of construction contract in progress comprises of the cost of materials and labor, sub contractor charges, the services and overheads plus attributable net profit or loss less amount billed to customers. Excess in construction contract in progress value over amount billed to customers is shown under current assets. For the excess amount billed to customers over construction contract in progress value is showed in deferred construction revenue under current liabilities. Supplies for Construction and Construction in Progress Supplies for construction are valued at cost using first-in-first-out method. Construction in progress, supplies in transit and supplies in process are valued at cost. Investment Investment in subsidiaries, associated company and joint ventures which the company has significant influence are stated according to the equity method. Investment in marketable securities are stated at the lower of cost or net realizable value and other investment are stated at cost. Excess in Book value over Cost of Investment Excess in book value over cost of investment is the difference of book value compare with amount paid for acquisition cost of investment which is written off to retained earnings at beginning of year. Property, Plant and Equipment Property plant and equipment are stated at cost. Depreciation are computed by the straight-line method over the estimated useful lives as follows: Building 20 years Equipment 5 years Leasehold improvement according to remaining project life For the equipments acquired by a partnership before 1993, depreciation was computed by straight line method from the book value at January 1, 1993, the useful life of 5 years. Company Establishment Expenses Company Establishment expenses are amortized within five years from date of operating. Pre-operating Expense Pre-operating expense is amortized according to the project - period from the date of commencement of the operations. Deferred Charges Deferred charges are related to expense of providing finance, successful biding project, leasehold improvement will be amortized according to the related contracts and loan periods. Foreign Currency Transactions Foreign currency transactions during the years are translated to Baht at the exchange rate at the transaction dates. Foreign currency balances at the balance sheet date are translated at the exchange rates ruling on that date. Foreign currency balances which are secured by the agreement are translated using exchange rate of the agreement. Exchange gains and losses are included in determining income. Premium or discount from foreign exchange forward contracts are amortized as expense or income included in statement of income according to each foreign exchange forward contract periods. Forward contracts for speculation at the balance sheet date are translated to Baht at the forward exchange rate ruling on that date. Forward contracts to prevent losses from foreign currency commitment at the balance sheet date are translated to Baht at exchange rate ruling on that date. Earnings (Loss) per Share Earnings (loss) per share are calculated by dividing the net profit (loss) for the years by the number of shares outstanding at the end of years. NOTES 5 - CASH IN HAND AND AT BANKS As at December 31, 1998, cash at bank of the parent company in the amount of Baht 20,000 and of one joint venture in amount of Baht 25 million are used as collateral for bank guarantee of using electricity and making forward contract, respectively. NOTES 6 - ACCOUNTS RECEIVABLE As at December 31, accounts receivable comprise: Amounts : Baht Consolidated CH. Karnchang Co., Ltd. 1998 1997 1998 1997 Construction contract receivable 2,046,090,099 2,192,448,928 1,253,935,699 1,346,991,058 Retention accounts as per contracts 250,491,256 131,858,400 58,477,806 80,177,222 2,296,581,335 2,324,307,328 1,312,413,505 1,427,168,280 Less Allowance for doubtful accounts - (8,038,060) - - Accounts receivable - net 2,296,581,355 2,316,269,268 1,312,413,505 1,427,168,280 As at December 31, 1998, the company had account receivable which were classified by account receivable aging as follows: Amounts : Baht Construction contract receivables Consolidated CH.Karnchang Public Co.,Ltd Related Other Related Other Joint Ventures Receivables Total Joint Ventures Receivables Total Less than 3 months 702,626,858 874,527,538 1,577,154,396 368,187,503 212,311,250 580,498,753 More than 3 to 6 months 197,396,885 - 197,396,885 264,366,661 - 264,366,661 More than 6 to 12 months 56,885,054 626,149 57,511,203 84,130,310 - 84,130,310 More than 12 months 214,027,615 - 214,027,615 324,939,975 - 324,939,975 Total 1,170,936,412 875,153,687 2,046,090,099 1,041,624,449 212,311,250 1,253,935,699 The company does not record allowance for doubtful accounts. The management has explained that joint venture has been affected by the economic recession and overall Thailands liquidity problem in 1997 which being recovered in 1998. In 1998, the joint venture started to repay its debt totalling Baht 30 million and the company expect that this joint venture will be able to make fully repayment in 1999. As at December 31, 1998, the joint venture which the company has 59.99% of profit sharing had an account receivable of Baht 101.8 million. The employer was in the process of inspection valuation of work according to the invoice which the employers independent engineer had a notice for additional construction work to the said joint venture. This would cause to uncertainty of revenue from construction in approximate amount of Baht 92.5 million. (More)