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FINANCIAL STATEMENTS AND ACCOUNTANTS' REVIEW REPORT CH. KARNCHANG PUBLIC CO., LTD, SUBSIDIARIES AND JOINT VENTURES FIRST QUARTER ENDED MARCH 31, 1999 and 1998 Accountants' Review Report To the Shareholders of CH. Karnchang Public Co., Ltd. We have made a review of the consolidated balance sheets of CH. Karnchang Public Company Limited, subsidiaries and joint ventures as at March 31, 1999 and 1998, and the related consolidated statements of income, statements of changes in shareholders'equity, statements of retained earnings, and statements of cash flows for the three-month periods then ended and the financial statements of CH. Karnchang Public Co.,Ltd. for the same periods then ended in accordance with standards established by the Institute of Certified Accountants and Auditors of Thailand. A review of interim financial information principally consists of obtaining an understanding of the systems for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements takes as a whole. Accordingly, we do not express such an opinion. As discussed in Note 6 to the financial statements, the parent company has accounts receivable from the related joint venture, which are overdue over 1 year in the approximate amount of Baht 409.07 million. The company did not record the allowance for doubtful account for the said amount because the company expected to be paid in the future. If the company does not receive the payment, profit for period ended March 31, 1999 and asset should be decreased in the same amount. Based on our review, except for the effect of matter described in previous paragraph, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We draw attention to the following notes to financial statements as follows: As discussed in Note 13 to the financial statements, the consolidated financial statements and the company's financial statement included deferred expense of Baht 13.34 million which is expense incurred since 1994 to 1997 for biding the power concession generated from Num Ngum dam. The outcome of this bidding can not be expected at this moment. As discussed in Note 13 to the financial statements. Deferred expenses of one subsidiary company in the approximate amount of Baht 74.74 million included in the consolidated financial statements which is included in account receivable from subsidiary company in the company's financial statements. The deferred expenses are occurred from the bidding of MRTA project. Due to the bidding process is still on going, the ultimate result of the bidding cannot be determined. As discussed in Note 6 to the financial statements. The joint venture which the company has 59.99% of profit sharing has an account receivable from additional construction work in the approximate amount of Baht 101.8 million. The employer is in the process of inspection valuation of work, which the employer's independent engineer has recognized the additional construction work to the said joint venture. The said construction work is completed in 1998. The additional contract value is depend upon the result of negotiation which is not finalized at this moment. As discussed in Note 7 to the financial statements. The joint venture which the company has 35% of profit sharing has construction in progress which the additional contract value is under the negotiation in the amount of Baht 226.63 million. Therefore, as the result of the uncertainty negotiation, the joint venture has not recorded the allowance for devaluation in its accounts. As discussed in Note 18 to the financial statements. The joint venture which the company has 35% of profit sharing expected that its cost of construction will be increased from the previous estimation. Currently, the negotiation for employer's compensation has not been finalized. Therefore, the joint venture has not adjusted its estimated cost of construction and reduce its revenue. As discussed in Note 1 to the financial statements. The operations of CH. Karnchang Public Company Limited, subsidiaries and joint ventures have been affected and will continue to be affected for the foreseeable future by the economic condition in Thailand and the Asia Pacific Region in general. The ultimate effect that these uncertainties will have on the financial statements can not presently be determined. Registrative number 2826 KPMG Audit (Thailand) Limited Bangkok, May 7, 1999 The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Thailand. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in Thailand. CH. KARNCHANG PUBLIC COMPANY LIMITED, SUBSIDIARIES AND JOINT VENTURES BALANCE SHEETS AS AT MARCH 31, 1999 AND 1998 (UNAUDITED) Amounts : Thousand Baht Consolidated CH. Karnchang Public Co., Ltd. ASSETS 1999 1998 1999 1998 CURRENT ASSETS Cash in hand and at banks 4,946,583 3,629,702 2,034,307 597,351 Short - term investments 198,519 611,022 582 249,418 Notes receivable - finance companies - 124,666 - - Investment in marketable securities 5,884 8,802 5,884 8,802 Accounts receivable - net 1,959,863 2,599,376 1,218,509 1,487,005 Accounts receivable and loan to subsidiary, related companies and joint ventures 614,184 489,916 841,340 1,005,339 Construction contract in progress 3,832,814 3,275,061 381,830 312,053 Supplies for construction and construction in progress 353,661 174,228 22,881 69,691 Advance payment to subcontractors 202,546 385,246 63,170 82,923 Other current assets 512,340 519,677 72,084 103,889 Total Current Assets 12,626,394 11,817,696 4,640,587 3,916,471 Notes receivable-finance companies 42,117 147,822 - - Investments in subsidiary companies and joint ventures - - 1,393,363 1,411,262 Investments in related and other companies 3,086,702 2,839,475 2,826,541 2,699,036 Property, plant and equipment-net 1,929,541 2,504,117 495,598 531,668 Investment on land 202,732 326,018 174,600 282,947 Other assets 758,331 628,158 192,293 146,097 Total Assets 18,645,817 18,263,286 9,722,982 8,987,481 See notes to financial statements CH. KARNCHANG PUBLIC COMPANY LIMITED, SUBSIDIARIES AND JOINT VENTURES BALANCE SHEETS AS AT MARCH 31, 1999 AND 1998 (UNAUDITED) Amounts : Thousand Baht Consolidated CH. Karnchang Public Co., Ltd. LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998 1999 1998 CURRENT LIABILITIES Bank overdrafts and loans from banks 3,095,955 3,035,659 1,056,764 1,144,411 Notes payable - finance companies 100,000 460,000 100,000 460,000 Accounts and notes payable 1,656,037 2,057,877 886,181 836,381 Current portion of long-term liabilities 4,729,455 2,796,820 770,025 256,675 Accounts payable and loans from related companies and joint ventures 1,203,372 939,704 42,577 27,216 Advance received from contractor and deferred construction revenue 1,473,677 1,697,017 303,708 265,532 Retentions for construction 233,991 139,177 83,110 46,299 Accrued interest expense 64,543 65,827 26,015 39,668 Accrued output tax 176,936 225,134 115,034 138,036 Other current liabilities 87,912 203,441 28,600 36,394 Total Current Liabilities 12,821,878 11,620,656 3,412,014 3,250,612 Liabilities under discounted notes receivable - 513,139 - - Long-term loans 398,984 1,253,401 200,000 770,025 Other liabilities - - 971,823 238,334 Total Liabilities 13,220,862 13,387,196 4,583,837 4,258,971 MINORITY INTEREST IN SUBSIDIARY COMPANIES 168,368 147,580 - - SHAREHOLDERS' EQUITY Share capital Authorized 105,000,000 ordinary shares, Baht 10 par value 1,050,000 1,050,000 1,050,000 1,050,000 Issued and fully paid 105,000,000 ordinary shares, Baht 10 par value 1,050,000 1,050,000 1,050,000 1,050,000 Premium on share 2,436,000 2,436,000 2,436,000 2,436,000 Retained earnings Appropriated to legal reserve 88,442 78,047 82,942 72,547 Unappropriated 944,841 1,164,463 950,341 1,169,963 Unrealized gain on change in investment value 737,304 - 619,862 - Total Shareholders' Equity 5,256,587 4,728,510 5,139,145 4,728,510 Total Liabilities and Shareholders' Equity 18,645,817 18,263,286 9,722,982 8,987,481 See notes to financial statements CH. KARNCHANG PUBLIC COMPANY LIMITED, SUBSIDIARIES AND JOINT VENTURES STATEMENTS OF INCOME FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) Consolidated CH. Karnchang Public Co., Ltd. Amounts : Thousand Baht 1999 1998 1999 1998 REVENUES Construction activities income 2,791,079 3,253,222 741,177 659,826 Sale construction material 113,496 108,525 173,990 157,784 Management income 18,434 22,941 26,609 37,752 Rental income 13,166 17,373 15,056 40,969 Transportation income 13,505 16,741 14,040 17,069 Interest income 38,977 44,906 8,181 13,618 Gain from sale of investment - 68,099 - 68,099 Gain on exchange rate 45,219 476,731 - - Share of net profit by equity method - - 91,850 617,320 Other incomes 6,010 26,869 5,878 9,138 Total Revenues 3,039,886 4,035,407 1,076,781 1,621,575 EXPENSES Cost of construction activities 2,263,758 2,738,474 635,758 714,345 Cost of sale construction material 141,470 152,116 131,630 152,116 Administrative expenses 127,898 198,407 50,149 82,903 Interest expense 243,065 265,053 73,051 101,558 Directors' remuneration - - - - Other expenses 43,959 26,696 38,967 26,696 Total Expenses 2,820,150 3,380,746 929,555 1,077,618 Income before income tax 219,736 654,661 147,226 543,957 Income tax 79,535 104,112 20,404 - Net profit from operation 140,201 550,549 126,822 543,957 (Less) Minority interest in subsidiaries (13,379) (6,592) - - Net profit 126,822 543,957 126,822 543,957 Net profit per share (Baht) (Note 4 ) 1.21 5.18 1.21 5.18 See notes to financial statements CH. KARNCHANG PUBLIC COMPANY LIMITED, SUBSIDIARIES AND JOINT VENTURES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) Consolidated CH. Karnchang Public Co., Ltd. Amounts : Thousand Baht 1999 1998 1999 1998 ORDINARY SHARE CAPITAL Beginning balance 1,050,000 1,050,000 1,050,000 1,050,000 Increase during period - - - - Decrease during period - - - - Ending balance 1,050,000 1,050,000 1,050,000 1,050,000 PREMIUM ON SHARE CAPITAL Beginning balance 2,436,000 2,436,000 2,436,000 2,436,000 Increase during period - - - - Decrease during period - - - - Ending balance 2,436,000 2,436,000 2,436,000 2,436,000 APPROPRIATED RETAINED EARNINGS Beginning balance 88,442 78,047 82,942 72,547 Increase during period - - - - Decrease during period - - - - Ending balance 88,442 78,047 82,942 72,547 UNAPPROPRIATED RETAINED EARNINGS Beginning balance 818,019 620,506 823,519 626,006 Increase during period - Net profit 126,822 543,957 126,822 543,957 Decrease during period - Transfer to legal reserve - - - - - Payment of dividend - - - - Ending balance 944,841 1,164,463 950,341 1,169,963 UNREALIZED GAIN ON CHANGE IN INVESTMENT VALUE Beginning balance - - - - Increase during period 737,304 - 619,862 - Decrease during period - - - - Ending balance 737,304 - 619,862 - Total Shareholders' Equity 5,256,587 4,728,510 5,139,145 4,728,510 See notes to financial statements CH. KARNCHANG PUBLIC COMPANY LIMITED, SUBSIDIARIES AND JOINT VENTURES STATEMENTS OF RETAINED EARNING FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) Consolidated CH. Karnchang Public Co., Ltd. Amounts : Thousand Baht 1999 1998 1999 1998 Unappropriated retained earnings Retained earnings at beginning of the year 818,019 620,506 823,519 626,006 Less Appropriated net profit of prior year Dividend - Net profit of the period 126,822 543,957 126,822 543,957 Less legal reserve - - - - Unappropriated retained earnings at end of the period 944,841 1,164,463 0 950,341 1,169,963 Appropriated retained earnings 88,442 78,047 82,942 72,547 legal reserve - - - - Total appropriated retained earnings 88,442 78,047 82,942 72,547 Total retained earnings 1,033,283 1,242,510 1,033,283 1,242,510 See notes to financial statements CH. KARNCHANG PUBLIC COMPANY LIMITED, SUBSIDIARIES AND JOINT VENTURES STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) Consolidated CH. Karnchang Public Co., Ltd. Amounts : Thousand Baht 1999 1998 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net profit 126,822 543,957 126,822 543,957 Adjustments to reconcile net profit by net cash provided by (used in) operating activities Depreciation and amortization 184,118 174,309 33,426 35,582 Amortization deferred expense 132,144 80,823 2,964 2,963 Write off prepaid withholding tax - 1,546 - 1,546 Allowance for doubtful accounts 5,090 - - - Allowance for decline in value of marketable securities 2,075 (2,263) 2,075 (2,263) Gain from sale of equipment (170) (1,550) (43) (1,741) Gain from unrealized exchange rate (87,731) (383,781) - (3,282) Gain from sale of investment - (68,099) - (68,099) Share of net profit by equity method - - (91,850) (617,320) Change in Net Assets and Liabilities Decrrease (Increase) in accounts receivable 372,831 (274,213) 93,905 (59,835) Increase in accounts receivable and loan to related companies and joint ventures (907) (178,754) (19,622) (205,672) Decrease (Increase) in construction contract in progress (65,500) (792,204) (34,132) 118,771 Decrease (Increase) in supplies for construction and construction in progress 51,070 23,152 (2,459) (5,685) Decrease (Increase) in advance payments to subcontractor (12,770) 35,477 (16,125) 5,691 Decrease in other current assets 42,161 42,971 86,575 77,114 Increase in other assets (166,454) (221,788) (85,152) (82,855) Increase (Decrease) in accounts and notes payable (64,602) 131,195 32,608 301,609 Increase (Decrease) in accounts payable and loan from related companies (116,050) 114,954 498 7,506 Increase (Decrease) in advance received from employer and deferred construction revenue (25,965) 127,116 120,082 (101,117) Increase (Decrease) in other current liabilities (84,282) 36 (54,794) (89,822) Increase in minority interest in subsidiaries 13,379 6,592 - - Net Cash Provided by (used in) Operating Activities 305,259 (640,524) 194,778 (142,952) See notes to financial statements Consolidated CH. Karnchang Public Co., Ltd. Amounts : Thousand Baht 1999 1998 1999 1998 CASH FLOWS FROM INVESTING ACTIVITIES Profit sharing from joint venture - - - 28,400 Sales of investments 168,990 - 168,990 Purchases of land and fixed assets (18,571) (97,913) (883) (3,420) Sales of fixed assets 795 9,805 43 13,518 Decrease (Increase) in short term investment 13,762 (65,698) (8) (6,810) Decrease in notes receivable - financial companies - (87,460) - - Purchases in investment in related companies (15,848) (46,511) (15,848) (46,511) Net Cash provided by (used in) Investing Activities (19,862) (118,787) (16,696) 154,167 CASH FLOWS FROM FINANCING ACTIVITIES Decrease in long-term loans (408,088) (138,837) (128,338) (128,338) Increase (Decrease) in bank overdrafts and loans from banks (714) 228,046 42,273 136,597 Decrease in notes payable - financial companies - (40,000) - (40,000) Increase in liabilities and discounted notes receivable 8,684 748,618 - - Net Cash Provided by (used in) Financing Activities (400,118) 797,827 (86,065) (31,741) Effect from exchange rate in cash and cash equivalent 1,621 (24,670) - - NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT (113,100) 13,846 92,017 (20,526) Cash and equivalent transaction-beginning balance 5,059,683 3,615,856 1,942,290 617,877 Cash and equivalent transaction-ending balance 4,946,583 3,629,702 2,034,307 597,351 SUPPLEMENT DISCLOSURES OF CASH FLOWS INFORMATION Interest expenses 250,044 386,512 106,978 149,922 Income taxes and withholding taxes 71,193 69,991 23,574 15,648 See notes to financial statements CH. KARNCHANG PUBLIC CO., LTD, SUBSIDIARIES AND JOINT VENTURES NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 and 1998 NOTE 1 - ECONOMIC ENVIRONMENT AND BASIC OF PRESENTATION Since the second half of 1997 until the present certain Asia Pacific countries, including Thailand, are experiencing economic difficulties relating to currency devaluation and slowdown in growth. Accordingly, the Thai government sought assistance from the International Monetary Fund to alleviate the economic crisis and improve the economic over time. The financial statements reflect the assessment of the possible impact of this economic situation on the financial position of CH. Karnchang Public Co., Ltd., subsidiaries and joint ventures. The ultimate effect on the entity's financial position of these uncertainties can not presently be determined. NOTE 2 - TRANSACTIONS WITH RELATED COMPANIES The company has had significant transactions with its related companies. The financial statements reflect the effects of these transactions on the normal business basis agreed upon by the companies concerned. The transactions with its related companies have included transactions with company's joint ventures where by there will be no settlement until the end of the project. Financial statements for the 3 month periods ended March 31 include the significant transactions between related companies as follows: (More)