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CH. KARNCHANG PUBLIC CO., LTD, SUBSIDIARIES AND JOINT VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 NOTE 1 - ECONOMIC ENVIRONMENT AND BASIC OF PRESENTATION In 1997 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 for the year ended December 31, 1997 have been presented on a going concern basis and in conformity with generally accepted accounting principles applied on a basis in consistent with that of the preceeding year and reflect the managements current assessment of the possible impact of this economic situation on the financial position of CH. Karnchang Public Co., Ltd., subsidiaries and joint ventures Actual results could differ from managements current position of future development and access to further financial information concerning the company customers, suppliers, financiers, and others and their ability to continue to transact with the company cannot presently be determined. The financial statements for the year ended December 31, 1997 therefore may not include all adjustments that might ultimately result from these economic conditions. 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 companys joint ventures where by there will be no settlement until the end of the project. Financial statements for the years ended December 31 include the following transactions between related companies as follow: Amounts : Baht Consolidated CH. Karnchang Co., Ltd. Balance Sheet 1997 1996 1997 1996 Accounts receivable and construction contract in progress 1,058,733,701 346,478,069 1,185,668,284 563,847,868 Accounts receivable and loans 311,162,036 315,198,186 799,603,301 685,504,619 Advances to contractor 124,666,650 111,708,075 - - Accrued income and other current assets 174,806,079 5,807,332 19,918,720 12,636,327 Investments 2,731,536,028 2,515,816,967 3,859,579,682 3,304,376,634 Accounts payable 1,136,483,627 137,238,771 - 12,051,225 Other payables and loans 967,792,922 489,669,612 19,710,205 2,265,170 Amounts : Baht Consolidated CH. Karnchang Co., Ltd. Balance Sheets 1997 1996 1997 1996 Advances received from contractor and deferred construction revenues 68,542,574 198,632,087 11,408,601 - Retentions and other current liabilities 77,695,106 4,136,536 - - Other liabilities - - 684,473,506 52,960,665 Income Statements Construction activities income 4,477,744,986 2,460,689,928 1,591,800,190 1,627,674,217 Management income 15,380,000 - 152,610,151 336,548,843 Interest income 6,757,167 - 24,023,834 11,371,769 Share of net profit (loss) by equity method - - (227,678,855) 154,505,267 Dividend income and profit sharing - - 64,350,000 22,000,000 Rental income 68,535,598 1,871,280 174,546,697 31,089,714 Other income 67,306,336 26,326,545 226,236,575 107,422,819 Cost of construction 1,469,808,185 738,399,341 153,957,178 31,856,629 Administrative expense 66,845,908 17,307,366 89,492,132 5,594,570 Disclosure of the companys lending to subsidiaries, related companies and joint ventures. Percentage 1997 1996 Loan policy of profit sharing Baht Baht of relater Joint venture 93% 6,800,000 5,102,214 Market borrowing at rate 13.25% and 18% Joint venture 25% 140,000,000 - Market borrowing at rate 15% In the third quarter 1997, a Joint Venture has changed investment which it received from a joint partner in 1997 in the amount of Baht 859.9 million to be a loan, and charged the interest rate 2-15% per annum since the started loan date to December 31, 1997 in the total amount of Baht 41,895,171 by the approval from the joint ventures board of directors meeting of joint venture held on July 11, 1997. According to the board of directors meeting held on October 7, 1997, the company has loans and interest to joint venture at interest rate 15% per annum in the amount of Baht 140 million and Baht 19,676,712 respectively. NOTE 3 - BASIS OF 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 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, 1997 and 1996 are consisted of the financial statements of CH. Karnchang Public Co., Ltd., subsidiaries and joint ventures. In the 1997, the company had changed accounting method for the preparation of the consolidated financial statements for joint ventures from the same method used with subsidiaries for joint ventures which CH. Karnchage Public Co., Ltd. has control in operate over 50% to be the proportionate method for all joint ventures that the company had a joint control. The company has adjusted the previous years financial statements to the same basis, to enable comparison of the financial statements. The consolidated financial statements for the years ended December 31, 1997 and 1996 are consisted of the financial statements of CH. Karnchang Public Co., Ltd., subsidiaries and joint ventures by proportion 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% 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% (in 1997) - Second Stage Expressway Project Part C1A Route Ngam Wong Wan - Chaeng Watthana 59.99% (in 1997) Joint Venture TWCK (Thames Water International (Thailand) Ltd. and CH. Karnchang Public Co., Ltd.) 50.00% Percentage Holding by Parent Company or Percentage of profit sharing in Joint Ventures 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 contractor in the first 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 delivered to the contractor in the fourth quarter 1997. - 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 Part B, from Phayathai interchange to Bangkhlo as contract dated March 14, 1994, which has completed and delivered to the employer in the third quarter 1996. - Northern Bangkok Expressway Co., Ltd. to construct Second Stage Expressway Part C+ Bang Pa-in to Pak Kret, Sector 1, from Chaeng Wattana to Bang Pun and Bang Sai as contract dated September 27, 1996, - Bangkok Expressway Public Co., Ltd. to construct Second Stage Expressway System Part D from Asoke - Srinakarin as contract dated April 17, 1997. - Bangkok Expressway Public Co., Ltd. to construct Second Stage Expressway System Part 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. CH. Karnchang Public Co., Ltd. in joint with Thames Water international (Thailand) 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. CH. Karnchang Public Co., Ltd. in joint with Bilfinger and Berger Bauaktiengesellsehaft, and Dyckerhoff &Widmann AG to construct Bangna-Bang Pli - Bang Pakong Expressway Project as contract dated June 28, 1995. 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. CH. Karnchang Public Co., Ltd. in joint with CH. Karnchang - Tokyu Construction 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. 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. 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 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 addition 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. 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 the cost of materials and labor, sub contractor charges, the services and overheads plus attributable net profit or loss less amount billed to customers. Supplies for Construction and Consturction in Progress Supplies for construction are valued at cost using first-in-first- out method. Construction in progress 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. (More)