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Auditors' Report FINANCIAL STATEMENTS AND AUDITORS' REPORT CH. KARNCHANG PUBLIC CO., LTD, SUBSIDIARIES AND JOINT VENTURES DECEMBER 31, 1998 and 1997 To the Shareholders of CH. Karnchang Public Co., Ltd. We have examined the consolidated balance sheets of CH. Karnchang Public Company Limited, subsidiaries and joint ventures as at December 31, 1998 and 1997, and the related consolidated statements of income, statement of changes in shareholdersequity and retained earnings, and consolidated statements of cash flows for the years then ended and the financial statements of CH. Karnchang Public Co.,Ltd. for the same years then ended. The companys management are responsible for the correctness and completeness of information presented in these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we 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 statements presentation. We believe that our audit provides a reasonable basis for our 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 324.94 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 year ended December 31, 1998, asset and retained earnings should be decreased in the same amount. In our opinion, except for the effect of matter described in previous paragraph, the financial statements referred to above presented fairly, in all material respects, the financial position of CH. Karnchang Public Co.,Ltd, subsidiaries and joint ventures as at December 31, 1998 and 1997, and the results of their operations and cash flows for the years then ended and the financial statements of CH. Karnchang Public Co.,Ltd. for the same years then ended, in conformity with generally accepted accounting principles. We draw attention to 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. We draw attention to Note 14 to the financial statements. Deferred expenses of one subsidiary company in the approximate amount of Baht 69.35 million included in the consolidated financial statements which is included in account receivable from subsidiary company in the companys financial statements. The deferred expenses are occurred from the bidding of MRTA project. Due to the process is still pending, the ultimate result of the bidding cannot be determined. Supot Singhasaneh Certified Public Accountant Registrative number 2826 KPMG Audit (Thailand) Limited Bangkok, February 15 , 1999 The accompanying financial statements are not intended to present the financial position and results of operations and cash flow 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 CO., LTD, SUBSIDIARIES AND JOINT VENTURES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 and 1997 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 entitys 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 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 significant transactions between related companies as follows: Amounts : Baht Consolidated CH. Karnchang Co., Ltd. Balance Sheets 1998 1997 1998 1997 Accounts receivable and construction contract in progress 782,998,295 1,058,733,701 1,151,152,307 1,185,668,284 Accounts receivable and loans 613,277,524 311,162,036 821,718,007 799,667,301 Advances to contractor 104,842,104 124,666,650 - - Accrued income and other current assets 78,095,486 174,806,079 23,110,290 19,918,720 Investments 2,282,520,065 2,731,536,028 3,433,069,215 3,859,579,682 Accounts payable 160,758,706 1,136,483,627 56,969,391 - Other payables and loans 1,352,668,406 967,792,922 42,079,072 19,710,205 Advances received from contractor and deferred construction revenues 22,729,987 68,542,574 21,356,256 11,408,601 Retentions and other current liabilities 35,670,649 77,695,106 2,713,151 - Other liabilities - - 961,299,120 684,473,506 Amounts : Baht Consolidated CH. Karnchang Co., Ltd. 1998 1997 1998 1997 Income Statements Construction activities income 5,419,282,541 4,477,744,986 1,827,901,762 1,591,800,190 Management income 24,834,881 15,380,000 147,853,701 152,610,151 Interest income 15,341,573 6,757,167 32,595,677 24,023,834 Share of net profit (loss) by equity method - - 128,180,482 (227,678,855) Dividend income and profit sharing - - 372,300,000 64,350,000 Rental income 42,334,304 68,535,598 120,435,574 174,546,697 Other incomes 168,804,140 67,306,336 684,826,816 226,236,575 Cost of construction 1,488,899,466 1,469,808,185 165,942,133 153,957,178 Administrative expense 183,701,667 66,845,908 5,172,748 89,492,132 Related Transactions in Construction Trade 1. Subcontractors As at December 31,1998,the company had trade transaction with related companies or joint ventures that the parent company has operated as their sub-contractor as follows: Amounts : Baht Accounts Construction Advance Construction Receivable Contract in progress Received Income - Joint Venture BBCD Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd. and Dyckerhoff & Widmann AG 409,070,285 - - - - Joint Venture BCKT (Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd., Kumagai Gumi Co., Ltd., and Tokyu Construction Co., Ltd.) 55,148,810 71,518,252 - 789,581,511 - CH. Karnchang Public Co., Ltd., Bilfinger and Berger Bauaktiengesellschaft, Tokyu Construction Co., Ltd. and CH. Karnchang-Tokyu Construction Co.,Ltd.577,405,354 38,009,606 21,356,256 1,038,320,251 1,041,624,449 109,527,858 21,356,256 1,827,901,762 In 1998, the parent company reduced value of the construction contract with Joint Venture BBCD according to its overdue payable to the company in order to maintain liquidity and reduce financial cost. The parent company still supports the joint venture for the construction supplies as usual. As at December 31,1998, in the companys financial statement and consolidated financial statement, the said joint venture has debt balance totalling in the amount of Baht 873,887,402 and Baht 305,860,591, respectively. 2. Purchase Supplies and Services for Construction Activities As at December 31, 1998 the Company had transactions with related companies which supply material and other services for the company as follows: Amounts : Baht Bangkok Concrete Industries Company Limited 10,111,589 Mahasiri Company Limited 43,754,401 Hicrete Production and Technology Company Limited 1,989,607 Silasaicrete Limited Partnership 759,355 Thai Pracha Construction Limited Partnership 354,439 Total 56,969,391 Other services 2,079,072 Other Trade Transactions 1. Other Accounts receivable related to construction activity Receivable for Supplies included trade debts for subsidiaries, related companies and joint ventures which the parent company has supported for the construction supplies including rental equipment , project management, and transportation services which as follows: Amounts : Baht Subsidiaries CH. Karnchang-Tokyu Construction Co., Ltd. 376,848 Related Companies Phrompratharn Construction Limited Partnership 5,856,541 Bangkok Concrete Industries Company Limited 28,865,162 Sermmit Executive Co., Ltd. 11,817,613 Silasaicrete Limited Partnership 3,882,172 Siam Wire Industry Company Limited 2,809,474 CK. Office Tower Company Limited 786,546 Other related companies 465,316 Joint Ventures - Joint Venture CH. Karnchang Public Co., Ltd., Bilfinger and Berger Bauaktiengesellschaft, Tokyu Construction Co., Ltd. and CH. Karnchang - Tokyu Construction Co., Ltd. 5,892,326 - Joint Venture TWCK (Thames Water International (Thailand) Ltd. and CH. Karnchang Public Co., Ltd.) 2,629,548 - Joint Venture BBCD Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd. and Dyckerhoff & Widmann AG 464,817,117 - Joint Venture BCKT Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd , Kumagai Gumi Co., Ltd., and Tokyu Construction Co., Ltd 18,705,264 - Joint Venture between CH. Karnchang-Tokyu Construction Co., Ltd. and Tokyu Construction Co.,Ltd. 4,875,395 551,779,322 2. Advance Payments The company has advance payments to joint ventures are as follows: Amounts : Baht Advance Payments Subsidiary - Bangkok Metro Co., Ltd. 4,633,347 Joint Ventures - Joint Venture BCKT (Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd, Kumagai Gumi Co., Ltd., and Tokyu Construction Co., Ltd) 1,575,000 - Other joint ventures 8,858,729 Total advance payments 15,067,076 3. Loans Disclosure of loans to and loans from subsidiaries, related companies and joint ventures. (Amounts : Baht) 1998 1997 Loan Policy of Related Loans to Baht Baht - CH. Karnchang Real Estate Co., Ltd. 400,000 400,000 Market borrowing at rate 14.75% up to 18.50% - Bangkok Metro Co., Ltd 61,527,970 - Market borrowing at rate 14.75% up to 18.25% - Joint Venture Phuket Consortium Consists of CH. Karnchang Public Co., Ltd., Thames Water International (Thailand) Co., Ltd., Index International Group Co., Ltd Market borrowing and Trio Consultant Co., Ltd 6,400,000 6,400,000 at rate 14.75% up to 18.5% - Joint Venture BCKT (Bilfinger and Berger Bauaktiengesellschaft, CH. Karnchang Public Co., Ltd., Kumagai Gumi Co., Ltd., and Market borrowing Tokyu Construction Co., Ltd.) 45,502,740 140,000,000 at rate 15% Market borrowing at rate - Pathumthani Water Co., Ltd. 141,040,900 - 12.625% up to 16.375% Total 254,871,610 146,800,000 Loan from - Joint Ventures TWCK (Thames Water International (Thailand) Ltd.and Market borrowing CH. Karnchang Public Co., Ltd.) 40,000,000 - at rate 11.5% up to 15.5% 40,000,000 - As at December 31, 1998 and 1997, the Company had the interest receivable from loans to subsidiaries, related companies, and joint ventures in the amount of Baht 18,482,068 and Baht 19,918,720, respectively. And in 1998 the Company had the interest payable from loans from joint ventures in approximate amount of Baht 2,713,151. In 1997, a Joint Venture had changed its 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 of 2-15% per annum since the started loan date to December 31, 1997 in the total amount of Baht 41,895,171 according to 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. (More)