REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF PADAENG INDUSTRY PUBLIC COMPANY LIMITED We have audited the consolidated balance sheet of Padaeng Industry Public Company Limited and subsidiaries and the balance sheet of Padaeng Industry Public Company Limited as at December 31, 1998 and 1997, and the related consolidated and equity method statements of profit and loss, changes in shareholders equity, retained earnings and cash flows for each of the years then ended. These financial statements are the responsibility of the Companys management as to their correctness and completeness of the presentation. Our responsibility is to express an opinion on these financial statements based on our audits. 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 as to 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. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated and equity method financial statements present fairly, in all material respects, the financial position of Padaeng Industry Public Company Limited and its subsidiaries and of Padaeng Industry Public Company Limited as at December 31, 1998 and 1997, and the results of operations, the changes in shareholders equity, and cash flows for each of the years then ended in conformity with generally accepted accounting principles. In our report dated February 25, 1998, our opinion on the financial statements of the Company and subsidiaries for 1997 was qualified as being subject to any adjustments which would be required had the outcome of uncertainty relating to the Companys and subsidiarys ability to continue as a going concern and the outcome of uncertainties of the exploration result of a subsidiary that effected the Companys investment and subsidiarys other assets. In 1998 the format of auditors report has been changed in accordance with the Board of Supervision of Auditing Practices Notification No. 41/1998. Such Notification discontinued the use of opinions which are subject to the outcome of uncertainties. Accordingly, our opinion on the financial statements for 1997 as expressed herein is different from that in our previous report. - 2 - The financial statements have been prepared on a going concern basis assuming that the Company will realize its assets and extinguish its liabilities in the normal course of business. The countrys unstable economy, caused by various factors in the Asia-Pacific region, as discussed in Note1 to the financial statements, has significantly affected and may continue to effect the operations of the Company. In 1997 there was uncertainty regarding the ability of the Company to continue as a going concern because of negative cash flows if it was unable to obtain an extension of short term debt repayments and changes in certain conditions of the loans from its lenders and the lenders were to demand immediate repayment. On October 7, 1998 the Company entered into the Override and Supplementary Agreement with its lenders and other parties. The agreements provided for amendments of the repayment terms. The funds for the repayment of the loans principals in accordance with the agreement were to be from operating income and from the sales of the increased capital to Western Metals Limited. However, on February 24, 1999, Western Metals Limited rescinded its subscription agreement under which it was to have acquired another 75.1 million shares for Baht 1,051 million. The proceeds due from Western Metals Limited for the subscription due on February 28, 1999 were to be used in part to make the Tranche A repayment on February 28, 1999 as discussed in Note 16 to the financial statements. However, this payment will not be made on that date which will cause the Company to be in noncompliance with the Override and Supplementary Agreement. Long term debt at December 31, 1998 has been reclassified as current. The Company intends to negotiate with its creditors to re-schedule the Tranche A principal repayments. However, the outcome of such negotiation is not known at this time. If the Company is unable to continue as a going concern, it may be required to realize its assets and extinguish its liabilities other than in the normal course of business and at amounts different from those stated in the financial statements. In our report dated February 25, 1998, our opinion on the 1997 consolidated and equity method financial statements includes the matters of doubt about a subsidiarys ability to continue as a going concern. The 1997 consolidated financial statements did not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the subsidiary not continue as a going concern. As discussed in Note 24 to the financial statements, on February 19, 1999 the shareholders of the subsidiary approved the closure of the business and the subsidiary has made valuation provisions for certain assets in 1998. The amount of the subsidiarys assets at December 31, 1998 included in the 1998 consolidated financial statements is of Baht 203.1 million or 4.07% of the total consolidated assets. However, the amounts realizable from the disposition of the assets and settlement of liabilities may differ from amounts shown in the accompanying financial statements. As discussed in Note 13 to the financial statements, part of other assets in the consolidated financial statements for the years ended December 31, 1998 and 1997 amounting to Baht 162 million is mineral exploration of a subsidiary which was suspended. The subsidiary is currently searching for joint venture partners to provide funding for continuation of exploration. The recoverability of deferred exploration expenditure is dependent upon the successful result of future exploration, the result of which is not known at this time. - 3 - As discussed in Note 10.4 to the financial statements, investment in certain subsidiary for the years ended December 31, 1998 and 1997 amounting to Baht 162 million and Baht 242 million respectively which is presented as part of investments in subsidiary companies in the equity method financial statements does not include any adjustments which may arise has the outcome of the exploration of subsidiary as described in the seventh paragraph been known. Toemsakdi Krishnamra Certified Public Accountant (Thailand) BANGKOK Registration No. 1106 February 19, 1999 and DELOITTE TOUCHE TOHMATSU JAIYOS February 24, 1999 for Note 1 to the financial statements. The above report of independent certified public accountants and accompanying financial statements are English translations of such report and financial statements prepared for and used in Thailand. The accompanying financial statements were prepared using accounting principles, procedures and reporting practices generally accepted in Thailand and are not intended to present the financial position and results of operations, changes in shareholders equity and retained earnings and its cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than those in Thailand. The standards, procedures and practices utilized to audit such financial statements are those generally accepted and applied in Thailand. PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT DECEMBER 31, Note CONSOLIDATED THE COMPANY ON EQUITY METHOD 1998 1997 1998 1997 Baht Baht Baht Baht ASSETS CURRENT ASSETS Cash in hand and at banks 4. 65,515,412 234,319,651 52,039,169 226,065,933 Deposits at banks used as collateral 4.1 11,554,589 3,554,589 - - Short-term investments Deposits at financial institutions 4. 99,856,250 60,000,000 51,856,250 60,000,000 Deposits at financial institutions used as collateral - 97,000,000 - 50,000,000 Trade accounts and notes receivable (net) 5. 195,922,309 309,792,086 162,278,578 326,943,677 Short-term loans and advances to related companies 20. 89,694 3,180,473 640,403 4,287,472 Inventories 6. 731,792,585 1,395,299,291 697,630,950 1,137,420,177 Withholding tax 19,394,318 22,801,959 1,535,969 5,078,679 Account receivable - Revenue Department 65,515,002 24,534,783 63,089,155 17,038,087 Premium on forward contract 7,513,844 - 7,513,844 - Other receivables 7. 15,609,515 53,642,824 14,748,380 46,115,799 Other current assets 8. 7,461,288 9,568,578 4,826,918 3,402,415 Total Current Assets 1,220,224,806 2,213,694,234 1,056,159,616 1,876,352,239 Long-term deposit at financial institution 9. 30,054,136 30,054,136 - - Investments and Loans Investments in related companies 10. 1,491,468 6,450,867 526,069,032 583,838,499 Investments in other companies 11. 55,705,698 58,220,440 55,705,698 58,220,440 Loans and advances 20. - - 8,000,000 464,977,839 Total Investments and Loans 57,197,166 64,671,307 589,774,730 1,107,036,778 Property, Plant and equipment Net 12. 3,466,349,181 4,568,546,391 3,341,517,781 3,583,091,742 Other Assets 13. 206,441,538 417,446,462 40,593,532 127,205,920 TOTAL ASSETS 4,980,266,827 7,294,412,530 5,028,045,659 6,693,686,679 Notes to the consolidated and equity method financial statements form an integral part of these statements PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT DECEMBER 31, Note CONSOLIDATED THE COMPANY ON EQUITY METHOD 1998 1997 1998 1997 Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Bank overdrafts and loans from financial institutions 14. 276,315,073 1,894,111,814 218,223,401 1,638,492,412 Trade accounts and notes payable 15. 61,444,585 209,240,946 146,334,385 247,089,942 Current portion of long-term loans 16. 1,527,899,675 1,065,088,071 1,275,399,674 753,838,071 Long term loans liabilities subject to restructuring 16 1,497,627,456 - 1,497,627,456 - Short-term loans and advances from directors and employees 10,000,000 10,000,000 - - Short-term loans and advances from related companies 20. 105,573,792 156,482,873 - - Other current liabilities Deposits on export sales - 570,672,000 - 570,672,000 Accrued interest 41,918,607 114,905,866 19,769,943 83,557,787 Accrued electricity expenses 116,719,407 112,382,063 116,719,407 112,382,063 Provision for guarantee and expenses 37,969,000 - 292,140,525 - Forward contract payable 77,264,541 - 77,264,541 - Others 90,632,355 65,517,439 77,544,053 52,175,443 Total Current Liabilities 3,843,364,491 4,198,401,072 3,721,023,385 3,458,207,718 Loans From Related Companies 20. - - 161,000,000 146,400,000 Long Term Loans 16. - 1,728,868,200 - 1,728,868,200 Total Liabilities 3,843,364,491 5,927,269,272 3,882,023,385 5,333,475,918 Minority Interest 2,284,495 6,932,497 - - (More)