- 16 - CONSOLIDATED THE COMPANY 1999 1998 1999 1998 Baht Baht Baht Baht Loans and advances - - 1,202,566,170 1,006,092,200 Less Allowance for doubtful debt (accumulated loss exceeding investment in a subsidiary) - - (1,194,566,170) (529,856,570) Loans and advances - net - - 8,000,000 476,235,630 The Company has recognized the full-undistributed loss of a subsidiary that incurred a capital deficiency, by reducing the investment in, receivables from and loans to the subsidiary. In 1998, the Company has provided for commitments in respect of loan guarantees of Padaeng Poongsan Metals Co., Ltd. (see Note 16). 15. JOINT CO-OPERATION AGREEMENT A subsidiary company which operates in real estate entered into a Joint Cooperation Agreement with the Industrial Estate Authority of Thailand on September 7, 1992, in which the subsidiary company agreed to develop its land for The Industrial Park of Padaeng Industry Group and to transfer the ownership of properties relating to infrastructure, roads and facilities, including equipment to the Industrial Estate Authority of Thailand without any compensations, whereby the subsidiary company is allowed to transfer its right to use the wharf frontage and any building on such land toother companies, in which the subsidiary company or Padaeng Industry Public Company Limited has at least a holding of 30% of share capital of such companies. In 1995, the subsidiary company sold certain plots of land in The Industrial Park of Padaeng Industry Group to two companies, under the term which is not in accordance with the above condition.The subsidiary company has loss from such sale of land in the amount of Baht 73.3 million. The subsidiary company sent a letter dated February 27, 1995 to the Industrial Estate Authority of Thailand requested an amendment to the above joint cooperation agreement. The Industrial Estate Authority of Thailand sent a letter dated October 6, 1995 to the subsidiary company, stating that the Boardof Directors of the Industrial Estate Authority of Thailand passed a resolution that the request for an amendment to the agreement could be approved if it was in accordance with the law governing amendments of the State agreement, in this respect the Industrial Estate Authority of Thailand has to request for compensation of 30% of profit from such sale of land in The Industrial Park of Padaeng Industry Group by the subsidiary company to other juristic entity. /17 - 17 - On February 27, 1996, the Industrial Estate Authoritys of Thailand sent another letter to the subsidiary company, stating that the subsidiary company had to pay penalties as the subsidiary company did not comply with the joint cooperation agreement and the sale of land agreement at the Industrial park of Padaeng Industry Group, in the amount of Baht 5,308,500. The subsidiary company paid for such penalties in full on February 28, 1996. As at March 31, 1999, the compensation of 30% of profit from sale of land has not yet been finalized. However, the subsidiary company has loss from such sale of land as described in the second paragraph, accordingly, it believes no amounts will be due. 16. PROVISION FOR GUARANTEE EXPENSES OF A SUBSIDIARY Following continued and substantial losses arising from the economic downturn in Southeast Asia, the Board of Padaeng Poongsan Metals Co., Ltd. resolved to cease operations in January 1998 and lay off staff. Operations were temporarily resumed in August 1998in order to complete outstanding contractual obligations. As the major shareholder and sole signatory to the Guarantee Agreement of 1993 with the Government Savings Bank, the Company is obliged to meet outstanding commitments incurred by Padaeng Poongsan Metals Co., Ltd. Padaeng Industry Public Co., Ltd. has recognized in the profit and loss for the financial statements year ended December 31, 1998, the following provision for current and future commitments for Padaeng Poongsan Metals Co., Ltd. for which Padaeng Industry Public Co., Ltd. is obliged to guarantee payment amounting to Baht 292 million: For the quarter ended March 31, 1999, Padaeng Poongsan Metals Co., Ltd. has paid part of the principals and interest to a bank. This repayment decreased the provision for guarantee expenses of asubsidiary of Padaeng Industry Public Co., Ltd. The Company has recognized such amount as loss on provision guarantee (reversal) which is shown under other income. As at March 31, 1999, the balances of provision for guarantee expenses of a subsidiary are as follows: CONSOLIDATED THE COMPANY Baht Baht Provision for interest expenses; lease fees, insurances and other commitments prior to the disposal of the assets of Padaeng Poongsan Metals Co., Ltd. 30,028,000 38,298,000 Loan guarantee repayments net of estimated recoveries on disposal of assets - 216,514,848 Other contractual obligations - 8,222,000 30,028,000 263,034,848 /18 - 18 - 17. OPERATION OF A SUBSIDARY COMPANY On February 19, 1999, the Board meeting of Padaeng Poongsan Metals Co., Ltd. passed the resolution to approve such subsidiary discontinued its business and wrote down certain assets to be realizable value in the financial statements for the year ended December 31, 1998. The valuation of subsidiarys assets was determined bythe independent appraisal. The valuation included an appraisal of the buildings, land improvements, machinery and equipment of the subsidiary at Lamchabang Industrial Estate. The valuation excluded land and building at Moo-Ban Panya at Chonburi Province, furniture and fitting, office equipment, inventories of consumables and spares and other stocks of scrap and work in progress. In the opinion of the valuer, the most reasonable basis for determining the fair market value of the subsidiary was to assess the estimated gross amount that the property would realize if sold on a negotiated individual basis in an as-is, where is condition and location, either as a complete unit or on piece-meal basis. In January 1999, brokers were appointed to dispose of the assets of Padaeng Poongsan Metals Co., Ltd. The following property, plant and equipment foreclose of Padaeng Poongsan Metals Co., Ltd. were included in the consolidated balance sheet: As at March 31, 1999 Book Value Land improvement, buildings plant, machinery and equipment 111,000,004 Other land and buildings 12,500,000 Baht 123,500,004 For the quarter ended March 31, operation of such subsidiary are as follows: 1999 1998 Revenue Sales 25,161,057 131,890,620 Other income Gain on exchange rate - 138,044,895 Other 121,211 10,930,526 Total revenue 25,282,268 280,866,041 Expenses Cost of sales 18,051,864 98,032,328 Selling and administrative expenses 19,433,214 54,311,687 Total expenses 35,685,078 152,344,015 Net profit (loss) Baht (10,402,810) 128,522,026 /19 - 19 - 18. PLAN FOR RESOLVING THE MILLENNIUM BUG (Y2K) PROBLEM (Unreview - Not Covered by the Review Report of Independent Certified Public Accountants) The Company has analyzed and evaluated the effect of problems for the year 2000 that impact on operations, both production and applications is not significant. There will be minor impact on computer system, which control production in plants, some applications oftware in back office computer, database and report. A competent responsible team is solving major impact. Subsidiary companies have also been analyzed and evaluated and no impact of problems on the year 2000 is found because business do not depend on any computer while accounting application package has already been prepared for the year 2000. Since October 1997 the Company has upgraded and modified computer system for the year 2000. Until March 31, 1999 about 85 percent of modification has been finished and the task will be accomplished within June 1999. This project expense cost about 1,050,000 Baht. (Incomplete task is production- controlled computer system inzinc refinery plant, which will be upgraded whereas plant shutdowns for annual maintenance in June this year. The said applications are functioned in order to avoid impacts to plants production.) Although the impact is not significant to the Company and it was expected that the year 2000 solving will be finished on time, the Company still provide contingency plan for office if the problem incurs on January 1, 2000. This will be subcontracted to Y2K between Mar-June this year. And although the Company expects that the year 2000 solving will be finished before the year 2000 starting but there seems to be some risk from other corresponding business lines which still unable to solve such problem in time. However, the Company expects that the impact on business is not significant.