REPORT OF THE INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS 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, 1999, and the related consolidated and the Companys statements of income, changes in shareholders equity, retained earnings and cash flows for the year 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 audit. The consolidated and the Companys financial statements for the year ended December 31, 1998 were audited by another auditor of the same firm whose report thereon dated February 19, 1999 expressed an unqualified opinion with an emphasis of a matter explanatory paragraph describing the uncertainty of the Company and subsidiarys ability to continue as a going concern and uncertainty related to recoverability of mineral exploration expenditure of a subsidiary which have been deferred. We conducted our audits in accordance with generally accepted auditing standards in Thailand. 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. - 2 - In our opinion, the consolidated and the Companys financial statements referred to in the first papagraph present fairly, in all material respects, the financial position of Padaeng Industry Public Company Limited and subsidiaries and of Padaeng Industry Public Company Limited as at December 31, 1999 and the result of operations, the changes in shareholders equity and cash flows for the year then ended in accordance with generally accepted accounting principles in Thailand. As described in Notes 1 and 16.1 to the financial statements, on June 25, 1999, the Company entered into the Override Amendment Agreement with its lenders to amend the Tranche A principal repayment. Under the Override Amendment Agreement, the Company will have to sell the remainder of the increased capital of 75.1 million shares to repay the Tranche A principal by September 15, 2000. There is uncertainty regarding the ability of the Company to continue as a going concern if the Company is unable to sell the remainder of the increased capital of 75.1 million shares on such date and the lenders are to demand immediate repayment. If the Company is unable to continue as a going concern, it may be required to realized its assets and extinguish its liabilities other than the normal course of business and at amounts different from those stated in the financial statements. As described in Note 24 to the financial statements, on February 19, 1999, the board meeting of a subsidiary company passed the resolution to approve discontinuation of its business. Certain of its assets were written down to realizable value in 1998. However, there is uncertainty related to the recoverability of the amount of the subsidiarys assets as at December 31, 1999, which amounted to Baht 123.5 million or 2.53% of the total consolidated assets at December 31, 1999. As described in Notes 10.4 and 13 to the financial statements, the consolidated financial statements for the year ended December 31, 1999 include deferred exploration expenditures and special project license fee of a subsidiary amounting to Baht 162 million. The recoverable value of this amount is still uncertain because the exploration results and continued funding of a joint venture project are not known at this time. The Companys investment in such subsidiary by the equity method amounting to Baht 162 million has not included any adjustments which may arise from the resolution of such matter. As described in Note 13 to the financial statements, the Company has uncertainty related to the recoverability of the compensation which was paid to a company amounting to Baht 40.9 million because the Company submitted its concession application for approval, and the outcome of which is not known at this time. - 3 - As described in Note 18.4 to the financial statements, the Company received the notice of decision of the Board of Tax Appeal to pay the income tax, penalties and surcharge. The Company has submitted an appeal to the Center Taxation Court, the result of such appeal is not known at this time. The Company has not made any provision for this contingent liability in the financial statements. Nachalee Boonyakarnkul Certified Public Accountant (Thailand) BANGKOK Registration No. 3126 February 10, 2000 DELOITTE TOUCHE TOHMATSU JAIYOS PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht ASSETS CURRENT ASSETS Cash in hand and at banks 4 398,269,162 65,515,412 335,184,787 52,039,169 Deposits at banks used as collateral 4.1 11,554,589 11,554,589 - - Short-term investments Deposits at financial institutions 4 - 99,856,250 - 51,856,250 Trade accounts receivable-net 5 250,412,696 195,922,309 246,226,037 162,278,578 Short-term loans and advances to related companies 20 693,346 89,694 1,620,430 640,403 Inventories 6 712,418,284 731,792,585 704,975,002 697,630,950 Withholding tax 18,606,514 19,394,318 649,334 1,535,969 Account receivable - Revenue Department 55,621,072 65,515,002 55,234,785 63,089,155 Premium on forward contract - 7,513,844 - 7,513,844 Other receivables 7 1,946,138 15,609,515 1,850,084 14,748,380 Prepayment for financial advisory fee 9,345,826 - 9,345,826 - Other current assets 8 6,844,333 7,461,288 5,138,363 4,826,918 Total Current Assets 1,465,711,960 1,220,224,806 1,360,224,648 1,056,159,616 LONG-TERM DEPOSIT AT A FINANCIAL INSTITUTION 9 30,054,136 30,054,136 - - INVESTMENTS AND LOANS Investments in related companies 10.1 - 1,491,468 372,035,797 526,069,032 Other securities 11 14,451,626 55,705,698 14,451,626 55,705,698 Loans and advances 20 - - 8,000,000 8,000,000 Total Investments and Loans 14,451,626 57,197,166 394,487,423 589,774,730 PROPERTY, PLANT AND EQUIPMENT NET 12 3,003,419,924 3,466,349,181 3,002,961,743 3,341,517,781 ASSETS FOR SALE 24 123,500,004 - - - OTHER ASSETS 13 249,366,330 206,441,538 83,055,635 40,593,532 TOTAL ASSETS 4,886,503,980 4,980,266,827 4,840,729,449 5,028,045,659 Notes to financial statements form an integral part of these statements PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Bank overdrafts and loans from financial institutions 14 251,657,174 276,315,073 215,365,158 218,223,401 Trade accounts payable 15 187,563,936 61,444,585 273,641,132 146,334,385 Current portion of long-term loans 16 1,757,400,278 1,527,899,675 1,582,400,278 1,275,399,675 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 - - Short-term loans and advances from related companies 20 107,815,968 105,573,792 - - Other current liabilities Accrued interest 42,550,805 41,918,607 12,450,425 19,769,943 Accrued electricity expenses 119,107,092 116,719,407 119,107,092 116,719,407 Provision for guarantee expenses of a subsidiary 23 - 37,969,000 174,357,587 292,140,525 Forward contract payable - 77,264,541 - 77,264,541 Others 93,335,407 90,632,355 90,385,787 77,544,052 Total Current Liabilities 2,559,430,660 3,843,364,491 2,467,707,459 3,721,023,385 LOANS FROM RELATED COMPANIES 20 - - 9,879,959 161,000,000 LONG - TERM LOANS 16 949,153,349 - 949,153,349 - OTHER LIABILITIES 2,937,283 - 2,937,283 - TOTAL LIABILITIES 3,511,521,292 3,843,364,491 3,429,678,050 3,882,023,385 MINORITY INTEREST 2,151,416 2,284,495 - - PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEETS AS AT DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht LIABILITIES AND SHAREHOLDERS EQUITY (CONTINUED) SHAREHOLDERS EQUITY SHARE CAPITAL 21 Authorized share capital 226,000,000 ordinary shares of Baht 10.00 each 2,260,000,000 2,260,000,000 2,260,000,000 2,260,000,000 Issued and paid-up share capital 150,899,993 ordinary shares of Baht 10.00 each, fully paid 1,508,999,930 1,508,999,930 1,508,999,930 1,508,999,930 PREMIUM ON SHARE CAPITAL 866,121,740 866,121,740 866,121,740 866,121,740 RETAINED EARNINGS (DEFICIT) Appropriated Legal reserve 98,200,000 98,200,000 98,200,000 98,200,000 Reserve for business expansion 1,969,000,000 1,969,000,000 1,969,000,000 1,969,000,000 Unappropriated (deficit) (3,069,490,398) (3,222,202,601) (3,031,270,271) (3,210,798,168) Less Unrealized loss on non-current marketable equity securities - (85,501,228) - (85,501,228) TOTAL SHAREHOLDERS EQUITY 1,372,831,272 1,134,617,841 1,411,051,399 1,146,022,274 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 4,886,503,980 4,980,266,827 4,840,729,449 5,028,045,659 Notes to financial statements form an integral part of these statements PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Note Baht Baht Baht Baht REVENUES Sales 4,444,454,499 4,810,441,128 4,436,060,868 4,798,224,071 Other income Interest income 8,040,308 42,615,876 4,916,604 97,786,004 Gain on exchange rates - 337,604,605 - 337,604,605 Adjustment to the provision for guarantee of a subsidiary 1,151,000 - 22,315,677 - Equity in undistributed net income of subsidiary and associated companies - 40,602 9,607,453 - Others 8,148,430 39,057,027 8,159,440 38,552,583 Total Revenues 4,461,794,237 5,229,759,238 4,481,060,042 5,272,167,263 EXPENSES Cost of sales 3,510,187,137 3,766,648,347 3,506,320,740 3,757,407,937 Selling and administrative expenses 258,193,497 392,237,191 290,857,524 374,216,931 Loss on exchange rates 26,360,030 - 23,639,034 - Residue pond written off 36,227,795 - 36,227,795 - Depreciation of residue pond 49,049,915 - 49,049,915 - Loss on disposal of marketable securities 69,893,608 - 69,893,608 - Interest expenses 310,012,479 418,580,639 318,712,795 433,800,237 Directors remuneration 1,691,774 1,484,040 1,691,774 1,484,040 Equity in undistributed net loss of subsidiaries and associated companies - - - 653,939,098 Write-down of deferred expenditure 13 701,269 118,437,585 701,269 56,168,004 Loss on provision for guarantee of a subsidiary 23 - 37,969,000 - 292,140,525 Other expenses 4,437,691 6,110,326 4,437,691 6,110,326 Total Expenses 4,266,755,195 4,741,467,128 4,301,532,145 5,575,267,098 Net income (loss) before minority interest and the result of operations of a subsidiary which ceased its operations 195,039,042 488,292,110 179,527,897 (303,099,835) Minority interest in net income (loss) of a subsidiary company 133,079 4,648,002 - - Net income (loss) before the result of operations of a subsidiary which ceased its operations 195,172,121 492,940,112 179,527,897 (303,099,835) Net income (loss) of a subsidiary which ceased its operations 2.2 (42,459,918) 10,027,862 - - Loss from diminution in value of asset of a subsidiary 24 - (817,472,242) - - NET INCOME (LOSS) 152,712,203 (314,504,268) 179,527,897 (303,099,835) EARNINGS (LOSS) PER SHARE BAHT 3.10 1.01 (2.17) 1.19 (2.09) WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING SHARES 150,899,993 145,371,488 150,899,993 145,371,488 PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEAR ENDED DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht SHARE CAPITAL Ordinary shares Brought forward 1,508,999,930 1,443,695,580 1,508,999,930 1,443,695,580 Increase (decrease) in the year - 65,304,350 - 65,304,350 Carried forward 1,508,999,930 1,508,999,930 1,508,999,930 1,508,999,930 PREMIUM ON SHARE CAPITAL Premium on share capital Brought forward 866,121,740 840,000,000 866,121,740 840,000,000 Increase (decrease) in the year - 26,121,740 - 26,121,740 Carried forward 866,121,740 866,121,740 866,121,740 866,121,740 RETAINED EARNINGS (DEFICIT) Appropriated Legal reserve Brought forward 98,200,000 98,200,000 98,200,000 98,200,000 Increase (decrease) in the year - - - - Carried forward 98,200,000 98,200,000 98,200,000 98,200,000 Reserve for business expansion Brought forward 1,969,000,000 1,969,000,000 1,969,000,000 1,969,000,000 Increase (decrease) in the year - - - - Carried forward 1,969,000,000 1,969,000,000 1,969,000,000 1,969,000,000 Unappropriated Brought forward (deficit) (3,222,202,601) (2,907,698,333) (3,210,798,168) (2,907,698,333) Increase (decrease) in the year 152,712,203 (314,504,268) 179,527,897 (303,099,835) Carried forward (deficit) (3,069,490,398) (3,222,202,601) (3,031,270,271) (3,210,798,168) UNREALIZED LOSS ON NON-CURRENT MARKETABLE SECURITIES Brought forward (85,501,228) (82,986,486) (85,501,228) (82,986,486) Increase (decrease) in the year 85,501,228 (2,514,742) 85,501,228 (2,514,742) Carried forward - (85,501,228) - (85,501,228) TOTAL SHAREHOLDERS EQUITY 1,372,831,272 1,134,617,841 1,411,051,399 1,146,022,274 Notes to financial statements form an integral part of these statements PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF RETAINED EARNINGS FOR THE YEAR ENDED DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Unappropriated retained earnings (deficit) Brought forward (deficit) (3,222,202,601) (2,907,698,333) (3,210,798,168) (2,907,698,333) Net income (loss) for the year 152,712,203 (314,504,268) 179,527,897 (303,099,835) Total unappropriated retained earnings (deficit) (3,069,490,398) (3,222,202,601) (3,031,270,271) (3,210,798,168) Appropriated retained earnings Legal reserve 98,200,000 98,200,000 98,200,000 98,200,000 Reserve for business expansion 1,969,000,000 1,969,000,000 1,969,000,000 1,969,000,000 TOTAL APPROPRIATED RETAINED EARNINGS 2,067,200,000 2,067,200,000 2,067,200,000 2,067,200,000 TOTAL RETAINED EARNINGS (DEFICIT) (1,002,290,398) (1,155,002,601) (964,070,271) (1,143,598,168) Notes to financial statements form an integral part of these statements PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 152,712,203 (314,504,268) 179,527,897 (303,099,835) Items to reconcile net income (loss) to net cash: Equity in undistributed net (income) loss of associated companies - (40,602) - - Equity in undistributed net (income) loss of subsidiary and associated companies - - (9,607,453) 653,939,098 Provision for obsolete inventories (reversal) 5,963,050 (227,496) 5,963,050 (227,496) Depreciation and depletion 389,636,665 413,706,774 389,074,380 330,881,970 Loss from guarantee of a subsidiary (reversal of provision guarantee) (1,151,000) 37,969,000 (22,315,677) 292,140,525 Deferred charges amortisation 15,046,685 32,765,115 15,046,685 32,479,547 Deferred interest on hire purchase amortisation 834,127 - 834,127 - Exploration cost written off 701,269 - 701,269 - Provision for doubtful debts-trade accounts receivable (reversal) (29,168,206) (6,910,406) (28,520,536) 40,761,047 Accrued fee received written off 4,982,076 - 4,982,076 - Loss (gain) on disposal of marketable securities 69,893,608 - 69,893,608 - Loss (gain) on disposal of property, plant and equipment 25,218 1,746,227 226,929 (1,469,280) Provision for short-term loans and advances to related companies (reversal) (200,000) 1,743,530 - 1,743,530 Property, plant and equipment written off 36,309,783 - 36,309,783 - Other assets written off 713,566 118,437,585 - 56,168,004 Withholding tax written off - 6,964,406 - 5,879,307 Provision for decline in value of other assets - 74,932,723 - - Premium on forward contract amortisation 7,513,844 16,599,212 7,513,844 16,599,212 Investment in related companies written off - 22,695,000 - 5,000,000 Loss (gain) on exchange rates 20,918,038 (439,441,836) 23,639,034 (337,604,605) Loss from diminution in value of asset 729,032 817,472,242 729,032 - Minority interest in net income (loss) (133,079) (4,648,002) - - Income (loss) from operations before changes in operating assets and liabilities 675,326,879 779,259,204 673,998,048 793,191,024 Operating assets (increase) decrease Deposits at banks used as collateral - (8,000,000) - - Deposits at financial institutions used as collateral - 97,000,000 - 50,000,000 Trade accounts receivable (51,871,154) 65,932,549 (81,975,896) 22,679,494 Short-term loans and advances to related companies (403,652) 1,347,249 (980,027) 1,903,539 Inventories 38,476,329 611,338,601 11,757,976 440,016,723 Withholding tax 787,804 (3,556,765) 886,635 (2,336,597) Account receivable Revenue Department 9,893,930 (40,980,219) 7,854,370 (46,051,068) Other receivables 13,663,377 38,033,309 12,898,296 31,367,419 Other current assets (4,365,361) 2,792,723 (5,293,761) (739,070) PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Operating liabilities increase (decrease) Trade accounts payable 128,026,044 (152,165,506) 129,213,440 (105,124,702) Deposits from export sales - (503,987,903) - (503,987,903) Accrued interest expenses 1,013,249 (72,987,259) (7,319,518) (63,787,844) Accrued electricity expenses 2,387,685 4,337,344 2,387,685 4,337,344 Forward contract payable (67,326,657) 53,151,485 (67,326,657) 53,151,485 Provision for guarantee of a subsidiary (36,818,000) - (95,467,261) - Other current liabilities 5,571,958 25,114,916 15,710,641 25,368,610 Net cash provide by (used in) operating activities 714,362,431 896,629,728 596,343,971 699,988,454 CASH FLOWS FROM INVESTING ATIVITIES (more)