Contract Amount Fair Value Contract Amount Fair Value Baht Baht Baht Baht USD Equivalent Equivalent USD Equivalent Equivalent Purchase forward contracts 12,855,997 551,522,271 551,907,951 12,855,997 551,522,271 551,907,951 Foreign currency amounts are translated at the forward rate for the remaining maturing. As at December 31, 1999, there were no forward exchange contracts. 17.3 Fair values of financial assets and liabilities The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the economic entity approximates their carrying value. The net fair value of other monetary financial assets and financial liabilities is based upon market values. /21 - 21 - Equity investments traded on organized markets have been valued by reference to market prices prevailing at balance date. For non-traded equity investments, the net fair value is an assessment by the directors based on the underlying net assets, future maintainable earnings and special circumstances pertaining to a particular investment. 17.4 Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Company. The Company has the credit risk management policy to obtain collateral from the customers before commencing the trade. The collateral may include bank guarantee or cash guarantee. In the case of recognized financial assets, the carrying amount of the assets recorded in the consolidated balance sheet, net of a portion of allowance for doubtful debts, represents the Company maximum exposure to credit risk. 17.5 Interest rate risk Interest rate risk in the balance sheet arises from the potential for a change in interest rates to have an adverse effect on the net interest earnings of the Company in the current reporting period and in future years. 18. COMMITMENTS AND CONTINGENCIES 18.1 As at December 31, 1999 and 1998, a subsidiary which operates in real estate business has commitments under a Joint Cooperation Agreement for the Padaeng Industry Park project as follows: - Baht 567,525 per annum payable for service and operation support and a 5% increase every 5 years commencing from September 7, 1992, and the annual compensation on wharf usage as specified in the agreement. 18.2 As at December 31, 1999 and 1998, the Company and a subsidiary have contingent liabilities for letters of guarantee issued by banks of approximately Baht 84.61 million and Baht 117.81 million respectively. 18.3 As at December 31, 1999 and 1998, the Company and a subsidiary have unused letters of credit amounting to approximately Baht 234.79 million and Baht 171.29 million respectively. 18.4 In December 1995, the Company received the notice of income tax assessment from the Revenue Department in respect of income tax, penalties and surcharge totaling Baht 31.72 million. In February 1996, the Company has submitted an appeal to cancel such income tax assessment, waive and reduce such penalties and surcharge. /2 - 22 - In November 1999, the Company received the notice from the Board of Tax Appeal to reduce such penalties by Baht 6.43 million. The Company has the remainder of income tax, penalties and surcharge totalling Baht 25.29 million. If the Company calculates the surcharge until December 31, 1999, the Company has to pay the income tax, penalties and surcharge totalling Baht 32.17 million. In December 1999, the Company has submitted an appeal to the Center Taxation Court regarding such decision of the Board of Tax Appeal. As at December 31, 1999, result of such appeal has not yet been finalized. The Company has not made any provision for this contingent liability in the financial statements. 18.5 Capital commitments: Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities or payables : CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Not later than 1 year 7,980,650 15,987,805 7,980,650 15,987,805 Later than 1 year but no later than 2 years - - - - Later than 2 year but no later than 5 years - - - - Later than 5 years - - - - 7,980,650 15,987,805 7,980,650 15,987,805 18.6 Purchase commitments: Commitments for the purchase of raw materials contracted for at the reporting date but not recognised as liabilities, payable CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Not later than 1 year 2,543,729 43,633,210 2,543,729 43,633,210 Later than 1 year but no later than 2 years - - - - Later than 2 year but no later than 5 years - - - - Later than 5 years - - - - 2,543,729 43,633,210 2,543,729 43,633,210 19. COMMITMENTS WITH A GOVERNMENT AGENCY The Company has commitments under a contract with a Government Agency in respect of zinc mining and construction of zinc refinery plant, including certain conditions for sales of zinc metal and zinc remelt and payments of special benefits and special bonus. /23 - 23 - 20. TRANSACTIONS BETWEEN RELATED COMPANIES Transactions between related companies which have to be disclosed in accordance with the regulation of The Stock Exchange of Thailand regarding the basis, conditions and procedure for preparation and submission of financial statements and reports on financial position and result of operations of the listed companies are as follows: Transactions between related companies consist mainly of the following : CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Trade accounts receivable (See*1) - - 48,216,841 47,673,137 Current loans to subsidiaries and 693,346 12,136 1,620,430 562,845 associated companies - 77,558 - 77,558 693,346 89,694 1,620,430 640,403 Current loans from associated companies 107,815,968 105,573,792 - - Non-current loans and advances to a subsidiary (See *5) - - 1,291,243,431 1,195,775,170 Non-current loans from a subsidiary (See * 2) - - 9,879,959 161,000,000 Investments - 1,491,468 372,035,797 526,069,032 Trade accounts payable (see*4) - - 86,077,196 85,920,928 Sale (see *3) - - 5,250,312 10,879,366 Commission paid (See *4) - - - 40,950,897 Transfer of plant and machinery (See *6) - 15,257,929 - 11,811,027 * 1. As at December 31, 1999 and 1998, the Company has trade accounts receivable from a related company that have difficulties in repayments amounting to Baht 46.81 million (see Note 5). * 2. As at December 31, 1999 and 1998 loans from a subsidiary company that are at call and 6 months term promissory notes. (Interest rate 4% - 8.50% per annum for 1999 and interest rate 11.5 % per annum for 1998 and no collateral) * 3. Sales to the subsidiary company are based on a negotiated price. The Company has no available market price for comparison. * 4. Sales commission paid to a subsidiary at 1.5% of sale amount in Baht. As at December 31, 1998, the Company did not renew the commission agreement with such subsidiary. The Company has no available information of commission paid in the market. * 5 On September 1, 1998 the Company entered into the amendment loan agreement with the subsidiary to convert the USD14,614,412 loan into Baht 616,241,546 loan by using the reference rate quoted by the Bank of Thailand as at August 31, 1998 which was USD 1 = Baht 42.1667. The agreement specified that interest would cease accruing from August 31, 1998 onwards. /24 - 24 - As at December 31, 1999 and 1998, such loans and advances to subsidiary have the outstanding balances of approximately Baht 1,291,243,431 (principal Baht 1,086,281,806 and interest and cancellation fees Baht 204,961,625 ) and Baht 1,195,776,170 (principal Baht 990,814,545 and interest and cancellation fees Baht 204,961,625 ) respectively. CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht Baht Baht Loans and advances - - 1,291,243,431 1,195,776,170 Less Accumulated loss exceeding investment in a subsidiary - - (1,283,243,431) (1,187,776,170) - - 8,000,000 8,000,000 Less Allowance for doubtful account - - - - Loans and advances net - - 8,000,000 8,000,000 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 Padaeng Poongsan Metals Co.,Ltds commitments in respect of loan guarantees (See Note 23). *6. For the year ended December 31, 1998 a subsidiary transferred plant and machinery to the Company in lieu of payment of outstanding debts. The book value of the plant and machinery transferred was Baht 11.8 million. As a result of this transfer, the subsidiary incurred a loss of Baht 6.27 million. 21. SHARE CAPITAL On October 7, 1998 the Board of Directors resolved to allocate the remaining 81,630,442 ordinary shares. A first Tranche of 6,530,435 shares amounting to Baht 91,426,090 was received on October 9, 1998 from Western Metals Limited. The remaining shares are required to be sold by September 15, 2000 to meet Tranche A loan principal repayment as required by the Override Amendment Agreement (see Note 16.1). 22. JOINT CO-OPERATION AGREEMENT In 1995, a subsidiary company operating in real estate sold land in the Industrial Park of Padaeng Industry Group to two companies at a loss. The terms of that sale were not in accordance with the Joint Cooperation Agreement established with the Industrial Estate Authority of Thailand to develop that land. The Industrial Estate Authority of Thailand has the right to request 30% of the profit from the sale of the land as compensation, however as the sale was at a loss the subsidiary company believes no amounts will be due. /25 - 25 - 23. PROVISION FOR GUARANTEE OF A SUBSIDIARY As at December 31, 1998, the Company raised a provision for the current and future commitments of Padaeng Poongsan Metals Co., Ltd. This obligation arose because the Company was the sole signatory to the Guarantee Agreement of 1993 with the Government Savings Bank. For the year ended December 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 of a subsidiary of Padaeng Industry Public Co., Ltd. The Company has recognized such amount as adjustment to the provision for guarantee of a subsidiary which is shown under other income. As at December 31, 1999, and 1998 the balances of provision for guarantee of a subsidiary are as follows : CONSOLIDATED THE COMPANY ONLY 1999 1998 1999 1998 Baht Baht 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. - 37,969,000 - 46,239,000 Loan guarantee repayments net of estimated recoveries on disposal of assets - - 174,357,587 237,679,525 Other contractual obligations - - - 8,222,000 Total provision against Padaeng Poongsan Metals Co.,Ltds commitments - 37,969,000 174,357,587 292,140,525 24. OPERATIONS OF A SUBSIDIARY COMPANY On February 19, 1999, the Board meeting of Padaeng Poongsan Metals Co., Ltd. passed the resolution to approved such subsidiary to discontinue its business and to write 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 by an independent appraisal. The valuation included 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. /26 - 26 - The following property, plant and equipment for sale of Padaeng Poongsan Metals Co., Ltd. as at December 31, 1999 have been classified under assets for sale and property, plant and equipment and inventories as at December 31, 1998 have been included in the part of property, plant and equipment and inventories in the consolidated balance sheet : As at As at December 31, 1999 December 31, 1998 Book Value Book Value Land improvement, buildings plant, machinery and equipment 111,000,004 111,000,005 Other land and buildings 12,500,000 12,500,000 Inventories - 31,366,050 Total Baht 123,500,004 154,866,055 Loss from diminution in value of assets of Padaeng Poongsan Metals Co., Ltd was included in the 1998 consolidated income and loss as follows: 1998 Baht Factory land, buildings plant and equipment 730,931,632 Other land and buildings 29,965,663 Office equipment and vehicles 4,179,345 Inventories 52,395,602 Loss from diminution in value of assets of a subsidiary 817,472,242 For the years ended December 31, 1999 and 1998, operations of such subsidiary are as follows : 1999 1998 Baht Baht Revenues Sales 25,161,057 282,836,858 Other income Gain (loss) on exchange rate - 101,837,231 Other 1,429,976 4,182,147 Total revenues 26,591,033 388,856,236 Expenses Cost of sales 18,051,864 193,045,769 Selling and administrative expenses 50,999,087 185,782,605 Total expenses 69,050,951 378,828,374 Net income (loss) (42,459,918) 10,027,862 /27 - 27 - 25. PROVIDENT FUNDS The Company established a contributory registered provident fund in accordance with the Provident Fund Act B.E. 2530. Under the plan the Company and employees contribute to the fund at a certain percentage of the employees basic salary. From January 1, 1998 until December 31, 1999 the Company temporarily ceased the provident fund. This was confirmed by the Ministry of Finance. In July 1999, the Company contributions recommenced. 26. LEGAL RESERVE Under the Public Companies Act, the Company is required to set aside as a legal reserve at least 5% of its net income after accumulated deficit brought forward (if any) until the reserve is not less than 10% of the authorized capital. According to the Civil and Commercial Code, subsidiaries must appropriate to reserve fund at distribution of dividend at least one-twentieth of the companys net income until the reserve at least one-tenth of the authorized capital. Such reserve fund is not available for distribution dividend until the company is finally wound up. 27. INVESTMENT PROMOTION CERTIFICATES 27.1 The Company has been granted certain rights and privileges as a promoted industry under the Investment Promotion Act of B.E. 2520 (1977). Under these privileges, the Company has received exemption from certain taxes and duties as detailed in the certificates including exemption from corporate income tax for a period of 8 years from the commencement of commercial operations or as specified in the certificate. The following certificates are in force: Investment Promotion certificateNo. 1575/2539 (1996) Exploration (at Prae and Tak) Investment Promotion certificate No. 1422/2537 (1994) Zinc Calcines and Sulphuric Acid Investment Promotion certificate No. 1185/2536 (1993) As a promoted industry, the Company must comply with the terms and conditions as specified in the promotion certificates. Shareholders of the Company will be exempt from tax on the dividends received during the period in which the Company is granted exemption from company income tax. 27.2 On March 4, 1999, Padaeng Properties Co., Ltd requested that the Board of Investment cancel its privileges under the Investment Promotion Act (B.E. 2520) 1977. The Board under order No. PO 69/2542 (1999) revoked these privileges July 22, 1999. /28 - 28 - 28. REVENUE REPORTING OF A PROMOTED INDUSTRY Based on the Announcemence of the Board of the Investment No. PO 14/2541 (1998) dated December 30, 1998 regarding revenue reporting of a promoted industry, the Company is required to report revenue from local sales and export sales separately and to report separately between the promoted and non-promoted business. For the year ended December 31, 1999, the required information is as follows: Promoted Non-Promoted Total Business Business Baht Baht Baht Income Income from export sales 266,900,557 1,058,962,028 1,325,862,585 Income from local sales 1,003,925,951 2,099,695,294 3,103,621,245 Total income from sale 1,270,826,508 3,158,657,322 4,429,483,830 Interest income - 4,916,604 4,916,604 Other income - 30,973,848 30,973,848 Total income Baht 1,270,826,508 3,194,547,774 4,465,374,282 29. BUSINESS SEGMENT INFORMATION The majority of Padaeng Industry public Co., Ltd.s revenue and is earned from one business segments, namely the production and sale of zinc ingots and zinc alloy and in one geographical segment, namely Thailand. The business segment information for the year ended December 31, 1999 Domestic sales Export sales Consolidated Net sales 3,118,591,914 1,325,862,585 4,444,454,499 Cost of sales 2,359,094,993 1,151,092,144 3,510,187,137 Net earnings Baht 759,496,921 174,770,441 934,267,362 The business segment information for the year ended December 31, 1998 Domestic sales Export sales Consolidated Net sales 2,142,267,049 2,668,174,079 4,810,441,128 Cost of sales 1,737,920,495 2,028,727,852 3,766,648,347 Net earnings Baht 404,346,554 639,446,227 1,043,792,781 30. YEAR 2000 PROBLEM (Unaudited-Not Covered by the Report of the Independent Certified Public Accountants) The Company and its subsidiaries had modified their computer systems to address the Year 2000 problems and evaluated its impact. To date, the Company and its subsidiaries have not experienced any material impact on their operations.