PADAENG INDUSTRY PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999 "Unaudited" 1. ECONOMIC TURMOIL IN THE ASIA-PACIFIC REGION AND OPERATIONS OF THE COMPANY Thailand and many Asia-Pacific countries have continued to experience economic difficulties since 1997. The accompanying financial statements reflect management's current assessment of the possible impact of the economic conditions on the financial position of the Company. On January 19, 2000, the Company commenced a mutual separation plan for staff. At the date of this report 64 staff elected to participate in this program. The cost of this program included in the financial statements for the nine-month period ended September 30, 2000 is approximately Baht 33 million. 2. BASIS FOR PRESENTATION OF THE INTERIM FINANCIAL STATEMENTS 2.1 The interim consolidated and the Company's financial statements have been prepared in accordance with the Regulation of The Stock Exchange of Thailand (SET) dated November 22, 1999, regarding the preparation and submission of financial statements and reports for the financial position and result of operations of the listed companies B.E. 2542 and in accordance with generally accepted accounting principles in Thailand. The balance sheets as at December 31,1999, presented herein, have been derived from the financial statements for the year then ended which have been audited. Certain financial information which is normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles, which is not required for interim reporting purposes, has been omitted. In addition, the interim consolidated and the Company's financial statements should be read in conjunction with the consolidated and the Company's financial statements and notes thereto included in the audited financial statements for the year ended December 31, 1999. 2.2 In accordance with SET guidelines dated May 8, 1998 regarding Financial Statement Preparation with the Generally Accepted Accounting Principles and the Equity method of the investment in subsidiaries that have accumulated losses exceeding the share capital, the consolidated interim financial statements recognize the full amount of the Company's equity in a subsidiary's losses (excluding the minority interest to the extent that they do not exceed the minority shareholders' equity), that exceeds the Company's investment in such subsidiary. .../2 - 2 - However, the Company's interim financial statements have been prepared in accordance with the Accounting Standard No. 45 "Accounting for Investments in Associates". The Company's share of losses in a subsidiary is generally recognized only to the extent of the amount of the investment in the subsidiary except where the Company has a commitment and/or guarantee for the subsidiary. In addition, the Company's equity in profit can resume to be recognized when the profit of such subsidiary exceeds the Company's share of unrecognized losses. Accordingly, the consolidated and the Company's interim financial statements do not present the same net income (loss) and shareholders' equity. 2.3 The consolidated interim financial statements are the consolidation of the accounts of the Company and the following subsidiary companies after elimination of intercompany transactions. % of Incorporated in Type of Business Shareholding 2000 1999 Padaeng Properties Co., Ltd. 100.00 100.00 Thailand Provide utility service Puthep Co., Ltd. 100.00 100.00 Thailand Explores copper and based metals Padaeng Poongsan Metals Co., Ltd. 61.98 61.98 Thailand Manufactures and distributes brass and blank coins (Dormant) Padaeng International Mining Co., Ltd. 100.00 100.00 Thailand Minerals exploration in Vietnam (Dormant) Sila Enterprise Co., Ltd. 55.00 55.00 Thailand Trading For the investment of Sila Enterprise Co., Ltd. equity in undistributed net income (loss) in the consolidated and the Company's interim financial statements was computed from the unreviewed interim financial statements which amounted to the percentage of net income (loss) as follows; PERCENTAGE OF NET INCOME (LOSS) FOR THE QUARTERS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Equity in undistributed net income (loss) of Sila Enterprise Co., Ltd. (0.81) (0.19) (1.18) (0.20) PERCENTAGE OF NET INCOME (LOSS) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Equity in undistributed net income (loss) of Sila Enterprise Co., Ltd. 3.25 0.57 2.04 1.63 .../3 - 3 - The consolidated interim financial statements for the quarter and nine-month period ended September 30, 2000 and for the year ended December 31, 1999 also include accounting transactions of South East Asia Metals Co., Ltd. of which Padaeng Properties Co., Ltd. has a holding of 100% in this company. 3. SIGNIFICANT ACCOUNTING POLICIES A number of new accounting standards were issued and became effective from January 1, 2000, the significant changes arising therefrom affecting the Company and its subsidiaries are in respect of the presentation of the interim financial reports. In addition, the Company adopted IAS 37, Provisions, Contingent Liabilities and Contingent Assets, in respect of environmental restoration costs. Environmental restoration costs Current expenditures relating to ongoing environmental restoration programs are charged against earnings as incurred. Where the costs relating to environmental liabilities that have arisen as a result of past events are expected to be material, a provision is made for these costs as soon as estimate of the liability is determined. The estimated restoration costs that will arise on the closure of the residue ponds are accrued by a charge to earnings over the anticipated economic life of the pond. In accordance with IAS 37, the Company has an obligating event to be enforced by law related to costs that will arise on environmental restoration. Provisions related to such environmental restoration cost are restated on the previous year financial statements for comparison (see Note 20). Except the aforementioned, the Company and subsidiaries use the same accounting policies and calculation methods in these interim financial statements as compared with the most recent annual financial statements. .../4 - 4 - 4. CURRENT ASSETS - CASH 4.1 Deposit used as collateral CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Deposit used as collateral 200,000 11,554,589 - - As at September 30, 2000, deposit at bank of a subsidiary was used as collateral against electricity usage. As at December 31, 1999, deposit at bank of a subsidiary was used as collateral against sales of blank coins with a Government Agency and used as collateral against other debt repayments. 4.2 Cash paid the nine-month periods ended September 30, 2000 and 1999 FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Baht Baht Baht Baht Cash paid for tax 58,745 118,775 17,997 42,590 Cash paid for interest 200,084,177 262,085,074 189,640,713 252,623,589 4.3 Non cash items are as follows: - On January 25, 1999, the Company entered into hire-purchase agreement with a company resulting in assets increase by Baht 7.15 million and liabilities increase by the same amount. - For the nine-month period ended September 30, 1999, an account receivable of Baht 21.39 million has been settled by inventories of Baht 19.79 million and value added tax of Baht 1.60 million. - For the nine-month period ended September 30, 1999, unrealized loss on securities available for sale that had been presented as a deduction from shareholders' equity on the consolidated and the Company's interim financial statements decreased by Baht 15.09 million. /5 - 5 - 5. TRADE ACCOUNTS RECEIVABLE CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Trade accounts receivable 286,929,052 267,135,305 277,437,313 258,466,548 Less: Allowance for doubtful accounts (4,016,825) (16,722,609) - (12,240,511) 282,912,227 250,412,696 277,437,313 246,226,037 As at September 30, 2000 and December 31, 1999, the following accounts receivable are past due more than three months and are having difficulties in repayment: CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 No. Baht No. Baht No. Baht No. Baht Trade accounts receivable - related companies: 3 to 6 months - - - 6 to 12 months - - - More than 12 months - - 1 46,809,476 1 46,809,476 - - 46,809,476 46,809,476 Less Accumulated loss exceeding Investment in a subsidiary - - (46,809,476) (46,809,476) - - - - Trade accounts receivable - other companies 3 to 6 months 6 1,866,853 14 4,624,837 - - 2 2,785,408 6 to 12 months 9 590,066 7 2,991,431 - - 1 2,379,549 More than 12 months 20 6,807,096 16 12,857,627 - - 1 7,375,555 9,264,015 20,473,895 - 12,540,512 Allowance for doubtful accounts 4,016,825 16,722,609 - 12,240,511 6. LONG -TERM DEPOSIT AT A FINANCIAL INSTITUTION CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Long-term deposit at a financial institution 30,054,136 30,054,136 - - 30,054,136 30,054,136 - - Long-term deposit at a financial institution is a negotiable certificate of deposit of a subsidiary with a maturity of 5 years from December 2, 1997 to December 2, 2002, interest rate is fixed for 3 months. As at September 30, 2000, interest rate was 3.455% p.a. (As at December 31, 1999, interest rate was 4.125% p.a.). /6 - 6 - 7. INVESTMENTS IN RELATED COMPANIES 7.1 Investments in subsidiaries COMPANY'S NAME TYPE OF PAID-UP OWNERSHIP INVESTMENT INVESTMENT BUSINESS CAPITAL (%) CONSOLIDATED EQUITY METHOD DIVIDEND BAHT September 30, December 31, September 30, December 31, September 30, December 31, 2000 1999 2000 1999 2000 1999 Baht Baht Baht Baht Baht Baht Padaeng Poongsan Metals Manufactures and Co., Ltd. distributes brass and blank coins (Dormant) 250,000,000 61.98 - - - - - - Padaeng Properties Co., Ltd. Provides utility 80,000,000 100 - - 46,454,026 50,110,948 - - service Puthep Co., Ltd. Copper and other base metal exploration 234,814,100 100 - - 162,024,020 162,338,035 - - Padaeng Industry (Laos) Base metal Co., Ltd. exploration 5,000,000 100 - - - - - - Padaeng International Mining Explores minerals Co., Ltd. in Vietnam 100,000 100 - - - - - - Sila Enterprise Co., Ltd. Trading 15,000,000 55 - - 6,416,517 5,387,030 - - South East Asia Metals Co., Ltd. Distributes various base metals and other by products 200,000,000 100 - - 154,843,520 154,199,784 - - Total investments in subsidiary companies - - 369,738,083 372,035,797 - - .../7 - 7 - 8. OTHER SECURITIES COMPANY'S NAME TYPE OF PAID-UP OWNERSHIP INVESTMENT INVESTMENT BUSINESS CAPITAL (%) CONSOLIDATED EQUITY METHOD DIVIDEND BAHT September 30, December 31, September 30, December 31, September 30, December 31, 2000 1999 2000 1999 2000 1999 Baht Baht Baht Baht Baht Baht Asean Potash Holding Co., Ltd. Produces and 395,967,000 2.52 distributes potash mineral 10,010,000 10,010,000 10,010,000 10,010,000 - - Millennium Gold Corporation Explores CAN $ 9,917,857 7.56 Co., Ltd. gold in Canada 4,441,626 4,441,626 4,441,626 4,441,626 - - Total other securities 14,451,626 14,451,626 14,451,626 14,451,626 - - .../8 - 8 - 9. OTHER ASSETS Other assets as at September 30, 2000 and December 31, 1999 consist of the following: CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Deposits and installment payments for condominium units 74,932,723 74,932,723 - - Less Allowance for doubtful accounts of deposits and installment payments for condominium units (74,932,723) (74,932,723) - - - - - - Deposits 7,072,902 6,513,439 4,190,565 3,631,103 Special prospect license fee 16,986,510 16,986,510 - - Exploration expenditures 145,538,980 145,538,980 - - Compensation for concession application withdrawal of a company 40,900,000 40,900,000 40,900,000 40,900,000 Other 32,966,608 39,427,401 32,405,264 38,524,532 243,465,000 249,366,330 77,495,829 83,055,635 A subsidiary has provided an allowance for doubtful accounts of Baht 75 million in respect of deposit and installment payments for condominium units whose construction was suspended due to unfavorable economic conditions. In 1999, the Company paid Baht 40.9 million as compensation to another company for the access rights to land adjacent to the Mae Sod mining lease. The Company had submitted its concession application to the Department of Mineral Resources for approval. As at September 30, 2000, the outcome was not known. On August 21, 2000 Padaeng Industry Public Co., Ltd. and Puthep Co., Ltd. entered into a Participation Agreement with two foreign companies to undertake exploration and mining of Puthep Copper Project. According to the Participation Agreement such foreign company would provide fund for Feasibility Study of Puthep Copper Project within three years (2000-2003). In addition, the parties entering into the agreement are obliged to fulfill the conditions contained in the agreement. /9 - 9 - 10. LONG-TERM LOANS Long-term loans as at September 30, 2000 and December 31, 1999 consist of the following: CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Long-term loans - The Company 1,232,699,574 2,531,553,627 1,232,699,574 2,531,553,627 - A subsidiary 116,250,000 175,000,000 - - 1,348,949,574 2,706,553,627 1,232,699,974 2,531,553,627 Less Current portion of long-term loans (828,193,212) (1,757,400,278) (711,943,212) (1,582,400,278) 520,756,362 949,153,349 520,756,362 949,153,349 On October 7, 1998 the Company entered into the Override Agreement with its lenders to amend the repayment schedule which has been separated into Tranche A and Tranche B. Tranche A principal was paid by the fund from sales on share capital increase and Tranche B principal was paid by the fund from the Company's operations. However, on June 2, 2000 the Company entered into the Second Override Amendment Agreement with Chase Manhattan Bank, Agent for the lenders, to amend the Tranche A repayment schedule. Tranche B repayment schedule remains the same as the former agreement. As at September 30, 2000 Tranche A repayment schedule according to the Second Override Amendment Agreement and Tranche B repayment schedule according to the Override Agreement in Thai Baht and USD are as follows : Tranche A Repayment Date Amount (Baht) Amount (USD) December 15, 2000 328,217,690* 12,918,820* March 15, 2002 80,000,015 3,151,177 Tranche B Repayment Date Amount (Baht) Amount (USD) March 15, 2001 133,468,000 5,252,000 September 15, 2001 133,468,000 5,252,000 March 15, 2002 114,873,295 4,541,003 * On July 21, 2000, the Company repaid the above loan amounts in full. .../10 - 10 - 10.1 Financing Arrangements Available CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Bank overdrafts 80,000,000 100,000,000 80,000,000 100,000,000 Promissory note 40,000,000 20,000,000 20,000,000 - Trust receipts 1,040,000,000 455,000,000 1,040,000,000 455,000,000 Bank loan facilities : Padaeng Industry Public Co., Ltd. 3,420,588,613 3,185,592,155 3,420,588,613 3,185,592,155 Padaeng Poongsan Metals Co., Ltd. 470,000,000 470,000,000 - - 5,050,588,613 4,230,592,155 4,560,588,613 3,740,592,155 Loan facility as at September 30, 2000 includes USD 50,475,000 converted at Baht 42.3655 (As at December 31, 1999 USD 50,475,000 converted at Baht 37.7098). 10.2 The following has been drawn under the above facilities at the balance sheet date. CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Bank overdrafts - 16,582,454 - 290,438 Promissory note 40,000,000 20,000,000 20,000,000 - Trust receipt 310,246,948 215,074,720 310,246,948 215,074,720 Bank loan facilities : Padaeng Industry Public Co., Ltd. 1,232,699,574 2,531,553,627 1,232,699,574 2,531,553,627 Padaeng Poongsan Metals Co., Ltd. 116,250,000 175,000,000 - - 1,699,196,522 2,958,210,801 1,562,946,522 2,746,918,785 11. SHARE CAPITAL On May 12, 2000 the Company entered into the Subscription Agreement with Union Miniere S.A. in (more)