order to sell the increased capital being 75.10 million shares at Baht 13.50 per share amounting to Baht 1,013.85 million. On July 20, 2000, the Company received the subscription of capital increase under the Subscription Agreement amounting to Baht 1,013.85 million from 75.10 million ordinary shares (Baht 10 par value and Baht 3.50 premium for each share). The Company registered the paid-up share capital of Baht 751 million on the same date. On July 21, 2000 the Company used part of cash received from capital increase to repay Tranche A principal according to the Second Override Amendment Agreement (see Note 10). .../11 - 11 - 12. RISK MANAGEMENT POLICY FOR ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 12.1 Significant Assets and Liabilities in Foreign Currencies Assets and liabilities of the Company and subsidiaries in foreign currencies are as follows: As at September 30, 2000: Term of CONSOLIDATED THE COMPANY ONLY Receipt/ Payment AMOUNT AMOUNT Days USD Baht USD Baht Cash at banks - 270,538 11,406,694 265,012 11,173,707 Accounts receivable-foreign 15 1,903,128 80,241,586 1,903,128 80,241,586 Trust receipts 90 - 120 7,323,104 310,246,963 7,323,104 310,246,963 Accounts payable 30 - 60 7,847,747 332,473,726 7,847,747 332,473,726 Accrued interest expenses 90 1,142,917 48,420,250 171,837 7,279,960 Short-term loans from related companies - 2,859,097 121,127,074 - - Long-term loans 180 18,196,180 770,890,264 18,196,180 770,890,264 As at December 31, 1999: Term of CONSOLIDATED THE COMPANY ONLY Receipt/ Payment AMOUNT AMOUNT Days USD Baht USD Baht Cash at banks - 28,376 1,059,239 22,921 855,605 Accounts receivable-foreign 15 2,103,055 78,503,883 2,103,055 78,503,883 Trust receipts 90 - 120 5,703,417 215,074,720 5,703,417 215,074,720 Accounts payable 30 - 60 3,710,647 139,927,750 3,710,647 139,927,750 Accrued interest expenses 90 985,237 37,153,126 186,567 7,035,422 Short-term loans from related companies 2,859,097 107,815,968 - - Long-term loans 180 40,115,000 1,512,728,627 40,115,000 1,512,728,627 Foreign currency amounts are translated by using the reference rates quoted by the Bank of Thailand as at September 30, 2000 and December 31, 1999, respectively. 12.2 Risk Management The Company has both local and foreign sales in USD currency, which result in revenues and accounts receivable in USD currency. In addition, the Company has accounts payable, loans and interest expense in the same currency. Thus, the Company believes it is able to manage currency exchange risk by matching cash receipt with the debts and interest in foreign currencies. .../12 - 12 - 12.3 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. 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. 12.4 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 a 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's maximum exposure to credit risk. 12.5 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. 13. COMMITMENTS AND CONTINGENCIES 13.1 As at September 30, 2000 and December 31, 1999 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. /13 - 13 - 13.2 As at September 30, 2000 and December 31, 1999 the Company and subsidiary have contingent liabilities for letters of guarantee issued by banks of approximately Baht 107.47 million and Baht 84.61 million respectively. 13.3 As at September 30, 2000 and December 31, 1999 the Company has unused letters of credit amounting to approximately Baht 415.26 million and Baht 234.79 million respectively. 13.4 In December 1995, the Company received the notice of income tax assessment from the Revenue Department in respect of income tax, penalties and surcharge totalling Baht 31.72 million. In February 1996, the Company submitted an appeal to cancel such income tax assessment, waive and reduce such penalties and surcharge. 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 totaling Baht 32.17 million. In December 1999, the Company has submitted an appeal to the Central Taxation Court regarding such decision of the Board of Tax Appeal. On May 29, 2000 the Central Taxation Court declined the Company's appeal. The Company has since filed another appeal to the Supreme Court on June 28, 2000. As at September 30, 2000 the result of this appeal is not known. The Company has not made any provision for this contingent liability in the 2000 interim financial statements. 13.5 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 September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Not later than 1 year 17,550,451 7,980,650 17,550,451 7,980,650 Later than 1 year - - - - 17,550,451 7,980,650 17,550,451 7,980,650 .../14 - 14 - 13.6 Purchase commitments: Commitments for the purchase of raw materials contracted for at the reporting date but not recognised as liabilities or payables : CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Not later than 1 year 212,286,542 2,543,729 212,286,542 2,543,729 Later than 1 year - - - - 212,286,542 2,543,729 212,286,542 2,543,729 14. 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. 15. 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: Main balances and transactions between related companies consist of the following: CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Trade accounts receivable (See*1) - - 47,799,858 48,216,841 Current loans and advances to subsidiaries and associated companies 2,031,359 693,346 2,947,519 1,620,430 Non-current loans and advances to a subsidiary (See *5) - - 1,343,223,431 1,291,243,431 Investments - - 369,739,083 372,035,797 Trade accounts payable (see*4) - - 152,390 86,077,196 Accrued interest (see*2) - - - 17,324 Current loans from associated companies 121,127,065 107,815,968 - - Non-current loans from a subsidiary (See * 2) - - 8,000,000 9,879,959 /15 - 15 - FOR THE QUARTERS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Baht Baht Baht Baht Sales (see *3) - - 1,487,983 2,615,192 Interest expense (see*2) - - 48,329 2,019,829 FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, CONSOLIDATED THE COMPANY ONLY 2000 1999 2000 1999 Baht Baht Baht Baht Sales (see *3) - - 7,053,105 3,492,348 Interest expense (see*2) - - 236,460 7,567,659 * 1. As at September 30, 2000 and December 31, 1999, the Company has a trade accounts receivable from a related company that has difficulties in repayments amounting to Baht 46.81 million (see Note 5). * 2. As at September 30, 2000 and December 31, 1999, loans from a subsidiary company that are at call and 3 months term promissory notes. (Interest rate 3.50-4.00% per annum for 2000 and interest rate 4.00-8.50 % per annum for 1999 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. The Company did not renew the commission agreement with such subsidiary as from 1998. 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 USD 14,614,412 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. As at September 30, 2000 and December 31, 1999 such loans and advances to subsidiary have the outstanding balances of approximately Baht 1,343,223,431 (principal Baht 1,138,261,806 and interest and cancellation fees Baht 204,961,625) and Baht 1,291,243,431 (principal Baht 1,086,281,806 and interest and cancellation fees Baht 204,961,625) respectively. .../16 - 16 - CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Loans and advances - - 1,343,223,431 1,291,243,431 Less Accumulated loss exceeding investment in a subsidiary and allowance for doubtful accounts - - (1,343,223,431) (1,283,243,431) Loans and advances net - - - 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. 16. 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. 17. PROVISION FOR GUARANTEE OF A SUBSIDIARY In 1999, Padaeng Poongsan Metals Co., Ltd. has repaid 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 the amount as adjustment to the provision for guarantee of a subsidiary which is shown under other income. As at September 30, 2000 and December 31, 1999 the balances of provision for guarantee of a subsidiary are as follows: CONSOLIDATED THE COMPANY ONLY September 30, December 31, September 30, December 31, 2000 1999 2000 1999 Baht Baht Baht Baht Provision for guarantee of Padaeng Poongsan Metals Co.,Ltd - - 115,607,587 174,357,587 .../17 - 17 - 18. OPERATIONS OF SUBSIDIARIES 18.1 On February 19, 1999, the Board meeting of Padaeng Poongsan Metals Co., Ltd. passed the resolution to approve the discontinuation of 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 subsidiary's 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. The following property, plant and equipment for sale of Padaeng Poongsan Metals Co., Ltd. as at September 30, 2000 and December 31, 1999 have been classified under assets for sale in the consolidated balance sheet : BOOK VALUE As at As at September30, 2000 December 31, 1999 Land improvement, plant buildings, machinery and equipment 111,000,004 111,000,004 Other land and buildings 12,500,000 12,500,000 Total Baht 123,500,004 123,500,004 In the consolidated interim financial statements for the quarters and the nine-month periods ended September 30, 2000 and 1999, operations of such subsidiary are as follows: For the quarters For the nine-month periods ended September 30, ended September 30, 2000 1999 2000 1999 Revenues Sales - 751,440 9,298,400 30,902,934 Other income 3,465 80,500 1,995,567 1,051,339 Total revenues 3,465 831,940 11,293,967 31,954,273 Expenses Cost of sales - 1,387,959 623,867 26,232,059 Selling and administrative expenses 19,059,125 24,512,628 39,895,312 52,621,785 Total expenses 19,059,125 25,900,587 40,519,179 78,853,844 Net income (loss) Baht (19,055,660) (25,068,647) (29,225,212) (46,899,571) .../18 - 18 - On October 24, 2000 Padaeng Poongsan Metals Co., Ltd. entered into an Agreement to sell with a local company which will purchase Padaeng Poongsan Metals Co., Ltd.'s assets for sale in the amount of USD 5.25 million. 18.2 In June 2000, Padaeng Industry (Laos) Co., Ltd. has been licensed to mine zinc in Laos and to explore for ore in a nearby area covering 12 square kilometers. Padaeng Industry (Laos) Co., Ltd. expects to start the production by November 2000. 19. BUSINESS SEGMENT INFORMATION The business segment information consists of the following: For the quarters For the nine-month periods ended September 30, ended September 30, 2000 1999 2000 1999 Baht Baht Baht Baht Net sales Domestic 1,071,281,709 795,018,259 2,941,793,864 2,203,458,774 Export 277,326,318 286,289,963 785,679,928 953,080,197 Total 1,348,608,027 1,081,308,222 3,727,473,792 3,156,538,971 Cost of sales Domestic 893,819,884 595,373,760 2,323,233,353 1,688,720,707 Export 197,609,734 239,458,314 634,269,250 825,462,407 Total 1,091,429,618 834,832,074 2,957,502,603 2,514,183,114 Net earnings Baht 257,178,409 246,476,148 769,971,189 642,355,857 20. RETROSPECTIVE ADJUSTMENTS In the quarter and six-month period ended June 30, 2000 the Company has made the provisions for environmental restoration related to expenditure that will arise on the closure of the residue ponds in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets". In prior years the Company have not made the provisions for such environmental restoration. Previous year accounts have been restated for comparison as if the provisions have been made in the accounts at the beginning. The effect of the expenditure recognition on the closure of the residue ponds is an increase in cost of sales (environmental restoration expenses) of Baht 5.23 million in the income statement for the nine-month period ended September 30, 2000, and increase in cost of sales (environmental restoration expenses) of Baht 1.92 million and Baht 5.77 million in the income statements for the quarter and nine-month period ended September 30, 1999 respectively. The cumulative effect of the expenditure recognition on the closure of the residue ponds since the past until the beginning of the year 2000 and 1999 that were adjusted to the accumulated losses on the beginning of the year 2000 and 1999 is Baht 71.65 million and Baht 63.96 million respectively. /19 - 19 - 21. YEAR 2000 PROBLEM (Not reviewed - Not Covered by the Review 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 their impact. To date, the Company and its subsidiaries have not experienced any material impact on their operations.