- 18 - 1998 loan facility includes US$ 50,475,000 converted at Baht 36.89 (1997 US$ 79,296,032 converted at Baht 47.556). Promissory Notes of the Company: 1998 Baht 100,000,000 (1997 US$ 21,000,000 at Baht 47.556 and Baht 180,000,000). The following has been drawn under the above facilities at the balance sheet date. CONSOLIDATED THE COMPANY 1998 1997 1998 1997 Baht Baht Baht Baht Bank overdrafts 115,000,000 180,000,000 100,000,000 110,000,000 Promissory note 120,000,000 1,246,232,000 100,000,000 1,178,676,000 Trust receipt 455,000,000 900,000,000 455,000,000 740,000,000 Bank loan facilities Padaeng Industry Public Co., Ltd. 3,144,212,750 3,771,002,086 3,144,212,750 3,771,002,098 Padaeng Poongsan Metals Co., Ltd. 470,000,000 470,000,000 - - 4,304,212,750 6,567,234,086 3,799,212,750 5,799,678,098 16.3 A subsidiary companys long-term loans A subsidiary company has total available lines from syndicated loan agreement with local banks and financial institutions of Baht 320 million and from a local bank of Baht 150 million, respectively. - Total available loans of Baht 320 million. At December 31, 1998 Baht 140 Million was outstanding. Repayments are made in equal installments of Baht 20 million each through to 2002. This loan is guaranteed by the Company and a foreign company who are the shareholders of the above subsidiary. - Total availment of Baht 150 million is repayable in eight equal semi- annual installments, commencing on May 15, 1997 at the interest rate of MLR+0.25% per annum and guaranteed by the Company which is a shareholder. On October 2, 1997, the above subsidiary company requested an extension of the repayment of the current portion of long-term loans from local banks totaling Baht 37.50 million. The subsidiary company mortgaged land and building for amounting to Baht 131.25 million and the Company received the letter dated November 5, 1997, permitting the extension of the repayment of the current portion of long-term loans so the last installment shall be now due in 2001. The significant conditions for the two loan agreements include: - Borrowers properties must not be mortgaged or pledged with other creditors. - The Companys debt to equity ratio must be as follows: - total availment of Baht 320 million, the Companys debt to equity ratio must not exceed 4:1 - total availment of Baht 150 million, the Companys debt to equity ratio must not exceed 2:1 /19 - 19 - - Promptly notifies the lender of any negotiations with any of its creditors for the restructuring or rescheduling or any of its indebtedness. - Unless in writing by the lender, the borrower will not reduce its share capital outstanding or make any significant sales or transfer of assets. On December 11, 1997, the subsidiary company registered a capital decrease with the Ministry of Commerce by Baht 750 million resulting in a decrease in registered capital as at December 31, 1998 and 1997, to Baht 250 million. The Company has notified the two creditors in writing. The creditors with Baht 320 million availment sent a letter dated December 22, 1997, permitting the company to decrease the capital. The creditor with Baht 150 million availment sent a letter dated March 23, 1998, permitting the company to decrease such capital. As at December 31, 1998 and 1997, the subsidiary has not complied with the conditions in the agreements as follows: - The subsidiary company has Baht 11.6 million and Baht 3.6 million deposits with a bank as at December 31, 1998 and 1997 respectively, used as collateral for the issuance of a letter of guarantee against a coins blanks sale contract with a Government Agency. - As at December 31, 1998 land and building are mortgaged as collateral against an extension of payment for the current portion of long-term loans from a creditor with the total availment of Baht 150 million. These resulted in the subsidiary company not being in compliance with conditions of the loan from the creditor with total availment of Baht 320 million which specifies that the borrowers properties must not be mortgaged or pledged with other creditors - As at December 31, 1998 and 1997, the subsidiary companys debt to equity ratio is (1.13) : 1 and (3.01) : 1, respectively which is not in compliance with condition in the two loan agreements. In case the borrower has not complied with conditions contained in the agreement the lender shall charge additional interest or the lender shall inform the borrower to resolve the event of default, if the event of default has not been resolved the lender can terminate the agreement and call for repayment of total loan outstanding. The subsidiary company was unable to comply with the conditions in the loan agreements; therefore, such long-term loans of the subsidiary are reclassified to current portion of long-term loans, which are shown in Current Liabilities in the consolidated balance sheet. The Company has negotiated for the extension of loan repayment of the subsidiary with banks and financial institutions. 17. DISCLOSURE OF FINANCIAL INSTRUMENTS According to a letter received from The Stock Exchange of Thailand dated October 21, 1998, the Company is required to use the International Accounting Standard (IAS) No. 32- Presentations and Disclosure of Financial Instruments as a guideline for disclosure of the Companys financial instruments both on- balance sheet and off-balance sheet. /20 - 20 - 17.1 Significant Assets and Liabilities in Foreign Currencies Assets and liabilities of the Company and subsidiaries in foreign currencies as at December 31, 1998 are as follows: Term of CONSOLIDATED THE COMPANY receipt/ payment AMOUNT AMOUNT days USD Baht USD Baht Cash at banks - 623,762 22,826,487 618,439 22,631,664 Accounts receivable-foreign 30 1,838,217 67,269,191 1,838,217 67,269,191 Accounts Payable 30-60 6,464,753 238,446,560 6,464,753 238,496,560 Accrued interest expenses 180 850,520 31,375,689 250,714 9,248,825 Long-term loans 180 47,376,096 1,747,704,210 44,517,000 1,642,232,130 Accrued Income 54,761 2,003,968 54,761 2,003,968 As at December 31, 1997: Term of CONSOLIDATED THE COMPANY receipt/ payment AMOUNT AMOUNT days USD Baht USD Baht Cash at banks - 3,011,389 141,684,841 3,008,978 141,196,011 Accounts receivable-foreign 30 530,459 24,958,114 530,459 24,958,114 Accounts Payable 30-60 1,349,454 57,014,050 1,148,331 47,449,4444 Accrued interest expenses 180 2,072,688 102,005,281 1,684,777 83,557,787 Long-term loans 180 55,065,049 2,618,673,479 52,205,952 2,482,706,271 Loans to subsidiary 180 14,614,412 695,002,998 14,614,412 695,002,998 Loans from banks 120-360 32,718,988 1,555,984,222 32,718,988 1,5555,984,222 Deposits on sales 12,056,409 573,309,519 12,056,409 573,309,519 Foreign currency amounts are translated at the exchange rate as at December 31, 1998, and represent the Baht equivalent of commitments to purchase US dollar. 17.2 Risk Management The companys policy on risk management of loan liabilities in foreign currencies is to use financial instruments purchased in the financial markets. For hedging purposes, the company has entered into forward exchange contracts to cover loan commitments in foreign currencies. As at December 31, 1998, the deferred hedging cost arising under these contracts amounted to Baht 7.5 million. /21 - 21 - The following summarises the contractual amounts of the forward exchange contracts as at December 31, 1998. CONSOLIDATED THE COMPANY 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 and represent the Baht equivalent of commitments of purchase US dollars. 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. Equity investments traded on organized markets have been value 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. /22 - 22 - 18. Commitments and Contingencies 18.1 As at 31 December 1998 and 1997, 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 31 December 1998 and 1997, the Company and a subsidiary have contingent liabilities for letters of guarantee issued by banks of approximately Baht 117.81 million, and Baht 101.3 million respectively. 18.3 As at 31 December 1998 and 1997, the Company and a subsidiary have unused letters of credit amounting to approximately Baht 171.29 million, and Baht 126.6 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. As at 31 December 1998, result of such appeal has not yet been finalized. 18.5 Capital commitments: Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities, payable CONSOLIDATED THE COMPANY 1998 1997 1998 1997 Baht Baht Baht Baht Not later than 1 year 15,987,805 - 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 - - - - 15,987,805 - 15,987,805 - For the financial statements as at December 31, 1997, the Company could not conveniently obtain the information for comparison. /23 - 23 - 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 1998 1997 1998 1997 Baht Baht Baht Baht Not later than 1 year 43,633,210 - 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 - - - - 43,633,210 - 43,633,210 - For the financial statements as at December 31, 1997, the Company could not conveniently obtain the information for comparison. 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. 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 1998 1997 1998 1997 Baht Baht Baht Baht Trade accounts and notes receivable (See*1) - - 47,673,137 50,832,287 Current loans to subsidiaries 12,136 3,116,070 562,845 4,223,069 associated companies 77,558 64,403 77,558 64,403 89,694 3,180,473 640,403 4,287,472 Current loans from associated companies 105,573,792 156,482,873 - - Non current loans and advances to subsidiary (See *5) - - 1,195,775,170 1,098,393,854 Non current loans from a subsidiary (See * 2) - - 161,000,000 146,400,000 /24 - 24 - CONSOLIDATED THE COMPANY 1998 1997 1998 1997 Baht Baht Baht Baht Investments 1,491,468 6,450,867 526,069,032 583,838,499 Trade accounts payable (see*4) - - 85,920,928 44,745,050 Sale (see *3) - - 10,879,366 45,838,279 Commission paid (See *4) - - 40,950,897 52,419,724 Transfer of plant and machinery 15,257,929 - 11,811,027 - (See *6) * 1. As at December 31, 1998, the Company has trade accounts and notes receivable from related companies that have difficulties in repayments amounting to Baht 46.81 million. * 2. Loans from a subsidiary company that are at call and 6 months term promissory notes. (Interest rate 11.5 % per annum 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. 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 US $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 US $1 = Baht 42.1667. The agreement specified that interest would cease accruing from August 31, 1998 As at December 31, 1998, such loans and advances to subsidiary have the outstanding balances of approximately Baht 1,195,775,170 (principal Baht 990,814,545 and interest and cancellation fees Baht 204,960,625) and as at December 31, 1997, USD 14,614,412 and Baht 276,300,000. CONSOLIDATED THE COMPANY 1998 1997 1998 1997 Baht Baht Baht Baht Loans and advances - - 1,195,775,170 1,098,393,854 Less Accumulated loss exceeding investment in a subsidiary - - (1,187,775,170) (633,416,015) - - 8,000,000 464,977,839 Less Allowance for doubtful account - - - - Loans and advances - net - - 8,000,000 464,977,839 /25 - 25 - 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. (more)