SET Announcements

LOXLEY PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 1. EFFECTIVE FROM COUNTRYS ECONOMIC CRISIS The accompanying interim financial statements for the three-month and nine-month periods then ended September 30,1998 included the effects of the economic and financial crisis to the extent the Company,subsidiaries and associated companies are known and can be estimated. These crisis caused by the currency volatility in the Asia were affected from Pacific region, volatile stock market, interest rate and continue slowdown in economic of 1997 up to present time and will continue to be existed and, accordingly, there are uncertainties that may affect future operations of the Company, subsidiaries and associated companies. The ultimate out come of this matter cannot presently be determined. The financial statements for the three-month and nine-month periods ended September 30, 1998 do not include any adjustment that might result from these uncertainties. Related effects will be reported in the financial statements as they become known and estimable. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements included the accounts of Loxley Public Company Limited and the following subsidiaries owned directly and indirectly by Loxley Public Company Limited or the companies over which Loxley Public Company Limited has control. Percentage of Shareholding As at September 30 1998 1997 Direct Indirect Direct Indirect Subsidiary Companies Loxley Business Information Technology Company Limited 99 - 99 - Loxley Myanmar Company Limited (not yet started principal commercial operations) 99 - 99 - Loxley Wireless Company Limited 99 - 99 - Jago Company Limited (not yet started principal commercial operations) 99 - 99 - Loxley Energy Company Limited (not yet started principal commercial operations) 99 - 45 - Loxley Utilities Services Company Limited 90 - 90 - - 2 - Percentage of Shareholding As at September 30 1998 1997 Direct Indirect Direct Indirect Loxley Comware Company Limited 70 - 70 - Loxley Newteck Company Limited 67 - 67 - Societed Commercial Lao Company Limited 67 - 67 - Loxley Pacific Company Limited 63 - 70 - Loxley Broadcast and Media Company Limited 60 - 60 - Loxley Infra Company Limited 60 - 60 - Loxley Pagephone Company Limited 55 - 55 - LoxData Company Limited 52 - 52 - Loxley Satellite Communications Company Limited (not yet started principal commercial operations) 51 - 51 - Professional Computer Company Limited - 99 - 99 Netone Network Solution Company Limited - 98 49 - Open Systems Integrator Company Limited - 83 67 - Loxley Information Company Limited - 65 65 - Loxley Information Services Company Limited- 65 65 - Hutchison Telecommunications (Thailand) Company Limited - 55 - 55 Companies Over Which Loxley Public Company Limited Has Control Loxley Trading Company Limited 50 - 50 - Loxley Property Development Company Limited 40 - 40 - Loxley Intergraph (Thailand) Company Limited - - - 50 Dynamic Integrator Corporation Company Limited - - - 50 - 3 - Percentage of Shareholding As at September 30 1998 1997 Direct Indirect Direct Indirect North - East Asia Telephone and Telecommunication Company Limited - 44 - 49 Loxley Video Post (Bangkok) Company Limited - 31 - 31 Significant intercompany transactions with the above subsidiaries have already been eliminated. In August 1997, a subsidiary purchased all of the common shares of Hutchison from the Company and other shareholders.The subsidiary had to pay for the share capital exceeding the net assets value of Hutchison. As a result, the subsidiary recorded the Excess of Investment Over Net Assets as part of Other Assets which is being amortized as expense over a period of 8 years. As at September 30, 1998, the unamortized balance amounted to approximately Baht 75.3 million. The Company has included the financial statements of Loxley Trading Company Limited, in which the Company invested 50% of the shareholding in May 1994, for consolidation since it had control over the investee. At the date of the acquisition of the shares in Loxley Trading Company Limited, the Company had to pay for the share capital exceeding the net assets value of that subsidiary. As a result, the Company recorded the Excess of Investment Over Net Assets as part of Other Assets which is being amortized as an expense over a period of 15 years. As at September 30,1998, the unamortized balance amounted to approximately Baht 37 million. During the third quarter of 1996, the Company invested 90% in the share capital of Loxley Utilities Services Company Limited. In this connection, the Company had to pay for the share capital exceeding the net assets value of that subsidiary. As a result, the Company recorded the Excess of Investment Over Net Assets as part of Other Assets which is being amortized as expense over a period of 15 years. As at September 30, 1998, the unamortized balance amounted to approximately Baht 50.6 million. - 4 - The Company accounts for its investments in shares of associated companies for consolidated financial statements and investments in shares of subsidiaries and associated companies for the Companys financial statements by the equity method. In case of the subsidiary and/or associated company reports net loss, the Company will discontinue applying the equity method when the balance of investment in such subsidiary and/or associated company is reduced to zero and shall not recognize for additional losses because the Company did not have contingent liabilities or guarantees for subsidiaries and/or associated companies. The Company will resume applying the equity method only after the subsidiary and/or associated company subsequently reports net income, and its share of that net income exceeds the share of net losses not recognized during the period the equity method was suspended. 3. EARNINGS (LOSS) PER SHARE Primary earnings (Loss) per share is computed by dividing the net income (loss) by the number of fully paid-up share capital at the balance sheet dates. The Company presents fully diluted earnings per share for comparison by dividing the net income adjusted with interest expense and related other expenses by the number of fully paid-up share capital at the balance sheet date (included common share equivalent from convertible bonds) for the period 1998. However, the Company does not present fully diluted earnings per share for the period 1997 due to primary earnings per share is loss per share. 4. CHANGE IN THE METHOD OF ACCOUNTING 4.1 In December 1997, the Company started adopting the generally accepted practice of providing for deferred income tax resulting from timing differences in reporting revenues and expenses for financial reporting purposes compared to income tax reporting purposes, effective retroactively to January 1, 1997. Accordingly, the income tax applicable to revenues and expenses which are not currently allowable and deductible for income tax purposes is set up as "Deferred Income Tax" in the balance sheets. This will be allocated to future periods when such revenues and expenses provided for are actually incurred and considered allowable and deductible for income tax purposes. As a result of this deferment, net income for the three-month and nine-month periods ended September 30, 1997 increased by approximately Baht740.9 million and Baht 857 million, respectively representing income tax applicable to the timing differences for the three-month and nine-month periods ended September 30, 1997 (approximately Baht 740.9 million and Baht 779.4 million, respectively) and cumulative income tax applicable to timing differences of prior years up to December 31, 1996 (approximately Baht 77.6 million). - 5 - The outstanding balance of Deferred Income Tax as at September 30, 1998, included deferred income tax of a subsidiary amounting to approximately Baht 1.9 million. This subsidiary started adopting the generally accepted practice of providing for deferred income tax resulting from timing differences in reporting revenues and expenses for financial reporting purposes compared to income tax reporting purposes, effective retroactively to January 1, 1997. The Company, however, did not adjust cumulative effect of this accounting change in the consolidated interim financial statements for the period 1997 because as at September 31, 1997, the Company owned share of the said company less than 50 percent. The interim financial statements of the rest subsidiaries included in this consolidated interim financial statements did not include any adjustment effect from the change in the method of accounting for income tax. The Management, however, believes that the effect on this matter was not material to the consolidated interim financial statements. 4.2 In 1997, the Company appraised its land, previously recorded at cost amounting to approximately Baht 48.1 million, at appraised value totalling approximately Baht 253.6 million. The Company appraised the said land based on the information guidelines provided by an independent appraiser. The revaluation increment in land, totalling approximately Baht 205.5 million, was credited to Revaluation Increment in Land which was shown under Shareholders Equity in the balance sheets. 5. RELATED PARTY TRANSACTIONS A portion of sales of products and services, fees, other income, costs of sales and services and selling and administrative expenses are represented by transactions with their subsidiaries, associated and other related companies. These companies are related through common shareholdings and/or directorships. The accompanying financial statements reflect the effects of these transactions which arose in the ordinary course of business. Account balances with these related companies at September 30, 1998 and 1997 were shown separately in the balance sheets. - 6 - Significant transactions during the three-month and nine-month periods ended September 30, 1998 and 1997 which included in the interim financial statements were as follows: In Thousand Baht Three-month periods ended September 30 Consolidated The Company 1998 1997 1998 1997 Sales of products and services 31,072 71,606 76,900 105,431 Fees and other income 4,590 17,024 6,101 19,670 Cost of sales and services 105,287 45,133 147,357 101,907 Selling and Administrative Expenses 2,007 - 725 779 In Thousand Baht Nine-month periods ended September 30 Consolidated The Company 1998 1997 1998 1997 Sales of products and services 119,338 116,030 211,229 493,265 Fees and other income 6,374 20,666 19,487 31,176 Cost of sales and services 179,076 310,659 276,482 571,577 Selling and Administrative Expenses 6,611 - 3,791 3,060 6. ACCOUNTS RECEIVABLE - TRADE As at September 30, 1998, the Company and subsidiaries had overdue accounts receivable-trade. The aging receivables were as follows: In Million Baht Consolidated The Company Over 3 months to 6 months 81.26 13.44 Over 6 months to 12 months 125.17 40.30 Over 12 months 590.37 414.55 Total 796.80 468.29 The Company and subsidiaries set up allowance for doubtful accounts for the period ended September 30, 1998 and subsidiaries amounting to approximately Baht 288.3 million (Baht 186.4 million for the Company). Based on historical collection experience, the management believes that the allowance for doubtful accounts is adequate. - 10 - The Company accounted for the investments in Loxley Hitachi Cable Engineering Company Limited and investments in Thai Telephone and Telecommunication Public Company Limited by the equity method. Subsequently in 1997 and 1996, the Company sold a portion of investments which effected the percentage of shareholding in the said companies reduced to be less than 20%. As a result, the Company changed the accounting method for these investments to the cost method by using the outstanding balance of investments under the equity method as cost of the investments. As at September 30, 1998, the aggregate market value of investments in listed securities was lower than the aggregate cost by approximately Baht 1,130.5 million. The valuation adjustment was recorded as Provision for unrealized loss on decline in value oflong-term investments in listed securities and presented as part of Shareholders Equity in the Balance Sheets. 8. LONG-TERM LOANS TO RELATED COMPANIES Consolidated These consists of: In Thousand Baht Interest Rate Amount Objective 1998 1997 1998 1997 Short - Term Loans L.B.L. Algamate Partnership Ltd. For operations MOR MOR 184,850 184,850 Multimedia Telephony,Inc. (Philippines) For operations 15.00% 15.00% 91,537 112,452 Ekpavee Co., Ltd. For operations - 25.00% - 79,495 Others 25,230 38,130 Total Short-Term Loans 301,617 414,927 Long-Term Loans Thai Telephone and Telecommunication Public Company Limited For operations MLR+0.5% MLR+0.5% 375,000 375,000 Thai Cellulose Products Company Limited For operations MOR+ 1% MOR+ 1% 10,400 10,400 LoxComm B.V. Co., Ltd. For operations - 15.00% - 14,118 Other - 4,350 Total Long-Term Loans 385,400 403,868 Less Allowance for Doubtful Accounts (10,400) - Net 375,000 403,868 (More)