SET Announcements

LOXLEY PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 1. IMPACT OF ECONOMIC CRISIS The operations of the Company and subsidiaries have been affected and continue to be affected to the date of this report by the volatility in Baht currency and adverse economic conditions in Thailand. Even though, during the year 1998, the volatility in Baht currency was changed for the better, interest rates were lowered and more credit was provided by the financial institutions to the private sector, the general deterioration of the economies of countries in this region caused the slow recovery of the economy in Thailand. Management of the Company has developed plans and implemented certain measures to cushion the impact of the crisis. Among others, these include : a) reviewing the viability of certain investment projects. b) reducing the holding of investments in non-core businesses. c) establishing control procedures with the aim to improve productivity as well as implementing various cost reduction programs. The operations of the Company and subsidiaries have been affected, and may continue to be affected, for the foreseeable future by the adverse economic conditions in Thailand and Asia Pacific. The ultimate effect, which may be material, of these uncertainties on the recorded amounts of assets and liabilities at the balance sheet dates cannot presently be determined, and accordingly the financial statements 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 - 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 the Loxley Public Company Limited or the companies over which Loxley Public Company Limited has control. Percentage of Shareholding As at December 31 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 - Loxley Comware Company Limited 70 - 70 - Loxley Newteck Company Limited 67 - 67 - Societe 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 - Loxley Satellite Communications Company Limited (not yet started principal commercial operations) 51 - 51 - - 3 - Percentage of Shareholding As at December 31 1998 1997 Direct Indirect Direct Indirect Professional Computer Company Limited - 99 - 99 LoxData Company Limited - 99 52 - Netone Network Solution Company Limited - 98 49 - Open Systems Integrator Company Limited - 92 83 - 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 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 Telecommunications (Thailand) Company Limited (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 December 31, 1998, the unamortized balance amounted to approximately Baht 72.7 million. - 4 - 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 December 31, 1998, the unamortized balance amounted to approximately Baht 36.1 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 December 31, 1998, the unamortized balance amounted to approximately Baht 49.6 million. 3. SIGNIFICANT ACCOUNTING POLICIES Allowance for Doubtful Accounts The Company and subsidiaries provide allowance for doubtful accounts equal to the estimated collection losses that may be incurred in the collection of all receivables. The estimated losses are based on historical collection experience coupled with a review of the current status of the existing receivables. Inventories The Company and subsidiaries value their merchandise inventories at the average cost or net realizable value, whichever is lower. Investments in Shares 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 Company's 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. 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. - 5 - Investments in shares of other related companies held for long-term purposes are accounted for by the cost method. Gains or losses on investments will be recognized when the investments are disposed of. Investments in listed securities of related companies, which are held for long-term purposes, are valued at the lower of aggregate cost or market value, whichever is lower. The provision for decline in value of said investments are shown separately under "Capital Deficiency" in balance sheets. Depreciation and Amortization The Company and subsidiaries depreciate their property and equipment by the straight-line method over the estimated useful lives of the assets ranging from five (5) to twenty-five (25) years. Tool and equipment that committed to transfer the ownership to the parties under the agreements are amortized by the straight-line method over the period of the agreements. Deferred underwriting fee for issuing Euro Convertible Bonds are amortized by the straight-line method over a period of five (5) years. Translation of Foreign Currency Financial Statements The financial statements of foreign subsidiaries have been prepared in the currency (reporting currency) of countries where they are domiciled. For consolidation purposes, these financial statements have been translated into Thai Baht as follows: (a) all assets and liabilities - at the current bank rates at the balance sheet dates, except for intercompany balances which are translated at the rates prevailing at the transaction dates; and (b) revenues and expenses - at average exchange rates. Gain or loss on translation is presented as "Cumulative Translation Adjustment" under "Capital Deficiency" in the balance sheets. Foreign Currency Transactions The Company and subsidiaries record foreign currency transactions into Baht based on the exchange rates prevailing at the transaction dates. Balances of assets and liabilities denominated in foreign currency at the balance sheet dates are translated into Baht at the prevailing exchange rates as of those dates or at the forward rates for those covered by forward exchange contracts. Gains or losses from the translation are credited to or charged against current operations. - 6 - Income and Cost Recognition Income on turnkey contract sales that requires installation over a period of time is recognized on the percentage of completion method. Related costs on such contract sales are recognized as incurred. Earnings (Loss) per Share Primary earnings (Loss) per share is computed by dividing the net income (loss) by the weighted average number of fully paid-up share capital outstanding during the year. 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 weighted average number of fully paid-up share capital outstanding during the year (included common share equivalent from convertible bonds) for 1998. However, the Company does not present fully diluted earnings per share for 1997 due to primary earnings per share is loss per share. 4. OTHER INFORMATION 4.1 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 and consolidated financial statements reflect the effects of these transactions which arose in the ordinary course of business. Account balances with these related companies at December 31, 1998 and 1997 were shown separately in the balance sheets. Significant transactions during 1998 and 1997 which included in the accompanying consolidated and the Company's financial statements consist of: In Thousand Baht Consolidated The Company 1998 1997 1998 1997 Sales of products and services 161,981 82,177 250,694 472,260 Fees and other income 19,271 96,701 36,128 118,702 Cost of sales and services 228,377 373,073 340,993 683,138 Selling and Administrative Expenses 11,188 - 5,139 6,094 (More)