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LOXLEY PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 AND 1998 "UNAUDITED","REVIEWED" 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 past year upto the present, 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. PRINCIPLES OF CONSOLIDATION The interim 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 as follows: - 2 - Percentage of Shareholding As at June 30 1999 1998 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 - 99 - Loxley Utilities Services Company Limited 90 - 90 - Loxley Broadcast and Media Company Limited 74 - 60 - 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 Infra Company Limited 60 - 60 - Loxley Pagephone Company Limited 55 - 55 - Loxley Satellite Communications Company Limited (not yet started principal commercial operations) 51 - 51 - Professional Computer Company Limited - 99 - 99 LoxData Company Limited - 99 52 - Loxley Information Holding Limited - 99 - - Netone Network Solution Company Limited - 98 - 98 Open Systems Integrator Company Limited - 92 - 83 Loxley Video Post (Bangkok) Company Limited - 74 - 31 - 3 - Percentage of Shareholding As at June 30 1999 1998 Direct Indirect Direct Indirect 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 - North - East Asia Telephone and Telecommunication Company Limited - 49 - 49 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 June 30, 1999, the unamortized balance amounted to approximately Baht 67.5 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 June 30, 1999, the unamortized balance amounted to approximately Baht 34.4 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 June 30, 1999, the unamortized balance amounted to approximately Baht 47.6 million. 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 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.ACCOUNTING CHANGE Starting from January 1, 1999, the Company adopted Statement No. 40 issued by the Institute of Certified Accountants and Auditors of Thailand which prescribes that all available - for - sale securities classified as long-term investment be measured at fair value and the changes in the fair value of those investments will report as a separate component of shareholders' equity in balance sheet. This accounting standard becomes operative for financial statements covering periods beginning on or after January 1, 1999. (Before January 1, 1999, the Company valued said investments at the lower of the aggregate cost or the aggregate market value). - 5 - 4.EARNINGS (LOSS) PER SHARE Basic 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 periods. The Company presents diluted earnings per share for comparison by dividing the net income (loss) adjusted with interest expense and related other expenses from convertible bonds by the weighted average number of dilutive potential ordinary shares outstanding during the periods. Consolidated For three-month period ended June 30 Amount No. of Shares Earnings (loss) per Share (In Thousand Baht) (Shares) (In Baht) 1999 1998 1999 1998 1999 1998 Basic earnings (loss) per share Net income (loss) attributable to ordinary shareholders 189,585 ( 538,484) 40,000,000 40,000,000 4.74 (13.46) Effects of dilutive potential orignal shares - Euro convertible bonds ( 29,658) 678,275 10,790,000 10,790,000 Diluted earnings per share Earnings of ordinary share deem to has been converted into ordinary shares 159,927 139,791 50,790,000 50,790,000 3.15 2.75 For six-month period ended June 30 Amount No. of Shares Earnings per Share (In Thousand Baht) (Shares) (In Baht) 1999 1998 1999 1998 1999 1998 Basic earnings per share Net income attributable to ordinary shareholders 46,853 758,038 40,000,000 40,000,000 1.17 18.95 Effects of dilutive potential orignial shares - Euro convertible bonds 230,390 ( 497,812) 10,790,000 10,790,000 Diluted earnings per share Earnings of ordinary share deem to has been converted into ordinary shares 277,243 260,226 50,790,000 50,790,000 5.46 5.12 - 6 - The Company For three-month period ended June 30 Amount No. of Shares Earnings (loss) per Share (In Thousand Baht) (Shares) (In Baht) 1999 1998 1999 1998 1999 1998 Basic earnings (loss) per share Net income (loss) attributable to ordinary shareholders 197,240 ( 523,970) 40,000,000 40,000,000 4.93 (13.10) Effects of dilutive potential orignial shares - Euro convertible bonds ( 29,658) 678,275 10,790,000 10,790,000 Diluted earnings per share Earnings of ordinary share deem to has been converted into ordinary shares 167,582 154,305 50,790,000 50,790,000 3.30 3.04 For six-month period ended June 30 Amount No. of Shares Earnings per Share (In Thousand Baht) (Shares) (In Baht) 1999 1998 1999 1998 1999 1998 Basic earnings per share Net income attributable to ordinary shareholders 40,480 771,475 40,000,000 40,000,000 1.01 19.29 Effects of dilutive potential orignial shares - Euro convertible bonds 230,390 ( 497,812) 10,790,000 10,790,000 Diluted earnings per share Earnings of ordinary share deem to has been converted into ordinary shares 270,870 273,663 50,790,000 50,790,000 5.33 5.39 (More)