) ANNUAL FINANCIAL STATEMENTS

See accompanying Notes to Financial Statements. (With Mr.Prasit Musikabhantus report dated November 6, 1998) PHATRA LEASING PUBLIC COMPANY LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1998 (With Comparative Figures for The Year Ended September 30, 1997) In Baht 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) (169,889,365) 30,407,515 Reconciliations of net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 545,757,609 533,906,016 Provision for doubtful accounts 167,286,319 30,694,093 Unrealized loss on exchange rate - 12,778,512 Provision for loss on decline in value of assets held for lease 14,554,756 - Gain on sales of fixed assets (6,885,232) (3,314,060) Decrease (increase) in leasing receivables under operating lease contracts 16,586,193 (25,032,145) Decrease in receivables under finance lease contracts 337,609,065 457,156,414 Decrease in prepaid expenses and other current assets 12,919,169 39,392,856 Decrease in property foreclosed 22,286,207 5,596,675 Increase in deferred income tax (45,917,870) (13,785,672) Increase in other assets (11,974,575) (55,243) Decrease in accounts payable-trade (56,516) (30,246,734) Increase (decrease) in income tax payable 6,810,904 (36,083,807) Decrease in other current liabilities (21,729,173) (741,386) Decrease in advances received from lessees for exercising purchase option (45,551,793) (12,809,919) Net Cash Provided by Operating Activities 821,805,698 987,863,115 CASH FLOWS FROM INVESTING ACTVITIES: Purchases of property and equipment (338,753,131) (677,332,285) Proceeds from sales of fixed assets 148,007,923 66,225,946 Net Cash Used in Investing Activities (190,745,208) (611,106,339) - 2 - In Baht 1998 1997 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in loans from financial institutions (603,134,073) 200,000,000 Decrease in short-term loans from and payables to related companies (30,199,171) (32,428,063) Increase in long-term loans from related companies - 10,000,000 Decrease in long-term loans from other companies - (459,725,000) Cash dividends - (30,000,000) Net Cash Used in Financing Activities (633,333,244) (312,153,063) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,272,754) 64,603,713 Cash and Cash Equivalents at Beginning of Year 76,163,535 11,559,822 CASH AND CASH EQUIVABLENTS AT END OF YEAR 73,890,781 76,163,535 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMENTION: Cash and cash equivalents consist of: Cash on hand and in banks 33,853,673 39,135,569 Short-term investment in promissory notes 40,532,862 40,140,666 Bank overdrafts (495,754) (3,112,700) 73,890,781 76,163,535 Cash paid during the year for: Interest expense 241,786,892 228,040,607 Income tax 28,560,987 64,090,200 See accompanying Notes to Financial Statements. (With Mr. Prasit Musikabhantus report dated November 6, 1998) PHATRA LEASING PUBLIC COMPANY LIMITED NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 1. SIGNIFICANT ACCOUNTING POLICIES Income Recognition The Company recognizes the income from long-term leases in conf ormity with the Accounting Standard No. 29 Accounting for Long-Te rm Leases, which is applied to individual contracts since the dat es on which the contracts were entered into. Rental income from operating lease contracts is recognized base d on the term of the lease. Income from finance lease contracts is recognized over the inst allments period based on the sum-of-the-digits method as the inst allments fall due irrespective of actual collections. During the first to third quarters of 1998, the Company changed the method of the recognition of rental income from operating le ase contracts and income from finance lease contracts for lessees who had not paid rentals for more than six months, which was pre viously recognized as income on the accrual basis over the term o f leases to be recognized on the accrual basis only for six month s effective from October 1, 1997 on the grounds of conservatism o f revenue recognition. The cumulative effect of this change up t o September 30, 1997 amounted to approximately Baht 19.6 million. However, in the fourth quarter of 1998, management had reviewe d the policy on the income recognition and decided to change the method on the recognition of rental income from operating lease c ontracts and income from finance lease contracts to be recognized on the accrual basis only for three months. As a result of this change, revenues for the year ended September 30, 1998 reduced b y approximately Baht 33.3 million (Baht 1.11 per share). The cum ulative effect of this change up to September 30, 1997 amounting to approximately Baht 38.0 million was presented separately in th e statement of income. Allowance for Doubtful Accounts The Company provides allowance for doubtful accounts equal to t he estimated losses that may be incurred in the collection of all receivables. The estimated losses are based on historical colle ction experience and a review of the current status of existing r eceivables. - 2 - Investments Investments in shares of the associated and other companies whi ch are held for long-term purpose are valued at cost. The Compan y does not adjust the investment in shares of the associated comp any to the equity method since the effect is not material. Gains or losses will be taken up when the investments are disposed of. Depreciation The Company depreciates its property and equipment, except asse ts held for operating lease and those held for future lease, by t he straight-line method over the estimated useful lives of the as sets as follows: No. of Years Office condominium 7 and 40 Furniture, fixtures and office equipment 5 Transportation equipment 5 The Company will depreciate assets held for future lease upon starting of the lease. The Company depreciates assets held for operating lease by the straight-line method on the original cost less estimated residual value over the term of the lease. Allowance for Decline in Value of Assets Held for Operating Lease The Company provides allowance for decline in value of assets h eld for operating lease for those lessees who had not paid renta l for more than three months equal to the estimated recoverable a mount of assets based on the average market value less estimated discount determined by management. Foreign Currency Transactions Transactions in foreign currencies throughout the years are rec orded in Baht at rates prevailing at the date of transactions. O utstanding liabilities denominated in foreign currencies at the b alance sheet dates are converted into Baht at the prevailing bank rates as of those dates excluding transactions in foreign curren cies forward position which are recorded at forward exchange rate s. Losses from the translation of transactions in foreign curren cies forward position are deferred and amortized by the straight- line method over the term of the forward exchange contracts while gains or losses arising from the translation of transactions in foreign currencies without forward position are credited or charg ed to current operations. - 3 - Deferred Income Tax The Company has adopted the practice of recognizing the income tax effects of transactions in the period in which they enter int o the determination of net income, regardless of when they are re cognized as income or expenses for tax purposes. Accordingly, th e income taxes applicable to income which is not currently taxabl e and expenses which are not currently taxable are set up as a de ferred income tax in the balance sheets. This will be allocated to future periods when the expenses provided for are actually inc urred and considered deductible for income tax purposes, or the i ncome is recognized for tax purposes. Earnings (Loss) per Share Earnings (loss) per share is determined by dividing the income (loss) by the number of shares outstanding at the end of the year s. 2. TRANSACTIONS WITH RELATED COMPANIES The Company has certain transactions with its related companies . These companies are related through common shareholdings and/o r management. The effects of these transactions are reflected in the accompanying financial statements. Significant account balances with the related companies, arisin g from transactions in the normal course of business, as of Septe mber 30, 1998 and 1997 and for the years then ended were as foll ows: In Baht 1998 1997 Cash in bank 33,150,809 39,015,002 Short-term investment in promissory notes 40,532,862 40,140,666 Leasing receivables under operating lease contracts 1,111,911 1,554,940 Receivables under finance lease contracts- net 7,709,810 16,360,634 Prepaid expenses 26,582,254 19,223,429 Other current assets 1,028,804 4,856,330 Investment in associated company 245,000 245,000 Bank overdraft and loans from financial institutions 243,445,531 501,760,700 Current portion of long-term loans 412,687,398 - Short-term loans from and payables to related companies 352,845,501 383,044,671 - 4 - In Baht 1998 1997 Rental income received in advance 172,692 301,340 Accrued interest 458,031 20,816,082 Other current liabilities 6,641,264 3,510,381 Long-term loans from related companies 400,760,000 100,000,000 Advances received from lessees for exercising purchase option 1,925,523 2,719,159 Rental income from operating lease contracts 153,054,596 130,216,974 Income from finance lease contracts 1,454,026 3,834,371 General and administrative expenses 699,155 7,168,264 Interest expense 120,910,350 90,100,584 3. LEASING RECEIVABLES UNDER OPERATING LEASE CONTRACTS The 99 leasing receivables under operating lease contracts whic h may be uncollectible as at September 30, 1998, categorized by a ging schedules, were as follows: In Thousand Baht Over 3 months to 6 months 4,047 Over 6 months to 12 months 19,360 Over 12 months 14,849 Total 38,256 The Company provided allowance for doubtful accounts covering l easing receivables under operating lease contracts equal to the e stimated losses that may be incurred in the collection of receiva bles amounted to approximately Baht 36.1 million. (More)