- 3 - In Baht Consolidated For the Company 1998 1997 1998 1997 Net increase (decrease) in cash and cash equivalents (162,502,275) 455,684,019 (120,410,611) 331,671,786 Cash and cash equivalents at beginning of year 789,811,672 334,127,653 636,180,945 304,509,159 CASH AND CASH EQUIVALENTS AT END OF YEAR 627,309,397 789,811,672 515,770,334 636,180,945 Supplementary disclosure of cash flows information: Cash paid during the year Interest expense 654,758,663 526,234,652 387,051,668 155,995,065 Income tax 65,666,242 185,185,180 38,846,434 146,255,041 Cash and cash equivalents consisted of: Cash on hand and in banks 88,742,763 56,598,453 29,514,625 18,081,639 Short-term investment in fixed deposits 409,879,705 140,000,000 377,599,869 140,000,000 Short-term investment in promissory notes and bills of exchange 128,686,929 593,213,219 108,655,840 478,099,306 Total 627,309,397 789,811,672 515,770,334 636,180,945 See accompanying Notes to Financial Statements. (With Mr. Methee Ratanasrimethas report dated February 12, 1999) CENTRAL PATTANA PUBLIC COMPANY LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 1. BASIS FOR FINANCIAL STATEMENT PRESENTATION AND EFFECT OF THE ECONOMIC CRISIS The accompanying financial statements and consolidated financial statements for the years ended December 31, 1998 and 1997, include the effects of the economic crisis to the extent they are known and can be estimated. The financial positions and operations of the Company and subsidiaries have been affected significantly, and will continue to be affected for the foreseeable future, by the countrys unstable economy and currency volatility including restriction of credit, rising bankruptcy rate and the general deterioration of the economics of countries in the Asia Pacific region. In addition, it is not possible to determine the future effect a continuation of the economic crisis may have on the Companys and subsidiaries liquidity and earnings, including the effect on transactions with the Companys and subsidiaries investees, customers and suppliers. Furthermore, as discussed in Note 13 to the financial statements, as of December 31, 1998, the subsidiaries have cost of project development - shopping center totalling approximately Baht 2,313 million. The management of the subsidiaries have temporarily suspended the above construction project development and provided the allowance for loss of recoverable amount totalling approximately Baht 258 million. The management of the subsidiaries decision to continue the construction depends on the future economic situation and the subsidiaries ability to obtain additional funds. As a result, there are significant uncertainties that may affect future financial position and operations, the recoverability of the Companys and subsidiaries assets (including the above construction project development - shopping center) and the ability of the Company and subsidiaries to maintain or pay their debts as they mature. The ultimate effect, which may be material, of these uncertainties on the stated amounts of assets and liabilities at the balance sheet date cannot presently be determined, and accordingly the financial statements and the consolidated financial statements do not include any adjustments that might result from these uncertainties. Related effects will be reported in the financial statements as they become known and estimable. The Company has gain on exchange rates for the year ended December 31, 1998, amounting to approximately Baht 418.8 million (net of related income tax approximately Baht 179.5 million). The Company presented these gains on exchange rate as a separate component of gain from continuing operations in the statement of income. In 1997, the Company had loss on foreign currency exchange rate under the managed float system for the year ended December 31, 1997 amounting to approximately Baht 866.5 million (net of the related income tax and tax benefit on loss from operations of Baht 380 million). This was previously presented as Extraordinary Item in the statements of income. For comparision with 1998 financial statements, the loss is presented under the caption of Gain (Loss) on Exchange Rate. - 2 - The Company and subsidiaries maintain their official accounting records in Thai Baht and prepare their statutory financial statements in the Thai language in conformity with financial accounting standards in Thailand. Certain accounting principles applied by the Company and subsidiaries that conform with financial accounting standards and accounting principles in Thailand may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are not designed for those who are not informed about Thailand accounting principles and practices. For the convenience of the reader, the accompanying financial statements have been translated into English from the statutory Thai language financial statements which are issued for domestic reporting purposes. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Central Pattana Public Company Limited and the following subsidiaries: Direct and Indirect Percentage of Holdings 1998 1997 Central Realty Service Co., Ltd. 99.99 99.99 Lang Suan Realty Co., Ltd. 99.99 99.99 Central Food Avenue Co., Ltd. 99.99 99.99 Focus Holding Co., Ltd. 99.99 99.99 Central Pattana Chiang Mai Co., Ltd. 99.99 99.99 Central Pattana Ko Raj Co., Ltd. 99.99 99.99 Food Novelties Co., Ltd. 99.99 69.99 Coffee Partners Co., Ltd. 99.99 - Central Pattana Khon Kaen Co., Ltd. 78.13 61.74 Central Pattana Chonburi Co., Ltd. 60.00 60.00 Central Pattana Nine Square Co., Ltd. 60.00 60.00 Namsap Pattana Co., Ltd. 50.00 50.00 Numsup Pattana Realty Service Co., Ltd. 50.00 50.00 The significant intercompany transactions between the Company and subsidiaries have already been eliminated. - 3 - 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Recognition Rental and service income are recognized on the accrual basis, while unearned rental and service income are recognized as income by the straight-line method over the periods of the leases. Income from sales of condominium leasehold rights is recognized by using the percentage of completion method. Completion is measured by calculating the proportion that costs to date bear to the latest estimated total costs excluding leasehold rights. Allowance for Doubtful Accounts The Company provides allowance for doubtful accounts equal to the estimated collection losses that may be incurred in the collection of accounts receivable. The estimated losses are based on historical collection experience coupled with a review of the current status of the receivables. Investments Investments in listed securities are valued at the lower of aggregated average cost or market. The long-term investments in shares representing 20% or more of authorized capital of the investee company are recorded by equity method, while the investments in shares with interest owned less than 20% are recorded by cost method. Depreciation and Amortization The Company depreciates its property and equipment by the straight-line method over the estimated useful lives of the assets over the periods of five (5) and ten (10) years. Building, leasehold rights and improvements are depreciated and amortized over the periods of the leases at the start of its commercial operations. Underwriting fees of common shares and convertible bonds are amortized by the straight-line method over a period of five (5) years. They are charged to expenses for tax purposes at full amount in the year which these transactions occurred. Organization and pre-operating expenses are amortized by the straight- line method over a period of five (5) and fifteen (15) years. The Company records advance management fee for sales as deferred charge and will amortize to expense upon the start of commercial operations. - 4 - The Company records interest on loans obtained for the investment in subsidiary and related companys shares during the activities preparatory to the commencement of the Companys planned principal operations as a portion of investments in accordance with Thai Accounting Standard No. 15. Foreign Currency Transactions All foreign currency transactions are recorded at the rate prevailing on the dates of the transactions. The outstanding balances in foreign currencies at the balance sheet date are translated at the exchange rates prevailing at that date. Gains or losses on the translations are credited or charged to current operations. Foreign currency loans covered by forward exchange agreements are translated to Baht at the rate specified in the agreements. Earnings (Loss) per Share Earnings (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding during the year. Fully diluted earnings per share for the year ended December 31, 1998, is determined on the assumption that all the outstanding Euro Convertible Bonds were converted to common shares since January 1, 1998. Net income was adjusted by interest, gain on exchange rate and the related income tax of the bonds. For the year ended December 31, 1997, fully diluted earnings per share is higher than primary earnings per share, hence, fully diluted earnings per share is not presented to compare in these financial statements. Cash and Cash Equivalents It is the Companys policy to include short-term investments which are due within 3 months or less as cash equivalents. 4. TRANSACTIONS WITH RELATED COMPANIES The Company has certain transactions with related companies. These companies are related through common shareholdings and/or directorships. The financial statements reflect the effects of these transactions on the basis determined by the companies concerned, which are in the normal course of business. - 5 - A summary of revenues and expenses with related companies during the years ended December 31, were summarized as follows: In Thousand Baht Consolidated For the Company 1998 1997 1998 1997 Revenues 334,002 247,101 425,657 581,173 Expenses 23,485 30,512 29,220 31,209 Receivables from and payables to related companies as at December 31, were summarized as follows: In Thousand Baht Consolidated For the Company 1998 1997 1998 1997 Receivables 86,483 106,377 73,351 125,932 Payables 27,033 91 6,439 1,897 Loans to related companies as at December 31, were summarized as follows: In Thousand Baht Consolidated For the Company 1998 1997 1998 1997 Siam Retail Development Co., Ltd. 162,739 162,739 162,739 162,739 Lang Suan Realty Co., Ltd. - - 86,130 42,808 Central Food Avenue Co., Ltd. - - 7,515* 5,010* Focus Holding Co., Ltd. - - 5,573 647,649 Central Pattana Chiang Mai Co., Ltd. - - 211,535 620,292 Central Pattana Ko Raj Co., Ltd. - - 56,824 50,350 Food Novelties Co., Ltd. - - 5,751* 7,283* Coffee Partners Co, Ltd. - - 12,005* - - 6 - In Thousand Baht Consolidated For the Company 1998 1997 1998 1997 Central Pattana Khon Kaen Co., Ltd. - - 194,108 286,876 Central Pattana Chonburi Co., Ltd. - - - 34* Central Pattana Nine Square Co., Ltd. - - - 4,632* Total 162,739 162,739 742,180 1,827,673 Less allowance for doubtful accounts 43,899 - 43,899 - Net 118,840 162,739 698,281 1,827,673 * Short-term loans. Loans from related companies and directors as at December 31, were summarized as follows: In Thousand Baht Consolidated For the Company 1998 1997 1998 1997 Mr. Keyumas Shirdel 2,636* - - - Mr. Winyu Kuwanun 1,314 1,191 - - Fairy Plaza Co., Ltd. 486 440 - - Big C Supercenter Public Company Limited - 18,117 - - Central Superstore Co., Ltd. 31 31 - - Modern Tradition Co.,Ltd. - 3,042* - - Praram 9 square Ltd. - 1,962* - - Super Asset Co., Ltd. - 1,056* - - Central Realty Service Co., Ltd. - - 16,655 54,430 Total 4,467 25,839 16,655 54,430 * Short-term loans. - 7 - Rates of the rental, service and utilities system service charges per square meter of Central Ladprao Shopping Center, Central Ram-indra Shopping Center, Central Pinklao Shopping Center and Central Festival Center Pattaya, Airport Plaza Shopping Center and Central Rama III Shopping Center for the years ended December 31, 1998 and 1997, which the Company and subsidiaries (Central Pattana Public Co., Ltd., Central Realty Service Co., Ltd., Central Pattana Chiang Mai Co., Ltd., Namsap Pattana Co., Ltd., and Numsap Pattana Realty Service Co., Ltd.) charge to the related companies are approximately the same rates when compared with other connected shops and/or nearby shops on the same floor. These are subjected to location, lease space, lease term, timing and type of lease. 5. ACCOUNTING CHANGE FOR INCOME TAX Starting from April 1, 1997, the Company adopted the practice of recognizing income tax effects of transactions in the period in which they enter into the determination of net income, regardless of when they are recognized for computation of taxable income. Accordingly, the income tax applicable to expenses which are not currently deductible for computation of income tax purposes are set up as deferred income tax in the balance sheets. This will be allocated to future periods when the expenses provided for are actually incurred and considered deductible for computation of income tax purposes. This change is effective on January 1, 1997. 6. ACCOUNTS RECEIVABLE - TRADE The Company has outstanding accounts receivable more than 3 months and customers deposit as at December 31, 1998, which were classified by aging as follows: Consolidated In Thousand Baht Number More than More than of 3 months 6 months to More than Customers items to 6 months 12 months 12 months Total deposit Related companies 38 12,483 5,159 24,900 42,542 13,343 Other 444 29,291 24,991 41,773 96,055 105,755 Total 482 41,774 30,150 66,673 138,597 119,098 Allowance for doubtful accounts 15,640 For the Company In Thousand Baht Number More than More than of 3 months 6 months to More than Customers items to 6 months 12 months 12 months Total deposit Related companies 32 14,123 9,663 22,560 46,346 13,343 Other 203 9,352 11,993 19,042 40,387 71,668 Total 235 23,475 21,656 41,602 86,733 85,011 Allowance for doubtful accounts 8,356 (More)