VINYTHAI PUBLIC COMPANY LIMITED REPORT AND INTERIM FINANCIAL STATEMENTS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2000 Report of Independent Auditor To The Board of Directors and Shareholders of Vinythai Public Company Limited I have reviewed the accompanying balance sheet of Vinythai Public Company Limited as at 30 September 2000, and the related statements of earnings for the three-month and nine-month periods ended 30 September 2000 and 1999, and the related statements of retained earnings, changes in shareholders' equity, and cash flows for the nine-month periods ended 30 September 2000 and 1999. These financial statements are the responsibility of the Company's management as to their correctness and the completeness of the presentation. My responsibility is to issue a report on these financial statements based on my reviews. I conducted my reviews in accordance with the auditing standard applicable to review engagements. This standard requires that I plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. I have not performed an audit and, accordingly, I do not express an audit opinion. Based on my reviews, nothing has come to my attention that causes me to believe that the accompanying financial statements are not presented fairly, in all material respects, in accordance with generally accepted accounting principles. I have previously audited the financial statements of Vinythai Public Company Limited for the year ended 31 December 1999, in accordance with generally accepted auditing standards and expressed an unqualified opinion on those statements under my report dated 1 February 2000. The balance sheet as at 31 December 1999, as presented herein for comparative purposes, formed an integral part of the financial statements which I audited and reported on. I have not performed any other audit procedures subsequent to the date of that report. Narong Puntawong Certified Public Accountant (Thailand) No. 3315 Ernst & Young Office Limited Bangkok : 20 October 2000 VINYTHAI PUBLIC COMPANY LIMITED BALANCE SHEETS (Unit : Thousand Baht) Note 30 September 2000 31 December 1999 (Unaudited (Audited) but reviewed) ASSETS CURRENT ASSETS Cash on hand and at banks 3 513,147 112,359 Short-term investment Deposit with financial institution 3 220,000 - Accounts receivable - trade General 1,120,131 953,215 Related parties 5 205,505 225,987 Less : Allowance for doubtful accounts (30,000) (30,000) Accounts receivable - trade, net 4 1,295,636 1,149,202 Amounts due from related parties 5 800 494 Prepaid royalty to related parties 5 159,677 - Inventories - net 650,485 683,626 Other current assets Prepayments 16,792 29,553 Value added tax refundable 39,275 15,282 Others 54,036 18,380 110,103 63,215 TOTAL CURRENT ASSETS 2,949,848 2,008,896 INVESTMENTS - Related parties 6 651,972 651,972 PROPERTY, PLANT AND EQUIPMENT - net 7 9,198,259 9,416,248 OTHER ASSETS 9,917 9,949 TOTAL ASSETS 12,809,996 12,087,065 The accompanying notes are an integral part of the financial statements. VINYTHAI PUBLIC COMPANY LIMITED BALANCE SHEETS (Continued) (Unit : Thousand Baht) Note 30 September 2000 31 December 1999 (Unaudited (Audited) but reviewed) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable - trade General 142,414 147,220 Related parties 5 230,107 182,907 372,521 330,127 Current portion of long-term loans 7 1,074,242 956,189 Amounts due to related parties 5 523 309,146 Other current liabilities Accrued interest expenses 69,159 235,992 Accrued expenses 93,778 57,279 Others 94,442 109,857 257,379 403,128 TOTAL CURRENT LIABILITIES 1,704,665 1,998,590 LONG-TERM LOANS - net of current portion 7 6,443,148 6,828,581 LONG-TERM LOANS FROM RELATED PARTIES 8 - 1,487,930 OTHER LIABILITIES Accrued interest expenses - related parties 5 - 93,012 Others 38,703 36,112 38,703 129,124 TOTAL LIABILITIES 8,186,516 10,444,225 SHAREHOLDERS' EQUITY Share capital 9 Registered 932,297,199 ordinary shares of Baht 10 each (31 December 1999 : 602,450,000 ordinary shares of Baht 10 each) 9,322,972 6,024,500 Issued and fully paid 903,010,187 ordinary shares of Baht 10 each (31 December 1999 : 602,297,199 ordinary shares of Baht 10 each) 9,030,102 6,022,972 Share premium 1,125,000 1,125,000 Deficit (5,531,622) (5,505,132) TOTAL SHAREHOLDERS' EQUITY 4,623,480 1,642,840 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 12,809,996 12,087,065 The accompanying notes are an integral part of the financial statements. -------------------------------------------------------- DIRECTORS -------------------------------------------------------- (UNAUDITED BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF EARNINGS (Unit : Thousand Baht except earnings per share expressed in Baht) For the three-month periods For the nine-month periods ended 30 September ended 30 September Note 2000 1999 2000 1999 (Restated) (Restated) REVENUES Sales 1,714,504 1,354,204 4,793,611 3,525,294 Interest income 5,677 1,734 10,523 5,262 Other income 53 652 3,352 1,719 TOTAL REVENUES 1,720,234 1,356,590 4,807,486 3,532,275 EXPENSES Cost of sales 1,141,181 869,995 3,052,694 2,350,529 Selling and administrative expenses 145,178 131,418 410,142 380,909 Interest expenses and bank loan fees 201,104 259,629 650,132 746,374 Exchange losses 10 447,402 955,396 716,927 943,789 Directors' remuneration 1,440 1,029 4,081 2,991 TOTAL EXPENSES 1,936,305 2,217,467 4,833,976 4,424,592 NET LOSS FOR THE PERIOD (216,071) (860,877) (26,490) (892,317) BASIC EARNINGS PER SHARE Net loss (0.24) (1.43) (0.04) (1.48) Weighted average number of ordinary shares (shares) 903,010,187 602,297,199 753,600,456 602,297,199 The accompanying notes are an integral part of the financial statements. (UNAUDITED BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF RETAINED EARNINGS FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2000 AND 1999 (Unit : Thousand Baht) Note 2000 1999 (Restated) DEFICIT BALANCE - beginning of period - as previously reported (5,505,132) (4,789,772) CUMULATIVE EFFECT OF THE CHANGE IN ACCOUNTING POLICY FOR PRE-OPERATING EXPENSES 2 - (763,576) BALANCE - beginning of period - as restated (5,505,132) (5,553,348) NET LOSS FOR THE PERIOD (26,490) (892,317) BALANCE - end of period (5,531,622) (6,445,665) The accompanying notes are an integral part of the financial statements. (UNAUDITED BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2000 AND 1999 (Unit : Thousand Baht) 2000 1999 (Restated) ORDINARY SHARE Balance - beginning of period 6,022,972 6,022,972 Increase during the period 3,007,130 - Decrease during the period - - Balance - end of period 9,030,102 6,022,972 SHARE PREMIUM Balance - beginning of period 1,125,000 1,125,000 Increase during the period - - Decrease during the period - - Balance - end of period 1,125,000 1,125,000 DEFICIT Balance - beginning of period - after adjustment cumulative effect of the change in accounting policy for pre-operating expenses (5,505,132) (5,553,348) Increase during the period - - Decrease during the period (26,490) (892,317) Balance - end of period (5,531,622) (6,445,665) TOTAL SHAREHOLDERS' EQUITY 4,623,480 702,307 The accompanying notes are an integral part of the financial statements. (UNAUDITED BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2000 AND 1999 (Unit : Thousand Baht) 2000 1999 (Restated) Cash flows from (used in) operating activities Net loss (26,490) (892,317) Adjustments to reconcile net loss to net cash provided by (paid from) operating activities :- Depreciation 273,885 269,867 Amortisation of prepaid royalty 65,322 - Unrealized exchange losses from outstanding loans 784,354 958,268 Realized exchange losses from loan repayment 98,458 25,112 Loss (profit) from disposal of fixed assets (370) 7 1,195,159 360,937 Decrease (increase) in operating assets :- Accounts receivable - trade, general (166,916) (64,069) Accounts receivable - trade, related parties 20,482 (82,427) Amounts due from related companies (306) (6,960) Inventories 33,141 18,195 Other current assets (271,887) (4,656) Increase (decrease) in operating liabilities :- Accounts payable - trade, general (4,806) 32,084 Accounts payable - trade, related parties 47,200 49,402 Amounts due to related companies (308,623) 76,285 Other current liabilities (145,749) (155,459) Other liabilities (90,421) (35,702) Net cash flows from operating activities 307,274 187,630 The accompanying notes are an integral part of the financial statements. (UNAUDITED BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (Continued) FOR THE NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2000 AND 1999 (Unit : Thousand Baht) 2000 1999 (Restated) Cash flows from (used in) investing activities Proceeds from sales of deposit with financial institution - 20,420 Acquisition of fixed assets (56,057) (50,603) Proceeds from sales of fixed assets 531 587 Decrease in other assets 32 115 Net cash flows used in investing activities (55,494) (29,481) Cash flows from (used in) financing activities Decrease in long-term loans (1,095,446) (898,202) Increase (decrease) in long-term loans from related companies (1,542,676) 509,647 Cash received for revolving loans - 320,000 Cash received from capital increase 3,007,130 - Net cash flows from (used in) financing activities 369,008 (68,555) Net increase in cash and cash equivalents 620,788 89,594 Cash and cash equivalents at beginning of period 112,359 78,436 Cash and cash equivalents at end of period (Note 11) 733,147 168,030 Supplemental cash flows information :- Cash paid during the period for Interest paid 849,166 884,002 Corporate income tax - - The accompanying notes are an integral part of the financial statements. (UNAUDITED BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED NOTES TO INTERIM FINANCIAL STATEMENTS 1. GENERAL INFORMATION 1.1 Assumption underlying the preparation of the financial statements Although Thailand's economic crisis, which occurred in mid 1997, has eased to a certain extent in the current year, financial restructuring within the business community is still prevalent and subject to readjustment. Nevertheless, the accompanying financial statements have been prepared on the going concern basis, assuming that the realisation of assets and settlement of liabilities and obligations will occur in the ordinary course of business of the Company, without any expectation of significant disruption to the ongoing activities. 1.2 Basis of preparation of interim financial statements These interim financial statements are prepared in accordance with Accounting Standards Pronouncement No. 41 "Interim financial statements", with the Company choosing to present condensed interim financial statements. However, additional line items are presented in the balance sheets, and the statements of earnings, retained earnings, changes in shareholders' equity, and cash flows as in the annual financial statements. The interim financial statements are intended to provide information additional to that included in the latest annual financial statements. Accordingly, they focus on new activities, events and circumstances so as not to duplicate information previously reported. These interim financial statements should therefore be read in conjunction with the latest annual financial statements. 1.3 Significant accounting policies The interim financial statements are prepared using the same accounting policies and methods of computation as were used for the financial statements for the year ended 31 December 1999. (UNAUDITED BUT REVIEWED) 2. CHANGE IN ACCOUNTING POLICY On 20 January 2000, the Institute of Certified Accountants and Auditors of Thailand issued the Accounting Standards Interpretation Statement No. 4, prohibiting pre-operating expenses from being recognised as assets, effective for the financial statements for the year ended on or after 31 December 1999. As a result, the Company has written off the balance of its pre-operating expenses, which had previously been treated as a part of the project costs, against the beginning balance of retained earnings and restated the previous period's financial statements, presented herein for comparative purposes, as though pre-operating expenses had never been capitalised as assets. The adjustment has the effect of increasing the net earnings for the three-month and nine- month periods ended 30 September 1999 by Baht 7,915,658 and Baht 23,878,172 respectively. The cumulative effect of the accounting change up to the beginning of the year 1999 has been presented under the heading of "Cumulative effect of the change in accounting policy for pre- operating expenses" in the retained earnings statements. 3. CASH ON HAND AND AT BANKS / DEPOSIT WITH FINANCIAL INSTITUTION According to the conditions stipulated in the long-term loan agreement, as of 30 September 2000, the Company has placed cash at banks and deposit with financial institution of approximately Baht 728 million (31 December 1999 : Baht 110 million) as security against bank loans. However, the Company is able to withdraw these deposits to use for its regular operating expenses. The outstanding balance of cash at banks as of 30 September 2000 included foreign currency deposits of approximately US$ 10.5 million, equivalent to Baht 444.7 million (31 December 1999 : US$ 0.4 million, equivalent to Baht 14.7 million). (UNAUDITED BUT REVIEWED) 4. ACCOUNTS RECEIVABLE - TRADE As at 30 September 2000, aging of the outstanding balance of accounts receivable was as follows :- (Unit : Thousand Baht) Accounts Receivable General Related Parties Total Current receivables 928,541 202,136 1,130,677 Past due receivables Less than 3 months 157,736 2,835 160,571 3-6 months 6,088 534 6,622 6-12 months 200 - 200 More than 12 months 27,566 - 27,566 Total 1,120,131 205,505 1,325,636 Less : Allowance for doubtful accounts (30,000) Accounts receivable trade, net 1,295,636 5. RELATED PARTY TRANSACTIONS During the period, the Company had significant business transactions with its associated and related companies (related by way of holding interest, common shareholders and/or common directors). These transactions were in the ordinary course of business of the Company and in accordance with prices and rates stipulated in the relevant agreements with those companies. Significant transactions with those related companies are summarised below. (Unit : Million Baht) For the three-month periods For the nine-month periods ended 30 September ended 30 September 2000 1999 2000 1999 Transactions with associated company : Purchase of raw materials 48 45 145 138 2000 1999 2000 1999 Transactions with related companies : Sales of finished products 219 160 777 505 Purchases of raw materials and finished goods 581 392 1,607 904 Royalty expenses 21 28 65 72 Interest expenses - 58 65 128 Commission expenses 2 2 4 4 The outstanding balances of the transactions are shown separately as related parties items in the balance sheets. 6. INVESTMENTS - RELATED PARTIES The outstanding balance of investments in related parties consist of :- (Unit : Thousand Baht) Percentage of the Company's interest 30 September 2000 31 December 1999 2000 1999 Percent Percent Investment in associated company : Pimai Salt Company Limited 20.40 20.40 203,221 203,221 Investment in related company : Thai Olefins Company Limited 5.29 5.29 448,751 448,751 651,972 651,972 According to the latest financial statements, as provided by the management of Pimai Salt Company Limited (supplier of raw material - salt), the accumulated share of loss from investment in this company amounted to approximately Baht 6.6 million. Since the share of loss is insignificant, the Company considers that under the equity method, the investment is equal to the acquisition cost. (UNAUDITED BUT REVIEWED) According to the latest financial statements, as provided by the management of Thai Olefins Company Limited (supplier of raw material - ethylene), the net worth of this company attributable to the Company's interest was Baht 65 million lower than the acquisition cost. No provision for impairment loss has been set aside against this investment since the Company's management considered that the fair value of this investment is higher than the carrying cost of the investment. 7. LONG-TERM LOANS These represent loans from local and overseas banks that provided financing facilities of US$ 289 million and Baht 685 million. These loans are repayable in the years 1996 to 2006. As of 30 September 2000, there were outstanding long-term loans of US$ 168.5 million and Baht 380 million (31 December 1999 : US$ 196 million and Baht 380 million). Parts of the loans have been guaranteed by local banks. In addition, the loans have been secured by mortgaging/pledging of the Company's fixed assets and bank savings deposit accounts. 8. LONG-TERM LOANS FROM RELATED PARTIES As at 31 December 1999, outstanding loans totalled US$ 31.3 million and Baht 307.9 million. The Company repaid all of the loan balances in May 2000 after the capital increase described in Note 9 to the financial statements. 9. CAPITAL INCREASE By a resolution of the annual general meeting of shareholders passed on 12 April 2000, the Company was authorised to decrease and increase its registered capital as follows :- - Decrease registered capital from Baht 6,024,500,000 to Baht 6,022,971,990 through the elimination of the 152,801 unissued ordinary shares. - Increase registered capital from Baht 6,022,971,990 to Baht 9,322,971,990 through the issuance of 330,000,000 new ordinary shares with a par value of Baht 10 to existing shareholders, at Baht 10 each. These were to be offered to the shareholders in a ratio of 1.825 old shares to 1 new share. (UNAUDITED BUT REVIEWED) During the 2nd quarter 2000, the Company received Baht 3,007,129,880 from the issuance of 300,712,988 ordinary shares and the Company has already registered with the Ministry of Commerce to present its registered share capital of Baht 9,322,971,990 and its paid up share capital of Baht 9,030,101,870. 10. EXCHANGE (GAINS) LOSSES (Unit : Million Baht) For the three-month For the nine-month periods ended 30 September periods ended 30 September 2000 1999 2000 1999 Realised (gains) losses on exchange rate (37.3) (7.0) (34.4) (12.2) Unrealised (gains) losses on exchange rate 484.7 962.4 751.3 956.0 447.4 955.4 716.9 943.8 As of 30 September 2000, the selling rate for US$ 1 was equal to Baht 42.3655. 11. CASH FLOW STATEMENTS For the purposes of the statements of cash flows, cash and cash equivalents include cash on hand and at bank and deposit with financial institutions with an original maturity of 3 months or less. Cash and cash equivalents as reflected in the statements of cash flows consist of the following :- (Unit : Thousand Baht) 30 September 2000 30 September 1999 Cash on hand and at banks 513,147 168,030 Deposit with financial institution 220,000 - Cash and cash equivalents 733,147 168,030 (UNAUDITED BUT REVIEWED) 12. FINANCIAL INFORMATION BY SEGMENT The Company's operations comprise the manufacturing and distribution of PVC and related by- products for both domestic and export markets. For the three-month and nine-month periods ended 30 September 2000, the export sales represented approximately 37 percent and 27 percent (1999 : 34 percent and 26 percent) of total sales, respectively. The Company's operations involve a single industry segment and are carried out from a single geographic area in Thailand. 13. LEASE AND RENTAL COMMITMENTS As at 30 September 2000, the Company had the following outstanding lease and rental commitments:- a) Lease commitments in respect of land for its plant for a period of 30 years as from 15 June 1989 to 14 June 2019. The outstanding balances of rental commitments are approximately Baht 142 million. b) Commitments in respect of motor vehicle operating leases amounted to approximately Baht 9.4 million, which are repayable within the year 2004. c) Other lease and rental commitments payable in the future are as follows :- Million Baht Payable within 1 year 38 Payable between 2-5 years 123 161 (UNAUDITED BUT REVIEWED) 14. OTHER COMMITMENTS As at 30 September 2000, the Company had the following other outstanding commitments:- a) The Company has entered into an agreement to purchase raw materials from a related local company. The Company agrees to purchase raw materials at the quantity and price stipulated in the agreement. The price is referenced to the US market price. b) The Company has entered into an agreement with an associated company to purchase raw materials produced by this associated company at the quantity and at the price stipulated in the relevant joint venture agreement. c) The Company has entered into forward exchange contracts to purchase USD 14 million as a hedge against foreign exchange risk. 15. BANK GUARANTEES AND AVAL As at 30 September 2000, there were outstanding bank guarantees and aval as follows :- a) Bank guarantees and standby letters of credit totaling Baht 118.3 million (31 December 1999 : Baht 119 million) issued by banks on behalf of the Company in the normal course of business of the Company. b) A bank aval for export credit facilities of US$ 72 million (31 December 1999 : US$ 86.4 million) was issued by local banks on behalf of the Company under the conditions stipulated in the relevant long-term loan agreement. 16. PRESENTATION The presentation of the financial statements has been made in compliance with the Ministerial Regulation No. 7 dated 25 October 1996 as empowered under the Public Limited Companies Act B.E. 2535. 17. APPROVAL OF FINANCIAL STATEMENTS These financial statements have been approved by the Company's directors.