NANCIAL STATEMENTS QUARTER 3/1999

operating activities 461,865,305 1,284,488,369 459,770,101 1,288,160,006 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of fixed assets 1,587,175 2,784,846 1,587,175 2,784,846 Purchases of fixed assets (28,888,462) (20,584,836) (28,876,312) (20,201,030) Decrease (increase) in loans to subsidiaries - - 2,500,000 (19,708,000) (Increase) in prepaid rent (7,224,144) (7,030,202) (7,224,144) (7,030,202) Decrease in receivable from and loans to employees 2,305,097 2,127,537 2,275,266 2,137,600 (Increase) in long-term investments - (1,139,914) - - Dividend income - - - 13,958,000 Net cash (outflow) from investing activities (32,220,334) (23,842,569) (29,738,015) (28,058,786) SINGER THAILAND PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (UNAUDITED) (Cont'd) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in bank overdrafts and short-term loans 29,454,350 (1,018,927,803) 29,668,035 (1,019,509,640) Repayment of long-term loans (361,528,970) (40,000,000) (361,528,970) (40,000,000) (Decrease) in employees security deposits and provident funds (38,500,618) (58,243,123) (38,713,881) (58,577,661) Dividend paid (Note 17) (24,107,417) - (24,107,417) - Net cash (outflow) from financing activities (394,682,655) (1,117,170,926) (394,682,233) (1,118,087,301) Increase in cash and cash equivalents 34,962,316 143,474,874 35,349,853 142,013,919 Cash and cash equivalents at beginning of the period 130,192,133 143,867,090 128,811,934 142,293,504 Cash and cash equivalents at end of the period (Note 13) 165,154,449 287,341,964 164,161,787 284,307,423 ADDITIONAL CASH FLOWS INFORMATION Interest paid during the period 156,739,475 331,745,267 147,801,586 318,536,541 Income tax paid during the period 204,007 999,425 202,730 278,603 SINGER THAILAND PUBLIC COMPANY LIMITED NOTES TO INTERIM CONSOLIDATED AND COMPANY FINANCIAL STATEMENTS (UNAUDITED) 30 SEPTEMBER 1999 AND 1998 1 Economic crisis and effects on company's operations The company operates in Thailand, which, together with a number of other countries in the Asia Pacific Region is currently experiencing an economic crisis. The crisis in Thailand has involved a slowdown in economic growth, a shortage of liquidity within the country and volatility of the securities market. The company's operations have been affected by the economic crisis in the current period and are expected to continue to be affected for the foreseeable future. The ultimate outcome of the economic crisis cannot be determined at present. 2 Summary of significant accounting policies 2.1 Basis for preparation of financial statements The interim consolidated and company financial statements have been prepared in accordance with and complied with generally accepted accounting principles in Thailand and regulations of the Stock Exchange of Thailand. 2.2 Principles of consolidation The interim consolidated financial statements incorporate the financial statements of Singer Thailand Public Company Limited and its subsidiaries. Intercompany transactions are eliminated in the consolidation. Subsidiaries are those companies in which the company holds, directly or indirectly, more than 50% of the voting shares and dominant influence is exercised in their management. Subsidiaries included in the interim consolidated financial statements are as follows: 1999 1998 % of shareholding % of shareholding Singer Industries (Thailand) Limited 99.88 99.88 Singer (Broker) Limited 99.70 99.70 Singer Trading (Thailand) Limited 99.86 99.86 Sansui (Thailand) Limited 50.86 50.86 S. T. L. Electronics Limited 99.84 99.84 2.3 Revenue recognition Sales comprise cash sales, credit sales and installment sales. Cash sales and credit sales are recognised when products are delivered. Installment sales represent sales under hire-purchase contracts whereby the related debts are effectively secured by the products sold. Revenue from installment sales comprises sales of product and interest. The interest on installment sales are calculated on customary financing terms. Sales of product and gross profit are recognised when contracts are signed and first payments are received. Interest is recorded in unearned carrying charges and recognised as earned by using the sum-of-the-months'digit method. Collection commissions are accrued upon collection. 2.4 Installment accounts receivable In accordance with trade practice, installment accounts receivable are classified as current asset regardless of when payments are due. This receivable is effectively secured by the products sold. The company makes an allowance for doubtful accounts to cover the estimated losses that may be incurred in the collection of the debts. 2.5 Inventories Inventories are presented on the balance sheet at the lower of cost and net realisable value (NRV), cost being determined on the first-in first-out basis. The cost of purchase comprises both the purchase price and costs directly attributable to the acquisition of the inventories, such as import duties and transportation charge, less all attributable discounts, allowances or rebates. The company estimates net realisable value from the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. 2.6 Investments Investments in subsidiaries Investments in an enterprise where the company holds more than 50 percent of its share capital or has control over its operations is considered an investments in a subsidiary company and is recorded using the equity method of accounting. In case where a subsidiary incurs a loss in excess of investment, the company will reduce the investment cost until it reaches zero. In case the company is held responsible for subsidiary's obligations, the negative investment in the subsidiary will be recorded as liability. Investment in other company The company has adopted the Thai Accounting Standard No. 40 "Accounting for Investments in Debt and Equity Securities" from 1 January 1999. Investment in non-listed securities is stated at cost and is reduced to net realisable value by a charge to statement of income for an impairment in value. Before 1 January 1999, investment in non-listed securities is stated at cost less allowance for permanent diminution in value. 2.7 Property, plant and equipment Carrying value - at appraised value Part of land is presented at market value appraised by an independent appraisal specialist in March 1992 and September 1998. A revaluation increase is recorded as a "Surplus on revaluation of land" under the shareholders' equity. Carrying value - at cost Property, plant and equipment are recorded at cost. Cost is measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use. Property, plant and equipment, except land, are presented in the balance sheet at cost less accumulated depreciation. Depreciation Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. The estimated useful lives are as follows: Buildings 20 years Leasehold improvements 5 Years Machinery and equipment 5 Years Office furniture, fixtures and equipment 5 Years Motor vehicles 5 Years The company records depreciation as an expense in that period. When a long-term asset is retired, the company will write-off both the asset account and its related accumulated depreciation, and recognise any gain or loss from retirement of the asset. Capital expenditures Expenditures for addition, renewal and betterment, which result in a substantial increase in an asset's current replacement value, are capitalised. Repair and maintenance costs are recognised as an expense when incurred. 2.8 Prepaid rent Prepaid rent is amortised over the rental period on the straight-line basis. 2.9 Foreign currency translation Foreign currency transactions during the period are translated into Baht at the rates of exchange ruling on the transaction dates, except where a transaction is hedged by a forward contract, in which case the contract rate is used. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Baht at the rates ruling at that date, with the exception of liabilities covered by forward contracts which are translated at the contract rates. Gains and losses on exchange arising on settlements and translation are recognised as income or expense when incurred. 2.10 Related companies Companies are considered to be related if one company has the ability to control or exercise significant influence over the other company in making financial and operating decisions or most of the shareholders or executive management of both companies are the same persons. 2.11 Earnings per ordinary share Earnings per ordinary share is computed by dividing the income before extraordinary item, extraordinary item, and the net income for the period by the weighted average number of paid-up ordinary shares outstanding during the period. 3 Short-term investments Short-term investments represent promissory notes for period not exceeding 3 months. 4 Trade and installment accounts receivable Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Trade and installment accounts receivable 3,799,010,316 4,597,410,276 3,787,692,074 4,587,601,209 Less: Allowance for doubtful accounts (428,640,000) (351,621,200) (426,800,000) (351,500,000) 3,370,370,316 4,245,789,076 3,360,892,074 4,236,101,209 Less: Unearned carrying charges (558,913,396) (744,444,178) (558,913,396) (744,444,178) Trade and installment accounts receivable, net 2,811,456,920 3,501,344,898 2,801,978,678 3,491,657,031 The aging of overdue trade accounts receivable are set out below. Trade accounts receivable - installment sales and credit sales Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Over 3 months to 6 months 28,400,908 51,658,583 28,400,908 51,658,583 Over 6 months to 12 months 55,106,348 72,219,442 55,106,348 72,219,442 Over 12 months 134,445,442 116,414,748 134,445,442 116,414,748 Total 217,952,698 240,292,773 217,952,698 240,292,773 Allowance for doubtful accounts 152,640,000 135,121,200 150,800,000 135,000,000 The aging of overdue accounts receivable in 1998 as presented above is the aging of overdue accounts receivable as at 31 August 1998. The company cannot prepare an aging of overdue accounts receivable as at 30 September 1998 because the company's computer system was damaged by fire on 14 October 1998. The computer system is restored to normal operations in February 1999. Trade accounts receivable - other Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Over 3 months to 6 months 21,621,501 - 21,621,501 - Over 6 months to 12 months 59,058,769 - 59,058,769 - Over 12 months 259,057,783 - 259,057,783 - Total over 3 months - 384,722,546 - 384,722,546 Total 339,738,053 384,722,546 339,738,053 384,722,546 Allowance for doubtful accounts 276,000,000 216,500,000 276,000,000 216,500,000 In 1998, other trade accounts receivable were classified as overdue balances over 3 months only because the company did not prepare the aging report in detail in prior year. 5 Amounts due from subsidiaries Amounts due from subsidiaries as at 30 September comprise: Company 1999 1998 Baht Baht Amounts due from - S.T.L. Electronics Limited 465,363 1,781,887 - other subsidiaries 88,025 71,707 553,388 1,853,594 6 Loans to subsidiaries Loans to subsidiaries as at 30 September comprise: Company 1999 1998 Baht Baht Loans to - Singer Industries (Thailand) Limited 70,000,000 80,000,000 - S.T.L. Electronics Limited 33,500,000 27,000,000 103,500,000 107,000,000 Loans to subsidiaries bear interest at the rate of 9.5% per annum (1998: 13.50% per annum) and are repayable on demand. 7 Long-term investments Long-term investments as at 30 September can be summarised as follows: Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Promissory note 1,139,914 1,139,914 - - Investments in subsidiaries - - 130,329,742 132,585,735 Investment in other company 800,000 800,000 800,000 800,000 1,939,914 1,939,914 131,129,742 133,385,735 Investment in other company represents investment in Thai Swedish Furniture Co., Ltd. which the company holds 9.95% of its share capital. 7 Long-term investments (Cont'd) Investments in subsidiaries in the company financial statements as at 30 September comprise the following companies: 1999 Amount of Amount in Nature of Paid up capital Investment Cost method Equity method balance sheet Nature of business relationship (Baht) portion % (Baht) (Baht) (Baht) Singer Industries (Thailand) Limited Manufacturing Holding 5,000,000 99.88 4,994,000 106,784,838 106,784,838 Singer (Broker) Limited Life insurance broker Holding 200,000 99.70 199,400 23,413,832 23,413,832 Singer Trading (Thailand) Limited Trading Holding 125,000 99.86 124,825 131,072 131,072 Sansui (Thailand) Limited Trading Holding 50,000 50.86 25,430 - - S.T.L. Electronics Limited Trading Holding 5,000,000 99.84 4,992,000 - - 10,335,655 130,329,742 1998 Amount of Amount in Nature of Paid up capital Investment Cost method Equity method balance sheet Nature of business relationship (Baht) portion % (Baht) (Baht) (Baht) Singer Industries (Thailand) Limited Manufacturing Holding 5,000,000 99.88 4,994,000 114,116,432 114,116,432 Singer (Broker) Limited Life insurance broker Holding 200,000 99.70 199,400 18,325,998 18,325,998 Singer Trading (Thailand) Limited Trading Holding 125,000 99.86 124,825 143,305 143,305 Sansui (Thailand) Limited Trading Holding 50,000 50.86 25,430 - - S.T.L. Electronics Limited Trading Holding 1,250,000 99.84 1,248,000 - - 6,591,655 132,585,735 132,585,735 As at 30 September 1999, the negative investments in Sansui (Thailand) Limited and S.T.L. Electronics Limited are presented as liabilities arising from investments in subsidiaries amounting to Baht 42,804 and Baht 7,167,934 respectively (1998 : Baht 37,031 and Baht 1,809,938). 8 Accounts payable - related companies Accounts payable - related companies represent the outstanding balance for purchase of goods from a number of related companies abroad. 9 Accounts payable - subsidiaries Accounts payable - subsidiaries as at 30 September comprise: Company 1999 1998 Baht Baht Accounts payable - Singer Industries (Thailand) Limited 11,482,785 12,346,571 - Singer (Broker) Limited 33,698,990 26,245,895 45,181,775 38,592,466 10 Amounts due to related company Amounts due to related company represent outstanding balance with a related company abroad for trademark license fee and offshore service fee which are calculated at 0.1% and 1% of total net sales respectively. 11 Other current liabilities Other current liabilities as at 30 September comprise: Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Advance from customers 9,968,784 10,042,468 9,968,784 10,042,468 Value added tax payable 9,056,886 28,919,053 8,911,895 28,728,925 Other accounts payable 12,461,733 6,404,406 12,395,406 5,921,997 31,487,403 45,365,927 31,276,085 44,693,390 12 Other income The company has been informed by the Stock Exchange of Thailand that certain shareholders do not qualify for entitling to dividends because of the non-compliance with the regulation in respect of nationality of the shareholders. The company therefore has reversed the dividends payable declared before December 1996 amounting to Baht 24 million for the nine-month period ended 30 September 1999 which the company has recognised as other income of Baht 17 million in the first quarter and Baht 7 million in the second quarter. 13 Cash and cash equivalents Cash and cash equivalents consist of cash in hand, at banks and in transit and loans to financial institutions for periods not exceeding three months as follows: Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Cash in hand, at banks and in transit 115,154,449 57,341,964 114,161,787 54,307,423 Short-term investments 50,000,000 230,000,000 50,000,000 230,000,000 165,154,449 287,341,964 164,161,787 284,307,423 14 Related party transactions During the nine-month period ended 30 September, the company enters into a number of transactions with subsidiaries and related companies as follows: Subsidiaries a) Purchases of goods from Singer Industries (Thailand) Limited totalling Baht 127,616,411 (1998 : Baht 64,494,240). The transfer price is determined at cost plus gross margin. b) Sales of goods to S.T.L. Electronics Limited totalling Baht 8,004,887 (1998 : None). The transfer price is determined at cost plus gross margin. c) Interest income on loans to the following subsidiaries: - Singer Industries (Thailand) Limited of Baht 5,671,918 (1998 : Baht 9,265,857). The loan balance at 30 September 1999 amounted to Baht 70 million (1998 : Baht 80 million) bearing interest at the rate of 9.5 % per annum (1998 : 13.50 % per annum). - S.T.L. Electronics Limited of Baht 2,778,877 (1998 : 2,740,633). The loan balance at 30 September 1999 amounted to Baht 33.5 million (1998 : Baht 27 million) bearing interest at the rate of 9.5 % per annum (1998 : 13.50 % per annum). d) Interest expense on outstanding balance each month due to Singer (Broker) Limited totalling Baht 1,216,796 (1998 : Baht 1,816,191). The outstanding balance at 30 September 1999 amounted to Baht 34 million (1998 : Baht 26 million) bearing interest at the rate of 9.5% per annum (1998 : 11% per annum). e) Management fee income of Baht 404,697 (1998 : Baht 720,564) from Singer (Broker) Limited, calculated at 5.5% of total brokerage income of Singer (Broker) Limited. Related companies a) Purchases of goods from related companies abroad totalling Baht 9,650,147 (1998 : Baht 34,716,634). The purchase price has been negotiated between the company and its related companies. b) Trademark license fee totalling Baht 928,268 (1998 : Baht 3,203,301) payable to a related company abroad, calculated at 0.1 % of total net sales in accordance with signed agreement. 15 Extraordinary item Gain on the change in exchange rate system On 2 July 1997, the Ministry of Finance announced a change in the exchange rate system for Thai Baht from the basket of currencies system to the managed float system which resulted in a significant decline in Thai Baht value. This caused the company and subsidiaries to incur a gain on exchange for the nine- month period ended 30 September 1998 of Baht 48 million which the company recognised as gain on exchange rate of Baht 53 million in the first quarter and loss on exchange rate of Baht 5 million in the second quarter. This exchange gain was reported as extraordinary item in accordance with the announcement of the Institute of Certified Accountants and Auditors of Thailand No. 002/2540-2542 dated 19 September 1997. 16 Long-term loans Long-term loans comprise loans denominated in Thai Baht from financial institutions in Thailand and loans denominated in foreign currency from overseas financial institutions and a branch of a foreign financial institution. Total long-term loans are repayable as follows: Consolidated Company 1999 1998 1999 1998 Baht Baht Baht Baht Due within 1 year 891,235,200 105,789,500 891,235,200 105,789,500 Due over 1 year 334,200,000 1,491,524,200 334,200,000 1,491,524,200 Total 1,225,435,200 1,597,313,700 1,225,435,200 1,597,313,700 Long-term loans from overseas financial institutions amounting to USD 30 million or Baht 762 million are classified under current portion of long-term loans as the company has requested to exercise an option for early repayment of loans in December 1999 before its due date in December 2001 according to the agreement. Hedging In order to manage the risks arising from fluctuations in currency exchange rates and interest rates, the company makes use of the following derivative financial instruments: Interest rate and currency swap In December 1996, the company has entered into interest rate and currency swap contracts to swap both interest rate and principal of a three-year offshore loan totalling US$ 40 million, bearing interest rate at LIBOR, in exchange with the principal of Baht 1,016 million, bearing interest rate at 10.35% and 10.57%. Forward foreign exchange contracts As at September 30, 1999 the company has forward contracts to hedge long-term loans of US$ 3.33 million (1998 : US$ 4 million) at an average forward rate of US$ 1 per Baht 38.59 (1998 : Baht 40.26). 17 Dividend On 6 August 1999, the Board of Director approved an interim dividend of Bht 1 per share, totalling Bht 27,000,000, to be paid on 6 September 1999 to the shareholders whose name were registered on 20 August 1999. 18 Segment information The company trades in a single business segment and in a single geographical area i.e., Thailand. Accordingly no segment information has been presented. 19 Year 2000 issue The company has commenced modifying and upgrading its key financial information and operational systems to deal with the Year 2000 issue since 1995 by the company's specialist and hiring the outside company to inspect and modify. The systems are completed in June 1999. The company has the expenditures relating to purchase new software and hardware of Baht 8 million. The expenditure relating to purchase new software is recognised as expenses when incurred. Although the company completes the modification on its computer system, the company remains (more)