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(UNAUDITED BUT REVIEWED)
INTER FAR EAST ENGINEERING PUBLIC COMPANY LIMITED
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Since the Company has had liquidity problems, suffered losses from its operations for over 3 consecutive
years, and has a significant capital deficit, the Stock Exchange of Thailand ("SET") announced the security
of the Company’s classification as a security which may be delisted from the SET, and ordered the
Company to submit a rehabilitation plan in accordance with the SET rehabilitation criteria, to enable it to
avoid delisting.
2. FUNDAMENTAL ACCOUNTING ASSUMPTION
The Company has a significant capital deficit due to the operating losses it had suffered, and liquidity
problems had resulted in the Company’s being unable to fulfill the conditions of various loan agreements
and to repay indebtedness. At the request of a lender, on 14 May 2001, the Central Bankruptcy Court
ordered the Company to undergo rehabilitation. The rehabilitation planner prepared a business
rehabilitation plan and proposed it to a meeting of creditors, with a resolution accepting the plan passed by
a majority vote on 28 February 2002. Subsequently, on 3 May 2002, the Central Bankruptcy Court ruled in
favor of this rehabilitation plan. As discussed in Note 3 to the financial statements, the Company has
implemented most of the conditions of the rehabilitation plan, such as increasing of share capital, reducing
of share capital, conversion of debt to equity and repayment of principal and interest in accordance with the
plan. However, in late 2003, the Company was unable to comply with certain conditions of the
rehabilitation plan. The Company obtained a loan from a new lender and therefore repaid principal of Baht
377 million in March 2004, together with related interest, leaving principal of approximately Baht 20
million which the Company is to settle by the transfer of collateral in accordance with the plan. The
Company will petition the Central Bankruptcy Court to cancel the Company’s rehabilitation after
completing repayment of the indebtedness. The Company is confidence that it will be successful in
implementing all of the above. These financial statements have therefore been prepared on the goingconcern basis, assuming that the realization of assets and settlement of liabilities and obligations will occur
in the ordinary course of business of the Company.
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(UNAUDITED BUT REVIEWED)
3. REHABILITATION PLAN AND DEBT RESTRUCTURING
On 3 May 2002, the Central Bankruptcy Court ruled in favor of the Company’s rehabilitation plan, which is
administrated by Inter Far East Planner Company Limited. The types of indebtedness can be summarised as
follows :-
1.
2.
3.
4.
5.
6.
7.
8.
9.
Group of creditors
Secured creditors with debts amounting to not less than
15% of the total.
Loans secured by land and construction of other parties.
Loan and financial instrument creditors - financial
institutions.
Loan and financial instrument creditors - related
companies.
Hire purchase payables and trade accounts payable.
Creditors rendering service to the Company with which
the service contract was cancelled before the date on
which the court issued the order approving the business
rehabilitation.
Creditors which issued a letter of guarantee to the
Company for the hire/sale of photocopies or for utilities
charges.
Creditors which are beneficiaries of the Company’s
guarantees.
Uncollaterised portion of debt obligations to loan and
financial instrument creditors.
(Unit : Million Baht)
Indebtedness per repayment claims
Principal
Interest
Total
250
100
139
46
389
146
547
234
781
36
6
4
-
40
6
1
-
1
1
-
1
3
-
3
301
1,245
152
575
453
1,820
Since group 5 and group 7 creditors are necessary for the continuity of the business of the Company, they
will not be affected by this rehabilitation plan.
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(UNAUDITED BUT REVIEWED)
The conditions of debt repayment under the rehabilitation plan are as follows :1.
Reduction of existing debt obligations
1.1 All creditors will waive part of the indebtedness, comprising the interest, fees and expenses
payable in relation to the Company’s outstanding debts, when the Company is in full
compliance with the stipulations of the rehabilitation plan.
1.2 The group 4 creditors will waive 22% of the debt principal.
2.
The rescheduling of debt repayment and change of interest rate
The indebtedness will be apportioned and the periods for repayment will be extended to 1 year to 10
years from the debt restructuring date (2 June 2002). Interest is to be charged at rates of 0.01 percent
per annum and the average MLR per annum.
3.
The conversion of debt to equity
Principal of approximately Baht 355 million was to be converted to 35,488,904 ordinary shares at par
value of Baht 10 each, within 60 days from the debt restructuring date. The creditors are to transfer
part of the shares back to the Company’s management without compensation after the Company has
fulfilled the conditions stipulated in the rehabilitation plan.
Under the rehabilitation plan, the planner has 5 years to implement the plan from the date on which the
court approved it.
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Under the rehabilitation plan, the indebtedness has been apportioned and the periods for repayment have
been extended as per the following conditions :Outstanding balance
As at 30 June 2004
As at 31 December 2003
Accrued
Accrued
Principal
interest
Total
Principal
interest
Total
1. Tranche A
-
-
-
-
-
-
350
377,504
97,624
475,128
20,000
20,000
1
20,001
2. Tranche B
350
-
3. Tranche D
20,000
Total
Less : Current portion of
long-term liabilities
Long-term liabilities net of current portion
20,350
-
20,350
397,504
97,625
495,129
(20,350)
-
(20,350)
(397,504)
(97,625)
(495,129)
-
-
-
-
-
-
-
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(Unit : Thousand Baht)
Repayment condition
- Repayment within 1
year from the debt
restructuring date, using
cash flows from the
operations and/or sales
of other investments.
- Interest charged at a rate
of 0.01 percent per
annum, payable on a
monthly basis.
- Repayment of principal
of approximately Baht
486 million in quarterly
installments within 10
years from the debt
restructuring date.
Interest charged at the
average MLR, payable
on a monthly basis.
Debts can be sold to the
Company at a discount
but total must not
exceed Baht 50 million,
within 1 year from the
debt restructuring date.
- Repayment of Baht 0.6
million in principal
within 5 years from the
debt restructuring date
in monthly installments,
with no interest.
- Repayment of principal
within 2 years from the
debt restructuring date
(extendable by 1 year)
with collateral being
sold or transferred to
make debt repayment
(Note 4).
- Interest charged at a rate
of 0.01 percent per
annum, payable on a
monthly basis.
(UNAUDITED BUT REVIEWED)
Approximately Baht 355 million of Tranche C debt was converted to share capital of approximately Baht
354 million on 21 November 2002. As at 31 December 2002, the remaining indebtedness of approximately
Baht 0.9 million was presented as debt awaiting conversion to equity in shareholders’ equity.
In May 2003, a creditor forgave indebtedness of Baht 2.1 million (consisting of Tranche B debt of Baht 1.2
million and debt awaiting conversion to equity of Baht 0.9 million as discussed in the preceding paragraph)
to the Company. In addition, in June 2003, a creditor sold Tranche B debt totaling Baht 0.5 million to the
Company with a discount of approximately Baht 0.4 million and the Company’s future interest obligations
also reduced by Baht 0.3 million. The Company recorded the totaled Baht 2.8 million of such reduction in
indebtedness as a gain from debt restructuring, presenting it as an extraordinary item in the earnings
statement for the period ended 30 June 2003.
In late 2003, the Company was unable to comply with certain conditions of the rehabilitation plan. As at 31
December 2003, the Company therefore classified “Long-term liabilities”, which represents the outstanding
balance of the indebtedness after restructuring, as a current liability in the balance sheet. In March 2004,
the Company repaid Baht 377.1 million principal of Tranche B debt outstanding, together with related
interest, prior to the scheduled date per the rehabilitation plan (the rehabilitation plan permits this). The
remaining principal consists of Baht 20.0 million of Tranche D debt, which the rehabilitation plan stipulates
is to be settled through the sale or transfer of collateral (Note 4). On 9 July 2004, the lender approved to
receive the transfer of the collateral to settle debt.
The repayment of Baht 377 million principal of Tranche B debt in March 2004 reduced the Company’s
future interest obligations by Baht 93 million and the Company recorded the Baht 93 million reduction in
indebtedness as a gain from debt restructuring, presenting it as an extraordinary item in the earnings
statement for the period ended 30 June 2004.
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(UNAUDITED BUT REVIEWED)
The business rehabilitation plan stipulates that the creditors will waive part of the indebtedness (comprising
interest, fees and expenses payable in relation to the Company’s outstanding debts) after the Company
repays the principal of Tranche A and Tranche D and providing it does not default on payment of Tranche
B loans for the period as from the debt restructuring date to the date on which the Company repays the
principal of Tranche A and Tranche D in full. The Company recorded the amount to be waived as “Accrued
interest awaiting debt forgiveness” in the balance sheets. Since in late 2003, the Company was unable to
comply with certain conditions of the rehabilitation plan, for prudent reasons, the Company classified the
indebtedness as a current liability as at the balance sheet date. However, the Company believes the debt will
be released in 2004, after the repayment of the debt under the rehabilitation plan.
In addition, the Company has to reserve cash for debt repayment in accordance with the conditions
stipulated in the rehabilitation plan. However, since 31 December 2003, the Company has ceased to
reserve cash for the repayment in accordance with the conditions stipulated in the rehabilitation plan
because the Company was requesting the approval from the leaders to repay all debt.
Under the business rehabilitation plan, the Company has to pay the planner a quarterly fee of Baht 750,000
for plan administration and special remuneration not exceeding Baht 3 million per year until the
rehabilitation of the Company is successfully completed in accordance with the plan and/or relevant laws.
4. RELATED PARTY TRANSACTIONS
During the period, the Company had significant business transactions with its related companies (related by
way of common shareholders and/or common directors) and the planner. Such transactions, which have
been concluded on the terms and basis determined by the Company and those companies and were in the
ordinary course of business, are summarised below :2004
Transactions with related parties :
Average lending (weighted average
balance outstanding at month end)
Sales
Transactions with the planner :
Plan administration fee
2003
10
2
207
-
1
1
(Unit : Million Baht)
Pricing policy
Interest rate with reference to the interest rate of
commercial banks.
Cost plus margin
Bath 0.75 million and special remuneration not
exceeding Baht 3 million.
(UNAUDITED BUT REVIEWED)
The outstanding balances of the above transactions have been separately shown in the balance sheets.
Details are as follows :(Unit : Baht)
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30 June 2004
31 December 2003
(Audited)
Loans to related party
Ekpakorn Co., Ltd.
Less : Allowance for doubtful accounts
Net
10,104
(10,104)
10,104
(10,104)
-
-
The loans to the related parties are repayable on demand and are not collateralised. The Company had
ceased accruing interest income on the above loans since the Company expected the interest receivable
thereon would not be recoverable.
(Unit :Thousand Baht)
30 June 2004 31 December 2003
(Audited)
Rental deposit-related party
Ekpakorn Co., Ltd.
20,271
20,271
Total
20,271
20,271
On 15 December 1991, the Company entered into an agreement to lease an office building from the above
related company. On 20 November 1998, the lessor agreed to allow the land and construction thereon for
rent to be mortgaged to secure the Company’s Baht 20.0 million loan from a commercial bank. The
Company agreed that any loss incurred by the lessor as a result of such action would be offset by the
balance of the rental deposit, which is not required to be returned to the Company. In 2000, the Company
terminated the lease agreement. On the date of termination, the balance of the rental deposit was Baht 20.27
million. The Company defaulted on repayment of the above loan to the bank under its rehabilitation plan,
which requires neither the Company to sell the above collateral to repay Tranche D debt of not more than
Baht 20.0 million or for the lender to receive the collateral in repayment at a transfer price of Baht 20.0
million. On 9 July 2004, the lender approved to receive the transfer of the collateral to settle debt.
-7-
(UNAUDITED BUT REVIEWED)
(Unit : Thousand Baht)
30 June 2004
31 December 2003
(Audited)
Amount due to relate party
Inter Far East Planner Co., Ltd.
Total
1,605
1,605
5. ACCOUNTS RECEIVABLE - TRADE
4,012
4,012
(Unit : Thounsand Baht)
30 June 2004
31 December 2003
(Audited)
88,209
87,639
(4,095)
(10,401)
84,114
77,238
19,919
14,586
(8,235)
(6,106)
11,684
8,480
95,798
85,718
(4,561)
(3,382)
91,237
82,336
Accounts receivable-trade
Less : Provision for doubtful debts
Accounts receivable-installment
Less : Deferred profit
Net trade accounts receivable
Less : Long-term portion
Net trade accounts receivable-current portion
The aging of the outstanding balances as at the balance sheet dates are as follows :(Unit : Thousand Baht)
30 June 2004
31 December 2003
(Audited)
Trade accounts receivable-other parties
Net yet due and less than 90 days past due
91 - 360 days past due
Over 360 days past due
Total
Less : Allowance for doubtful accounts
Trade accounts receivable - net
92,120
2,988
4,785
99,893
(4,095)
95,798
-8-
82,407
3,211
10,501
96,119
(10,401)
85,718
(UNAUDITED BUT REVIEWED)
During the period ended 30 June 2004, the Company had written-off bad debts of approximately Baht 3
million (2003 : Baht 140 million).
The Company has determined the net recoverable amount of the outstanding balances and, as a result,
allowance of approximately Baht 4 million (31 December 2003 : Baht 10 million) has been recorded. The
Company believes that such allowance is adequate in the current circumstances.
6. DEPOSITS WITH FINANCIAL INSTITUTIONS PLEDGED FOR GUARANTEE
COMMITMENTS
This account comprises fixed deposits which are pledged to secure the sale of goods to customers and
government agencies.
7. OTHER INVESTMENTS
The others investments consist of the following investments in ordinary shares and available-for-sale
securities :Investments in ordinary shares :Company’s name
Investments in other companies/related companies
1. Far East Internet Company Limited
2. IFEC Service Company Limited
3. Suncolor Company Limited
4. Suncolor O.A. Company Limited
5. Ekpakorn Company Limited
6. Thai Samsung Electronics Company Limited
7. Paitoon Hotel and Resort Company Limited
8. Unilis Company Limited
9. Supathani Company Limited
10. UB-Haworth (Thailand) Company Limited
11. Noble Place Company Limited
12. Treasure Hill Company Limited
13. Thai Sanwa Food Industrial Company Limited
14. Khoo Khaeng Company Limited
15. Digit Thai Network Company Limited
16. Technology Applications (Thailand) Company Limited
Total
Less : Allowance for impairment loss
Net
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Equity interest (percent)
30 June
31 December
2004
2003
(Audited)
65.75
9.00
3.13
15.83
19.17
0.13
0.01
5.00
18.00
1.56
0.12
1.00
0.34
0.26
3.80
-
65.75
9.00
3.13
15.83
19.17
0.13
0.01
5.00
18.00
1.56
0.12
1.00
0.34
0.26
3.80
-
(Unit : Thousand Baht)
Amount
30 June
31 December
2004
2003
(Audited)
9,863
283
14,219
9,500
7,667
2,500
94
1,500
9,500
32,584
1,500
2,000
548
2,209
380
38
94,385
(90,953)
3,432
9,863
283
14,219
9,500
7,667
2,500
94
1,500
9,500
32,584
1,500
2,000
548
2,209
380
38
94,385
(90,953)
3,432
(UNAUDITED BUT REVIEWED)
Investments in available-for-sale securities :30 June
2004
Investment in available-for-sale securities-at cost
Unrealised gains from change in fair value of investments
Investment in available-for-sale securities at fair value
Other investments awaiting sale - net
6,460
1,923
8,382
11,815
(Unit : Baht)
31 December
2003
(Audited)
7,021
2,066
9,087
12,519
Although, the Company’s equity interest in Far East Internet Company Limited is 65.75 percent, because
the Company does not have control or significant influence over this company, the investment has been
classified as other investment.
8. PROPERTY, PLANT AND EQUIPMENT/NON-OPERATING ASSETS
All of the land and buildings, and non-operating assets of the Company has been mortgaged with a bank to
secure credit facilities operate to the company by that bank.
9. LONG-TERM LOAN
In November 2003, the Company obtained a loan of Baht 450 million from a local bank. This loan is
repayable in monthly installments at Baht 4.17 million each commencing November 2003, and carries
interest at MLR (Minimum Loan Rate) per annum.
The loan agreement contains normal covenants pertaining to matters such as the maintenance of a certain
debt-to-equity ratio. In addition, the agreement obligates the Company to pledge approximately 20.4
million of its ordinary shares held by a director as collateral for the loan, and the director is still in the
process of pledging the full number of shares stipulated by the lender.
The long-term loan is secured by the mortgage of all the Company’s land and buildings, and non-operating
assets.
10. CORPORATE INCOME TAX
No corporate income tax is payable on earnings for the period since the tax losses brought forward from
previous year exceed the net earnings for the period.
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(UNAUDITED BUT REVIEWED)
11. FINANCIAL INFORMATION BY SEGMENT
The operations of the Company involve the single industry segment of trading and hire of office equipment,
specifically photocopiers, automatic copiers and Private Automatic Branch Exchange (PABX) products,
including maintenance services, and are carried on only in Thailand. As a result, all the revenues, operating
results and assets as reflected in these financial statements pertain to the aforementioned industry segment
and geographic area.
12. BANK GUARANTEES
As at 30 June 2004, there were outstanding bank guarantees of approximately Baht 8.9 million
(31
December 2003 : Baht 10.5 million) which have been issued by banks on behalf of the Company in respect
of certain performance bonds as required in the normal course of business of the Company.
13. COMMITMENTS
a)
As at the balance sheet dates, the Company has the following outstanding rental commitments.
Payable within
1 year
Between 2 and 3 years
Over 3 years
30 June 2004
6.5
10.4
8.9
(Unit : Million Baht)
31 December 2003
2.6
3.9
-
b)
Various banks and financial institutions have sued the Company for Baht 555 million for its default
on repayment of debts. The courts have temporarily suspended the case because the Company has
been ordered to rehabilitate its business.
c)
The Company has entered into a contract to reserve a two-rai plot of land for purchase at President
Country Club Project 3 for Baht 4.8 million. The Company is also entitled to reserve a Baht 0.6
million golf club membership and to purchase of ordinary shares of Holiday Country Club Co., Ltd.
and Holiday Land Co., Ltd. in amounts of Baht 30,000 and Baht 20,000, respectively. As at the
balance sheet dates, the sum of Baht 3 million has been paid, and the remaining will be paid on the
date the land title deed is transferred. A full allowance for diminution in the value of such partial
payment has been set up because the project has been suspended.
- 11 -
(UNAUDITED BUT REVIEWED)
14. FOREIGN CURRENCY RISK
The Company entered into forward exchange contracts to purchase foreign currency with maturities less
than one year to hedge foreign currency risk from the payment of trade accounts payable. The contracts
outstanding on 30 June 2004 totaled Yen 21.5 million (31 December 2003 : None) at the rates of Baht
0.36827 to 0.36862 per Yen 1.
As at 30 June 2004, foreign currency-dominated liabilities of the Company due within one year which were
unhedged amounted to USD 0.3 million (31 December 2003 : USD 0.3 million and JPY 113 million).
15. APPROVAL OF FINANCIAL STATEMENTS
These financial statements have been approved by the director of Inter Far East Planner Company Limited
(the Company’s plan administrator).
- 12 -