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(Translation) Auditor's Report To the Shareholders of Thanulux Public Company Limited and Subsidiaries We have reviewed the consolidated balance sheet of Thanulux Public Company Limited as of March 31, 1999 and the consolidated income statement, consolidated retained earnings statement, consolidated changes in shareholders' equity and consolidated cash flow statement for the first quarter then ended of Thanulux Public Company Limited and subsidiaries, including the financial statements of Thanulux Public Company Limited. Our review was made in accordance with the standards of the Certified Public Accountants and Auditors Association of Thailand. The review of financial statements for this period is mainly for the purpose of basic understanding of the preparation of financial statements and its system, based on the analytical method of financial analysis and an interview with the company's finance and accounting personnel. This review has more limited scope than generally accepted auditing standards. Therefore, we are unable to express any opinion on the reviewed financial statements. As mentioned in "Notes to The Consolidated Financial Statements as of March 31, 1999 No 4th", the company did not record the investment income on the equity menthod in an associated company, because we did not receive the financial statement of the associated company. From our review, we do not find any significant transactions for adjusting these financial statements with generally accepted accounting principles, except the fore- paragraph which may be necessary for adjusting. (Mr. Natee Sangudomlert) Certified Public Accountant Auditors No. 300 Bangkok May 8, 1999 Thanulux Public Company Limited and Subsidiaries Notes to Consolidated Financial Statements For the quarter 1 ending March 31, 1999 ------------------------------------------------------------------------------------------------ 1. Principles of Consolidated Financial Statements The Company's financial statements include those of Thanulux Public Company Limited's ended March 31, 1999. Related transactions have been eliminated from the consolidated financial statements. One subsidiary is Thanulux Kabinburi Company Limited of which the Company holds 99.99% of the paid-up capital. Minority shareholders' equity in subsidiaries consists of the percentage of their ownership and corresponding operating income. 2. Basis of Consolidated Financial Statements Part of the Company's assets, liabilities, income and expenses includes those of subsidiaries and associated companies. Therefore, these financial statements show the results of the mentioned balances in accordance with policy of setting the usual business price by all such companies. 3. Significant Accounting Policies 3.1 Recognition of revenues The company recognizes sales revenues when the products are delivered to the customers. 3.2 Fixed assets Fixed assets are stated at cost less depreciation. Depreciation is calculated by the straight-line method at the highest rate allowed by law (except for land which shows no depreciation) As for the subsidiaries' assets obtained since October 1, 1996, depreciation is calculated at 10% per year. 3.3 Inventories Finished goods and raw materials are estimated at the lower average cost or net realized value. Work in process is stated at cost. 3.4 Other supplies Other supplies are stated at cost. 3.5 Investments in common shares of subsidiaries and other companies are stated as follows : - Marketable securities are stated at the lower of aggregate cost or market value. The market values are the latest closing prices on the Stock Exchange of Thailand for the period. - Unlisted securities are stated at cost. Investments in subsidiaries and associated companies are booked under the equity method. Gains and losses on sales of securities use the average method. 3.6 Accounts in foreign currencies Transactions in foreign currencies are translated into Baht at the exchange rate on the dates of the transactions. Assets and liabilities denominated in foreign currencies at the end of the period are translated into Baht at the average exchange rate on the last day of the accounting period. Exchange gains or losses arising from transactions are included in the income statements. 3.7 Provision for possible loan losses The provision for possible loan losses is based on the analysis of outstanding loans according to the Company's experience. 3.8 Deferred charges Subsidiaries' deferred charges which are in respect of computer programs and capital increase fees are amortised for a five-year period. 3.9 Goodwill from investments in associated companies Goodwill from investments in associated companies is amortised for a ten-year period. 4. Investments 4.1 The company has invested in 50 companies which are, related companies and non-related companies, listed securities and unlisted securities. The cost of the 9 listed securities are Baht 25.45 million, the market price is Baht 38.22 million and the cost of the 41 unlisted securities are Baht 136.39 million. One unlisted company will be dissolved as the following. Investment in unlisted securities Amount (Baht) Date of dissolution Thai Mitsuboshi Co., Ltd. 2,999,900.00 In 1999 4.2 Investments in Subsidiaries and Associated Companies The following are the companies that Thanulux holds 20% or more of their capital. Ownership percentage 1. Thanulux Kabinburi Company Limited 99.99 2. Puning Xie Zhong Garment Company Limited 33.33 3. International Commercial Coordination (HK) Limited * 20.00 * The company did not record the performance of International Commercial Coordination (HK) Limited as of March 31, 1999, because we did not receive the financial statement and can not estimate the company's performance. 5. Earnings Appropriation The Company's earnings appropriation shall be recorded upon approval from the shareholders' meeting. 6. Provident Fund The company has set up a provident fund under the Provident Fund Act B.E. 2530 (1987) on February 1, 1993. Contributions are made by the Company and the employees as stipulated. The Company has appointed a Provident Fund Manager to manage the said fund according to the ministerial regulations. However, the Company has requested the temporary suspension of the provident fund from October 1, 1997 until December 31, 1999. 7. Earnings per Share Earnings per share is calculated by dividing net income by the number of shares outstanding. 8. Commitments and Contingencies As at March 31, 1999, the Company has the following commitments. - The Company has entered into 13 trademark contracts with respective owners concerning the manufacturing and distribution of garments and leather products under their trademarks. Both parties have mutual obligations to fulfil under these contracts. The trademark fees are 0.3-7.5%. - The Company has a total of Baht 78.39 million on available but unutilized L/C lines for ordering imported raw materials. - There are contingent obligations under five bank guarantees issued to guarantee customs duties at Baht 6.78 million and two bank guarantees issued to the use of electricity at Baht 4.39 million. - The Company has signed a 15-year land lease to build a warehouse for raw materials in Chong Nonthri, Yannawa, Bangkok, starting on March 30, 1992 until November 29, 2007. The company paid Baht 300,000.00 for the transfer of leasehold rights plus monthly lease fees. - The company has the contract for buying software program with a company amounting Baht 4.1 million which would be paid by 6 installment term as the followings. Term payment Baht 1,500,000.00 on 1 October 1998 Baht 400,000.00 on 1 November 1998 Baht 400,000.00 on 1 December 1998 Baht 300,000.00 on 1 January 1999 Baht 1,400,000.00 upon user acceptance of some part of project Baht 100,000.00 upon completion of project 9. Related Party Transactions 9.1 Related transactions of the Company and its subsidiaries are as follows. Consolidated The company only (one thousand baht) (one thousand baht) Accounts receivable and post-date check 25,596 31,166 Accounts payable 3,462 12,680 Loans receivable 125,000 169,035 Accrued expenses 2 2 Accrued income 1,576 2,271 Sales income 49,434 57,189 Other income 7,519 9,804 Purchase of goods and raw materials 6,257 19,162 Revenue from disposal of fixed assets 98 103 Other expenses 3,185 3,185 9.2 The Company has been authorized by the 25th shareholders' ordinary general meeting on April 26, 1999 to: 9.2.1 Provide loans to related companies to the amount of Baht 500 million. As at the quarter end, total loans to two related companies amount to Baht 169.03 million. 9.2.2 Provide guarantees to banks and other financial institutions for related companies' liabilities at the amount less than half of the Company's total assets. As at the quarter end, the Company has a total of Baht 203.84 million contingent liabilities from various guarantees to 14 related companies. 10. Segment Information For the quarter 1 (In Thousand) 1999 1998 Domestic Export Others Total Domestic Export Others Total sales sales sales sales Revenues 163,215 104,884 18,731 286,830 115,150 136,726 147,818 399,694 Operating profit 20,512 8,603 3,943 33,058 9,212 36,302 21,246 66,760 Profit before realization from investment income 33,058 66,760 Investment income (3,612) 13,233 Net profit 29,446 79,993 Property, plant and equipment, net 370,981 375,271 Other assets 25,845 29,900 Total assets 1,208,657 1,255,206 11. Promotional Privileges The Company was granted privileges from the BOI according to the Investment Promotion Act B.E. 2520 (1977) for business type 3.6 the manufacturing of ready-to-wear garments and 3.10 the manufacturing of leather or synthetic leather products. The privileges were granted by the Board of Investment on June 14, 1996, February 14, 1995 and November 10, 1994 respectively, according to Clauses 25, 26, 28, 30, 31, paragraphs one, two and three, Clauses 34, 35(2)(3)(4), 36(1)(2)(4) paragraphs one and two, and Clauses 37 under which taxes are exempt for a period of 8 years. The board of investment has cancelled the company's privileges under business type 3.10 clauses 36 (1) (2) (4) since March 18,1997 and the subsidiaries' privileges under business type 3.6 clauses 36 (1) (2) (4) paragraphs one and two since June 25, 1998. Apart from the mentioned privileges, the Company has to comply with various conditions as prescribed in the promotional certificates. 12. Business transaction with the related company The company has 57 domestic and export customers which are seperated according to the age of accounts receivable. (Unit : Baht 1,000) Consolidated The company only March 31, 1999 March 31, 1999 Within credit term 121,582 135,971 Over due 3 - 6 months 1,176 1,575 Over due 6 - 12 months 833 833 Over due more than 12 months 7,179 7,179 Total 130,770 145,558 The company has made Baht 9.33 million of allowance for doubtful account. 13. Computer development plan for the problem in the year 2000 In the end of 1996, the company had prepared to solve the problem in the year 2000 by setting up the Y2K committee for analyzing the problem and the direction of solving. The problem of hardware has been already solved for the part computer. The expenses of hardware is Baht 4.2 million. The computer equipment had been 90% certified by the suppliers. The operation system software, the database management software and the network operating system software have to be solved by the manufacturer. The software application which is on process of setting up. The process costs about Baht 9.5 million. It will be completed in the third quarter of 1999. 14. Event after the date of this financial statement The resolution of the ordinary meeting of shareholders No. 25 on 26 April, 1999, unanimously approved the company's debentures in the value of Baht 500 million or its equivalent in other currencies for offering to local or foreign investors. It is on the process of issuance. 15. Presentation The presentation of the financial statements ended March 31, 1998 has been reclassified in compliance with the Ministerial Regulation No. 7 (B.E. 1996) as empowered under the Public Limited Companies Act B.E. 2535 dated October 25, 1996 for comparative purposes with the financial statements of the first quarter ended March 31, 1999.