- 1 - Assets as a percentage to the consolidated total assets as at 31 December. Percentage owned by the Company. Country of incorporation

Transcription

1 KULTHORN KIRBY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2007 AND GENERAL INFORMATION The Company was incorporated as a limited company under Thai law and transformed to be a public company on 13 June The Company is domiciled in Thailand and principally engaged in the manufacturing and distribution of hermetic compressors, with its registered address at 44/1 Moo 7 Chalongkrung Road, Khwaeng Lamplatew, Khet Latkrabang, Bangkok. 2. BASIS OF PREPARATION 2.1 The financial statements have been prepared in accordance with accounting standards enunciated under the Accounting Profession Act B.E The presentation of the financial statements has been made in compliance with the stipulations of the Notification of the Department of Business Development dated 14 September 2001, issued under the Accounting Act B.E The financial statements have been prepared on a historical cost basis except where otherwise disclosed in the accounting policies. 2.2 Basis of consolidation a) The consolidated financial statements include the financial statements of Kulthorn Kirby Public Company Limited ( the Company ) and its subsidiary companies ( the subsidiaries ) as follows :- Subsidiary companies Kulthorn Kirby Foundry Company Limited Nature of business Manufacturing and sales iron castings for compressor parts and automotives parts Kulthorn Premier Company Limited Manufacturing and sales hermetic compressors and iron castings for compressor parts and automotives parts Kulthorn Steel Company Limited Slitting of electrical steel for compressor Percentage owned by the Company Country of incorporation Assets as a percentage to the consolidated total assets as at 31 December Revenues as a percentage to the consolidated total revenues for the year ended 31 December Percent Percent Percent Percent Percent Percent Thailand Thailand Thailand

2 b) Material intercompanies balances and transactions between the Company and its subsidiary companies and investments in the subsidiary companies as recorded in the Company's financial statements and the subsidiary companies share capital have been eliminated from the consolidated financial statements. Intercompanies profit as included in the outstanding balance of inventories has no material effect on the consolidated financial statements. c) Results of operations of the subsidiary companies have been included in the consolidated financial statements from effective dates of acquisition of the investment. d) Investments in the subsidiary companies as recorded in the Company's books of account are eliminated against the equity of the subsidiary companies. The resultant differences are amortised over a period of 10 years commencing as from the date of acquisition of the investment. 2.3 The separate financial statements, which present investments in subsidiaries under the cost method, have been prepared solely for the benefit of the public. 3. ADOPTION OF NEW ACCOUNTING STANDARDS The Federation of Accounting Professions (FAP) has issued Notifications No. 9/2550, 38/2550 and 62/2550 regarding Accounting Standards. The notifications mandate the use of the following new Accounting Standards. a) Thai Accounting Standards which are effective for the current year TAS 44 (revised 2007) TAS 45 (revised 2007) TAS 46 (revised 2007) Consolidated Financial Statements and Separate Financial Statements Investments in Associates Interests in Joint Ventures These accounting standards become effective for the financial statements for fiscal years beginning on or after 1 January During the first quarter of the current year, the Company changed its accounting policy for recording investments in subsidiary companies in the separate financial statements in order to comply with the revised Thai Accounting Standards No. 44 as discussed in Note

3 b) Thai Accounting Standards which are not effective for the current year TAS 25 (revised 2007) TAS 29 (revised 2007) TAS 31 (revised 2007) TAS 33 (revised 2007) TAS 35 (revised 2007) TAS 39 (revised 2007) TAS 41 (revised 2007) TAS 43 (revised 2007) TAS 49 (revised 2007) TAS 51 Cash Flow Statements Leases Inventories Borrowing Costs Presentation of Financial Statements Accounting Policies, Changes in Accounting Estimates and Errors Interim Financial Reporting Business Combinations Construction Contracts Intangible Assets These accounting standards will become effective for the financial statements for fiscal years beginning on or after 1 January The management has assessed the effect of these accounting standards and believes that they will not have any significant impact on the financial statements for the year in which they are initially applied, except for the following accounting standards. TAS 43 (revised 2007) Business Combinations TAS 43 (revised 2007) requires the Company not to amortise goodwill acquired in a business combination. Such goodwill is instead to be tested for impairment, and measured at cost less accumulated impairment losses. This accounting standard applies to goodwill arising from business combinations for which the agreement date is on or after 1 January Previously recognised goodwill can be accounted for prospectively, with the Company discontinuing the amotisation of the goodwill and instead testing for impairment, as from the beginning of the first fiscal year starting on or after 1 January

4 4. CHANGE IN ACCOUNTING POLICY FOR RECORDING INVESTMENTS IN SUBSIDIARY COMPANIES IN THE SEPARATE FINANCIAL STATEMENTS During the first quarter of the current year, the Company changed its accounting policy for recording investments in subsidiary companies in the separate financial statements from the equity method to the cost method, in compliance with Accounting Standard No. 44 (Revised 2007) regarding Consolidated Financial Statements and Separate Financial Statements, under which investments in subsidiary companies are to be presented in the separate financial statements under the cost method. In this regard, the Company has restated the previous period s separate financial statements as though the investments in the subsidiary companies had originally been recorded using the cost method. The change has the effect of decreasing net income in the separate income statements for the year ended 31 December 2007 and 2006 by Baht 5.0 million (Baht 0.01 per share) and Baht 55.8 million (Baht 0.19 per share), respectively. The effect of the change in accounting policy has been presented under the heading of Cumulative effect of the change in accounting policy for investments in subsidiaries in the separate statements of changes in shareholders equity. There is no effect to the beginning retained earnings of 2006 as such effect is cumulative loss which the Company treated as impairment loss from investment. Such change in accounting policy affects only the accounts related to investments in subsidiary companies in the Company s separate financial statements, with no effect to the consolidated financial statements. 5. SIGNIFICANT ACCOUNTING POLICIES 5.1 Revenue recognition Sales of goods Sales of goods are recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Sales are the invoiced value, excluding value added tax, of goods supplied. Rendering of services Service revenue is recognised when services have been rendered taking into account the stage of completion. Interest income Interest income is recognised on an accrual basis based on the effective rate

5 5.2 Cash and cash equivalents Cash and cash equivalents consist of cash in hand, cash at banks, and all highly liquid investments with an original maturity of three months or less and not subject to withdrawal restrictions. 5.3 Trade accounts receivable Trade accounts receivable are stated at the net realisable value. Allowance for doubtful accounts is provided for the estimated losses that may be incurred in collection of receivables. The allowance is generally based on collection experiences and analysis of debtor aging. 5.4 Inventories Inventories are valued at the lower of cost (first-in, first-out basis) and net realisable value. Cost of work in process and finished goods includes raw materials, direct labour and production overhead. Allowance for diminution in inventory value will be set up for old, obsolete or deteriorated inventories. 5.5 Investments Investments in the subsidiary companies are accounted for in the separate financial statements using the cost method. 5.6 Property, plant and equipment and depreciation Land is stated at cost. Plant and equipment are stated at cost less accumulated depreciation and allowance for loss on impairment of assets (if any). Depreciation of plant and equipment is calculated by reference to their costs on the straight-line basis over the estimated useful lives as follows :- Land improvement and plant - 20 years Machinery - 5, 8, 10, 15 years Plant equipment - 5 years Furniture, fixtures and office equipment - 3, 5, 10 years Motor vehicles - 5 years - 5 -

6 Depreciation is included in determining income. No depreciation is provided on land and construction in progress. 5.7 Goodwill and amortisation Excess of cost of investments in subsidiary companies over the fair value of the identifiable assets and liabilities acquired as at the date of acquisition to the extent of the Company s interest obtained is accounted for as goodwill and amortised as expense on the straight-line basis over the periods of 10 years. (During 2006, the Company has changed its estimate of goodwill amortisation from 20 years to 10 years with no material effect to the financial statements.) The amortisation is included in determining income. 5.8 Warranty reserve Warranty reserve is estimated by reference to actual warranty expenses incurred and calculated at a percentage of cost of sales and quantities of products under warranty. 5.9 Related party transactions Related parties comprise enterprises and individuals that control, or are controlled by, the Company, whether directly or indirectly, or which are under common control with the Company. They also include companies and individuals which directly or indirectly own a voting interest in the Company that gives them significant influence over the Company, key management personnel, directors and officers with authority in the planning and direction of the Company s operations Foreign currencies Foreign currency transactions are translated into Baht at the exchange rates ruling on the transaction dates. Assets and liabilities denominated in foreign currency outstanding on the balance sheet date are translated into Baht at the exchange rates ruling on the balance sheet date. Gains and losses on exchange are included in determining income

7 5.11 Financial instruments The Company and its subsidiaries financial instruments principally comprise cash and cash equivalents, trade accounts receivable, investments, short-term lending, trade accounts payable and long-term borrowing, for which the accounting policies have been disclosed in the related accounting policies Impairment of assets The Company and its subsidiary companies assess at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Company and its subsidiaries make an estimate of the asset s recoverable amount. (An asset s recoverable amount is the higher of fair value less costs to sell and value in use.) Where the carrying amount of the asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the income statement Hire-purchase and financial lease agreements The Company and its subsidiaries record liabilities under hire purchase agreement at hire purchase payables less related interest. The liabilities are repayable according to the installment schedules in the hire-purchase agreements. Fixed assets acquired under hire purchase agreements are recorded at their cash price and are registered in the Company and its subsidiaries name upon completion of repayment. In addition, the Company and its subsidiaries record fixed assets under finance leases as assets and related liabilities in the balance sheets at amounts equal to the lower of fair value of the leased property or at the present value of the minimum lease payments at the inception of the lease. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease. The interest charge is recorded to periods during the lease term on the remaining balance of the liability for each period

8 5.14 Operating lease agreements Leases not transferring a significant portion of the risks and rewards of ownership to the lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statements of income on a straight-line basis over the period of the lease agreements. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place Employee benefits Salaries, wages, bonuses and contributions to the social security fund are recognised as expenses when incurred Provisions Provisions are recognised when the Company and its subsidiary companies have a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation Income tax Income tax is provided for in the accounts based on the taxable profits determined in accordance with tax legislation Use of accounting estimates Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances, affecting amounts reported in the financial statements and related notes. Actual results could differ from these estimates

9 6. TRADE ACCOUNTS RECEIVABLE The outstanding balances of trade accounts receivable as at 31 December 2007 and 2006 are aged, based on due date, as follows: (Unit : Baht) Consolidated financial statements Separate financial statements Age of receivables Trade accounts receivable - related parties Not yet due 49,377,660 74,477,138 53,189,858 69,265,796 Overdue Less than 3 months 36,008,603 21,414,217 38,457,012 24,998, months - 283, ,275 Total trade accounts receivable - related parties 85,386,263 96,174,630 91,646,870 94,548,058 Trade accounts receivable - others Not yet due 682,017, ,684, ,214, ,151,427 Overdue Less than 3 months 285,584, ,561, ,819, ,856, months 28,331,525 3,594,592 2,357,657 2,883, months 13,119, ,191 12,852,568 2,269 Over 12 months 939,822 1,926-1,926 Total trade accounts receivable - others 1,009,992, ,998, ,244, ,896,076 Total trade accounts receivable 1,095,378, ,172, ,890, ,444,134 Less : Allowance for doubtful accounts (8,947,506) (1,550,000) (6,917,506) (1,100,000) Trade accounts receivable, net 1,086,431, ,622, ,973, ,344,134 The outstanding balances of trade accounts receivable as at 31 December 2007 included Baht 18.9 million of the trade accounts receivable, which were sold to the factoring company at a discount. The Company still has obligations under the full recourse guarantee it provided for the sale

10 7. RELATED PARTY TRANSACTIONS During the years, the Company and its subsidiaries had significant business transactions with related parties mainly in respect of purchases and sales of goods. Such transactions, which have been concluded on commercial terms and bases agreed upon in the ordinary course of business between the Company and those parties. Below is a summary of those transactions. (Unit : Thousand Baht) Consolidated financial statements Separate financial statements For the year ended For the year ended 31 December 31 December Pricing policy Transactions with subsidiaries (eliminated from the consolidated financial statements) Sales of goods and scraps ,672 41,221 Approximate market price Interest income - - 4,087 1,779 Interest rate at Minimum Loan Rate (MLR) of Bank of Ayudhya Public Company Limited Purchases of goods , ,620 Market price Transactions with related parties Sales of goods 721,384 1,499, , ,055 Approximate market price Purchases of goods 1,081, , , ,529 Market price Commission expenses 13,985 19,388 13,985 19,388 Commission rate at 1 percent of sales after deducting expenses The balances of the accounts as at 31 December 2007 and 2006 between the Company and those related parties are as follows :- (Unit : Baht) Consolidated financial statements Separate financial statements Trade accounts receivable - related parties Subsidiary companies Kulthorn Kirby Foundry Company Limited - - 7,698,372 6,546,892 Kulthorn Premier Company Limited - - 1, ,699,881 6,546,

11 (Unit : Baht) Consolidated financial statements Separate financial statements Related parties Kulthorn Company Limited 45,672,843 16,950,650 45,672,843 16,950,650 Heatcraft Australia Pty Limited 23,538,620 27,890,548 23,538,620 27,890,548 Kulthorn Metal Products Company Limited 7,358,309 39,210 7,358,309 39,210 Simac International Company Limited 4,214,913 37,867,511 4,214,913 37,867,511 Thai Compressor Manufacturing Company Limited 2,518,126 4,422,339 1,528,252 2,482,236 Kulthorn Electric Company Limited 1,434,207 2,262,042 1,434,207 1,966,037 Simons Corporation Limited - 5,937, Others 649, , , ,974 85,386,263 96,174,630 83,946,989 88,001,166 Total trade accounts receivable - related parties 85,386,263 96,174,630 91,646,870 94,548,058 Short-term loan to a subsidiary company Kulthorn Premier Company Limited ,000,000 - Other current assets - related parties Subsidiary companies Kulthorn Kirby Foundry Company Limited ,700 - Kulthorn Premier Company Limited - - 1,217, ,000 Kulthorn Steel Company Limited ,000, ,505, ,000 Related party Kulthorn Metal Products Company Limited 8,000 4,725 8,000 4,725 Total other current assets - related parties 8,000 4,725 34,513, ,

12 (Unit : Baht) Consolidated financial statements Separate financial statements Trade accounts payable - related parties Subsidiary companies Kulthorn Kirby Foundry Company Limited ,925,738 47,872,399 Kulthorn Premier Company Limited ,711 1,542, ,471,449 49,414,701 Related parties Kulthorn Materials and Controls Company Limited 252,041, ,264, ,776, ,662,321 Thai Sintered Products Company Limited 22,064,861 14,823,229 22,064,861 14,823,229 Kulthorn Metal Products Company Limited 3,942,954 2,367,375 3,481,738 2,367,375 Kulthorn Electric Company Limited 2,039,463 1,099,960 2,039,463 1,099,960 Kulthorn Company Limited 685, , , ,360 Heatcraft Australia Pty Limited 460, , , ,343 Thai Compressor Manufacturing Company Limited 354, , ,005 - Others 136,961 50,557 38,712 32, ,725, ,838, ,479, ,941,849 Total trade accounts payable related parties 281,725, ,838, ,950, ,356,550 Other payables - related parties Subsidiary company Kulthorn Kirby Foundry Company Limited ,205,771 Related parties Kulthorn Engineering Limited Partnership 506, , , ,692 Kulthorn Company Limited 427, , , ,438 Advance Tool and Die Company Limited 331, , , ,198 Thai Sintered Products Company Limited 16, ,835 16, ,835 Kulthorn Electric Company Limited 11,235 46,545 11,235 46,545 Others 110, , , ,391 Total other payables - related parties 1,403,462 2,028,100 1,403,462 4,233,

13 During the year, short-term loan to a subsidiary company had the following movements :- (Unit : Baht) Balance as at Balance as at 31 December During the year 31 December 2006 Increase Decrease 2007 Short-term loan to a subsidiary company Kulthorn Premier Company Limited - 250,000,000 (150,000,000) 100,000,000 Directors and management s remuneration In 2007, the Company and its subsidiary companies paid salaries, meeting allowances and gratuities to their directors and management totaling Baht 24.3 million (the Company only: Baht 14.6 million) (2006 : Baht 23.0 million, the Company only: Baht 14.5 million). Guarantee obligations with related parties The Company has outstanding guarantee obligations with its related parties, as described in Note 23.3 to the financial statements. 8. INVENTORIES Consolidated financial statements (Unit : Baht) Separate financial statements Finished goods 447,911, ,536, ,199, ,041,378 Work in process 137,513, ,124,806 83,153, ,377,163 Raw materials 440,506, ,701, ,481, ,745,643 Goods in transit 22,947,167 10,235,724 11,046,676 10,235,724 Total 1,048,878,159 1,054,598, ,880, ,399,908 Less : Allowance for diminution in value of inventories (73,662,689) (67,468,689) (49,600,689) (56,960,689) Inventories, net 975,215, ,129, ,280, ,439, RESTRICTED BANK DEPOSIT This represents a deposit of a subsidiary company pledged to secure against bank guarantee granted by a local commercial bank

14 10. INVESTMENTS IN SUBSIDIARY COMPANIES As at 31 December 2007 and 2006 the Company has long-term investments in ordinary share of the following companies :- Separate financial statements Percentage Investment Company's name Nature of business Share capital of shareholding At cost 31 December 31 December 31 December 31 December 31 December 31 December Million Million Baht Baht Baht Baht Kulthorn Kirby Foundry Company Limited Kulthorn Premier Company Limited Manufacturing and sales iron castings for compressor parts and automotives parts ,999, ,999,300 Manufacturing and sales hermetic compressors and iron castings for compressor parts and automotives parts ,658, ,408,226 Kulthorn Steel Company Limited Slitting of electrical steel for compressor ,999,825 - Total 1,251,657,128 1,026,407,526 Less : Allowance for impairment loss on investments in subsidiary companies (431,185,370) (293,302,466) Total investments in subsidiary companies - net 820,471, ,105,060 On 10 February 2006, an Extraordinary General Meeting of Kulthorn Kirby Foundry Co., Ltd. (a subsidiary) resolved to increase its registered share capital from Baht 175 million (1,750,000 ordinary shares of Baht 100 each) to Baht 375 million (3,750,000 ordinary shares of Baht 100 each) through the issuance of 2,000,000 ordinary shares with a par value of Baht 100 each, in order to invest in production capacity expansion project. The Company acquired all newly issued ordinary shares amounting to Baht 200 million. The subsidiary company has subsequently registered the increase in registered share capital with the Ministry of Commerce on 14 March On 29 September 2006, a meeting of the Company's Board of Directors passed a resolution approving the Company's acquisition of 993,198 additional shares of Baht 100 each in Kulthorn Premier Company Limited, at a price of Baht 87 per share, or for a total of Baht 86,408,226. This represents percent of the registered capital of that company and increases the Company's previous holding of 4,000,000 shares, or an 80 percent interest, to an interest of percent of registered capital of such company

15 On 24 April 2007, the Annual General Meeting of Kulthorn Premier Company Limited (a subsidiary) No. 19/2550 resolved to increase its registered share capital from Baht 500 million (5,000,000 ordinary shares of Baht 100 each) to Baht 700 million (7,000,000 ordinary shares of Baht 100 each) through the issuance of 2,000,000 ordinary shares with a par value of Baht 100 each, in order to invest in production capacity expansion project. The Company acquired all newly issued ordinary shares amounting to Baht 200 million. The subsidiary company has subsequently registered the increase in registered share capital with the Ministry of Commerce on 1 June On 12 June 2007, the Company purchased 999,993 ordinary shares of Kulthorn Steel Company Limited at a par value of Baht 100 per share, 25% paid up, representing 100% of equity interest of that Company. During the years ended 31 December 2007 and 2006, no dividend had been received by the Company from its subsidiary companies. 11. PROPERTY, PLANT AND EQUIPMENT (Unit : Baht) Consolidated financial statements Land Furniture, improvement Plant fixtures and office Motor Construction Land and plant Machinery equipment equipment vehicles in progress Total Cost : As at 31 December ,607,493 1,040,262,830 3,775,130, ,625, ,935,190 47,280, ,099,008 6,470,940,949 Additions - 12,936,488 34,979,740 12,774,422 6,547,229 6,790, ,375, ,403,821 Adjustment - 3,741, ,741,179 Transfer in (out) - 76,124, ,555,563 24,383,034 4,328,330 1,230,000 (864,320,580) (48,699,306) Disposals/write-off - - (99,280,234) (729,209) (642,296) (4,273,655) (250,000) (105,175,394) As at 31 December ,607,493 1,133,064,844 4,420,385, ,053, ,168,453 51,027, ,903,847 7,085,211,249 Accumulated depreciation : As at 31 December ,075,322 2,084,194, ,392,102 74,191,551 30,048,960-3,106,902,323 Depreciation on disposals/ write-off - - (26,268,287) (603,741) (624,475) (3,287,019) - (30,783,522) Depreciation for the year - 53,242, ,896,113 44,474,757 17,096,796 9,002, ,713,074 As at 31 December ,318,308 2,389,822, ,263,118 90,663,872 35,764,363-3,531,831,875 Allowance for impairment : As at 31 December , , ,374 Decrease during the year - - (360,374) (360,374) Adjustment - 3,741, ,741,179 As at 31 December ,881, ,881,179 Net book value : As at 31 December ,607, ,047,508 1,690,575, ,233,567 34,743,639 17,231, ,099,008 3,363,538,252 As at 31 December ,607, ,865,357 2,030,563, ,790,798 28,504,581 15,262, ,903,847 3,549,498,195 Depreciation for the year 2006 (Baht 405 million included in manufacturing cost, and the balance in selling and administrative expenses) 424,071, (Baht 437 million included in manufacturing cost, and the balance in selling and administrative expenses) 455,713,

16 (Unit : Baht) Separate financial statements Furniture, Land improvement Plant fixtures and office Motor Construction Land and plant Machinery equipment equipment vehicles in progress Total Cost : As at 31 December ,007, ,692,526 2,293,422, ,863,846 80,332,726 28,191, ,839,951 3,693,350,814 Additions - 148,000-7,147,295 5,118,668 6,790, ,257, ,462,125 Transfer in (out) - 3,859, ,055,014 21,120,587 3,344,993 - (248,864,806) (48,485,034) Disposals/write-off - - (99,280,234) (729,209) (541,678) (3,287,022) - (103,838,143) As at 31 December ,007, ,699,704 2,366,197, ,402,519 88,254,709 31,695, ,232,785 3,930,489,762 Accumulated depreciation : As at 31 December ,468,518 1,410,462, ,859,445 59,055,370 20,102,625-2,137,948,693 Depreciation on disposals/ write-off - - (26,268,287) (603,741) (528,957) (3,287,019) - (30,688,004) Depreciation for the year - 20,011, ,928,272 34,725,292 11,512,941 6,003, ,182,267 As at 31 December ,480,349 1,540,122, ,980,996 70,039,354 22,819,537-2,335,442,956 Net book value : As at 31 December ,007, ,224, ,959, ,004,401 21,277,356 8,089, ,839,951 1,555,402,121 As at 31 December ,007, ,219, ,074, ,421,523 18,215,355 8,875, ,232,785 1,595,046,806 Depreciation for the year 2006 (Baht 221 million included in manufacturing cost, and the balance in selling and administrative expenses) 229,759, (Baht 218 million included in manufacturing cost, and the balance in selling and administrative expenses) 228,182,267 The Company and a subsidiary company have mortgaged and negative pledged their land and building thereon and machinery, with net book value amounting to approximately Baht 1,169.2 million (2006 : Baht 1,545.8 million) (The Company only : Baht million, 2006 : Baht million) with financial institutions to secure against credit facility and loans obtained from those financial institutions as discussed in Note 13 and 14. As at 31 December 2007, certain equipment items of the Company and its subsidiary companies have been fully depreciated but are still in use. The original cost of those assets amounted to Baht 1,906.6 million (2006 : Baht 1,500.8 million) (The Company only : Baht 1,490.8 million 2006 : Baht 1,220.0 million)

17 12. GOODWILL Consolidated financial statements (Unit : Baht) Balance as at Balance as at 31 December 2006 Increase Decrease 31 December 2007 Goodwill - cost 47,341, ,341,397 Accumulated amortisation (5,240,642) (4,480,853) - (9,721,495) Net book value 42,100,755 (4,480,853) - 37,619,902 Remaining amortisation period 7.5, 10 years 6.5, 8.8 years Amortisation of goodwill for the year 2007 amounting to Baht 4.5 million is included in selling and administrative expenses in the statement of income. 13. BANK OVERDRAFTS AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS Interest rate (percent per annum) Consolidated financial statements (Unit : Baht) Separate financial statements Bank overdrafts 7.10% % 88,211, ,993,526 38,994,712 81,068,105 Short-term loans 2.31% % 1,233,776,012 1,208,612,454 1,063,776,012 1,133,612,455 Trust receipts 2.04% % 128,986,071 22,850, ,124,479 11,464,872 Packing credit 6.00% % 98,046,946-98,046,946 - Total 1,549,020,257 1,336,456,246 1,304,942,149 1,226,145,432 As at 31 December 2007, the Company and its subsidiaries had short-term loans and trust receipts of approximately Japanese yen million, US dollar 4.1 million and Euro 0.4 million or equivalent to Baht million (2006 : Japanese yen 59.2 million or equivalent to Baht 18.1 million), for the Company only of approximately Japanese yen million, US dollar 4.1 million and Euro 0.4 million or equivalent to Baht million (2006 : Japanese yen 37.5 million or equivalent to Baht 11.5 million), for which the Company and its subsidiary companies have not entered into forward contract to hedge exchange rate risk

18 Bank overdrafts and short-term loans from financial institutions of the Company and Kulthorn Premier Co., Ltd. (a subsidiary company) are secured by a mortgage and negative pledge of their land, building and machinery. Bank overdrafts of Kulthorn Kirby Foundry Co., Ltd. (a subsidiary company) and certain bank overdrafts of Kulthorn Premier Co., Ltd. (a subsidiary company) are guaranteed by the Company. 14. LONG-TERM LOANS Consolidated financial statements (Unit : Baht) Separate financial statements Long-term loans 1,758,945,171 2,221,657, ,134,547 1,041,408,750 Less : Current portion of long-term loans (471,284,905) (1,490,074,000) (318,724,281) (392,300,000) Long-term loans, net of current portion 1,287,660, ,583, ,410, ,108,750 As at 31 December 2007, long-term loans in the consolidated financial statements and the separate financial statements consisted of :- The Company 1) A Baht 186 million loan from a bank, shall be repaid within 8 years from the agreement date. The payment of principal is to be made in 16 semi-annual installments, with the first installment to be paid on 30 June 2004, with fifteen installments of Baht 11.5 million, and a final installment of Baht 13.5 million. Interest is to be paid quarterly at a rate of 3.5 percent per annum for the first 18 months, at MLR minus 1 percent per annum for the next 18 months, and at MLR thereafter. As at 31 December 2007, the outstanding balance of this loan is Baht 94.0 million

19 In addition, the Company has a Baht 100 million loan from the same bank, which shall be repaid within 8 years from the agreement date. The payment of principal is to be made in 16 semi-annual installments, with the first installment to be paid on 30 June 2004, with 16 equal installments of Baht 6.25 million. Interest is to be paid quarterly at a rate of 3.5 percent per annum for the first 18 months, at MLR minus 1 percent per annum for the next 18 months, and at MLR thereafter. As at 31 December 2007, the outstanding balance of this loan is Baht 50.5 million. Under the loan agreements, the Company has to comply with certain conditions including maintaining debt to equity ratio not exceeding 4 : 1. 2) During 2004, the Company entered into loan agreements with two banks to obtain loans totaling approximately Baht 600 million in order to repay all outstanding debts payable to its former institution creditors. Details of the loan agreements are as follows :- 2.1) The Company has obtained loan from a bank with total facility of Baht 100 million which is repayable to the bank in 60 equal installments within 5 years. This loan is subject to a fixed interest rate of 3.5% per annum in year 1 and 2, at the rate of MLR minus 1 percent per annum in year 3 and at the rate of MLR in year 4 and onwards. The loan agreement contains, among others, normal covenants relating to shareholding of major shareholder and creation of other loan, etc. As at 31 December 2007, the outstanding balance of this loan is Baht 13.0 million. 2.2) The Company has obtained loan from another bank with total facility of Baht 500 million which is repayable in 8 equal installments within 5 years with one and a half year grace period. This loan is subject to a fixed interest rate of 3.5% per annum in year 1 and at the rate of 6-month fixed deposit plus 2.5 percent per annum in year 2 and onwards. As at 31 December 2007, the outstanding balance of this loan is Baht million

20 3) During 2006, the Company entered into loan agreements with three banks. Details of the loan agreements are as follow :- 3.1) A Baht 250 million loan from a bank, shall be repaid within 2 years from the drawdown date. The payment of principal is to be made in 24 monthly installments, with the first installment to be paid in May 2006, with 24 equal installments of Baht million each. Interest is to be paid monthly at rate of MLR minus 0.25 percent per annum for the first 12 months and at MLR per annum thereafter. As at 31 December 2007, the outstanding balance of this loan is Baht 52.0 million. Under the loan agreement, the Company has to comply with certain conditions including maintaining debt to equity ratio not exceeding 4 : 1, gearing ratio not exceeding 3.25 : 1, and debt service coverage ratio not less than 1.2 : 1. As at 31 December 2007, the company cannot maintain the debt service coverage ratio as specified in the loan agreement. However, this loan is to be repaid within 1 year. 3.2) A Baht 170 million loan from another bank, shall be repaid within 5 years from the drawndown date. The payment of principal is to be made in 60 monthly installments, with the first installment to be paid in May 2006, with 60 equal installments of Baht 2.85 million. Interest is to be paid monthly at a rate of 5 percent per annum for the first 12 months, and at MLR thereafter. As at 31 December 2007, the outstanding balance of this loan is Baht 70.5 million. Under the loan agreement, the Company has to comply with certain conditions including maintaining debt to equity ratio not exceeding 4 : 1 for the separate financial statements and 6 : 1 for consolidated financial statements. 3.3) A Baht 240 million loan from another bank, shall be repaid within 5 years from the agreement date (25 April 2006). The payment of principal is to be made in 20 quarterly installments, with the first installment to be paid in 31 January 2007, with 20 equal installments of Baht 12 million. Interest is to be paid quarterly at MLR minus 1.25 percent per annum for the first 12 months as from draw down date, and at MLR minus 1 percent per annum for the next 36 months, and at MLR minus 0.5 percent per annum thereafter

21 As at 31 December 2007, the outstanding balance of this loan is Baht million. Under the loan agreement, the Company has to comply with certain conditions including maintaining debt to equity ratio not exceeding 4 : 1 for the separate financial statements and 4.5 : 1 for consolidated financial statements, current ratio for the separate financial statements and consolidated financial statements not less than 1:1, and debt service coverage ratio for the separate financial statements and consolidated financial statements not less than 1 : 1. As at 31 December 2007, the Company cannot maintain the current ratio and debt service coverage ratio as specified in the loan agreement. The Company has therefore negotiated with the bank and has already received a waiver for such matter from the bank. 4) During 2007, the Company entered into a loan agreement with a bank to obtain a loan amounting to Baht 70 million. A loan shall be repaid within 5 years from the drawdown date. The payment of principal and interest is to be made in 60 monthly installments, with the first installment to be paid in August 2007, at Baht million each. Interest is charged at the rate of MLR minus 1.0 percent per annum for the first 2 years and at MLR minus 0.5 percent per annum thereafter. As at 31 December 2007, the outstanding balance of this loan is Baht 65.6 million. These loans are secured by a mortgage and pledge of land, building and machinery. Subsidiaries Kulthorn Premier Company Limited 1) During 2004, Kulthorn Premier Company Limited, a subsidiary has entered into loan agreements with two banks to obtain loan facilities amounting to approximately Baht 1,205 million. Details of the loan agreements are as follows :

22 1.1) A Baht 1,160 million loan from a bank shall be repaid within 8 years from the agreement date. The payment of principal is to be made in 28 quarterly installments, with the first installment to be paid within 15 months after the agreement date and the following installments payable at the ending date of each installment period. The stipulated principal payment per installment is Baht 15 million for the first four installments, Baht 42.5 million for the next four installments and Baht 46.5 million for the final twenty installments. Interest is to be paid on a monthly basis, at a rate of 4 percent per annum for the first two years, MLR less 0.5 percent per annum for the next two years, and at MLR per annum thereafter. Under the loan agreement, the Subsidiary has to comply with certain conditions including shareholding of major shareholders, maintaining debt to equity ratio not exceeding 3.5 : 1, long-term debt to equity ratio not exceeding 2.5 : 1 and debt service coverage ratio not less than 1.25 : 1. During the year, the Subsidiary cannot maintain the debt to equity ratio, longterm debt to equity ratio, and debt service coverage ratio as specified in the loan agreements. However, the Subsidiary has requested for a waiver from the financial institution and received the waiver for the debt to equity ratio, long-term debt to equity ratio, and debt service coverage ratio for 2006 and As at 31 December 2007, the outstanding balance of this loan is Baht million. 1.2) Loans totalling Baht 41 million from another bank. The details are as follow : ) A loan of Baht 11 million shall be repaid within 4 years from the agreement date. The payment of principal is to be made in 48 monthly installments, with the first installment to be paid on 30 June 2004 and the following installments payable at the ending date of each installment period. The stipulated principal payment per installment is Baht 0.12 million for the first twelve installments, Baht 0.25 million for the next twenty-four installments, Baht 0.31 million for the following eleven installments and Baht 0.27 million for the final installment. Interest is to be paid on a monthly basis at MLR per annum. As at 31 December 2007, the outstanding balance of this loan is Baht 0.7 million

23 1.2.2) A loan of Baht 30 million shall be repaid within 4 years from the agreement date. The payment of principal is to be made in 48 monthly installments, with the first installment to be paid in the month the first drawdown is made. The stipulated principal payment per installment is Baht 0.33 million for the first twelve installments, Baht 0.66 million for the next twenty-four installments, Baht 0.83 million for the following eleven installments and Baht 0.88 million for the final installment. Interest is to be paid on a monthly basis at MLR per annum. As at 31 December 2007, the outstanding balance of this loan is Baht 2.8 million. 2) During 2006, the Subsidiary has entered into a new loan agreement with a bank to obtain loan facilities amounting to Baht 36 million, repayable within 4 years from the drawdown date. The payment of principal is to be made in 16 quarterly installments, with the first installment to be paid within 3 months after the drawdown date and the following installments payable at the ending date of each installment period. The stipulated principal payment per installment is Baht 2.25 million for the sixteen installments. Interest is to be paid on a monthly basis, at a rate of 5.5 percent per annum and 6.0 percent per annum for the first year and the second year, respectively and MLR less 0.5 percent per annum for the third year and onward. Under the loan agreement, the Subsidiary has to comply with certain conditions including shareholding of major shareholders, maintaining debt to equity ratio not exceeding 3.5 : 1, longterm debt to equity ratio not exceeding 2.5 : 1 and debt service coverage ratio not less than 1.25 : 1. During the year, the Subsidiary cannot maintain the debt to equity ratio, long-term debt to equity ratio, and debt service coverage ratio as specified in the loan agreement. However, the Subsidiary has requested for a waiver from the financial institution and received the waiver for the debt to equity ratio, long-term debt to equity ratio, and debt service coverage ratio for 2006 and As at 31 December 2007, the outstanding balance of this loan is Baht 20.3 million. All long-term loans of the Subsidiary are secured by mortgages and pledges of land, building and machinery of the subsidiary company and certain long-term loans are guaranteed by the Company

24 Kulthorn Kirby Foundry Company Limited During 2006, Kulthorn Kirby Foundry Company Limited, a subsidiary, has entered into a new loan agreement with a bank to obtain a loan amounting to Baht 120 million. A loan shall be repaid within December The repayment of principal is to be made in 12 quarterly installments, with the first installment to be paid in March 2007 and the following installments payable at the ending date of each installment period. The stipulated principal payment per installment is Baht 10 million. Interest is to be paid on a monthly basis, at a rate of MLR less 1.5 percent per annum for the first year, and at MLR per annum thereafter. As at 31 December 2007, the outstanding balance of this loan is Baht 80 million. Long-term loan of the subsidiary company is guaranteed by the Company. As at 31 December 2007, there is no outstanding long-term credit facility of the Company and its subsidiaries which has not yet to be drawn down. 15. LIABILITIES UNDER HIRE-PURCHASE AND FINANCIAL LEASE AGREEMENTS (Unit : Baht) Consolidated financial statements Separate financial statements Liabilities under hire-purchase and financial lease agreements 66,678,158 4,722,629 66,188,656 3,906,775 Less : Deferred interest (6,138,545) (569,744) (6,113,983) (504,136) Total 60,539,613 4,152,885 60,074,673 3,402,639 Less: Current portion due within one year (17,046,510) (1,520,306) (16,741,616) (1,235,000) Liabilities under hire-purchase and financial lease agreements, net of current portion 43,493,103 2,632,579 43,333,057 2,167, PROVISION FOR LOSS ON TAX ASSESSMENT In October 2007, the Company received tax assessment notification for corporate income tax for the year 2004 from the Revenue Department of Baht 44.0 million together with related penalties of Baht 44.0 million and surcharges of Baht 19.2 million, totaling Baht million, as a result of the recognition of loss from investment in a subsidiary company from share capital reduction of the subsidiary company as taxable expense of the Company. The Company already paid the tax of Baht 44.0 million and the Company is in the process to consider lodging an appeal to request from the Revenue Department the reduction of such penalties and surcharge since the Company had no intention to avoid tax liabilities. However, for a prudent reason, the Company has recorded a loss on such tax assessment in full amount in the account for the current year

25 17. PROVISION The balance, which is included in other current liabilities in the balance sheets, comprises the following : (Unit : Baht) Consolidated financial statements Separate financial statements Warranty reserve 7,004,000 5,828,000 5,214,000 2,278, SHARE CAPITAL On 25 April 2007, the Annual General Meeting of the Company s shareholders No. 28/2550 resolved to increase the Company s issued and paid up share capital from Baht 300 million (300,000,000 ordinary shares of Baht 1 each) to Baht 500 million (500,000,000 ordinary shares of Baht 1 each) through the issuance of 200,000,000 ordinary shares with a par value of Baht 1 each, at a price of Baht 2 each or a total of Baht 400 million to the existing shareholders. The Company has subsequently registered the increase in its issued and paid up share capital with the Ministry of Commerce on 29 May STATUTORY RESERVE Pursuant to the section 116 of the Public Limited Companies Act B.E. 2535, the Company is required to set aside to a statutory reserve at least 5 percent of its net income after deducting accumulated deficit brought forward (if any), until the reserve reaches 10 percent of the registered capital. The statutory reserve is not available for dividend distribution. 20. DIVIDEND On 25 April 2006, the Annual General Meeting of the Company s shareholders passed a resolution to approve a dividend payment from 2005 profit to the Company s shareholders at Baht 0.45 per share, totaling Baht 135 million. The Company paid the dividend on 23 May NUMBER OF EMPLOYEES AND RELATED COSTS Consolidated financial statements Separate financial statements Number of employees at end of year (persons) 3,099 2,901 1,921 1,727 Employee costs for the year (Thousand Baht) 553, , , ,

26 22. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is calculated by dividing the net income (loss) for the year by the weighted average number of ordinary shares in issue during the year. 23. COMMITMENT AND CONTINGENT LIABILITIES 23.1 Operating lease commitments As at 31 December 2007, the Company and its subsidiary company have commitments relating to land, motor vehicles, and office equipment rental agreements payable in the future as follows : Long-term service commitments Year Million Baht (a) As at 31 December 2007, the Company and its subsidiaries have commitments relating to service agreements payable in the future as follows :- Year Million Baht (b) A subsidiary company entered into technical license and royalty agreement with an overseas company. Under the agreement the subsidiary company has obliged to pay license and royalty fee to that company at the rate stipulated in the agreement. The agreement has been in effect since 15 July 2004 and shall continue unless cancelled by either party. As at 31 December 2007, the subsidiary had outstanding royalty fees amounting to approximately Baht 14.6 million (2006 : Baht 23.4 million)

27 23.3 Guarantees (a) As at 31 December 2007, the Company had contingent liabilities relating to the guarantees of bank overdrafts, loans and forward exchange contract given to subsidiary companies as follows :- 31 December 2007 Unit Guaranteed facility Facility used Subsidiaries Kulthorn Premier Company Limited Million Baht 1, ,352.7 Million US dollar Kulthorn Kirby Foundry Company Limited Million Baht Kulthorn Steel Company Limited Million Baht (b) (c) As at 31 December 2007, there were outstanding bank guarantees of approximately Baht million (The Company only : Baht 79.0 million) issued by the banks on behalf of the Company and its subsidiary companies in respect of certain performance bonds as required in the normal course of business of the Company and its subsidiary companies. These included letter of guarantee to guarantee electricity use and others amounting to Baht 39.3 million (The Company only : Baht 15.7 million), and to guarantee payment due to the Revenue Department amounting to Baht 63.2 million in respect of provision for loss on tax assessment, as described in Note 16. The Company and its subsidiary company have commitments related to sales commissions paid to sale agents at the mutually agreed rate