(TRANSLATION) AUDIT REPORT OF CERTIFIED PUBLIC ACCOUNTANT

Transcription

1 (TRANSLATION) AUDIT REPORT OF CERTIFIED PUBLIC ACCOUNTANT To the Shareholders and Directors of THAINOX STAINLESS PUBLIC COMPANY LIMITED I have audited the balance sheets in which equity method is applied to investment as of December 31, 2007 and 2006, the separate balance sheets as of December 31, 2007, and statements of income in which equity method is applied to investment and the separate statements of income, the statements of changes in shareholders equity in which equity method is applied to investment and the separate statements of changes in shareholders equity, and the cash flow statements in which equity method is applied to investment and the separate cash flow statements for the years then ended of THAINOX STAINLESS PUBLIC COMPANY LIMITED. These financial statements are the responsibility of the company s management as to their correctness and completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements in which equity method is applied to investment as of December 2007 and 2006, and separate financial statements as of December 2007, referred to above present fairly, in all material respects, the financial positions, the results of its operations and cash flow for the years then ended of THAINOX STAINLESS PUBLIC COMPANY LIMITED, respectively in accordance with generally accepted accounting principles.

2 The Company had prepared the separate balance sheet in which the cost method is applied as of December 31, 2006 is presented herein for comparative purposes after having been restated to reflect the change in accounting policy for recording investments in associated companies as described in Note 4 to the financial statements, as my opinion those adjustment to be appropriate and adjusted to financial statement respectively in accordance. S.K. ACCOUNTANT SERVICES COMPANY LIMITED (Somchai Kurujitkosol) Authorized Auditor No Bangkok February 4, 2008

3 3 ASSETS CURRENT ASSETS (Restated) Cash and Cash Equivalents 856,065, ,798,396, ,065, ,798,396, Current Investments (Note 6) 152,343, ,343, Trade Accounts Receivable - Net (Note 7) 780,320, ,055,350, ,320, ,055,350, Trade Accounts Related Companies (Note 5.2) 58,556, ,556, Inventories - Net (Note 8) 5,096,403, ,622,001, ,096,403, ,622,001, Other Current Assets Account Receivable - Revenue Department 34,452, ,289, ,452, ,289, Prepaid Expenses 20,133, ,400, ,133, ,400, Input Tax Pending 8,462, ,193, ,462, ,193, Deferred Interest Income 4,138, ,769, ,138, ,769, Others 8,942, ,750, ,942, ,750, Total Current Assets 7,019,817, ,620,151, ,019,817, ,620,151, NON-CURRENT ASSETS Long Term Investments (Note 9) Investment in Associated Company 6,154, ,320, ,900, ,900, General Investments - Net 810, , , , Property, Plant and Equipment - Net (Note 10) 9,324,660, ,036,862, ,324,660, ,036,862, Land Not Used in Operations (Note 11) 843,209, ,209, Other Assets THAINOX STAINLESS PUBLIC COMPANY LIMITED BALANCE SHEETS As of December 31, 2007 and 2006 Financial Statements in which Equity Method is Applied Deposit for Assets 30,121, ,945, ,121, ,945, Others 2,503, ,348, ,503, ,348, Total Non - Current Assets 10,207,459, ,151,286, ,206,205, ,150,865, Total Assets 17,227,277, ,771,438, ,226,023, ,771,017, Notes to financial statements are an integral part of these statements.

4 4 THAINOX STAINLESS PUBLIC COMPANY LIMITED BALANCE SHEETS As of December 31, 2007 and 2006 Financial Statements in which Equity Method is Applied (Restated) LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Trade Accounts and Notes Payable 2,796,432, ,355,107, ,796,432, ,355,107, Accounts Payable Related Companies (Note 5.2) 1,478,960, ,647,694, ,478,960, ,647,694, Current Portion of Long-Term Loans (Note 13) 45,808, ,808, Other Current Liabilities Account Payable - Revenue Department 11,002, ,002, Accrued Expenses 108,396, ,864, ,396, ,864, Accrued Expenses Related Companies (Note 5.2,12) 1,465, ,120, ,465, ,120, Deposit from Customers 82,709, ,490, ,709, ,490, Other Accounts Payable 78,970, , ,970, , Withholding Income Tax Payable 10,553, ,802, ,553, ,802, Others 11,323, ,226, ,323, ,226, Total Current Liabilities 4,625,622, ,370,098, ,625,622, ,370,098, NON - CURRENT LIABILITIES Long Term Loan - Net (Note 13) 341,381, ,381, Employees Retirement Indemnity (Note 14) 51,549, ,092, ,549, ,092, Total Non-Current Liabilities 392,931, ,092, ,931, ,092, Total Liabilities 5,018,553, ,415,191, ,018,553, ,415,191, Notes to financial statements are an integral part of these statements.

5 5 THAINOX STAINLESS PUBLIC COMPANY LIMITED BALANCE SHEETS As of December 31, 2007 and 2006 Financial Statements in which Equity Method is Applied (Restated) SHAREHOLDERS EQUITY Share Capital Authorized Share Capital 8,000,000,000 Ordinary ,000,000, ,000,000, ,000,000, ,000,000, Issued and Paid-up Share Capital 8,000,000,000 Ordinary ,000,000, ,000,000, ,000,000, ,000,000, Premiun on Share Capital - Net 332,131, ,131, ,131, ,131, Revaluation Increment in Property, Plant and Equipment - Net (Note 10,18) 2,364,968, ,648,913, ,364,968, ,648,913, Unrealized Gain on Investment in Available for Sale Securities (Note 6) 2,343, ,343, Treasury Stock (Note 15) (249,557,679.37) (249,557,679.37) (249,557,679.37) (249,557,679.37) Retained Earnings Appropriated Legal Reserve (Note 17) 530,000, ,000, ,000, ,000, Treasury Stock Reserve (Note 15) 249,557, ,557, ,557, ,557, Unappropriated 979,281, ,203, ,026, ,782, Total Shareholders Equity 12,208,724, ,356,247, ,207,470, ,355,826, Total Liabilities and Shareholders' Equity 17,227,277, ,771,438, ,226,023, ,771,017, Notes to financial statements are an integral part of these statements.

6 6 THAINOX STAINLESS PUBLIC COMPANY LIMITED STATEMENTS OF INCOME For the Years Ended on December 31, 2007 and 2006 Financial Statements in which Equity Method is Applied (Restated) REVENUES Sales 18,350,671, ,936,818, ,350,671, ,936,818, Other Income Interest Income 168,468, ,637, ,468, ,637, Gain on Exchange Rate 330,894, ,472, ,894, ,472, Others 10,722, ,976, ,722, ,976, Participating Profit in Associated Company 834, , Total Revenues 18,861,591, ,109,326, ,860,756, ,108,905, EXPENSES Cost of Sales 17,658,444, ,426,663, ,658,444, ,426,663, Loss on Declining in Value of Inventories (Reversal) 311,464, (7,801,469.87) 311,464, (7,801,469.87) Selling and Administrative Expenses 737,043, ,143, ,043, ,143, Director's Remuneration (Note 5.1,23) 12,753, ,457, ,753, ,457, Total Expenses 18,719,706, ,041,462, ,719,706, ,041,462, Profit Before Interest Expense 141,884, ,067,863, ,050, ,067,443, Interest Expense (7,806,422.84) (4,891,573.46) (7,806,422.84) (4,891,573.46) Net Profit 134,078, ,062,972, ,244, ,062,551, BASIC EARNINGS PER SHARE (Unit : ) (Note 19) ORDINARY SHARES (Unit : Share) (Note 19) 7,795,709,100 7,795,709,100 7,795,709,100 7,795,709,100 Notes to financial statements are an integral part of these statements.

7 7 THAINOX STAINLESS PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY(FINANCIAL STATEMENTS IN WHICH EQUITY METHOD IS APPLIED) For the Years Ended on December 31, 2007 and 2006 Issued and Premiums on Revaluation Increment Unrealized Gain Treasury Stock Retained Earnings Paid-Up Share Capital - Net in Property, Plant and on Investments Appropriated Unappropriated Total Share Capital Equipment - Net Available for Sale Legal Reserve Treasury Stock Securities Reserve Balance as of December 31, ,000,000, ,131, ,648,913, (249,557,679.37) 523,000, ,557, ,203, ,356,247, Net Profit ,078, ,078, Increase in Fair Value of Investments (Note 6) ,343, ,343, Depreciation (Note 10,18) - - (283,944,216.40) (283,944,216.40) Legal Reserve (Note 17) ,000, (7,000,000.00) - Balance as of December 31, ,000,000, ,131, ,364,968, ,343, (249,557,679.37) 530,000, ,557, ,281, ,208,724, Balance as of December 31, ,000,000, ,131, ,932,857, (249,557,679.37) 418,000, ,557, ,479, ,941,468, Dividend (Note 16) (1,364,249,092.50) (1,364,249,092.50) Net Profit ,062,972, ,062,972, Depreciation (Note 10,18) - - (283,944,216.40) (283,944,216.40) Legal Reserve (Note 17) ,000, (105,000,000.00) - Balance as of December 31, ,000,000, ,131, ,648,913, (249,557,679.37) 523,000, ,557, ,203, ,356,247, Notes to financial statements are an integral part of these statements.

8 8 THAINOX STAINLESS PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY(THE SEPARATE FINANCIAL STATEMENTS) For the Years Ended on December 31, 2007 and 2006 Issued and Premiums on Revaluation Increment Unrealized Gain Treasury Stock Retained Earnings Paid-Up Share Capital - Net in Property, Plant and on Investments Appropriated Unappropriated Total Share Capital Equipment - Net Available for Sale Legal Reserve Treasury Stock Securities Reserve (Restated) Balance as at December 31, 2006 before Adjustments 8,000,000, ,131, ,648,913, (249,557,679.37) 523,000, ,557, ,203, ,356,247, Effected from the Changing in Accounting Policy (Note 4) (420,693.89) (420,693.89) Balance as at December 31, 2006 after Adjustments 8,000,000, ,131, ,648,913, (249,557,679.37) 523,000, ,557, ,782, ,355,826, Net Profit ,244, ,244, Increase in Fair Value of Investments (Note 6) ,343, ,343, Depreciation (Note 10,18) - - (283,944,216.40) (283,944,216.40) Legal Reserve (Note 17) ,000, (7,000,000.00) - Balance as at December 31, ,000,000, ,131, ,364,968, ,343, (249,557,679.37) 530,000, ,557, ,026, ,207,470, Balance as at December 31, ,000,000, ,131, ,932,857, (249,557,679.37) 418,000, ,557, ,479, ,941,468, Dividend (Note 16) (1,364,249,092.50) (1,364,249,092.50) Net Profit ,062,551, ,062,551, Depreciation (Note 10,18) - - (283,944,216.40) (283,944,216.40) Legal Reserve (Note 17) ,000, (105,000,000.00) - Balance as at December 31, ,000,000, ,131, ,648,913, (249,557,679.37) 523,000, ,557, ,782, ,355,826, Notes to financial statements are an integral part of these statements.

9 9 THAINOX STAINLESS PUBLIC COMPANY LIMITED CASH FLOW STATEMENTS For the Years Ended on December 31, 2007 and 2006 CASH FLOW FROM OPERATING ACTIVITIES in which Equity Method is Applied (Restated) Net profit 134,078, ,062,972, ,244, ,062,551, Adjustment to Net Profit (Loss) for Cash Received (Paid) from Operations Depreciation 531,268, ,263, ,268, ,263, Interest Expenses 7,806, ,806, Interest Income (168,468,183.45) (133,637,799.59) (168,468,183.45) (133,637,799.59) Allowance from Declining in Value of Inventories (Reversal) 311,464, (7,801,469.87) 311,464, (7,801,469.87) Loss on Damage Spareparts - 7,231, ,231, Write off Design of Building Expenses 8,300, ,300, Write off Cost of Cancelling Building Construction 1,583, ,583, Spare Part Expenses 148,456, ,690, ,456, ,690, Unrealized (Gain) Loss on Exchange Rate (20,349,990.89) (59,075,638.25) (20,349,990.89) (59,075,638.25) Allowance for Doubtful Accounts (Reversal) (70,000.00) (470,000.00) (70,000.00) (470,000.00) Amortization of Deferred Expenses 1,774, ,774, Provision for Employee Retirement Indemnity 6,457, ,645, ,457, ,645, Gain on Disposal of Fixed Assets (800,919.23) (656,995.00) (800,919.23) (656,995.00) Participating Profit in Associated Company (834,076.96) (420,693.89) - - Profit(Loss) from Operating Activities before Changes in Operating 960,666, ,549,741, ,666, ,549,741, Assets and Liabilities Financial Statements (Increase) Decrease in Trade Accounts Receivable 270,162, ,438, ,162, ,438, (Increase) Decrease in Trade Accounts Receivable Related Companies (58,556,350.89) - (58,556,350.89) - (Increase) Decrease in Inventories (1,785,866,335.84) (1,405,225,834.40) (1,785,866,335.84) (1,405,225,834.40) (Increase) Decrease in Other Current Assets 51,704, (19,854,467.04) 51,704, (19,854,467.04) (Increase) Decrease in Other Assets (22,976,439.25) (97,613,783.50) (22,976,439.25) (97,613,783.50) Increase (Decrease) in Trade Accounts and Notes Payable 514,380, (866,245,522.50) 514,380, (866,245,522.50) Increase (Decrease) in Accounts Payable Related Company (2,190,816,058.35) 3,571,033, (2,190,816,058.35) 3,571,033, Increase (Decrease) in Other Current Liabilities (47,440,411.43) (97,943,028.94) (47,440,411.43) (97,943,028.94) Increase (Decrease) in Other Current Liabilities Related Company (23,655,662.94) - (23,655,662.94) - Paid for Income Tax (1,361,637.01) (1,210,243.57) (1,361,637.01) (1,210,243.57) Cash Paid for Interest (78,446.36) - (78,446.36) - Cash Received from Interest 178,098, ,251, ,098, ,251, Cash Provided (Used) from Operating Activities-Net (2,155,739,045.76) 3,940,371, (2,155,739,045.76) 3,940,371, Notes to financial statements are an integral part of these statements.

10 10 THAINOX STAINLESS PUBLIC COMPANY LIMITED CASH FLOW STATEMENTS For the Years Ended on December 31, 2007 and 2006 Financial Statements in which Equity Method is Applied (Restated) CASH FLOW FROM INVESTING ACTIVITIES Cash Paid for Investment in Associated Company - (4,900,000.00) - (4,900,000.00) Cash Paid for Purchase of Fixed Assets (1,671,498,787.90) (803,198,686.73) (1,671,498,787.90) (803,198,686.73) Cash Paid for Purchase of Land Not Used in Operations (326,563,160.00) - (326,563,160.00) - Cash Paid for Purchase of Current Investments (150,000,000.00) - (150,000,000.00) - Cash Received from Disposal of Fixed Assets 1,247, , ,247, , Cash Provided (Used) from Investing Activities-Net (2,146,814,284.34) (807,441,686.73) (2,146,814,284.34) (807,441,686.73) CASH FLOWS FROM FINANCING ACTIVITIES Cash Received from Long Term Loan 384,664, ,664, Cash paid for Deferred Financing Service Fee for Long - Term Loan (24,442,798.56) - (24,442,798.56) - Cash Paid for Dividend - (1,293,932,067.87) - (1,293,932,067.87) Cash Provided (Used) from Financing Activities - Net 360,221, (1,293,932,067.87) 360,221, (1,293,932,067.87) Cash on Hand and Cash Equivalents Increase (Decrease)-Net (3,942,331,541.70) 1,838,998, (3,942,331,541.70) 1,838,998, Cash on Hand and Cash Equivalents at Beginning of the Period 4,798,396, ,959,398, ,798,396, ,959,398, Cash on Hand and Cash Equivalents at Ending of the Period 856,065, ,798,396, ,065, ,798,396, Additional Disclosure of Cash Flow: 1. Cash paid during the period for 1.1 Interest Expenses to Cost of Assets 7,883, ,883, Cash and Cash Equivalents Consist of: 2.1 Cash on Hand 179, , , , Cash at Bank - Saving 488,063, ,222,786, ,063, ,222,786, Cash at Bank - Current 69, , , , Bill of Exchange - Due within Days 367,752, ,217,376, ,752, ,217,376, Promissory Notes - Due within 60 Days - 358,000, ,000, Total 856,065, ,798,396, ,065, ,798,396, Notes to financial statements are an integral part of these statements.

11 11 THAINOX STAINLESS PUBLIC COMPANY LIMITED Notes to Financial Statements December 31, 2007 and Basis of Financial Statements 1.1 The financial statements of Thainox Stainless Public Company Limited ( the Company ) 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 September 14, 2001, issued under the Accounting Act B.E The financial statements are prepared on the historical cost basis except as disclosed in the accounting policies. 1.3 In order to prepare the financial statement to comply with generally accepted accounting standards, the Company s management had to make some estimates and suppositions which may have an effect on the amount shown for revenue, expenses, assets and liabilities and also on the disclosures concerning assets and contingent liabilities, therefore, the actual result may differ from the estimated amount. 1.4 The Accounts Reclassification. For the purpose of comparability and according to the account reclassification in current period, the Company has reclassified accounts in the financial statement as of December 31, 2006 and there was no effect to the balance of net profit or shareholders equity represented in the financial statement. The items were as follows: Account Project in Progress Increase 1,082, Deposit for Assets Decrease 1,082, Trade Accounts Payable Related Company Increase 3,625,474, Trade Accounts and Note Payable Decrease 3,625,474, Cost of Sales Increase 1,785, Selling and Administrative Expenses Decrease 1,785,688.27

12 Amendment to accounting standards effective in 2007 and 2008 During 2007, the Federation of Accounting Professions announced the amendment to Thai Accounting Standards ( TAS ) as follows: No. 25 (Revised 2007) Cash Flow Statements No. 29 (Revised 2007) Leases No. 31 (Revised 2007) Inventories No. 33 (Revised 2007) Borrowing costs No. 35 (Revised 2007) Presentation of financial statements No. 39 (Revised 2007) Accounting policies, changes in accounting estimates and errors No. 41 (Revised 2007) Interim financial reporting No. 43 (Revised 2007) Business Combinations No. 44 (Revised 2007) Consolidated financial statements and separate financial statements No. 45 (Revised 2007) Investments in associates No. 46 (Revised 2007) Interests in joint ventures No. 49 (Revised 2007) Construction contracts The effective date for the revised TAS 44 Consolidated and separate financial statements, TAS 45 Investments in associates and TAS 46 Interests in joint ventures is for the accounting periods beginning on or after January 1, The remaining Thai Accounting Standards will be effective for the accounting periods beginning on or after January 1, However, the Management assessed that the revised standards shall not impact significantly to the financial statements being presented. 2. General Information The Company is a company registered in Thailand and listed on the Stock Exchange of Thailand. The principal activities of the Company are production and sales of cold - rolled stainless steel for use in the manufacture of sinks, kitchen appliances, washing machines and a variety of other consumer and industrial products. Presently, the Company has offices located at the following addresses: a) Head Office : 31 st floor Unit , CRC Tower, All Seasons Place, 87/2 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand b) Factory : 324 Moo 8, Highway 3191 Road, Tambol Mabkha Pattana, Nikom Pattana, Rayong 21180, Thailand The Mahagitsiri Group is the largest shareholder of the Company.

13 13 As of December 31, 2007 and 2006 the Company has employees and Employee Expenses as follows: Average Employees (Persons) Employee Expenses (Million ) Summary of Significant Accounting Policy 3.1 Revenue - Revenue excludes value added taxes or other sales taxes and is arrived at after deduction of trade discounts. - Revenue from the sale of goods is recognized in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due, associated costs, the probable return of goods or the continuing management involvement in the traded goods. - Revenue from interest receivable is recognized in accordance with the period of time and computed from the outstanding principal balance. 3.2 Expenses - Expenses are recognized on an accrual basis. 3.3 Cash and cash equivalent Cash and cash equivalent items include cash at banks in saving accounts, current accounts and fixed accounts not over than 3 months and free from any guarantees. 3.4 Trade accounts receivable, other accounts receivable and allowance for doubtful accounts Accounts receivable and other accounts receivable are stated at the net realizable value. Allowance for doubtful accounts is estimated from collection losses that may incur in collection of receivable by customers. 3.5 Inventories Finished goods, work- - at the lower of cost (specific identification method) and net realizable in-process and raw materials value Supplies - at the lower of cost (first-in, first-out method) and net realizable value Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

14 Investments - Long - Term investments in shares which the Company held as investment in non-marketable equity security is general investment stated at cost. An allowance for impairment loss will be made when the fair value is lower than the book value, and the loss, if any, is included in determining earnings. - Investment in associated company was recorded by using equity method. - Investments in marketable equity security - available for sale securities are determined at fair value. Fair value is based on the latest bid price quoted on the last working day. Losses on the changes in value of the investments have been shown as a separate item in the shareholders equity. 3.7 Property, Building and Equipment are recorded at cost on the transaction date less accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the approximate useful life of the asset as follows: Land improvements 20 Years Buildings and improvements 20 Years Machinery and equipment 20, 25 Years Furniture, fixtures and office equipment 5, 10 Years Vehicles 5 Years - The Company records expenses for machinery spare parts when these are installed. Spare parts held for standby use are depreciated over their useful lives. - No depreciation is provided on freehold land or assets under construction. Subsequent expenditure - Subsequent expenditure relating to an item of property, plant and equipment is added to the carrying amount of the asset when it is probable that the future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Company. All other subsequent expenditure is recognized as an expense in the period in which it is incurred. Buildings and improvements, machinery and equipment existing as at June 30, 2004 were revalued at the appraised value as of that date. The property, plant and equipment acquired subsequent to the appraisal date are recorded at cost.

15 15 Revalued Assets - Revaluations are performed by independent professional appraiser with sufficient regularity to ensure that the carrying amount of these assets does not differ materially from that which would be determined using fair values at the balance sheet date. - Any increase in value, on revaluation, is credited to the revaluation reserve unless it offsets a previous decrease in value recognized in the statement of income. A decrease in value is recognized in the statement of income to the extent it exceeds an increase previously recognized in the revaluation reserve. The revaluation surplus is utilized by reference to the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset s original cost and credited to the statement of income. Upon disposal, any remaining related revaluation surplus is transferred from the revaluation reserve to the statement of income and is taken into account in calculating the gain or loss on disposal. 3.8 Cost of borrowings Cost of borrowings to finance the construction of property, plant and equipment are capitalized as part of cost of the asset during the period of time required to complete and prepare the assets for its intended use. Borrowing costs include: - Interest on long term borrowing. - Financing fee for the arrangement of borrowings. Deferred financing fee is initially recorded at cost and carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the life of the loan agreements. The difference between the straight-line method and the effective interest method does not have material impact to the financial statements as a whole. Deferred financing service fee is recognized as cost of debt and presented by deducting directly from loan. 3.9 Impairment The carrying amounts of the Company s assets, other than inventories and trade accounts receivable are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. In case of cost impairment i.e. if asset is valued at lower than its recoverable amount, the Company will recognize an impairment loss in the statement of income.

16 16 Calculation of recoverable amount - The recoverable amount is the greater of the asset s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversals of impairment - An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. - An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. All reversals of impairment losses are recognized in the statement of income A provision of liabilities The Company recognizes in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability Employees retirement Employees retirement indemnity is accrued as described in Note Derivative financial instruments - Derivative financial instruments are used to manage exposure to foreign exchange risks arising from operational activities. Derivative financial instruments are not used for trading purposes. Derivatives that do not qualify for hedge accounting are accounted for as trading instruments. - Derivative financial instruments are recognized initially at cost. Subsequently, they are stated at fair value. The gain or loss on remeasurement to fair value is recognized in the statement of income. - The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

17 Income tax Corporate income tax has been calculated on net earnings for the year, after adding back disallowable expenses in tax computation purposes and deducting tax - exempted dividend income Foreign Currency Transactions - Transactions in foreign currencies are translated at the foreign exchange rates prevailing on the date of the transaction. - Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Thai baht at the foreign exchange rates prevailing on that date. Foreign exchange differences arising on translation are recognized in the statement of income. - Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates prevailing on the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Thai baht at the foreign exchange rates prevailing on the date that fair value was determined Basic earnings per share Basic earnings per share is calculated by dividing the net earnings for the year by the weighted average number of issued ordinary shares net from treasury stock outstanding during the year. The Company does not calculate the diluted earnings (loss) per share because there are no common share equivalents. 4. Change in Significant Accounting Policies These financial statements were prepared under the same accounting policy and calculation methods as used in the annual financial statements ended on December 31, 2006, except change in the accounting policy for investment in associated company from the equity method to the cost method. The Federation of Accounting Professions issued FAP Notification No. 26/2006 regarding Accounting Standard No. 44 Consolidated Financial Statements and Accounting for Investments in Subsidiaries, to assign the Company to change the accounting policy for investments in associated companies in separate financial statements from the equity method to the cost method. As a result, net profit and retained earnings in the financial statements is different as reflected by investment according to equity method and separate financial statements. However, such change is only a change of the accounting policy, it does not cause any change in the fundamentals of the business operation of the Company. As a result, starting January 1, 2007, in this regard, the Company must restate beginning retained earnings in year 2007 to decrease by 0.42 million and decrease investment in associated company by the same amount, and restate the separate statement of income, the statements

18 18 of changes in shareholders equity and the cash flow statements for the year ended on December 31, 2006 in which the cost method is applied are presented herein for comparative purposes with the financial statements in which the equity method is applied. 5. Related Party - Transactions The significant inter-transactions among the Company with related companies and director s were as follows: 5.1 Related Party-Revenues and Expenses Financial Statements in which Equity Method is Applied/ Policy to For the Year Ended On assign December 31, 2007 December 31, 2006 Sales (1) NS-Thainox Auto Co., Ltd. 22,204, Nippon Steel Trading (Thailand) Co., Ltd. 2,416,744, ,518, POSCO (Thailand) Co., Ltd. 12,129, POSCO Asia Co., Ltd. 57,188, Posteel Co., Ltd. 36,822, Total 2,545,090, ,518, Purchase of Raw Material (2) Nippon Steel & Sumikin Stainless Corporation 43,104, ,523, POSCO Asia Co., Ltd. 7,467,096, ,332,247, JFE Shoji Trade Corporation - 183,674, Total 7,510,200, ,519,444, Commission (3) Siam Lotus Co., Ltd. 2,789, Director's Remuneration (4) 12,753, ,457, (1) Sales - The market price, which was nearly comparable to the sale prices to others. (2) Purchase of raw material - The market price, which was nearly comparable to the purchasing prices from others. (3) Based on agreed price, which was comparable to the others. (4) Director s Remuneration - Include Bonus, according to Annual general meeting of the Shareholders.

19 Related Party -Assets and Liabilities Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Trade Accounts Receivable - NS-Thainox Auto Co., Ltd. 15,827, Nippon Steel Trading (Thailand) Co., Ltd. 39,975, POSCO Asia Co., Ltd. 2,753, Total 58,556, Trade Accounts Payable JFE Shoji Trade Corporation - 18,825, Nippon Steel & Sumikin Stainless Corporation 29,073, ,393, POSCO Asia Co., Ltd. 1,449,886, ,625,474, Total 1,478,960, ,647,694, Accrued Expenses Nippon Steel & Sumikin Stainless Corporation - 8,932, Nisshin Steel Co., Ltd. - 4,466, Nippon Metal Industry Co., Ltd. - 4,466, J F E Steel Corporation - 4,466, Nippon Yakin Kogyo Co., Ltd. - 2,788, Siam Lotus Co., Ltd. 1,465, Total 1,465, ,120,777.49

20 5.3 Type of Relationship with the Company 20 Name of Company Country Relationship Nature of Relationship NS-Thainox Auto Co., Ltd. Thai Associated Company Direct Shareholders and Mutual Management POSCO-Thailand Co., Ltd. Thai Related Company This Company had been Related with Related Companies Nippon Steel Trading (Thailand) Co., Ltd. Thai Related Company This Company had been Related with Related Companies Siam Lotus Co., Ltd. Thai Related Company This Company had been Related with Related Companies Nippon Steel Trading Co., Ltd. Japan Related Company This Company had been Related with Related Companies Nippon Steel & Sumikin Stainless Corporation Japan Related Company Direct Minority Shareholders Nisshin Steel Co., Ltd. Japan Related Company Direct Minority Shareholders Nippon Metal Industry Co., Ltd. Japan Related Company Direct Minority Shareholders J F E Steel Corporation Japan Related Company Direct Minority Shareholders Nippon Yakin Kogyo Co., Ltd. Japan Related Company Direct Minority Shareholders J F E Shoji Trade Corporation Japan Related Company Indirect Minority Shareholders POSCO Asia Co., Ltd. Hong Kong Related Company This Company had been Related with Related Companies Posteel Co., Ltd. South Korea Related Company This Company had been Related with Related Companies POSCO Ltd. (Start shareholding on January 29, 2007) South Korea Related Company Direct Shareholders 6. Current Investments Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Cost Fair Value Cost Fair Value Unit Trusts 150,000, ,343, Add Unrealized Gain on Investments Available for Sale Securities 2,343, Total 152,343, ,343,

21 21 During the year, investment in securities has movement as follow : Financial Statements in which Equity Method is Applied/ For the Year Ended On December 31, 2007 December 31, 2006 Book value beginning - Net - - Purchase securities 150,000, Sale securities - - Change in fair value of securities 2,343, Book value ending - Net 152,343, Accounts Receivable - Net Consist of: Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Within credit term 761,613, ,981, Over credit term less than 3 months 18,706, ,369, Over credit term 3-6 months - - Over credit term 6-12 months - - Over credit term 12 months 73,687, ,757, Total 854,007, ,129,108, Less allowance for doubtful debt (73,687,103.98) (73,757,103.98) Net 780,320, ,055,350, As of December 31, 2007 and 2006 Allowance for doubtful debt has movement as follows : Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Allowance for doubtful debt - Beginning (73,757,103.98) (74,227,103.98) Add reserve within period - - Less refund doubtful accounts within period 70, , Allowance for doubtful debt - Ending (73,687,103.98) (73,757,103.98)

22 8. Inventories-Net Consist of: 22 Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Finished goods 1,845,215, ,406,923, Work in process 1,578,707, ,195,267, Raw materials 760,857, ,354, Supplies 44,058, ,616, Material in - transit 1,217,405, ,216, Total 5,446,244, ,660,377, Less allowance from declining in value (349,840,422.25) (38,376,201.24) Net 5,096,403, ,622,001, As of December 31, 2007 and 2006, Allowance from declining in value has movement as follows : Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Allowance from declining in value - Beginning (38,376,201.24) (46,177,671.11) Add reserve within period (311,464,221.01) - Less reversal of declining in value - 7,801, Allowance from declining in value - Ending (349,840,422.25) (38,376,201.24)

23 23 9. Long Term Investment Financial Statements in which Associated Company Paid-up Capital Percentage of Shareholdings Equity Method is Applied Cost Method As of As of As of As of As of As of As of As of Company Name December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, Percentage Percentage NS-THAINOX AUTO CO., LTD. 10,000 10, ,155 5,321 4,900 4,900 General Investment - Net Total 6,155 5,321 4,900 4,900 CHANTHABURI COUNTRYCLUB CO., LTD. 30,000 30, ,250 2,250 2,250 2,250 KHOWKIEAW COUNTRYCLUB CO., LTD. 42,686 42, ,960 1,960 1,960 1,960 Total 4,210 4,210 4,210 4,210 Less Allowance for Impairment of General Investments (3,400) (3,400) (3,400) (3,400) Net At the board of directors meeting No. 6/2006 held on June 23, 2006, the board of directors passed the resolutions as follows: the joint venture agreement with Nippon Steel & Sumikin Stainless Steel Corporation and Siam Lotus Company Limited in order to set up a new company name NS- Thainox Auto Company Limited with the business purpose to market, trade and distribute stainless steel product cold rolled by the Company for automotive and motorcycle use in Thailand, ASEAN and India. As of December 31, 2007 and 2006, the Company recorded investment in associated company in the Company only financial statements by historical cost, i.e. preliminary cost price is equal to 4.90 million. As of December 31, 2007, the Company recorded investment in associated company by equity method and recognized participating of profit in the associated company based upon the operating results for the year ended on December 31, The financial statements of the associated company were prepared by the management of that associated company. Its total assets were million (equal to 0.19 percent of total assets of the Company) and participating profit in the associated company for the year ended on December 31, 2007 in amount of 0.83 million (equal to percent of total revenues of the Company for the year ended on December 31, 2007)

24 24 As of December 31, 2006, the Company recorded investment in associated company by equity method and recognized participating of profit in the associated company based upon the operating results for the period from July 17, 2006 (incorporation date) to December 31, The financial statements of the associated company was audited by auditors according to the report dated on February 9, 2007, reflected consolidated assets of the associated company in an amount of million (equal to percent of total assets of the Company) and participating profit in the associated company in amount of 0.16 million (equal to percent of total revenues of the Company for the year ended on December 31, 2006). 10. Property, Plant and Equipment-Net Consist of: Financial Statements in which Equity Method is Applied/ Balance Increase / Sale / Balance As of Transfer in Transfer out As of December 31, 2006 December 31, 2007 Cost Land 793,860, ,970, (516,646,000.00) 1,007,184, Land improvements 142,864, , ,277, Buildings and improvements 1,998,011, ,263, ,007,275, Machinery and equipment (incl. spare parts) 8,541,192, ,276, (148,456,383.15) 8,561,012, Furniture, fixtures and office equipment 233,201, ,847, ,049, Vehicles 69,044, (9,475,350.00) 59,569, Construction in progress 41,677, ,476, (31,687,236.49) 893,467, Total Cost 11,819,851, ,800,248, (706,264,969.64) 12,913,835, Accumulated Depreciation Land improvements (52,213,076.28) (7,166,839.16) - (59,379,915.44) Buildings and improvements (1,132,156,251.21) (100,901,939.25) - (1,233,058,190.46) Machinery and equipment (incl. spare parts) (4,018,875,624.72) (401,524,137.88) - (4,420,399,762.60) Furniture, fixtures and office equipment (185,432,001.75) (12,187,547.82) - (197,619,549.57) Vehicles (43,225,779.94) (9,488,270.84) 9,028, (43,685,445.11) Total Accum. Depre (5,431,902,733.90) (531,268,734.95) 9,028, (5,954,142,863.18) Net 6,387,949, ,268,979, (697,236,363.97) 6,959,692, Add Capital surplus arisen from assets revaluation 5,637,057, ,637,057, Less Allowance from impairment of assets (2,988,144,331.50) (283,944,216.40) - (3,272,088,547.90) Net Book Value 9,036,862, ,035, (697,236,363.97) 9,324,660, Depreciation in Income Statement For the Years ended on December 31, ,268, ,263,973.05

25 25 In July 2004, the Company engaged a consulting company (The Valuation & Consultants Co., Ltd.), as an independent appraiser, to reappraise buildings and improvements, machinery and equipment outstanding as at June 30, According to the appraisal report dated July 1, 2004, those assets, which had a net book value as at June 30, 2004 of 7,802.8 million, had a value, based on the cost approach method net of accumulated depreciation, totaling 9,397.8 million. The Company recorded the revaluation increment amounting to 1,595 million as a component of Shareholders Equity in the balance sheet. As of December 31, 2007 and 2006, the Company recorded the related revaluation increment (net of accumulated depreciation and the portion relating to assets disposed of) amounting to approximately 2, million and 2, million respectively as a component of Shareholders Equity in the balance sheet. The revaluation increment of property, plant and equipment is not available for dividend distribution. As of December 31, 2007 and 2006, the Company had some of assets with the depreciation fully calculated but still in use which had a cost value of million and million respectively and book value amount of 3,213 and 2,709 respectively. 11. Land not Used in Operations As of December 31, 2007, the Company has reclassified Land amounting to million to Land not used in operations, where historical cost consists of: 11.1 Amounting to million, from cancelling the project of head-office building construction on Narathivas road. In July 2007, the Company engaged a consulting company (The UK Valuations and Agency Co., Ltd.), as an independent appraiser, to appraise those lands. According to the appraisal report dated July 11, 2007, those assets had an appraised value higher than book value Amounting to million consist of (1) At the board of directors meeting No. 10/2007 held on September 27, 2007, the board of directors passed the resolution to approve purchase land with the objective, to be useful in the future for the Company, amounting to million and transfer fee amounting to 9.35 million from a company which is not a related company. Presently the Company has completely paid for land and transferred right of ownership.

26 26 (2) At the board of directors meeting No. 11/2007 held on October 18, 2007, the board of directors passed the resolution to approve purchase land, adjacent to land of the Company as (1), with the objective, to be useful in the future for the Company, amounting to million from a company which is not a related company. Presently, the Company has completely paid for land and transferred right of ownership. (3) At the board of directors meeting No. 13/2007 held on November 21, 2007, the board of directors passed the resolution to approve purchase land and occupy right adjacent to land of the Company as (1), with the objective, to be useful in the future for the Company, amounting to million, from persons and a company which are not connected person. Presently, the Company has completely paid for land and transferred right of ownership. In September 2007, before purchasing those lands, the Company engaged a consulting company (Thai Property Appraisal Lynn Philips Co., Ltd.), as independent appraiser, to appraise those lands. According to the appraisal report dated September 21, 2007, those assets had an appraised value higher than book value. 12. Accrued Expenses As of December 31, 2007, accrued expenses-related company in note 5.2 amounting to 1.46 million was accrued commission. As of December 31, 2006, accrued expenses-related companies in note 5.2 amounting to million was accrued royalties. Presently, the Company had already paid such amount.

27 Long Term Loan-Net Financial Statements in which Equity Method is Applied/ As of December 31, 2007 December 31, 2006 Foreign Currency Loans - Due within 1 year 45,808, Due within 2-5 years 229,040, Due more than 5 years 135,009, Total 409,857, Less Deferred financing service fee (22,668,366.57) - Balance 387,189, Less Current Portion of Long - Term Loans (45,808,002.59) - Net 341,381, As of December 31, 2007 and 2006, the Company had a commitment of credit agreement from a foreign commercial bank for machine payment with a credit line of Euro million, with fixed interest rate at 4.12 percent per annum. Credit drawn as of December 31, 2007 amounted to Euro 8.26 million. Principal is repayable in fourteen, six monthly installments, the first such repayment to be made six months after start of machinery operations. The loan is unsecured loan with negative pledge clause. The loan is guaranteed by COFACE, (a French Export Credit Agency). A commitment fee at 0.10 percent per annum is payable on any unused credit line. 14. Employees Retirement Indemnity The Company adopted the accounting for retirement indemnity following the International Financial Reporting Standard (IFRS) No. 19 Employee Benefits. The retirement indemnity will be paid to employees upon retirement from the Company. The retirement indemnity is calculated annually by a qualified actuary using the projected unit credit method in order to determine the present value of the obligation and the current service cost. Based on the actuarial valuation report issued by the independent actuaries dated January 14, 2005, the retirement indemnity for the Company s employees for the year ended on December 31, 2007 and 2006 computed according to the IFRS No. 19 amounted to million and 5.65 million, respectively.