1998 FINANCIAL STATEMENT (2)

- 18 - December 31, 1997 Loans from subsidiaries in Baht - commercial bank overdraft rate Loans from subsidiaries in foreign currencies - commercial bank loan outside Thailand rate All inter-company borrowings are not secured. 20.3 Significant business transactions Equity method financial statements 1998 Company Management Other Selling and Interest Interest Management Other Goodwill on Trade Loan from Accrued Other service income administrative income expense accounts current the acquisition accounts subsidiary Expenses current income expenses receivables assets of hotel Payable and liabilities business from associated the subsidiary companies Royal Princess ublic Co., Ltd. - 20,467,594 53,850 - 1,199,537 11,919,031 17,093,954 - 9,444 - - 1,242,300 Dusit Resort Cha-am Co., Ltd. 8,580,478 859,151 - 3,072,245 327,945 - 16,500 399,750,000 - - - 17,100,000 hilippine Hoteliers, - Inc. 23,923,854 506,150 - - - 4,851,683 14,136 - - - - - Dusit Thani Delaware, Inc. - 736 - - 4,555,640 - - - - 107,199,580 4,564,307 - Acme Printing Company Limited - - 3,576,157 - - - - - 444,620 - - 128,700 Crown Property Bureau - - 2,892,108 - - - - - - - - - Baht 32,504,332 21,833,631 6,522,115 3,072,245 6,083,122 16,770,714 17,124,590 399,750,000 454,064 107,199,580 4,564,307 18,471,000 Equity method financial statements 1997 Company Management Other Dividends Interest Interest Other current Loan from Other current service income income income expense assets Subsidiary liabilities and associated companie Royal Princess Public Co., Ltd. 484,561 2,567,171 9,557,989 11,241,707 2,024,047 9,556,017 30,500,000 2,442,299 Dusit Resort Cha-am Co., Ltd. 10,022,749 2,300,773 - - 1,284,871 2,756,845 26,000,000 - Philippine Hoteliers, Inc. 20,252,740 1,657,142 - - - 934,765 - 6,179,062 Dusit Thani Delaware, Inc. - - - - 356,206 - 6,720,547 - Baht 30,760,050 6,525,086 9,557,989 11,241,707 3,665,124 13,247,627 63,220,547 8,621,361 Prices and terms are as follows : Management fee 1% - 3% of total income Incentive fee 2%-6% of gross profit Marketing fee 2.5% of room revenues License fee 3% of total revenues Other income are calculated based on actual expenses incurred. Goodwill on the acquisition of hotel business from the subsidiary is based on the price agreed upon by the Company and the subsidiary. /19 - 19 - 21. COMMITMENTS AND CONTINGENCIES As at December 31, 1998 and 1997, subsidiary companies have various contracts for premises construction totalling Baht 623,337,123 and Baht 623,147,499, which are expected to be completed in 1998. As at December 31, 1998 and 1997, the portion of uncompleted works which has to be paid by these subsidiary companies in subsequent years amounts to Baht 32,230,145 and Baht 35,306,704. As at December 31, 1998 and 1997, the Company and subsidiaries have contingent liabilities for bank guarantees totalling Baht 20,366,543 and Baht 19,647,235. As at December 31, 1998 and 1997, the Company has contingent liabilities for bank guarantees totalling Baht 14,766,243 and Baht 12,537,242. 22. INVESTMENT PROMOTION PRIVILEGES The two subsidiary companies, namely Korat Thani Corporation Limited and Supsinthanee Company Limited were granted investment promotion privileges for hotel business by virtue of the provisions of the Investment Promotion Act B.E. 2520 (1977) such as exemption from customs duty and/or business tax on equipment, etc. and some companies also obtaining exemption from company income tax for hotel business for 5 years from the date of receiving income from operations. Shareholders of these companies will also benefit from exemption of tax on dividends from hotel business during the period in which the companies receive exemption from company income tax. The aforementioned two subsidiary companies thus have to comply with certain terms and conditions required of each promoted industry. 23 PROVIDENT FUND The Company and four subsidiary companies, namely Dusit Resort Cha-am Company Limited, Royal Princess Public Company Limited, Korat Thani Corporation Limited and Supsinthanee Company Limited, also have set up a provident fund for its employees which has been registered in accordance with the Provident Fund Act B.E. 2530 (1987). During the year 1998, the Company and subsidiary companies were granted a permission from the Ministry of Finance to temporarily cease the operation of the provident fund of the Company and subsi diary companies until December 31, 1999. Philippine Hoteliers, Inc. has a noncontributory retirement plan covering all of its regular employees. Current and past service costs charged to operations are actuarially determined. Past service costs are amortized over 10 years. /20 - 20 - 24. BUSINESS SEGMENT INFORMATION Business segment information of the Company and subsidiaries by industries are as follows: Million Baht Revenues Profit Net Income Assets (loss) (Loss) Employed 1998 Parent Company Room 495.32 406.03 Food and beverage 442.97 161.85 Others 109.49 58.90 Total 1,047.78 626.78 597.06 1,242.52 Dusit Resort Cha-am Company Limited Room 82.30 70.11 Food and beverage 69.78 27.52 Condominium 10.27 1.38 Others 25.08 7.77 Total 187.43 106.78 (47.89) 385.64 Royal Princess Public Company Limited and Subsidiaries Room 154.56 120.67 Food and beverage 213.30 71.21 Others 32.64 10.27 Total 400.50 202.15 (155.24) 1,449.93 Philippine Hoteliers, Inc. Room 453.37 Food and beverage 217.38 Others 30.02 Total 700.77 374.72 72.23 1,147.08 Dusit Thani Delaware, Inc. Total - - 87.71 2.20 Total 2,336.48 1,310.43 553.87 4,227.37 Add Minority interest in net loss of subsidiary companies 10.47 Consolidated net income 564.34 Consolidated Assets 4,227.37 /21 - 21 - Million Baht Revenues Profit Net Income Assets (loss) (Loss) Employed 1997 Parent Company Room 401.64 330.97 Food and beverage 443.95 156.05 Others 119.97 63.89 Total 965.56 550.91 (773.40) 1,923.13 Dusit Resort Cha-am Company Limited Room 100.53 81.70 Food and beverage 85.83 31.33 Condominium - - Others 15.53 5.83 Total 201.89 118.86 (236.84) 639.47 Royal Princess Public Company Limited and Subsidiaries Room 149.79 114.67 Food and beverage 231.88 63.81 Others 27.64 1.01 Total 409.31 179.49 (350.83) 1,652.09 Philippine Hoteliers, Inc. Room 402.36 Food and beverage 222.45 Others 22.50 Total 647.31 293.69 (115.35) 1,342.64 Dusit Thani Delaware, Inc. Total - - 2.34 32.42 Total 2,224.07 1,142.95 (1,474.08) 5,589.75 Add Minority interest in net loss of subsidiary companies 126.02 Consolidated net loss (1,348.06) Consolidated Assets 5,589.75 /22 - 22 - 25. DISCLOSURE OF FINANCIAL INSTRUMENTS According to the letter received from The Stock Exchange of Thailand dated October 21, 1998, the Company is required to use the International Accounting Standard (IAS) No. 32 - Presentations and Disclosure of Financial Instruments as a guideline for disclosure of the Companys financial instruments both on-balance sheet and off-balance sheet. 25.1 Accounting policies Details of significant accounting policies are disclosed in Note 3.7. 25.2 Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Company and its subsidiaries. Concentrations of the credit risk with respect to trade receivables are limited due to the large number of customers comprising the customer base, and dispersion across different geographic regions in Thailand and the Philippines. In the case of recognized financial assets, the carrying amount of the assets recorded in the balance sheet, net of a portion of allowance for doubtful debts, represents the Company and its subsidiaries maximum exposure to credit risk. In addition, the Company still has credit risk of off balance sheet transactions as disclosed in Note 25.4. 25.3 Interest risk Interest rate risk in the balance sheet arises from the potential for a change in interest rates to have an adverse effect on the net interest earnings of the Company and its subsidiaries in the current reporting period and in future years. Information related to interest rate and maturities of long-term loans are disclosed in Note 13. 25.4 Fair value of financial instruments The following methods and assumptions were used by the Company and its subsidiaries in estimating fair value of financial instruments as disclosed herein: Cash in hand and at banks, and short-term investments whose maturity is less than 90 days, and trade accounts and notes receivable; the carrying values approximate their fair values. /23 - 23 - As at December 31, 1998, fixed deposit with maturity of 1 year; carrying value Baht 1,976,306, fair value Baht 2,075,986. The fair value is estimated using the discounted cash flow analysis based on the interest rate currently offered for deposit with similar term. Investment; fair value for listed securities is based on quoted market prices. The net assets values of non-listed securities are based on net book value and no estimate of fair value has been made. Carrying value and fair value of investments are presented in Note 9. Bank overdrafts and loans from banks, carrying variable rates of interest and trade accounts and notes payable; the carrying amounts of these financial liabilities approximate their fair values. Short-term and long-term loan carrying variable rates of interest; the carrying values approximate their fair values. Off balance sheet As at December 31, 1998, the Company has a forward exchange contract with bank to buy US$ 1,750,000 at the rate of Baht 40.07 for US$ 1, for the remaining period of 15 days. 26. PLAN FOR RESOLVING THE MILLENNIUM BUG (Y2K) PROBLEM (Not Covered by the Auditors Report) The Company has been is in the process of modifying its computer system and equipment to resolve the millennium bug (Y2K) problem since May 1998. As at December 31, 1998, the progress of such modifications for all systems is approximately 70% to 100%. The Company expects that all systems will be tested within March 1999 in order to have sufficient time for each system to be modified, if necessary. The Company has arranged a budget of approximately Baht 1,450,799 for the Y2K project. The subsidiary companies have been in the process of modifying their computer systems and equipment to resolve the millennium bug (Y2K) problem since May 1998. As at December 31, 1998, the progress of such modifications for all systems is approximately 70% to 100%. The subsidiary companies expect that all systems will be tested within March 1999 in order to have sufficient time for each system to be modified, if necessary. Each subsidiary company has arranged a budget totalling approximately Baht 3,696,082 for the Y2K project. Although the Company and its subsidiaries believe that they can modify all systems before the coming year 2000, they still have arisk if at that time other companies with whom they will be doing business cannot modify their systems. However, the Company and each subsidiary expect that such problems can be resolved and the impact of Y2K will not materially affect their operations.