NTERIM F/S AND CONSOLIDATED F/S OF Q2/1998

Unaudited Reviewed Siam Makro Public Company Limited Page 8 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued (b) Allowance for doubtful account Allowance for doubtful account is provided according to the estimated losses that may be incurred in the collections from accounts receivable. The estimated losses are determined by the collection experience and the current status of accounts receivable. (c) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined on the latest purchase price which is approximate to cost determined on a first-in first-out basis. Net realisable value is the price at which inventories can be sold in the normal course of business after allowing for the costs of realisation. Provision is made where necessary for obsolete, slow-moving and shrinkage inventories. (d) Foreign currencies Trading transactions denominated in foreign currencies are translated into Thai Baht at the exchange rates ruling when the transactions are entered into. Monetary assets and liabilities denominated in foreign currencies are translated into Thai Baht at the exchange rates ruling at the balance sheet date and the forward contracted rate. Exchange gains or losses arising from the application of forward contracted rate are deferred and amortised by the straight-line method over the period of forward contracted rate agreements. Exchange gains or losses arising from the application of exchange rates at the balance sheet date are included in the statement of income. Unaudited Reviewed Siam Makro Public Company Limited Page 9 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued (e) Investment Investment in companies in which Siam Makro Public Company Limited holds more than 20% of the share capital and over which the company exercises significant influence, are accounted for under the equity method. The investment is initially recorded at cost. The carrying amount of the investment is increased or decreased to recognise the company's share of the profits or losses of the investee after the date of acquisition and to take account of any dividends received. (f) Deferred development rights Deferred development rights represent certain costs of development that the subsidiary companies acquired from Siam Makro Public Company Limited. These costs are capitalised and are being amortised over 5 years from the date of acquisition by the subsidiary companies. (g) Provision for retirement benefits Provision for retirement benefits is made for employees whose length of service exceeds 3 years and is normally payable on termination of service. The calculation is based on the latest basic salary multiplied by the years of each employee's service, as set out in the company's retirement benefits plan. Cash in hand and at banks 3. Cash in hand and at banks include deposit amounting to Baht 641 million in respect of which the company has agreed to maintain a minimum balance of Baht 65 million in order to earn favorable interest rates. However, there are no restrictions on the company withdrawing from this fund should the special rate be lower than the interest rates offered by other banks. Unaudited Reviewed Siam Makro Public Company Limited Page 10 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued Short-term investments 4. Short-term investments comprise fixed deposits and bill of exchange bearing interest at rates between 13.00% - 16.625% per annum. Accounts receivable 5. As at June 30, 1998 there were no outstanding accounts receivable balances aged longer than 3 months. Related parties transactions 6. A portion of the company's transactions have been made with subsidiaries, associated and affiliated companies. A summary of significant transactions is set out below : The company only 1998 1997 Second Period of Second Period of quarter six months quarter six months (Million Baht) (Million Baht) (Million Baht) (Million Baht) Transactions during the period : With subsidiary companies Revenues : - Sales of inventory - - - 241.6 - Disposal of fixed assets - 0.6 - - - Interest income 27.3 55.5 22.3 44.0 - Rental income 18.0 36.1 17.0 25.4 - Management fee 0.5 0.9 0.5 0.9 Unaudited Reviewed Siam Makro Public Company Limited Page 11 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued The company only 1998 1997 Second Period of Second Period of quarter six months quarter six months (Million Baht) (Million Baht) (Million Baht) (Million Baht) Transactions during the period : With subsidiary companies Expenses : - Land rental 65.4 130.8 60.9 115.8 - Royalty fee 3.0 5.8 2.8 5.9 - Purchase of office supplies 0.1 0.2 - - - Purchase of fixed assets - 0.1 - - With an associated company Interest income - - 0.7 1.5 With an affiliated company Royalty fee 27.5 56.0 31.5 62.8 The consolidation 1998 1997 Second Period of Second Period of quarter six months quarter six months (Million Baht) (Million Baht) (Million Baht) (Million Baht) With an associated company Interest income - - 0.7 1.5 With an affiliated company Royalty fee 29.4 59.9 33.0 65.2 Unaudited Reviewed Siam Makro Public Company Limited Page 12 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued The transactions in respect of sales of inventory and disposal of fixed assets to subsidiary companies, Makro Auto Care Company Limited and Makro Office Centre Company Limited, resulted from a business reorganisation in the first quarter of 1997. The selling prices of the above transactions represent net book value, as specified in the agreements between the company and the subsidiary companies. The rental charges in respect of land and building as specified in the agreements between the company and subsidiary companies are based on the costs of land and fixed assets plus the related expenses. General services provided by the company are charged at cost to a subsidiary company on the basis of an agreed annual fee. The company has entered into the agreements with an oversea affiliated company and a subsidiary company to use their trade marks. The royalty fee for the use of the trade marks represents a percentage of the company's net sales. Unaudited Reviewed Siam Makro Public Company Limited Page 13 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued The company only The consolidation Notes 1998 1997 1998 1997 (Million Baht) (Million Baht) (Million Baht) (Million Baht) Balance as at June 30, 1998 and 1997 Amounts due from subsidiary companies 194.5 705.9 - - Amount due from an associated company 5.5 3.1 5.5 3.1 Amounts due from affiliated companies 6.8 1.7 6.8 1.9 206.8 710.7 12.3 5.0 Short-term loans to subsidiary companies (interest at 9% per annum) 6.1 Makro Properties Limited 182.8 244.9 - - Makro Auto Care Company Limited 90.5 - - - Short-term loan to an associated company (interest at Minimum Overdraft Rate) Peoples Health Care Company Limited 22.5 22.5 22.5 22.5 502.6 978.1 34.8 27.5 Less: Allowance for doubtful account 6.2 (28.0) - (28.0) - 474.6 978.1 6.8 27.5 Amount due to a subsidiary company 3.3 14.9 - - Amounts due to affiliated companies 56.0 62.3 59.9 64.7 59.3 77.2 59.9 64.7 Long-term loans to a subsidiary company (interest at 6% per annum) Makro Properties Limited 6.3 1,178.4 1,178.4 - - Deposits for landlease paid to a subsidiary company 261.6 243.6 - - Unaudited Reviewed Siam Makro Public Company Limited Page 14 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued 6.1 Short-term loans to subsidiary companies, being in the form of promissory notes, are due at call. 6.2 Allowance for doubtful account is reserved for amounts due from and loan to an associated company amounting to Baht 28 million. The company has disinvested in this associated company on February 5, 1998 due to its continued financial losses. 6.3 Long-term loans to a subsidiary company are due for repayment as follows : Date Amount Due date (Million Baht) January 1, 1993 40.5 December 31, 2002 March 1, 1993 137.0 February 28, 2003 November 1, 1995 720.9 October 31, 2005 November 23, 1995 280.0 November 22, 2005 1,178.4 Inventories, net 7. Inventories are made up as follows : The company only The consolidation 1998 1997 1998 1997 (Baht'000) (Baht'000) (Baht'000) (Baht'000) Finished goods 2,296,744 2,172,169 2,514,763 2,410,684 Goods in transit 11,189 - 11,189 - 2,307,933 2,172,169 2,525,952 2,410,684 Less: Provision for obsolete and shrinkage inventories (141,257) (79,257) (160,820) (88,734) Inventories, net 2,166,676 2,092,912 2,365,132 2,321,950 Unaudited Reviewed Siam Makro Public Company Limited page 15 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued Investments in subsidiary and associated companies 8. Investments in subsidiary and associated companies are accounted for under the equity method. Investments comprise : Issued & paid up Business activity Relationship Share capital Holding 1998 1997 1998 1997 Subsidiary companies : (Baht'000) (Baht'000) (%) (%) Makro Properties Limited - Land investment & property leasing Being shareholder and under the 700,000 700,000 99.99 99.99 same management control Makro Auto Care Company Limited - Automotive service centers, automated car wash Being shareholder and 300,000 10,000 99.99 99.99 and gas stations. management participation Makro Office Centre Company Limited - Retail business of office supplies, office equipment, Being shareholder and 200,000 10,000 99.99 99.99 office furniture and business service centre. management participation Associated company : Peoples Health Care Company Limited - Retail business of health and beauty care products Being shareholder 100,000 100,000 - 45.00 Disposed on February 5, 1998 and pharmaceutical products. The company only The consolidation 1998 1997 1998 1997 Investment Dividend Investment Dividend Investment Dividend Investment Dividend (Baht'000) (Baht'000) (Baht'000) (Baht'000) (Baht'000) (Baht'000) (Baht'000) (Baht'000) Subsidiary companies : Makro Properties Limited 1,150,268 - 1,029,232 - - - - - Makro Auto Care Company Limited 248,308 - 11,457 - - - - - Makro Office Centre Company Limited 163,202 - 11,748 - - - - - Associated company : Peoples Health Care Company Limited - - 9,402 - - - 9,402 - 1,561,778 - 1,061,839 - - - 9,402 - Unaudited Reviewed Siam Makro Public Company Limited Page 16 Notes to the financial statements and consolidated financial statements - June 30, 1998 continued Property, plant and equipment, net 9. The company only 1998 1997 (Baht'000) (Baht'000) Property, plant and equipment, at cost Land 782,655 785,034 Buildings 3,288,230 2,868,323 Leasehold rights and leasehold improvement 412,665 182,286 Store equipment 2,269,517 1,966,291 Office equipment and furniture and fixtures 510,941 439,990 Motor vehicles 55,654 51,639 Construction in progress 69,525 107,720 7,389,187 6,401,283 Less: Accumulated depreciation (1,992,578) (1,463,488) Property, plant and equipment, net 5,396,609 4,937,795 The company only 1998 1997 Second Period of Second Period of quarter six months quarter six months (Baht'000) (Baht'000) (Baht'000) (Baht'000) Depreciation and amortisation 144,812 298,016 136,738 267,898 (More)