NNUAL CONSOLIDATED FINANCIAL STATEMENTS

Siam Makro Public Company Limited Page 6 Statements of cash flows and consolidated statements of cash flows for the years ended 31 December 1998 and 1997 continued The company only The consolidation 1998 1997 1998 1997 (Baht) (Baht) (Baht) (Baht) Cash flows from investing activities : Acquisitions of property, plant and equipment (910,708,149) (704,310,644) (943,036,588) (1,622,700,112) Proceeds from disposal equipment 38,854,944 19,333,189 48,538,587 26,506,026 Investment in subsidiary companies (480,000,000) (15,000,001) - - Loans to subsidiary companies 301,700,000 (464,800,000) - - Deferred development rights - - 11,110,706 (55,891,462) Pre-opening and start-up expenses (24,503,195) 7,467,325 (27,775,899) (7,961,062) Deposits 21,147,075 (64,088,115) 20,354,280 (26,999,965) Net cash used in investing activities (1,053,509,325) (1,221,398,246) (890,808,914) (1,687,046,575) Cash flows from financing activities : Increase in share capital - 141,330 - 141,330 Repayment of loans (506,700,000) (49,997,000) (506,700,000) (126,827,880) Dividends paid (204,000,000) (312,000,000) (204,000,000) (312,000,000) Forward exchange contract payable 72,978,000 - 72,978,000 - Short-term loans from bank - 105,879,334 - 105,879,334 Long-term loan from bank 535,669,137 - 535,669,137 - Net cash used in financing activities (102,052,863) (255,976,336) (102,052,863) (332,807,216) The notes to the financial statements on pages 8 to 20 form an integral part of these financial statements. Auditor's report page 1. Siam Makro Public Company Limited Page 7 Statements of cash flows and consolidated statements of cash flows for the years ended 31 December 1998 and 1997 continued The company only The consolidation 1998 1997 1998 1997 (Baht) (Baht) (Baht) (Baht) Net increase (decrease) in cash and cash equivalents 1,138,539,128 (719,431,926) 1,194,002,480 (683,012,495) Cash and cash equivalents, beginning of year 2,369,516,233 3,088,948,159 2,430,023,819 3,113,036,314 Cash and cash equivalents, end of year 3,508,055,361 2,369,516,233 3,624,026,299 2,430,023,819 Cash and cash equivalents : Cash in hand and at banks 3,328,055,361 2,245,176,415 3,444,026,299 2,305,684,001 Short-term investments 180,000,000 124,339,818 180,000,000 124,339,818 3,508,055,361 2,369,516,233 3,624,026,299 2,430,023,819 Supplemental disclosure of cash flows information cash paid during the year Interest expenses 34,801,003 20,406,316 34,801,337 22,516,026 Income tax 79,554,686 300,584,750 97,788,327 340,794,542 The notes to the financial statements on pages 8 to 20 form an integral part of these financial statements. Auditor's report page 1. Siam Makro Public Company Limited Page 8 Notes to the financial statements and consolidated financial statements 31 December 1998 Accounting policies 1. A summary of the significant accounting policies of the company, which have been applied consistently, is set out below : Basis of preparation The financial statements are prepared in accordance with and comply with accounting principles generally accepted in Thailand. Basis for consolidation The consolidated financial statements include the financial statements of Siam Makro Public Company Limited and its subsidiaries as follows : % of interest Makro Properties Limited 99.99 Makro Auto Care Company Limited 99.99 Makro Office Centre Company Limited 99.99 Significant intercompany transactions have been eliminated in the consolidated financial statements. The minority interest is immaterial and not, therefore, shown separately in the consolidated financial statements. Depreciation and amortisation Depreciation is calculated so as to write off the cost of the assets on a straight-line basis over the expected useful economic lives of the assets which range from 5 - 20 years. Leasehold rights are deferred and amortised by the straight-line method over the period of agreement which range from 6 -26 years. Pre-opening and start-up expenses are deferred and amortised by the straight-line method over a period of 5 years. 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. Siam Makro Public Company Limited Page 9 Notes to the financial statements and consolidated financial statements 31 December 1998 continued 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. Foreign currencies Trading transactions during the year 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. 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. 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. 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. Siam Makro Public Company Limited Page 10 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Short-term investments 2. Short-term investments comprise fixed deposits bearing interest at rates between 6.00% - 8.00% per annum. Accounts receivable - trade 3. As at 31 December 1998 the outstanding accounts receivable balance aged longer than 3 months are as follows : The company only The consolidation (Baht) (Baht) Accounts receivable aged longer than 3 months - 209,408 Related parties transactions 4. A portion of the company's transactions have been made with subsidiary, associated and affiliated companies. A summary of significant transactions is set out below : The company only 1998 1997 (Million Baht) (Million Baht) Transactions during the year : With subsidiary companies Revenues : - Sales of inventory 0.5 228.9 - Disposal of fixed assets 1.0 294.8 - Disposal of deferred development rights - 55.8 - Interest income 100.4 99.2 - Rental income 74.6 61.5 - Management fee 1.8 1.8 Expenses : - Land rental 261.6 242.1 - Royalty and service fee 13.4 11.9 - Purchase of office supplies 0.7 - - Purchase of fixed assets 0.2 - - Motor vehicle expenses 1.5 - With an associated company Interest income - 3.1 With an affiliated company Royalty fee 110.9 127.0 Siam Makro Public Company Limited Page 11 Notes to the financial statements and consolidated financial statements 31 December 1998 continued The consolidation 1998 1997 (Million Baht) (Million Baht) Transaction during the year : With an affiliated company Royalty fee 118.7 133.1 The transactions in 1997 in respect of sales of inventory, disposal of fixed assets and deferred development rights 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 represented net book value, as specified in the agreements between the company and the subsidiary companies. Sales of inventory to subsidiary companies in 1998 are presented at market price. The rental charges in respect of land and building as specified in the agreements between the company and subsidiary companies are based on the cost of land and fixed assets plus the related expenses. General services provided by 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 overseas 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 companys net sales. Siam Makro Public Company Limited Page 12 Notes to the financial statements and consolidated financial statements 31 December 1998 continued The company only The consolidation Notes 1998 1997 1998 1997 (Million (Million (Million (Million Baht) Baht) Baht) Baht) Balance as at 31 December 1998 and 1997 Amounts due from subsidiary companies 166.4 515.8 - - Amounts due from affiliated companies 0.7 5.9 0.8 5.9 Amounts due from an associated company - 5.1 - 5.1 Less : Allowance for doubtful account 4.2 - (5.5) - (5.5) 167.1 521.3 0.8 5.5 Short-term loans to subsidiary companies (interest at 7% per annum) 4.1 - Makro Properties Ltd. 90.8 254.8 - - - Makro Auto Care Co.,Ltd. 72.3 210.0 - - 163.1 464.8 - - Short-term loan to an associated company ( interest at minimum overdraft rate) - 22.5 - 22.5 Less : Allowance for doubtful account 4.2 - (22.5) - (22.5) 163.1 464.8 - - Amount due to a subsidiary company - 8.6 - - Amounts due to affiliated companies 55.9 63.4 59.8 67.1 55.9 72.0 59.8 67.1 Long-term loans to a subsidiary company (interest at 6% per annum) 4.3 1,178.4 1,178.4 - - Deposits for land lease paid to a subsidiary company 261.6 261.6 - - 4.1 Short-term loans to subsidiary companies, being in the form of promissory notes, are due at call. 4.2 Allowance for doubtful account in 1997 was reserved for an amount due from and loan to an associated company amounting to Baht 28 million. The company has disinvested its interest in this associated company on 5 February 1998 due to its continued financial losses. Siam Makro Public Company Limited Page 13 Notes to the financial statements and consolidated financial statements 31 December 1998 continued 4.3 Long-term loans to a subsidiary company are due for repayment as follows : Contract Date Amount Due date (Million Baht) 1 January 1993 40.5 31 December 2002 1 March 1993 137.0 28 February 2003 1 November 1995 720.9 31 October 2005 23 November 1995 280.0 22 November 2005 1,178.4 Inventories, net 5. Inventories are made up as follows : The company only 1998 1997 (Baht) (Baht) Finished goods 2,214,989,624 2,491,833,670 Goods in transit 5,706,595 10,353,773 2,220,696,219 2,502,187,443 Less : Provision for obsolete and shrinkage inventories (126,065,341) (103,257,144) Inventories , net 2,094,630,878 2,398,930,299 The consolidation 1998 1997 (Baht) (Baht) Finished goods 2,421,718,953 2,738,981,645 Goods in transit 5,706,595 12,006,234 2,427,425,548 2,750,987,879 Less : Provision for obsolete and shrinkage inventories (155,255,839) (118,240,211) Inventories , net 2,272,169,709 2,632,747,668 Siam Makro Public Company Limited Notes to the financial statements and consolidated financial statements 31 December 1998 continued Investments 6. Investments in subsidiary and associated companies are accounted for under the equity method. Investments comprise : Subsidiary companies : Business activity Makro Properties Limited - Land investment & property leasing Makro Auto Care Company Limited - Automotive service centers , automated car wash and gas stations Makro Office Centre Company Limited - Retail business of office supplies, office equipment , office furniture and business service center Associated company : Peoples Health Care Company Limited - Retail business of health and beauty care Disposed on 5 February 1998 products and pharmaceutical products The company only 1998 1997 Subsidiary companies : Investment Dividend Investment Dividend (Baht) (Baht) (Baht) (Baht) Makro Properties Limited 1,216,160,918 - 1,086,866,650 - Makro Auto Care Company Limited 223,700,144 - (4,794,104) - Makro Office Centre Company Limited 160,420,093 - (20,368,040) - 1,600,281,155 - 1,061,704,506 - Associated company : Peoples Health Care Company Limited - - - - 1,600,281,155 - 1,061,704,506 - (More)