NNUAL CONSOLIDATED FINANCIAL STATEMENTS

Siam Makro Public Company Limited Page 14 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Issued & paid up Share capital Holding 1998 1997 1998 1997 (Baht) (Baht) (%) (%) Subsidiary companies Relationship Makro Properties Limited Being shareholder and under the same management control 700,000,000 700,000,000 99.99 99.99 Makro Auto Care Company Limited Being shareholder and management participation 300,000,000 10,000,000 99.99 99.99 Makro Office Centre Company Limited Being shareholder and management participation 200,000,000 10,000,000 99.99 99.99 Associated company People Health Care Company Limited Being shareholder 100,000,000 100,000,000 - 45.00 Disposed on 5 February 1998 The consolidation 1998 1997 Subsidiary companies : Investment Dividend Investment Dividend (Baht) (Baht) (Baht) (Baht) Makro Properties Limited - - - - Makro Auto Care Company Limited - - - - Makro Office Centre Company Limited - - - - - - - - Associated company : Peoples Health Care Company Limited - - - - - - - - Siam Makro Public Company Limited Page 15 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Property, plant and equipment, net 7. The company only 1998 1997 (Baht) (Baht) Property, plant and equipment, at cost Land 782,654,875 784,892,052 Buildings 3,311,367,688 3,097,762,822 Leasehold rights and leasehold improvement 412,700,296 182,893,814 Store equipment 2,298,071,757 2,138,144,512 Office equipment and furniture and fixtures 529,648,789 496,652,606 Motor vehicles 54,791,267 55,491,177 Construction in progress 489,391,840 259,644,572 7,878,626,512 7,015,481,555 Less: Accumulated depreciation (2,274,193,612) (1,700,910,332) Property, plant and equipment, net 5,604,432,900 5,314,571,223 Depreciation for the year amounting to Baht 595,476,052 is charged to the statement of income (1997 : Baht 512,453,082) The consolidation 1998 1997 (Baht) (Baht) Property, plant and equipment, at cost Land 3,572,979,618 3,575,216,795 Building 3,469,925,451 3,230,098,370 Leasehold rights and leasehold improvement 470,786,490 245,875,008 Store equipment 2,568,278,883 2,396,584,067 Office equipment and furniture and fixtures 631,592,279 595,235,883 Motor vehicles 58,145,477 61,378,097 Construction in progress 510,985,374 286,793,640 11,282,693,572 10,391,181,860 Less: Accumulated depreciation (2,381,835,412) (1,736,807,509) Property, plant and equipment, net 8,900,858,160 8,654,374,351 Depreciation for the year amounting to Baht 668,094,869 is charged to the consolidated statement of income (1997 : Baht 548,504,210) Deferred development rights, net 8. The balance is shown net of accumulated amortisation as follows : The consolidation 1998 1997 (Baht) (Baht) Accumulated amortisation 20,729,697 9,618,991 Siam Makro Public Company Limited Page 16 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Pre-opening and start-up expenses, net 9. The balance is shown net of accumulated amortisation as follows: The company only The consolidation 1998 1997 1998 1997 (Baht) (Baht) (Baht) (Baht) Accumulated amortisation 287,286,804 228,104,118 291,725,441 228,811,181 Long term loan from bank 10. This represents a long-term loan from a foreign bank, equivalent to USD 15 million. The loan bears interest at the Singapore Inter Bank Offer rate plus 0.425% and will be due for repayment in January 2001. The company is required to comply with the terms and conditions as specified in the loan agreement. There is a forward exchange contract to cover this loan. Share capital 11. 1998 1997 (Baht) (Baht) Authorized share capital : 240,000,000 shares of Baht 10 each 2,400,000,000 2,400,000,000 Issued and paid up share capital : 240,000,000 shares of Baht 10 each 2,400,000,000 2,400,000,000 Legal reserve 12. Under the provision of the Limited Public Company Act, the company is required to allocate part of the annual net profit as reserve fund in an amount not less than 5% of net profit until the reserve fund is 10% of share capital. This reserve is not available for distribution. Dividends 13. At the annual shareholders' meeting dated 24 April 1998, it was unanimously resolved that dividends for the year ended 31 December 1997 be paid at Baht 0.85 per share totalling Baht 204 million. These dividends were paid in the second quarter of 1998. Siam Makro Public Company Limited Page 17 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Earnings per share 14. Earnings per share is calculated based on the weighted average number of shares in issue during the year. Contingent liabilities and commitment 15. Bank guarantees As at 31 December 1998, the banks have given guarantees on behalf of the company and its subsidiary companies as follows : The company only The consolidation (Baht) (Baht) Electricity 35,932,500 37,521,000 Sales of liquor and cigarettes 2,101,000 2,131,000 Others 480,000 2,180,000 38,513,500 41,832,000 Letter of awareness As at 31 December 1998, the company has issued letters of awareness to a bank for a bank overdraft facility of subsidiary companies amounting to Baht 70 million . Lease agreements The company has entered into several land lease agreements with a subsidiary company and several building area lease agreements with external lessors. In addition, the subsidiary companies have also entered into building area lease agreements with external lessors. The future payments to which the company and its subsidiary companies are committed under these agreements are as follows : The company only The consolidation (Baht) (Baht) Due within 1 year 298,784,990 50,366,870 Due after 1 year but within 5 years 295,323,075 172,930,442 Due after 5 years 506,606,833 632,959,379 1,100,714,898 856,256,691 Siam Makro Public Company Limited Page 18 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Capital expenditure commitment As at 31 December 1998, the company and its subsidiary companies have capital expenditure commitments in respect of construction contracts and the purchase of fixed assets as follows : The company only The consolidation (Baht) (Baht) Capital expenditure commitments 238,020,562 239,528,500 Financial instruments 16. The company's policy on risk management of liabilities in foreign currencies is to use financial instruments purchased in the financial markets. For hedging purposes, the company has entered into forward exchange contracts to cover loan and purchase commitment in foreign currencies. As at 31 December 1998, deferred hedging cost arising under these contracts amounted to Baht 2.9 million. Bank facilities 17. As at 31 December 1998, the company and its subsidiary companies have the following unutilised credit facilities available with local banks and foreign banks : The company only The consolidation Currencies Amount Amount (Unit : Million) (Unit : Million) Local banks - Bank overdrafts facilities Baht 95 135 - Loan facilities Baht 150 150 - Letter of credit facilities Baht 195 230 - Letter of guarantee facilities Baht 13 15 Foreign banks - Loan facilities USD 35 35 The loan facilities from foreign banks are available through 25 January 2001. Siam Makro Public Company Limited Notes to the financial statements and consolidated financial statements 31 December 1998 continued Segmental information by business activity 18. The consolidation for the year ended 31 December 1998 Wholesale Land and Retail Service Rental Elimi - Total Business Business Business nation (Million (Million (Million (Million (Million Baht) Baht) Baht) Baht) Baht) Sales and service income - Unaffiliated customers 29,964 812 - - 30,776 - Intercompany 1 1 262 (264) - 29,965 813 262 (264) 30,776 Gross profit 2,463 150 - - 2,613 Other income 797 Selling and administrative expenses (2,609) Interest expenses (38) Directors' remuneration (1) Income tax (261) Share of loss from an associated company - Net income 501 Property, plant and equipment, Net book value as at 31 December 1998 5,724 387 2,790 - 8,901 Other assets 6,302 Total assets at 31 December 1998 15,203 Page 19 . The consolidation for the year ended 31 December 1997 Wholesale Land and Retail Service Rental Elimi - Total Business Business Business nation (Million (Million (Million (Million (Million Baht) Baht) Baht) Baht) Baht) Sales and service income - Unaffiliated customers 31,512 582 - - 32,094 - Intercompany 229 - 254 (483) - 31,741 582 254 (483) 32,094 Gross profit 2,603 115 - - 2,718 Other income 644 Selling and administrative expenses (2,503) Interest expenses (31) Directors' remuneration (1) Income tax (303) Share of loss from an associated company (18) Net income 506 Property, plant and equipment, Net book value as at 31 December 1997 5,461 403 2,790 - 8,654 Other assets 5,524 Total assets at 31 December 1997 14,178 The company and its subsidiary companies operate 3 major businesses as follows : - Cash and carry wholesale business of merchandise and retail business of office supplies. - Automotive service centers and gas stations. - Land investment and property leasing. Sales to unaffiliated customers, subsidiary and affiliated companies are presented at market price. The transfer price for intercompany sales in 1997 were established by agreements between the company and its subsidiary companies which represent net book value due to a business reorganisation in the first quarter of 1997. Property, plant and equipment of each business are for its own operations. Other assets mainly comprise cash in hand and at banks, inventories, amounts due from and loans to affiliated companies. Siam Makro Public Company Limited Page 20 Notes to the financial statements and consolidated financial statements 31 December 1998 continued Year 2000 issues ( unaudited and not covered by the auditors report) 19. Siam Makro Public Company Limited and its subsidiary companies commenced their plan to replace and upgrade all major computer systems at the end of 1997. This aims to increase the efficiency and ability to cope with business growth . The upgrades for the finance and accounting systems have already been completed and will be tested for year 2000 compliance in the first quarter of 1999. The company is now in the process of upgrading the business operating systems in respect of purchasing, selling, goods receiving and inventory management. All developments of the computer systems in the company and also the subsidiary companies are expected to be completed and ready for year 2000 compliance testing within 1999. The capital expenditure of the company is estimated at Baht 120 million out of which Baht 38.1 million has been capitalized to fixed assets as at 31 December 1998. The total capital expenditure of the company and its subsidiary companies is estimated at Baht 168 million. The company and its subsidiary companies expect that such upgrades should remove any year 2000 problems as the new equipment and applications are year 2000 compliant, as certified by the vendors. In addition, the company and its subsidiary companies are proactively addressing the issue in respect of other companies, with whom the company and its subsidiary companies are doing business, in order to ensure year 2000 compliance. The company is in the process of examining the readiness for year 2000 compliance of such companies. The information will be used for preparing an assessment of the impact to the company and its subsidiary companies and also for developing a plan to minimize the business risks that may arise in respect of transactions with such companies. Comparative figures 20. As a result of reclassifications of certain items in the financial statements ended 31 December 1998, the comparative figures have been amended accordingly. Auditors report page 1.