(1) Being Harris Technology stores.

The above store numbers include freestanding Kmart Tyre and Auto and Tyremaster stores.

As at July 28, 2002, the Company operated a total of 1,787 stores, a net decrease of 193 stores on the 1,980 stores at July 29, 2001, which compared with 2,082 stores at July 30, 2000.

The Company opened, acquired, closed, and divested stores as follows:

In March 2002, the Company announced the results of a strategy review, which was the cumulation of a five-month assessment, across all businesses. The Company released a strategy of ""Group First, Brand second, Both winning"". The new strategy included the following initiatives:

• Simplified management and reporting lines. The number of CEO direct reports increased from four to nine.
• A new bonus structure for senior management, including non-financial indicators such as occupational health and safety and succession planning.
• Mandating the use of Retail Support Services across all brands. This was intended to remove duplication, and standardise processes and systems across the Company.

• Implementing an ""end-to-end"" supply chain strategy with common standards, processes and platforms.
• Implementing a Group wide strategy focussed on occupational health and safety to improve the company''s safety record.
• Review and progressively winding-down the existing shareholder discount card program.
• Expanding ""Operation Right Now"" which was launched in September 2001 specifically to General Merchandise & Apparel brands, to the rest of the Company including Retail Support, Food & Liquor Group, Supply Chain and Occupational Health and Safety.
• Increasing total capital expenditure across the Company to approximately A$800 million per annum.

In May 2002, the Company appointed UBS Warburg and later Caliburn Partnership to assist the board in reviewing a range of structural alternatives. This review was undertaken to monitor the Company''s progress against the strategy announced in March 2002 and to determine whether additional shareholder value could be obtained through structural change in the Company. On October 3, 2002, the Company announced that it had deferred this review until after the 2003 financial year, whereby it would be in a better position to assess the performance of the non-food brands through the busy Christmas trading period and first half of calendar 2003.

These businesses represent the largest grouping in Coles Myer in terms of sales. At July 28, 2002 the Food and Liquor division operated 1,179 stores.

Coles Myer was one of the first Australian companies to move to food retailing through supermarkets. The Coles chain of full range supermarkets generally range in selling area from 20,000 to 50,000 square feet, with newer stores being around 30,000 square feet. Coles stores sell a full range of food and everyday household products, including both national brand items and products marketed under Coles'' own private labels. It operated 457 stores as at July 28, 2002.

With its emphasis on value-added ranges, Coles offers a fresh produce section, a delicatessen, fresh meat section and, in some stores, a bakery, as well as an extensive grocery range and some general merchandise and base apparel items. Greater emphasis has been placed over the past five years on the development of ready-to-eat meals and meal solutions, as well as adding a number of services, including bill payment facilities. Range localization has been a major focus, with stores stocking products to suit the tastes of the community in which they operate.

Coles'' stores, which are primarily located in the suburban areas of capital cities and large regional centers, are designed to appeal to a broad spectrum of customers through a combination of modern store appearance, convenience, and competitive prices. The Company introduced the ""Coles Express"" central business format supermarkets in 1997, in both Sydney and Melbourne. These ""mini-supermarkets"" have a selling area of around 7,000 and 10,000 square feet, and offer an increased range of ready-to-eat and pre-prepared meals together with a condensed dry goods range. Coles Express smaller format stores are now open in Victoria, New South Wales and Queensland.

Bi-Lo is a leading discount supermarket retailer in Australia, operating 196 stores as at July 28, 2002. Bi-Lo stores are smaller than Coles, with an average selling area of 12,500 square feet. Bi-Lo offers a traditional discount format and focuses on delivering a smaller range of fresh foods and groceries at competitive prices.

Over the last five years, Bi-Lo has driven growth through the extension and improvement of its fresh food offer over traditional dry grocery lines. Bi-Lo has been undertaking an extensive store refurbishment to incorporate a strong fresh food range and visual identity, which provides a point of difference from discount food competitors. 96.3% of Bi-Lo stores now feature fresh food departments.

During 2001, Bi-Lo introduced a range of house-brand products, which was intended to deliver further value for money and quality products to their customers. The range currently offers 1,000 products compared to only 500 products in December 2001. It is anticipated that the range will increase to 1,400 products in 2003.

Liquorland operated a chain of 508 liquor stores and 18 hotels as at July 28, 2002, located throughout Australia, except for Tasmania, and is the largest chain of retail liquor stores in Australia. Approximately 30% of stores are located adjacent to a Coles store, but the majority are freestanding stores. Liquor retailing is regulated in Australia, and requires licensing by the State in which the outlet is located. The licensing and regulating is conducted by State Government Liquor Authorities and State wide police agencies.

A fine wine store format, branded as ""Vintage Cellars"", commenced operations in 1993 and has since been rolled out nationally, with 79 stores in operation at July 28, 2002. In 1997, the Company launched the ""Quaffers"" discount liquor store bulk format and has since expanded to five stores

In April 2001, Liquorland (Australia) Pty. Ltd. announced a cash offer of A$1.20 per share to acquire all the ordinary shares in Australian Liquor Group Ltd (""ALG""). On June 19, 2001, Liquorland acquired 100% of the share capital of ALG. 17% of the issued capital of ALG and a commensurate proportion of the consideration is held in trust pending the outcome of a claim by ALG and Liquorland against the former Directors of ALG. During 2002, the acquired stores were re-branded as either Liquorland or Vintage Cellars.

In 2003, expansion will be a focus. A major growth opportunity has emerged in Victoria as the State''s liquor licensing cap is to be progressively phased out over the next three years, providing Liquorland with the potential to open more than 50 additional stores. A limit whereby a related group of parties was not able to hold more than 8% of the packaged liquor licenses in Victoria. From July 1, 2002 this cap is lifting to 10%, with other increases in the cap scheduled through to January 1, 2006, at which time no restrictions will apply.

Red Rooster is a fast food chain focusing on a menu of chicken-based products. On May 27, 2002, CML sold this business to Australian Fast Foods Pty Ltd for $65.0 million.

At the time of sale, CML operated 247 Red Rooster stores throughout Australia.

At July 28, 2002, Kmart operated 164 stores in Australia and New Zealand. Measured by sales, it is Australia''s leading discount department store business and sells a wide range of items, including sporting goods, toys, electrical appliances and apparel, with a mix of international and national brand names as well as private labels.

Kmart is positioned as a low cost, discount department store with ranges for the entire family. Kmart stores typically range in size from 50,000 to 85,000 square feet. They are typically located in suburban shopping centers in major cities and in larger regional shopping centers, and cater for the needs of a wide range of customers by offering an extensive variety of goods at discount prices.

The first Kmart was opened in Melbourne in 1969, and was a joint venture between Coles and the US based Kmart Corporation (""KMC""). The new business introduced the discount store concept to Australia. In 1978, Coles acquired full ownership of the joint venture.

In 1994, the Company renewed its License Agreement with KMC (described under Item 4, ""Information on the Company - Trademarks""), pursuant to which Coles Myer has the exclusive right to use the Kmart name in Australia and New Zealand. Coles Myer does not believe that there is a significant risk of the License Agreement being terminated in such manner that the termination would have a materially adverse impact upon the Company''s operations.

The World 4 Kids toy superstore format was integrated into Kmart''s operations during 1997, with support operations rationalized and costs removed from the brand. The final three remaining stores were closed during 2002. The World 4 Kids brand continues as a destination within the Kmart stores.

Kmart also operates in New Zealand, supplying basically the same ranges of goods as the corresponding businesses in Australia. The Company opened its first Kmart store in New Zealand in October 1988, and the chain had 11 stores operating at July 28, 2002.

The Company''s relevant New Zealand group subsidiary has entered into a License Agreement with KMC (described in Item 4, ""Information on the Company -- Trademarks""), pursuant to which that subsidiary has the exclusive right to use the Kmart name in New Zealand. Coles Myer does not believe that there is a significant risk of the License Agreement being terminated in such manner that the termination would have a materially adverse impact upon the Company''s operations.

The Automotive Group consists of two automotive brands that trade under the names ""Kmart Tyre & Auto Service"" and ""Tyremaster Wholesale"". Kmart Tyre & Auto stores are often attached to a Kmart store, but are also situated on 49 stand-alone sites, which are in addition to the 164 Kmart stores mentioned above. Tyremaster also includes certain wholesaling activities nationally through five separate state locations. These businesses sell a range of automotive accessories and parts, and offer servicing and maintenance to fleet and private vehicle operators. Kmart Tyre and Auto Service is the only vehicle accessory and service operation within a discount store in Australia.

Officeworks is the Company''s retail brand of warehouse style office supplies superstores. The first store was opened in Victoria in 1994. These superstores are designed to supply small to medium sized businesses with a wide range of office supplies, including stationery, consumables, personal computers, facsimile machines, office equipment and furniture. Officeworks stores are on average 20,000 square feet.

At July 28, 2002, the Company operated 59 stores, located in all major Australian mainland cities. To continue its market penetration, a smaller store format has been developed for suitable sites of average 16,000 square feet in the Sydney suburbs of Punchbowl and Carlton (New South Wales) which were opened during 1998. In addition, a Central Business District (CBD) format store of 10,000 square feet was opened in Melbourne (Victoria) during 1998.

Target''s core product ranges of ladieswear, menswear, childrenswear, ladies underwear and homewares are complemented by its home and general merchandise ranges. Apparel is predominantly Target-branded with national brands complementing the Target range in specific product groups. Merchandise is positioned as affordable, on-trend and high quality.

Target stores are typically located in suburban and some regional shopping centers, occupying an average of 60,000 square feet. Target operated 137 stores at July 28, 2002.

Target also operates a Baby Target concept, a baby superstore providing customers with a wide range and services for children 0-4 years of age, and their mothers.

In September 1998, Target opened a new concept homewares store, Target Home, in Melbourne (Victoria). The store was designed to build on Target''s strength in its homewares ranges and covers a selling area of 48,000 square feet. There are now eight Target Homes trading throughout Australia, usually adjacent to a standard Target format.

A total of 122 stores trading as Target Country/Fosseys were operating as at July 28, 2002. The business focuses on retailing in rural communities. 114 Fosseys stores have been progressively rebadged to Target Country over the past two years. These stores, which leverage off the Target brand name, provide a localized merchandise offer, selected from the Target range, as well as services such as Fly Buys ^TM. Target Country/Fosseys is integrated within the Target business and is a predominantly rural, family convenience store with the merchandise offer being principally Target branded apparel and softgoods. Through integration, Target Country/Fosseys has been able to use Target''s infrastructure and national scale of operations, while maintaining its own business identity.

The Myer Grace Bros department stores business trades under the names Myer and Grace Bros. Grace Bros operates stores in the state of New South Wales and the Australian Capital Territory, and Myer is located in the remaining five states. The combined business operates full range department stores, with selling areas ranging from around 130,000 square feet up to 555,000 square feet in the Myer Melbourne (Victoria) flagship store.

Myer Grace Bros is positioned as a brand-focussed, value driven department store, providing a complete range of well-known national, international and private brands and good service in a pleasurable store environment. Myer Grace Bros operated 67 stores as at July 28, 2002. The larger stores are situated in downtown locations, with other stores positioned mainly as anchor tenants in suburban shopping centers and in major regional towns.

Myer Grace Bros is currently in the process of improving merchandise by adding new brands, refocussing and rebalancing its private labels and introducing a more responsive buying program. Customer service is also important to Myer Grace Bros. During 2002 the brand invested in more sales staff and service desks and more managers on the ""shop floor"". They have also provided training for over 23,000 of their employees to improve their selling and merchandising skills. The store environment is also improving with more open layouts, clear aisleways and better signage. These initiatives will be complemented by fresh new marketing programs in 2003 that reflect and reinforce the brand''s positioning strategy.

An electrical and furniture format, Megamart, was launched during 1999 originally under the Myer Grace Bros Banner. Seven Megamarts are currently trading throughout the country. Selling areas range from 72,000 to 91,000 square feet. The warehouse style Megamart stores feature a very broad range of electrical and furniture products. Innovations include sound and theatre rooms to allow customers to select from the latest audio systems, home theatres and new technologies, including DVD. A comprehensive range of indoor and outdoor furniture is stocked, complemented by a selection of homewares.

On October 3, 2002, the Company announced that e.colesmyer would change its name to Emerging Businesses. However, throughout the financial year ended July 28, 2002, the segment was known as e.colesmyer.

The main aim of this segment is to provide specific services to the retail Brands and to be involved in the evolution of new business channels, technologies and ideas. Once these concepts have been proven within Emerging Businesses, they are then assimilated into the respective brands as appropriate.

Emerging Businesses is also responsible for the direct selling (catalogue and e-commerce) businesses of Coles Online, Harris Technology our online computer retailer, and Liquorland Direct. Over 73,000 items are offered through these Direct channels. Customers spent an average of A$400 per transaction during 2002, with over 530,000 transactions completed over the year.

Emerging Businesses'' ''front door'' is the online shopping and information portal www.colesmyer.com which features all the Company''s e-commerce and information Internet sites backed by its established retail brands. The site offers extensive product ranges, proven delivery methods, and high customer service standards.

As noted above, Emerging Businesses also manages a number of services for the Coles Myer Brands. They include Financial Services, customer databases, marketing services, and research. Databases managed include the Fly Buys ^TM database with more than 2.4 million active households (as at October 31, 2002), the database of 1.7 million Coles Myer branded private label cards, and point of sale data from Coles Myer retail stores.

Coles Myer has made a strategic shift from being an active portfolio manager of decentralized, autonomous business units to a Company that shares proprietary skills through its brand concept, and shares support activities through the creation of the Retail Support Services infrastructure.

Coles Myer''s Retail Support Services provides support functions to the retail brands and senior management. The aim is to reduce costs, improve efficiencies and provide leverage to the Coles Myer group through the coordination and integration of joint services. Retail Support Services also has a corporate function and develops policy across the Coles Myer group.

The main departments with Retail Support Services are Accounting Services, Logistics, Treasury, Taxation, Retail Property, Human Resources, Information Technology, and Legal, Risk Management and Compliance.

Coles Myer Finance Limited (""CMFL""), a wholly owned subsidiary, is the entity responsible for all funding and funds management for the Company. CMFL is the centralized treasury for Coles Myer which provides an integrated cash, debt and financial risk management service to Coles Myer, and operates in accordance with policies and authorities approved by the Board. CMFL operates as a managerial division of the Company, and not as a profit center.

As at July 28, 2002, the Company had no secured liabilities. The Company''s borrowing structure is flexible and consistent, based on the acceptance by financial institutions of the Standard Coles Myer Negative Pledge (the ""Negative Pledge""), and acceptance by investors of complementary Trust Deeds for public issues of bonds and notes.

The Negative Pledge is the basis of an unsecured borrowing structure, providing financial ratio restrictions of total liabilities to total tangible assets at 80%, and the ratio of secured liabilities to total tangible assets at 40%. In addition, a pledge is given not to provide security over Company assets, in contravention of the terms of the Negative Pledge, without providing equivalent security to parties to the Negative Pledge. Similar ratio restrictions are included in Trust Deeds to provide a standard borrowing structure.

At July 28, 2002, all foreign currency borrowings were hedged to cover exposure to adverse exchange rate movements. Coles Myer''s interest rate risk management strategy is to have a minimum 50% of core debt hedged at fixed interest rates beyond 12 months in maturity. Core debt represents the Company''s long term, non-seasonal debt. See also Item 11 ""Quantitative and Qualitative Disclosures about Market Risk"" for a description of the Company''s hedging activities.

On October 30, 2001, the Company launched the Coles Myer Card, a single ""smarter"" card that can be used across all the Coles Myer businesses. The Coles Myer card replaced more than 1.7 million existing Myer, Grace Bros, Target and Kmart private label cards. Moving to a single card was considered more convenient for our customers and enabled the Company to benefit from cost efficiencies. GE Capital Finance Australasia Pty Ltd (""GE""), a subsidiary of General Electric Capital Corporation of the U.S., provides retail credit for customers of various Coles Myer businesses, and for other retailers.

All Coles Myer businesses have embraced the concept of developing a partnership approach with their suppliers to ensure customers have access to the quality, range and value they demand. The businesses are focused on developing mutually beneficial relationships with suppliers. This approach involves sharing plans and sales information, technologies and skills, and developing trust and cooperation with the Company''s 65,000 suppliers.

The Company generally does not enter into long-term purchasing agreements.

Agreements are entered into for the supply of products on a price and terms basis. Orders are placed with suppliers depending on the sales and stock levels of the product. This method allows the Company to retain maximum flexibility to adjust to changes in retail markets.

No segment of the Company is reliant to any material extent on a single supplier or purchasing contract. Coles Myer purchases substantial lines of Australian-made goods, but supplements its ranges with imported goods. The Australian Government formerly imposed tariffs on a wide variety of imported goods, however, these tariffs have been progressively reduced and from 1995 only selected imported goods remain subject to import duty.

The Company hedges against adverse foreign currency movements for directly imported goods.

Coles Myer''s supermarkets operate in a particularly competitive retail sector. Coles and Bi-Lo compete against the large national Woolworths supermarket chain (operating as ""Safeway"" in Victoria). Independent operators, regional chains, and convenience and specialty stores provide further competition. During 2001, the German-based international supermarket chain Aldi commenced operations in Australia by opening its first supermarket in New South Wales.

Liquorland competes against other non-brewery and brewery-affiliated retail chains, including those owned and operated by national retail chains, as well as sales of bottled liquor by hotels and single store liquor retailers.

The Company has a strong position in Australia in the discount store market through Kmart and the junior department store market through the Target and Target Country/Fosseys chains. These chains compete against other chains such as Woolworths'' Big W, Millers Retail for apparel, and against numerous operators of small chains or single specialty stores. In New Zealand the discount store market is less well developed in terms of stores similar to the Kmart style of operation. The major existing store chains of comparable type are Deka and The Warehouse.

The department store brands, Myer and Grace Bros, face national competition from David Jones, Harvey Norman and Harris Scarfe, as well as a number of largely regional competitors. General competition is provided by specialty store operators and discount stores.

The Company''s business units are major advertisers in both print and electronic media. To accommodate the range of marketing programs across the company a variety of different strategies and media are utilized. Advertising expenditure in 2002 was A$323.0 million, which compares with A$314.5 million in 2001.

The Company has continued to centralize some key components of the advertising process to take advantage of economies of scale or new technology solutions. This has involved consolidating advertising with one or a small number of suppliers or bringing part or the whole function in-house. The purchasing of media and the distribution of catalogues are activities, which have been consolidated to one media buyer and a small number of printers and distributors. Increasingly, the production work on catalogues is now done internally to maximize the benefit of new technology, simplify the process and lower costs. Each of the business units selects their own advertising agencies to develop the creative concept.

In packaging design a similar model is used with all stages of the process managed internally being supported by external design studios.

In August 1994, the Company launched Fly Buys ^TM, the first major retail loyalty program offered in Australia. Other major participating companies were National Australia Bank and Shell. Fly Buys ^TM is a customer loyalty program similar to the Air Miles frequent buyer promotion in Canada. It is a joint venture between Coles Myer and National Australia Bank. Membership of Fly Buys ^TM is free, with members issued a card to present at point of sale when shopping.

In October 1998, the Company relaunched the Fly Buys ^TM program. The revised program allows each brand to use Fly Buys ^TM to sell particular products (via bonus offers on those products and VIP points) and to manage the cost of their participation in the program. Fly Buys ^TM has over 2.4 million active member households (average 2.2 cards per household) as at October 31, 2002 and is a rich source of behavioural and demographic customer information.

Analysis of the Coles Myer Card and Fly Buys customer attributes and other customer activity continues to provide opportunities for growth through better targeted product and service delivery. Targeted campaigns to date have achieved up to 36% response rates.

Coles Myer and other large stores are now permitted to trade every day including Sunday in most Australian states. In the past 12 months Queensland has allowed widespread Sunday trading in the south east corner of the state - the most populous section. Tasmania moved to deregulated trade on December 1, 2002. These recent changes have provided new trading opportunities for the Company. Even the states yet to adopt widespread Sunday trading, do allow it in the central business areas of their capital cities and in many tourist areas.

The Trade Practices Act 1974 (the ""Act"") is the Australian Federal legislation which impacts most directly and widely on the retail activities of Coles Myer, including the following areas:

Strict product liability exists in Australia. This regime is substantially based on the European Community Product Liability Directive and provides that a person who is injured, or whose property is damaged as a result of defective or unsafe goods, has a right to compensation from the manufacturer without the need to prove negligence or breach of contract. The Act provides that this regime cannot be excluded, restricted or modified by contract. This regime also substantially widens the classes of persons who might sue, and extends the definition of ""manufacturer"" to include ""importer"" as well as ""supplier"" in some circumstances.

In 1993, the Act was amended to prohibit acquisitions of shares or assets, which have the effect of substantially lessening competition, unless such acquisitions are authorized by the Australian Competition and Consumer Commission utilizing public benefit criteria.

A further amendment was an increase in penalties for contravention of Part IV (the Restrictive Trade Practices) of the Trade Practices Act. The penalties increased to a maximum of A$10 million for a body corporate, per offense, and a maximum of A$500,000 per offense for individuals.

In 1998, the Act was further amended to introduce a specific prohibition against ""unconscionable conduct in business transactions"". This amendment was introduced to provide small businesses with further protection in their commercial dealings with large corporations. This provision sets out several factors which a Court must consider in determining whether unconscionable conduct has occurred. The provision originally only applied to transactions under A$1 million. However, in July 2001 the transactional limit was increased to A$3 million, which extends the coverage considerably.

In July 2001, the maximum penalty for a contravention of Part V (Consumer Protection Provisions) of the Act was increased to A$1.1 million for corporations (from A$200,000) and A$220,000 for individuals (from A$40,000).

Following a parliamentary inquiry into retailing, a voluntary retail grocery Industry Code of Conduct was established in August 2000, to apply to vertical relationships in the retail grocery industry. Coles Myer supports the introduction and application of this Code and is a signatory.

The GST was introduced in Australia on July 1, 2000. The pre-tax cost to the Company of setting up systems prior to July 2000 to ensure compliance with GST was A$138.5 million. The Company did not incur during 2002, nor does it expect to incur in the future, any material expenditure in relation to the ongoing compliance with the GST.

With effect from July 1, 2002, the Company can elect that all its wholly owned Australian resident subsidiaries and itself should be treated as a consolidated group for income tax purposes. If Coles Myer makes such an election, the group will be taxed as a single entity so that all intra group transactions will be ignored.

A formal decision to consolidate has not yet been made but it is anticipated that a consolidated tax group will be formed with effect from July 29, 2002.

Under tax consolidation rules, franking credits currently held within wholly owned Australian resident subsidiaries will be pooled and will be available to frank Coles Myer Ltd.''s dividends. All franking credits that arise after tax consolidation will belong to Coles Myer Ltd. and will be available to frank its dividends.

Changes have been made to the imputation system and, subject to certain conditions, Coles Myer Ltd is now able to determine the amount of franking credits that it will allocate to its dividends. Previously, dividends had to be franked to the maximum extent possible.

In practice, it is expected that Coles Myer Ltd. will continue to frank its dividends to the maximum extent possible.

All businesses in the Company are covered for material losses by insurance policies, including property, liability, workers'' compensation and marine transit insurance. A share of the Company''s general and property insurance is carried by a wholly owned subsidiary company located in Singapore. Insurance companies not related to the Company cover catastrophe insurance. The Company has a risk management program and is self-insured for workers'' compensation in most Australian states.

The Company is entitled, by virtue of a License Agreement with Kmart Corporation (""KMC""), to the exclusive right to use the ""Kmart"" name, service marks, and trade marks in Australia. The license extends until 2018 with unlimited further renewals for five years at a time at the Company''s election. In consideration for the license, the Company pays an annual fee to KMC based on gross sales revenue per fiscal year, but not exceeding A$5 million for Australia and NZ$1 million for New Zealand. The License Agreement with KMC is still in force despite KMC filing for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code during the year.

Coles Myer has the right to exclusive use of all material trademarks and business names of its businesses referred to in this Annual Report in all its trading jurisdictions.

Liquor retailing in Australia is regulated by the respective State Governments. Strict licensing regimes operate in each state which require the Liquorland brands (Liquorland, Vintage Cellars and Quaffers) to hold licenses for each of its retail locations. The Company is not aware of any action or proposed action that would invalidate any of its retail licenses. See also comments on deregulation of liquor licenses in Victoria on page 12.

The Coles Myer Group consists of Coles Myer and its subsidiaries, which conduct business in Australia and New Zealand. A complete list of subsidiaries and their details can be found at Note 32 to the Financial Statements. Of these subsidiaries, the following were significant subsidiaries of Coles Myer at July 28, 2002:

• Coles Supermarkets Australia Pty. Ltd.
• Kmart Australia Ltd.
• Myer Stores Ltd.
• Target Australia Pty. Ltd.

All the significant subsidiaries are wholly owned and incorporated in Australia.

As at July 28, 2002, the Company operated a total of 1,787 stores in Australia and New Zealand, with total selling area of 43.0 million square feet. Properties include locations in downtown shopping areas, regional and minor shopping centers, strip retail locations, and freestanding stores.

Coles Myer is constantly engaged in new store development and refurbishment of existing stores. This process has resulted in an upgrading of the network of retail sites.

Leases entered into by the Company generally comprise a base rental together with a rental payment related to a percentage of sales turnover. Leases generally range for terms of 10 to 25 years, and usually provide options for the Company to extend the lease terms. The vast majority of the premises occupied are leased, as distinct from freehold (owned).

At July 28, 2002, the Company''s owned property portfolio was recorded at A$612.1 million, held either directly, or indirectly through investments in property joint ventures. The majority of this portfolio is held in the Sydney Central and Cairns Central shopping centers as well as the flagship Myer store in Melbourne. The Company recently sought expressions of interest for the sale of Sydney Central Plaza shopping center. These expressions of interest were received by November 8, 2002. The Company is currently in the process of reviewing these expressions of interest to determine a short list of parties who will undertake a detailed due diligence.

It is the Company''s policy to undertake revaluations of freehold and investment properties with sufficient regularity to ensure that the carrying amount of property does not differ materially from its fair value at balance date. This is in accordance with Australian Accounting Standards. The latest valuation, undertaken during 2002, resulted in a net decrease in the aggregate book value of properties and investments in property trusts by A$4.2 million. See also Notes 1(i) and (j), and 11 to the Financial Statements included in Item 18.

The discussion below contains certain forward-looking information. See comments regarding ""Forward-Looking Statements"" on page 1 of this Annual Report. Comparative amounts for 2001 have been reclassified to ensure comparability with the current reporting period.

Australian economic growth has been strong during the 2002 financial year, with low interest rates and a surge in housing boosting the economy. Growth is expected to slow during 2003, with the housing market slowing and exports weakening, due to a combination of drought and slow global recovery. The Federal Government forecasts GDP growth for 2003 to be 3%, after a solid 3.8% in the 2002 financial year.

Retail sales grew significantly in 2002, due to the surge in home building, low interest rates, increase in wealth due to house price increases and steady job growth. Retail growth is forecast to slow in 2003 as housing activity slows and interest rates rise. The slowdown is forecast to be modest, however, due to continuing solid wage and salary growth. Real (inflation adjusted) retail sales were up by 6.6% in the year to June 30, 2002. Nominal retail sales growth (including inflation) is also on a high, up 8.6% in the year to June 2002. Nominal retail sales in July 2002 (percentage change on July 2001) for food was 8.1% and non-food 8.4%.

Volume growth for food retail sales has been strong, as prices (particularly for fresh produce) moderate and as consumers purchase products that are of higher quality or have more value added. Likewise, non-food retailing enjoyed a very strong year with volume growth of 8.8%, as prices were kept in check despite heavy demand.

The US sharemarket downturn has contributed to stable Australian interest rates, though as sharemarkets settle, interest rates are expected to rise again. This will dampen some discretionary household spending. Not only do higher interest rates affect income available for spending due to increased mortgage repayments, they also generally reduce the willingness to spend on credit, feeding through negatively to consumer sentiment.

Consumer sentiment has experienced fluctuations over the past year. It has most recently been affected by significant volatility in overseas financial markets and concern about the impact of this on the global economy. Factors supporting confidence include the strength of the labour market and job vacancies data and ongoing low interest rates. In addition, the drought currently prevailing in many regional areas in Australia, is having a negative affect on confidence in rural Australia.

During December 2001, the SEC issued disclosure guidance for ""critical accounting policies"" as those that require application of management''s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The Company''s significant accounting policies are described in Note 1 to the Financial Statements. Not all of these significant policies require management to make difficult, subjective or complex judgements or estimates. The following disclosure is intended to provide an enhanced level of understanding of the polices that could be deemed to be critical within the SEC definition, and their impact on Coles Myer''s financial statements. These judgements involve assumptions or estimates in respect of future events, which can vary from what is forecast. However, the Company believes that its financial statements and its ongoing review of the estimates and assumptions utilised in preparing those financial statements, is appropriate to provide a true and fair view of Coles Myer''s financial performance and position over the relevant period.

The following are considered critical accounting policies of Coles Myer:

The Company holds provisions in respect of a range of future obligations such as employee entitlements, onerous contracts, surplus lease space, workers compensation and self-insured risks. Some of the provisions involve significant management judgement about the likely outcome of various events. If these judgements are not correct, some of the provisions held by the Company could be misstated.

All stock of finished goods on hand or in transit is valued at the lower of cost or net realizable value. Net realizable value is determined after a detailed review by management, taking into consideration amongst other factors, stock levels, stock turnover, marketing programs and current margins. The Company considers the assumptions used in the calculation to be reasonable and supportable in the existing economic environment.

The carrying value of all non-current assets does not exceed their recoverable amount. Recoverable amount is determined by reference to the amount expected to be recovered from the discounted net cash flows arising from the assets'' continued use and subsequent disposal. Each reporting period, the Company reviews the non-current assets for possible impairment issues. If impairment issues are found, the Company is required to make an assessment as to whether the carrying amount of the asset identified remains fully recoverable. In making this assessment, the Company compares the current carrying value to the market value where available or the value in use. Determination of the value in use requires the Company to make assumptions and use estimates. The historical experience of the Company has shown that management''s judgement on these issues required in the past has been reasonably accurate. The Company considers the assumptions used in the calculation to be reasonable and supportable in the existing economic environment.

Volume related supplier rebates are recognised as a reduction in the cost of inventory and are released to income as and when the inventory is sold. The portion of supplier volume rebates, which support promotional activities, is taken to income as and when the promotional activity takes place.

There is inconsistent treatment by retailers in the accounting for supplier promotional rebates. Recent trends have been for all forms of supplier volume rebates, including those that support promotional activity to be treated as a reduction of inventory cost, deferring the recognition of the income to as and when the inventory is sold.

On November 21, 2002, the Emerging Issues Task Force (EITF) reached a consensus that cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendor''s products. However, the presumption can be overcome if the consideration is either a reimbursement of costs incurred or payment for assets or services delivered to the vendor. As a result, the Company is intending to amend its accounting for supplier promotional rebates in the 2003 financial year. This will result in a one-off impact to profit during 2003, the amount of which is still being quantified by the Company.

The one-off impact to profit will be evidenced by a reduction in the amount recognised for either reimbursement for costs incurred, or payment for assets or services, with a corresponding reduction in the carrying value of stock.

The Company has investments in the following associated entities, which are accounted for under the equity method:

• CMS General Trust -- trust arrangement that owns and operates the Cairns Central Shopping Center.
• Fly Buys Partnership -- a customer loyalty program whereby customers accumulate points on their shopping purchases in order to redeem awards such as free travel and accommodation.
• Quids Technology Pty. Ltd. -- a software developer involved in developing software for two of the Company''s retail businesses.

Refer to Note 10 to the consolidated financial statements included at Item 18, for further details.

Additionally, the Company has contracted, non-cancellable lease expenditure commitments not provided for in this financial report. For the purposes of US GAAP, transactions relating to certain of these leases are adjusted. Further details of these commitments are outlined in Commitments for Expenditure on page 30 and in Note 30 to the consolidated financial statements included at Item 18.

Dividend

A fully franked final dividend of A$0.12 per share was declared on all fully paid ordinary shares registered as at October 18, 2002, and paid on November 11, 2002. The final dividend, combined with the interim dividend of A$0.135 per share, represented an annual dividend of A$0.255 per share. This was consistent with the 2001 interim and final dividends, however, 2001 also included a special dividend of A$0.10 cents per share which was not repeated in 2002.

Retail sales in 2002 increased 8.0% to A$25,688.7 million from A$23,779.6 million in 2001. GST is not included in reported sales.

The Company''s 2002 Income from Operations was A$584.7 million for the 52 weeks ended July 28, 2002, which represents an increase of 73.1% from A$337.7 million in 2001. The increase was due to reduced operating costs and the absence of restructuring expenses, closure costs and asset write-downs that impacted 2001.

Net interest expense decreased from A$108.7 million in 2001 to A$75.5 million in 2002, with the Company benefiting from reduced debt levels and lower interest rates. This includes A$12.4 million (2001: A$6.7 million) in interest received by the Company from the Coles Myer Employee Share Plan for the funding facility, first provided by the Company in 1994. Refer page 43 for further details of the Coles Myer Employee Share Plan. Interest income relating to this facility is difficult to predict, as the Plan relies on funds from the exercise of options and dividend income. The average finance rate decreased to 6.2% in 2002 from 6.7% in 2001.

The effective tax rate for 2002 was 28.5% (2001: 32.7%). This was predominantly due to the fall in the Australian corporate tax rate from 34% to 30% during the year.

* Income from operations is calculated as profit before interest and tax, and loss on sale of plant and equipment.

Net profit

The Company''s net profit according to Australian GAAP increased from A$140.2 million in 2001 to A$345.0 million.

The Company''s net profit according to U.S. GAAP increased from A$166.5 million in 2001 to A$310.7 million in 2002. The difference between the 2002 net profit according to Australian GAAP and 2002 net profit according to US GAAP is detailed in Note 30 to the consolidated financial statements included at Item 18.

Dividend

A fully franked final dividend of A$0.12 per share was declared on all fully paid ordinary shares registered as at October 17, 2001, and paid on November 12, 2001. The final dividend, combined with the interim dividend of A$0.135 per share, and special dividend of A$0.10 per share, represented an annual dividend of A$0.355 per share, an increase on the 2000 dividend which was A$ 0.270 per share.

Sales

Retail sales for the year fell 1.6% to A$23,779.6 million from A$24, 159.9 million in 2000. The results for 2001 reflect 52 trading weeks compared to 53 trading weeks in 2000. The increase in sales based on equivalent weeks per year and adjusting for the removal of the Wholesale Sales Tax was 5.5%.

Income from Operations

The Company''s 2001 Income from Operations was A$337.7 million for the 52 weeks ended July 29, 2001, down 40.1% from A$564.0 million in 2000. The decrease was due to restructuring and closure costs and asset write-downs that are further discussed below.

The Company recorded significant items of expenditure totalling A$245.9 million in 2001 (2000: A$260.2 million loss) which reflected the following items:

• General Merchandise and Apparel restructuring costs, including stock write downs and staff termination benefits, A$148.2 million:
• Write-down of assets to recoverable amounts: A$48.0 million.
• Provision recognized for onerous contracts: A$49.7 million. For the purposes of US GAAP, this provision has been adjusted. Further details are outlined in Note 30 (n) to the consolidated financial statements included at Item 18.

Net interest expense decreased from A$115.8 million in 2000 to A$108.7 million in 2001, with the Company benefitting from reduced debt levels. The average finance rate increased to 6.7% in 2001.

The effective tax rate for 2001 was 32.7% (2000: 32.9%). Tax expense was increased by a one-off adjustment of A$3.2 million due to the recalculation of deferred tax balances as a result of a change in the Australian corporate tax rate from July 1, 2001.

The Company''s net profit according to Australian GAAP decreased from A$278.3 million in 2000 to A$140.2 million in 2001.

The Company''s net profit according to U.S. GAAP decreased from A$308.1 million in 2000 to A$166.5 million in 2001. The difference between the 2001 net profit according to Australian GAAP and 2001 net profit according to US GAAP is detailed in Note 30 to the consolidated financial statements included at Item 18.

At July 28, 2002, the Food and Liquor operations comprised Supermarkets (Coles, Bi-Lo, Pick ''n'' Pay, Newmart, Coles Express, and Fast & Fresh), Liquorland (including Vintage Cellars, ALG and Quaffers) which collectively accounted for 61.9% of the Company''s total sales in 2002 (2001: 60.8%). Red Rooster was sold on May 27, 2002.

Total selling area for the Food and Liquor group increased by 5.1% from 14.500 million square feet as at July 29, 2001 to 15.244 million square feet as at July 28, 2002. Retail sales for this group increased by 9.8% to A$15,892.4 million (2001: A$14,468.6 million). Income from Operations increased by 7.0% to A$558.6 million (2001: A$522.1 million).

Increased sales growth was achieved in our supermarkets, which was aided by the acquisition of 35 new stores acquired from Franklins, a previous competitor that closed or sold all of their stores during the year. Excluding the Franklins acquisition, 16 new stores were opened across Australia.

Liquorland continued to grow aided by the acquisition of the Leda Hotel Chain (Leda) and Australian Liquor Group (ALG) in late 2001. These stores were ""rebranded"" during 2002 as either Liquorland or Vintage Cellars.

Red Rooster is a fast food chain focusing on a menu of chicken-based products. On May 27, 2002, CML sold this business to Australian Fast Foods Pty Ltd for $65.0 million.

At the time of sale, CML operated 247 Red Rooster stores throughout Australia.