瓦轴B(200706)瓦轴Ｂ2001年年度报告（英文版）

2001 Annual Report Based on Chinese Accounting Standards of Wafangdian Bearing Company Limited Important note: The Board of Directors of the Company hereby guarantee that there is no major missing, false statement of misleading data in this report, and undertake the individual and associated responsibilities for the truth, accuracy and completeness of the contents in this report. The directors of the Company, Mr. Song Mingdong, Mr. Gao Yongyang ,Mr. Zhang Zuogang, Mr. Christer Gyberg and Mr. Patrick Tong failed to attend this meeting. Mr. Song Mingdong and Mr. Gao Yongyang authorized Mr. Su Shaoli to represent, Mr. Zhang Zuogang authorized Mr. Zhang Xinghai to represent, Mr. Christer Gyberg and Mr. Patrick Tong authorized Mr. Sten Wendin to represent. The report is prepared in both Chinese and English, and the Chinese version shall prevail if there is any discrepancy. Shenzhen Pan-China Schinda Certified Public Accountants issued the audit report with explanatory notes. The Board of Directors and the Board of Supervisors of the Company also have made detailed explanations to the related issues. Please pay attentions when referred to by the investors. Chapter One. Brief introduction to the Company 1. Chinese name of the Company: 瓦房店轴承股份有限公司 Abbreviation of Chinese name: 瓦轴股份公司 English name of the Company: Wafangdian Bearing Company Limited Abbreviation of English name: WBC 2. Legal representative of the Company: Wang Lushun 3. Secretary of the Board of Directors of the Company: Zhang Xinghai Authorized Stock and Security Affairs Representative: Su Shaoli Correspondence address: No.1 Beigongji Street, Wafangdian City, Liaoning Province, China. Consulting telephone: 0411-5509888 ext. 3373 Fax: 0411-5500794 E-mail: zwz214 mail.dlptt.ln.cn 4. Registered address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Office address of the Company: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Post code: 116300 International net address: http//www.zwz-bearing.com E-mail address: zwz214@mail.dlptt.ln.cn 5. The Company chose Securities Times, Hong Kong Commercial Newspaper, and Ta Kung Pao for disclosure of information of the Company (The originally-chosen Hong Kong Standard was changed to Ta Kung Pao in Hong Kong.) International net address for disclosure: http//www.cninfo.com.cn Preparation and liaison office of this report: Investment and Securities Department of the Company 6. Listing location of the Company’s stock: Shenzhen Stock Exchange Abbreviated name of the stock: Wazhou B Stock code: 200706 7. Other relative information The originally registered date of the Company was March 20, 1997 The originally registered location of the Company was: No. 1, Section1, Beigongji Street, Wafangdian City, Liaoning Province, China Business license registration No. of the entity: 大工商企法字 24239971-2 Tax registration No. of the Company:国税大字 2102812242399712 Certified public accountants appointed by the Company: Shenzhen Pan-China Schinda Certified Public Accountants: Floor 16, Security Tower, No. 5020, Binhe Road, Shenzhen Hong Kong Pricewaterhousecoopers Certified Public Accountants: Floor 22nd, Prince’s Building Central Hong Kong 1 Chapter Two. Abstract of accounting data and business data 1. Main economic indicators of WBC in the report year Unit: RMB Yuan Item Amount (RMB’Yuan) Total profit 27,069,497.58 Net profit 24,553,155.46 Net profit after deductions of abnormal profit and loss 26,018,581.75 n business profit 230,765,683.51 Other business profit 4,511,113.62 Business profit 21,514,015.32 Return on investment 8,200,695.11 Income from subsidies and allowances Net value of non-operative income and expense -2,645,212.85 Net cash flow from operative activities 107390023.85 Net increase/decrease of cash or equivalent 5,620,288.91 *Items and amounts included in “Net profit after deduction of abnormal profit and loss” are: Net value of non-operative income and expense: -2645212.85 RMB Yuan 2. Main accounting data and financial indicators for the previous three years up to the report period: Unit: RMB Yuan Year 2000 Year 1999 Indicators Year 2001 Before adjustment After adjustment Before adjustment After adjustment Main business income 1,071,640,595.40 1,095,680,727.81 1,095,680,727.81 1,117,594,129.07 1,117,594,129.07 Net profit 24,553,155.46 44,294,256.48 32,816,682.45 43,379,436.07 43,379,436.07 Total assets 2,177,565,813.41 2,162,950,508.24 2,167,396,033.38 2,182,585,451.87 2,182,585,451.87 Shareholders’ equity 1,038,088,358.98 1,013,331,950.45 1,017,864,062.25 981,428,296.50 981,428,296.50 (excluding minority interests) Gain per share 0.074 0.134 0.099 0.131 0.131 0.074 Weighted gain per share 0.134 0.099 0.131 0.131 Net profit per share after deducting abnormal profit and 0.079 0.137 0.103 0.135 0.135 loss Net assets per share 3.15 3.07 3.08 2.97 2.97 Net assets per share after adjustment 3.05 2.97 3.03 2.91 2.91 Net cash flow per share from 0.33 0.131 0.131 0.08 0.08 operative activities Net return on assets % 2.37 4.37 3.22 4.42 4.42 Weighted net return on assets 2.38 4.44 3.24 4.48 4.48 Net profit after deductions of 26,018,581.75 45,351,342.06 33,873,768.03 44,651,425.09 44,651,425.09 abnormal profit and loss 2 3.Attachment table to the Profit Distribution The attachment table to the 2001 Annual Profit Distribution Table has been prepared in accordance with the Notice No. 9 Regulations on Information Preparation and Disclosure of Listed Companies of the Securities Supervisory Committee of China: Net return on assets (%) Gain per share (Yuan/share) Profit in the Weighted Items report period Fully diluted Weighted average Fully diluted average (Yuan) 2001 2000 2001 2000 2001 2000 2001 2000 Main business profit 230765683.51 22.23% 21.08% 22.40% 21.26% 0.6993 0.6503 0.6993 0.6503 ative profit 21514015.32 2.07% 2.54% 2.09% 2.56% 0.0652 0.0783 0.0652 0.0783 profit 24553155.46 2.37% 3.22% 2.38% 3.25% 0.0744 0.0994 0.0744 0.0994 Net profit after deductions of abnormal profit and loss 26018581.75 2.51% 3.33% 2.53% 3.36% 0.0788 0.1026 0.0788 0.1026 4. Information on the equity capital changes in the report period and the reasons Surplus public Statutory public welfare Shareholders’ Items Equity shares Capital reserve Retained earnings accu. fund fund equity Period beginning 330,000,000.00 513,115,474.19 37,295,087.83 12,458,904.83 137,453,500.23 1,017,864,062.25 figure Increases in the - 5,571,141.27 4,086,727.38 1,362,242.63 10,566,427.58 20,224,296.73 report period Decrease in the report period Period end figure 330,000,000.00 518,686,615.46 41,381,815.21 13,821,147.46 148,019,927.81 1,038,088,358.98 Reasons for Transfer from Transfer from Transfer from retained Profit transferred in changes retained earnings retained earnings earnings the report period Chapter Three. Information on equity changes and shareholders 1.Equity changes in the report period (1). In the report period, the equity structure of the Company has remained unchanged. The structure of the equity is as the following: Before the Increase/decrease in the report period (+,-) After the change change Allocation Bonus PAF transfer Increase Others Total One. Non-marketable shares 1 Sponsor’s shares 200,000,000 200,000,000 Including: State-owned share 200,000,000 200,000,000 Shares held by domestic legal person Shares held by foreign legal person Others 2 Collected legal person shares 3 Internal employee shares 4 Preferred shares and others Total non-marketable shares 200,000,000 200,000,000 Two. Marketable shares 1 Home listed RMB ordinary shares 2 Home listed foreign capital shares 130,000,000 130,000,000 3 Abroad listed foreign capital shares 4. Others Total of marketable shares 130,000,000 130,000,000 Three. Total shares 330,000,000 330,000,000 3 (2). Share issue and listing situaation: Type of share: Home listed foreign capital share Share issue date: February 27,1997 Share issue price: The offered price for general investors is 2.66 HK dollars per share, and 3.575 HK dollars per share for strategic investor, AKTIEBOLAGET SKF. Amount of shares issued: 330,000,000 shares Listing date: The shares were listed on March 20.1997 in Shenzhen Stock Exchage. (3) There was no right issue, bonus issue, and increase issue since shares of the company were listed. (4). No internal employees’ shares in the company. 2.Information on shareholders (1) Up to the report period, the number of the registered shareholders of the WBC was 12738, including 1 state-owned shareholder and public shareholders of 12737. (2) Information on the first ten shareholders up to the end of the year: Number of Percentage of Increase/decrease Nature of share Order Name of shareholder shares total equity (+/-) 1 Wafangdian Bearing Group 200000000.00 60.60% State-owned Corporation legal person share 2 AKTIEBOLAGET SKF 65000000.00 19.7% Foreign legal person share 3 BIN LIANG 1,319,055 0.40% Circular shares 4 齐源科技 香港 有限公司 311,782 0.09% Circular shares 5 LI JUNCHENG 303,100 0.09% Circular shares 6 FENG WEI 267,400 0.08% Circular shares 7 LUO SHI 234,300 0.07% Circular shares 8 WANG WEIHONG 200,000 0.06% Circular shares 9 LIN SHIMIN 200,000 0.06% Circular shares 10 LEUNG CHEUK FU 199,800 0.06% Circular shares Note: 1) Among the first ten shareholders, the first largest shareholder has no associated relations with any other shareholders. Nothing is known about the relations among other shareholders. 2). In the report period, the frozen period of equity shares held by the strategic investment partner AKTIEBOLAGET SKF expired in 1999. 3. Introduction to the first largest shareholder Name: Wafangdian Bearing Group Corporation Legal representative: Wang Lushun Date of establishment: 1995 Main business and product: Bearings, Machinery equipment, Automobile parts and relative products Registered capital: 360000000 Yuan RMB 4 Wafangdian Bearing Group Corporation is a state-owned sole venture, the actual controller is Finance Bureau of Dalian 4.Introduction to shareholders with over (including) 10% of the total equity shares of the Company Name: AKTIEBOLAGET SKF (Swedish) Legal representative: Sune Carlsson Date of establishment: 1907 Main business and products: Bearings, seals and relative products, and relative services Registered capital: 1,423,000,000 Swedish Koron Equity structure: totally 113837767 shares of the Company, including A type and B type shares, 40.3% of which go to A type, and 56.7% go to B type. 5. In the report period, the holding shareholder remained unchanged. Chapter Four Information on Directors, Supervisors, top management and employees 1. Introduction to Directors and Supervisors and top management Name Position Sex Age Term Wang Lushun Chairman Male 51 2000.6-2003.6 Jiang Zhongyuan Vice-Chairman Male 49 2000.6-2003.6 Wang Runtian Vice-Chairman Male 59 2000.6-2003.6 Wang Zhongmin Director GM Male 38 2000.6-2003.6 Gao Yongyang DirectorVice-GM Male 49 2000.6-2003.6 Song Mingdong DirectorVice-GM Male 47 2000.6-2003.6 Shan Shikai DirectorVice-GM Male 44 2000.6-2003.6 Zhang Xinghai Director Secretary of BD Male 33 2000.6-2003.6 Li Xianrong Director Male 56 2000.6-2003.6 Su Sholi Director Male 50 2000.6-2003.6 Zhang Zugang Director Male 38 2000.6-2003.6 Sten Wendin Director Male 58 2000.6-2003.6 Christer Gyberg Director Male 55 2000.6-2003.6 Patrick Tong Director Male 40 2000.6-2003.6 President of Supervisory Sun Wudu Male 41 2001.6-2004.6 Committee Vice-President of Supervisory Zhang Jiayi Male 53 2001.6-2004.6 Committee(Staff representative) Wang Ruilan Supervisor Male 53 2001.6-2004.6 Duan Lian Supervisor Male 48 2001.6-2004.6 Fu Zhongwei Supervisor Male 39 2001.6-2004.6 Li Xintao Supervisor Male 41 2001.6-2004.6 Jiang Lianqing Supervisor Male 39 2001.6-2004.6 Jiang Yulin Supervisor(Staff representative) Male 47 2001.6-2004.6 5 Li Zhixin Supervisor(Staff representative) Male 31 2001.6-2004.6 Sun Maolin Vice-GM Male 37 2001.6-2004.6 Remarks: (1) Positions held by the directors and supervisors in the shareholding units Wang Lushun Chairman of Board of Directors, General Manager Wafangdian Bearing Group Corporation Li Xianrong Finance Controller Wafangdian Bearing Group Corporation Wang Runtian CPC Secretary Wafangdian Bearing Group Corporation Jiang Zhongyuan Vice-chairman of Board of Directors Wafangdian Bearing Group Corporation Zhang Jiayi Chairman of Trade Union Wafangdian Bearing Group Corporation Sten Wendin General Manager , SKF (China) Investment Co,. Ltd Christer Gyberg President of Industrial Division, AKTIEBOLAGET SKF Patrick Tong General Manager, SKF China Co., Ltd (2). Directors, supervisors and top management of the Company do not have the stock of the Company 2. Annual remuneration of the directors, supervisors and top management 1). The total annual salaries of the directors, supervisors and top management paid by this Company amounted to 125910 Yuan. The total salaries of the first three directors who were highly paid reached 44568 Yuan, the total salaries of the first three top management who were highly paid reached 47856Yuan. 2). Annual pay ranges and number of persons Number of people who earned annual salary over 15000 Yuan was two. Seven people earned annual salary of less than 15000 Yuan. 3). Information on people who were not paid by the Company (1). The following people were paid by Wafangdian Bearing Group Corporation for their salaries and subsidies: Wang Lushun, Li Xianrong, Wang Runtian, Jiang Zhongyuan, Zhang Jiayi (2). The following people were paid by AKTIEBOLAGET SKF for their salaries and subsidies: Sten Wendin, Christer Gyberg, Patrick Tong (3). The following people were neither paid by this Company nor by the above two shareholding units: Sun Wudu, Zhang Zuogang, Jiang Lianqing, Wang Ruilan, Duan Lian, Fu Zhongwei;Li Xintao 3. Changes of directors, supervisors and top management Mr. Sun Maolin was appointed as the Deputy General Manager of the Company. 6 4. The independent director system was not established in the Company, therefore no subsidies were paid. 5. Information on total employees By the end of the report period, the Company had a total employment of 9676 persons. 1)Classification according to specialty structure(excluding high level and middle level managers) Production Sales Technic Financial Administrati workers people ians people ve staffs No. of employees 7909 314 601 77 715 Percentage (%) 81.7 3.3 6.2 0.8 7.4 2)Among the employees, 1538 received college training or were college graduates. 833 were with poly-technical school graduates. 590 had mid-level technical titles or higher. 3)The number of retired works whose relative expenses must be paid by the Company was 892. Chapter Five Governing and managing structure of the Company 1.Practical situation of the governing and managing structure of the Company The Company followed the requirements of Company Law, Securities Law, Regulations on Listed Companies of Securities Supervisory Committee of China and the Articles of Association, and regulated its operations and improved its governing and managing structure. 1). The meetings and voting procedures of the shareholders, board of directors and supervisory committee and the formation of the resolutions were totally subject to these requirements. 2). The Company promulgated its internal management systems and regulations to form internal binding mechanism for budgeting, purchasing, material flow and sales. 3). The separation of business, personnel, assets, internal organization and finance of the Company from its holding shareholder: (1). The Company was able to carry out independent operations, with its business being separated from its holding shareholders; (2). The Company was independent in terms of its personnel, labor and salary management, with its own independent labor and personnel management systems. Except the Chairman of Board of Directors of the parent company Wafangdian Bearing Group Corporation who worked as the Chairman of the Company, the General Manager, Deputy-General Managers and the Finance Controller of the Company were also independent from the controlling shareholder. (3). The production system, auxiliary production system and supplementary facilities of the Company were independent from the controlling shareholder. (4). The finance of the Company was independent from the controlling shareholder. The Company carried out its own independent finance and accounting and paid taxes independently. 7 (5). The Company has basically established its own independent organization from that of the holding shareholder, but sharing several offices with the holding company. The issue shall be resolved in 2002. 2.Further improved the governing and managing structure of the Company In accordance with the recently published Standard Regulations on Governing and Managing of Listed Companies, and based on the practical situation of the Company, the Company intends to make further improvements and reinforcements: 1). Establishing perfect and complete independent director system. The Board of Directors of the Company intends to adopt the independent director system before June 30, 2002 in accordance with the regulations in The Regulations on the Governing and Managing Structure of the Listed Companies and The Guiding Opinions on the Establishment of Independent Director System in Listed Companies. 2). Regulating the rules of procedures of the shareholders’ meeting, Board of Directors, Board of Supervisors and the General Manager and clearly stating the rights and obligations between them and the Company; Chapter Six. Introduction to the shareholders’ meeting 1. Shareholders’ meeting was held in the report period. Details are as following: The annual shareholders’ meeting was held on June 18, 2001, at conference room 309, WBGC headquarter. The meeting made the following unanimous resolutions with signed votes: 1). Reviewed and approved the 2000 Annual Report of the Company; 2). Reviewed and approved the 2000 Annual Work Report of the Board of Directors of the Company; 3). Reviewed and approved the 2000 Annual Work Report of the Board of Supervisors of the Company; 4). Reviewed and approved the 2000 Annual Final Financial Report of the Company; 5). Reviewed and approved the 2000 Annual Profit Distribution Plan of the Company; 6). Reviewed and approved the 2001 Annual Production and Operation Plan, Financial Budget Plan of the Company; 7). Reviewed and approved the Proposal on Amendments to the Articles of Association of the company; 8). Reviewed and approved the Proposal on the Election of Members of the Board of Supervisors For the Second Session of the Company. The notice of the meeting was published on June 19, 2001 in Security Times, Hong Kong Commercial Newspaper and the Takung Pao in Hong Kong. Chapter Seven Work report of the Board of Directors 1. Operation situation of the Company 8 1) Operation (1). The scope of the main business of the Company and it’s the actual situation The scope of the main business of the Company includes the manufacture and sales of bearings, machinery equipment, automobile parts and components and other relative products. The company has the modern business mechanism characterized by the integrated production, supply and sales system. (2). Structure of main business income and main business profit In the report period, the Company realized main business income of 107164 RMB’0000 Yuan, and main business profit of 23076 RMB’0000 Yuan. Details of the main business indicators of the Company and its subsidiaries are listed in the following table 2001 Main business income Main business cost Main business gross profit Amount Percentage(%) Amount Percentage(%) Amount Percentage (%) Product Sales RMB 896,252,106.60 83.63 RMB 684,675,079.39 81.79 RMB 211,577,027.21 90.22 Exporting 120,277,030.09 11.22 132,220,442.20 15.79 (11,943,412.11) (5.09) Domestic sales 775,975,076.51 72.41 552,454,637.19 66.00 223,520,439.32 95.31 Including: 346,935,706.21 32.37 243,240,131.77 29.06 103,695,574.44 44.22 Northern sales Southern sales 185,167,716.02 17.28 133,452,889.62 15.94 51,714,826.40 22.05 Eastern China Sales 210,217,515.36 19.62 151,506,620.47 18.10 58,710,894.89 25.03 Western Sales 33,654,138.92 3.14 24,254,995.33 2.90 9,399,143.59 4.01 Industrial service sales 175,388,488.80 16.37 152,446,070.80 18.21 22,942,418.00 9.78 RMB1,071,640,595.40 100.00% RMB 837,121,150.19 100.00 RMB 234,519,445.21 100.00 2000 Main business income Main business cost Main business gross profit Amount Percentage(%) Amount Percentage(%) Amount Percentage (%) Product Sales RMB 924,585,456.46 84.38% RMB 723,290,582.72 82.47% RMB201,294,873.74 92.08% Exporting 112,452,244.07 10.26% 123,958,138.88 14.14% (11,505,894.81 ) (5.26%) Domestic sales 812,133,212.39 74.12% 599,332,443.84 68.33% 212,800,768.55 97.34% Including: 399,983,215.69 36.51% 291,678,305.58 33.26% 108,304,910.11 49.54% Northern sales Southern sales 196,860,487.72 17.97% 146,948,790.95 16.75% 49,911,696.77 22.83% Eastern China Sales 185,817,752.84 16.96% 138,705,813.61 15.81% 47,111,939.23 21.55% Western Sales 29,471,756.14 2.68% 21,999,533.70 2.51% 7,472,222.44 3.42% Industrial service sales 171,095,271.35 15.62% 153,788,383.24 17.53% 17,306,888.11 7.92% RMB 1,095,680,727.81 100.00% RMB 877,078,965.96 100.00% RMB218,601,761.85 100.00% 2). Operation status and performance of the companies in which the Company had holding interest or participating interest (1). Companies in which the Company had holding interest Time of Interest Nature or type of Legal Name Registered address Registered capital Main business registration and company representative 9 equity Wafangdian No.1 Sect.1 Beigongji Bearings and Sino-foreign joint 1996.03.28 USD 4,510,000 75% Wang Lushun GBC St. WFD, Dalian relative products venture Liaoyang No.61 Weiguo Rd, Bearings and Bearing Co., 1996.11.22 RMB 19,350,000 100% With limited liabilities Feng Lijie Baita Dist. Liaoyang machine building Ltd (2).Operation and performance of the companies in which the Company had either holding interest or participating interest Currency: RMB Yuan Equity share Name of the invested company Main business income Total profit Net profit percentage Liaoyang Bearing Co., Ltd 100% 36073791.94 396034.71 396034.71 Wafangdian GBC 75% 18191995.92 805853.21 805853.21 Dalian SKF Wazhou Bearings Co., Ltd 49% 120049593.21 16342869.35 14318018.44 Shanghai Zhenxin Wazhou Mechanical 40% 5561487.96 13954.70 12698.78 &Electrical Product Sales Co., Ltd Shanghai Aimuyi Mechanical 4.76% 91946326.37 1071594.47 1071594.47 &Electrical Equipment Chain Co., Ltd (3) Dalian SKF Wazhou Bearings Co., Ltd mainly produces spherical roller bearings. In the report period, the realized profit amounted to1432 RMB’0000 Yuan. 3) Information on main suppliers and customers (1). The Company purchased a total value of 22690 RMB’0000 Yuan from the first five suppliers, a percentage of31.52% of the total annual purchase value; (2). The total sales to the first five largest customers amounted to 23063 RMB’0000 Yuan, a percentage of 21.52% of the annual total sales of the Company. 4) Problems and difficulties encountered in operation and solutions The year 2001 saw a severe competition in the domestic bearing market. The Company adjusted its market strategies in view of the market situation and built marketing and sales networks both at home and abroad. The Company was devoted to the improvements of the qualifications of the sales people and the service quality and actively adjusted the operative health to make preparations to elevate the comprehensive competitiveness of the Company after China’s entry into WTO. The Company established the customer credit rating system and made shipments according to the credit of the customer in order to control the increases in the balance of the accounts receivable. Meanwhile, the Company strengthened its effort in collecting the payment in cash from all the customers. 2. Investments made in the report period 1). Application of B-share capital By the end of the report period, the actual applications of the B-share raised capital had been in conformity with the promises in the prospectus, only with some minor tuning of the allocations of the capital among the invested projects. The B-share capital had not been used for any other purposes. By the end of the report period, the anticipated investments in the railway bearing project and metallurgical bearing project had been fully made as scheduled. An accumulated investment of 6211 RMB’0000 Yuan from B-share capital had been made in railway bearing project, and another 10 accumulated investment of 8476 RMB’0000 Yuan made in metallurgical and mining bearing project. The remaining capital needed for the two projects shall be raised by the Company from other sources. In the automobile bearing project, an accumulated investment of 4528 RMB’0000 Yuan from B-share capital had been completed. 2). The left B-share capital of 2785 RMB’0000 Yuan is now deposited at Wafangdian Branch of Industrial and Commercial Bank of China and Wafangdian Branch of Bank of China. 3). Investments from self-raised capital of the Company In 2001, the Company raised by itself the fund amounting to 2248 RMB’0000 Yuan for technological improvements, including 1850 RMB’0000 Yuan made in low noise EMQ bearings, 118 RMB’0000 Yuan in steel ball project, and another 280 RMB’0000 Yuan in other projects. 4). Return on investment By the end of 2001, the already-invested railway bearing project, automobile bearing project and metallurgical and mining bearing project had not been fully completed. The projects are still under way. In these improvement projects, the newly purchased equipment, improved infrastructure and auxiliary equipment had all been put into use. These facilities have been playing an important role in the elevation of product quality, improvement in manufacture processes, production capacity and product competitiveness. With the technical improvement, the railway bearings have reached the expected upgrading targets and stabilized the production. The investment in this project has provided guarantee for the obtaining of domestic market share of the higher-speed railway bearing market. The metallurgical and mining bearings have reached P5 precision level after the investment to replace the imported bearings, leading to the largest stable sales revenue of this kind for ZWZ. After the investment, the automobile bearings have been produced with the new internal design, and the number of pieces used for domestic OEM customers and foreign customers has reached a much higher level. 5). Investment plan for the next year In 2002, the Company shall continue to raise capital by itself at the amount of 4010 RMB’0000 Yuan to invest in the improvement of the technology of low noise EMQ bearings and steel ball projects and railway bearings and metallurgical and mining bearings which were listed in the B-share projects. The Company shall continue to invest the B-share capital of 790 RMB’0000 Yuan in automobile bearing project. 3. Financial health and operative results and the change analyses of the Company Item 2001 (RMB Yuan) 2000 (RMB Yuan) Increase/decrease(%) Total assets 0.47% 2,177,565,813.41 2,167,396,033.38 Long-term liabilities 25.49% 98,968,358.44 78,867,173.88 Shareholders’ equity 1.99% 1,038,088,358.98 1,017,864,062.25 Main business profit 7.53% 230,765,683.51 214,604,084.63 Net profit -25.18% 24,553,155.46 32,816,682.45 Reasons of changes: Shareholders’ equity: The increase in the shareholder’s equity was brought about by the increase in the net profit realized; Main business profit: Reduction in manufacturing overhead led to the increase in profit. Net profit: Reductions in other business profit and return on investment mainly contributed to the 11 decreases in net profit. Long-term liabilities: The company renewed and increased long term loan to reduce financial expenses, so that long-term liabilities increased. 4.Effects of external factors and macro-economic policies and laws and regulations on the Company 1). Upon the entry of China into WTO, the tariffs for imports shall be further reduced and the foreign capital shall more and more enter into China. The competition shall be more severe. 2). The repeated investment by the domestic manufacturers shall make the total supply much greater than the total demand. 3) At the same time, the Company also has some comparatively good opportunities for development. (1). The government is encouraging the domestic demand and consumption which shall lead to the development of bearing products; (2). More and more international companies are sourcing in China, leading to a possible increase for exporting; (3). With the prices of raw materials both at home and abroad are in the declining tendency, the manufacture cost shall be further reduced; (4).Based on the existing favorable market position and the reputation of the ZWZ brand, the Company shall strengthen its building up of the marketing and sales networks and adjust the product structure in order to increase its comprehensive capabilities. 5 . Operation plan for the year 2002 2002 annual business targets Key works in 2002 “Double-Four” Projects shall be executed with reform and development as the mainline. Four “Speedup Projects” to be executed-speeding up the reform of operation pattern, speeding up the establishment of marketing and servicing network, speeding up the adjustment of product structure, speeding up the technical improvement. Four “Improvement Projects” to be executed-improvement of company operative quality, improvement of company qualifications, improvement of product level and improvement of abilities to stand against risks. (1). Speeding up reform of operation pattern to strengthen the competitiveness of the company ---speeding up the adjustment of internal organizational structure by reducing the intermediate management levels; ---deepening the reform of labor, personnel and distribution systems; ---promoting management innovation and updating with the emphasis on information management; (2). Speeding up marketing and servicing networks to enlarge the market share ---adopting “Big Customer Plan” to establish close relations with customers; ---regulating the regional agent system to establish the market circulation system of ZWZ; ---promoting whole-process credit management and rebuild the order-sales-payment business process; ---adopting management on production, stock and sales plans to improve the comprehensive sales-production ratio and the effectiveness of production; 12 ---improving material flow management to establish stock, transportation and delivery system. (3). Speeding up the adjustment of product structure by updating the products in all aspects ---adopting the updating of products and exploiting the market service areas; ---adopting updating of product quality; ---establishing and improving the quick quality information syste. (4). Resource-efficiency action ---launching the “Resource-efficiency” action to be participated by all the employees to optimize the distribution of resources and improve the efficiency. 6.Daily work of the board of directors Board meetings of the Company During the report period, the Company held three board meetings, and the details are as the following: One. The second meeting of the second board session of the Company was held on Feb. 14, 2001 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and actually 13 attended the meeting, 1 was absent. The participating directors had discussions and made the following resolutions: (1). Reviewed and approved 2000 Annual Final Financial Report (un-audited); (2). Reviewed and approved the Proposal on Takeover of Assets of Huamei Company; (3). Reviewed and approved the Proposal on Appointment of Representative of Stock Affairs; The directors also held careful discussions on the following proposals and approved the three proposals on the conditions of: Follow-up plans and comparisons on monthly basis shall be made between the afore-mentioned plans and the actual operative situation and financial statue of the Company; and the company should make the follow-up plans and preventive plans to prevent the big discrepancy between the actual results and plans from happening; (4). Reviewed and approved the 2001 Annual Production and Operation Plan of WBC; (5). Reviewed and approved the 2001 Annual Financial Budget of WBC; (6). Reviewed and approved the 2000 Annual AR Analyses and 2001 Annual AR Plan of WBC; The notice of this meeting was published on Feb. 17, 2001 in Security Times, Hong Kong Commercial Newspaper and the English newspaper Standard. Two. The third meeting of second board session of the Company was held on April 17,2001 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and 10 actually attended the meeting. 4 other directors authorized their proxies to attend the meeting. 2 supervisors of the Company also participated in the meeting. After discussions the following resolutions were made unanimously: (1). Reviewed and approved the 2000 Annual Work Report of Board of Directors; (2). Reviewed and approved the 2000 Annual Report and its abstract (based on IAS and CAS); (3). Reviewed and approved the 2000 Annual Final Financial Report; (4). Reviewed and approved the Proposed 2000 Annual Profit Distribution Plan and the anticipated profit distribution policy for the year 2001; (5). Reviewed and approved the Proposal on the 2000 Annual Shareholders’ Meeting; (6). Reviewed and approved the Proposal on Appointment of Mr. Sun Maolin as the Deputy-General Manager of the Company; (7). Reviewed and approved the Proposal on Accruing Method for Provision of Value Reduction of Fixed Assets; 13 (8). Reviewed and approved the Report on Amendments to the Articles of Association and agreed to submit the report to the shareholders’ meeting for approval. The notice of the meeting was published on April 21, 2001 in Security Times, Hong Kong Commercial Newspaper and the English newspaper Standard. Three. The fourth meeting of second board session of the Company was held on August 16, 2001 in Meeting Room 309 of WBGC headquarters. Due participating 14 directors and actually 10 attended the meeting. The other 4 directors authorized their proxies to attend. The present directors and the proxies held discussions on the relative proposals and made the following resolutions unanimously: (1). Reviewed and approved 2001 Mid-year Report (based on IAS and CAS); (2). Reviewed and approved 2001 Mid-year Financial Report; (3). Reviewed and approved 2001 Mid-year Profit Distribution Plan; In 2001, no mid-year dividend shall be distributed and no bonus shares shall be distributed and no transfer of public accumulated fund to equity shares shall be made. The notice of the meeting was published on August 17, 2001 in Security Times, Hong Kong Commercial Newspaper and the English Ta Kung Pao. 7.Fulfillment of resolutions of shareholders’ meetings by the board of directors 1)In the report period, the board of directors fulfilled its duties and obligations in accordance with the authorization of the shareholders’ meetings and the regulations of the Articles of Association of the Company. The board of directors carried out effective monitor according to the production and operation plan made at the beginning of the year and the business targets and finished 2000 annual profit distribution and all the other works designated by the shareholders’ meetings. 2) explain of Board of directors of Wafangdian Bearing Co. Ltd. on this yearly audit report In 2001, Shenzhen Pan-China Schinda Certified Public Accountants issued a non-standard and unreserved audit report for the Company. It is claimed that in this report those data of Dalian SKF- Wazhou Bearing Co. Ltd. audited by Arthur Andersen-Hua Qiang Certified Public Accountants have been adopted. Meanwhile, it is emphasized that all the sums related to the Company are on the basis of those audited by the other certified accounts. We, as the board of the directors, consider that this report actually, correctly and justly reflect the financial situation and operative result of the Company. There will be no side effects to the Company and it is unnecessary to take any measures to modify the report. We also consider that there are no activities in the Company in breach of accounting norms or regulations and disclosure regulations. Constricted by the audit scope, the explanatory note issued by the Shenzhen Pan-China Schinda Certified Public Accountants is coherent with the cautious principle. 8.Proposed profit distribution plan for 2001 and 2002 proposed profit distribution plan The profit available for distribution shall be based on the two figures calculated according to IAS and CAS whichever is lower. After discussions the board of directors of the Company made the following decision: 10% of the profit shall go to the statutory surplus public accumulated fund, and 5% shall go to the statutory public welfare fund; based on the total number of equity shares of 330,000,000 at the end of the period, 0.30RMB Yuan (including tax) shall be paid to every 10 shares. The remaining profit shall be carried over to the coming year. In 2001, no bonus shares shall be distributed, and no transfer of public accumulated fund to equity shares shall be made. This proposed profit distribution plan shall be submitted to the 2001 annual shareholders’ meeting for approval before being executed. The proposed profit distribution plan for 2002 is as the following: The Company intends to make a profit distribution to all shareholders in 2002. 20% to 40% of the net profit 14 to be realized in 2002 shall be paid for dividend in 2002. The payment shall be made mainly in cash. The ratio of cash payment in the dividend distribution shall not be less than 50%. The concrete distribution plan shall be subject to the then practical situation. Chapter Eight Work report of the Board of Supervisors In 2001, the board of supervisors fulfilled its duties and obligations according to Company Law and the Articles of Association of the Company and participated in all the activities of the Company and expressed its opinions. 1.Meetings in the report period The board of supervisors held three meetings: 1). The sixth meeting of the first session of board of supervisors of the Company was held on April 18, 2001 in Meeting Room 309 of WBGC headquarters. The meeting was presided by Mr. Sun Wudu. Due participating 9 supervisors and actually 7 attended the meeting. The General Manager and the Finance Controller of the Company also attended the meeting. The present supervisors after discussions made the following unanimous resolutions: (1). Reviewed and approved the 2000 Annual Report and its abstract of WBC; (2). Reviewed and approved the 2000 Annual Final Financial Report of WBC; (3). Reviewed and approved the 2000 Annual Profit Distribution Plan of WBC; (4). Reviewed and approved the Proposal on the Change of Members of Board of Supervisors of WBC; (5). Reviewed and approved the 2000 Annual Work Report of Board of Supervisors of WBC. The notice of the meeting was published on April 21, 2001 in Security Times, Hong Kong Commercial Newspaper and the English newspaper Standard. 2). The first meeting of second board session of the Company was held on June 18,2001 in Meeting Room 309 of WBGC headquarters. Due participating 9 supervisors and actually 7 supervisors attended. The present supervisors made the following unanimous resolutions after discussions: The meeting reviewed and approved the resolution of Election of Chairman of Board of Supervisors for the Second Session, and elected Mr. Sun Wudu as the Chairman of Board of Supervisors for the second session, with his office term between June 2001 and June 2004. The notice of the meeting was published on June 19,2001 in Security Times, Hong Kong Commercial Newspaper and Takung Pao in Hong Kong. 3). The second meeting of second board session of the Company was held on August 16, 2001 in Meeting Room 309 of WBGC headquarters. The meeting was presided by Mr. Sun Wudu. Due participating 9 supervisors and actually 7 supervisors attended. The present supervisors made the following unanimous resolutions after discussions: (1). Reviewed and approved the 2001 Mid-year Report of Wafangdian Bearing Co., Ltd (based on IAS and CAS); (2). Reviewed and approved the 2001 Mid-year Financial Report of Wafangdian Bearing Co., Ltd; (3). Reviewed and approved the 2001 Mid-year Profit Distribution Plan of Wafangdian Bearing Co., Ltd. The notice of the meeting was published on August 17, 2001 in Security Times, Hong Kong Commercial Newspaper and the English newspaper Ta Kung Pao. 2.Work of the board of supervisors 15 1). Statutory operation of the Company In 2001 the Company strictly followed the relative regulations of the Company Law and the Articles of Association and established sound internal control system. In the report period, the directors and top management had no behavior which were against the laws, legal regulations, Articles of Association or detrimental to the interest of the Company in their positions. 2). Examining the finance of the Company In 2001, Shenzhen Pan-China Schinda Certified Public Accountants issued a non-standard and unreserved audit report for the Company. It is claimed that in this report those data of Dalian SKF Wazhou Bearing Co. Ltd. audited by Arthur Andersen-Hua Qiang Certified Public Accountants have been adopted. Meanwhile, it is emphasized that all the sums related to the Company are on the basis of those audited by the other certified accounts. We, as the board of the directors, consider that this report actually, correctly and justly reflect the financial situation and operative result of the Company, and there are no activities in the Company in breach of accounting norms or regulations and disclosure regulations. Constricted by the audit scope, the explanatory note issued by the Shenzhen Pan-China Schinda Certified Public Accountants is coherent with the cautious principle. 3). Carrying out monitoring over the application of B-share capital. In 2001, the projects with investments from B-share capital were in conformity with the projects stated in the prospectus and no change of investment was made. 4). The associated transactions of the Company. After review and inspection, the board of supervisors believed that the associated transactions of the Company were subject to the principles of openness and fairness. All the agreements were subject to the prevailing market prices. No events which were detrimental to the interest of the Company and led to loss of assets of the Company happened. 5). In the report year, no purchase, acquisition or other asset restructuring or sales of assets happened in the Company. Chapter Nine. Important events 1.In the report year the Company had no major lawsuits and arbitrations. 2.Amendments were made to the Articles of Association of the Company in June, 2001 and approved by the shareholders’ meeting. The details of the amendments were published on June 19, 2001 in Security Times, Hong Kong Commercial Newspaper and the Takung Pao in Hong Kong. 3.In the report period, there were no purchases and sales of important and major assets and acquisition and merger in the Company; 4.Important associated transactions The principles of fairness, rightness and openness were respected in the associated events and associated transactions of the Company. The Company also followed the principle of sufficient disclosure of the information on relative associated transactions. Price of association transactions is in accordance with market price. In the report period, the associated transaction items with the accumulated amount over 10% of net profit or over 5% of the net assets of the company are shown as follows: A. The Company purchased raw materials and bearing parts from the following related companies: 16 Percentage of the purchase Settlement measures Amount in the current period American General Bearing Co., Ltd. RMB 119,930,524.60 13.40% Cash or transfer Wazhou Group 64,440,273.56 7.20% Cash or transfer Special Steel Co., Ltd. Of Wafangdian 39,095,327.79 4.37% Cash or transfer Bearing Group (Wazhou Special Steel) Wafangdian Second Bearing 34,330,289.13 3.84% Cash or transfer Manufacturing Company of Wafangdian Bearing Group (Second Bearing) Non-standard Bearing Manufacturing Co., 30,869,243.02 3.45% Cash or transfer Ltd. Of Wafangdian Bearing Group (Non- standard Bearing) Tongda Bearing Manufacturing Co., Ltd. 22,072,336.95 2.47% Cash or transfer Of Wafangdian Bearing Group (Tongda Bearing) Machinery Manufacturing Co., Ltd. Of 21,776,570.69 2.43% Cash or transfer Wafangdian Bearing Group (Machinery Manufacturing) Dalian Guangyang 19,583,203.20 2.19% Cash or transfer Gas Company of Wafangdian Bearing 19,335,960.00 2.16% Cash or transfer Group (Wazhou Gas) Wafangdian rolling Bearing 14,143,644.02 1.58% Cash or transfer Manufacturing Co., Ltd. of Wafangdian Bearing Group (Rolling Bearing) Transportation Co., Ltd. Of Wafangdian 13,190,788.06 1.47% Cash or transfer Bearing Group (Wazhou Transportation) Tool Manufacturing Co., Ltd. Of 10,272,510.73 1.15% Cash or transfer Wafangdian Bearing Group (Tool Manufacturing) Grinding Wheel Manufacturing Co., Ltd. 7,929,770.68 0.89% Cash or transfer Of Wafangdian Bearing Group (Grinding Wheel Manufacturing) Packaging Products Company of 7,656,861.33 0.86% Cash or transfer Wafangdian Bearing Group (Packaging Products) Casting Company of Wafangdian Bearing 4,264,569.50 0.48% Cash or transfer Group (Casting Company) B. The Company sells accessories, raw materials and bearing parts to the following related parties: Percentage of the sales in the Settlement measures Amount current period Wazhou Group RMB 130,982,778.61 12.22% Cash or transfer SFK Wazhou Co. 78,792,705.26 7.35% Cash or transfer Second Bearing 29,545,163.63 2.76% Cash or transfer Non-standard Bearing 25,459,626.98 2.38% Cash or transfer Tongda Bearing 17,293,485.62 1.61% Cash or transfer Lokelan (U.S.) 16,857,809.77 1.57% Cash or transfer Wazhou Special Steel 12,073,268.74 1.13% Cash or transfer Rolling Bearing 10,449,452.89 0.98% Cash or transfer Machinery Manufacturing Co., Ltd. Of 9,600,206.00 0.90% Cash or transfer Wafangdian Bearing Group (Machinery Manufacturing) Dalian Guangyang 7,139,877.46 0.67% Cash or transfer Tool Manufacturing 5,340,448.23 0.50% Cash or transfer Grinding Wheel Manufacturing 4,110,515.26 0.38% Cash or transfer Casting Company 3,324,855.66 0.31% Cash or transfer Wazhou Transportation 558,025.38 0.05% Cash or transfer 17 Hongda Universal Joint 217,436.54 0.02% Cash or transfer Wazhou Gas 75,932.45 0.01% Cash or transfer Packaging Products 41,098.20 --- Cash or transfer Cash or transfer C. Details of fees paid by the Company to Wazhou Bearing Group Co., Ltd. are shown as follows: 2001 Security & fire-proof expenses RMB 3,700,000.00 Technical development expenses 7,400,000.00 Promotion expenses 900,000.00 Land lease expense 3,163,964.14 Security for loans 10,500,000.00 D. In 2001, the Company purchased labor services of RMB2,817,243.84 from the Industrial Company of Wafangdian Bearing Group Co., while in 2000, the Company paid the said company labor service fee of RMB3,126,623.00. E. Influence of association transactions to the company The related parties supply the necessary service to the company, and the two parties fairly trade with each other at the market price. F. In the report period there was no capital and share equity transfer trading between the company and the related company. 5.The Company and its shareholders with 5% or over 5% of the total equity shares of the Company did not disclose any promises or commitments in the designated newspapers or websites. 6.In the report period the Company did not change or discontinue the service contracts with the certified public accountants. The remuneration paid by the Company to Shenzhen Schinda Certified Public Accountants was 29 RMB’0000 Yuan; The remuneration paid by the Company to Hong Kong Pricewaterhousecoopers Certified Public Accounts was 620 thousand Hong Kong dollars. 7.In the report period, no penalty was put by the relative monitoring government departments on the Company, its directors and its top managers. 8.By the end of the report period, the guarantee at the value of 448 RMB’0000 provided by the Company to Wafangdian Bearing Group Corporation was still not eliminated. The Company intends to get rid of this guarantee by the end of June 2002. 9.In the report period, the Company did not change its company name and the stock name. 10.The originally chosen newspapers, the Security Times, Hong Kong Commercial Newspaper and the English Standard for information disclosure, were changed. Beginning from June 19, 2001, the Company chose Security Times, Hong Kong Commercial Newspaper and Takung Pao for information disclosure purpose. 11.Information on entrusting, contracting and leasing of assets from other companies by the Company or the Company’s assets entrusted, contracted or leased by other companies: The Company rented the land use rights of its controlling shareholder Wafangdian Bearing Group 18 Corporation, the Company’s subsidiary Wafangdian General Bearing Company Limited rented the plants of the Company. 12.In the report period, the Company did not entrust any other institutions to manage its assets. 13.In accordance with the Notice on Serious Execution of the On Correcting the Regionally-Made Tax Policy of “Collection First and Refunding Afterwards” Issued by the State Council , document No. CAISHUI[2000]99 by the Ministry of Finance of China, the preferential tax policy of “Collection first and refunding afterwards” enjoyed by the Company had expired on December 31, 2001. In 2002, the Company shall pay income tax at the rate of 33%. 19 Chapter Ten. Financial statements INDEPENDENT AUDITORS’ REPORT FOR WAFANGDIAN BEARING CO., LTD. To the Board of Directors, Wafangdian Bearing Co., Ltd. Wafangdian, Dalian, China We have audited the balance sheet & consolidated balance sheet of Wafangdian Bearing Co., Ltd. (hereinafter referred to as “the Company”) as at December 31,2001, the related statement of income and profit appropriation & consolidated statement of income and profit appropriation, and the statement of cash flow & the consolidated statement of cash flow for the year then ended. The Company is responsible for preparing these financial statements and our responsibility is to express an opinion on them based on our audit. Our audit was performed in accordance with “Auditing Standards of Certified Public Accountants of China”, and accordingly included testing accounting records on a selective basis and other auditing procedures as we considered necessary in the circumstances. In our opinion, the audited financial statements present fairly, in all material respects, the financial position & the consolidated financial position of the Company as at December 31, 2001, the results of its operation & the consolidated results of its operation and cash flow & the consolidated cash flow for the year then ended, and are in conformity with “Accounting Standards for Enterprises” and “Accounting Systems for Enterprises” of the People’s Republic of China. The accounting treatment methods are consistent with those of prior years. In addition, we have noticed that: As stated in Note 4(3) of the audited consolidated financial statements, Dalian SKF-Wazhou Bearing Company (hereinafter referred to as “SKF Wazhou Company”) is an associated company of the Company, and the Company calculated its long-term investment in SKF-Wazhou Company based on the equity method. In 2001, the Company’s return on investment in SKF-Wazhou Company calculated in accordance with the equity method amounted to RMB7,015,829.04, which is equivalent to 28.57% of the Company’s consolidated net profits. SKF-Wazhou Company had its financial statements for the year ended December 31,2001 audited by another accounting firm and offered us the relevant audit report. Therefore, we express our audit opinion on the relevant amounts of the said company based on the audit report of other CPAs. Shenzhen Pan-China Schinda China Certified Public Accountant Certified Public Accountant China Certified Public Accountant ShenZhen The People’s Republic of China April 12 , 2002 20 WAFANGDIAN BEARING CO., LTD. CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Notes 2001.12.31 2000.12.31 ASSETS Current Assets Monetary Funds 5 RMB 70,394,690.48 RMB 64,774,401.57 Notes Receivables 6 13,965,012.32 13,163,979.89 Accounts Receivable 2(7),7,39(3) 832,504,011.88 843,315,615.31 Other Receivable 2(7),7,39(3) 9,887,580.73 7,751,483.93 Advances to Suppliers 8 124,062,304.08 164,287,226.64 Inventory 2(8),9 575,523,403.68 528,387,834.21 Expenses to be 120,000.00 - Total Current Assets 1,626,457,003.17 1,621,680,541.55 Long-term Investment: Long-term Share Right 2(9),10 87,752,392.65 101,798,655.68 Investment Long-term Bond 2(9),10 - 16,349.00 Total Long-term 87,752,392.65 101,815,004.68 I Fixed Assets Fixed Assets-cost 2(10),11 911,583,645.44 832,327,258.86 Less: Accumulated 2(10),11 503,889,727.86 464,983,234.37 Depreciation Fixed Assets-Net Book 407,693,917.58 367,344,024.49 Less: Provision on Decline in value 2(10),11 5,309,603.95 4,367,960.38 of F/A Net Fixed Assets 402,384,313.63 362,976,064.11 Construction in Progress 2(11),12 58,397,762.23 76,107,631.61 Total Fixed Assets 460,782,075.86 439,083,695.72 Intangible Assets & Other Assets Long-term Prepaid & 2(13),13 2,574,341.73 4,816,791.43 Deferred Expenses Total Intangible Asset & Other Assets 2,574,341.73 4,816,791.43 Total Assets RMB 2,177,565,813.41 RMB 2,167,396,033.38 21 WAFANGDIAN BEARING CO., LTD. CONSOLIDATED BALANCE SHEET (CONT'D) AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Notes 2001.12.31 2000.12.31 LIABILITIES & OWNERS' EQUITY Current Liabilities Short-term Loans 14 RMB 537,429,830.00 RMB 436,039,830.00 Notes Payable 15 14,000,000.00 12,800,000.00 Accountants Payable 16,39(3) 286,442,492.39 287,061,254.01 Advances from Customers 17 13,064,186.43 18,600,521.01 Accrued Payroll 5,391,867.08 17,370,671.07 Staff's Welfare Payable 3,573,089.68 6,024,978.80 Dividends Payable 18 9,900,000.00 16,500,000.0 Taxes Payable 19 70,875,090.17 69,105,174.23 Other Amounts Due 20 18,271.44 (103,128.72) Other Payable 21,39(3) 93,469,957.42 84,888,274.27 Long-term Liabilities due within 22 - 116,250,000 one year .00 Total Current Liabilities 1,034,146,784.61 1,064,537,574.6 Long-term Liabilities Long-term Loans 23 96,300,000.00 76,250,000.00 Long-term Payables 265,721.95 265,721.95 Other Long-term Liabilities 24 2,402,636.49 2,351,451.93 Total Long-term Liabilities 98,968,358.44 78,867,173.88 Total Liabilities 1,133,133,143.05 1,143,404,748.5 Minor Shareholders' Equity 2(17) 6,344,311.38 6,127,222.58 Shareholders' Equity Share Capital 25 330,000,000.00 330,000,000.00 Capital Reserve 26 518,686,615.46 513,115,474.19 Surplus Reserve 27 41,381,815.71 37,295,087.83 Including: Public Welfare Fund 27 13,821,147.46 12,458,904.83 Undistributed Profits 28 148,019,927.81 137,453,500.23 Total Shareholders' Equity 1,038,088,358.98 1,017,864,062.2 Total Liabilities & Shareholders' Equity RMB 2,177,565,813.41 RMB 2,167,396,033.3 (The accompanying notes form an integral part of the financial statements) Legal Representative General Acct. Finance Manager 22 WAFANGDIAN BEARING CO., LTD. BALANCE SHEET AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Notes 2001.12.31 2000.12.31 ASSETS Current Assets Monetary Funds RMB 70,258,002.49 RMB 63,994,491.27 Bills Receivables 13,965,012.32 13,163,979.89 Accounts Receivable 2(7),38(1) 798,228,577.44 802,908,161.93 Other Receivable 2(7),38(2) 4,642,164.94 5,618,722.62 Advances to Suppliers 123,882,253.64 163,927,932.53 Inventory 542,638,345.79 495,852,533.35 Total Current Assets 1,553,614,356.62 1,545,465,821.59 Long-term Investment: Long-term Share Right Investment 2(9),38 3 123,689,856.14 136,638,818.05 Total Long-term Investment 123,689,856.14 136,638,818.05 Fixed Assets Fixed Assets-cost 841,677,749.70 764,387,525.41 Less: Accumulated Depreciation 480,960,708.11 444,840,034.03 Fixed Assets-Net Book Value 360,717,041.59 319,547,491.38 Less: Provision on Decline in value 3,757,796.45 4,367,960.38 of F/A Net Fixed Assets 356,959,245.14 315,179,531.00 Construction in Progress 56,313,584.62 72,216,511.99 Total Fixed Assets 413,272,829.76 387,396,042.99 Intangible Assets & Other Assets Long-term Prepaid & Deferred 2,574,341.73 3,158,859.57 Expenses Total Assets RMB 2,093,151,384.25 RMB 2,072,659,542.20 23 WAFANGDIAN BEARING CO., LTD. BALANCE SHEET (CONT'D) AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Notes 2001.12.31 2000.12.31 LIABILITIES & OWNERS' EQUITY Current Liabilities Short-term Loans RMB 503,340,000.00 RMB 402,040,000.00 Bills Payable 14,000,000.00 12,800,000.00 Accounts Payable 264,262,562.28 256,854,990.69 Advances from Customers 11,064,843.24 15,057,248.02 Accrued Payroll 3,620,958.86 14,093,182.62 Staff's Welfare Payable 1,766,343.77 3,984,315.11 Dividends Payable 9,900,000.00 16,500,000.00 Taxes Payable 65,301,948.66 65,002,523.54 Other Amounts Due 920.55 (103,128.72) Other Payable 81,256,983.43 74,164,731.14 Long-term Liabilities due within - 116,250,000.00 one year Total Current Liabilities 954,514,560.79 976,643,862.40 Long-term Liabilities: Long-term Loans 94,800,000.00 74,750,000.00 Other Long-term Liabilities 2,402,636.49 2,351,451.93 Total Long-term Liabilities 97,202,636.49 77,101,451.93 Total Liabilities 1,051,717,197.28 1,053,745,314.33 Shareholders' Equity Share Capital 330,000,000.00 330,000,000.00 Capital Reserve 518,686,615.46 513,115,474.19 Surplus Reserve 41,259,948.00 37,232,625.33 Including: Public Welfare Fund 13,753,316.09 12,410,875.20 Undistributed Profits 151,487,623.51 138,566,128.35 Total Shareholders' Equity 1,041,434,186.97 1,018,914,227.87 Total Liabilities & Shareholders' RMB 2,093,151,384.25 RMB 2,072,659,542.20 Equity (The accompanying notes form an integral part of the financial statements) Legal Representative General Acct. Finance Manager 24 WAFANGDIAN BEARING CO., LTD. CONSOLIDATED STATEMENT OF INCOME & PROFIT APPROPRIATION AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Notes 2001 2000 Operating Income 2(14),29 RMB 1,071,640,595.40 RMB 1,095,680,727.81 Less: Operating Cost 29 837,121,150.19 877,078,965.96 Sales Tax & Surcharge 30 3,753,761.70 3,997,677.22 Profit from Major Operations 230,765,683.51 214,604,084.63 Add: Profits from Other Operations 31 4,511,113.62 14,132,696.37 Less: Operating Expenses 32 62,913,665.58 58,552,135.79 Administrative Expenses 105,574,363.46 104,803,119.54 Financial Expenses 33 45,274,752.77 39,537,711.85 Operating Profit 21,514,015.32 25,843,813.82 Add: Investment Income 34 8,200,695.11 11,394,571.37 Non-operating Income 35 2,502,563.89 2,320,701.58 Less: Non-operating Expenses 36 5,147,776.74 3,377,787.16 Total Profit 27,069,497.58 36,181,299.61 Less: Income Tax 2(15),3(2) 2,314,878.82 4,152,858.79 Minor Shareholders' profit & Loss 2(17) 201,463.30 (788,241.63) Net Profit 24,553,155.46 32,816,682.45 Add: Undistributed Profit brought 28 137,453,500.23 125,654,812.40 forward Profit Available for Distribution 162,006,655.69 158,471,494.85 Less: Withdrawal of Statutory 27 2,724,485.25 3,011,996.42 Surplus Reserve Withdrawal of Statutory Public 27 1,362,242.63 1,505,998.20 Welfare Fund Profit Attributable to Shareholders 157,919,927.81 153,953,500.23 Less: Ordinary Share Dividends 28 9,900,000.00 16,500,000.00 Declared Undistributed Profit Carried Forward RMB 148,019,927.81 RMB 137,453,500.23 (The accompanying notes form an integral part of the financial statements) Legal Representative General Acct. Finance Manager 25 WAFANGDIAN BEARING CO., LTD. STATEMENT OF INCOME & PROFIT APPROPRIATION AS AT DECEMBER 31,2001 Monetary Unit: RMB Yuan Notes 2001 2000 Operating Income 2(14),38(4) RMB 1,051,929,928.44 RMB 1,083,910,997.97 Less: Operating Cost 38(4) 829,716,551.65 875,187,112.90 Sales Tax & Surcharge 3,537,410.10 3,834,659.84 Profit from Major Operations 218,675,966.69 204,889,225.23 Add: Profits from Other Operations 6,748,432.86 14,315,581.67 Less: Operating Expenses 61,445,677.89 57,715,292.63 Administrative Expenses 98,506,372.66 99,319,518.64 Financial Expenses 42,915,268.36 36,949,698.95 Operating Profit 22,557,080.64 25,220,296.68 Add: Investment Income 38(5) 9,201,119.73 9,598,496.24 Non-operating Income 2,209,688.25 2,310,267.68 Less: Non-operating Expenses 4,804,191.97 3,272,654.33 Total Profit 29,163,696.65 33,856,406.27 Less: Income Tax 3(2) 2,314,878.82 4,152,858.79 Net Profit 26,848,817.83 29,703,547.48 Add: Undistributed Profit brought forward 138,566,128.35 129,818,112.99 Profit Available for Distribution 165,414,946.18 159,521,660.47 Less: Withdrawal of Statutory Surplus Reserve 2,684,881.78 2,970,354.7 Withdrawal of Statutory Public Welfare Fund 1,342,440.89 1,485,177.3 Profit Attributable to Shareholders 161,387,623.51 155,066,128.35 Less: Ordinary Share Dividends Declared 9,900,000.00 16,500,000.0 Undistributed Profit Carried Forward RMB 151,387,623.51 RMB 138,566,128.35 (The accompanying notes form an integral part of the financial statement) Legal Representative General Acct. Finance Manager 26 WAFANGDIAN BEARING CO., LTD. CONSOLIDATED STATEMENT OF CASH FLOW AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Items Notes 2001 1. Cash Flow from Operating Activities Cash Received from Sales of Goods or Rendering of RMB 659,681,923.83 Services Other Cash received relating to Operating Activities 9,212,767.25 Sub-total of Cash Inflow 668,894,691.08 Cash Paid for Goods & Services 296,472,705.81 Cash Paid to & on behalf of Employees 142,526,604.09 Various Tax Paid 41,109,140.22 Other Cash Paid relating to Operating Activities 37 81,396,217.11 Sub-total of Cash Outflow 561,504,667.23 Net Cash Flows from Operating Activities 107,390,023.85 2. Cash Flow from Investing Activities Net Cash Received from Disposal of Fixed Assets, 280,189.00 Intangible Assets & Long-term Assets Other Cash Received relating to Investing Activities 80,000.00 Sub-total of Cash Inflows 360,189.00 Cash Paid to Acquire Fixed Assets, Intangible Assets 49,850,691.58 & Other Long-term Assets Cash Paid to Equity Investment 156,689.26 Sub-total of Cash Outflows 50,007,380.84 Net Cash Flows from Investing Activities (49,647,191.84) 3. Cash Flows from Financing Activities Proceeds from Borrowings 588,690,000.00 Sub-total of Cash Inflows 588,690,000.00 Cash Repayments of Amounts Borrowed 588,600,000.00 Cash Payments for Distribution of Dividend, Profits & 52,212,543.10 Interest Expenses Sub-total of Cash Outflows 640,812,543.10 Net Cash Flows from Financing Activities (52,122,543.10) 4. Net Increase (Decrease) in Cash & Cash 2 6 RMB 5,620,288.91 Equivalents 27 WAFANGDIAN BEARING CO., LTD. CONSOLIDATED STATEMENT OF CASH FLOW (CONT'D) AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Items Notes 2001 1. Reconciliation of Net Profit to Cash Flows from Operating Activities Net Profit RMB 24,553,155.46 Add: Minor Shareholders' profit & Loss 201,463.30 Provision for Bad Debt or Bad Debt Written off 16,627,695.66 Depreciation of Fixed Assets 44,033,785.41 Amortization of Long-term Deferred Expenses 2,429,555.70 Decrease in Deferred Expenses (or deduct: increase) (120,000.00) Losses on disposal of Fixed Assets, Intangible Assets (805,407.41) & Long-term Assets(or deduct: gains) Losses from Abandonment of Fixed Assets 22,416.00 Financial Expenses 45,274,752.77 Losses arising from Investments (or deduct: gains) (8,200,695.11) Decrease in Inventories (or deduct: increase) (57,271,532.05) Decrease in Operating Receivables (or deduct: 45,404,620.11 increase) Increase in Operating Payables(or deduct :decrease) (4,759,785.99) Net Cash Flows from Operating Activities 107,390,023.85 2. Investing Activities & Financing Activities not Effecting Cash Receipt & Payments Debt converted into Capital 5,571,141.27 3. Net Increase in Cash & Cash Equivalents Cash at the end of the Period 70,394,690.48 Less: Cash at the beginning of the Period 64,774,401.57 Net Increase (Decrease) in Cash and Cash Equivalents 2(6) RM 5,620,288.91 (The accompanying notes form an integral part of the financial statement) Legal Representation ________________ General Acct. ______________ Finance Manager _____________ 28 WAFANGDIAN BEARING CO., LTD. STATEMENT OF CASH FLOW AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Items Notes 2001 1. Cash Flow from Operating Activities Cash Received from Sales of Goods or Rendering of RMB 643,954,657.82 Services Other Cash received relating to Operating Activities 4,696,405.98 Sub-total of Cash Inflow 648,651,063.80 Cash Paid for Goods & Services 296,788,444.47 Cash Paid to & on behalf of Employees 133,761,784.11 Various Tax Paid 39,200,096.45 Other Cash Paid relating to Operating Activities 72,676,638.25 Sub-total of Cash Outflow 542,426,963.28 Net Cash Flows from Operating Activities 106,224,100.52 2. Cash Flow from Investing Activities Net Cash Received from Disposal of Fixed Assets, 280,189.00 Intangible Assets & Long-term Assets Other Cash Received relating to Investing Activities 80,000.00 Sub-total of Cash Inflows 360,189.00 Cash Paid to Acquire Fixed Assets, Intangible Assets 49,787,591.58 & Other Long-term Assets Cash Paid to Equity Investment 156,689.26 Sub-total of Cash Outflows 49,944,280.84 Net Cash Flows from Investing Activities (49,584,091.84) 3. Cash Flows from Financing Activities Proceeds from Borrowings 566,040,000.00 Sub-total of Cash Inflows 566,040,000.00 Cash Repayments of Amounts Borrowed 566,040,000.00 Cash Payments for Distribution of Dividend, Profits & 50,376,497.46 Interest Expenses Sub-total of Cash Outflows 616,416,497.46 Net Cash Flows from Financing Activities (50,376,497.46) 4. Net Increase (Decrease) in Cash & Cash Equivalents 2(6) RMB 6,263,511.22 29 WAFANGDIAN BEARING CO., LTD. STATEMENT OF CASH FLOW (CONT'D) AS AT DECEMBER 31, 2001 Monetary Unit: RMB Yuan Items Notes 2001 1. Reconciliation of Net Profit to Cash Flows from Operating Activities Net Profit RMB 26,848,817.83 Add: Provision for Bad Debt or Bad Debt Written off 16,183,467.32 Depreciation of Fixed Assets 40,653,513.75 Amortization of Long-term Deferred Expenses 771,623.84 Losses on disposal of Fixed Assets, Intangible Assets & (630,640.56) Long-term Assets (or deduct: gains) Financial Expenses 42,915,268.36 Losses arising from Investments (or deduct: gains) (9,201,119.73) Decrease in Inventories (or deduct: increase) (58,160,817.21) Decrease in Operating Receivables (or deduct: 39,482,162.15 increase) Increase in Operating Payables (or deduct: decrease) 7,361,824.77 Net Cash Flows from Operating Activities 106,224,100.52 2. Investing Activities & Financing Activities not Effecting Cash Receipt & Payments Debt converted into Capital 5,571,141.27 3. Net Increase in Cash & Cash Equivalents Cash at the end of the Period 70,258,002.49 Less: Cash at the beginning of the Period 63,994,491.27 Net Increase (Decrease) in Cash and Cash Equivalents 2(6) RMB 6,263,511.22 (The accompanying notes form an integral part of the financial statement) LegalRepresentation________________GeneralAcct._______________FinanceManager_____________ 30 WAFANGDIAN BEARING CO.,LTD. Detailed Statement of Provision on Write-down in Assets 2001 The detailed statement of the provision on write-down in assets of the Company and its subsidiaries in 2001 is shown as follows: Balance at beginning Addition Deduction Balance at the end of of year year 1. Provision of bad debt RMB 42,890,964.58 RMB 5,550,089.51 RMB --- RMB 48,441,054.09 Including: Accounts Receivable RMB 41,673,206.77 RMB 5,275,856.15 RMB --- RMB 46,949,062.92 Other Receivables RMB 1,217,757.81 RMB 274,233.36 RMB --- RMB 1,491,991.17 2. Provision for write-down in RMB 6,585,984.23 RMB 11,190,814.81 RMB 1,054,852.23 RMB 16,721,946.81 value of inventory Including: Raw Materials RMB 2,551,484.23 RMB --- RMB 1,054,852.23 RMB 1,496,632.00 Work-in-progress RMB 1,600,000.00 RMB -- RMB --- RMB 1,600,000.00 Finished Goods RMB 2,434,500.00 RMB 11,190,814.81 RMB --- RMB 13,625,314.81 3. Provision for write-down in RMB 4,367,960.38 RMB 1,626,287.94 RMB 684,644.37 RMB 5,309,603.95 value of fixed assets Machinery and equipment RMB 4,367,960.38 RMB 1,626,287.94 RMB 684,644.37 RMB 5,309,603.95 Details of VAT Payable Company Wafangdian Bearing Company Limited December31,2001 Unit RMB Yuan Item Line Accumulated amount One. VAT payable 1 Amount not deducted at the beginning of the year(filled with 1 - ) 2 Amount of VAT on sales 2 171,157,354.36 Refunded tax for exporting 3 Purchasing VAT amount transferred out 4 657,039.60 More of paid VAT transferred out 5 6 3 VAT amount on purchases 7 141,159,731.99 Already paid VAT amount 8 VAT deductions 9 Deductions of domestically sales due to exporting 10 Un-paid VAT transferred out 11 32,158,273.64 12 4 Un-deducted amount at the end of the year filled with - 13 -1,503,611.67 二 VAT amount to be paid Amount due at the year beginning More amount paid will be 14 58,986,119.34 filled with - 2 Amount transferred in this period More paid shall be filled with 15 32,158,273.64 - 3 Amount already paid 16 27,410,474.51 4 Amount un-paid at the end of the year( For more amount - is 17 63,733,918.47 filled in) 31 The Equity Capital Changes December 31, 2001 Unit: RMB Yuan Period Increases in Decrease in Period end Items beginning the report the report figure figure period period Equity shares 330000000.00 330000000.00 Capital public accu. 513115474.19 5571141.27 518686615.46 fund Surplus public accu. 37295087.83 4086777.38 41381865.21 fund Including: public 12458904.83 1362259.13 13821163.96 welfare fund Undistributed profit 137453500.23 20466708.08 157920208.31 Total of shareholders’ 1017864062.25 30124626.73 1047988688.98 equity WAFANGDIAN BEARING CO., LTD. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,2001 MONETARY UNIT: RMB YUAN NOTE 1. DETAILS OF INCORPORATION On July 16, 1996, as approved by Dalian Council Committee for Restructuring the Economic System under Document (1996) No.64, the Company was established by public offering as a joint stock limited company promoted by the sole promoter, Wafangdian Bearing Group Co., Ltd. The Company’s productive assets (and related liabilities), which the State authorized the Company to own, were approved to be evaluated and converted into share capital. And the Company was established by the form of attracting capital from the public. On February 19,1997, as approved by the Securities and Exchange Committee under Document (1997) No.9, the Company proposed to be listed publicly and issue domestic listed foreign investment share (B share). 32 On March 19,1997, the first meeting of the Board of Directors passed the resolution that the valid date of the Company’s restructuring as a joint stock limited company for accounting purposes (i.e., the date when accounting books were established) shall be April 1,1997. On March 20,1997, the Company obtained its business license NO.24239971-2. The Company is authorized to engage in manufacturing and selling bearing, machinery & equipment, automobile parts and relevant products. On March 25,1997, the domestic listed foreign investment share (B share) of the Company was authorized to be listed and traded in Shenzhen Stock Exchange. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND COMPILING METHOD OF CONSOLIDATED FINANCIAL STATEMENTS (1) Accounting policies: The Company and its subsidiaries adopted the “Accounting Standards for Enterprises” and “Accounting Regulations for Joint Stock Limited Company” of the People’s Republic of China before January 1, 2001. After January 1, 2001, “Accounting Standards for Enterprises” and “Accounting System for Enterprises” of the People’s Republic of China are being implemented. (2) Fiscal year The fiscal year of the Company is from January 1 to December 31 under the Gregorian Calendar. (3) Reporting currency The Company adopts RMB Yuan as its reporting currency. (4) Accounting base and pricing principles The Company accounts for its business transactions on accrual basis, and all properties and materials are stated at their actual costs. After that, when a write-down of various assets occurs, the Company will prepare corresponding provision for written-down assets in accordance with “Enterprise Accounting System”. (5) Accounting methods for foreign currency transactions All business transactions denominated in non-reporting currencies in the current year are recorded into RMB Yuan converted at the market exchange mid-rate ruling on the first day of the transaction month promulgated by the People's Bank of China. At the end of each month, the 33 monetary items denominated in non-reporting currency are adjusted at the market exchange mid- rate ruling on the month-end promulgated by the People's Bank of China, and any exchange gains and losses arising therefrom during the year have been recorded in the current year profit and loss account for presentation. (6) Definition of cash equivalents The term of cash equivalents is used in compiling statement of cash flow of the Company with the meaning specified as follows: cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (7) Accounting of bad debts For the Company and its subsidiaries, the accounts receivable shall be treated as bad debts when the accounts receivable are still not recoverable after the debtor’s death or bankruptcy, and after the deceased or the debtor has used the assets or the deceased’s property to in an effort to pay off the debts, or when debtor has failed to perform the duty of liquidation within a timeframe, and there is clear evidence that the accounts receivable is not recoverable. Loss on bad debts is accounted for with the allowance method. Provision for bad debts shall be made on receivables (including the accounts receivable item and other receivables item) in the light of the Company’s past experience, the financial position and cash flow of the debtors and other relevant information, and use the aging analysis method. The provision on bad debts has been recorded in the current year's profit and loss account. The relevant ratio of provision on bad debts is shown as follows: Age Provision ratio Within one year 1% Between one year and two years 5% Between two years and three years 20% Above three years 50% Details of provision on bad debts are shown in Notes 7. (8) Inventories Inventories are made up of raw materials, work in progress, finished products, and low value and short-lived articles. The daily raw material transactions are accounted for using the standard cost method. Variances between the standard cost and the actual cost are allocated to cost of raw materials and cost of 34 sales based on the ratio of storage and sales of each category of raw materials, bringing the standard cost of the raw materials to actual costs. Finished products and work in progress are stated at actual cost, and the cost of products issued and the cost of work in progress are accounted for through the weighted average method. Cost of products includes direct materials, direct labor and manufacturing overhead. Low value and short-lived articles are fully amortized upon requisition. Inventories are accounted for using the perpetual inventory system. At the balance sheet date, the inventories are valued at the lower of cost and net realizable value. Provision against decline in inventory value is accrued in the amount equivalent to the balance of the cost of individual inventory item less its net realizable value, and this provision has been included in the current year's profit and loss account. Details of inventories are shown in Note 9. (9) Accounting for long-term investment The long-term investment of the Company and its subsidiaries includes long-term equity investment and long-term bond investment. The Company's long-term share investment is accounted for through following methods: investments in which the Company holds less than 20% of the equity are stated at the cost method. Investment in which the Company holds no less than 20% and no more than 50% of the equity are accounted for under the equity method. Investment in which the Company holds more than 50% of the equity are accounted for under the equity method, and the financial statements should be consolidated. Long-term bond refers to the Liaoyang Housing Construction Bond purchased by the subsidiary of the Company, Liaoyang Bearing Co., Ltd. of Wafangdian Bearing Group Co., Ltd. (hereinafter abbreviated as “Liaoyang Bearing”), which is accounted by at its actual cost. At the balance sheet date, if the operation of the invested company was in a deteriorating operating condition such that the recoverable amount of the Company's long-term share right investment was under its book value, and it was impossible to recover the lost value in an anticipated future period, provision against decline in value for long-term investment shall be made in an amount equivalent to the balance of the long-term investment at book value, less the recoverable amount, and should be recorded in the current year's profit and loss account. 35 As of December 31, 2001, there is not enough evidence indicating that any aforementioned long- term investment of the Company and its subsidiaries has already declined in value. Therefore, no provision for decline in long-term investment has been made. Details of long-term share right investment are shown in Note 10. (10) Fixed assets and accumulated depreciation The fixed assets of the company refer to the physical assets with unit value of RMB 2,000.00 and an economic useful life of more than one year. Fixed assets are stated at actual cost. The assets appraisal organization had assessed the fixed assets and depreciation of the Company as at December 31,1993 and as at December 31,1995. These reappraised numbers were confirmed by the Office of Dalian Municipal Leading Group on Appraisal of Assets and Properties, as well as Dalian State-owned Assets Administration Bureau under Document (1995) No.67-"Notice on Confirmation of Asset Appraisal Results". The fixed asset and depreciation of the Company as at September 30,1996 was assessed by asset appraisal organizations and confirmed by National State-owned Assets Administration Bureau under Document (1997) No.67, for which the Company adjusted its account accordingly on April 1,1997. Liaoyang bearing Co., Ltd. (Wafangdian Bearing Group) (hereinafter referred to as "Liaoyang Bearing") is a subsidiary of the Company. Its fixed assets and depreciation expenses as at April 30,1996 had been assessed by asset appraisal organization and had been further confirmed by Dalian State-owned Assets Administration Bureau under Document (1997) No.102, for which the Company adjusted its account accordingly on January 1,1998. Depreciation is calculated by straight-line method with the rate based on estimated economic useful life and the estimated residual value (3% of the original cost). The rates for each category of assets are as follows: Classification Depreciation period (Year) Annual depreciation rate Buildings and structures Including: Buildings 15 6.47% Productive 30 3.23% Non-productive 35 2.77% Plant and Machinery 10—11 8.82% 9.70% Transport vehicles 6 16.17% Electronic instrument and meters Including: Computer 4 24.25% General testing instrument 7 13.86% Specialized electronic equipment 8 12.13% Automatic control equipment 8 12.13% Automatic control meter 8 12.13% Other equipment Including: Industrial bera 7 13.86% 36 Tool & other production tool 9 10.78% Transmission equipment 15 6.47% Non-operational equipment and tool 18 5.39% At the balance sheet date, in the event that the market prices of fixed assets drop continuously, or the collectable value of certain fixed assets being lower than their book value due to technological obsolescence, damage, long-term idleness, etc., the Company shall make provision on decline in value of fixed assets on the difference between collectable value and related book value for each fixed asset item. The anticipated decrease in value of fixed assets shall be included in the current year’s profit and loss account. Details of fixed assets, accumulated depreciation and provision on decline in value of fixed assets are shown in Note 11. (11) Construction in progress Construction in progress is stated at actual cost. Interest expenses incurred in the financing of the construction in progress during the period of constructing, assembly and testing, and currency translation difference incurred before the construction can be used, are recorded in the costs of the assets. The construction in progress is transferred into fixed assets when they are put into use. At the balance sheet date, in the event that there is any evidence showing any decrease in value of construction in progress, e.g. there is a long-term postponement in certain projects and it is anticipated that the projects won’t restart in the following three years, or the construction project will lag behind in terms of functions and technology, and there is gigantic uncertainty with respect to the economic benefit brought by the said project and there is other evidence enough to prove that the construction-in-progress had actually suffered a decrease in value, the Company and its subsidiaries shall make provision on the decrease in value, and record it in the profit and loss account in that year. As at December 31, 2001, there is no evidence showing that any decrease in value of construction in progress has incurred. Therefore, the Company has not made any provision on decrease in value of construction in progress in the current year. Details of construction in progress are listed in Note 12. (12) The accounting treatment method with respect to borrowing expenses Borrowing expenses incurred specially for the purchase or building of fixed assets and incurred before the fixed asset is placed into expected use should be capitalized and included into the cost of the fixed asset. On the other hand, borrowing expenses incurred after the fixed asset is placed into use should be included into the gains and losses account of the current year. 37 The borrowing expenses that are current liabilities, or long-term borrowing expenses that are not used to purchase fixed assets, and borrowing expenses incurred for the purpose of investment, should be included in the gains and losses account of the current year when incurred. The borrowing expenses incurred during the organizational period should be summarized in the long-term deferred asset account and be included in a lump sum in the gains and losses account in the month when the operation formally begins. Details of borrowing expenses are listed in the Note 12 and 33. (13) Methods regarding amortization of long-term prepaid and deferred expenses A. Building and house use right The Company signed a "Premise Use and Lease Contract" with Finance and Trade Office of Shanghai Zhabei District People's Government on March 30,1993, pursuant to which the Company paid once-in-all and purchased the use right of premises located at Qiujiang Road, Zhabei District, Shanghai. The premise use right are being amortized over a period of thirty years subject to the economic useful life of the premise starting from May 1,1994. B. Major repair expenses for fixed assets It refers to the expenses incurred in the current year for big repairs of fixed assets, which shall be amortized over a period of five years. C. Labor insurance premium As approved by Dalian Municipal People's Government, Wafangdian Bearing Group Co., Ltd. carries out the policy of "staff retirement five-year in advance”. Wafangdian Bearing Group Co., Ltd. paid the labor insurance fund attributable to the staff retirement five-year in advance to Dalian Labor Bureau and Dalian Labor Insurance Company, which was approved by Dalian Finance Bureau (no document No.) to be amortized over a period of five years. The labor insurance premium borne by the Company shall be amortized over a period of five years since January 1,1997. D. Organization expenses It refers to the expenses (excluding capital expenditure) incurred during the start-up period by Wafangdian General Bearing Co. Ltd., (hereinafter referred to as “General Bearing”), a subsidiary of the Company, which shall be amortized over a period of five years since the date of 38 operation. Pursuant to the “Enterprise Accounting System”, the remaining unamortized amount should be included in a lump sum in the current year’s gain and loss account. Details of long-term prepaid and deferred expenses are shown in Note 13. (14) Principle governing the realization of sales For the Company and its subsidiaries, sales and service income from major operations are regarded as realized once the risk and reward of ownership are transferred, the Company no longer exercises its right of administration and actual control over the product, relevant economic benefits can flow into Company, and the relevant sales and cost could be measured reliably. Details of income from main operations are listed in Note 29. (15) Accounting treatment with respect to corporate income tax The Company and its subsidiaries adopt the tax payable method to account for their corporation income tax. Details of corporate income tax are shown in Note 3(2). (16)THE IMPACT OF CORRECTING SIGNIFICANT ACCOUNTING ERRORS As stated in Note 28, pursuant to relevant provisions in the “Enterprise Accounting Standards” and “Accounting System for Enterprises”, the Company used the retroactive adjustment method to adjust the significant accounting errors made in prior years that were discovered in the current year, such that the beginning of the year balance or the actual balance in prior year in relevant accounts of the consolidated financial statements in 2001 were adjusted. These adjustments include decreasing the consolidated net profit in 2000 by RMB11,477,574.03, and increasing the consolidated undistributed profits at the beginning of 2000 by RMB16,009,685.83. (17) Method of compiling consolidated financial statements In accordance with the stipulations in the “Circular on Printing and Distributing ‘Provisional Regulations on Consolidated Financial Statements’” issued by the Ministry of Finance under Document (1995) No.11, the consolidated financial statements are compiled on the basis of the financial statements and other relating data of the Company and its subsidiaries which fall within the scope of consolidation. When compiling the consolidated financial statements for the year ended December 31, 2001 according to the stipulations in "Accounting Standards for Enterprises" and "Accounting System for Foreign Investment Enterprises" of the People's Republic of China, the Company had made appropriate adjustment and restatement of the financial statements of the subsidiaries according 39 to the stipulations in "Accounting Standards for Enterprises" and "Accounting System for Enterprises" of the People's Republic of China. As listed in Note 4(2), the subsidiary of the Company---Wafangdian Huamei Bearing Co., Ltd.(hereinafter abbreviated as “Huamei Company”) has already gone to liquidation and clearance, so the Company did not include Huamei Company’s financial statements in the consolidated financial statements of this year. When compiling the consolidated statement of income and profit appropriation, the Company made adjustment to its statutory surplus reserve fund, statutory public welfare fund attributable to the portion of the above funds for each subsidiary respectively according to the Company's investment ratio. All significant inter-company transactions and transactions between the Company and its subsidiaries have been offset against each other on consolidation. Minor Shareholders' Equity is stated at the difference between the owners' equity of all subsidiaries of the Company and the Company's shares in all its subsidiaries. The balance after deducting the parent company's investment income from the profit and loss realized in the current year by all subsidiaries of the company shall be the Minor Shareholders' Profit and Loss. NOTE 3. TAXATION AND OTHERS Details of taxes payable for the Company and its subsidiaries are shown as follows: (1) Turnover tax Taxable item Tax item Tax rate Sales income VAT * 17% Material sales income VAT * 17%, 13% Income from industrial operation VAT * 17% Rental income Business tax 5% * VAT payable is the balance of the output VAT after deducting the input VAT for the period. Urban Maintenance and Construction Tax is levied at 7% of the VAT payable and Business Tax. Educational Surcharge is levied at 1% of the VAT payable and Business Tax. According to the stipulations of "Notice Regarding Levying Local Educational Surcharge " issued by Dalian Bureau of Finance, Dalian Local Taxation Bureau and Dalian Education Bureau under Document (1999) No.242, the local education surcharge shall be levied at 1% of the VAT payable and Business Tax amount since October 1,1999. 40 (2) Corporate Income Tax For the Company and its subsidiary, "Liaoyang Bearing", the applicable corporate income tax rate is 33%, while for another subsidiary-"General Bearing", the corporation income tax is levied at rate of 24%. As approved by Dalian People's Government under Document (1996) No.110 on August 27,1996, the Company is privileged to enjoy the advantage of "collect first and refund later" in term of corporation income tax since January 1,1996. On July 24, 1997, the People's Government in Dalian approved (no document No.) that the Company is allowed to pay corporate income tax directly at tax rate of 15% for the period from January 1, 1997 to December 31,1999. Since January 1,2000, the corporate income tax of the Company shall be levied at rate of 33% first, then 18% will be refunded to the Company soon after. The corporate income tax refunded shall be directly recorded into the Income Tax Account. The amount of the Company totally be refunded is RMB 5,999,700.00. In accordance with the stipulations of Document No. (2000)99 issued by the Ministry of Finance, “the Circular on Further Seriously Carrying Out and Implementing the ‘Circular on Rectifying the Levy First, Refund Later Tax Policy Formulated by Local Governments on Individual Basis’ by the State Council”, the “levy first, refund later” tax policy formulated by local governments on various levels and various prefectures can remain in force until December 31, 2001. That is to say, starting from January 1, 2002, the corporate income tax rate applicable to the Company is 33%. In accordance with the Clause 7 and 8 in "Law on Corporate Income Tax of the People's Republic of China", "General Bearing" is entitled to be exempted from income tax in the first and second profit-generating years and allowed a 50% reduction for the following three years. However, the related approval document has not been obtained from the local tax authorities yet. The profits generated by “General Bearing” in the current year were not sufficient to offset the losses brought forward, hence no preparation for paying corporate income tax has been made. Subject to the regulations of the Ministry of Finance and State General Administration of Taxation under Document (1997) No.77 issued on June 23, 1997, --"Circular on the Tax Treatment of Increase of Value in the Enterprise’s Assets due to Asset Appraisal”, the portion of the depreciation attributable to the increase in the value of fixed assets due to appraisal at time of reorganization, shall not be deducted from taxable income. However, when the Company underwent the restructuring for purposes of becoming a joint stock company, its fixed assets had 41 a decrease in value when appraised. Therefore, the Company did not make any adjustment for taxable income when calculating the taxable income for the year of 2001. (3) Housing Property Tax Housing Property tax is levied at a tax base equivalent to 70% of the original value of the property and the tax rate applicable is 1.2%. Alternatively, Property Tax is levied at 12% of the rental income. (4) Land Use Tax The subsidiary of the Company, Liaoyang Bearing pays Land Use Tax on its land use right at rate of 1.50 RMB Yuan per square meter. (5) River toll fee The subsidiary of the Company, Liaoyang Bearing pays river toll fee at rate of 1 on sales revenue. (6) Individual Income tax The individual income tax of the staff shall be withheld and submitted by the Company and its subsidiaries. NOTE 4. SUBSIDIARIES AND ASSOCIATED COMPANIES Summary of the subsidiaries in which the Company holds more than 50% of its equity capital and fall within the scope of consolidated financial statements is shown as follow: Name of company Nature of Registered Capital Actual Investment Equity held Scope of Operations Operations General Bearing* Industry USD RMB 75.00% Manufacture bearing and 4,510,000.00 28,030,375.50 related products Liaoyang Industry RMB RMB 100.00% Manufacture and sell Bearing** 19,350,000.00 11,609,382.61 bearing; manufacture machinery *Approved by Dalian Council of Foreign Economy and Trade under Document (1996) No.98 and (1996) No.199 issued respectively on March 27,1996 and March 28,1996, Wafangdian Bearing Group and American General Bearing Corporation Limited (hereinafter referred to as American General bearing Co., Ltd.) jointly contributed capital to set up Wafangdian General bearing Co., Ltd., with respective capital contribution proportion of 75% and 25%. On November 1,1996, the Board of Directors of "General Bearing" resolved that Wafangdian Bearing Group should transfer its shares in the owner's equity of "General Bearing" to the Company after the formal establishment of the Company, and the share right transfer for accounting purpose should take effect on June 30,1997. On December 27,1996, Dalian Council of Foreign Economy and Trade 42 approved the above mentioned share right transfer transaction under Document (1996) No.18. On August 13,1997, "General Bearing" undertook the procedures of registration alteration at Dalian Administrative Bureau of Industry and Commerce, and received corporate license with registration No.05418. ** "Liaoyang Bearing", previously named as "Liaoyang Bearing Plant", was included into Wafangdian Bearing Group on September 16,1996 with the approval of Liaoning Council of Economy and Trade under Document (1996) No.420. On November 22,1996, "Liaoyang Bearing" obtained corporate business license with registration No.12282243 and was renamed to the present name. On June 15,1997, the Board of Directors of Wafangdian Bearing Group, "Liaoyang Bearing" and the Company respectively resolved that Wafangdian Bearing Group should transfer its 100% equity capital in "Liaoyang Bearing" to the Company. In return, the Company should transfer to Wafangdian Bearing Group secured short-term accounts receivable in the same amount. On November 7,1997, an agreement on Share Right Transfer was signed between Wafangdian Bearing Group and the Company, and the valid date of share right transfer for accounting purpose was agreed to be January 1,1998.The share right transfer transaction was passed in the Shareholders' Meeting held on November 8,1997. In accordance with the "Application for the Transfer of Chinese Shares in Liaoyang Bearing and Huamei Company" under Document WBG (1998) No.2 dated January 15,1998, and approved by Dalian State-owned Assets Management Bureau, the transfer price shall be decided according to the net assets value as at April 30,1997 of "Liaoyang Bearing " appraised by Dalian Zhonghua Certified Public Accountant and confirmed by Dalian State-owned Assets Management Bureau under Document (1997) No.102, plus alteration in the net assets for the accounting period from May 1,1997 to December 31,1997. However, the related procedures of alteration in industry and commerce registration have been still in progress. (2) Summary of the associated companies in which the Company holds greater than 50% of there equity capital but which are not included in the consolidated financial statements is as follows: Name of company Nature of Registered Actual Investment Equity Major Operations Operation Capital held s Huamei Company Industry USD 2,869,000.00 RMB 7,438,983.82 69.70% Manufacturing small rolling bearing and accessories, semi- finished goods 43 On September 14, 1999, the Board of Directors of Huamei Company passed a resolution to the effect that Huamei Company’s period of business operations has expired, and should terminate its business and start liquidation from September 1, 1999. During the statutory liquidation period, the Board of Directors of Huamei Company failed to reach an agreement regarding the settlement of credits, debts and other relevant issues. Approved by the Dalian Council of Foreign Economy and Trade on March 21, 2000 under Document (2000) No.167, the liquidation period will be extended for another 90 days. However, the liquidation period actually finished on February 28, 2001. On May 23, 2000, the Liquidation Committee of Huamei Company agreed that the foreign party should withdraw from the liquidation process ahead of schedule, and that the book net assets will be distributed to the foreign party according to a ratio other than the investment ratio. After the foreign joint venture received the distribution in the amount of RMB248,000.00, the Company received the assets and liabilities of Humei Company in full, and is responsible for the settlement of the employees who are on Humei Company’s book. On March 2, 2001, Shenzhen Pan-China Schinda Certified Public Accounts issued a “Liquidation and Audit Report” under Document (2001) No.01. Pursuant to “Circular about Printing and Distributing ‘the Provisional Regulations on Consolidated Financial Statements’” issued by the Ministry of Finance under Document (1995) No.11, the Company did not include Huamei Company’s financial statements in the consolidated financial statements of 2000 and 2001. As at December 31, 2001, the procedures for the cancellation with respect to industry and commerce were still in process. (3) Summary of associated companies in which the Company holds less than 50% of its equity capital is shown as follows: Name of company Nature of Registered Capital Actual Investment Equity held Major operations Operations Dalian SKF Wazhou Bearing Industry RMB 16,900,000.00 RMB 68,600,000.00 49.00% Manufacturing and selling Co., Ltd.* of ball-surface rolling bearing Shanghai Zhenxin Wazhou Commerce RMB 1,000,000.00 RMB 400,000.00 40.00% Selling of bearing and Machinery and Electricity machinery and electricity Co., Ltd.** and accessories meters and instrument. etc. Shanghai ME Machinery & Commerce RMB 38,880,000.00 RMB 2,000,000.00 5.14% Selling machinery & Electricity Equipment Chain electricity equipment and its Co., Ltd. accessories *Approved by Dalian Council of Foreign Economy and Trade under Document (1998) No.72 and Dalian Municipal Peoples' Government with approval certificate (1998) No.0262, SKF (China) 44 Investment Co., Ltd. and the Company jointly contributed capital to set up "SKF Wazhou Company" on May 14,1998, with respective capital contribution proportion of 51% and 49%. The financial statements of "SKF Wazhou Company" for the year ended December 31, 2001 has been audited by Anderson-Huaqiang Certified Public Accountants. The Company accounts for its investment income of RMB7,015,829.04 in SKF Wazhou Company with equity method according to the above-mentioned audited financial statements, which takes up 28.57% of the Company’s consolidated net profit in 2001. ** ”Zhenxin Company" is jointly invested by Shanghai Machinery and Electric Equipment General Corporation, China Machinery and Electric Equipment Corporation, Huadong Branch, natural person and the Company. The financial statements of the “Zhenxin Company” for the year ended December 31, 2001 have been audited by Gongxin Zhongnan Certified Public Accountants which issued a qualified opinion, and the audited net profit of the said company amounts to RMB12,698.78. The reason for the qualified opinion was that Zhenxin Company did not include period expense of RMB22,705.00. Due to the insignificant impact, the Company accounts for its investment income in the said company with equity method according to the aforementioned audited financial statements. NOTE 5. MONETARY FUND Details of the monetary fund are shown as follows: 2001.12.31 2000.12.31 Items Original Currency Ex. Rate Converted into Original Ex. Rate Converted into RMB Currency RMB Cash on RMB 24,841.35 --- RMB 24,841.35 RMB 25,301.43 --- RMB 25,301.43 hand Cash in bank RMB 60,779,139.62 --- 60,779,139.62 RMB 45,472,915.38 --- 45,472,915.38 HKD 8,076,825.16 1.0613 8,571,934.54 HKD 17,681,780.85 1.0613 18,765,674.02 USD 123,091.00 8.2766 1,018,774.97 USD 61,670.04 8.2781 510,510.74 70,369,849.13 64,749,100.14 RMB 70,394,690.48 RMB 64,774,401.57 NOTE 6. NOTES RECEIVABLE 2001.12.31 2000.12.31 Bank Acceptance Draft RMB 13,562,103.17 RMB 13,163,979.89 Commercial Acceptance Draft 402,909.15 --- RMB 13,965,012.32 RMB 13,163,979.89 NOTE 7. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES 45 (1) Details of aging of accounts receivable and other receivables of the Company and its subsidiaries are shown as follows: 2001.12.31 2000.12.31 Age Balance Percenta Provision on Bad Balance Percenta Provision on Bad ge Debts ge Debts Within 1 year RMB563,216,398.39 64.04% RMB 5,632,163.98 RMB 583,313,086.93 65.91% RMB 5,833,130.87 1-2 years 198,786,703.71 22.60% 9,939,335.19 217,740,722.44 24.60% 10,887,036.12 2-3 years 91,158,075.33 10.37% 18,231,615.07 56,714,888.62 6.41% 11,342,977.73 Over 3 years 26,291,897.37 2.99% 13,145,948.68 27,220,124.09 3.08% 13,610,062.05 RMB879,453,074.80 100.00% RMB 46,949,062.92 RMB 884,988,822.08 100.00% RMB 41,673,206.77 (2)As at December 31, 2001, the ratio of the top five largest accounts receivables over the total accounts receivables of the Company and its subsidiaries is as follows: 2001.12.31 2000.12.31 Top Five Largest Accounts Receivables RMB 208,809,304.44 RMB 216,955,030.60 Total of Accounts Receivables RMB 879,453,074.80 RMB 884,988,822.08 Ratio 23.74% 24.52% (3)Details of aging of other receivables of the Company and its subsidiaries are shown as follows: 2001.12.31 2000.12.31 Age Balance Percenta Provision on bad Balance Percentage Provision on bad ge debts Debts Within one year RMB 8,238,336.00 72.40% RMB 82,383.36 RMB 5,349,799.85 59.64% RMB 53,498.00 1-2 years 274,739.46 2.41% 13,736.97 1,175,593.60 13.11% 58,779.68 2-3 years 124,591.29 1.10% 24,918.26 388,146.70 4.33% 77,629.34 Over 3 years 2,741,905.15 24.09% 1,370,952.58 2,055,701.59 22.92% 1,027,850.79 RMB 11,379,571.90 100.00% RMB 1,491,991.17 RMB 8,969,241.74 100.00% RMB 1,217,757.81 (4) As at December 31, 2001, the top five largest balance of other accounts receivables of the Company and its subsidiaries totaled RMB8,530,085.44, which constituted 74.96% of the total other accounts receivables. The details are shown as follows: 2001.12.31 Nature Liaoyang City New Textile Machinery RMB 4,984,464.46 Amount Paid on Behalf Bearing Factory Wafangdian Bearing Group 1,524,523.43 Welfare Receivable (Construction & Installation) Petty cash 1,088,756.10 Temporary Loans to Staff Wafangdian People’s Court 575,024.68 Amount Paid for Materials Wafangdian Bearing Co. Ltd., Dalian Labor 357,316.77 Amount Paid for Materials Services Company, RMB 8,530,085.44 46 (5)The accounts receivable with the aging of within one year could be basically recovered in cash in the next year, so the Company and its subsidiaries used a lower ratio to prepare for the provision for bad debts. With respect to the accounts receivables with the aging of more than three years, because of the higher possibility of having slow-moving or bad debts, the Company and its subsidiaries used a higher ratio to prepare for the provision for bad debts. (6) For details of accounts receivables due from related parties, as well as from shareholders who hold more than 5% (including 5%) of the Company’s shares, please see Note 39(3). NOTE 8. ADVANCES TO SUPPLIERS 1 Details of advances to suppliers are shown as follows 2001.12.31 2000.12.31 Aging Amount Percentage Amount Percentage Within 1 year RMB 103,501,184.01 83.43% RMB 153,666,949.40 93.54% 1-2 years 20,246,271.29 16.32% 10,185,593.79 6.20% 2-3 years 314,848.78 0.25% Over 3 years 434,683.45 0.26% RMB 124,062,304.08 100.00% RMB 164,287,226.64 100.00% The advances to suppliers of over one year is for the prepayment of the raw materials – steels. The reason for the longer aging is due to the decrease in the production demand of the Company, causing the delay in purchase and in putting into warehouse. 2 In the prepaid expenses, there are no payments to related parties or to shareholders that hold more than 5% (including 5%) of the Company’s shares. NOTE 9. INVENTORIES AND PROVISON ON INVENTORY OBSOLESCENCE Details of inventories and provision on inventory obsolescence are shown as follows 2001.12.31 2000.12.31 Provision on Provision on Classification of inventory inventory Inventories Amount obsolescence Net value Amount obsolescence Net value Materials on the RMB -- road RMB 15,301,066.81 RMB --- RMB 15,301,066.81 RMB 9,208,280.45 - RMB 9,208,280.45 Materials subcontracted for processing 2,161,448.25 --- 2,161,448.25 419,040.00 --- 419,040.00 Raw materials 105,671,682.11 1,496,632.00 104,175,050.11 82,428,234.61 2,551,484.23 79,876,750.38 Work in progress 95,847,984.08 1,600,000.00 94,247,984.08 90,837,642.84 1,600,000.00 89,237,642.84 Finished goods 364,000,344.54 13,625,314.81 350,375,029.73 343,648,700.97 2,434,500.00 341,214,200.97 47 Low value & short- lived articles 8,947,794.77 --- 8,947,794.77 8,018,889.55 --- 8,018,889.55 Packages 315,029.93 --- 315,029.93 413,030.02 --- 413,030.02 RMB 592,245,350.49 RMB 16,721,946.81 RMB 575,523,403.68 RMB 534,973,818.44 RMB6,585,984.23 RMB528,387,834.21 Provision on inventory obsolescence is prepared using the balance of the inventory book value less its net realizable value as at December 31, 2001. The net realizable value is the estimated sales price, less the estimated sales expenses necessarily incurred during the normal course of production and operations. Details of the change in the increase or decrease in provision on inventory obsolescence are shown in “Other Financial Information—Detailed Statement of Provision for Write-down of Assets”. NOTE 10. LONG-TERM INVESTMENT (1) Details of long-term investment of the Company and its subsidiaries are shown as follows: 2001.1.1 Increase Decrease 2001.12.31 Amount Provision for Amount Provision for decrease in decrease in values values Other share right investment RMB101,798,655,68 RMB --- RMB 7,177,597.81 * RMB 21,223,860.84 ** RMB 87,752,392.65 RMB --- Long-term bond investment 16,349.00 --- --- 16,349.00 --- --- RMB101,815,004.68 RMB --- RMB 7,177,597.81 RMB 21,240,209.84 RMB 87,752,392.65 RMB --- * The increase in other share right investment amounts to RMB7,177,579.81 in the current year, including the investment income of RMB7,020,908.55 calculated by the equity method. The other amount of RMB156,689.26 represents the additional investment in SKF Bearing Company in the current year. **The decrease in other share right investment amounts to RMB21,223,860.84 in the current year, including the cash distribution of RMB10,084,200.00 from SKF Wazhou Company in the current year. The other RMB11,139,660.84 is the investment funds repatriated due to the liquidation of Huamei Company. (2) Details of other share right investment of the Company and its subsidiaries are shown as follows: 2001.12.31 Invested companies Investing period Percentage Amount Accumulated Increase increase (decrease) in (decrease) in equity in 2001 equity SKF Wazhou Company 1998.05.15—2028.05.14 49.00% RMB 85,329,491.04 RMB 30,317,289.05 RMB 7,015,829.04 Zhenxin Company 1998.07.13--2008.07.11 40.00% 422,901.61 22,901.61 5,079.51 48 ME Company 1998.10.06—2010.10.05 5.14% 2,000,000.00 --- --- Humei Company 1989.09.02—1999.09.01 69.70% --- (441,092.67 ) 1,179,786.56 RMB 87,752,392.65 RMB 29,899,097.99 RMB 8,200,695.11 NOTE 11. FIXED ASSETS, ACCUMULANTED DEPRECIATION & PROVISION ON FIXED ASSETS OBSOLESCENCE (1) Details of movements in the fixed assets & accumulated depreciation are shown as follows: 2001.1.1 Addition Deduction 2001.12.31 Fixed assets-cost: Building & Structure RMB - RMB 222,221,760.01 RMB 8,728,602.07 -- RMB 230,950,362.08 Plant & machinery 358,577,137.10 57,923,778.66 6,497,373.24 410,003,542.52 Transport vehicles 17,769,289.59 4,030,278.61 833,106.32 20,966,461.88 Electric instruments & meters 131,370,742.33 11,720,432.37 --- 143,091,174.70 Other equipment 102,388,329.83 4,269,374.43 85,600.00 106,572,104.26 832,327,258.86 86,672,466.14 * 7,416,079.56 ** 911,583,645.44 *** Accumulated depreciation: Building & Structure 105,950,227.61 9,791,765.71 --- 115,741,993.32 Machinery Equipment 186,475,581.74 16,056,680.71 4,569,094.27 197,963,168.18 Transport vehicles 14,166,208.51 3,126,587.64 506,714.85 16,786,081.30 Electric instruments & meters 98,951,313.01 8,118,330.49 ---- 107,069,643.50 Other equipment 59,439,903.50 6,940,420.86 51,482.80 66,328,841.56 464,983,234.37 RMB 44,033,785.41 RMB 5,127,291.92 503,889,727.86 Fixed Assets-net Book RMB RMB Value 367,344,024.49 407,693,917.58 * The increase in the fixed assets in the current year includes the fixed assets transferred from construction in progress and put into use, which amounts to RMB76,824,317.90. ** The decrease in the cost of fixed assets in the current year mainly attributes to the fixed assets sold. *** As at December 31, 2001, the cost of fixed assets of the Company and those of its subsidiaries amounted to RMB911,583,645.44, including: The Company and its subsidiaries put into storage some machinery, electronic equipment, instrument and meters and other equipment which were temporarily unnecessary for use respectively amounting to RMB63,972,638.66, RMB8,204,950.26 and RMB17,160,240.00, totaling RMB89,337,828.92. The Company has not accrued any depreciation expenses for the above-mentioned machinery and equipment since the date of setting them aside. In the current year, Watong Company mortgaged its machinery and equipment to obtain a loan. The machinery and equipment mortgaged is valued at RMB 13,950,000.00, and the mortgage period is from November 30, 2001 to November 15, 2002. Wafangdian Sub-bureau of the Dalian Administrative Bureau of Industry and Commerce, Liaoning Province confirmed the mortgage 49 transaction on October 8, 2001 with mortgage registration certificate No. 01068. In the current year, Liaozhou Company mortgaged its machinery and equipment to obtain a loan. The machinery and equipment mortgaged is valued amounting to RMB 22,930,000.00, and the mortgage period is from August 2, 2001 to August 1, 2002. Liaoyang Administrative Bureau of Industry and Commerce, Liaoning Province confirmed the mortgage transaction on August 20, 2001 with mortgage registration certificate No.98110 2. (2) Details of provision on decrease in value of fixed assets are shown as follows: 2001.1.1 Provision Accrued this Deduction 2001.12.31 Year Machinery and equipment RMB 4,367,960.38 RMB 1,626,287.94 RMB 684,644.37 RMB 5,309,603.95 NOTE 12. CONSTRUCTION IN PROGRESS Details of construction in progress are shown as follows: 50 Transferred into Source of Budget % of Name of Project 2001.1.1 Additions Fixed Assets Deductions 2001.12.31 Funds (Ten thousand) Budget Carbonization furnace 1421588.20 0.00 0.00 0.00 1421588.20 Own 160.00 80.00% Inner track grinding machine 6095508.77 2663470.55 5834828.77 0.00 2924150.55 Public Shares 1387.60 80.00% M250 grinding reform 5985388.76 3450527.24 6598996.01 181367.00 2655552.99 Public Shares 1269.72 80.00% engineering Light-decorating engineering 599299.00 581613.00 568458.00 100000.00 512454.00 Public Shares 161.12 Almost completed Computer reform engineering 2646212.80 432591.51 2944841.11 0.00 133963.20 Own 322.76 Completed Hydraulic forming lathe 1897289.00 10711.76 1679568.76 0.00 228432.00 Own 195.00 90.00% Factory premise engineering of 5059468.00 7776891.33 4083981.00 0.00 8752378.33 Own 1375.77 Almost completed finished goods Factory premise engineering of 931814.65 0.00 931814.65 0.00 0.00 Own 100.00 Almost completed railway passenger and cargo Hydraulic multiple tool lathe 695095.85 7497.36 702593.21 0.00 0.00 Own 70.00 Almost completed Pilot wheel grinder 206000.00 0.00 0.00 0.00 206000.00 Public Shares 20.80 Almost completed Three-dimensional warehouse 1434302.70 449387.00 123532.00 0.00 1760157.70 Own 671.01 50.00% Treatment of polluted water 4851208.06 200000.00 0.00 5051208.06 0.00 Own 500.00 Completed Centerless grinder 4206831.39 3573139.15 2821830.40 0.00 4958140.14 Own 1042.54 80.00% Double-surfaced installation 315000.00 1073151.71 1112408.11 0.00 275743.60 Public Shares 221.23 Almost completed engineering Ultra precision machine 1625223.52 4452673.01 1983184.62 0.00 4094711.91 Public Shares 802.10 90.00% Installation of presser 2413983.20 2038140.28 2179116.63 52800.00 2220206.85 Own and public shares 551.81 80.00% Logistics reform engineering 120000.00 2197664.16 2133854.16 0.00 183810.00 Own 233.11 90.00% Electric reform engineering 1368914.96 0.00 1272288.96 46626.00 50000.00 Public Shares 135.00 Almost completed Digital-control reform 1164136.07 6240111.19 4242032.35 0.00 3162214.91 Public Shares 1146.86 70.00% engineering Hot treatment production line 1551970.89 1325556.60 2143333.00 126780.00 607414.49 Public Shares 289.64 Almost completed Double-line carbonization 365518.80 224616.35 145326.20 0.00 444808.95 Public Shares 611.80 Almost completed production line engineering Crane engineering 1205390.70 389500.00 1565316.70 0.00 29574.00 Own and public shares 181.62 Almost completed Grinder 9225036.69 2439574.01 7067110.90 0.00 4597499.80 Own and public shares 2850.44 Almost completed Photosphere machine 2021472.60 1263600.00 2347101.49 0.00 937971.11 Public Shares 526.90 70.00% Installation and reform 2054230.21 1496260.36 2567516.60 0.00 982973.97 Own and public shares 449.22 90.00% engineering of lathe Reform and installation of 1844662.00 911225.44 1820220.58 20000.00 915666.86 Public Shares 266.42 Almost completed flaw detector Salt-bath furnace engineering 930093.35 52018.00 930093.35 0.00 52018.00 Public Shares 65.40 Almost completed Assembly line of coned roller 862220.20 5203206.56 1149149.71 0.00 4916277.05 Own 623.42 Almost completed Instrument and meters 2824069.84 1427733.00 2980340.87 22000.00 1249461.97 Own and public shares 511.52 Almost completed Others 10185701.40 14897760.71 14895479.76 63390.70 10124591.65 2347.21 Incl.:capitalized interest 586531.65 2132434.50 2718966.15 0.00 0.00 expenses 76107631.61 64778620.28 76824317.90 5664171.76 58397762.23 he capitalized ratio of the capitalized amount in the current year = Sum of the interest actually incurred in this year for special borrowing , divided by the weighted average of borrowed principal (i.e., the principal of each borrowing, times the number of days needed for each borrowing, divided by the number of days covered in the accounting year). NOTE 13. LONG-TERM PREPAID AND DEFERRED EXPENSES Details of long-term prepaid and deferred expenses are shown as follows: 51 Accumulated Remaining Years of Original Amount 2001.01.01 Addition Amortization this Period Amortization 2001.12.31 Amortization Premise use RMB 2,010,095.00 RMB 1,606,648.69 RMB --- RMB 67,830.36 RMB 471,276.67 RMB 1,538,818.33 22.69 year right Major repair of 1,414,029.00 1,131,223.20 187,106.00 282,805.80 565,611.60 1,035,523.40 3.23vyear fixed assets Labor 2,104,939.00 420,987.68 --- 420,987.68 2,104,939.00 --- --- insurance premium Organizational 4,248,838.81 1,657,931.86 --- 1,657,931.86 4,248,838.31 --- --- Expense RMB 9,777,901.31 RMB 4,816,791.43 RMB 187,106.00 RMB 2,429,555.70 RMB 7,390,665.58 RMB 2,574,341.73 NOTE 14. SHORT-TERM LOANS 1 Details of short-term loans are shown as follows: 2001.12.31 2000.12.31 Loan type Original Currency Ex. Rate Converted into RMB Original Currency Ex. Rate Converted into RMB Security loan RMB 514,880,000.00 --- RMB 514,880,000.00 RMB 415,480,000.00 --- RMB 415,480,000.00 Mortgage loan RMB 15,920,000.00 --- 15,920,000.00 * RMB 13,930,000.00 --- 13,930,000.00 Mortgage loan USD 800,000.00 8.2766 6,629,830.00 * USD 800,000.00 8.2781 6,629,830.00 RMB 537,429,830.00 RMB 436,039,830.00 * As at December 31, 2001, “Liaoyang Bearing” mortgaged some of its machinery and equipment to obtain a loan amounting to RMB13,920,000.00 from China Industry and Commerce Bank, Liaoyang City Branch. As at December 31, 2001, Watong Company mortgaged some of its machinery and equipment to obtain a loan amounting to RMB2,000,000.00 and USD800,000.00 from China Industry and Commerce Bank, Wafangdian City Branch. 2 As at December 31, 2001, the details of the overdue loans but not yet paid or were not signed up for the extension are shown as follows: Creditor Amount of Loan Interest rate Where the loans Reason for Arrears of the Loan are put into Use White Pagoda Credit Union, Liaoyang City RMB 7.722% Replenish Liquid Agreement for Extension in progress Commercial Bank 4,870,000.00 Funds White Pagoda Credit Union, Liaoyang City 1,000,000.00 7.668% Replenish Liquid Agreement for Extension in progress Commercial Bank Funds White Pagoda Credit Union, Liaoyang City 710,000.00 7.254% Replenish Liquid Agreement for Extension in progress Commercial Bank Funds White Pagoda Credit Union, Liaoyang City 100,000.00 7.254% Replenish Liquid Agreement for Extension in progress Commercial Bank Funds Liaoyang City Branch, China Bank of 3,960,000.00 7.020% Replenish Liquid Agreement for Extension in progress Communications Funds Jiaotong Branch, Liaoyang City Cooperative 700,000.00 7.722% Replenish Liquid Agreement for Extension in progress Bank Funds 52 Liaoyang Branch, China Construction Bank 200,000.00 7.029% Replenish Liquid Agreement for Extension in progress Funds RMB 11,540,000.00 NOTE 15. NOTES PAYABLE 2001.12.31 2000.12.31 Bank Acceptance Draft RMB 14,000,000.00 RMB 12,800,000.00 NOTE 16. ACCOUNTS PAYABLE 1 Details of accounts payable are shown as follows: 2001.12.31 2000.12.31 SKF Bearing Company RMB 54,934,784.24 RMB 57,034,575.41 Wafangdian Bearing Group, Special Steel Co, Ltd. (Wazhou Special Steel) 24,438,937.88 10,311,891.84 Dalian Wazhou Group Gas Co., Ltd. (Wazhou Gas) 24,068,681.87 11,082,129.03 Dalian Wazhou Group Model Replica Manufacturing Co., Ltd. (Model Replica Manufacturing) 19,890,915.24 16,616,745.71 Dalian Guangyang Wazhou Vehicles Bearing Co., Ltd. (Dalian Guangyang) 11,741,177.99 13,688,991.26 Others 151,367,995.17 178,326,920.76 RMB 286,442,492.39 * RMB 287,061,254.01 *The total accounts payable of more than three years old amounts to RMB9,527,558.25. The main reason for the arrears is that the creditors have not pushed us for the repayment. 2 Details of related companies’ accounts payable and that of shareholders who hold more than 5% (including 5%) of the shares in the Company are shown in Notes 39(3). NOTE 17. UNEARNED RECEIPT Details of unearned receipt are shown as follows: 2001.12.31 2000.12.31 Zhejiang Wuchan Yuantong Machinery and RMB Electricity (Group) Co., Ltd. 510,324.91 RMB 268,018.31 Wuxi Huajin Wujin Jiaodian Chemical General Company, Wujin Machinery Co. 660,098.24 1,126,001.55 Hebi Coal Industry (Group) Co., Ltd. 400,000.00 --- Wuhan Heavy Foundry and Forging Factory 412,773.79 --- Yihua Steel Company, Supply and Sale Co. 392,084.95 392,084.95 Others 11,282,904.54 16,814,416.20 RMB 13,064,186.43 RMB 18,600,521.01 NOTE 18. DIVIDEND PAYABLE Details of dividend payable are shown as follows: 53 2001.01.01 Addition Deduction 2001.12.31 Wafangdian Bearing RMB 10,000,000.00 RMB 6,000,00 RMB 10,000,000.00 RMB 6,000,000 Group Co., Ltd. 0 Foreign shareholders 6,500,000.00 3,900,000 6,500,000.00 3,900,000 holding B shares RMB 16,500,000.00 RMB RMB 16,500,000.00 RMB 9,900,000 9,900,000 NOTE 19. TAXES PAYABLE Details of taxes payable are shown as follows: 2001.12.31 2000.12.31 VAT RMB 67,761,085.91 RMB 63,168,136.21 Corporate income tax 1,589,253.93 4,474,219.11 Property tax 1,278,187.71 1,199,800.26 Business tax 369,539.96 355,023.25 Urban construction & maintenance tax (189,050.23 ) (242,671.08 ) River toll 11,048.69 132,231.87 Land use tax 55,024.20 --- Individual income tax --- 18,434.61 RMB 70,875,090.17 RMB 69,105,174.23 The details of the statutory tax rates of the aforementioned taxes and the approval documents of tax competent authorities are shown in Note 3. NOTE 20. OTHER AMOUNTES DUE 2001.12.31 2000.12.31 Educational Surcharge RMB 18,271.44 RMB (103,128.72 ) The details of the standard for levying the Educational Surcharge are shown in Note 3. NOTE 21. OTHER PAYABLES Details of other payables are shown as follows: 2001.12.31 2000.12.31 Related parties transactions RMB 31,199,626.36 * RMB 36,325,853.77 Engineering payment 15,349,587.69 9,148,887.06 Liaoning International Cargo 9,279,623.36 5,608,666.29 Transportation Co., Ltd. Labor Insurance Company 5,808,070.62 4,502,442.88 Education expense 4,465,202.74 4,772,155.66 Deposit 2,637,500.00 2,936,250.00 Housing reserve fund 2,414,869.60 2,690,071.37 54 Wages & welfare 1,500,201.86 2,214,161.34 Subsidies for staff’s heating expenses 1,384,150.23 1,255,328.29 Commission 1,876,546.42 938,273.21 Fujian Fuzhou Gaohu Tea Plant 359,551.25 1,018,362.78 Others 16,705,796.03 13,477,821.62 RMB 93,469,957.42 ** RMB 84,888,274.27 * Details of other payables with respect to related parties’ transactions and transactions with shareholders who hold more than 5% (inclusive) of the vote right in the Company are shown in Notes 39(3). ** Other payables of more than three years old, and in the amount of RMB1,271,073.75 are staff housing guaranty fund in the nature of deposits. NOTE 22. LONG-TERM LIABILITIES DUE WITHIN ONE YEAR Details of long-term liabilities due within one year are shown as follow: Loan type 2001.12.31 2000.12.31 Credit loan RMB --- RMB 116,250,000.00 NOTE 23. LONG-TERM LOANS Details of long-term loans are shown as follows: Creditor 2001.12.31 2000.12.31 Guarantee loan RMB RMB 70,550,000.00 94,800,000.00 Credit loan 1,500,000.00 * 1,500,000.00 RMB RMB 76,250,000.00 96,300,000.00 * It is the long-term loan of the subsidiary of the Company—Liaoyang Bearing Co., but borrowed by Wafangdian Bearing Industrial Corporation from China Industry & Commerce Bank, Dalian Sub-branch. As a member of Wafangdian Bearing Industrial Corporation, Liaoyang Bearing Co., Ltd., shared and used part of the loan. As at December 31, 2001, there was still RMB 1,500,000.00 of the loan in arrears, and procedures of transferring the loan has not been undertaken either. NOTE 24. ACCOUNTS PAYABLES FOR SPECIAL PURPOSES Details of other long-term liabilities are shown as follows: 2001.12.31 2000.12.31 Special appropriation for the RMB 2,402,636.49 RMB 2,351,451.93 reconstruction project of the waste water treatment station This is the program bounty that approved by the Financial Bureau and the Environment 55 Protection Bureau of Wafangdian City under Document (2001) No.74. NOTE 25. SHARE CAPITAL Details of alteration in the share capital are shown as follows: 2001.1.1 Addition Deduction 2001.12.31 Non-circulating shares Promoter shares Domestic legal person shares RMB 200,000,000.00 RMB -- RMB -- RMB 200,000,000.00 - - Circulating shares --B shares 130,000,000.00 --- --- 130,000,000.00 Total RMB 330,000,000.00 RMB --- RMB --- RMB 330,000,000.00 The above share capital has been verified by Shenzhen Shekou Schinda Certified Public Accountants (present name as: Shenzhen Pan-China Schinda Certified Public Accountants) under Capital Verification Document (1997) No.5. NOTE 26. CAPITAL RESERVE Details of changes in capital reserve are shown as follows: Items 2000.1.1 Increase Deduction 2001.12.31 Premium on issue of RMB 274,556,446.52 RMB --- RMB - RMB 274,556,446.52 shares -- Balance after net assets 214,973,421.18 --- --- 214,973,421.18 value converted into shares Provision for write-up in 18,318,725.93 --- --- 18,318,725.93 value due to asset appraisal Debt reorganization 5,266,880.56 1,111,133.88 * --- 6,378,014.44 Appropriation conversion --- 50,000.00 ** --- 50,000.00 Other capital reserve --- 4,410.007.39 *** --- 4,410.007.39 RMB 513,115,474.19 RMB 5,571,141.27 RMB - RMB 518,686,615.46 -- *The relative data are listed in Note 43. **This is the environmental protection subsidy received by Liaoyang Bearing Co., from Liaoyang City Environmental Protection Bureau in the current year. ***After the approval of the management of the Company, accounts payable that cannot be paid are converted into capital reserve, which has not been approved by the Board of Directors of the Company. NOTE 27. SURPLUS RESERVE Details of surplus reserve are shown as follows: 56 Item 2001.1.1 Addition Deduction 2001.12.31 Statutory surplus RMB 24,836,183.00 RMB 2,724,485.25 RMB --- RMB 27,560,668.25 reserve Statutory public 12,458,904.83 1,362,242.63 --- 13,821,147.46 welfare fund RMB 37,295,087.83 RMB 4,086,727.88 * RMB --- RMB 41,381,815.71 * As stated in Note 28, the increase in surplus reserve is subject to the profit appropriation resolved by the Board of Directors of the Company. NOTE 28. RETAINED PROFIT On April 12 ,2002, according to its resolutions in the meeting, the Board of Directors recommended to the general meeting of shareholders the scheme of after-tax profit appropriation for the year of 2001, which is shown as follows: Item Percentage Provision of statutory surplus reserve 10% Provision of statutory public welfare fund 5% Dividends declared 0.03RMB Yuan/share The statutory surplus reserve and statutory public welfare fund for 2001 were provided for from the after-tax net profit stated in the parent company’s financial statements prepared in accordance with “Accounting Standards for Enterprises”, “Enterprise Accounting Systems ” of the People’s Republic of China” and “Circular on the Supplementary Rules for the Accounting Treatment of Listed Companies” issued by the Ministry of Finance under Document (1996) No. 11. The dividend payable for 2001 was based on the lower of the following two: (1) Net profit in the current year and undistributed profits brought forward reported in the parent company financial statements according to the “Company Act” of the People’s Republic of China and other relevant regulations, and prepared under “Accounting Standards for Enterprises”, “Enterprise Accounting Systems ” of the People’s Republic of China and “Circular on the Supplementary Rules for the Accounting Treatment of Listed Companies” issued by the Ministry of Finance under Document (1996) No. 11; and (2)The net profit and undistributed profits brought forward reported in the consolidated financial statements prepared by overseas chartered accountants under the international accounting standards. Details of changes in the retained profits are shown as follows: 2001 2000 Retained profits brought forward RMB 131,041,611.13 RMB 109,645,126.57 Add: Consolidated net profit in the current 24,553,155.46 44,294,256.48 year Adjustment to consolidated net profit in the --- (11,477,574.03 )* 57 current year Adjustment to undistributed profit brought 6,411,889.10 *** 16,009,685.83 * forward Less: Provision of statutory surplus reserve 2,724,485.25 3,011,996.42 ** Provision of statutory public welfare 1,362,242.63 1,505,998.20 ** fund Dividends distributed for common 9,900,000.00 16,500,000.00 shares Retained profits carried forward RMB 157,919,927.81 RMB 137,453,500.23 * The adjustments made by the Company to the following accounting errors decreased the consolidated net profit of 2000 by RMB 11,477,574.03, and increased the beginning balance of consolidated undistributed profit in 2000 by RMB16,009,685.83: In prior years, in the process of converting standard sales cost to actual sales cost, the Company mixed certain finished products of different quality grade, such that an error occurred in calculating the actual cost of the sales in the current year. The Company made an adjustment with respect to this event in the current year, which means a decrease in the net profit of RMB5,468,395.53 in 2000, and a decrease of RMB3,018,963.83 in the beginning balance of undistributed profit in 2000. In prior year, the Company made an error while calculating the aging of accounts receivables. In the current year, the Company made an adjustment to this event, such that the net profit in 2000 decreased by RMB4,214,570.65, and the beginning balance of undistributed profit in 2000 decreased by RMB1,753,199.01. As stated in Note 4(2), pursuant to the “Circular on Printing and Distributing ‘Regulations on the Issues Related to the Accounting Treatment for the Reform in Enterprise Housing Systems’” issued by the Ministry of Finance under Document (2001) No.5, after the end of the liquidation of Huamei Company, the consolidated net profit of 2000 was increased in the amount of RMB4,397,820.69 by the housing circulation fund of the subsidiary of the Company—Huamei Company. In the prior year, the Company made an adjustment with respect to the sales figure. However, in the year in which the sale was realized, the Company failed to add back the sales amount. Hence, in the current year, the Company adjusted the above event, such that the beginning balance of undistributed profit in 2000 increased by RMB14,337,684.19. ** Because of the adjustments made to the above transactions, the amount of capital reserve of 2000 decreased by RMB1,879,777.30. 58 *** To sum up the preceding paragraphs, the Company’s undistributed profit brought forward at the beginning of 2001 should be increased by RMB6,411,889.10. NOTE.29 MAJOR OPERATIONS (1) Details of major operations of the Company and its subsidiaries are shown as follows: 2001 Income of major operations Cost of major operations Net profit of major operations Amount Percentage Amount Percentage Amount Percentage (%) (%) (%) Sale of product RMB 896,252,106.60 83.63% RMB 684,675,079.39 81.79% RMB 211,577,027.21 90.22% Exports 120,277,030.09 11.22% 132,220,442.20 15.79% (11,943,412.11 ) (5.09% ) ---Domestic Sales 775,975,076.51 72.41% 552,454,637.19 65.99% 223,520,439.32 95.31% Including: North China 346,935,706.21 32.37% 243,240,131.77 29.06% 103,695,574.44 44.22% South China 185,167,716.02 17.28% 133,452,889.62 15.94% 51,714,826.40 22.05% East China 210,217,515.36 19.62% 151,506,620.47 18.10% 58,710,894.89 25.03% West China 33,654,138.92 3.14% 24,254,995.33 2.90% 9,399,143.59 4.01% Income from Industrial 175,388,488.80 16.37% 152,446,070.80 18.21% 22,942,418.00 9.78% Operations RMB1,071,640,595.40 100.00% RMB 837,121,150.19 100.00% RMB 234,519,445.21 100.00% 2000 Income of major operations Cost of major operations Net profit of major operations Amount Percentage Amount Percentage Amount Percentage (%) (%) (%) Sale of product RMB 924,585,456.46 84.38% RMB 723,290,582.72 82.47% RMB 201,294,873.74 92.08% Exports 112,452,244.07 10.26% 123,958,138.88 14.13% (11,505,894.81 ) (5.26% ) ---Domestic Sales 812,133,212.39 74.12% 599,332,443.84 68.33% 212,800,768.55 97.34% Including: North China 399,983,215.69 36.51% 291,678,305.58 33.26% 108,304,910.11 49.54% South China 196,860,487.72 17.97% 146,948,790.95 16.75% 49,911,696.77 22.83% East China 185,817,752.84 16.96% 138,705,813.61 15.81% 47,111,939.23 21.55% West China 29,471,756.14 2.68% 21,999,533.70 2.51% 7,472,222.44 3.42% Income from Industrial 171,095,271.35 15.62% 153,788,383.24 17.53% 17,306,888.11 7.92% Operations RMB 1,095,680,727.81 100.00% RMB 877,078,965.96 100.00% RMB 218,601,761.85 100.00% 2 The sale’s data of the top five clients of the Company and its subsidiaries is shown as follows: Amount Percentage of Income in the Whole Year 2001 RMB 230,629,976.17 21.52% 2000 RMB 307,845,329.11 28.10% NOTE 30. TAXES OF MAJOR OPERATIONS AND SURCHARGE Details of taxes of major operations and surcharge are shown as follows 59 Items 2001 2000 Urban construction & maintenance tax RMB 2,388,757.44 RMB 2,603,255.47 Surcharge of education expenses 1,365,004.26 1,394,421.75 RMB 3,753,761.70 RMB 3,997,677.22 The details of the standard for levying and submitting the taxes on major operations are shown in Note 3(1). NOTE 31. PROFIT FROM OTHER OPERATIONS Details of profits from other operations are shown as follows: 2001 2000 Other operating income: Income from sales of materials RMB 59,056,277.76 RMB 66,052,069.65 Income from sales of scrapped materials 19,130,073.90 20,289,999.04 Other Income 951,549.34 96,617.18 79,137,901.00 86,438,685.87 Other operating cost: Cost of materials sold 59,069,700.32 64,729,400.22 Cost of scrapped materials 14,421,580.23 7,400,874.28 Cost of others 1,135,506.83 175,715.00 74,626,787.38 72,305,989.50 Profit from other Operations RMB 4,511,113.62 RMB 14,132,696.37 NOTE 32. OPERATING EXPENSES Details of operating expenses are shown as follows 2001 2000 Salary RMB 8,893,026.92 RMB 7,811,039.48 Traveling Expense 11,715,795.10 11,027,853.45 Transportation Expense 9,511,808.63 8,672,877.55 Meetings 5,558,032.77 4,584,976.94 Sea Transportation Expense 5,205,139.02 5,205,139.20 Others 22,029,863.14 21,250,249.17 RMB 62,913,665.58 RMB 58,552,135.79 NOTE 33. FINANCIAL EXPENSES Details of financial expenses are shown as follows: 2001 2000 Interest expenses RMB 36,521,688.68 RMB 40,933,835.77 Less: interest income 2,600,557.56 2,469,972.15 Exchange losses 230,028.25 189,039.33 Less: exchange gains --- 1,180,682.16 Others 11,123,593.77 2,065,491.06 RMB 45,274,752.77 RMB 39,537,711.85 NOTE 34. INCOME FROM INVESTMENT Details of income from investment of the Company and its subsidiaries are shown as follows: 60 2001 2000 Long-term equity investment income RMB 7,020,908.55 RMB 11,394,571.37 obtained through equity accounting method Liquidation income of Huamei Company 1,179,786.56 --- RMB 8,200,695.11 RMB 11,394,571.37 No major restrictions are imposed regarding the remittance of the investment gains by the Company and its subsidiaries. NOTE 35. NON-OPERATING INCOME Details of non-operating income are shown as follows: 2001 2000 Gains on disposal of fixed assets RMB 1,066,138.11 RMB 853,910.49 Penalty income 122,085.05 117,248.90 Others 1,314,340.73 1,349,542.19 RMB 2,502,563.89 RMB 2,320,701.58 NOTE 36. NON-OPERATING EXPENSES Details of non-operating expenses are shown as follows: 2001 2000 Penalty expenses RMB 207,453.62 RMB 160,322.53 Losses on disposal of fixed assets 291,656.70 168,358.86 Donation expenses 18,780.00 410,000.00 Loss on debt reorganization 4,629,886.42 * 2,518,477.08 Loss on decline in value of fixed assets -- 80,628.69 Others -- 40,000.00 RMB 5,147,776.74 RMB 3,377,787.16 *The relative data are listed in Note 43. NOTE 37. OTHER CASH PAID RELATED TO OPERATING ACTIVITIES (1)Details of cash received relating to operating activities are shown as follows: 2001 Compensation of Insurance Company RMB 2,000,958.43 Interest Income 1,181,414.37 Others 6,030,394.45 RMB 9,212,767.25 (2)Details of cash paid relating to operating activities are shown as follows: 2001 Security and fire prevention fees paid to Wafangdian Bearing Group Co., Ltd. RMB 9,920,000.00 Traveling expenses 12,786,678.45 Transportation expenses 16,820,423.06 Technical development and consultant expenses 6,910,142.87 Repair expense 2,377,760.96 Heating expenses 5,448,587.00 Meeting expenses 5,018,894.89 61 Commission and customs declaration expenses 4,044,309.58 Insurance premium 634,758.87 Leasing expense 3,163,964.14 Advertisement expenses 1,070,433.33 Others 13,200,263.96 RMB 81,396,217.11 (3)Details of cash received relating to investing activities are shown as follows: 2001 Special appropriation for the reconstruction project of the RMB 80,000.00 waste water treatment station NOTE 38. NOTES RELATED TO RLEVANT ACCOUNTS IN THE STATEMENTS OF THE PARENT COMPANY 1 Accounts Receivable The analysis of the aging of the accounts receivable of the Company is shown as follows: 2001.12.31 2000.12.31 Age Amount Percentage Provision for bad Amount Percentag Provision for bad debt e debt Within 1 year RMB541,182,074.26 64.20% RMB 5,411,820.74 RMB 560,298,896.46 66.50% RMB 5,602,988.96 1 to 2 years 190,856,597.55 22.64% 9,542,829.88 202,401,705.10 24.02% 10,120,085.26 2 to 3 years 85,508,742.40 10.14% 17,101,748.48 53,339,954.51 6.33% 10,667,990.90 More than 3 25,475,124.67 3.02% 12,737,562.34 26,513,562.47 3.15% 13,254,891.49 years RMB843,022,538.88 100.00% RMB44,793,961.44 RMB 842,554,118.54 100.00% RMB 39,645,956.61 The accounts receivable with the aging of within one year could be basically recovered in cash in the next year, so the Company used a lower ratio to prepare for the provision for bad debts. With respect to the accounts receivables with the aging of more than three years, because of the higher possibility of having slow-moving or bad debts, the Company used a higher ratio to prepare for the provision for bad debts. As at December 31, 2001, the ratio of the top five largest accounts receivables over the total accounts receivables of the Company and its subsidiaries is as follows: 2001.12.31 2000.12.31 Top Five Largest Accounts Receivables RMB 208,809,304.44 RMB 216,955,030.60 Total amount of accounts receivable RMB 843,022,538.88 RMB 842,554,118.54 Percentage 24.77% 25.75% 2 Other Accounts Receivables The analysis of the aging of other accounts receivable of the Company is shown as follows: 2001.12.31 2000.12.31 Age Amount Percentage Provision for bad Amount Percentag Provision for bad 62 debt e debt Within 1 year RMB 3,108,820.74 51.18% RMB RMB 4,025,324.67 59.37% RMB 31,088.21 40,253.25 1 to 2 years 98,744.00 1.63% 4,937.20 310,824.25 4.58% 15,541.21 2 to 3 years 124,591.29 2.05% 24,918.26 388,146.70 5.73% 77,629.34 More than 3 2,741,905.15 45.14% 1,370,952.57 2,055,701.59 30.32% 1,027,850.79 years RMB 6,074,061.18 100.00% RMB 1,431,896.24 RMB 6,779,997.21 100.00% RMB 1,161,274.59 The accounts receivable with the aging of within one year could be basically recovered in cash in the next year, so the Company used a lower ratio to prepare for the provision for bad debts. With respect to the accounts receivables with the aging of more than three years, because of the higher possibility of having slow-moving or bad debts, the Company used a higher ratio to prepare for the provision for bad debts. As at December 31, 2001, the top five largest other accounts receivables amount to RMB3,685,620.98, which account for 60.68% of the total other accounts receivables. The details are shown as follows: 2001.12.31 Nature Petty Cash RMB 1,088,756.10 Loans to Staff Wazhou Group 1,524,523.43 Welfare Receivable Wafangdian City People’s Court 575,024.68 Materials Dalian Labor Services Company, Wafangdian Bearing Factory 357,316.77 Materials Wafangdian First Construction Engineering Company 140,000.00 Prepaid engineering fees RMB 3,685,620.98 3 Long-term Investment 2001.12.31 Name of Investee Period of Investment % of Equity Amount of Investment Increase(Decrease) in Equity Increase (Decrease) in the Equity in the Current Year Liaozhou Company 1996.11.22---2006.11.22 100.00% RMB 16,902,749.98 RMB 484,509.97 ) RMB 396,034.71 Watong Company 1996.03.28---2011.03.27 75.00% 19,034,713.51 5,704,642.99 604,389.91 SKF Wazhou Company 1998.05.15—2028.05.14 49.00% 85,329,491.04 30,317,289.05 7,015,829.04 Zhenxin Company 1998.07.13--2008.07.11 40.00% 422,901.61 22,901.61 5,079.51 ME Company 1998.10.06—2010.10.05 5.14% 2,000,000.00 --- --- Huamei Company 1989.09.02—1999.09.01 69.70% --- (441,092.67 ) 1,179,786.56 RMB 123,689,856.14 RMB 35,119,231.01 RMB 9,201,119.73 4 Major Operations A The details of the major operations of the Company are shown as follows: 2001 Revenue from Major Percenta Profits from Major Operations Percentage Cost of Major Operations ge Operations Percentage Sale of product RMB 876,541,439.64 83.33% RMB 677,270,480.85 81.63% RMB 199,270,958.79 89.68% Exports 120,277,030.09 11.43% 132,220,442.20 15.94% (11,943,412.11 ) (5.37%) 63 Domestic Sales 756,264,409.55 71.90% 545,050,038.65 65.69% 211,214,370.90 95.05% Including: North China 327,225,039.25 31.11% 235,835,533.23 28.42% 91,389,506.02 41.13% South China 185,167,716.02 17.60% 133,452,889.62 16.09% 51,714,826.40 23.27% East China 210,217,515.36 19.99% 151,506,620.47 18.26% 58,710,894.89 26.42% West China 33,654,138.92 3.20% 24,254,995.33 2.92% 9,399,143.59 4.23% Income from Industrial Operations 175,388,488.80 16.67% 152,446,070.80 18.37% 22,942,418.00 10.32% RMB 1,051,929,928.44 100.00% RMB 829,716,551.65 100.00% RMB 222,213,376.79 100.00% 2000 Revenue from Major Profits from Major Operations Percentage Cost of Major Operations Percentage Operations Percentage Sale of product RMB 912,815,726.62 84.22% RMB 721,398,729.66 82.43% RMB 191,416,996.96 91.71% Exports 112,452,244.07 10.38% 123,958,138.88 14.17% (11,505,894.81 ) (5.51%) Domestic Sales 800,363,482.55 73.84% 597,440,590.78 68.26% 202,922,891.77 97.22% Including: North China 388,213,485.85 35.82% 289,786,452.52 33.11% 98,427,033.33 47.16% South China 196,860,487.72 18.16% 146,948,790.95 16.79% 49,911,696.77 23.91% East China 185,817,752.84 17.14% 138,705,813.61 15.85% 47,111,939.23 22.57% West China 29,471,756.14 2.72% 21,999,533.70 2.51% 7,472,222.44 3.58% Income from Industrial Operations 171,095,271.35 15.78% 153,788,383.24 17.57% 17,306,888.11 8.29% RMB 1,083,910,997.97 100.00% RMB 875,187,112.90 100.00% RMB 208,723,885.07 100.00% B The details of the Company’s sales to top five clients are shown as follows: Amount Percentage of the sales in the current year 2001 RMB 230,629,976.17 21.92% 2000 RMB 307,845,329.11 28.40% 5 Return on Investment The details of the Company’s gains of the return on investment are shown as follows: 2001 2000 Long-term equity investment income RMB RMB 9,598,496.24 obtained through equity accounting method 8,021,333.17 Liquidation income of Huamei Company 1,179,786.56 --- RMB RMB 9,598,496.26 9,201,119.73 No major restrictions are imposed regarding the remittance of the investment gains to China by the Company. NOTE 39. RELATED PARTIES AND THEIR TRANSACTIONS (1)The Details of Related Parties Relationship are Shown as Follows: 64 A.Related parties where control exists are shown as follows: Name of Registered Address Major Operations Relationship Economic Legal Company with the Nature and Kind Representat Company ive Wazhou No. 1 North Gongji Street, Manufacture and sales Parent Company State-Owned Wang Group Wafangdian City, Dalian of bearing and other Lushun kinds of equipment The details of the subsidiaries of the Company are shown in Note 4. B. Registered capital of the related parties where control exists and its changes is shown as follows: Name of Company 2001.1.1 Addition Deduction 2001.12.31 Wazhou Group RMB 360,000,000.00 RMB -- RMB - RMB - -- 360,000,000.00 Liaozhou Company RMB RMB -- RMB - RMB 19,350,000.00 - -- 19,350,000.00 Watong Company USD 4,510,000.00 USD -- USD - USD - -- 4,510,000.00 Huamei Company USD 2,869,000.00 USD -- USD 2,869,000.00 USD - - -- C.Shares and equity held by related parties and the changes: 2001.1.1 Addition Deduction 2001.12.31 Name of Amount % Amount % Amount % Amount % Company Wazhou Group RMB 200,000,000.00 60.61% RMB --- --- RMB --- --- RMB 200,000,000.00 60.61% Liaozhou RMB 19,350,000.00 100.00% RMB --- --- RMB --- --- RMB 100.00% Company 19,350,000.00 Watong USD 3,382,500.00 75.00% USD --- --- USD --- --- USD 3,382,500.00 75.00% Company Huamei USD 1,999,693.00 69.70% USD --- --- USD 1,999,693.00 69.70% USD --- -- Company D. Details of related parties without the relationship of control are shown as follows: Name of company Relationship with the Company Special Steel Co., Ltd. Of Wafangdian Bearing Group (Wazhou Special Steel) Subsidiaries of Wazhou Bearing Group Machinery Manufacturing Co., Ltd. Of Wafangdian Bearing Group (Machinery Subsidiaries of Wazhou Bearing Group Manufacturing) Gas Company of Wafangdian Bearing Group (Wazhou Gas) Subsidiaries of Wazhou Bearing Group Dalian Guangyang Subsidiaries of Wazhou Bearing Group Casting Company of Wafangdian bearing Group (Casting Company) Subsidiaries of Wazhou Bearing Group Non-standard Bearing Manufacturing Co., Ltd. Of Wafangdian Bearing Group Subsidiaries of Wazhou Bearing Group (Non-standard Bearing) Wafangdian Haiyate Bearing Manufacturing Co., Ltd. Of Wafangdian Bearing Subsidiaries of Wazhou Bearing Group Group (Haiyate Bearing) Tongda Bearing Manufacturing Co., Ltd. Of Wafangdian Bearing Group Subsidiaries of Wazhou Bearing Group (Tongda Bearing) Wafangdian rolling Bearing Manufacturing Co., Ltd. of Wafangdian Bearing Subsidiaries of Wazhou Bearing Group Group (Rolling Bearing) Transportation Co., Ltd. Of Wafangdian Bearing Group (Wazhou Subsidiaries of Wazhou Bearing Group 65 Transportation) Tool Manufacturing Co., Ltd. Of Wafangdian Bearing Group (Tool Subsidiaries of Wazhou Bearing Group Manufacturing) Bearing Equipment Manufacturing Co., Dalian Wazhou Group (Equipment Subsidiaries of Wazhou Bearing Group Company) Construction & Installation Company of Wafangdian Bearing Group Subsidiaries of Wazhou Bearing Group (Construction & Installation) Packaging Products Company of Wafangdian Bearing Group (Packaging Subsidiaries of Wazhou Bearing Group Products) Grinding Wheel Manufacturing Co., Ltd. Of Wafangdian Bearing Group Subsidiaries of Wazhou Bearing Group (Grinding Wheel Manufacturing) Wafangdian Second Bearing Manufacturing Company of Wafangdian Bearing Subsidiaries of Wazhou Bearing Group Group (Second Bearing) Wafangdian Hongda Constant Velocity Universal Joint Manufacturing Co., Ltd. Subsidiaries of Wazhou Bearing Group Of Wafangdian Bearing Group (Hongda Universal Joint) Machinery & Electrical Chemistry Company of Wafangdian Bearing Group Subsidiaries of Wazhou Bearing Group (Machinery & Electrical Chemistry) Wafangdian Bearing Group Industrial General Company (Wazhou Industrial) Subsidiaries of Wazhou Bearing Group Wafangdian Rongtai Engineering Plastics Products Co., Ltd. (Rongtai Subsidiaries of Wazhou Bearing Group Engineering) Dalian Koyo Wazhou Automobile Bearing Co., Ltd. (Dalian Koyo) Subsidiaries of Wazhou Bearing Group Lokelan Manufacturing Co., Ltd. (Lokalan U.S.) Subsidiaries of Wazhou Bearing Group SKF Wazhou Company Associated company of the Company American General Bearing Co., Ltd. Foreign partner of a subsidiary of the Company (2) Transactions with related companies The Company purchased raw materials and bearing parts from the following related companies: 2001 2000 Percentage of the Percentage of purchase in the the purchase in Amount Amount current period the current period SFK Wazhou Co. RMB 119,930,524.60 * 13.40% RMB 117,053,905.60 14.30% Wazhou Group 64,440,273.56 7.20% 63,984,555.31 7.81% Special Steel Co., Ltd. Of Wafangdian 39,095,327.79 4.37% 32,219,668.45 3.93% Bearing Group (Wazhou Special Steel) Wafangdian Second Bearing 34,330,289.13 3.84% 39,956,370.10 4.88% Manufacturing Company of Wafangdian Bearing Group (Second Bearing) Non-standard Bearing Manufacturing Co., 30,869,243.02 3.45% 47,622,679.81 5.82% Ltd. Of Wafangdian Bearing Group (Non- standard Bearing) Tongda Bearing Manufacturing Co., Ltd. 22,072,336.95 2.47% 28,301,366.27 3.46% Of Wafangdian Bearing Group (Tongda Bearing) Machinery Manufacturing Co., Ltd. Of 21,776,570.69 2.43% 21,296,047.00 2.60% Wafangdian Bearing Group (Machinery Manufacturing) Dalian Guangyang 19,583,203.20 2.19% 18,671,050.00 2.28% Gas Company of Wafangdian Bearing 19,335,960.00 2.16% 17,884,000.00 2.18% Group (Wazhou Gas) Wafangdian rolling Bearing 14,143,644.02 1.58% 17,084,957.98 2.09% Manufacturing Co., Ltd. of Wafangdian Bearing Group (Rolling Bearing) Transportation Co., Ltd. Of Wafangdian 13,190,788.06 1.47% 12,754,982.16 1.56% Bearing Group (Wazhou Transportation) Tool Manufacturing Co., Ltd. Of 10,272,510.73 1.15% 11,940,333.99 1.46% 66 Wafangdian Bearing Group (Tool Manufacturing) Grinding Wheel Manufacturing Co., Ltd. 7,929,770.68 0.89% 10,843,823.74 1.32% Of Wafangdian Bearing Group (Grinding Wheel Manufacturing) Packaging Products Company of 7,656,861.33 0.86% 935,524.76 0.11% Wafangdian Bearing Group (Packaging Products) Casting Company of Wafangdian Bearing 4,264,569.50 0.48% 3,541,610.89 0.43% Group (Casting Company) Wafangdian Rongtai Engineering Plastics 802,631.42 0.09% 1,082,786.14 0.13% Products Co., Ltd. (Rongtai Engineering) Wafangdian Haiyate Bearing 50,770.00 0.01% 1,293,270.92 0.16% Manufacturing Co., Ltd. Of Wafangdian Bearing Group (Haiyate Bearing) Machinery & Electrical Chemistry --- --- 725,392.52 0.09% Company of Wafangdian Bearing Group (Machinery & Electrical Chemistry) RMB 429,745,277.68 48.01% RMB 447,192,325.64 54.61% B. The Company sells accessories, raw materials and bearing parts to the following related parties: 2001 2000 Percentage of the Percentage of the Amount sales in the current Amount sales in the current period period Wazhou Group RMB 130,982,778.61 12.22% RMB 191,146,422.11 17.44% SFK Wazhou Co. 78,792,705.26 * 7.35% 81,746,194.11 7.46% Second Bearing 29,545,163.63 2.76% 34,533,230.13 3.15% Non-standard Bearing 25,459,626.98 2.38% 31,524,690.11 2.88% Tongda Bearing 17,293,485.62 1.61% 20,666,015.73 1.89% Lokelan (U.S.) 16,857,809.77 1.57% 11,147,685.79 1.02% Wazhou Special Steel 12,073,268.74 1.13% 14,674,128.38 1.34% Rolling Bearing 10,449,452.89 0.98% 11,495,239.54 1.05% Machinery Manufacturing Co., Ltd. 9,600,206.00 0.90% 7,563,088.26 0.69% Of Wafangdian Bearing Group (Machinery Manufacturing) Dalian Guangyang 7,139,877.46 0.67% 8,799,826.19 0.80% Tool Manufacturing 5,340,448.23 0.50% 4,569,063.98 0.42% Grinding Wheel Manufacturing 4,110,515.26 0.38% 5,922,837.09 0.54% Casting Company 3,324,855.66 0.31% 1,994,481.95 0.18% Wazhou Transportation 558,025.38 0.05% 1,635,204.10 0.15% Hongda Universal Joint 217,436.54 0.02% 45,159.20 --- Wazhou Gas 75,932.45 0.01% 316,994.10 0.03% Haiyate Bearing 48,250.85 --- 405,674.10 0.04% Packaging Products 41,098.20 --- 56,559.41 --- Rongtai Company 5,128.21 --- --- --- RMB 351,916,066.74 32.84% RMB 428,242,494.28 39.08% *The Company sales bearing parts to SKF Wazhou Company valued RMB78,792,705.26 this year, at the same time purchase finished products valued RMB119,930,524.60 which are used to sale. 67 C. Details of fees paid by the Company to Wazhou Bearing Group Co., Ltd. are shown as follows: 2001 2000 Security & fire-proof expenses RMB RMB 3,700,000.00 3,700,000.00 Technical development expenses 7,400,000.00 5,400,000.00 Promotion expenses 900,000.00 900,000.00 Land lease expense 3,163,964.14 3,163,964.14 Security for loans 10,500,000.00 1,576,401.00 RMB 25,663,964.14 RMB 14,740,365.14 D. In 2001, the remunerations of the key management of the Company amounted to RMB128,796.34 while that incurred in 2000 was RMB131,761.48. E. In 2001, the Company purchased labor services of RMB2,817,243.84 from the Industrial Company of Wafangdian Bearing Group Co., while in 2000, the Company paid the said company labor service fee of RMB3,126,623.00. F. In 2001, the Company reached an agreement with SKF Wazhou Company, whereby the loans owed by the Company to SKF Wazhou Company will be offset by the profit in cash due to the Company from SKF Wazhou Company. The amount is RMB10,084,200.00. (3) Transactions with related companies Details of related company accounts are shown as follows: 2001.12.31 Amount receivable Other receivables Amount payable Other payable Percenta Percenta Percenta Percenta Balance Balance Amount Balance ge ge ge ge Wazhou Group RMB 155,943,462.75 17.73% 1,524,523.43 13.40% RMB 2,220,876.73 0.78% RMB 25,923,700.95 27.73% SKF Wazhou Co. 32,244,872.41 3.67% 32,335.18 0.283% 54,934,784.24 19.18% --- --- Wazhou Special --- --- 30,456.00 0.27% 24,438,937.88 8.53% --- --- Steel Wazhou Gas --- --- --- --- 24,068,681.87 8.40% --- --- Tool --- --- --- --- 19,890,915.24 6.94% 23,095.00 0.02% Manufacturing Dalian --- --- --- --- 11,741,177.99 4.10% --- --- Guangyang Second Bearing 816,018.19 0.09% --- --- 4,851,412.54 1.69% --- --- Non-standard 4,327,617.87 0.49% --- --- 3,561,073.89 1.24% 1,405.00 0.00% Bearing Wazhou --- --- --- --- 2,724,962.77 0.95% --- Transportation Tongda Bearing 146,214.52 0.02% --- --- 2,574,379.79 0.90% 500.00 0.00% Machinery & --- --- 18,198.25 0.16% 1,995,657.36 0.70% 129,291.37 0.14% Electrical Chemistry Machinery --- --- --- --- 1,739,135.41 0.61% --- --- Manufacturing Rolling Bearing --- --- --- --- 771,170.50 0.27% 1,000.00 0.00% Grinding Wheel 12,637.04 0.00% --- --- 204,861.57 0.07% --- --- Manufacturing Rongtai --- --- --- --- 574,253.21 0.20% --- --- Engineering Wazhou --- --- --- --- 193,547.00 0.07% 425,636.65 0.46% Industrial American --- --- --- --- 78,505.89 0.03% --- --- General Bearing Co., Ltd. 68 Hongda 34,368.94 0.00% --- --- 36,000.00 0.01% --- --- Universal Joint Construction & --- --- --- --- --- --- 189,487.37 0.20% Installation Packaging 774,717.53 0.09% --- --- --- --- --- --- Products Casting --- --- --- --- --- --- 60,487.60 0.07% Company Equipment Co., --- -- --- --- --- --- 4,445,022.42 4.76% RMB 194,299,909.25 22.09% RMB 1,605,512.86 14.11% RMB 156,600,333.88 54.67% RMB 31,199,626.36 33.38% NOTE 40 CONTINGENCIES As at December 31, 2001, the Company had signed up to provide collateral in the amount of RMB4,480,000.00 for a loan of Wazhou Bearing Group. NOTE 41. FINANCIAL COMMITMENT The Company and its subsidiaries undertook no major commitments. NOTE 42. POST-BALANCE SHEET EVENTS As at March 7, 2002, Huamei Company had obtained documents approving the dissolve from Chinese competent departments in charge, Dalian Customs Office, Wafangdian State Taxation Bureau and Local Taxation Bureau. However, the procedures for the cancellation with respect to industry and commerce were still in process. NOTE 43. THE EXPLANATIONS FOR OTHER SIGNIFICANT EVENTS (1)The Company signed “Agreement of Debt Restructuring” with the Company’s creditors in the current year, whereby the Company paid the creditors an amount less than the book value of the “Accounts Payables”. The gain from the debt restructuring, which amounts to RMB1,111,133.88, was included in the capital reserve account; (2)The Company signed “Agreement of Debt Restructuring” with the Company’s debtors, whereby the debtors paid the Company an amount less than the carrying value of the “Accounts Receivables”. The loss arising from the debt restructuring, which amounts to RMB4,629,886.42, was included in the “non-operating expense” account. NOTE 44. COMPARATIVE FIGURES To comply with the principle of consistency, appropriate adjustment and reclassification for certain audited comparative figures of last year in the consolidated financial statements have been made. 69 NOTE 45. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Board of Directors of the Company on April 12, 2002. Other financial data WAFANGDIAN BEARING CO.,LTD. Supplementary Information on Statement of Income and Profit Appropriation for 2001 2001 2000 Profits from Major Operation RMB RMB 230,765,683.51 214,604,084.63 Operating Profit RMB RMB 21,514,015.32 25,843,813.82 Net Profit RMB RMB 24,553,155.46 32,816,682.45 Deduct: Investment Gain 1,179,786.56 --- Non-operating Income 2,502,563.89 2,320,701.58 Add: Non-operating Expense 5,147,776.74 3,377,787.16 Net Income after the Deduction of RMB RMB Non-current Gains and Losses 26,018,581.75 33,873,768.03 Other financial data WAFANGDIAN BEARING CO.,LTD. Detailed Statement on Return on Net Assets and Earnings Per Share 2001 The details of the consolidated return on net assets and earnings per share of the Company in 2001 and 2000 are shown as follows: Earnings per Return on Net Assets(%) Share(yuan/share) Return on Weighted Average Return on Weighted 70 Equity Equity Average 2001 2000 2001 2000 2001 2000 2001 2000 Profit from Major Operations 22.23 21.08 22.40 21.26 0.6993 0.6503 0.6993 0.6503 Operating profit 2.07 2.54 2.09 2.56 0.0652 0.0783 0.0652 0.0783 Net Income 2.37 3.22 2.38 3.25 0.0744 0.0994 0.0744 0.0994 Net Income after the Deduction of Non-current Gains and Losses 2.51 3.33 2.53 3.36 0.0788 0.1026 0.0788 0.1026 Other financial data WAFANGDIAN BEARING CO.,LTD. Detailed Statement of Provision on Write-down in Assets 2001 The detailed statement of the provision on write-down in assets of the Company and its subsidiaries in 2001 is shown as follows: Balance at beginning Addition Deduction Balance at the end of of year year 1. Provision of bad debt RMB 42,890,964.58 RMB 5,550,089.51 RMB --- RMB 48,441,054.09 Including: Accounts Receivable RMB 41,673,206.77 RMB 5,275,856.15 RMB --- RMB 46,949,062.92 Other Receivables RMB 1,217,757.81 RMB 274,233.36 RMB --- RMB 1,491,991.17 2. Provision for write-down in RMB 6,585,984.23 RMB 11,190,814.81 RMB 1,054,852.23 RMB value of inventory 16,721,946.81 Including: Raw Materials RMB 2,551,484.23 RMB --- RMB 1,054,852.23 RMB 1,496,632.00 Work-in-progress RMB 1,600,000.00 RMB -- RMB --- RMB 1,600,000.00 Finished Goods RMB 2,434,500.00 RMB 11,190,814.81 RMB --- RMB 13,625,314.81 3. Provision for write-down in RMB 4,367,960.38 RMB 1,626,287.94 RMB 684,644.37 RMB 5,309,603.95 value of fixed assets Machinery and equipment RMB 4,367,960.38 RMB 1,626,287.94 RMB 684,644.37 RMB 5,309,603.95 Other financial data WAFANGDIAN BEARING CO.,LTD. Unusual Fluctuations between Years and Explanations Unusual fluctuations in the Company’s consolidated financial statements in 2001 are shown as follows: Item 2001 2000 Rate of fluctuation Profit from Other Operations RMB 4,511,113.62 RMB 14,132,696.37 (68.08% ) Return on Investment RMB 8,200,695.11 RMB 11,394,571.37 (28.03% ) Non-operating Expense RMB 5,147,776.74 RMB 3,377,787.16 52.40% 71 A The reason for the fluctuations in other operating profits: the Company changed the calculating method in the current year and included in “other business expenses” the costs previously recorded in “costs of major operations”. The purpose is to enhance the matching of “other business income” with ‘other business expenses”. B. The reason for the fluctuation in the gains of investment: in the current year, associated companies of the Company recorded a drop in the profits, leading to a reduction in the investment income calculated with the equity method. C. The reason for the “non-operating expenses”: increased loss in debt restructuring in the current year. WAFANGDIAN BEARING CO., LTD. RECONCILIATION BETWEEN THE IAS ACCOUNTS AND THE PRC ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2001 Monetary Unit: RMB Thousand Yuan Net Assets Result of Operations Note 2001.12.31 2001 Audited net value of assets/net profit RMB 967,060 RMB 32,593 Under IAS by overseas Certified Public Accountants Reconciliation items —Loss on decline in value of inventory 1 44,646 15,527 -- Provision for bad debts 2 21,109 (17,037 ) -- Depreciation of fixed assets 3 8,093 3,893 -- Gain from debt reorganization 4 --- (1,111 ) -- Write-off of accounts payables that 5 --- (4,410 ) cannot be paid for a long time -- Unrealized profit from transactions 6 5,308 (923 ) with associated company --Adjusting the organizational expense of 7 --- (1,658 ) Watong Co. --Adjusting the provision for decline in 8 --- (1,630 ) value of investment made for Huamei Co. -- Adjustment due to dividends declared 9 (9,900) --- after the balance sheet date ––Others 1,772 (691 ) Net increase(decrease) of reconciliation 71,028 (8,040 ) 72 Audited net value of assets/net profit under Accounting Regulations for Enterprises and Accounting Regulations for Joint Stock Limited Company by Chinese CPAs RMB1,038,088 RMB 24,553 Note 1.LOSS FROM DECLINE IN VALUE OF INVENTORY Overseas certified public accountants, in compliance with International Accounting Standards, in addition to determining the cost of the inventory by the lower of the cost and NRV method, apply Goods Aging Analysis Method to provide for special provision for decline in value for obsolescent, damaged, and defective inventory. The method used is shown as follows: 2-3 1-2 years years Over 3 years Remark Raw material 5% 20% 50% No new purchase in the current year Finished goods—special provision --export sales 50% 100% 100% No new sales in the current year --domestic sales 50% 90% 100% No new sales in the current year PRC certified public accountants confirm the cost of inventory using the lower of the cost and NRV method pursuant to Accounting Standards for Enterprises and Enterprise Accounting Systems and supplementary regulations of the People’s Republic of China. Note 2.PROVISION FOR BAD DEBTS In addition to the allowance method to provide for provision for bad debts, overseas certified public accountants conform to the IAS by preparing for the provision for bad debts when objective evidence indicates that it is impossible to recover the accounts receivables in full when due. The amount of the provision for bad debts will be the difference between book value and the net realizable value. And, the net realizable value is calculated by the expected cash flow and the discounted interest rate of similar loans in the market. On the other hand, PRC Certified Public Accountants, conforming to the “Enterprise Accounting Standards” and “Enterprise Accounting System”, used the Aging Analysis Method to audit the provision for bad debt of the accounts receivables and other receivables. Note 3.DEPRECIATION OF FIXED ASSETS Overseas CPAs accrued depreciation expenses for machinery and equipment that were not used in the production process and stored in the warehouse pursuant to the IAS, while domestic CPAs did not accrue depreciation expense for the aforesaid fixed assets in accordance with Accounting Standards for Enterprises and Enterprise Accounting Systems. 73 Note 4.GAIN FROM DEBT RESTRUCTURING Overseas CPAs include the profit from debt reorganization in the profit and loss statement subject to IAS while domestic CPAs record the profit from debt reorganization in the capital reserve account subject to Accounting Standards for Enterprises and Accounting Systems for Enterprises. Note 5.WRITE-OFF OF ACCOUNTS RECEIVABLES THAT CANNOT BE PAID FOR A LONG TIME Overseas CPAs include the write-off of accounts payables that cannot be paid for a long time in the profit and loss statement subject to IAS, while domestic CPAs record the the write-off of accounts payables that cannot be paid for a long time in the capital reserve account subject to relevant provisions of the Accounting Standards for Enterprises and Accounting Systems for Enterprises. Note 6.UNREALIZED PROFIT ARISING FROM TRANSACTIONS WITH ASSOCIATED COMPANIES Income arising from investment by the Company was accounted for by the equity method, out of which RMB923,000.00 was generated from related company transactions between the SKF Wazhou Company and the Company. Overseas CPAs deducted this investment income pursuant to International Accounting Standards, while domestic CPAs did not deduct the unrealized profit arising from related company transactions according to Accounting Standards for Enterprises and Accounting Systems for Enterprises. Note 7.ORGANZIATIONAL EXPENSES OF WATONG COMPANY Pursuant to International Accounting Standards, overseas CPAs included the unamortized organizational expenses of Watong Company in the profit and loss statement in 2000, while domestic CPAs included the said organizational expenses in the profit and loss statement in the current year according to Accounting Standards for Enterprises and Accounting Systems for Enterprises. Note 8.THE PROVISION FOR THE LOSS IN VALUE OF INVESTMENT ACCRUED BY THE HUAMEI COMPANY Pursuant to International Accounting Standards, overseas CPAs included Huamei Company in the scope of the consolidated financial statements of 2000, and at the same time accrued a provision for loss in value of long-term investment in the amount of RMB1,630,000.00 for Huamei Company’s long-term investment. In the current year, with the liquidation of Huamei Company coming to an end, overseas CPAs reversed the provision for loss in value of long-term investment, while domestic CPAs did not include Huamei Company in the scope of the consolidated financial statements of 2000 and 2001 pursuant to the “Circular on Distributing the ‘Provisional Regulations on Consolidated Financial Statements’” issued by the Ministry of Finance under Document No.11. Further, domestic CPAs did not accrue a provision for loss in value for the said long-term investment. Note 9.DIFFERENCE IN DISTRIBUTION OF DIVIDENDS Overseas CPAs audit the distribution of cash dividends by recording the cash dividends declared for the year ended December 31,2001 in accordance with IAS in the year of 2002 in which the cash dividends are actually issued. While domestic 74 CPAs audit the distribution of cash dividends by recording it in the year ended December 31,2001 subject to Accounting Regulations for Selected Joint Stock Limited Enterprises. Owing to the above different auditing treatment, there is a difference in audited net assets of the Company of RMB9,900,000.00. Chapter Eleven List of Reference Documents 1.Accounting statements with the signatures and seals of the legal representative, financial controller and the director of the accounting department of the Company; 2.The original 2001 annual audit report and the financial statements with the seal of the Certified Public Accountants and the personal signature and seal of the certified public accountant; 3.Articles of Association of the Company; 4.Original documents and notices of the Company disclosed in newspapers designated by the Security Supervisory Committee of China in the report period. Chapter Eleven List of reference documents 1. Accounting statements with the signatures and seals of the legal representative, finance controller and the director of the accounting department of the Company; 2. The original 2001annual audit report and the financial statements with the seal of the Certified Public Accountants and the personal signature and seal of the certified public accountant. 3. Articles of Association of the Company; 4. Original documents and notices of the Company disclosed in newspapers designated by the Security Supervisory Committee of China in the report period. 75