小天鹅Ａ(000418)小天鹅Ｂ2002年年度报告（英文版）

WUXI LITTLE SWAN COMPANY LIMITED 2002 ANNUAL REPORT I. IMPORTANT NOTE The Board of Directors of Wuxi Little Swan Company Limited (hereinafter refereed to as the Company) and all directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Director Mr. Lin Jiacong, Mr. Paul.Wolansky and Mr. Peng Zhouhong were absent from the Board meeting due to busy business, and all the three entrusted Mr. Zhu Dekun, Chairman of the Board, to attend and vote on behalf of them. Jiangsu Gongzheng Certified Public Accountants and PricewaterhouseCoopers China Certified Public Accountants were unable to form an auditors’ report for the Company, The Board of Directors and the Supervisory Committee of the Company made explanations on the relevant matters in details, the investors are suggested to notice the content. Mr. Zhu Dekun, Chairman of the Board of the Company, Mr. Zhang Mingjie, Chief Financial Supervisory and Mr. Chen Zhiming, Secretary of Financial Department hereby confirm that the Financial Report of the Annual Report is true and complete. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. II. COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 无锡小天鹅股份有限公司 In English: Wuxi Little Swan Company Limited 2. Legal Representative: Mr. Zhe Dekun 3. Secretary of the Board of Directors: Mr. Qiao Li Contact Address: Wuxi Little Swan Company Limited, No. 67, Huiqian Road, Wuxi Jiangsu Postcode: 214035 Tel: 0510-3704003-2192 Fax: 0510-3704031 E-mail: qiaol@littleswan.com.cn Authorized Representative in Charge of Securities Affairs: Mr. Chen Weinong Contact Address: Wuxi Little Swan Company Limited, No. 67, Huiqian Road, Wuxi Jiangsu Postcode: 214035 Tel: 0510-3720879 Fax: 0510-3704031 E-mail: chenwn@littleswan.com.cn 4. Registered Address: No.1 Hanjiang Road, National High-Tech Industrial Development Zone, Wuxi Postcode: 214028 Office Address: No. 67, Huiqian Road, Wuxi Jiangsu Postcode: 214035 International Website of the Company: http://www.littleswan.com E-mail of The Company: Info@littleswan.com.cn 5. Designated Newspaper for Disclosing the China Securities, Securities Times, Information of the Company: Wen Wei Po and Ta Kung Pao Internet Web site for publishing the Annual Report Designated by CSRC: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: Little Swan A, Little Swan B Stock Code: 000418, 200418 7. Other Relevant Information of the Company Registration date after change: Dec. 28, 2000 Registration place after change: Administrative Bureau of Industrial and Commercial of Jiangsu Province Registered code of enterprise legal person’s business license: 3200001103331 Registered code of taxation (National Revenue):320201134792058 Registered code of taxation (Local Tax): 320211704046760 Name and address of Certified Public Accountants engaged by the Company: Domestic: Jiangsu Gongzheng Certified Public Accountants Office address: No. 28, Liangxi Road, Wuxi International: PricewaterhouseCoopers China Certified Public Accountants Office address: 12th Floor, Ruian Plaza, No. 333, Huaihai Middle Road, Shanghai II. SUMMARY OF ACCOUNTING DATA AND BUSINESS DATA 1. Profit indexes (Unit: RMB) Items 2002 Total profit -868,462,491.42 Net profit -418,429,593.89 Net profit after deducting non-recurring gains and losses -419,583,455.05 Profit from core business 423,801,370.95 Profit from other business lines 6,633,848.42 Operating profit -863,107,630.01 Investment income 27,405,251.04 Subsidy income 3,790,931.00 Net income/expenditure of non-operating -36,551,043.45 Net cash flows arising from operating activities 86,553,355.26 Net increase in cash and cash equivalent 77,412,787.12 2. Adjustment of net profit: (Unit: RMB’000) Item 2002 As calculated in accordance with CAS -418,430 IAS adjustment: Add: Switch back withdrawal of benefit wage -18,758 Less: Difference in consolidated scope -16,377 Less: Unconfirmed losses of subsidiaries 246,275 Less: Minority shareholder’s gains and losses 203,003 Less: Others 2,123 Amount after adjustment -872,212 Note: The composing of non-recurring gains and losses: pluses subsidy income of RMB 3,222,276.05 and share investment income of RMB 91,201.50, minuses expenditure of non-operating of RMB 2,159,616.39. 3. Analysis of structure in return on equity and earnings per share Profit in the report period Return on equity (%) Earnings per share (RMB) Fully Weighted Fully Weighted diluted average diluted average Profit from core business 34.78 25.29 1.1608 1.1608 Operating profit -70.84 -51.50 -2.3640 -2.3640 Net profit -34.34 -24.97 -1.1461 -1.1461 Net profit after deducting non-recurring gains and losses -34.44 -25.04 -1.1492 -1.1492 4. Change in shareholders’ equity in the report period (Unit: RMB) Items Share capital Capital public Surplus public Retained profit Unconfirmed Total reserve reserve loss on shareholders’ investment equity Amount at the 365,103,840.00 1,107,062,877.18 532,995,116.53 134,302.36 -9,828,453.65 1,995,467,682.42 period-begin Amount after 365,103,840.00 1,107,062,877.18 509,141,743.60 -96,131,665.38 0.00 1,885,176,795.40 adjustment at the period-begin Increase in the 168,065.99 5,800,270.32 -418,429,593.89 -412,461,257.58 report period Decrease in the 8,015,493.38 246,275,236.94 254,290,730.32 report period 365,103,840.00 1,107,230,943.17 514,942,013.92 -522,576,752.65 -246,275,236.94 1,218,424,807.50 Reason for change: 1. Increase of capital public reserve was because the parent company holds the shares in reducing of remitting taxes received by Wuxi Little Swan Hubin Washing Co., Ltd. and Wuxin Little Swan Transportation Co., Ltd.. 2. Amount of surplus public reserve after adjustment at the year-begin was RMB 509,141,743.60, decreased by RMB 23,853,372.93 from the end of report period of 2001 of RMB 532,995,116.53; the situations are as follows: (1) Due to significant accounting error, the Company corrected the error, adjusted and decreased net profit of 2001 and the previous years of 2001, so as to further decrease surplus public reserve of RMB 11,618,096.38; (2) Long-term equity investment of previous years of Wuxi Little Swan Tian’ai Electric Appliance Co., Ltd. was decrease to RMB –3,774,056.45 based on equity method, in the report period, the Company adjusted and increased retained profit at the beginning of 2001 amounting to RMB 3,094,726.28 and surplus public reserve of RMB 679,330.17. (3) Due to adjustment of consolidation scope of accounting statement, as at Dec. 31, 2002, the Company accordingly adjusted and decreased RMB 12,914,606.72, which the parent company should enjoy amount based on equity proportion in surplus public reserve of subsidiaries, which were not brought into consolidation scope of accounting statement. 3. Retained profit (1) Retained profit at the end of the 2001 amounted to RMB 134,302.36, the margin of RMB 96,265,967.74 compared with retained profit at the period-begin of RMB –96,131,665.38, the situations are as follows: The Company retroactively adjusted and decreased the retained profit at the beginning of 2001 amounting to RMB 32,923,524.43 because the Company failed to record operating expenses as for the previous years of 2001; The Company retroactive ly adjusted and decreased the net profit as of 2001 amounting to RMB 85,242,976.16 because the Company failed to record operating expenses as for the previous years of 2001; As approved by State Taxation Bureau of Wuxi, the Company offset taxable income of 2001 with 50% of technical development expenses as of the year 2001, so as to increase by RMB 1,500,218.58 of net profit as of 2001; Due to the above No. and , the net profit as of the year 2001 was negative after retroactive adjustment, the Company accordingly switched back the original withdrawal of surplus public reserve of RMB 4,390,981.27 as of the year 2001; Long-term equity investment of previous years of Wuxi Little Swan Tian’ai Electric Appliance Co., Ltd. was decrease to RMB –3,774,056.45 based on equity method, in the report period, the Company adjusted and increased retained profit at the beginning of 2001 amounting to RMB 3,094,726.28; The Company accordingly adjusted and decreased retained profit of RMB 10,721,470.04 at the beginning of 2001 due to adjustment of consolidation scope of accounting statement, which the parent company should enjoy share based on investment proportion in withdrawal of statutory surplus public reserve, statutory public welfare funds, reserve and development funds for enterprises before 2001 of subsidiaries, which were brought into consolidation scope of accounting statement in 2001 while were not brought into consolidation scope of accounting statement in 2002; Due to the above No. , the Company withdrew a little the said funds, but adjusted and increased retained profit of RMB 2,193,136.68 as of 2001; (2) Increase amount in the report period in retained profit in 2002 was net profit of RMB –418,429,593.89 realized in 2002; (3) Decrease amo unt in the report period in retained profit was RMB 8,015,493.38, the situation are as follows: The parent company should hold the amount of RMB 627,085.15 in withdrawal of statutory surplus public reserve and statutory welfare funds of subsidiaries, which were brought into consolidation scope of accounting statement; The Company withdrew employees’ rewards and welfare funds amounting to RMB 2,215,223.06 of subsidiaries, which were brought into consolidation scope of accounting statement; The parent company holds the amount of RMB 5,173,185.17 in withdrawal of reserve and development funds for enterprises of subsidiaries, which were brought into consolidation scope of accounting statement. (4) Unconfirmed loss on investment of RMB –246,275,236.94 was mainly because the two subsidiaries of the Company were deficit in this report period, and caused the net assets less than naught, while parent company recorded the naught in long-term investment. There was balance between book value of long-term investment of parent company and share held by parent company in the net assets of subsidiaries when the Company consolidated the accounting statement. IV. CHANGE IN SHARE CAPITAL AND PATICULARS ABOUT SHAREHOLDERS 1. Change of shares (1) Statement of change in shares Unit: share Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of Additional Sub- change Others change of share shares public reserve issuance total I. Unlisted Shares 1. Promoters’ shares 109,622,592 109,622,592 Including: Shares held by the state 101,628,864 101,628,864 Shares held by domestic legal person 7,993,728 7,993,728 2. Raised legal person’s shares 56,124,000 56,124,000 Including: Domestic legal person’s shares 56,124,000 56,124,000 Foreign legal person’s shares 0 Total Unlisted shares 165,746,592 165,746,592 II. Listed Shares 1. RMB ordinary shares 72,000,000 72,000,000 (Including: shares held by senior 166,800 -14,400 -14,400 152,400 executives) 2. Domestically listed foreign shares 127,357,248 127,357,248 Total Listed shares 199,357,248 199,357,248 III. Total shares 365,103,840 365,103,840 (2) Issuance and listing of shares The Company issued neither new shares nor derived securities over the recent three years at the end of the report year. In the report period, the total shares and structure of shares remained unchanged. There existed no inner employees’ shares in the Company. 2. About shareholders (1) In the report period, the Company has totally 64,112 shareholders, including 43,334 shareholders of A-share and 20,778 shareholders of B-share. (2) Particulars about shares held by the top ten shareholders Unit: share Increase / Number of Holding decrease in Proportion Type of share Full name of Shareholders shares at the Nature of shareholders the report (%) shares pledged/ year-end year frozen Jiangsu Little Swan Group Co., Ltd. 101,628,864 101,628,864 27.84 State-owned legal person share Greater China Development Co., Ltd. 26,014,349 26,014,349 7.13 B- share B-share in circulating Wuxi Industrial Development Fund 16,496,640 16,496,640 4.52 State-owned share China Yinhe Securities Co., Ltd. 14,274,788 14,274,788 3.91 A-share A-share in circulating Wuxi City and Town Industrial United 7,993,728 7,993,728 2.19 Legal person share Committee South Securities Co., Ltd. 7,570,900 7,570,900 2.07 7,570,900 Legal person share Xi’an Wanguo Real Estate Development 4,800,000 4,800,000 1.31 Legal person share Co., Ltd. Shenyang Lianya Industrial Development 2,160,000 2,160,000 0.59 Legal person share Co., Ltd. China Construction Bank Dalian Trust 1,440,000 1,440,000 0.39 Legal person share Investment Co., Ltd. Beijing Liancheng Investment Consulting 1,440,000 1,440,000 0.39 Legal person share Co., Ltd. Among the top ten shareholders as listed above, there exists no associated Explanation on associated relationship, and they do not belong to the consistent actionist regulated by the relationship among the top ten Management Measure of Information Disclosure on Change of Shareholding for shareholders or consistent action Listed Company. (3) The legal person shareholder of the Company holding over 10% of the total shares Name: Jiangsu Little Swan Group Co., Ltd. Legal representative: Mr. Zhu Dekun Date of foundation: Dec. 1995 Registered capital: RMB 197.07 million Business scope: manufacture and sales of electrical home appliances; production of raw material, subsidiary material, equipment, parts and components; consultation of economy and financing, agency service, technical service of electrical home appliances. (4) In the report period, the controlling shareholder of the Company remained unchanged. V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, supervisors and senior executives Holding shares Holding Reason for Name Title Gender Age Office term at the shares at the change year-begin year-end May 2000- Zhu Dekun Chairman of the Board Male 59 30000 30000 May 2003 May 2000- Xu Zhonglun Vice Chairman of the Board Male 58 18000 18000 May 2003 May 2000- Ou Shiyu Director Male 58 18000 18000 May 2003 May 2000- Mao Sujie Director Female 57 18000 18000 May 2003 May 2000- Xu Yuan Director Male 59 18000 18000 May 2003 May 2000- Gai Lijin Director Male 43 14400 14400 May 2003 May 2000- Paul Wolansky Director Male 48 May 2003 May 2000- Li Guodong Director Male 55 May 2003 Liang May 2000- Director Male 47 Bingcong May 2003 Sep. 2001- Lin Jiacong Director Male 51 May 2003 May 2000- Liu Weizu Director Male 60 May 2003 Peng May 2000- Director Male 46 Zhouhong May 2003 May 2002- Lv Wei Independent Director Male 39 May 2003 May 2002- Yang Jiahua Independent Director Male 67 May 2003 Chairman of the Supervisory May 2000- Jiang Lanzhen Female 53 Committee May 2003 Zhang May 2000- Supervisor Male 57 24000 24000 Zhizheng May 2003 May 2000- Ma Jun Supervisor Male 43 May 2003 Wang Secretary of the Board of Dec. 2001- Male 49 Xianping Director May 2003 Mar. 2001- Chai Xinjian General Manager Male 40 May 2003 May 2000- Li Hong Deputy General Manager Male 40 May 2003 May 2000- Mao Zhiliang Deputy General Manager Male 46 May 2003 Rao Oct. 2001- Chief Financial Supervisor Male 47 Zhongliang May 2003 2. Particulars about directors and supervisors holding the post in Shareholding Company Drawing the payment from the Title in Shareholding Name Name of Shareholding Company Office term Shareholding Company Company (Yes / No) Jiangsu Little Swan Group Co., Ltd. Chairman of the Board and Zhu Dekun Un to May 2004 concurrently President Jiangsu Little Swan Group Co., Ltd. Director and concurrently Xu Zhonglun Up to May 2004 Vice-president Jiangsu Little Swan Group Co., Ltd. Vice Chairman of the Board and Ou Shiyu Up to May 2004 concurrently Vice-president Jiangsu Little Swan Group Co., Ltd. Director and concurrently Mao Sujie Up to May 2004 Vice-president Jiangsu Little Swan Group Co., Ltd. Director and concurrently Xu Yuan Up to May 2004 Vice-president Gai Lijin Jiangsu Little Swan Group Co., Ltd. Director and concurrently Up to May 2004 Vice-president Paul Wolansky Greater China Development Co., Ltd. General Manager Liang Bingcong Greater China Development Co., Ltd. Deputy General Manager Peng Zhouhong South Securities Co., Ltd. 3. About remuneration of directors, supervisors and senior executives In the report period, in the 10th meeting of the 3rd Board of Directors on April 3, 2002, the annual remuneration of Chairman of the Board and General Manager were determined; the annual remuneration of the other senior executives was determined by Chairman of the Board authorized by the Board of Directors; the allowance of independent director was determined by the Board of Directors. Total annual payment RMB 4,220,000 Total annual payment of the top three directors RMB 1,350,000 drawing the highest payment Total annual payment of the top three senior RMB 2,070,000 executives drawing the highest payment Allowance of independent director RMB 50,000 per person/ year Other treatment of independent directors The Company reimbursed the reasonable charges according to the actual situation, which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. Name of directors and supervisors receiving no Xu Zhonglun, Ou Shiyu, Mao Sujie, Xu Yuan, Gai Lijin, payment or allowance from the Company Peng Zhouhong, Liu Weizu, Paul Wolansky, Lin Jiacong, Liang Bingcong, Li Guodong and Jiang Lanzhen Payment Number of persons RMB 200,000 RMB 420,000 3 4. Change of directors, supervisors and senior executives As approved by 2001 Annual Shareholders’ General Meeting, the Company engaged Mr. Yang Jiahua and Mr. Lv Wei as independent director of the Company respectively. (4) About employees 3-years regular Polytechnic Senior high Junior high Doctor Master Bachelor college graduate school graduate school school Total number 931 5 8 Including: 51 4 4 19 25 Administrative personnel Technicians 59 1 4 Financial personnel 12 2 10 Salespersons 4 1 3 Production personnel 590 7 13 24 498 48 Others 215 Retirees 377 VI. ADMINISTRATIVE STRUCTURE (I) Company structure 1. In the report period, the Company actively carried out the spirit expounded by Administrative Rules of Listed Companies, amended and perfected the relevant rules of Articles of Association of the Company, and further strengthened the Company’s management in detail from the system. 2. According to the requirement of Guidelines Opinion on Establishing Independent Director System in Listed Companies, the Company has established Independent Director System in the report period. As approved by the 2001 Annual Shareholders’ General Meeting, Yang Jiahua and Lv Wei were elected as independent director of the Company, so as to optimize the composing of member of the Board of Directors, and ensure scientific and professional decision-making of the Board of Directors. 3. In May 2002, according to the gist Notice on Scrutiny of Listed Company Establishing Modern Enterprise System jointly promulgated by CSRC and State Economic and Trade Commission, the Company seriously carried out thoroughgoing self-scrutiny in accordance with the relevant demands for the administrative actuality of the Company, and completed the Self-scrutiny Report of Modern Enterprises System complying with the actual situation of the Company; and took the said self-scrutiny activities as the chance, so as to further perfected legal person administrative structure of the Company and improved the administrative level of the Company. 4. In conclusion, the administrative actuality of the Company was in compliance with the requirements of the Administrative Rules of Listed Companies. (II) Performance of the Independent Directors The two independent directors of the Company could effectively perform their duties since holing post according to Guidelines Opinion on Establishing Independent Director System in Listed Companies, Articles of Association of the Company and Rules of Procedure of the Board of Directors and the relevant laws and regulations, and in conformity with honest and diligent work manner, and based on enough time and energy. In the report period, the two independent directors could attend the meeting of the Board of Directors held by the Company on schedule, seriously examine each proposals, actively participate in decision- making and management, and bring the their professional capability and rich work experience into full play, so as to promote the development of the Company. (III) Particulars about the Company’s “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance 1. In respect of business, the Company owned independent and integrated business system and operation capacity; was completely separate from the controlling shareholder in business. Meanwhile, due to difference of market subdivision, there existed no competition in same trade between the Company and subsidiaries and the controlling and subsidiaries. 2. In respect of personnel, the Company has established independent management system of labor, personnel and salary, and set up independent labor and personnel function department; there existed no mixed operation and management between the Company and the controlling shareholder. 3. In respect of assets, there was the clear property right relationship between the Company and the controlling shareholder. 4. In respect of organization, the Company has set up the organization in line with independent, integrated and scientific, owned good operation mechanism and operation efficiency; the establishment and operation of legal person administrative structure were implemented strictly according to Articles of Association, and its production manageme nt department and administrative department were absolutely independent from the controlling shareholder. The Company established the organization in conform to demand of the Company’s development. 5. In respect of finance: the Company has established fina ncial and accounting department, owned independent bank account, set up accounting system and financial management system. The Company independently exercised financial decision- making according to the relevant demands of accounting system of listed companies. (IV) Performance Valuation, Encouragement and Binding Mechanism for Senior Executives At present, the Company has established comprehensive management system based on KPI, decided the remuneration standard according to year-end checking result, closely linked remuneration level and performance, effectively improved responsibility and work enthusiasm of the whole management personnel. VI. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING 1.Notification, Convening and Holding of the Extraordinary Shareholders’ General Meeting of year 2002 The Board of Directors of the Company sent out notification of holding the extraordinary Shareholders’ General Meeting of year 2002 on Jan.8, 2002, which was published Securities Times and Wen Wei Po of that day, pub lished the supplement public notice on holding the extraordinary Shareholders’ General Meeting of year 2002 on Securities Times and Wen Wei Po on Jan.23, 2002. The Extraordinary Shareholders’ General Meeting of year 2002 was held in 301 meeting room of the Company, No.67, Huiqian Road, Wuxi City at 9:00 am on Feb.7, 2002. 11 shareholders (including shareholders’ proxies and 1 shareholder holding B share) attended the meeting, representing 152,255,981 shares (26,014,349 B shares), taking 41.70% of the total shares with voting right amounting to 365,103.840 shares in conformity with PRC Company Law and Articles of Association of the Company. The meeting approved the following resolutions by voting: (1) Proposal to sign sales and marketing integration agreement between Jiangsu Little Swan Sales and Marketing Co., Ltd. and the Company was reviewed and passed; (2) Proposal to sign sales and marketing integration agreement between Jiangsu Little Swan Sales and Marketing Co., Ltd. and Wuxi Little Swan Maloni Dishwasher Co., Ltd. and Wuxi Little Swan Freezer Co.,Ltd. was passed; (3) Proposal to sign sales and marketing integration agreement between Jiangsu Little Swan Sales and Marketing Co., Ltd. and Wuxi Little Swan Boerka Air Conditioner Co., Ltd. and Wuxi Little Swan Dry Wash Machine Co., Ltd. was passed; (4) Proposal to sign > with Wuhan Little Swan Wash Machine Co., Ltd. was reviewed and passed; (5) Proposal to expand capacity and innovation project of Wuxi Little Swan High-Grade Casting Co., Ltd. was reviewed and passed. The public notice on resolutions of the extraordinary Shareholders’ General Meeting of year 2002 was published on China Securities, Securities Times and Ta Kung Pao dated Feb.8, 2002. 2. Notification, Convening and Holding of 2001 Annual Shareholders’ General Meeting The Board of Directors of the Company sent out notification of holding 2001 Annual Shareholders’ General Meeting on May 15, 2002, which was published China Securities , Securities Times and Wen Wei Po of that day, published the supplement public notice on holding 2001 Annual Shareholders’ General Meeting on China Securities, Securities Times and Wen Wei Po on June 7, 2002. 2001 Annua Shareholders’ General Meeting was held in 301 meeting room of the Company, No.67, Huiqia n Road, Wuxi City at 9:00 am on June 21, 2002. 14 shareholders (including shareholders’ proxies) attended the meeting, representing 153,054,061 shares (26,014,349 B shares), taking 42% of the total shares with voting right amounting to 365,103.840 shares. The meeting approved the following resolutions by voting: (1) Examined and approved 2001 Financial Settlement Report; (2) Examined and approved 2001 Profit Distribution Preplan. As audited by Jiangsu Gongzheng Certified Public Accoutants Co., Ltd. according to Chinese Accounting Standards, the net profit of the parent company of the Company in 2001 was RMB 24,394,340.36 (as audited by PricewaterhouseCoopers (China) Co., Ltd., the net profit and distributable profit of 2001 of the Company were adjusted into RMB 19,706,000 according to international accounting standards). The Company planed to distribute according to the following order: Appropriating 10% of net profit amounting to RMB 2,439,434.04 as statutory surplus public capital reserve; Appropriating 8% of net profit amounting to RMB 1,951,547.23 as statutory public welfare; According to the regulation of the lower of net profit audited according to domestic accounting standards and international accounting standards on profit distribution proposal in Articles of Association, plus RMB 1,777,653.91 non-distributed profit of the Company in 2000, deducting RMB 9,416,428.13 decreased non-distributed profit at the year-beginning from backward adjustment by appropriating devaluation reserve of fixed assets due to change of accounting policy, deducting RMB 808,461.06 statutory surplus public capital reserve and statutory public welfare appropriated by the subsidiaries in the scope of the consolidated statements, RMB 2,626,206 reserve funds and RMB 3,684,161.69 enterprise development funds, the distributable profit of the consolidated limit liabilities company should be RMB 5,245,756.12. On the basis of the total share capital of the Company as of Dec.31, 2001 amounting to 362,103,840, the Company suggested to distribute RMB 0.14 (including tax) cash dividend per 10 days to the qualified shareholders amounting to RMB 5,111,453.76. The dividend of the foreign shares would be distributed in HKD as the medium exchange rate of HKD against RMB promulgated by People’s Ba nk of China on the first day since the approved date of the resolution of the Shareholders’ General Meeting. RMB 134,302.36 balance as non-distributed profit was carried down the next year for distribution. (3) Examined and approved 2001 Work Report of the Board of Directors; (4) Examined and approved 2001 Work Report of the Supervisory Committee; (5) Examined and approved Proposal on Engagement of Domestic and Overseas Auditors of the Company in 2002; (6) Examined and approved Proposal on Engagement of Independent Directors of the Company; (7) Examined and approved Proposal on Amendment of Articles of Association; (8) Examined and approved Proposal on Independent directors System of the Company The public notice on resolutions of 2001 Annual Shareholders’ General Meeting was published on China Securities, Securities Times and Ta Kung Pao dated June 22, 2002. 3.Election and change of directors and supervisors of the Company On June 21, 2002, 2001 Annual Shareholders’ General Meeting of the Company examined and approved Proposal on Engagement of Independent Directors of the Company and elcted Mr. Yang Jiahua and Mr. Lv Wei as the independent directors of the Company. VIII. REPORT OF THE BOARD OF DIRECTORS 1. Operation of the Company (1) Industry and status The Company is mainly engaged in the production and sales of white household electric appliance and accessories and fittings and has a famous brand of China “Little Swan”. It was disclosed as per Statistics Information Center that the sales volume of washing machines in 2002 ranked the first place all over the country. In 2002, the Company totally sold 2,448,985 sets of washing machines, 320,569 sets of air conditioners, 167,446 sets of refrigerators, 4,088 sets of dishwashers, 43,508 sets of dryers and 24,932 sets of water heaters. (2) Scope of core business and operation The core business of the Company is production and sales of household electric appliance and accessories and fittings etc.. In 2002, the income from core business was RMB 275,569.9 and the profit from core business was RMB 42,380.1. (3) Operation of main wholly owned affiliated enterprises and holding subsidiaries Wuxi Little Swan Precision Casting Co., Ltd., which is a holding subsidiary of the Company, realized sales income of RMB 95,213,300 and created profits of RMB 21,817,900 in 2002. Wuxi ASP Electronic Co., Ltd., which is a holding subsidiary of the Company, realized sales income of RMB 140,620,900 and created profits of RMB 17,031,000 in 2002. Jiangsu Little Swan Sanjiang Electric Appliance Co., Ltd., which is a holding subsidiary of the Company, realized sales income of RMB 123,259,300 and created profits of RMB 11,425,200 in 2002. Jiangsu Little Swan Marketing Co., Ltd., which is a holding subsidiary of the Company, realized sales income of RMB 2,228,695,800 and incurred a loss of RMB 397,365,000 in 2002. Wuxi Little Swan-Merloni Dish-washer Co., Ltd., which is a holding subsidiary of the Company, realized sales income of RMB 8,068,400 and incurred a loss of RMB 78,618,000 in 2002. (4) Main suppliers and customers The total amount of 105,737.22 Proportion in the 42.29% purchase of the top total amount of five suppliers purchase The total amount of 18,963.34 Proportion in the 6.88% sales of the top five total amount of customers sales (5) Statement of core business classified according to products (RMB’0000) Classified Income from core Cost of core Gross profit ratio according to business business (%) products Washing machines 157,832.18 134,465.85 14.47 Air conditioners 57,613.72 51,171.08 10.85 Refrigerators 20,773.11 15,640.30 24.38 2. Financial status The change of main financial indexes and reason in the report period: (1) The change of main financial indexes in the report period: Unit: RMB’0000 Items In 2002 In 2001 Total assets 316,962.76 311,494.20 Long-term liabilities 2,106.48 106.81 Shareholders’ equity 121,842.48 188,517.68 Profit from core business 42,380.14 46,939.16 Net profit -41,842.96 -5,750.20 Net increase of cash and 7,741.28 -4,685.78 cash equivalents (2) Reason of decrease of profit from core business and net profit 1) Since the competition of household electric appliance was increasingly intensified, the price of products continued to decline, while the price of raw materials mounted up and all expenses also increased in successive years, which further reduced the profit space of products. 2) Along with the rapid expansion of business scale and austere change of external environment, the internal mechanism vitality and mana gerial quality of the enterprise was unable to adapt to the requirements of change of external market environment timely and the Company failed to manage and control the sales companies effectively. After realizing this problem, the Company implemented the integration of marketing, forwardly closed and cleared three holding sales companies in 2002, which accrued loss of accounts receivable and devaluation loss etc.. 3) Since the Company did not correctly estimate the market and resulted misplay of some investment projects, such as dishwasher project. In 2002 the net assets of Dishwasher Company was negative, the guarantee provided by the parent company for its loan was all appropriated the loss. 3. Investment (1) Application of raised proceeds The proceeds raised through A share offering in 1997 has been used up legally, which was stated in the report of the Board of Directors in 2001. At present, the Company has no any new raised proceeds. (2) Application of proceeds not raised through share offering The Company invested RMB 30 million to implement casting technical alteration project of 15,000 tons per year to Wuxi Precision Casting Co., Ltd., thus the Company realized sales income of RMB 95,213,300 and created profit of RMB 21,817,900 in 2002. 4. Important influence of change of operating environment, macro-policies and regulations on the Company After China’s entry to WTO, the competition in the industry of household electric appliance was much more intensified, which made the profits decline. The increase of price of raw materials resulted in the increase of cost of products. 5. In the 3rd quarter of year 2002, the Company estimated that the operating achievements of the Company in 2002 shall maintain the same as that in the periodic report of year 2001. However, the Company incurred a loss of net profit of RMB 418,429,600 while implementing the Resolution on Closing Subsidiaries (Branches) of the 14th meeting of the 3rd Board of Directors because the Company actively cleared the originally sales organizations and incurred the loss of accounts receivable and loss of devaluation etc.. The Company published public notice of estimated loss on Jan.29, 2003. 6. Jiangsu Gongzheng Certified Public Accountants Ltd. audited the accounting statements of the Company of year 2002 and provided Auditors’ Report being unable to form an opinion with details as follows: (1) The opinion of the Board of Directors and the Management of the Company on this issue: Believing the opinion on 2002 Financial Report of the Company provided by auditing Certified Public Accountants is objective. A. Accuracy and completeness of accounts receivable and aptness of appropriation of reserve for bad debts. At the beginning of 2002, the Company implemented marketing integration and the relevant accounting records and accounting materials were not completed. Because the normal current several thousand customers of the Company did not finish affirmation of the balance of the accounts receivable in time, the affirmation of the balance of accounts receivable of the customers against the Company received through sample letters existed difference, so the auditor did not believe it could confirm the accuracy and completeness of account receivable stated in consolidated balance sheet of the Company ended as of Dec.31, 2002. B. Due to the reason of marketing expense, the Company actively conducted the retroactive adjustment to the gains and losses of the previous years before 2002. Due to the marketing integration in 2002, the Company discovered the expense notes of the year of 2001 and year 2000 and after getting the notes, the Company conducted financial disposal rapidly in 2002. The Company believed that though the retroactive adjustment would bring a certain negative influence on the image of the Company, the interests of shareholders and the brand of Little Swan, the Company should be practical and realistic and made the correction forwardly. C. The total profit of the Company in 2002 was RMB-868 million, after deducting minority shareholders’ equity and plus unconfirmed investment losses, the net profit was RMB-418 million. 1) The increasingly intensified competition of household appliance market, continuous dropping of products’ price, rising of price of raw materials but increase of all expenses in successive years caused the sharp drop of profitability space of the enterprise. 2) Along with rapid extension f operation scale and drastic change of external environment, the energy of the internal mechanism of the enterprise and management quality could not adapt to the requirements of change of external market environment. At the end of 2002, the Company need to appropriate reserve for bad debts from accounts receivable and other receivables and appropriate devaluation losses. 3) The incorrect estimation to the market caused the misplay to some investment projects. The assets of Dishwasher Company could not cancel the liabilities and Refrigeration Company went out of business and cleared the accounts, thus it impacted material influence on the refunding capability and the parent company appropriated guarantee loss. In 2002, aiming at the loss of the Company, the Management of the Company not only should clearly knew the objective influence arising from the external competitive environment on the operation of the Company, but also should set about attaching importance to the factors of internal mechanism and management of the Company with seriously thinking over, analyzing the reason, assimilating the lesson, reinforcing the financial control, carefully rectifying and actively and forwardly adopted various effective measures to turn the layout so as to strive for turning losses into profits in 2003. (2) Rectification measures A. The Management shall strengthen the concepts of studying and strictly implementing the administrative rules of listed companies and strengthen the concepts of avoiding operating risks, normative operation and being responsible for the interests of numerous investors. B. To organize the 60 financial personnel, definite the duty, carry out the responsibility and check and adjust the current accounts of 3095 customers with operating relationships one by one, which is finished basically before June 30. C. To improve the enterprise internal control system and engage experts to establish and improve the enterprise internal control system aiming at the status of the enterprise, which has been finished at the end of June. D. To reinforce and improve all the management work of enterprise with the finance as the core and profit as the objectives and seriously implement the plan of “Increase of achievements” with increasing the income and decreasing the expenditure and turning losses into profits as the main contents. E. The internal management of the Company shall examine the rectification progress periodically, report the rectification situation to Securities Management Department, PricewaterhouseCoopers and Gongzheng Certified Public Accountants periodically and strive for detailed guidance and supervision. F. The Company shall reinforce the work of Committee for Discipline Inspection and auditing, establish Law Affairs Department and dispose the relevant persons responsible for the loss of the Company accordingly as per relevant regulations during the clearing. G. The Company planned to offset the losses amounting to RMB 600 million or 700 million with the surplus public reserve and capital public reserve of the parent company. (3) The independent directors expressed opinion on the retroactive adjustment of the financial results of 2001 and the qualified Auditors’ Report of the Company: We have seriously checked and approved the 2002 financial report of the Company and the explanation on the retroactive adjustment of financial results of 2001 and qualified Auditors’ Report by the auditor and we believed: the change of market environment’s influence on the profit of the Company was great and also was unavoidable. In order to make the operating and management mechanism of the Company clear and clear the potential ill assets and risks hidden trouble in recent years, the Company conducted a necessary strategic adjustment, which was beneficial to the long-term development of the Company. The analysis of the Board of Directors on the explanation of retroactive adjustment of financial results of 2001 and qualified Auditors’ Report by the auditor was objective. We noticed that the Management of the Company was actively adopting the effective measures to realize the plan of turning losses of 2003. We also noticed that in 2003, the Company had a good start. The Company shall improve internal management system, really implemented rectification measures and strived for realizing the turning losses into profits in 2003. 7.Business development plan of the new year In order to further improve the operation, raise the core competitive force of the Company and thoroughly turn losses into profits, the Company seriously analyzed the operating environment of year 2002 and put forward the operating policies and measures of the new year aiming at the development trend of household electric appliance after China’s entry to WTO and the real situation of the Company. In 2002, the operating policy of the Company was “Innovate, seek the reality and develop” and the Company mainly adopted the following measures to try hard to realize the trans formation from “manufacturer of domestic household electric appliance” to “excellent international manufacturer”: (1) To strictly implement the budget and settlement system, reinforce the financial supervision and control, increase the income and decrease the expenditure and reduce the cost and enhance the efficiency. (2) To strengthen the management and optimization of external investment, especially to raise the management and performance of holding subsidiaries. (3) To adjust the product structure, strengthen the management of supply chain, actively reply to the increase of price of raw materials and raise the profitability space of products. (4) To catch the opportunity to cooperate with international companies with the market as the orient so as to realize the internationalization of products’ development and raise the market competitive force of the products. (5) To fully enhance the quality management level with “6 á ”as the surveyor’s pole and pursue the internationalization of quality of products. (6) To carry forward the spirit of carving out, enhance the feeling of duty and responsibility of the staffs and fully push the performance management system. To train international talents in the practice. 8. Routine work of the Board of Directors (1) Meetings and resolutions of the Board of Directors in the report period In the report period the Board of Directors of the Company totally held six meetings. 1) The 10th meeting of the 3rd Board of Directors of Wuxi Little Swan Company Limited was held in the No.208 conference room of the Company on April 3, 2002. Chairman of the Board Mr. Zhe Dekun presided at the meeting. 12 directors should be present at the meeting and actually 9 directors attended the meeting. Besides, three directors authorized other directors to exercise the voting right on behalf of them. The meeting formed the following resolutions: A.2001 Financial Settlement Report B.2001 Distribution Preplan Audited by Jiangsu Gongzheng Certified Public Accountants as per Chinese Accounting Standards, the net profit of the Company in 2001 was RMB 24,394,340.36 (while audited by PricewaterhouseCoopers Certified Public Accountants (China) Ltd. as per International Accounting Standards, the net profit of the Company in 2001 was adjusted to RMB 19,706,000), which was distributed as follows: Appropriating 10% of the net profit amounting to RMB 2,439,434.04 as statutory surplus public reserve. Appropriating 8% of the ne t profit amounting to RMB 1,951,547.23 as statutory public welfare fund. As per the regulations of taking the lower amount of profit in the two income statements as audited by domestic and overseas auditors respectively as the standard of profit distribut ion in the Articles of Association, adding the undistributed profit in 2000 of RMB 1,777,653.91, after deducting the undistributed profit at the beginning of the report year reduced by retroactive adjustment amounting to RMB 9,416,428.13 due to the change of accounting policies and appropriation of impairment loss of fixed assets, deducting statutory surplus public reserve and statutory public welfare fund amounting to RMB 808,461.06, reserve funds amounting to RMB 2,626,206 and enterprise development funds amounting to RMB 3,684,161.69 in the scope of consolidated financial statements appropriated by subsidiaries, the profit available for distribution to shareholders was RMB 5,245,756.12. The Board planned to distribute cash dividends to the qualified shareholders at the rate of cash RMB 0.14 (including tax) for every 10 shares based on the total shares of 365,103,840 on Dec.31, 2001, which totally amounted to RMB 511,453.76. The dividends of foreign capital shares are paid in HKD as per the middle price of exchange of HKD into RMB declared by People’s Bank of China in the first workday after the date of resolutions of Shareholders’ General Meeting. The balance amount of RMB 134,302.36 was carried down to the next year for distribution as undistributed profit. C.2002 Profit Distribution Policy The Company planned to implement the profit distribution once in 2002 and planned to use 30%-60% of the net profit realized in 2002 for dividends distribution. The undistributed profit of the Company in 2001 was planned to use for 2002 dividends distribution in the way of cash dividends allotment or shares allotment or combining the cash and shares allotment. The aforesaid distribution policies were estimated plans and the Board of Directors of the Company reserved the right to adjust this distribution policy as per the actual situation of the Company. D. 2002 Work Report of the Board of Directors E. Proposal on Examining 2001 Annual Report and its Summary F. Proposal on Transferring the Equity of South East University Practical Science and Engineering Research College Co., Ltd. G. Proposal on Engagement of 2002 Auditor of the Company H. Renewal of Jiangsu Gongzheng Certified Public Accountants Ltd. (the former Wuxi Gongzheng Certified Public Accountants) as 2002 Domestic Auditor and Renewal of PricewaterhouseCoopers (China) Co., Ltd. as 2002 International Auditor. The aforesaid engagement events should be submitted to Shareholders’ General Meeting for examination. I. Proposal on Confirming the Annual Salaries of Chairman of the Board and General Manager of the Company in 2002 J. Proposal on Explanation of Input of Projects Invested with Additional Issuance of A Share in 2001 Since the plan of additionally issuing A share of 2001 was not implemented and the originally planned projects invested with proceeds raised through offering of additionally issuance of A share were adjusted as follows: a) Technical alteration engineering project of computer’s controllers of 4 million pieces per year After adjusting the investment contents and investment scale, the Company planned to solve it with proceeds not raised through shares offering (including partial capital of national debt special capital). b) Technical engineering project of series of washing machines with direct current and frequency conversion After adjusting the investment contents and investment scale, the Company planned to solve it with proceeds not raised through shares offering c) Multi-united central air conditioner projects of 200,000 sets per year The Company cancelled the investment and other investors invested it. d) Air-conditioners’ compressor project of 1.2 million sets per year The project was suspended in implementation. e) Market integration project The project was suspended in implementation. K. Proposal on Holding 2001 Shareholders’ General Meeting 2) The 11 th meeting of the 3rd Board of Directors of Wuxi Little Swan Company Limited approved the following proposals by means of communication voting on April 26, 2002: A. Proposal on Firstly Quarterly Report of Year 2002 B. Reply Letter on Questionnaire of Listed Companies of Warning (Estimated Loss) of Achievements in 2001 Promulgated by CSRC Nanjing Securities Regulatory Special Office 3) The 12th meeting of the 3rd Board of Directors of Wuxi Little Swan Company Limited approved the following proposals by means of communication voting on June 7, 2002: A. Proposal on Engagement of Independent Directors of the Company B. Proposal on Amendment of Articles of Association C. Proposal on Examination of Independent Director System of the Company 4) The 13th meeting of the 3rd Board of Directors of Wuxi Little Swan Company Limited was held in the No.208 conference room of the Company at 4:00 on the afternoon of June 19, 2002. Chairman of the Board Mr. Zhe Dekun presided at the meeting. 12 directors should be present and actually 8 directors attended the meeting. Besides, 3 directors entrusted other directors to exercise the voting right and one director exercised the voting right in written. The present directors conformably approved Proposal on Self- inspection Report of Establishment of Modern Enterprise System of Wuxi Little Swan Company Limited 5) The 14th meeting of the 3rd Board of Directors of Wuxi Little Swan Company Limited examined and approved the following proposals by means of communication on Aug.16, 2002: A. 2002 Interim Report and its Summary B. Proposal on Shutdown of Four Companies Represented by Little Swan Sales Company C. Proposal on Canceling Bad Debts Losses in Partial Accounts Receivable 6) The 15th meeting of the 3rd Board of Directors of Wuxi Little Swan Company Limited examined and approved the following proposals by means of communication on Oct.25, 2002: A. Third Quarterly Report of 2002 B. Proposal on Transferring Partial Equity of Wuxi Little Swan Mould Manufacturing Co., Ltd. (2) Implementation of resolutions of Shareholders’ General Meeting by the Board of Directors In the report period, the Board of Directors of the Company seriously implemented all resolutions of Shareholders’ General Meeting and timely accomplished all work arranged by Shareholders’ General Meeting. On Aug.12, 2002, the Board of Directors of the Company organized and implemented 2001 Profit Distribution Plan with distributing cash dividends at the rate of cash RMB 0.14 (including tax) for every 10 shares as per the resolutions of Shareholders’ General Meeting. 8. 2001 Profit Distribution Preplan In the report period, the Company would not distribute profits nor convert public reserve into share capital. 9. In the report period, the newspapers for information disclosure designated by the Company remained unchanged. IX. REPORT OF THE SUPERVISORY COMMITTEE 1.Holding of the Supervisory Committee In the report period, the Company totally held two meetings. The 6th meeting of the 3rd Supervisory Committee was held on Apr.3, 2002. The meeting congruously examined and approved 2001 Work Report of the Supervisory Committee and patiently examined every proposal which was approved by the 10th meeting of the 3rd Board of Directors of the Company. The Supervisory Committee agreed the explanation on nonstandard auditor’s report with non-reservation issued by Jiangsu Gongzheng Certified Public Accoutants for 2001 annual report by the Board of Directors. The 7th meeting of the 3rd Supervisory Committee was he ld on Aug.16, 2002 and patiently examined every proposal which was approved by the 14th meeting of the 3rd Board of Directors of the Company. 2.Operating According to Law In the report period, according to PRC Company Law and Articles of Association of the Company, all members of the Supervisory Committee trustly performed function of supervision in the activities of the Company’s operation and made the following resolutions through a series of supervision and checking: (1) The Board of Directors of the Company patiently implemented the resolution of the Shareholders’ General Meeting and the procedure of decision- making was in conformity with laws, regulations and Articles of Association of the Company. The management of the Company implemented the resolution of the Board of Directors and established perfect internal control system: The directors and managers cleaved to their duties and posts and had no behavior of damaging laws, regulations and Articles of Association of the Company or damaging the interest of the Company when they implemented their duties. (2) All related transactions of the Company were conducted according to normal and fair commercial terms. In 2002, the Company occurred no actions of damaging the interest of the Company in the related transactions. (3) The transaction price of purchase and sale of assets was reasonable. There found no internal transactions and behaviors of damaging right and interest of part shareholders or assets run off. (4) Opinion on explanation of retroactive adjustment for 2001 financial result of the Company and auditor’s report with nonstandard opinion by the Supervisory Committee The Supervisory Committee read explanation of retroactive adjustment for 2001 financial result of the Company and auditor’s report with nonstandard opinion and congruously believed that the Board of Directors impersonally analyzed the reason of backward adjustment for 2001 financial result and loss of 2002, the correction measure adopted by the Board of Directors were actual and effective and meanwhile believed that the management of the Company could stoutly implement these measure and realize turning loss to gain in 2003. X. SIGNIFICANT EVENTS 1.In the report year, the Company had no significant lawsuits and arbitration. 2. In the report period, the Company did not purchase and sell assets or conduct merger. 3.Please refer to auditor’s report for the related transactions occurred in the report period. (1) Sales: The relevant breakdown of the sales business to related parties by the Company in 2002 and 2001 was as follows: In 2002 In 2001 Name of Amount Proportion in Amount Proportion in enterprise the sales (%) the sales (%) Jiangsu Little 9,229.65 3.35 -- -- Swan Group Co., Ltd. The transaction price of the Company to the related parties was confirmed as per market price and negotiation price and was basically the same as the transaction price to the non-related parties. There was no such situation that the transaction price was much higher or lower than the normal transaction price. The aforesaid transactions were all conducted settlement of price and accounts through way of non-periodic settlement and the payment of accounts had no additional terms. (2) Purchase: The relevant breakdown of the purchase business to related parties by the Company in 2002 and 2001 was as follows: Name of companies Purchase amount of Purchase amount of 2002 2001 Jiangsu Little Swan Group Co., Ltd. 11,102.05 -- Wuxi Little Swan Boerka Air-conditioners Co., Ltd. 59,374.14 1,605.39 Wuhan Little Swan Washing Machine Co., Ltd. 9,824.17 11,018.57 Wuxi Little Swan Dryer Co., Ltd. 3,792.58 22.89 Wuxi Little Swan ASP Electronic Co., Ltd. 12,505.05 13,661.57 Little Swan (Jinzhou) Sanjin Electronic Co., Ltd. 12,931.81 -- Wuxi Little Swan Central Air-conditioner Co., Ltd. 6,795.93 -- Total The transaction price of the Company to the related parties was confirmed as per market price and negotiation price and was basically the same as the transaction price to the non-related parties. There was no such situation that the transaction price was much higher or lower than the normal transaction price. The aforesaid transactions were all conducted settlement of price and accounts through way of non-periodic settlement and the payment of accounts had no additional terms. 4. In the report period, the Company had no significant contracts that needed to be disclosed. 5. The Company or shareholders who held over 5% shares had no committed events in the report period. 6. The Company engaged Jiangsu Gongzheng Certified Public Accountants Co., Ltd. as domestic auditor since 1993 and PricewaterhouseCoopers (China) Co., Ltd. as international auditor of the Company since 1996. The total auditing expense in 2002 was RMB 2.2 million. 7. The Company, the Board of Directors of the Company and directors have never been checked, given administrative punishment and circling criticism nor been publicly condemned by Stock Exchange. 8. The Company had no significant events stated in Article 62 of Securities Law and Detailed Rules for Implementation of Information Disclosure in Companies Issued Publicly Stock (Temporary) or significant events the Board of Directors considered to be. XI. FINANCIAL REPORT (Attachment) XII. DOCUMENTS AVAILABLE FOR REFERENCE 1.Annual report carried with the signature of Chairman of the Board; 2.Accounting statements carried with the signature and seal of legal representative, chief financial supervisor and person in charge of accounting; 3.Originals of auditor’s report carried with seal of Certified Public Accountants as well as signature and seal of certified public accountants. 4.Originals of all documents and manuscripts of public notices disclosed on China Securities, Securities Times, Wen Wei Po and Ta Kung Pao. Board of Directors of Wuxi Little Swan Company Limited Apr.29, 2003 WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES (Incorporated in the People’s Republic of China) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 TOGETHER WITH AUDITORS' REPORT The reader is advised that this report has been prepared originally in Chinese. In the event of a conflict between this report and the original Chinese version or difference in interpretation between the versions of the report, the Chinese language report shall prevail. Mailing address: 12th Floor, Shui On Plaza 333 Huai Hai Zhong Lu Shanghai 200021 AUDITORS’ REPORT People's Republic of China Telephone +86 (21) 6386 3388 Facsimile +86 (21) 6386 3300 To the Shareholders of Wuxi Little Swan Company Limited We were engaged to audit the accompanying consolidated balance sheet of Wuxi Little Swan Company Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as of 31 December 2002 and 2001, and the related consolidated statements of income, changes in equity, and cash flows for the years then ended. These consolidated financial statements set out on pages 2 to 39 are the responsibility of the Company’s management. Except as discussed in the third and fourth paragraphs, we conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Trade receivables of the Group was approximately RMB 764,151,000 (representing 75% of net assets), provisions for bad and doubtful debts was approximately RMB 385,917,000 and advances from customers was approximately RMB 418,085,000 (representing 41% of net assets) as of 31 December 2002. Owing to the incompleteness of the Group’s accounting records in this regard, we are unable to satisfy ourselves with evidence or with other audit procedures to assess whether trade receivables and advances from customers as of 31 December 2002 are accurate and complete and whether the provisions for bad and doubtful debts as of 31 December 2002 is appropriate. As disclosed in Note 25, during 2002 the Group identified under-recording of selling expenses of approximately RMB 85,243,000 and RMB 40,151,000 for 2001 and 2000 respectively. The understatement was corrected and retrospectively accounted for. This adjustment reduced the retained earnings by approximately RMB 113,776,000, representing 6% of the Group’s net assets, as of 1 January 2002. Owing to the incompleteness of the Group’s accounting records in this regard, we are unable to assess the accuracy and completeness of the retrospective adjustment. Because of the matters discussed in the preceding paragraphs are material and pervasive to the consolidated financial statements for the years ended 31 December 2002 and 2001, we do not express an opinion on these consolidated financial statements. PricewaterhouseCoopers China Limited Shanghai, the People’s Republic of China 24 April 2003 WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in Renminbi (“RMB”) thousands, except for losses per share) Notes 2002 2001 (Restated Note 25) Sales, net 1,21 2,811,454 2,086,391 Cost of sales (2,391,891) (1,586,886) Gross profit 419,563 499,505 Distribution costs (603,720) (388,315) Administrative expenses (177,467) (117,105) Provision for bad and doubtful debts (289,500) (54,283) Provision for obsolescence (117,799) (6,800) Impairment provision for property, plant and equipment (41,872) - Other operating (expenses) income, net (38,086) 48,295 Loss from operations 3 (848,881) (18,703) Finance costs, net 2 (38,304) (7,920) Share of results of associates 11 22,155 12,964 Loss before tax (865,030) (13,659) Income tax expense 5 (14,441) (50,613) Group loss before minority interests (879,471) (64,272) Minority interests 19 7,259 (1,265) Net loss (872,212) (65,537) Losses per share – Basic 6 RMB (2.39) RMB (0.18) – Diluted 6 Not applicable Not applicable The accompanying accounting policies and notes form an integral part of these consolidated financial statements. -2 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2002 (All amounts in RMB thousands) Notes 2002 2001 (Restated Note 25) ASSETS Non-current assets Leasehold land 8 42,592 49,573 Property, plant and equipment 9 727,299 777,339 Intangible assets 10 21,476 29,677 Investments in associates 11 164,416 144,216 Available-for-sale investments 12 50,336 80,966 1,006,119 1,081,771 Current assets Inventories 13 613,279 532,004 Receivables, advance to suppliers and other current assets 14 912,100 1,146,239 Cash and cash equivalents 15 694,953 617,561 2,220,332 2,295,804 Total assets 3,226,451 3,377,575 SHAREHOLDERS’ EQUITY Share capital 18 365,104 365,104 Reserves 18 656,767 1,534,090 1,021,871 1,899,194 Minority interests 19 79,819 84,737 LIABILITIES Current liabilities Trade and other payables 16 1,468,873 750,080 Current tax liabilities (40,402) 34,664 Borrowings 17 696,290 608,900 2,124,761 1,393,644 Total liabilities 2,124,761 1,393,644 Total equity and liabilities 3,226,451 3,377,575 The accompanying accounting policies and notes form an integral part of these consolidated financial statements. -3 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands) Reserves Statutory Discretionary Statutory Accumulated Share Capital common common public losses/ capital surplus reserve reserve welfare retained Total funds funds funds earnings Note 18(a) Note 18(b) Note 18(c) Note 18(d) Note 18(e) Note 18(f) (Restated) Balance at 1 January 2001 365,104 1,087,895 205,567 204,224 113,761 137,862 2,114,413 -As previously reported -Cumulative effects of prior year adjustments (Note 25) - - (4,015) - (3,212) (32,924) (40,151) -As restated 365,104 1,087,895 201,552 204,224 110,549 104,938 2,074,262 Dividend relating to 2000(Note 7) - - - - - (109,531) (109,531) Net profit -As previously reported - - - - - 19,706 19,706 -Cumulative effects of prior year adjustments (Note 25) - - - - - (85,243) (85,243) -As restated - - - - - (65,537) (65,537) Appropriations for the year -As previously reported - - 11,724 - 2,221 (13,945) - -Cumulative effects of prior year adjustments (Note 25) - - (2,439) - (1,952) 4,391 - -As restated - - 9,285 - 269 (9,554) - Balance at 1 January 2002 -As previously reported 365,104 1,087,895 217,291 204,224 115,982 34,092 2,024,588 -Cumulative effects of prior year adjustments (Note 25) (6,454) - (5,164) (113,776) (125,394) -As restated 365,104 1,087,895 210,837 204,224 110,818 (79,684) 1,899,194 Dividend relating to 2001(Note 7) - - - - - (5,111) (5,111) Net loss for the year - - - - - (872,212) (872,212) Appropriations for the year - - 7,729 - 209 (7,938) - Balance at 31 December 2002 365,104 1,087,895 218,566 204,224 111,027 (964,945) 1,021,871 The accompanying accounting policies and notes form an integral part of these consolidated financial statements. -4 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands) 2002 2001 (Restated Note 25) Cash flows from operating activities Cash generated from operations 20 189,694 148,743 Interest received 13,543 33,265 Interest paid (52,199) (41,502) Tax paid (89,507) (59,528) Net cash from operating activities 61,531 80,978 Cash flows from investing activities Purchase of property, plant and equipment (75,364) (87,953) Purchase of intangible assets - (2,205) Acquisition of available-for-sale investments and Investments in associates - (12,391) Disposal of trading investments - 30,450 Receipts of dividend from associates 1,499 - Disposal of available-for-sale investments 3,000 - Proceeds from sales of property, plant and equipment 313 - Net cash used in investing activities (70,552) (72,099) Cash flows from financing activities Proceeds from borrowings 1,143,990 898,310 Repayments of borrowings (1,056,600) (840,000) Dividends paid to group shareholders (7,719) (106,263) Dividends paid to minority interests (2,520) (5,616) Increase in minority interest 9,262 - Net cash from (used in) financing activities 86,413 (53,569) Effects of exchange rate changes - - Net increase (decrease) in cash and cash 77,392 (44,690) equivalents Cash and cash equivalents at the beginning of year 617,561 662,251 Cash and cash equivalents at the end of year 15 694,953 617,561 The accompanying accounting policies and notes form an integral part of these consolidated financial statements. -5 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) GENERAL INFORMATION Wuxi Little Swan Company Limited (referred to as the “Company”) was formerly a state-collectively-owned enterprise founded in 1958 in Jiangsu Province of the People’s Republic of China (“PRC”). It was reorganized into a joint stock limited liability company in 1993 and registered in Wuxi, Jiangsu. The registered office of the Company is No.1 Hanjiang Road, National Hi-tech Industrial Development Zone, Jiangsu Province. The Company and its subsidiaries are collectively referred to as the “Group”. The principal activities of the Group were manufacture and sale of washing machines before 2002, since 2002 the principle activities of the Group are manufacture and sale of washing machines, sale of air conditioners, refrigerators and other household appliances produced by the subsidiaries of Jiangsu Little Swan Group. The Group’s operating assets are primarily located in the PRC. The directors of the Company regard Jiangsu Little Swan Group, a stated-owned enterprise incorporated in the PRC, as its holding company. The Company’s domestic listed foreign investment shares (“B share”) and domestic Renminbi ordinary shares (“A share”) are listed on the Shenzhen Stock Exchange. -6 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”, which includes International Accounting Standards and Interpretations) as published by the International Accounting Standards Board. These consolidated financial statements have been prepared under the historical cost conversion with the exception of fair value measurement of certain financial assets and liabilities. This basis of accounting differs from that used in the Group’s statutory accounts (“Statutory Accounts”) which are prepared in accordance with PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises. The adjustments made to conform Statutory Accounts of the group to IFRS are shown in Supplementary Information. The Group adopted IAS 39 Financial Instruments: Recognition and Measurement in 2001. The financial effects of adopting this standard were reported in 2001’s consolidated financial statements. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results could differ from those estimates. -7 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) B Group accounting (i) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up or liabilities undertaken at the date of acquisition plus cost directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of net assets of the subsidiary acquired is recorded as goodwill. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. The results of operations and net assets of certain subsidiary companies are not material to those of the Group, hence, they have been excluded from consolidation. Investments in subsidiaries that are excluded from consolidated financial statements are accounted for by the equity method. (ii) Associates Investments in associates are accounted for by the equity method of accounting. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the associates. -8 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) C Foreign currency Items included in the consolidated financial statements of the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Group. The consolidated financial statements are presented in RMB, which is the measurement currency of the Group. Transactions in other currencies are translated into RMB at the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in other currencies at the consolidated balance sheet date are re-translated at the exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences arising from changes in exchange rates subsequent to the transaction dates are included in consolidated income statement. D Leasehold land Leasehold land represents land use fees prepaid for long leasehold land and is classified as operating leases. The prepaid lease payments are amortized over the lease periods (thirty to fifty years) on a straight-line basis. E Property plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price, construction cost and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated using the straight-line method to write off the cost, after taken into account the estimated residual value of 3%-10%, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 30-40 years Plant and machinery 5-18 years Equipment and motor vehicles 5-12 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefit from items of property, plant and equipment. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, is recognized as an expense in the year in which it is incurred. In situations where it is probable that an expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditure is capitalized as an additional cost of the asset. E Property plant and equipment and depreciation (continued) -9 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) When assets are sold or retired, their costs and accumulated depreciation and accumulated impairment losses are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. F Construction-in-progress Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and ready for their intended use. G Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the assets will flow to the Group; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. The amortization period and the amortization method are reviewed periodically to ensure that the method and period of amortization are consistent with the expected pattern of economic benefits from intangible assets. Expenditure for research is recognised as an expense when incurred. -10 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) H Impairment of long lived assets Property, plant and equipment and other non-current assets, including intangible assets, investments in associates and available-for-sale investments are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. I Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re- evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. -11 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) I Investments (continued) Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. For the available-for-sale investments that have a quoted market price in an active market, the fair value is based on quoted bid prices; for available-for- sale investments that does not have a quoted market price, but the fair value can be reliably determined, the fair value is constructed on the basis of the market price of the similar financial instrument or derived from cash flow models; for available-for-sale investments that the fair value can not be reliably determined, are carried at cost less accumulated impairment loss. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading and available-for-sale investments are included in the consolidated income statement in the period in which they arise. J Inventories Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. K Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. L Cash and cash equivalents For the purposes of the cash flow statement, cash represents cash on hand and deposits with banks, which can be withdrawn on demand. Cash equivalents represent short-term, highly liquid investments, which are readily convertible into known amounts of cash with original maturity period of three months or less and are subject to an insignificant risk of change in value. M Borrowings and borrowing costs -12 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) Borrowings are initially recognized at the proceeds received, net of transaction costs incurred. They are subsequently stated at amortised costs using the effective yield method; any difference between net proceeds and redemption value is recognized in the consolidated income statement over the period of the borrowings. Borrowing costs include interest charges and other costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction of property, plant and equipment that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. N Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. O Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are made monthly to a government agency based on certain percentage of the standard salary set by the provincial government. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these defined contributions on an accrual basis. The Group has no obligation for the payment of pension benefits beyond the contribution described above. -13 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) P Government grants Grants from the government are recognised in the consolidated balance sheet at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to future costs are deferred and recognised in the income statement over the period necessary to match them with the costs they are intended to compensate. Q Provisions A provision is recognized when, and only when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. When a provision is no longer probable that an outflow of resources embodying economic benefit will be required to settle the obligation, the provision will be reversed. R Revenue recognition Revenue comprises the invoiced value for the sales of goods net off rebates and discounts, and after eliminating sales within the Group. Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following basis: (1) Sales of goods Revenue is recognized when the significant risks and rewards of ownership of goods have been transferred to the buyer. (2) Interest income Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity. -14 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) R Revenue recognition (continued) (3) Dividend income Dividend income is recognized when the right to receive payment is established. S Dividends Dividends are recorded in the Group’s consolidated financial statements as liability in the period in which they are approved by the Group’s shareholders. T Segment Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. The Group conduct the business within one business segment and the Group also operates within one geographical segment because its revenue is primarily generated in the PRC and its assets are located in the PRC. U Subsequent events Post year-end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events), are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes when material. V Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of economic benefits is probable. -15 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) ACCOUNTING POLICIES (continued) W Fundamental errors On rare occasions, an error has such a significant effect on the financial statements of one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. These errors are referred to as fundamental errors. The correction of fundamental errors that relate to prior periods requires the restatement of the comparative information or the presentation of additional pro forma information. X Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. -16 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) FINANCIAL RISK MANAGEMENT (1) Financial risk factors and financial risk management The Group activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. (i) Credit risks The Group has no significant concentration of credit risk with any single counter party or group counter parties. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. The Group has policies that deposits are put in reputable banks. (ii) Liquidity risks Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. (iii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. (iv) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. -17 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) FINANCIAL RISK MANAGEMENT (continued) (2) Estimation of fair value (1) Cash and cash equivalent The carrying amount of cash and cash equivalents approximates their fair value due to these financial instruments either carry a current rate of interest or have a short period of time between the origination of the cash deposits and their expected maturity. (2) Trade and other receivables and payables The carrying amount of trade and other receivables and payables, which are all subject to normal trade credit terms, approximates their fair value. (3) Due from and due to related parties The carrying amount of due from and due to related parties, which are all subject to normal trade credit terms, approximates their fair value. (4) Borrowings As of 31 December 2002, the carrying amount of borrowings approximates their fair value as these borrowings bear quoted market interest rates. (5) Available-for-sale investments The carrying amount of available-for-sale investments cannot be reliably estimated and disclosed because these investments do not have quoted market prices in an active market and other methods reasonably estimating fair value for these investments are not available. -18 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Sales net The Group’s revenue is mainly from sale of washing machines, air conditioners, refrigerators and other household appliances in the People’s Republic of China. 2002 2001 (Restated) Sales of washing machine 1,556,461 1,703,576 Sales of air conditioner 573,971 - Sales of refrigerator 203,290 - Sales of parts 486,476 398,947 2,820,198 2,102,523 Less: surtaxes (8,744) (16,132) 2,811,454 2,086,391 2 Finance costs net 2002 2001 (Restated) Interest expense 52,199 41,502 Interest income (13,543) (33,265) Net foreign exchange gain (352) (317) 38,304 7,920 -19 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 3 Loss before tax from operations The following items have been included in arriving at loss before tax: 2002 2001 (Restated) Depreciation on property, plant and equipment (Note 9) 76,304 69,403 Impairment of property, plant and equipment (Note 9) 41,872 - Loss on disposal of property, plant and equipment 12,688 - Amortization of leasehold land (note 8) 1,208 1,246 Amortization of intangible assets (note 10) 8,201 7,284 Research and development expenditure 4,269 3,487 Trading investment – profit on sale - (5,943) Available-for-sale investment – loss on sale 2,737 - Inventory - Costs of inventories recognized as expense 2,365,082 1,386,290 - Provision for obsolete inventories (Note 13) 117,799 6,800 Receivables – provision for bad and doubtful debts (Note 14) 289,500 54,283 Provision on available-for-sale investments (Note 12) 10,422 - Subsidy income (3,200) (20,000) Staff costs (Note 4) 115,323 56,892 4 Staff costs 2002 2001 (Restated) Wages and salaries 73,917 49,555 Other welfare 41,406 7,337 115,323 56,892 The average number of full time employees in 2002 was 3,646 (2001:1,410). -20 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 5 Income tax expense (i) Details of enterprise income tax (“EIT”) charged were as follows: 2002 2001 (Restated) Current income tax expense 13,985 23,765 Underprovision of tax in prior years - 26,450 Share of tax of associates (Note 11) 456 398 14,441 50,613 (ii) The reconciliation of the statutory tax rate to the effective tax rate was as follows: 2002 2001 (Restated) Loss before tax (865,030) (13,659) Tax at applicable tax rate of 33% (2001: 15%) (285,460) (2,049) Effect of higher tax rates applicable to certain - 8,992 subsidiaries Effect of lower tax rates applicable to certain (4,468) (3,398) subsidiaries Effect of losses from the Company and certain subsidiaries 303,913 20,220 Underprovision in prior years - 26,450 Share of tax of associates 456 398 Tax charge 14,441 50,613 The Company received the approval from local authorities on 5 December 1999 for a preferential tax rate of 15% with the effective period of 2 years, which is applicable to high technology companies in Jiangsu Province. It is applicable to the Company for 2000 and 2001. The applicable tax rate for 2002 is 33%. As of 31 December 2002, there is no material unprovided liability or asset for deferred taxation. -21 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 6 Losses per share Basic losses per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2002 2001 (Restated) Net loss attributable to shareholders (872,212) (65,537) Weighted average number of ordinary shares in issue (in thousands) 365,104 365,104 Basic losses per share (2.39) (0.18) The diluted losses per share was not calculated, because no potential dilutive shares existed during the year. 7 Dividend The dividends declared in respect of 2001 and 2000 were, respectively, RMB5,111,000 and RMB109,531,000. 8 Leasehold land 2002 2001 (Restated) Opening net book amount 49,573 44,819 Additions - 6,000 Reclassification (5,773) - Amortization charge (Note 3) (1,208) (1,246) Closing net book amount 42,592 49,573 At 31 December Cost 48,050 53,823 Accumulated amortization (5,458) (4,250) Net book amount 42,592 49,573 Leasehold land represented the land use fee prepaid for long lease land where the Company and its subsidiaries’ certain plants are situated. -22 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 8 Leasehold land (continued) Since all land in the PRC is owned by the state or is subject to collective ownership, the risks and rewards of the parcel of land remain with the state. As a result, such lease payments are accounted for under operating leases and are charged to the income statement on a straight-line basis over the lease period of 50 years. 9 Property plant and equipment Plant and Vehicles and Construction Buildings machinery equipment in progress Total Year ended 31 December 2001 (Restated) Opening net book amount 224,501 464,573 17,490 66,702 773,266 Additions 19,317 22,481 3,147 37,008 81,953 Transfer from construction in progress 3,582 2,291 - (5,873) - Disposals - (1,253) (513) (6,711) (8,477) Depreciation charge (Note 3) (9,788) (56,515) (3,100) - (69,403) Closing net book amount 237,612 431,577 17,024 91,126 777,339 At 31 December 2001 (Restated) Cost 265,690 624,663 28,406 91,126 1,009,885 Accumulated depreciation (28,078) (193,086) (11,382) - (232,546) Net book amount 237,612 431,577 17,024 91,126 777,339 Year ended 31 December 2002 Opening net book amount 237,612 431,577 17,024 91,126 777,339 Additions 1,238 22,977 3,755 53,167 81,137 Transfer from construction in progress 37,466 61,651 3,653 (102,770) - Disposals (164) (2,590) (4,099) (6,148) (13,001) Impairment charge (Note 3) - (40,067) - (1,805) (41,872) Depreciation charge (Note 3) (10,134) (62,735) (3,435) - (76,304) Closing net book amount 266,018 410,813 16,898 33,570 727,299 At 31 December 2002 Cost 304,230 706,701 31,715 35,375 1,078,021 Accumulated Impairment provision - (40,067) - (1,805) (41,872) Accumulated depreciation (38,212) (255,821) (14,817) - (308,850) Net book amount 266,018 410,813 16,898 33,570 727,299 The Group made an impairment provision of RMB41,872,000 on plant and machinery and construction in progress according to the difference between the net realized value and its booked value as at 31 December 2002. For the year ended 31 December 2002, no borrowing costs were capitalized in the construction in progress (2001: nil). -23 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 10 Intangible assets 2002 2001 (Restated) Opening net book amount 29,677 34,756 Additions - 2,205 Amortization charge (Note 3) (8,201) (7,284) Closing net book amount 21,476 29,677 At 31 December Cost 54,641 54,641 Accumulated amortization (33,165) (24,964) Net book amount 21,476 29,677 Intangible assets mainly comprise acquired proprietary technologies. 11 Investments in associates 2002 2001 (Restated) At the beginning of year 144,216 129,650 Additions - 2,000 Share of results before tax 22,155 12,964 Share of tax (Note 5) (456) (398) Dividend received (1,499) - At end of year 164,416 144,216 -24 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 11 Investments in associates (continued) The principal associates, all of which are unlisted entities incorporated in the PRC, are as follows: Group’s Registered Country of equity capital Name of subsidiaries incorporation interest (in thousands) Principal activities Wuxi Lifanda Electric PRC 42.46% USD 2,500 Manufacture and sale Appliances Co., Ltd. of electrical appliances BSW Household Appliances PRC 40% USD 29,275 Manufacture and sale Co., Ltd. (“BSW of household Household”) (a) appliances Wuxi Matsushita Refrigeration PRC 19% JPY 4,800,000 Manufacture and sale Co., Ltd. (b) of refrigerator and its accessory Wuxi Matsushita Refrigeration PRC 19% JPY 2,980,000 Manufacture and sale Compressor Co., Ltd. (b) of compressor of refrigerator and its accessory GuangZhou Antaida Material PRC 20% RMB 10,000 Provision of Logistic Distribution Co., Ltd services (a) Pursuant to an Board of Directors’ resolution and with approval by the Minister of Foreign Trade and Economic Cooperation, BSW Household merged with BSW Kitchen Electric Materials Co., Ltd through absorption on 9 April 2002. (b) As the Group actually has significant influence to Wuxi Matsushita Refrigeration Co., Ltd. and Wuxi Matsushita Refrigeration Compressor Co., Ltd., the group considers these two companies as the associates of the Group. 12 Available-for-sale investments 2002 2001 (Restated) Unlisted shares, at cost 63,284 82,605 Less: Provision for impairment in value (18,716) (8,294) 44,568 74,311 Other investments 5,768 6,655 50,336 80,966 The above investments are stated at costs which approximate to their fair values. -25 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 13 Inventories 2002 2001 (Restated) Raw materials 155,660 130,849 Work in progress 20,622 26,848 Finished goods 562,287 381,798 738,569 539,495 Less: provision for obsolescence (Note 3) (125,290) (7,491) 613,279 532,004 14 Receivables, advance to suppliers and other current assets 2002 2001 (Restated) Trade receivables 764,151 755,343 Other receivables 254,970 177,307 Less: provision for bad and doubtful debts (Note 3) (432,912) (143,412) 586,209 789,238 Notes receivable 154,752 125,063 Advances to suppliers 84,404 140,165 Amounts due from fellow subsidiaries (Note 21(iii)) 41,693 18,816 Amounts due from associates (Note 21(iii)) 28,100 37,984 Amounts due from holding company (Note 21(iii)) 13,571 33,133 Amounts due from unconsolidated subsidiaries (Note 21(iii)) 3,371 1,840 912,100 1,146,239 -26 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 15 Cash and cash equivalents 2002 2001 (Restated) Cash at bank and in hand 222,840 226,478 Time deposits in banks 472,113 391,083 694,953 617,561 The effective interest rates on time deposits range from 1.58% to 5.20% (2001: 1.98% to 2.25%) per annum. 16 Trade and other payables 2002 2001 (Restated) Trade payables 595,380 505,776 Advances from customers 418,085 10,739 Notes payable 216,247 66,968 Other payables 167,845 148,806 Amounts due to fellow subsidiaries (Note 21(iii)) 54,020 9,945 Amounts due to unconsolidated subsidiaries (Note 21(iii)) 7,986 - Amounts due to associates (Note 21(iii)) - 329 Dividend payable 9,310 7,517 1,468,873 750,080 17 Borrowings 2002 2001 (Restated) Short-term bank borrowings 696,290 608,900 Short-term bank borrowings of RMB68,500,000 is secured by time deposit, the remaining is unsecured. It bears interest at rates ranging from 4.54% to 6.90% (2001: 4.65% to 5.85%) per annum. The carrying amounts of short-term bank borrowings approximate to their fair value. -27 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 18 Share capital and reserves (a) Share capital As of 31 December 2002, the outstanding share capital represented state-owned shares, legal person shares, A shares and B shares. The B shares rank pari passu in all respects with the A shares except that A shares can only be owned and traded by investors in the PRC. The total registered number of ordinary shares is 365,103,840 shares (2001: 365,103,840 shares) with a par value of RMB 1 per share. All shares are issued and fully paid. The issued shares (in thousands) may be analyzed as the following: 2002 2001 (Restated) Unlisted State-owned shares 101,629 101,629 Domestic legal person shares 64,118 64,118 165,747 165,747 Listed B shares 127,357 127,357 A shares 72,000 72,000 199,357 199,357 365,104 365,104 (b) Capital surplus In accordance with relevant regulations of the PRC and the articles of association of the Company, the followings shall be recorded as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilized to offset prior years’ losses or for issuance of bonus shares. Share premium represents net assets acquired from promoters in excess of par value of the state-owned shares and the legal person shares issued, and proceeds from the issuance of A shares and B shares in excess of their par value, net of underwriting commissions and professional fees. -28 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 18 Share capital and reserves (continued) (c) Statutory common reserve funds In accordance with the Company Law and the Company’s articles of association, the Company and its subsidiaries shall appropriate 10 per cent. of their annual statutory net profit (after offsetting any prior years’ losses) to the statutory surplus reserve account individually. When the balance of such reserve fund reaches 50 per cent. of each entity’s share capital, any further appropriation is optional. The statutory common reserve funds can be utilised to offset prior years’ losses or to increase capital after properly approved. However, except for offset prior years’ losses, such statutory common reserve funds must be maintained at a minimum of 25 per cent. of share capital after such usage. Appropriation to such reserve is not recognized for the net statutory loss of the Company for the year ended 31 December 2002. After retrospective adjustment made for the fundamental error on the profit of 2001, the Company reversed the appropriation of statutory common reserve funds in 2001. Please refer to Notes 25 – prior year adjustment. For the year ended 31 December 2002, Wuxi ASP Electronics Co., Ltd., Jiangsu Little Swan San Jiang Electrical Appliances Manufactory Company, Wuxi Little Swan High- grade Casting Co., Ltd., and Wuxi Huayin Electric Appliances Co., Ltd. made an appropriation of RMB7,729,000 to the statutory common reserve funds according to the resolutions of their board of directors. (d) Discretionary common reserve funds In accordance with the Company Law and the Company’s articles of association, appropriations to the discretionary common reserve funds are recommended by the Company and its subsidiaries’ board of directors and approved by the shareholders. This fund can only be used, upon approval by the relevant authorities, to offset accumulated losses or to increase capital. None of net profit has been allocated to the discretionary common reserve funds for the years ended 31 December 2002 and 2001. -29 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 18 Share capital and reserves (continued) (e) Statutory public welfare reserve funds In accordance with the Company Law and the Company’s articles of association, the Company and its subsidiaries are also required to appropriate 5 per cent. to 10 per cent. of their annual statutory net profit (after offsetting any prior years’ losses) to a statutory public welfare fund to be utilized for employees’ common welfare. Appropriation to such reserve is not required for the net statutory loss of the Company for the year ended 31 December 2002. For the year ended 31 December 2001, the Company appropriated 8 per cent of statutory net profit of each entity to this reserve. The statutory public welfare reserve appropriated in 2001 was fully reversed after the retrospective adjustment was made for significant accounting error. Please refer to Notes 25 – prior year adjustment. For the year ended 31 December 2002, Jiangsu Little Swan San Jiang Electrical Appliances Manufactory Company made an appropriation of RMB209,000 to the statutory public welfare reserve funds according to the resolutions of their board of directors. (f) Accumulated losses/retained earnings The distribution of dividends is made in accordance with the Company's articles of association and the recommendation of the Board of Directors and is subject to approval by shareholders in general meetings. Pursuant to the Notice [1995] 31 issued by Ministry of Finance on 24 August, 1995, the amount of profit available for distribution to the shareholders will be determined based on the lower of unappropriated profit in the financial statements determined in accordance with (i) PRC accounting standards and regulations, and (ii) IFRS. As of 31 December 2002, the Group’s accumulated losses amounted to RMB 964,945,000 (2001: RMB 79,684,000). Please refer to Notes 25 – prior year adjustment. 19 Minority interests 2002 2001 (Restated) At 1 January 84,737 95,970 Addition 9,262 - Share of net (loss) profit of subsidiaries (7,259) 1,265 Dividend paid (6,921) (12,498) At 31 December 79,819 84,737 . -30 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 20 Cash generated from operations 2002 2001 (Restated) Net loss (872,212) (65,537) Adjustments for: Minority interests (Note 19) (7,259) 1,265 Income tax expense 14,441 50,613 Depreciation (Note 9) 76,304 69,403 Amortization of intangible assets (Note 10) 8,201 7,284 Amortization of leasehold land (Note 8) 1,208 1,246 Provision for bad and doubtful debts (Note 14) 289,500 54,283 Provision for obsolete inventories (Note 13) 117,799 6,800 Provision for available-for-sale investments (Note 12) 10,422 - Loss on sale of property, plant and equipment 12,688 - Impairment charge for property, plant and equipment (Note 9) 41,872 - Finance costs, net (Note 2) 38,656 8,237 Available-for-sale investments – loss on sale 2,737 - Trading investments - profit on sale - (5,943) Share of results before tax of associates (Note 11) (22,155) (12,964) Changes in working capital: - trade and other receivables (40,434) 123,868 - inventories (199,074) (228,036) - trading investments - 24,507 - payables 717,000 113,717 Cash generated from operations 189,694 148,743 21 Related party transactions and balances Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. -31 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21 Related party transactions and balances (continued) (i) The principal related parties are as follows: Name of related parties Relationship with the Company Jiangsu Little Swan Group Holding company Wuxi Lifanda Electric Appliances Co., Ltd. Associate BSW Household Appliances Co,. Ltd. Associate Wuxi Matsushita Refrigeration Co., Ltd. Associate Wuxi Matsushita Refrigeration Compressor Co., Ltd. Associate Wuxi Little Swan Kitchen and Toilet Appliances Co., Ltd. Controlled by the same holding company Wuxi Little Swan Dryer Co., Ltd. Controlled by the same holding company Wuxi Little Swan Central Air-conditioner Co., Ltd. Controlled by the same holding company Wuxi Little Swan Polka Air-conditioner Co., Ltd. Controlled by the same holding company Wuhan Little Swan Washing Machine Co., Ltd. Controlled by the same holding company Wuxi Little Swan Tai Hotpot King Restaurant Controlled by the same holding company Haikou Little Swan Trading Co., Ltd Controlled by the same holding company Little Swan (Jingzhou) Sanjing Electric Appliances Co., Ltd. Controlled by the same holding company Little Swan (Jingzhou) Electric Appliances Co., Ltd. Controlled by the same holding company Wuxi China East Construction Material Mall Controlled by the same holding company Wuxi Little Swan Mould Manufacturing Co., Ltd. Unconsolidated subsidiary Wuxi Little Swan Washing Investment Management Co., Ltd. Unconsolidated subsidiary Wuxi Little Swan Transportation Co., Ltd. Unconsolidated subsidiary Wuxi Little Swan Hubin Washer Co., Ltd. Unconsolidated subsidiary Little Swan Palaima Industrial Co., Ltd Unconsolidated subsidiary -32 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21 Related party transactions and balances (continued) (ii) Related party transactions (a) Purchases of goods 2002 2001 (Restated) Purchases of goods from holding company 111,221 - Purchases of goods from associates - Wuxi Matsushita Refrigeration Co., Ltd. 2,537 - Purchases of goods from fellow subsidiaries - Wuxi Little Swan Polka Air-conditioner Co., Ltd. 588,364 16,054 - Wuxi Little Swan (Jingzhou) Sanjin Electric Appliances Co., Ltd 129,318 - - Wuhan Little Swan Washing Machine Co., Ltd. 98,242 110,186 - Wuxi Little Swan Central Air-conditioner Co., Ltd. 67,959 - - Wuxi Little Swan Dryer Co., Ltd. 37,926 229 - Wuxi Little Swan Kitchen and Toilet Appliances Co., Ltd. 17,895 - - Little Swan (Jingzhou) Electric Appliances Co., Ltd. 4,422 2,675 - Wuxi China East Construction Material Mall - 2,712 - Others - 670 944,126 132,526 Purchases of goods from unconsolidated subsidiaries - Wuxi Little Swan Mould Manufacturing Co., Ltd. 11,398 15,579 Total purchases from related parties 1,069,282 148,105 -33 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21 Related party transactions and balances (continued) (ii) Related party transactions (continued) (b) Sales of goods 2002 2001 (Restated) Sales of goods to holding company 92,296 - Sales of goods to associates - Wuxi Matsushita Refrigeration Compressor Co., Ltd. 10,264 9,664 - BSW Household Appliances Co., Ltd. 4,180 - 14,444 9,664 Sales of goods to fellow subsidiaries - Wuxi Little Swan Polka Air-conditioner Co., Ltd. 11,089 2,376 - Wuxi Little Swan Central Air-conditioner Co., Ltd. 10,101 - - Wuxi Little Swan Dryer Co., Ltd. - 207 - Little Swan (Jingzhou) Sanjin Electric Appliances Co., Ltd. 8,534 - - Wuhan Little Swan Washing Machine Co., Ltd. 4,688 29,858 34,412 32,441 Sales of goods to unconsolidated subsidiaries - Wuxi Little Swan Washing Investment Management 490 - Co., Ltd. - Little Swan Palaima Industrial Co., Ltd. - 4,578 490 4,578 Total sales of goods to related parties 141,642 46,683 (c) Interest paid to holding company 2002 2001 (Restated) Interest paid to holding company 8,613 - (d) Directors’ remuneration In 2002 the total remuneration of the directors was RMB1,350,000 (2001: RMB390,300). -34 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21 Related party transactions and balances (continued) (iii) Related party balances 2002 2001 (Restated) Amounts due from holding company 13,571 33,133 Amounts due from associates - BSW Household Appliances Co., Ltd 23,465 34,646 - Wuxi Matsushita Refrigeration Compressor Co., Ltd 3,412 - - Wuxi Lifanda Electric Appliances Co., Ltd 1,006 - - Wuxi Matsushita Refrigeration Co., Ltd 217 3,338 28,100 37,984 Amounts due from fellow subsidiaries (Note 14) - Wuxi Little Swan Polka Air-conditioner Co., Ltd. 28,180 1,036 - Wuxi Little Swan Dryer Co., Ltd. 9,733 17,780 - Haikou Little Swan Trading Co., Ltd 3,643 - - Wuxi Little Swan Tai Hotpot King Restaurant 137 - 41,693 18,816 Amounts due from unconsolidated subsidiaries (Note 14) - Wuxi Little Swan Hubin Washer Co., Ltd. 1,871 1,840 - Wuxi Little Swan washing Investment Management Co., Ltd 1,500 - 3,371 1,840 Amounts due to associates (Note 16) - Wuxi Lifanda Electric Appliances Co., Ltd. - 189 - Wuxi Matsushita Refrigeration Compressor Co., Ltd. - 140 - 329 -35 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21 Related party transactions and balances (continued) (iii) Related party balances (continued) Amounts due to fellow subsidiaries (Note 16) - Little Swan (Jingzhou) Sanjing Electric Appliances Co., Ltd. 32,516 - - Wuxi Little Swan Kitchen and Toilet Appliances Co., Ltd. 18,843 - - Wuxi Little Swan Central Air-conditioner Co., Ltd. 1,979 - - Little Swan (Jingzhou) Electric Appliances Co., Ltd. 682 103 - Wuhan Little Swan Washing Machine Co., Ltd. - 9,755 - Wuxi Little Swan Polka Air-conditioner Co., Ltd. - 87 54,020 9,945 Amounts due to unconsolidated subsidiaries (Note 16) - Wuxi Little Swan Mould Manufacturing Co., Ltd. 7,157 - - Wuxi Little Swan Transportation Co., Ltd. 829 - 7,986 - -36 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 22 Principal subsidiaries Particulars of the Company’s subsidiaries, all of which were established and operate in the PRC, are as follows: Equity Interest Registered held by the Capital Name of subsidiary company ‘000 Principal activities Wuxi ALC Plastic Co., Ltd. 50% USD 560 Manufacture and sale of light diffusers and plastic products Wuxi ASP Electronics Co., Ltd. 74.42% USD 2,150 Manufacture and sale of computer control components for washing machine Wuxi Little Swan Advertising Company 100% RMB 1,000 Advertising Wuxi Little Swan Property 92.1% RMB 20,966 Property construction Construction and Development Co., Ltd. Wuxi Little Swan Sales Company (b) 95% RMB 10,000 Sale of electrical appliances, motor vehicles and spare parts Wuxi Little Swan Import and Export 75% RMB 30,000 Import & Export activities Company Jiangsu Little Swan San Jiang Electrical 51% RMB 14,800 Manufacture and sale of electrical appliances Appliances Manufactory Company Wuxi Little Swan Maloni Dishwasher 75% USD12,000 Manufacture and sale of dishwashers Co., Ltd. Wuxi Huayin Electric Appliances Co., Ltd. 75% USD6,000 Manufacture and sale of electric engines for household appliances and digital engines Wuxi Little Swan Sutai Washing Machine 75% USD6,000 Manufacture and sale of commercial Co., Ltd. washing machine, dryer and spare parts Little Swan Freezer Co., Ltd. (b) 75% RMB 20,000 Sale of refrigerator and other freezer equipment Wuxi Little Swan TianAi Electrical 90%RMB 5,000Sale of washing machine and drying machine Appliances Co., Ltd. (b) Wuxi Little Swan High-Grade Casting 75% USD5,800 Manufacture and sale of high-grade casting of Co., Ltd. (a) compressor that its basic line is refrigerator and air-condition Wuxi Little Swan Pottery Co., Ltd. 90% RMB 3,000 Manufacture, process and sale of tube and shell of pottery electric power and electronic and its accessory. Process of metal Wuxi Little Swan - Fuji Cleaning 75% USD4,000 Manufacture and sale of dryer equipment and Equipment Co., Ltd. spare parts Jiangsu Little Swan Marketing and 52.5% RMB19,500 Sale of electrical appliances Sales Co., Ltd. (a) Registered capital of Wuxi Little Swan High-Grade Casting Co., Ltd. increased of USD 1,800,000 in 2002. (b) Approved by the directors on the fourteenth meeting of the third board dated 16 August 2002, Wuxi Little Swan Sales Company, Little Swan Freezer Co., Ltd. and Wuxi Little Swan TianAi Electrical Appliances Co., Ltd. declared to liquidate. Till 24 April 2003, the liquidation process was not finished. -37 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 23 Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows: 2002 2001 (Restated) Property, plant and equipment - 30,000 24 Contingent liabilities The Group has no significant contingent liabilities as of 31 December 2002. 25 Prior year adjustments During 2002, the Company identified certain under-recording of selling expenses of approximately RMB85,243,000 and RMB40,151,000 for 2001 and 2000 respectively. The error was corrected and accounted for retrospectively as prior year adjustments for the year ended 2001 and 2000. Due to these adjustments, the retained earnings as of 1 January 2002 and 2001 were reduced by approximately RMB113,776,000 and RMB32,924,000 respectively; the statutory common reserve funds as of 1 January 2002 and 2001 were reduced by approximately RMB6,454,000 and RMB4,015,000 respectively; the statutory public welfare funds as of 1 January 2002 and 2001 were reduced by approximately RMB5,164,000 and RMB3,212,000 respectively. 26 Segment reporting The Group conducts its business within one business segment – the business of manufacturing and sale of washing machines, air conditioners, refrigerators and other household appliances in the PRC. No segment income statement has been prepared by the Group during the year ended 31 December 2002. The Group also operates within one geographical segment because its revenues are primarily generated in the PRC and its assets are located in the PRC. Accordingly, no geographical segment data is presented. -38 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 27 Subsequent events Approved by the directors on the seventeenth meeting of the third board dated 24 April 2003, the Company was going to offset the accumulated losses of RMB672,727,420 against the statutory common reserve funds of RMB169,284,971, discretionary common reserve funds of RMB204,224,608 and capital surplus of RMB299,217,841 respectively. After that, the Company’s retained earning is nil in Statutory Accounts as of 31 December 2002. The resolution is waiting for the approval from the shareholders. Approved by the directors on the seventeenth meeting of the third board dated 24 April 2003, Wuxi ALC plastic Co., Ltd., one of the Company’s subsidiary, declared to liquidate as it’s operation period was expired. Wuxi ASP Electronics Co., Ltd., one of the company’s subsidiary, declared to liquidate as its operation period was expired. On the meanwhile, a new company, Wuxi Feiling Electronics Co., Ltd. (“Wuxi Feiling”) was going to set up. The principle activities of Wuxi Feling are software development, manufacture and sale of electronic equipment. The total investment of Wuxi Feiling is USD2,500,000, and the registered capital is USD1,800,000 (the Company will interest USD918,000, 51% share). 28 Comparative figure Regard the retrospective adjustment made in Note 25, the Group restated the comparative figures of 2001. 29 Approval of financial statements The consolidated financial statements were approved for issuance by the board of directors of the Company on 24 April 2003. -39 - WUXI LITTLE SWAN COMPANY LIMITED AND ITS SUBSIDIARIES FOR THE YEAR ENDED 31 DECEMBER 2002 (All amounts in RMB thousands unless otherwise stated) SUPPLEMENTARY INFORMATION THE ADJUSTMENT MADE TO CONFORM ACCOUNTS PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”) TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) Net (loss)/profit Shareholders’ equity 2002 2001 2002 2001 (Restated) (Restated) Under PRC GAAP - As previous reported (418,430) 26,830 1,218,425 1,995,468 - Prior year adjustment (a) Accrual on selling expense - (85,243) - (125,394) (b) Consolidation scope difference - 911 - 15,102 - As restated (418,430) (57,502) 1,218,425 1,885,176 Adjustments to conform with IFRS - Unrealised loss on consolidation of subsidiaries (246,275) (9,828) - - - Consolidation scope difference 16,377 (911) 1,275 (15,102) - (Accrual) reverse for salary (18,758) - 23,541 42,299 - Negative goodwill on certain subsidiaries - - (11,418) (11,418) - Minority losses on certain subsidiaries (203,003) - (203,003) - - Dividend relating to current year - - - 5,111 - Others (2,123) 2,704 (6,949) (6,872) Under IFRS (872,212) (65,537) 1,021,871 1,899,194