京东方Ａ(000725)京东方Ｂ2002年年度报告（英文版）

BOE TECHNOLOGY GROUP CO., LTD. 2002 ANNUAL REPORT (Overseas Version) Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: BOE - B, Stock Code: 200725 Apr. 18, 2002 Important: Board of Directors and its members of BOE TECHNOLOGY GROUP CO., LTD. (hereinafter referred to as the Company) 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. The report was prepared in both Chinese and English versions. Should there be difference in interpretation in the two versions, the Chinese one shall prevail. Chairman of the Board and concurrently CEO Mr. Wang Dongsheng, President and concurrently COO Mr. Liang Xinqing, Chief Financial Supervisor Mr. Wang Yanjun, and Secretary of Plan & Financial Dept. Ms. Sun Yun hereby confirm that the Financial Report of the Annual Report is true and complete. Director Mr.Wang Hui, Mr.Shi Dong and Mr.Sun Jiping was absent from the Board meeting, in which the 2002 Annual Report was examined, with entrusting seperately Chairman of the Board Mr.Wang Dongsheng, Mr.Zhao Caiyong and Mrs.Song Ying to attend and vote on his behalf. Mr.Tai Zhonghe,Independent Director of the Company,was absent from the Board meeting. 1 Contents Chapter I Company profile………………………………………………………… Chapter II Summary of Financial Highlights and Business Highlights…………… Chapter III Changes in Share Capital and Particulars about Shareholders……… Chapter IV Directors, Supervisors, Senior Executives and Employees…………… Chapter V Administrative Structure……………………………………………… Chapter VI Shareholders’ General Meeting………………………………………… Chapter VII Report of the Board of Directors……………………………………… Chapter VIII Report of the Supervisory Committee……………………………… Chapter IX Significant Events……………………………………………………… Chapter X Financial Report………………………………………………………… Chapter XI Documents for Reference……………………………………………… 2 CHAPTER I COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 京东方科技集团股份有限公司 Short Form in Chinese: 京东方 In English: BOE TECHNOLOGY GROUP CO., LTD. Short Form in English: BOE 2. Legal Representative: Wang Dongsheng 3. Secretary of the Board of Directors: Zhong Huifeng Contact Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Tel: 010 - 64366264 Fax: 010 – 64366264 E-mail: hfzhong@boe.com.cn 4. Registered Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Office Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Post Code: 100016 The Company’s Internet Web Site: http://www.boe.com.cn E-mail: web.master@boe.com.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Ta Kung Pao Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Director 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form for A-share: BOE - A, Stock Code for A-share: 000725 Short Form for B-share: BOE - B, Stock Code for B-share: 200725 7. Other Related Information: Initial registration date: April 9, 1993 Initial registration address: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Changed registrations date: June 2,1997; December 25,1997; December 28, 2000; June 18, 2001; December 10, 2001 Changed registration address: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registered code of enterprise legal person’s business license: 100001501259 Registration code of tax: GSJZ No.110105101101660 3 DSJZ No. 110105101101660000 Certified Public Accountants engaged by the Company: PricewaterhouseCoopers Zhongtian Certified Public Accountants Office Address: 12th Floor, Rui’an Square, No.333 Huaihai Center Road, Shanghai 4 CHAPTER II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Major accounting data as of the year 2002 (Unit: In RMB’000) Items Amount Profit before tax 216,906 Net profit 79,000 Gross profit of sales 635,551 Income from other operating 14,678 Operating profit 215,287 Net cash inflows arising from operating activities： 192,639 Balance in cash and cash equivalents at the year-end 2,232,667 Note: Difference in net assets and net profit as reported based on Accounting System for Enterprise (domestic financial report) and IAS (overseas financial report) Unit: RMB’000 Net assets Net profit As reported under Accounting System for Enterprise 2,183,379 82837 IAS adjustment: 1 Difference from disposal of subsidies - -3681 2 Difference in term of amortization of goodwill －2,667 -1334 3 Rewards and welfares of the employee reckoned into management expenses - -242 4 Government subsidy -3,750 1,000 5 Others －572 420 Balance after adjustment under IAS 2,176,390 79,000 2. Accounting Data and Financial Indexes over the Past Three Years as Ended the report Period: (Unit: RMB’000) Items 2002 2001 2000 After Before adjustment adjustment Income from sales 4,782,587 2,669,543 2,683,798 2,234,822 Net profit 79,000 22,817 22,817 103,856 5 Total assets 6,779,294 4,034,811 4,034,811 3,977,329 Shareholders’ equity (excluding minority 2,176,390 2,113,010 2,113,010 2,148,451 interests) Earnings per share (fully diluted) 0.14 0.04 0.04 0.21 Net assets per share 3.96 3.84 3.84 3.91 Net cash flows per share from operating 0.35 0.78 0.78 0.46 activities Return on equity (%) 3.63% 1.08% 1.08% 4.83% Note: ① The said diluted data are calculated on the basis of total share capital RMB 549.554 million shares at the end of each year. ② The above data were reported in accordance with the consolidated accounting statements. ③ From the end of the report period to the disclosing date of this report, there was no change in share capital of the Company. 3. Changes in Shareholders’ Equity in the Report Period (Unit: In RMB’000) Ordinary Premium Items Other reserve Retained profit Total share share capital Jan. 1, 2002 549,554 1,150,895 235,871 176,690 2,113,010 Increase of capital public reserve - - 4,412 - 4,412 Dividend distribution as of the year 2001 - - - (27,478) (27,478) Profit as of 2002 - - - 79,000 79,000 Translation difference - - 7,446 - 7,446 Allotted surplus public reserve as of this year - - 33,038 (33,038) - Dec. 31, 2002 549,554 1,150,895 280,767 195,174 2,176,390 6 CHAPTER III. CHANGE IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 1. Statement of change in the Company’s shares (ended Dec. 31, 2002) Unit: In Share Increase/decrease (+, -) in this time Shares Before After Allotment Bonus transferred Additional Sub- change Others change of share shares from public issuance total reserves I. Unlisted shares: 1. Promoters’ shares Including： State-owned shares: 328029000 328029000 Domestic legal person’s shares: 0.0 0.0 Foreign legal person’s shares: Others: 2. Raised legal person’s shares: 3575000 3575000 3. Employees’ shares: 8450000 8450000 4.Preference shares or others: Total listed shares: 340054000 340054000 II. Listed shares: 1. RMB ordinary shares 60000000 60000000 2.Domestically listed foreign shares 149500000 149500000 (B share:) 3. Overseas listed foreign shares: 4. Others: Total listed shares: 209500000 209500000 III. Total shares: 549554000 549554000 2. Issuance and Listing of shares Approved by State Council Securities Regulatory Commission with ZWF [1997] No. 32 document, the Company issued and listed 115 million domestically listed foreign shares (B-share) on June 10, 1997 at the issuance price of HK$ 3.08 per share. After issuance of B-share, share capital of the Company increased to 376.58 million shares from 261.58 million shares. Approved by Beijing Securities Regulatory Commission with JZJH [1997] No. 67 document, the Company implemented profit distribution plan at the rate of 3 bonus shares for every 10 shares with RMB 1.00 in cash as to cumulative undistributed profit by the year 1996. The last trade date of B-share is Nov. 5, 1997, the ex-right or ex-dividend of B-share is Nov. 6, 1997. Total share capital of the Company increased to 489.554 million shares from 376.58 million shares after the distribution of bonus shares. Approved by China Securities Regulatory Commission with ZJGSZ [2000] No. 197 7 document, the Company additionally issued 60 million RMB ordinary shares (A-share) on Dec. 19, 2000 at the issuance price of RMB 16.80 per share. After the additional issuance, share capital of the Company increased to 549.554 million shares from 489.554 million shares. On Jan. 12, 2001, the said 60 million A-share were listed with Shenzhen Stock Exchange for trade Issuance of the employees’ shares of the Company, amounting to 6.5 million shares, has been completed in Feb. 1993 with par value RMB 1.00 per share. After Nov. 6, 1997, when the Company implemented profit distribution plan at the rate of 3 bonus shares for every 10 shares with RMB 1.00 in cash, the employees’ shares of the Company have increased to 8.45 million shares from 6.5 million shares. 3. About shareholders (1) Ended Dec. 31, 2002, the Company had totally 57,233 shareholders, including 17,388 shareholders of B-share. (2) Particulars about the shares held by top ten shareholders by Dec.31, 2002 Holding shares Proportion in Name of shareholder Type (in share) total shares 1 Beijing BOE Investment & Development Co., Ltd. 292,059,000 53.15% State-owned legal person’s shares 2 Beijing Dongdian Industrial Development Company 33,370,000 6.07% State-owned legal person’s shares 3 Beijing Yixin Microdisplay Technology Development 3,575,000 0.65% Legal person’s Center shares 4 SOUTH CAPITAL NOMINEES LIMITED 2,640,200 0.48% B share 5 Beijing CRT General Plant 2,600,000 0.47% 6 State-owned legal RIPPERTON ASSETS LIMITED 2,318,500 0.42% person’s shares 7 1,838,900 0.33% SCBL A/C ULTRAMATIC HOLDINGS LIMITED B share 8 1,590,200 0.29% STARBURST ASSETS LIMITED B share 9 Zhang Wei 1,493,196 0.27% B share 10 GOOD CAPTURE INVESTMENTS 1,361,000 0.25% B share Note 1: Changes in the shares held by shareholders holding over 5% (including 5%)of total shares: Beijing CRT Plant, the first largest shareholder of the Company, was restructured because of its implementation of debt-equity swap. 325.429 million state-owned legal person’s shares originally held by Beijing CRT Plant were transferred gratis to Being BOE Investment & Development Co., Ltd. and Beijing Dongdian Industrial Development Company with the former holding 292.059 million shares (constituting 53.15% of the Company’s total share capital) and the latter 33.37 million shares (constituting 6.07% of the Company’s total share capital). After the transfer, Beijing BOE Investment & Development Co., Ltd. and Beijing Dongdian Industrial Development Company became the first and the second largest shareholders of the Company. The registration of the above-mentioned change is in 8 process. For the details, please refer to Public Notice on the Change in the Equity of the Company published in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities News dated July 3, 2002 and July 10, 2002. Note 2: The above-mentioned non-circulation shares were not mortgaged or blocked. Note 3: Beijing BOE Investment & Development Co., Ltd. is a debt-to-equity company co-funded by Beijing Electronics Holding Company Limited, the superior holding company of Beijing CRT Plant, and China Huarong Assets Managements Company on the basis of assets (debt) restructuring of Beijing CRT Plant. The two sides respectively hold 56.25% and 43.75% of its total shares. Beijing Dongdian Industrial Development Company and Beijing CRT General Plant are both wholly-own enterprises by Beijing Electronics Holding Company Limited. Their relationship is unknown to the shareholding companies of the shares under circulation. (3) About the controlling shareholders Beijing BOE Investment & Development Co., Ltd. holds 53.15% of the Company’s total shares, therefore is the virtual controlling shareholder of the Company; Beijing Electronics Holding Company Limited holds 56.25% of the total shares of Beijing BOE Investment & Development Co. Ltd. and therefore is the virtual controller of the Company. Beijing Electronics Holding Company Limited is a state-owned holding company under Beijing Municipal Government and is authorized to operate state-owned assets. Beijing BOE Investment & Development Co., Ltd. Legal Representative: Wang Dongsheng Date of Foundation: Oct.15, 1956 Location: No.10 Jiuxianqiao Road,Chaoyang District, Beijing Registered Capital: 680.982 million RMB Business Scope: project investment, manufacture and design of electronic products, communications equipment, computer software & hardware, paper products, industrial gasses, mould and matrix, steam; acquisition and sales of mechanical and electrical equipment, metal products, computer software and hardware and supporting equipment, construction material, general merchandise; technical development, technical consultation, technical service and transfer, undertaking exhibitions and sales Beijing Electronics Holding Company Limited Legal Representative: Bao Yutong Date of Foundation: April 8, 1997 Location: No.12 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 1307.37 million Type: Limited Liability Company (owned and funded solely by the state) Business scope: operation and management of state-owned assets within authorization; Communications equipments, audio & visual products for broadcasting and television; computer and its supporting equipments and the applied products; electronic raw material and components; home electric appliances and electronic products; electronic 9 surveying instruments and meters; mechanical and electric equipments; electronic transportation products and investment in business fields other than electronics and its management; development of real estate, lease and sales of commodity apartments; property management. 10 CHAPTER IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, supervisors and senior executives (1) General Introduction Shares held Receiving pay Name Gender Age Title Office term Year- Year- from the begin end company? Wang Male 46 Chairman of the Board, Chairman of June 2001-June 2004 6500 6500 Yes Dongsheng the Executive Committee, CEO Jiang Yukun Male 50 Vice Chairman of the Board June 2001-June 2004 3900 3900 No Tai Zhonghe Male 53 Independent Director June 2001-June 2004 0 0 No Xie Zhihua Male 44 Independent Director June 2002-June 2004 0 0 No Wang Hui Male 48 Director June 2001-June 2004 0 0 No Zhao Caiyong Male 56 Director June 2001-June 2004 6500 6500 No Shi Dong Male 47 Director June 2001-June 2004 2600 2600 Yes Liang Xinqing Female 51 Executive Director, President and June 2001-June 2004 2600 2600 Yes COO Song Ying Female 46 Executive Director, Senior June 2001-June 2004 6500 6500 Yes Vice-President Chen Yanshun Male 38 Executive Director, Senior June 2001-June 2004 0 0 Yes Vice-President Sun Jiping Male 44 Executive Director, Senior June 2001-June 2004 0 0 Yes Vice-President Ren Jianchang Male 57 Executive Director, Vice-President June 2001-June 2004 0 0 No Wang Aizhen Female 54 Convener of the Supervisory June 2001-June 2004 1300 1300 No Committee Mu Chengyuan Female 36 Supervisor Sep. 2001-June 2004 650 650 No Yang Anle Male 33 Supervisor June 2001-June 2004 0 0 Yes Xu Yan Female 52 Supervisor June 2001-June 2004 3900 3900 Yes Han Guojian Male 50 Vice-President June 2001-June 2004 2600 2600 Yes Wang Jiaheng Male 35 Vice-President June 2001-June 2004 0 0 Yes Gong Xiaoqing Male 38 Vice-President June 2001-June 2004 5200 5200 Yes Wang Yanjun Male 34 Chief Financial Supervisor June 2001-June 2004 2600 2600 Yes Zhang Peng Male 39 Chief Tech. Supervisor June 2001-June 2004 0 0 Yes Zhong Huifeng Male 33 Secretary of the Board Apr. 2002- June 2004 0 0 Yes Note: Shares held by directors, supervisors and senior executives are all employees’ shares. (2) Directors and supervisors assuming title in and receiving pay from shareholding companies Name Title 11 Beijing Dongdian Beijing BOE Investment & Development Company Limited Industrial Development Company Jinag Yukun Director, President and Secretary of the Party Committee Zhao Caiyong Director, Standing Vice-President and Chief Financial Supervisor General Manager Shi Dong Supervisor and Vice-President Wang Aizhen Supervisor, Deputy Secretary of the Party Committee, Secretary of Discipline Commission and Chairwoman of Labor Union Mu Chengyuan Secretary of the Board and Vice President Yang Anle Manager of Auditing and Accounting Department Chief Financial Supervisor (3) Annual Salaries The remuneration and award of the Company’s directors, supervisors and senior executives are determined by the Company according to the evaluation of their performance under the company’s salary and personnel system. The total annual remuneration of the Company’s present directors, supervisors and senior executives is (including staple salary, various money awards, welfare, allowance, housing subsidy and other subsidies): RMB 3,086,900 Total remuneration of the top three directors drawing the highest payment (namely the top three senior executives): RMB 1,468,000 Total sum of allowances for independent directors and other subsidies: Mr. Tai Zhonghe: US$ 10,000 per year Mr. Xie Zhihua: RMB 25,000 per year In the year of 2002, there were 13 directors, supervisors and senior executives receiving remuneration from the Company, among whom one enjoyed an annual salary below RMB 100,000, 9 enjoyed between 100,000 and 200,000 and 3 enjoyed over 200,000. (4) Directors, supervisors and senior executives leaving their posts during the report period: ① On Jan. 11 2002, as examined and approved by the 1st extraordinary shareholders’ general meeting 2002, the Company agreed that Mr. Zhang Xusheng resigned from the post of director of the 3rd Board of Directors due to work. ② On April 17, 2002, as approved by the 5th meeting of the 3rd Board of Directors, Mr. Qin Jun resigned from the post of Vice-president of the Company due to work, Mr. Chen Yanshun resigned from the post of Secretary of the Board, and Mr. Zhong Huifeng replaced him as the Secretary of the Board. ③ On Jun 28, 2002, as approved by the 7th meeting of the 3rd Board of Director, Mr. Xie Zhihua was recommended as candidate of independent director. ④ On Aug. 26, 2002, as approved by the 8th meeting of the 3rd Board of Directors, Mr. Han Weiping resigned from the post of vice-president of the Company due to health problem. ⑤ On Dec. 1, 2002, as approved by the 2nd extraordinary shareholders’ general meeting 2002, Mr. Xie Zhihua was additionally elected as independent director of the Company. 12 2. About employees By the end of the year 2002, the Group had a total of 6386 employees, including 1615employees of parent company. The composing is as follows: Composing of employees: 219 administrative personnel, 49 financial personnel, 208 salespersons, 32 senior skill workers, 980 skill workers. Educational background of employees: 626 persons received college or higher level education, including: 6 holding a doctoral or post-doctoral degree, 90 holding a master’s degree, 315 holding college graduates and 215 junior college graduates. 13 CHAPTER V ADMINISTRATIVE STRUCTURE 1. The Company’s current management structure Proceeding from the principle of protecting the interests of the vast number of shareholders, the Company made standardized management in strict line with a series of system such as Rules of Procedure of Shareholders’ General Meeting, Work Regulations of Board of Directors, Rules of Procedure of Supervisory Committee Rules of information disclosing and Work Rules of Executive Committee, and amended the Articles of Associations of the Company timely, enacted Management System on Using of Raised Proceeds, so as to ensure standardized operation of the Company, and strengthened the Company’s administration. In accordance with the demand of Notice on Scrutiny of Listed Company Establishing Modern Enterprise System (ZJF [2002] No. 32 Document) jointly promulgated by CSRC and State Economic and Trade Commission, the Company carefully completed self-scrutiny on the establishment and submitted the Self-scrutiny Report on Establishing Modern Enterprise System of Listed Companies. 2. The performance of Independent Director The Company has two independent directors in office at present. During their term, the two independent directors performed their duties as Independent Director according to the relevant regulations of Guiding Opinions on the Establishment of Independent Director System in Listed Companies, actively expressed independent opinions on the Company’s vital purchasing of assets and the other major projects from the respect of law, finance and industrial technology and played an important role in promoting the Company’s scientific and standardized decision-making process, and safeguarded the benefits of the mass of medium and small shareholders in real earnest. 3. The separation between the Company and the controlling shareholder in dealing with personnel, assets, finance, organization and business The Company’s business activities, personnel, assets, institutions and finance are separated from that of the controlling shareholder. (1) Personnel: The Company independently decides its labor, personnel, salary and other matters. The Company’s president, vice-presidents, chief financial supervisor, secretary of the Board and other senior executives are all full-time personnel and they do not have any dual duty in shareholding company. (2) Assets: The Company has independent, complete and clear property rights. The Company independently owns the assets required by its major business activities, such as manufacturing equipments, factory buildings, inventory and intellectual property rights and so on. There is no occupation of the Company’s assets by its controlling shareholder. (3) Finance: The Company has set up independent financial departments. The financial personnel are all full-time personnel. The Company has also established standard and independent financial and accounting system and the system of financial 14 administration for its subsidiaries. Meanwhile, the Company has kept archives of its financial administration to strengthen the administration of its various original certificates and account books. The Company opened independent account with the bank and has independently paid taxes in accordance with the law. Moreover, the 2nd extraordinary shareholders’ general meeting 2002 approved the Management System on Using of Raised Proceeds, which further standardized the management for using of raised proceeds. (4) Organization: The Company has set up organizations and institutions independent from its controlling shareholder, and owns independent, standardized and strengthen organization and administrative structure. It has never handled business together with its controlling shareholder in the same office. (5) Business activities: The Company holds independent and integrated business system such as production and operation plan, financial settlement, labor and personnel and supply and marketing of products. The Company makes independent decision-making, assumes sole responsibility for its profits or losses. The Company handles its business affairs independent from its control shareholder and has full and independent capacity for operation and business activities. The related transaction of the Company was carried on according to market principle, and doesn’t harm the legal benefit of the Company and the whole shareholders. 4. The evaluation and stimulus system for senior executives The Company has established a system of evaluation & stimulus indexes. To guarantee the sound implementation of the evaluation & stimulus system, as approved by the shareholders’ general meeting, the Company established encouragement fund; meanwhile, founded the Auditing Committee and the Committee for Nomination, Salary & Remuneration and Evaluation (CNSRE) under the Board of Directors and the CNSRE is in specific charge of evaluating, awarding and punishing the Company’s directors and senior executives. In the report period, the Company conducted the annual reporting work and checking for senior executives. 15 VI. Shareholders’ General Meeting 1. Particulars about notification of Shareholders’ General Meeting On Dec. 5, 2001, the Company published Public Notice of Holding the 1st Extraordinary Shareholders’ General Meeting of 2002 of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. On April 23, 2002, the Company published Public Notice of Holding 2001 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. On May 25, 2002, the Company published Public Notice of Change of Place of 2001 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. On Nov. 1, 2002, the Company published Public Notice of Holding the 2nd Extraordinary Shareholders’ General Meeting of 2002 of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. 2. Particulars about convening and holding of Shareholders’ General Meeting On Jan. 11, 2002, the 1st Extraordinary Shareholders’ General Meeting of 2002 was held in the conference room of the Company. Totally 51 shareholders and shareholder’s proxies attended the meeting, representing 361,788,941 shares (valid shares), which took 65.83% of the total amount of shares of the Company, including: 13 shareholders of RMB ordinary share (A share), representing 329,041,700 shares and 38 shareholders of overseas listed foreign capital share (B share), representing 32,747,241 shares. The meeting examined and approved the following proposals: Proposal on Listing Projects of STN-LCD and OLED Business Jointly Purchased in Korea into Application of Raised Proceeds of A Share of Additional Issuance in Public, Rules of Procedure of Shareholders’ General Meeting, Proposal on Implementing Share Option in Beijing Orient Top Victory Electronics Co., Ltd., a Affiliated Holding Subsidiary of the Company and Proposal on Change of Partial Members of the Board of Directors. On May 31, 2002, 2001 Shareholders’ General Meeting was held in Beijing Guomen Road Hotel. Totally 70 shareholders and shareholder’s proxies attended the meeting, representing 353,935,687 shares (valid share), which took 64.40% of the total amount of shares of the Company, including: 41 shareholders of RMB ordinary share (A share), representing 329,124,700 shares and 29 shareholders of domestically listed foreign capital share (B share), representing 24,810,987 shares. The meeting examined and approved the following proposals: 2001 Work Report of the Board of Directors, 2001 Work Report of the Supervisory Committee, 2001 Business Work Report, 2001 Financial Settlement Report, 2001 Profit Distribution Preplan and 2002 Profit Distribution Policy, Proposal on Line of Loan and External Guarantee of the Company, Proposal on Amendment of Articles of Association, Proposal on Establishment of Fund of the Board of Directors and Proposal on Application of Excessive Raised Proceeds of A Share of Additional Issuing in Public. On Dec. 1, 2002, the 2nd Extraordinary Shareholders’ General Meeting of 2002 was 16 held in Beijing Guomen Road Hotel. Totally 65 shareholders and shareholder’s proxies attended the meeting, representing 349,552,675 shares, which took 63.61% of the total amount of shares of the Company, including: 41 shareholders of RMB ordinary share (A share), representing 329,124,950 shares and 24 shareholders of domestically listed foreign capital share (B share), representing 20,427,725 shares. The meeting examined and approved the following proposals: Proposal on Additional Election of Independent Director, Proposal on Purchase of Land Use Right from Original Holding Shareholder Beijing Vacuum Tube Factory, Proposal on Purchase of TET-LCD Business from Korean Technology Inc., Management System of Application of Raised Proceeds, Proposal on Change and Adjustment of Application of Raised Proceeds of Partial Projects and Proposal on Equity Restructuring of Zhejiang Beijing Orient Vacuum Electronics Co., Ltd.. 3. Particulars about public notice of resolutions of Shareholders’ General Meeting On Jan. 12, 2002, the Company published Public Notice of Resolutions of the 1st Extraordinary Shareholders’ General Meeting of 2002 of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities Times and Shanghai Securities. On June 1, 2002, the Company published Public Notice of Resolutions of 2001 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. On Dec.3, 2002, the Company published Public Notice of Resolutions of the 2nd Extraordinary Shareholders’ General Meeting of 2002 of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. 4. Particulars about election and change of directors and supervisors After examined and approved by the 1st Extraordinary Shareholders’ General Meeting of 2002, the meeting accepted Mr. Zhang Xu to resign from the post of director of the 3rd Board of Directors. After examined and approved by the 2nd Extraordinary Shareholders’ General Meeting of 2002, the meeting additionally elected Mr. Xie Zhihua as independent director. VII. Report of the Board of Directors 1. Discussion and analysis of the operation (1) Operating results in the report period The core business of the Company kept a steady growth. The realized sales income, gross profit of sales and net profit was RMB 4,782.59 million, RMB 635.55 million and RMB 79 million respectively, which increased by 79.15%, 98.36% and 246.23% respectively compared with that of the corresponding period of the previous year. The fully diluted earnings per share were RMB 0.14 and fully diluted return on equity was 3.63%. The growth of profitability capability of display parts cause, the growth of whole benefits of CRT and its auxiliary parts and components along with the recovery of the industry and the steady growth of Korean STN-LCD business were main reasons of the increase of income from core business and profit of the Company. (2) Development status of industries of the Company in the report period 17 The Company actively pushed the development strategy of “ to establish access, create brand, and cultivate core competitive power, at the same time to develop new-style display parts and become the world enterprise of display technology and its relevant technology” and has form the industrial structure with display products as the core preliminarily. The display products have become the main body of business and income and profit of the Company has achieved quite great development in the industrial scale: the production and sales volume of STN-LCD took the 5th place all over the world. The sales of VFD realized 18.52 million pieces, continuing to rank the 1st at home and the 3rd in the world. The sales of display realized 3,147,000 pieces and its base was the largest production base of display in the North of China. The production and sales volume of CRT products, jointly invested by the Company and Panasonic, increased by a big margin and it realized sales of 7,633,000 pieces, which increased by 28% than that of the corresponding period of the previous year. LED large display screen was awarded name of Beijing Famous Product and was appraised as National New Product by State Commission for Economy and Trade. (3) Significant events happened in the report period ①In Nov. 2001, the Company jointly set up Korean Hyundai LCD Inc., a holding subsidiary, in Korea and purchased all STN-LCD and OLED business of Korean Hyundai Semiconductor Inc.. This purchase was all completed in the 1st quarter of 2002. At present, Korean Hyundai LCD Inc.. was in good operation, which was one of the main contribution points of profit growth of the Company in 2002. ②The Company actively planned the industry of TFT-LCD and signed Assets Sales and Purchases Agreement, Buildings Sales and Purchase Agreement, Land Lease Agreement and Complementary Agreement on Assets Sales and Purchase Agreement with Korean Hyundai Semiconductor Inc. and Korean Hyundai Technology Inc. respectively on Nov.29, 2002 and Jan.17, 2003 to let BOE-Hydis Technology Co., Ltd., a wholly owned Korean subsidiary of the Company, to purchase the TFT-LCD business of Korean Hydis Technology Inc. and the work of assets handover was completed on Jan.22, 2003. This purchase was an overseas purchase of hi-tech industry with the largest amount in our country so far. Through this assets purchase, the Company has obtained complete intellectual property right of TFT-LCD of Korean Hydis Technology Inc. (including technology force and scientific research and development results) and the world market share and marketing network of TFT-LCD and entered into TFT-LCD industry with comparatively low cost. This assets purchase was the low cost expansion of the Company in the TFT-LCD business field, which was beneficial to the increase of core competitive force of the Company in the field of display products, impacted actively on the aspects of raising the industrial status of the Company and reinforcing the sustainable development capability of the Company and had positive accelerating effect on the long-term strategic development and market positioning of the Company. After the purchase, TFT-LCD business would become the new business growth point of the Company. 2. Operation in the report period 18 (1) Scope of core business The Company belongs to electronic information industry. Based on steadily realizing the extension from traditional household electrical utensils market to product fields of communication, computers and digitalization and strategic transformation from focusing on components and parts to developing simultaneously components, complete machines and systems, the Company has formed three large core cause groups of display parts, relevant electrical precision accessories and materials, display and relevant video communication products and mobile digital products and IT service etc.. The market share and technology innovation of many products ranked at the top at home and abroad. (2) Achievements of core business (drew up as per Domestic Enterprise Accounting Standards) Formation of income from core business and cost of core business classified according to types of products (Unit: in RMB) Product types In 2002 In 2001 Income from core Cost of core Income from Cost of core business business core business business Display 2,602,246,763 2,435,106,749 2,193,361,899 2,033,792,548 Display parts 1,760,282,579 1,372,917,244 205,878,320 117,343,404 Precision electric 275,206,836 207,954,891 178,801,464 148,252,603 accessories and materials Mobile digital products and 98,527,417 96,518,931 29,132,931 19,594,364 IT service Others 46,323,894 29,454,700 62,368,514 24,525,959 Total 4,782,587,489 4,141,952,515 2,669,543,128 2,343,508,878 Formation of income from core business classified according to areas Income from core business Proportion in the total (RMB) sales (%) China 2,129,264,187 44.52 Other Asian countries 772,275,158 16.15 Europe 1,198,573,818 25.06 America 682,474,326 14.27 Total sales 4,782,587,489 44.52 (3) Major suppliers and customers The purchase amount of the top five suppliers took 53% of the total annual amount of purchase of the Company. The sales amount of the top five customers took 46% of the total annual amount of sales of the Company. (4)Difficulties and problems arising from the operation and solutions The year of 2002 was the first year after China’s entry to WTO and the import of 19 electronic products grew rapidly, but all international companies made use of intellectual property right safeguard to clamp down on the manufacture industry of our country, which resulted in the intensified market competition. Simultaneously, the continuous innovation and industrialization of new-style plane display products sped up the change and upgrading of display products. Aiming at this situation, the Company shall improve the product structure focusing the efforts on the following aspects and raise its self-competitive force: ①To really push the project of TFT-LCD. Based on exerting to well do the operation of Korean BOE-HYDIS Technology INC., to quicken the construction of Beijing production base of TFT-LCD. ②To make the small-sized display products of STN-LCD and VFD etc. large and strong so as to ensure the market competition advantage of products. ③To further develop brand and access cause construction, continuously bring forth the brand products and services with BOE feature and market attraction and create the brand advantage of BOE. ④To reinforce the internal management of the enterprise and push and implement a series of activities and measures of income increase and expenditure saving, reducing the expenses and saving the cost etc. so as to ensure the increase of cost-benefit ratio. ⑤To import and cultivate excellent management team and staff group. To further grasp the reform of personnel, distribution and recruitment, establish the scientific, practical and standardized personnel management system and improve the operating mechanism of the enterprise so as to provide a good development platform for importing and cultivating various senior professionals suitable to the development strategy of the Company. 3. Investment in the report period (1) Application of raised proceeds Unit: RMB’0000 Committed investment Total investment Actual amount of Accumulated Progress of projects of projects investment in the amount of actual projects report period investment Capital increase project 2,589.6 0 2,583.2 Completed of Beijing Orient Top Victory Electronics Co., Ltd. Technical renovation 4,130.0 406 4,039 Completed in project of special investment computer terminal production line Technical renovation 5,400.0 2,400 5,221 Completed in project of mobile investment computer production line Technical renovation 5,788.0 617 1,048 Been 20 project of digital changed in television receiver use industrialization Beijing urban traffic 10,000.0 885 5,799 In the “All-in-one card” progress project BOE e-commerce 19,000.0 1,174 17,966 Completed in project investment Replenishing operating 10,000.0 0 10,000 Completed capital Flat apheliotropic source 2,550.0 0 2,533 Completed for digital terminals Digital camera project 6,300.0 70 1,587 Been changed in use Acquisition of Korean 18,675.0 7,449 14,584 Completed STN-LCD & OLED business through joint investment Cold cathode and 2,524.03 2,517 2,517 Completed fluorescent apheliotropic project through joint investment Pintong cause operating 11,200 5,643 5,643 Continued project the input of 2003 Purchase of TFT-LCD 13,574.43 0 0 Completed in business project of the 1st quarter Korean Hydis of 2003 Technology Inc. Notes: In order to match with the implementation of separate adjustment strategy of the industry structure, the Company planned to adjust the investment involved in the property and real estate business, in which “BOE E-commerce project” has been invested with RMB 19.5801 million in 2002 and the Company adjusted and recovered the investment of RMB 7.8371 million of the previous year. The accumulative investment amount of this project was RMB 179.66 million. ①Reasons, procedures and disclosure of the change of projects: 2001 Shareholders’ General Meeting examined and approved Proposal on Increase of Application of Excessive Raised Proceeds Additionally Issuing in Public and the Company additionally listed two projects of Cold cathode and fluorescent apheliotropic project through joint investment (investment of USD 3,041,000 or the equivalent RMB in cash) and Pintong cause operating project (investment of RMB 112 million) into the application of excessive raised proceeds of A share. The 21 Company published Public Notice of Resolutions of 2001 Shareholders’ General Meeting of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities respectively on June 1, 2002. The 2nd Extraordinary Shareholders’ General Meeting of 2002 examined and approved Proposal on Change and Adjustment of Application of Raised Proceeds of Partial Projects and the Company has adjusted and put the rest raised proceeds of accomplished projects of “Capital increase project of Beijing Orient Top Victory Electronics Co., Ltd.”, “ Flat apheliotropic source for digital terminals”, “Acquisition of Korean STN-LCD & OLED business through joint investment” and “Cold cathode and fluorescent apheliotropic project through joint investment” amounting to RMB 41,214,300 into “Purchase of TFT-LCD business project of Korean Hydis Technology Inc.” and changed the balance raised proceeds of former raised proceeds projects “Technical renovation project of digital television receiver industrialization” and “Digital camera project” amounting to RMB 94.53 million to put into “Purchase of TFT-LCD business project of Korean Hydis Technology Inc.”, which all totally amounted to RMB 135,744,300. The Company published Public Notice of Resolutions of the 2nd Shareholders’ General Meeting of 2002 of BOE Technology Group Co., Ltd. on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities respectively on Dec.3, 2002. ② Progress and earnings of projects (worked out as per domestic Enterprise Accounting Standards) Beijing Orient Top Victory Electronics Co., Ltd. (the former Beijing Orient Top Victory Electronics Limited) realized a sales income of RMB 2,602.25 million (including foreign currency of RMB 1,282.30 million earned in the export) and realized net profit of RMB 79.33 million. Technical renovation project of special computer terminal production line: the Company planned to invested RMB 41.30 million of raised proceeds and has put into raised proceeds of RMB 40.39 million. To produce “Longteng” series network computers with adopting homemade CPU and Linux all Chinese inlaid operation system and BOE-WYSE series network computers based on Thin Client-Server system structure. Technical renovation project of mobile computer production line: the Company planned to invested raised proceeds of RMB 54 million and has invested raised proceeds of RMB 52.21 million. The mobile computer of “BOE” has been put into market in batches and the Company has established comparatively good “BOE” brand image in the market. Technical renovation project of digital TV set production: the Company planned to invest raised proceeds amounting to RMB 57.88 million and has invested prophase research and development expense of RMB 10.48 million. After examined and 22 approved by Shareholders’ General Meeting, to change the rest raised proceeds of RMB 47.40 million to put into “Purchase of TFT-LCD business project of KOREAN HYDIS TECHNOLOTY INC.”. Beijing urban traffic “All-in-one card” project: the Company planned to invest raised proceeds of RMB 100 million and has put into raised proceeds of RMB 57.99 million. Along with the adjustment of progress of whole project of “ All-in-one card”, the implementation of this project has been adjusted accordingly but there were some bus lines being trial run traffic “All-in-one card”. BOE e-commerce project: the Company planned to invest raised proceeds of RMB 190 million and has put into RMB 179.66 million with focusing the investment on auxiliary hardware platform construction of BOE e-commerce. For details, please refer to Public Notice on Progress of Investment Construction of “BOE E-commerce Project” of BOE Technology Group Co., Ltd. published on Hong Kong Ta Kung Pao, Securities Times, China Securities and Shanghai Securities respectively on Jan.4, 2003. Flat apheliotropic source for digital terminals: the Company planned to invest raised proceeds amounting to RMB 25.50 million and has put into raised proceeds amounting to RMB 25.33 million in 2001. The difference between planned investment amount and actual investment amount was converting difference of exchange rate. The project was carried through with establishment of joint venture “Beijing BOE YAMATO Photoelectron Co., Ltd.” and at present it is in the product-guiding phase and realized a net profit of RMB-3.83 million in 2002. Digital camera project: the Company planned to invest raised proceeds of RMB 63 million and has put into RMB 15.87 million. The construction of production equipments has been completed and the digital camera products with brand of “BOE” have been introduced into the market. After examined and approved by Shareholders’ General Meeting, the Company changed to put the rest raised proceeds amounting to RMB 47.13 million into “Purchase of TFT-LCD business project of Korean Hydis Technology Inc.”. Acquisition of Korean STN-LCD & OLED business through joint investment: the Company planned to invest raised proceeds of RMB 186.75 million and actually has invested raised proceeds amounting to RMB 145.84 million. The Company incorporated holding subsidiary Korean Hyundai LCD Inc. and accomplished the purchase of STN-LCD and OLED business. STN-LCD and OLED business has become one of main growth point of the Company’s business in 2002 and realized a sales income of RMB 1,457.10 million and realized a net profit of RMB 64.76 million. After examined and approved by Shareholders’ General Meeting, the Company changed to put the rest raised proceeds amounting to RMB 40.91 million into “Purchase of TFT-LCD business project of Korean Hydis Technology Inc.”. 23 Cold cathode and fluorescent apheliotropic project through joint investment: the Company planned to invest raised proceeds amounting to USD 3,041,000 or equivalent RMB and has put into raised proceeds amounting to RMB 25.17 million. The difference between the planned investment amount and actual investment amount was converting difference of exchange rate. This project was carried through with establishment of joint venture “Suzhou BOE CHATANI Electronics Co., Ltd.” and at present the joint venture is in the construction period. Brand and markets operating project: the Company planned to invest raised proceeds of RMB 112 million and has invested raised proceeds of RMB 56.43 million into market promotion and market channels construction of mobile digital products with brand of “BOE” and IT service cause and has established market channels operating system with the eight national sales service platform as the core. Along with the development of brand business, the Company shall continue to invest the rest raised proceeds. Purchase of TFT-LCD business project of Korean Hydis Technology Inc.: after examined and approved by the 2nd Extraordinary Shareholders’ General Meeting of 2002, the Company changed and adjusted the application of partial raised proceeds of A share additionally issuing in public amounting to RMB 135,744,300 and converted to put into this purchase project. In the 1st quarter of 2003, the Company accomplished the purchase of assets of TFT-LCD business through BOE-Hydis Technology Co. Ltd. that is a whole owned subsidiary of the Company set up in Korea. (2) Investment of proceeds not raised through share offering Unit: RMB’0000 Items Investment amount Accumulated Progress of projects in the report period investment amount Joint venture of 150 301 The joint venture was “Beijing BOE registered and set up and it is in Software Co., Ltd.” organization phase at present. Renovation of VFD 12,058 14,274 The engineering was carried production line out as scheduled. Joint venture of “BOE 2,483 2,483 The joint venture was Hyundai LCD Inc.” registered and set up and it is in organization phase at present. 4. Financial status and operation result 24 (Unit: RMB’000) Items Dec.31, 2002 Dec.31, 2001 Increase/decrease Total assets 6,779,294 4,034,811 68.02% Current liability 3,787,375 1,442,122 162.63% Long-term liability 357,667 227,434 57.26% Items 2002 2001 Increase/decrease Gross profit from sale 635,551 320,406 98.36% Profit from operation 215,287 147,425 46.03% Net profit 79,000 22,817 246.23% (1) The reason of the much increase of total assets compared with the same period last year: HYUNDAI LCD INC., the share-controlling subsidiary was listed into the consolidation scope in 2002. (2) The reason of the much increase of current liability and long-term liability compared with the same period last year: ①The item HYUNDAI LCD INC. takes charge of was listed into the consolidation scope in 2002; ②The business scope was enlarged; ③The Company loaned from the bank for purchasing the business of TFT-LCD of HYDIS. (3) The reason of the much increase of profit compared with the same period last year: ①The operation performance HYUNDAI LCD INC. takes charge of was listed into the consolidation scope in 2002; ②The industry of CRT was changed from losses to earnings; ③ The operation performance of the Company’s share-holding subsidiaries, Beijing Orient Guanjie Electron Co., Ltd. and Zhejiang Beijing Orient Vacuum Electronic Co., Ltd. Increased. 5.The environment of production and operation, macroscopical policy and laws has no significant change and has no significant influence on the financial status and operation result. 6.Routine work of the Board of Directors (1) Meetings of the Board of Directors and resolutions The 5th meeting of the 3rd Board of Directors examined and approved 2001 Work Report of the Supervisory Committee, 2001 Business Report, 2001 Financial Settlement Report, 2001 Profit Distribution Proposal, 2002 Profit Distribution Policy, 2001 Annual Report and Summary, Proposal on Change of Secretary of the Board of Directors of the Company, Proposal on Change of Senior Executives of the Company, Proposal on Investing Jointly Cold Cathode Fluorescence Back-light, Proposal on Purchasing Land Use Right in Suzhou Industry Zone, Proposal on Amount of Loan and Guarantee for Others, Proposal on the Board of Directors’s Authorizing Duties to Chairman of the Board, Proposal on Amendment of Articles of Association, Proposal on Establishing Fund of the Board of Directors and Proposal on Adding Use of Raised Capital from Publicly Reissued A Share. On Apr.17, 2002, the Company published Public Notice on Resolutions of the 5th meeting of the 3rd Board of Directors of BOE 25 Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 6th meeting of the 3rd Board of Directors examined and approved the 1st Quarter Report of the Company of 2002, Proposal on Adjusting Assets of Part Subsidiaries of the Company, Proposal on Investing Jointly BOE Hyundai LCD Inc. On Apr.27, 2002, the Company published Public Notice on Resolutions of the 6th meeting of the 3rd Board of Directors of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 7th meeting of the 3rd Board of Directors examined and approved Self-inspection Report of Establishing Modern Enterprise System, Proposal on Adding Independent Directors, Explanation on Purchasing Land Use Right of the Control Shareholder, Initial Beijing Vacuum Tube Factory. On July 2, 2002, the Company published Public Notice on Resolutions of the 7th meeting of the 3rd Board of Directors of BOE Technology Group Co., Ltd., namely Public Notice on Related Transaction in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 8th meeting of the 3rd Board of Directors examined and approved 2002 Semi Annual Report and Summary of the Company, Proposal on Change of Posts of Senior Executives. On Aug.29, 2002, the Company published Public Notice on Resolutions of the 8th meeting of the 3rd Board of Directors of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 9th meeting of the 3rd Board of Directors examined and approved Proposal on Purchasing Business of TFT-LCD of HYDIS. On Sep.26, 2002, the Company published Public Notice on Resolutions of the 9th meeting of the 3rd Board of Directors of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 9th meeting of the 3rd Board of Directors examined and approved the 3rd Quarter Report in 2002, Management System of Use of Raised Capital, Proposal on Change of Adjusting Use of Part Raised Capital, Proposal on Restructuring Equity of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd. and Proposal on Holding the 2nd Extraordinary Shareholders’ General Meeting. On Nov.1, 2002, the Company published Public Notice on Resolutions of the 10th meeting of the 3rd Board of Directors of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. (2) Implementation of profit distribution proposal of the Company in the report period The profit distribution proposal of the Company for 2001 was: distributing RMB 0.5 cash per 10 shares to all shareholders at the basis of the total share capital amounting to 549,554,000 shares ended as of Dec.31, 2001; the dividend for the shareholders of B share was paid in HKD; the exchange rate adopted the middle price (1:1.0604) of the basic exchange rate of HKD against RMB promulgated by China Central Bank on the first work day (June 3, 2002) since the profit distribution preplan was examined and approved by 2001 Annual Shareholders’ General Meeting of the Company. The proposal was examined and approved by 2001 Annual Shareholders’ General Meeting held on May 31, 2002. On July 12, 2002, the Company published Public Notice on 2001 Dividend 26 Distribution of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The equity registered date of A share and the last transaction date of B share was July 19, 2002 and the minus interest date was July 22, 2002. 7.Profit distribution preplan and preplan on transferring public capital reserve to share capital As audited by Pricewaterhouse Coopers Zhongtian Certified Public Accountants, net profit of the Company in 2002 is RMB 82,836,595. According to Articles of Association of the Company, appropriating 10% as statutory public capital reserve, namely RMB 8,259,432, 5% as statutory public welfare, namely RMB 4,129,716 and 25% discretionary surplus public capital reserve, namely RMB 20,648,580, deducting RMB 242,271 appropriated reward and welfare fund for employees and adding RMB 143,405,981 accumulated non-distributed profit in the previous year, the actual profit available for distribution in 2002 is RMB 192,962,577. As the basis of the total share capital of the Company ended as of Dec.31, 2002 amounting to 549,554,000 shares, transferring 10 shares capital public reserve to the share capital of 2 shares for all shareholders. The aforesaid distribution preplan is subject to the Shareholders’ General Meeting for approval. VIII. REPORT OF THE SUPERVISORY COMMITTEE 1. Meetings of the Supervisory Committee and their resolutions The 4th meeting of the 3rd Supervisory Committee examined and approved 2001 Work Report of the Supervisory Committee, 2001 Business Report, 2001 Financial Settlement Report, 2001 Annual Report and Summary, 2001 Profit Distribution Proposal and 2002 Profit Distribution Policy. On April 23, 2002, the Company published Public Notice on Resolutions of the 4th meeting of the 3rd Supervisory Committee of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 5th meeting of the 3rd Supervisory Committee examined and approved 2002 Semi Annual Report and its Summary of the Company. On Aug.29, 2002, the Company published Public Notice on Resolutions of the 5th meeting of the 3rd Supervisory Committee of BOE Technology Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. The 6th meeting of the 3rd Supervisory Committee examined and approved the 3rd Quarter Report of the Company of 2002, Proposal on Change of Adjusting Use of Part Raised Capital, Proposal on Restructuring Share Equity of Zhejiang Beijing Orient Vacuum Electronic Co., Ltd.. On Nov.1, 2002, the Company published Public Notice on Resolutions of the 6th meeting of the 3rd Supervisory Committee of Beijing Orient Electronics Group Co., Ltd. in Ta Kung Pao, Securities Times, China Securities and Shanghai Securities. 2. Independent opinion of the Supervisory Committee (1) In the report year, the Supervisory Committee conducted regular inspection and supervision over the Company’s operation according to state laws, regulations and the 27 Articles of Association of the Company. In the opinion of the Supervisory Committee, the Company made business decision and established the management system in a standardized way, established good internal control system and effectively prevented business risks and financial risks. The Company perfected rules of procedures for the Board of Directors and clarified work duties of the senior executives, according to which directors and senior executives may conduct self-binding and self-control while performing their duties. None of the directors or senior executives breached the law, regulations or the Articles of Association, nor did anyone of them do anything harmful to the interests of shareholders while performing their duties. There was not any record of the Company’s directors or senior executives breaching criminal or securities regulations (including public criticism of regulatory institutions). (2) The Supervisory Committee conducted daily supervision over the Company’s finance. The Company had established independent financial books guided by the principle of “Five Separations”, and had independent financial personnel and strict and standardized financial management system. Pricewaterhouse Coopers Zhongtian Certified Public Accountants had produced unqualified auditors’ report for the Company’s accounting statements and relevant accounting data. In the opinion of the Supervisory Committee, the auditors’ report had truly reflected the Company’s financial position and business achievements. (3) The Company reissued publicly 60 million A shares in Dec.2000 and the net raised capital is 974,900,000. The raised capital was invested according to commitment and the increase of the use item of the raised capital and change of the use of the raised capital is in conformity with relevant procedure of examining and approving. To standardize the use management of the raised capital, the 2nd Extraordinary Shareholders’ General Meeting in 2002 examined and approved Use Management System of Raised Capital. Meanwhile, in the report period, the Company accepted the special inspection on the use of raised capital from reissued publicly A share of CSRC Beijing Office. (4) The acquisition of assets conducted by the Company was in accordance with the market standard and the price was fair and reasonable. Neither secret transactions nor activities have been found causing harm to the interests of medium and small shareholders, or losses of the Company’s assets. (5) All the related transactions were carried out by signing agreement and based on the market price and the relevant procedures were handled strictly according to the rules for operation concerning related transactions. No related transaction harmful to the Company’s interests had been found. (6) Thanks to the debt-to-equity transformation of the Company’s previous control shareholder Beijing Electron Tube Co., Ltd., the change in the Company’s large shareholders caused no effect on its business and management. The Company’s new control shareholder had no intention of changing the Company’s plan or proposal. IX IMPORTANT EVENTS 1. In the report year, the Company had never been involved in any material lawsuits 28 or arbitration. 2. Purchase and sale of assets in the report period. (1) Purchase of assets The Company, SEMICONDUCTOR ENGINEERING CO., LTD. and HYNIX SEMICONDUCTOR.INC invested jointly to establish HYUNDAI LCD INC. (the Company holds 45% equity) and signed Agreement of Assets’ Purchase in Korea on Nov.23, 2001 to purchase all businesses of STN-LCD and OLED of HYNIX SEMICONDUCTOR.INC. The purchase has been finished in the 1st quarter in 2002. (2) Influence of assets’ purchase on the Company Though this purchase, the Company went into the field of STN-LCD display as low cost. Introducing into the advanced management and technology resource of the foreign parties enhanced the product’s strength and the spreading ability in international market of STN-LCD and improved the industry advantage of the Company in the field of the small dimension display. At present, the operation of HYUNDAI LCD INC. is good and is one of main distribution point for profit distribution of 2002. 3. In the report period, the Company had no material related transaction. 4. Important contract and its implementation (1) In the report period, the Company has not kept as custody, contracted and leased assets of other companies and vice visa. Meanwhile, the Company had no contracts, which accounted for over 10% (including 10%) of the total profit of the Company in the report period. (2) In the report period, Concerning guarantee of the Company, please refer to Note (VIII) Contingent item in Financial Report for detail. (3) In the report period, the Company had not entrusted others to manage cash assets. 5. Implementation of commitment of the Company or its shareholders holding over 5% of the total shares in the designated newspapers or website: (1) The Board of Directors made the Profit Distribution Preplan for 2002 based on the actual operation of the Company in 2002 as “transferring capital public reserve per 10 shares to share capital of 2 shares”. Compared with this profit distribution preplan and the profit distribution policy of 2002, the profit distribution policy for 2002 committed by the Company in 2001 annual report as “approximately 20% of retained profit as of 2001 will be distributed in 2002” would not realized. It was because the Board of Directors made adjustment on the distribution policy based on the operation budget for 2003. (2) According to relevant regulations and requirement of Notification on Correction in Stipulated Period of Circling Inspection of Beijing Orient Electric Group Co., Ltd. (JZJF [2001] NO.92 released by CSRC Shenzhen Office, the Company made restructuring or adjustment on the Company’s wholly holding subsidiaries, Beijing Orient Medical Gas Industry Trade Company, Beijing Orient Semiconductor Apparatus Factory, Beijing Orient Vacuum Tube Factory and Beijing Orient Electron Glass Factory. Please refer to Public Notice on resolutions of the 6th meeting of the 3rd Board of Directors of BOE Technology Group Co., Ltd. on Ta Kung Pao, Securities Times, China Securities and Shanghai Securities dated Apr.27, 2002 for detail. 29 6.In the report period, the Company did not change the engagement of its domestic or foreign certified public accountants. In the report period, the Company did not change the engagement of its certified public accountants with detail as follows: Pricewaterhouse Coopers Zhongtian Certified Public Accountants, From signing audit agreement on Dec.31, 1997 by the aforesaid Certified Public Accountants with the Company to now, they has provided audit service for the Company for consistent 5 years. In the report period, the total remuneration the Company paid to the aforesaid Certified Public Accountants was RMB 1.15 million and the expense of the business journey in the process of audit was undertaken by themselves. 7. In the report year, the Company, the Board of Directors or its directors, supervisors and senior executives had neither been checked, given administrative punishment or given circular notices of criticism by China Securities Regulatory Commission nor been condemned publicly by the Stock Exchange. 8.Inspection on use of raised capital from additionally issued A shares of the Company by CSRC Beijing Office On Oct.17, 2002, CSRC Beijing Office released Notification on Special Inspection of Use of Raised Capital and took the special inspection of use of raised capital of the Company since Oct.21, 2002 to Oct.23, 2002. According to the inspection requirement, the Company published Public Notice on Progress of Investment and Construction of Beijing Orient’s E-commerce Item of BOE Technology Group Co., Ltd. on Ta Kung Pao, Securities Times, China Securities and Shanghai Securities dated Jan.4, 2003. 9.Change on scope of consolidated statements in the report period (1) The Company made restructuring and adjustment on Censtream Broad Networks Inc., Beijing Weisong Electron Co., Ltd., Beijing Orient Armament Gas Industry Trade Company, Beijing Orient Vacuum Tube Factory and Beijing Electron Glass and withdrew their legal person qualification, so did not put them into the scope of consolidated statements. (2) The Company holds 45% equity of HYUNDAI LCD INC. and over 50% voting right of the Board of Directors, so put it into the scope of consolidated statements in the report period. (3) The share-controlling subsidiaries, Beijing BOE Photoelectron Co., Ltd. and BOE Hyundai LCD Inc. was put into the scope of consolidated statements in the report period. 10. Events after the period (1) On Nov.29, 2002 and Jan.17, 2003, the Company respectively signed Agreement of Purchase and Sale of Assets, Agreement of Purchase and Sale of Construction, Land lease Agreement and Supplement of Agreement of Purchase and Sale of Assets with HYNIX SEMICONDUCTOR.INC. and HYUNDAI LCD INC.. The Company established the whole subsidiary, BOE-HYDIS Technology Co., Ltd. in Korea, purchased non-floating assets of (HYDIS) TFT-LCD business of HYUNDAI LCD INC. and lease the land occupied by the construction related with TFT-LCD and the neighbor land. The transfer procedure of assets for purchasing TFT-LCD business was finished on Jan.22, 2003. 30 (2) According to the stratagem of industry adjustment of the Company, so as to ensure the Company to concentrate on the high-tech industry and separate the business such as properties and resources and real estate from the main business of the Company, the Company reorganized the Sino-foreign cooperation enterprise Beijing Hangzhou Mansion Co., Ltd. into to Beijing Orient Real Estate Co., Ltd. (the Company holds 70% equity). Meanwhile, as examined and approved the 3rd Extraordinary Board of Directors (March 28, 2003) and the 11 meeting of the 3rd Board of Directors (Apr.18, 2003), the Company planed to transfer 70% equity of Beijing Orient Real Estate Co., Ltd. to Beijing Electronic Market Co., Ltd. as RMB 38,800.000.00. X. FINANCIAL REPORT 1、Report of the auditors To the shareholders of BOE Technology Group Co., Ltd. We have audited the accompanying consolidated balance sheet of BOE Technology Group Co., Ltd. (the Company) and its subsidiaries (the Group) as of 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These financial statements set out on pages 2 to 36 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 consolidated 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 consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly in all material respects, the financial position of the Group as of 31 December 2002 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhongtian CPAs 18 April 2003 2、2002 Finacial Report(see attachment) 3、Notes to the 2002 Finacial Report(see attachment) XI. DOCUMENTS FOR REFERENCE 1. Original of Annual Report carried with the original signature of Chairman of the Board. 31 2. Accounting statements carried with the personal signatures and seals of legal representative, chief financial supervisor and person in charge of handling accounting affairs; 3. Original of Auditors’ Report carried with the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants; 4. Originals of all documents and manuscripts of Public Notices/Announcements of the Company disclosed in public on the newspapers designated by CSRC in the report period. Board of Directors of BOE TECHNOLOGY GROUP CO., LTD. April 18, 2003 32 BOE TECHNOLOGY GROUP CO., LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2002 1 BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Year ended 31 December (all amounts in RMB thousands) Notes 2002 2001 Sales 1 4,782,587 2,669,543 Cost of sales (4,147,036) (2,349,137) Gross profit 635,551 320,406 Other operating income 18,979 13,067 Distribution costs (160,302) (72,965) Administrative expenses (274,640) (113,083) Other operating expenses (4,301) - Profit from operations 2 215,287 147,425 Finance costs - net 3 (65,542) (20,530) Group profit before tax 149,745 126,895 Available-for-sale investments - losses (5,761) (880) Share of result of associates before tax 11 72,922 (35,714) Profit before tax 216,906 90,301 Income tax expenses 5 (51,356) (23,691) Group profit before minority interest 165,550 66,610 Minority interest 26 (86,550) (43,793) Net profit 79,000 22,817 Basic earnings per share 6 Rmb0.14 Rmb0.04 The accounting policies on pages 7 to 14 and the notes on pages 15 to 36 form an integral part of these consolidated financial statements. -2- BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 As at 31 December (all amounts in RMB thousands) Notes 2002 2002 2001 2001 ASSETS Non-current assets Property, plant and equipment 8 1,406,990 878,631 Investment Property 9 17,430 18,122 Intangible assets 10 96,924 77,412 Investments in associates 11 741,841 691,792 Available-for-sale investments 12 93,200 101,096 Held-to-maturity investments 22 34,151 Deferred tax assets 20 3,753 - Other assets 35,158 32,698 2,395,318 1,833,902 Current assets Inventories 13 560,402 262,124 Receivables and prepayments 14 1,529,348 731,146 Cash and cash equivalents 15 2,294,226 1,207,639 4,383,976 2,200,909 Total assets 6,779,294 4,034,811 EQUITY AND LIABILITIES Capital and reserves Ordinary shares 25 549,554 549,554 Share premium 1,150,895 1,150,895 Other reserves 27 280,767 235,871 Retained earnings 195,174 176,690 2,176,390 2,113,010 Minority interest 26 457,862 252,245 Non-current liabilities Borrowings 17 268,804 162,300 Deferred tax liabilities 20 9,523 - Post-employment benefit obligations 21 6,428 - Other liabilities 19 72,912 65,134 357,667 227,434 Current liabilities Trade and other payables 16 1,481,219 741,454 Current tax liabilities 28,751 2,201 Borrowings 17 2,263,875 692,241 Provisions 22 13,530 6,226 3,787,375 1,442,122 Total liabilities 4,145,042 1,669,556 Total equity and liabilities 6,779,294 4,034,811 The accounting policies on pages 7 to 14 and the notes on pages 15 to 36 form an integral part of these consolidated financial statements. -3- BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 No Ordinary Share Retained te (all amounts in RMB thousands) s shares premium Other reserves earnings Total Balance at 1 January 2001 549,554 1,150,895 212,286 235,716 2,148,451 Dividends relating to 2000 7 - - - (54,955) (54,955) Net profit - - - 22,817 22,817 Provision of general reserves 27 - - 23,603 (23,603) - Others - - (18) (3,285) (3,303) Balance at 31 December 2001/ 549,554 1,150,895 235,871 176,690 2,113,010 1 January 2002 Addition of capital reserves 27 - - 4,412 - 4,412 Dividends relating to 2001 7 - - - (27,478) (27,478) Net profit - - - 79,000 79,000 Currency translation differences 27 - - 7,446 - 7,446 Provision of general reserves 27 - - 33,038 (33,038) - Balance at 31 December 2002 549,554 1,150,895 280,767 195,174 2,176,390 The accounting policies on pages 7 to 14 and the notes on pages 15 to 36 form an integral part of these consolidated financial statements. -4- BOE TECHNOLOGY GROUP CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Year ended 31 December (all amounts in RMB thousands) Notes 2002 2001 Cash flows from operating activities Net profit 79,000 22,817 Adjustments for: Minority interest 26 86,550 43,793 Tax 5 47,189 20,476 Depreciation 8,9 136,756 62,093 Amortisation 2 22,091 9,616 Impairment charge 2 28,358 22,186 Loss on sale of property, plant and equipment 2 188 428 Finance costs 3 64,644 20,135 Share of result before tax of associates 11 (72,922) 35,714 Changes in working capital: Inventories (152,479) 63,614 Trade and other receivables (748,400) 45,381 Pensions and other retirement benefits 6,428 - Payables 712,276 76,115 Cash generated from operations 209,679 422,368 Interest received 8,629 31,645 Tax paid (25,669) (25,761) Net cash from operating activities 192,639 428,252 Cash flows from investing activities Acquisition of subsidiary, net of cash acquired (526,396) (34,887) Purchase of property, plant and equipment (255,880) (303,776) Purchase of intangible assets (34,170) (17,392) Purchase of available-for-sale investments (25,171) (127,083) Purchase of association (11,443) - Disposal of subsidiary, net of cash disposed 2,704 217 Proceeds from sale of property, plant and machinery 179 776 Dividends received 3,733 40,542 Net cash used in investing activities (846,444) (441,603) Cash flows from financing activities Proceeds from convertible bonds 130,720 - Proceeds from minority interest 134,512 19,002 Proceeds from borrowings 3,332,947 826,000 Repayments of borrowings (1,787,367) (943,200) Dividends paid to group shareholders (42,487) (49,804) Dividends paid to minority interests (7,840) (6,490) Interest paid (80,359) (50,672) Payment for other financing activities (17,795) (4,876) Net cash from financing activities 1,662,331 (210,040) Effects of exchange rate changes 16,502 - Increase/(Decrease) in cash and cash equivalents 1,025,028 (223,391) Cash and cash equivalent at beginning of year 1,207,639 1,431,030 Cash and cash equivalent at end of year 15 2,232,667 1,207,639 The accounting policies on pages 7 to 14 and the notes on pages 15 to 36 form an integral part of these consolidated financial statements. -5- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 GENERAL INFORMATION BOE Technology Group Co., Ltd. (the Company) was founded in 1993 in Beijing, People’s Republic of China (PRC). It was reorganized into a joint stock limited company in 1997 and is registered in Beijing. The Company and its subsidiaries are collectively referred to as the Group. The Group manufactures and sells electronic products, invests in enterprises engaging in the manufacturing of electronic products and provides property management services to properties it owns. The Group has operations in four countries and employs over 6,386 employees (2001: 5,595). The parent company of the Group is Beijing Orient Investment and Development Co., Ltd., which is a state-owned enterprise registered in Beijing, PRC and its ultimate holding company is Beijing Electronics Holding Co., Ltd., which is a state-owned enterprise reorganized from the General Office of Electronics of the Beijing Municipal Government. The Company has its primary listing on the Shenzhen Stock Exchange issuing B shares in 1997, with further offerings of A Shares also on the Shenzhen Stock Exchange in 2000. -6- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 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”). This basis of accounting differs from that used in the preparation of the Group's statutory financial statements (“PRC statutory financial statements”). The financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with the relevant accounting principles and regulations applicable to them. Appropriate adjustments have been made to these financial statements to conform with IFRS. The consolidated financial statements have been prepared under the historical cost convention except those disclosed in the accounting policies below. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the 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 ultimately may differ from those estimates. In 2001, the Group adopted IAS 39 Financial Instruments: Recognition and Measurement and IAS 40 Investment Property. The effects of adopting these standards were reported in the previous year’s consolidated financial statements. B Group accounting (1) 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, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note F for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted -7- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 by the Group. -8- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 ACCOUNTING POLICIES (continued) B Group accounting (continued) (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. 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. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not to recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. (3) Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other ventures. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. C Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi, which is the measurement currency of the parent. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using -9- BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity. - 10 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 ACCOUNTING POLICIES (continued) C Foreign currency translation (continued) (3) Group companies Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. D Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Depreciation is calculated on the straight-line method to write off the cost of each asset, to their residual values over their estimated useful life as follows: Land use rights 50 years Buildings 20-40 years Plant and machinery 2-15 years Motor vehicles 5-8 years Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. E Investment property Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is carried at cost less any accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on the straight-line method to write off the cost of each asset, to their residual values over their estimated useful lives ranging from 20 to 40 years. - 11 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 ACCOUNTING POLICIES (continued) F Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is amortised using the straight-line method over its estimated useful life, generally not exceeding 20 years. (2) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. (3) Other intangible assets Expenditure on acquired patents, trademarks and licences is capitalised and amortised using the straight-line method over their useful lives, but not exceeding 10 years. Intangible assets are not revalued. G Impairment of long lived assets Property, plant and equipment and other non-current assets, including goodwill and intangible assets 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. H 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 - 12 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months; during the year the Group did not hold any investments in this category. 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. 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. - 13 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 ACCOUNTING POLICIES (continued) H 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. Held-to-maturity investments are carried at amortised cost using the effective yield method. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains and losses from investment securities. I Operating leases (1) A Group company is the lessee Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (2) A Group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. J Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity), but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. K Trade receivables Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off when identified. L Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprises cash on - 14 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 hand and deposits held at call with banks. - 15 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 ACCOUNTING POLICIES (continued) M Share capital (1) Ordinary shares are classified as equity. (2) Incremental external costs directly attributable to the issue of new shares, other than in connection with business combination, are shown in equity as a deduction, net of tax, from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. N Borrowings Borrowings are recognised initially as the proceeds is received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. When convertible bonds are issued, the fair value of the liability portion is determined using a market interest rate for an equivalent non-convertible bond; this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or maturity of the bonds. O 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 difference can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint venture, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. P Employee benefits The Group participates in defined contribution employee benefits plans by respective local governments. Under the plans, the Group’s contribution is based on defined percentage of salaries and wages subject to certain salary ceilings. Contributions to the plans are charged to the income statement as incurred. Hyundai LCD, Inc. (“Hyundai LCD”), a subsidiary of the Company incorporated in the Republic of Korea, provides post-employment benefits to their employees according to the statutory requirement. The entitlement to these benefits is usually - 16 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 based on the length of their service and rate of pay at the time of termination. The expected costs of these benefits are accrued over the period of employment, costs are assessed using the projected unit credit method: the cost of providing benefits is charged to the income statement so as to spread the regular cost over the service lives of employees. The obligation is measured as the present value of the estimated future cash outflows using market yields at balance sheet date on high quality corporate bonds, which have terms to maturity approximating 5 years. - 17 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 ACCOUNTING POLICIES (continued) Q Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. (1) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on historical data of the level of repairs and replacements. (2) Employee compensated absences entitlement Employee compensated absences entitlement is provided by Hyundai LCD Inc. to its employees. Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services rendered by employees up to the balance sheet date. R Government grants Government grants are recognized as income upon receipt. S Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. T Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. - 18 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 U Segment reporting 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. V Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. - 19 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 Financial Risk Management (1) Financial risk factors The Group’s activities expose it to a variety of financial risks, including the effects of changes in foreign currency exchange rates and interest rates. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The overall responsibility for the implementation of the Group’s financial risk management policies lies with the Board of Directors. (i) Foreign exchange risk The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to Korean Won (KRW). The Company has two subsidiaries in the Republic of Korea, whose net assets are exposed to currency translation risk. The Group is considering to hedge (through derivative or other financial instruments) its exposures to foreign exchange risk arising from foreign currency denominated assets. The financial information of the subsidiaries exposed to foreign exchange risk is disclosed in Note 32. (ii) 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’s policy is to maintain all of its borrowings in fixed rate instruments. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. The carrying amount of receivables and cash represent the Group’s maximum exposure to credit risk. In respect of receivables and cash, the Group has policies in place to ensure that customers and counter parties and banks with whom the Group maintains its cash are of suitable credit standing. (iv) Liquidity risk The Group ensures that it maintains sufficient cash which is available to meet its liquidity requirements. - 20 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 (2) Fair value estimation The carrying amounts of the following financial assets and financial liabilities approximate to their fair value at the balance sheet date: cash, notes receivables, trade receivables and payables, other receivables and payables, and borrowings. - 21 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 1 Segment information The Group is principally engaged in the manufacture and sales of electronic and related products and the leasing of properties and commercial facilities. The lease of properties and commercial facilities contributed to less than 10% of consolidated sale revenue, as such, no disclosures were made. PRC is the home country of the parent company which is also the main operating company. The Republic of Korea – manufacture and sales activities Primary reporting format – geographical segments by location of assets Segment reporting PRC Korea Group Revenue from external customers 3,325,489 1,457,098 4,782,587 Segment result 15,739 63,261 79,000 Carrying amount of segment assets 5,617,224 1,162,070 6,779,294 Segment liabilities (3,190,792) (954,250) (4,145,042) Cost to acquire property, plant, equipment, and intangibles (372,876) (329,935) (702,811) Depreciation and amortization expense (110,855) (47,992) (158,847) Non-cash expenses other than depreciation and amortization (10,631) - (10,631) Share of net profit or loss of equity method associates or joint ventures 72,892 30 72,922 Investment in equity method associates or joint ventures 720,852 20,989 741,841 Sales revenue based on the geographical areas in which the customers are located comprises the following: 2002 2001 Sales within the PRC 2,129,264 1,688,041 Sales outside the PRC - Asia 772,275 29,902 - Europe 1,198,574 534,916 - America 682,474 416,684 4,782,587 2,669,543 - 22 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 2 Profit from operations The following items have been included in arriving at profit from operations: 2002 2001 Depreciation on property, plant and equipment (Note 8) - owned assets 136,064 60,791 Net loss on disposal of property, plant and equipment 188 428 Amortization of intangible assets - goodwill (included in “Other operating expenses”)(Note 10) 2,625 2,570 - other intangible assets (included in “Administrative expenses”) (Note 10) 11,513 2,587 Amortization of other assets 7,953 4,459 Research and development expenditure 57,549 - Inventory - costs of inventories recognised as expense (included in “Cost of sales”) 3,964,589 1,964,352 - provision for obsolete and slow-moving inventories 5,153 2,433 Receivables and prepayments - impairment charge for bad and doubtful debts 16,714 9,703 Impairment of property, plant and equipment (Note 8) 2,412 9,170 Government grant received (7,925) (12,297) Investment property – rental income (22,473) (21,876) Investment property – operating expense 14,532 11,699 Staff costs (Note 4) 251,048 129,437 Impairment of available-for-sale investments (Note 12) 4,079 880 3 Finance costs – net 2002 2001 Interest expense - Bank borrowings 73,273 49,816 - Convertible bonds (Note 18) 10,569 - Interest income (19,198) (29,681) Net foreign exchange transaction losses /(gains) 790 (354) Others 108 749 65,542 20,530 4 Staff costs 2002 2001 Wages and salaries 212,779 105,214 Retirement benefit obligations (Note 21) 10,970 - Welfare 27,299 24,223 251,048 129,437 The average number of employees in 2002 was 6,386 (2001: 5,595), of whom 230 (2001: 1,258) were part-time. - 23 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 5 Income tax expenses 2002 2001 Current tax 41,419 20,476 Deferred tax (Note 20) 5,770 - Share of tax of associates (Note 11) 4,167 3,215 51,356 23,691 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company is as follows: Profit before tax 216,906 90,301 Tax calculated at a tax rate of 15% (2001: 15%) 32,536 13,545 Effect of different tax rates 11,623 7,899 Income not subject to tax (5,218) (601) Expense not deductible for tax purposes 16,435 2,848 Utilisation of previously unrecognised loss (4,020) - Tax charge 51,356 23,691 The Company is subject to a preferential income tax rate of 15% (2001: 15%) as an enterprise with new technology in Beijing New Technology Development Zone. As approved by the tax bureau, some of the Company’s subsidiaries are also subject to preferential income tax rates ranging from zero to 15% (2001: zero to 15%). Except for Hyundai LCD, whose income tax rate is 29.7%, and the above mentioned subsidiaries, other subsidiaries of the Company are subject to an income tax rate of 33%. 6 Basic earnings per share Basic earnings 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 Net profit attributable to shareholders 79,000 22,817 Weighted average number of ordinary shares in issue (thousands) 549,554 549,554 Basic earnings per share Rmb0.14 Rmb0.04 7 Dividend per share At the Annual General Meeting on 18 April 2003, no dividend in respect of 2002 is to be proposed. The dividends declared in respect of 2001 and 2000 were, respectively, Rmb27,477,700 and Rmb54,955,400. - 24 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 8 Property, plant and equipment Land use Plant & Motor Construction right Buildings machinery vehicles in Process Total Year ended 31 December 2002 Opening net book amount 80,250 265,753 327,538 8,432 196,658 878,631 Acquisition of business uni (Note 28) - - 293,993 - 4,061 298,054 Other additions 993 11,229 58,517 1,654 319,762 392,155 Disposals - - (2,324) (2) - (2,326) Transfer from CIP - 192,526 168,635 - (361,161) - Other deduction of CIP - - - - (21,048) (21,048) Depreciation charge (Note 2) (1,817) (11,104) (121,431) (1,712) - (136,064) Impairment charge (Note 2) - - (2,412) - - (2,412) Closing net book amount 79,426 458,404 722,516 8,372 138,272 1,406,990 At 31 December 2002 Cost after impairment charge 83,127 492,191 1,019,430 15,897 138,272 1,748,917 Accumulated depreciation (3,701) (33,787) (296,914) (7,525) - (341,927) Net book amount 79,426 458,404 722,516 8,372 138,272 1,406,990 Buildings with net book amount of Rmb63,294,000 (2001: Rmb65,165,000) and plant and machinery with net book amount of Rmb237,008,000 (2001: Rmb26,440,000) were pledged as securities for the Group’s bank borrowings (Note17). The Group is in the process of obtaining formal title certificate for the building amounting Rmb17,642,000 (2001: Rmb18,024,000). Bank borrowing cost of Rmb705,000 arising from financing specifically for the construction of property, plant and equipment was capitalised during the year and are included in “other additions” in the table above. A capitalisation rate of 5.49% (2001: 6.16%) was used representing the borrowing cost of the loan used to finance the projects. - 25 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 9 Investment property 2002 2001 At beginning of year 18,122 18,814 Depreciation charge (692) (692) At the end of year 17,430 18,122 Cost 24,276 24,276 Accumulated amortisation (6,846) (6,154) Net book amount 17,430 18,122 Investment property is not measured at fair value as it is not practicable within constraints of timeliness or costs to determine its fair value with sufficient reliability. There is no active market for similar property in the same location and condition and alternative estimates of fair value are not readily available. 10 Intangible assets Technology Goodwill rights Others Total Year ended 31 December 2002 Opening net book amount 50,250 27,162 - 77,412 Additions - 33,203 71 33,274 Acquisition of business unit (Note 28) - - 376 376 Amortisation charge (Note 2) (2,625) (11,448) (65) (14,138) Closing net book amount 47,625 48,917 382 96,924 At 31 December 2002 Cost 51,929 69,700 447 122,076 Accumulated amortisation (4,304) (20,783) (65) (25,152) Net book amount 47,625 48,917 382 96,924 - 26 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 11 Investments in associates 2002 2001 At beginning of year 691,792 757,876 Additions 22,459 39,036 Disposal or transfer to investments in subsidiaries (37,499) (22,364) Share of results before tax 72,922 (35,714) Share of tax of associates (Note 5) (4,167) (3,215) Share of results after tax 68,755 (38,929) Dividend received (3,600) (40,542) Other movement (66) (3,285) At end of year 741,841 691,792 Particulars of associates are set out in Note 30. 12 Available-for-sale investments 2002 2001 At beginning of year 101,096 38,397 Transfer to investment in subsidiary (25,327) - Acquisition of subsidiaries 25,514 37,743 Additions 607 26,308 Disposal (4,611) (472) Impairment loss (Note 2) (4,079) (880) At end of year 93,200 101,096 Non-current 93,200 101,096 Acquisition of subsidiaries represents the investment in Suzhou BOE Chagu Electronic Co., Ltd. and BOE-Hydis Technology Co., Ltd. (“BOE-Hydis”, a wholly-owned subsidiary incorporated in the Republic of Korea) with the amount of Rmb25,171,000 and Rmb343,000, respectively. Transfer to investment in subsidiary represents investment in Beijing BOE YAMATO Photoelectron Co., Ltd., which has been proportionally consolidated by the Group in 2002. - 27 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 13 Inventories 2002 2001 Raw materials (at cost) 272,407 172,254 Work in progress (at cost) 174,395 14,266 Finished goods (at cost) 122,934 80,978 Provision for obsolete and slow-moving inventories (9,334) (5,374) 560,402 262,124 14 Receivables and prepayments 2002 2001 Notes receivable 83,253 107,294 Trade receivables 1,074,284 474,956 Less: Provision for impairment of trade receivables (15,542) (8,700) Trade receivables - net 1,058,742 446,256 Prepayments 28,898 28,532 Prepaid expense 4,733 3,533 Other receivables 364,397 128,889 Less: Provision for impairment of other receivables (10,675) (3,358) Other receivables - net 353,722 125,531 1,529,348 731,146 Notes receivable at 31 December 2002 represent bank acceptance and commercial acceptance in Renminbi with a term less than nine months. Included in “other receivables” is a contract deposit in the amount of USD10,000,000, which was paid to an escrow account according to the Escrow Agreement signed on 24 September 2002 for the the acquisition of TFT-LCD business unit. The deposit has been released and paid as part of the Company’s capital injection to BOE-Hydis in March 2003. The detail of the acquisition is set out in note 33. 15 Cash and cash equivalents 2002 2001 Cash at bank and in hand 763,463 359,283 Short term bank deposits 1,530,763 848,356 2,294,226 1,207,639 The average effective interest rate on short term bank deposits was 0.99% (2001:0.99%). Bank deposit of Rmb17,795,000 is secured as collateral of borrowings. One of the Company’s subsidiaries issued certain blank checks and notes to banks as the collateral of current borrowings amounting to KRW10,525,740,000(Rmb73,455,000). - 28 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 15 Cash and cash equivalents (continued) For the purpose of the cash flow statement, the cash and cash equivalents comprise the following: 2002 2001 Cash and cash equivalents 2,294,226 1,207,639 Less: Restricted deposits for Letter of Credit (43,764) - Bank deposit as collateral of borrowings (17,795) - 2,232,667 1,207,639 16 Trade and other payables 2002 2001 Trade payables 1,099,598 458,649 Notes payable 20,835 - Accrued expenses 83,264 71,979 Advances to suppliers 16,790 10,351 Wages and welfare payables 25,999 16,197 Dividends payable 30,243 22,623 Other payables 185,230 140,396 Other tax liabilities 5,837 7,839 Long term payable within one year 13,423 13,420 1,481,219 741,454 Other payables with amount of Rmb62,037,000 represents the payable for the purchase of 5% share of Beijing Matsushita Color CRT Co., Ltd. from Beijing Kinescope Factory, a subsidiary of the ultimate holding company, in 1998. This amount is still outstanding as at 31 December 2002 and has no fixed term of repayment. 17 Borrowings 2002 2001 Current Bank borrowings – secured 253,683 20,500 Bank borrowings – unsecured 1,885,138 671,741 Borrowings from subsidiaries’ minority shareholders 75,173 - Convertible bonds (Note 18) 49,881 - 2,263,875 692,241 Non-current Bank borrowings – secured 62,628 55,500 Bank borrowings – unsecured 118,800 106,800 Convertible bonds (Note 18) 87,376 - 268,804 162,300 Due between 1 and 2 years 197,377 63,700 Due between 2 and 5 years 71,427 98,600 268,804 162,300 - 29 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 17 Borrowings (continued) Current borrowings bear interest at rates ranging from 5% to 8.5% (2001: 5.58% to 6.435%). Non-current bank borrowings bear interest at rates ranging from 5.49% to 6.03% (2001: 5.94% to 6.534%). The bank borrowings are secured over certain of the property, plant and equipment (Note 8), certain of the long term bank deposits of the Group, the blank checks and notes of Hyundai LCD and certain time deposits (Note 15). 18 Convertible bonds Hyundai LCD, issued convertible bonds at a nominal value of KRW 11,618 million (Rmb81,078,000) and USD 5,800,000 (Rmb48,008,000), respectively. The bonds mature 2 to 3 years from the issuance date at their nominal value unless converted into Hyundai LCD's ordinary shares by the holder's option. As of 31 December 2002, details of convertible bond are as follows: Coupon Conversion No. rate Issuance date Redemption date rate Face value RMB’000 (per share) KRW denominated, non-guaranteed: (KRW’000) 1st 7% 31 December 2001 31 December 2003 KRW5,000 6,600,000 46,059 2nd 7% 6 February 2002 6 February 2004 KRW5,000 2,568,000 17,921 3rd 7% 8 February 2002 8 February 2004 KRW5,000 2,200,000 15,353 4th 7% 24 April 2002 24 April 2004 KRW5,000 250,000 1,745 11,618,000 81,078 USD denominated, guaranteed: (USD) 5th 2% 26 November 2002 26 November 2005 KRW15,000 5,800,000 48,008 129,086 The conversion right for the 1st series bond and the 2nd to 4th series can be exercised 6 months and 3 months after the issuance date, respectively, while that for the 5th series bond can be exercised one day after the issuance date. The convertible bond is recognised in the balance sheet as follows: 2002 Face value of convertible bond issued 129,086 Interest expense (Note 3) 10,569 Net foreign exchange transaction gains (2,398) Liability at 31 December 2002 137,257 Current (Note 17) 49,881 Non–current (Note 17) 87,376 137,257 - 30 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 19 Other long term liabilities 2002 2001 Payable to parent company (Note 29) 49,113 62,536 Payable to minority shareholder of subsidiary 11,577 - Others 12,222 2,598 72,912 65,134 The payable to parent company represents the payable with installment payment scheduled to be paid over 5 and 10 years arising from the purchase of land use rights from parent company. The payable to minority shareholder of subsidiary represents the payable to Semicon Engineering Co., Ltd as a result of acquisition of shares of Chang Chun Lancer Photoelectron Co., Ltd.. Except for the payable to minority shareholder of subsidiary, all the other long term liabilities were interest free. 20 Deferred income taxes Deferred income taxes are calculated in full on temporary differences under the liability method using the effective tax rates of the Company and its subsidiaries. The movement in deferred tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) during the period is as follows: Reserve for research Foreign currency Interest and development exchange gain income Total Deferred tax liabilities At beginning of year - - - - Income statement charge 10,363 2,343 40 12,746 At the end of year 10,363 2,343 40 12,746 Over-amo Unapproved Accrued rtised impairment for royalty intangible Unrealised loss fee assets income Others Total Deferred tax assets At beginning of year - - - - - - Income statement charge (874) (2,116) (763) (1,475) (1,748) (6,976) At the end of year (874) (2,116) (763) (1,475) (1,748) (6,976) - 31 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 20 Deferred income taxes (continued) Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax asset against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet: 2002 2001 Deferred tax assets (3,753) - Deferred tax liabilities 9,523 - 5,770 - 21 Post-employment benefit obligations The post-employment benefit obligations arise from benefit plans maintained by Hyundai LCD. The amounts recognised in the balance sheet are determined as follows: 2002 2001 Present value of funded obligations 12,096 - Fair value of plan assets (7,012) - 5,084 - Present value of unfunded obligations 1,344 - Liability in the balance sheet 6,428 - The amounts recognised in the income statement are as follows: 2002 2001 Current service cost, included in staff cost (Note 4) 10,970 - Movement in the liability recognised in the balance sheet: 2002 2001 At beginning of year - - Liabilities acquired in business acquisition (Note 28) 4,874 - Total expense - as shown above 10,970 - Contributions paid (9,416) - At 31 December 2002 6,428 - The principal actuarial assumptions used were as follows: 2002 2001 Discount rate 5.76% - Expected return on plan assets 6.00% - Future salary increases 6.00% - - 32 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 22 Provisions Compensated Warranty absences Total At beginning of year 6,226 - 6,226 Liabilities acquired in business acquisition - 3,866 3,866 Additional provisions charged to income statement 16,058 1,001 17,059 Exchange difference 11 - 11 Utilised during year (11,140) (2,492) (13,632) At 31 December 2002 11,155 2,375 13,530 (1) Warranty The Group gives warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision of Rmb11,155,000 has been recognised at the year-end for expected warranty claims based on past experience of the level of repairs and returns. (2) Compensated absences The Group provides for the expected cost of compensated absences based on the amount that the Group expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. 23 Contingent liabilities 2002 2001 151,000 Related parties 50,000 Third parties 92,000 122,415 243,000 172,415 Above balances represent the credit facilities from banks which the Group has guaranteed for other enterprises. 24 Capital commitments Capital expenditures contracted for at the end of balance sheet date but not recognised in the financial statements are as follows: 2002 2001 Property, plant and equipment 89,111 37,027 Equity investment 1,241,595 93,035 Land use right 8,858 - 1,339,564 130,062 Except for above mentioned capital commitments, as at 31 December 2002, the capital commitment of BOE-Hydis to finance the acquisition of TFT-LCD business unit is set out in Note 33. - 33 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 25 Ordinary shares 2002 2001 Number of Number of shares shares (‘000) (‘000) Domestic non-listed shares of Rmb1 each 340,054 340,054 A shares of Rmb1 each 60,000 60,000 B shares of Rmb1 each 149,500 149,500 549,554 549,554 All shares rank pari passu in all respects. 26 Minority interest 2002 2001 At beginning of year 252,245 175,161 Acquisition 74,133 33,781 Share of net profit of subsidiaries 86,550 43,793 Result of dilution of subsidiary’s shares 49,187 - Translation reserve 9,101 - Dividend paid (9,505) (490) Disposal of subsidiaries (10,032) - Others 6,183 - At end of year 457,862 252,245 27 Other reserves Capital General Translation reserves reserves reserve Total Balance at 1 January 2001 568 211,718 - 212,286 General reserves for the year - 23,603 - 23,603 Others (10) (8) - (18) Balance at 31 December 2001/ 558 235,313 - 235,871 1 January 2002 Currency translation differences - amount arising for the year - - 7,446 7,446 Addition of capital reserves 4,412 - - 4,412 General reserves for the year - 33,038 - 33,038 Balance at 31 December 2002 4,970 268,351 7,446 280,767 In accordance with the relevant PRC regulations, the Group appropriated 10% and 5% of statutory net profit to the statutory surplus reserve and statutory public welfare reserve. The Company also appropriated 25% of statutory net profit to the discretionary surplus reserve which has been approved by the Board of Directors. - 34 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) - 35 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 28 Acquisition On 1 January 2002, one of the Company’s subsidiaries, Hyundai LCD, acquired TN/STN LCD division from Hyundai Display Technology, Inc. The acquired business is the only operating business unit of Hyundai LCD, contributed revenues of Rmb1,457,098,000, and net profit of Rmb64,762,000, to the Group for the year and its assets and liabilities at 31 December 2002 were Rmb1,162,070,000 and Rmb954,250,000, respectively. Details of net assets acquired are as follows: Purchase consideration: - Cash paid 443,280 Fair value of net assets acquired 443,280 Other than for inventories, plant and equipment, and investment in subsidiaries, the fair value of the net assets approximated to the book value of the net assets acquired. No plant closure provisions or other restructuring provisions were established. The assets and liabilities arising from the acquisition are as follows: Property, plant and equipment (Note 8) 298,054 Intangible assets (Note 10) 376 Investments in subsidiaries (8,479) Inventories 159,843 Receivables 2,520 Payables (4,160) Retirement obligations (Note 21) (4,874) Fair value of net assets acquired 443,280 Goodwill - Total purchase consideration 443,280 Cash outflow in acquisition 443,280 There were no acquisitions in the year ended 31 December 2001. Information about another acquisition that took place on 22 January 2003 is set out in Note 33. 29 Related party transactions The Company is controlled by Beijing Orient Investment and Development Co., Ltd. (registered in PRC), which owns 53% of the Company’s share. The remaining 47% of the shares are widely held. The ultimate holding company of the Group is Beijing Electronics Holding Co., Ltd. (registered in PRC). Beijing Orient Electronic Industry Development Co., Ltd. and Beijing Kinescope Factory are the subsidiaries of Beijing Electronics Holding Co., Ltd.. Beijing Orient Mould Factory is the subsidiary of Beijing Orient Investment and Development Co., Ltd.. The relationship between the other related parties except abovementioned - 36 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) companies and the Company is set out in Note 30. - 37 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 29 Related party transactions (continued) (1) Related party transactions In the opinion of directors, the terms of these transactions follow commercial terms and conditions arranged in the ordinary course of the Company’s business. The following transactions were carried out with related parties: 2002 2001 Sales of goods and services: Beijing Matsushita Color CRT Co., Ltd. 85,211 52,949 Utility income: Beijing Matsushita Color CRT Co, Ltd. 8,966 13,035 Beijing Nissin Electronics Precision Component Co., Ltd. 768 781 Beijing Nittan Electronics Co., Ltd. 493 124 Rental income: Beijing Nissin Electronics Precision Component Co., Ltd. 1,121 1,121 Beijing Nittan Electronics Co., Ltd. 2,412 1,537 Beijing Orient Mould Factory 992 - Beijing Orient Mosler Security Technology System Co., Ltd. 399 394 Purchase of land use right Beijing Orient Investment and Development Co., Ltd. - 54,481 (2) Related parties balances Related party receivables and payables are as follows: 2002 2001 Trade receivables due from: Beijing Matsushita Color CRT Co., Ltd. 17,072 3,756 Notes receivables due from: Beijing Matsushita Color CRT Co., Ltd. 17,796 25,222 Other receivables due from: Beijing Orient Electronic Industry Development Co., Ltd 63,305 63,305 Beijing Star City Real Estate Development Co., Ltd. 21,000 3,000 Beijing Orient Investment and Development Co., Ltd. 7,080 5,597 Beijing Orient Mould Factory 3,342 2,184 Beijing BOE Digital Technology Co., Ltd 3,968 2,768 Shenzhen Evergreat Industrial Co., Ltd 1,048 1,048 Beijing Matsushita Color CRT Co., Ltd. 958 - Trade payables due to: Beijing Oriental Software Co., Ltd. 1,020 - Other payables due to: Beijing Kinescope Factory 62,037 62,037 Long-term payables within one year due to: Beijing Orient Investment and Development Co., Ltd. 13,423 13,420 Other long term liabilities due to: Beijing Orient Investment and Development Co., Ltd. 49,113 62,536 - 38 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 29 Related party transactions (continued) (3) Directors’ remuneration In 2002, the total remuneration of the directors was Rmb2,046,000 (2001:Rmb1, 287, 000). 30 Subsidiaries and associates Except for BOE Technology Incorporation, which is incorporated in the United States with limited liability, Hyundai LCD Incorporation and BOE-Hydis Technology Co., Ltd., which are incorporated in the Republic of Korea with limited liability, the following subsidiaries and associates are all incorporated in the PRC. Subsidiaries Name Equity Principal Activities Note interest s 2002 2001 Beijing Oriental - 100% Manufacture and sales of Semi-conductor Factory semi-conductor products Manufacture and sales of electron Beijing Oriental Electron - 100% tube products Tube Factory Manufacture and sales of electronic Beijing Electronics Glass - 100% glass products Factory Beijing BOE Digital 75% 75% Research, development, (1) Technology Co., Ltd. manufacture and sales of digital camera and other digital visual wireless transfer platform Beijing Software and System 100% 100% Research and development of Integrated Co., Ltd. network and telecommunication Beijing Orient Top Victory 45.21% 52% Manufacture and sales of color (2) Electronics Co., Ltd. computer monitors Beijing Weisong Electronics - 51% Manufacture and sales of color Co., Ltd. cathode ray tube (“color CRT”) metal parts - 39 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 60% 60% Research, development, Zhejiang BOE Vacuum manufacture and sales of monitor Electronic Co., Ltd. and related parts - 80% Sales of computer software, China Business hardware and provision of Information Network Co., technology services Ltd. 55% 55% Manufacture and sales of vacuum Beijing BOE Vacuum electronic products Electronic Co., Ltd. - 40 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 30 Subsidiaries and associates (continued) Subsidiaries (continued) Name Equity Principal Activities Note interest s 2002 2001 51% 51% Commercial and trading service (1) Shenzhen Tai Dong Dian Industry Co., Ltd. Shaoxing BOE Shangye 60% 79.6% Manufacture and sales of Electronic Co., Ltd. electronic monitor, related parts and material Shenzhen BOE 59.8% 59.8% Development of electronic Intelligence Display intelligence system Technology Co., Ltd. Research, development, (1) BOE Technology 100% 100% manufacture and sales of high Incorporation technology electronic information products Beijing Orient Heng Tong 100% 100% Lease of commercial facilities Property Centre Beijing BOE Mobile 51% 51% Research, development and Technology Co., Ltd. manufacture of mobile technology products Hyundai LCD Inc. 45% 45% Manufacture and sales of Liquid (3) Crystal Display (“LCD”) devices used in handset and electric goods - 41 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) Development, manufacture and BOE Hyundai (Beijing) 86.25 - sales of related parts of LCD LCD Display Technology % products Co., Ltd. Development, manufacture and (1) Suzhou BOE Chagu 75% - sales of STN-LCD products and Electronic Co., Ltd. related services Manufacture and sales of TFT-LCD (1) BOE-Hydis Technology 100% - Co., Ltd. Manufacture and sales of BOE Semi-conductor Co., 63% - semi-conductor products Ltd. (1) Those subsidiaries are either undergoing liquidation procedures or in the pre-operation stage. As both the assets and operation results do not form a significant part of the Group, they are not consolidated in the financial statements. (2) During the year, Beijing Orient Top Victory Electronics Co., Ltd. (“BOTV”) received a capital injection from other investors and thus, the share of the Company was diluted from 52% to 45.21%. However, according to the capital injection agreement, 8.7% of the voting right owned by Multi-Lines Investment Co., Ltd. had been consigned to the Company. Therefore, the Company has the power to control the BOTV and BOTV is consolidated in the financial statements. - 42 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 30 Subsidiaries and associates (continued) Subsidiaries (continued) (3) During the year, the Company paid Rmb19,431,224 for the second capital injection of Hyundai LCD and owned 45% of the share capital. As the majority of the members of the board of directors are appointed by the Company and according to the articles of association, control rests with the Company. Thus, Hyundai LCD is consolidated in the financial statements. Associates Name Equity interest Principal Activities 2002 2001 Beijing Matsushita Color 30% 30% Manufacture and sales of color picture tubes CRT Co., Ltd. and color display tubes, and modern lighting products Shenzhen Evergreat 40% 40% Development and manufacture of mechanical Industrial Co., Ltd. integrated products, satellite communication equipment, computer software and automatic instruments Beijing Nittan 40% 40% Manufacture and sales of terminals, Electronics Co., Ltd. connectors and stampers Beijing Nissin Electronics 40% 40% Manufacture and sales of electronics tubes Precision Component and related spare parts Co., Ltd. 21% 21% Manufacture and sales of IC card, magnetic Beijing Huaxu Jinka card, laser card and related read-write Co., Ltd. equipment Beijing Orient Mosler 35% 35% Manufacture and sales of security and Security Technology protection system and products System Co., Ltd. Beijing Matsushita 30% 30% Manufacture and sales of lightings and related Lighting Co., Ltd. products Beijing Oriental Software 30% 30% Design, develop, manufacture of software, Co., Ltd. hardware and computer components; network Integration Changchun Lancer 8.5% - Development, design and manufacture of Photoelectron Co., Ltd. photoelectron products - 43 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 31 Interest in joint ventures The Group has a 50% interest in a joint venture, Beijing Asahi Glass Electronics Co., Ltd., which manufactures electronics products. The following amounts represent the Group’s 50% share of the assets and liabilities, sales and results of the joint venture and are included in the consolidated balance sheet and income statement: 2002 2001 Property, plant and equipment 17,801 19,064 Intangible assets 3,315 2,797 Current assets 38,624 28,314 59,740 50,175 Current liabilities (11,081) (9,805) Net assets 48,659 40,370 Sales 48,631 30,736 Profit before tax 12,167 3,377 Income taxes (1,819) (349) Profit after tax 10,348 3,028 The Group also has a 51% interest in a jointly controlled venture, Beijing BOE YAMATO Photoelectron Co., Ltd., which manufactures photoelectron product. The following amounts represent the Group’s 51% share of the assets and liabilities, sales and results of the joint venture and are included in the consolidated balance sheet and income statement: 2002 2001 Property, plant and equipment 17,401 - Intangible assets 4,693 - Current assets 8,651 - 30,745 - Current liabilities (7,402) - Net assets 23,343 - Sales 10,518 - Profit before tax (1,954) - Income taxes - - Profit after tax (1,954) - There are no contingencies and commitments relating to the Group’s interest in these joint ventures. The average number of employees in these joint ventures in 2002 was 322. (2001:241). - 44 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 32 Other significant matters Two subsidiaries of the Company are incorporated in the Republic of Korea and may be directly or indirectly affected by the general unstable economic conditions in the Republic of Korea. Meanwhile, a significant portion of assets and liabilities in those subsidiaries were denominated in Korean Won and were exposed to foreign exchange risk. One subsidiary, BOE-Hydis was established for the purpose of acquiring TFT-LCD business from Hyundai Display Technology Inc. and its assets and liabilities as of 31 December 2002 did not form a significant portion of the Group. However, the other company, Hyundai LCD, began its operation in early 2002 and became a significant subsidiary of the Group. As at 31 December 2002, its total assets and liabilities are Rmb1,162,070,000 and Rmb954,250,000, while its total revenue and net profit for the year are Rmb1,457,098,000 and Rmb64,762,000, respectively. The Group did not hedge its exposures to foreign exchange risk arising from Korean Won denominated assets in 2002. The following amounts represent the monetary assets and liabilities of Hyundai LCD. included in the consolidated balance sheet as of 31 December 2002: Denominated Denominated in KRW in other currencies Total (in RMB) (in RMB) (in RMB) Non-current assets 2,231 254 2,485 Current assets 113,935 433,070 547,005 116,166 433,324 549,490 Non-current liabilities (46,691) (103,859) (150,550) Current liabilities (448,950) (255,098) (704,048) (495,641) (358,957) (854,598) Net assets (379,475) 74,367 (305,108) 33 Post balance sheet event (1) Acquisition of TFT-LCD business On 22 January 2003 BOE-Hydis concluded its acquisition of TFT-LCD business from Hyundai Display Technology Inc. (“Hydis”, incorporated in the Republic of Korea), a wholly owned subsidiary of Hynix Semiconductor Inc. (“Hynix”, incorporated in Korea). Subject to the Asset Sale and Purchase Agreement, Building Sale and Purchase Agreement, Land Lease Agreement and Side Agreement signed among the Company, Hydis and Hynix on 19 November 2002 and amended subsequently, the final purchase price for the non-current assets is USD380,000,000 excluding the downward adjustment to the working capital and subsidiaries in TFT-LCD business unit in the amount of USD32,170,000. The land occupied by the buildings and adjacent land will also be leased to BOE and the companies authorised by BOE for 30 years. The leasing term shall be automatically extended for each successive 5-year periods, as long as the buildings remain on the building lots. Also subject to the Assignment Agreement signed on 29 November 2002, BOE assigned all its rights and obligations under those above mentioned agreements to BOE-Hydis. - 45 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) - 46 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 33 Post balance sheet event (continued) (1) Acquisition of TFT-LCD business (continued) In order to finance the acquisition, BOE-Hydis signed a Loan Agreement with Korea Development Bank, Korea Exchange Bank, Woori Bank and Hyundai Marine and Fire Insurance Co., Ltd. on 30 December 2002. It obtained loans amounting to USD188,200,000 denominated in Korean Won or US Dollars on 22 January 2003 and the amount was paid to Hydis and Hynix on the same date. According to the related agreements, all the insurance, inventories and goods, equipments, machinery and other properties, intellectual properties, control account and debt service reserve account of BOE-Hydis have been pledged on the loan. It is also required to maintain a minimum balance of USD1,500,000 in its debt service reserve account at any time before the loan agreement is terminated. The loan becomes due and payable from 22 October 2005. BOE-Hydis shall repay the principal amount of the loans in ten equal instalments each quarter from 22 October 2005. The interest rate for KRW loan was determined at the market rate immediately preceding the drawdown date and will be reset 3 years after the drawdown date, while interest rate for USD loan was determined at the market rate two London Business Days before the drawdown date and will be reset two London Business Days before every interest period (every 3 months). BOE-Hydis shall not declare or pay any dividend until the loan and related interests are repaid, whether in cash or in-kind or in any form whatsoever. BOE-Hydis also issued Long Term Promissory Note A and B (“Note A and B”) to Hydis and Hynxi with the amounts of USD35,900,000 and USD3,729,942, respectively. The Note A and B and their accrued interests are due and payable on 23 January 2008 and 23 January 2009, respectively. Interest rates for Note A and B are at LIBOR plus 3%. In March 2003, the Company remitted USD150,000,000 to BOE-Hydis as its capital injection, including the USD10,000,000 contract deposit put into escrow account in 2002. Part of the remittance was obtained through bank borrowings in the amount of USD90,000,000. Those borrowings mature in one year and bear interest at rates ranging from 1.69% to 1.985%. Bank borrowings with amount of USD66,050,000 is guaranteed by the ultimate holding company. The share certificate issued by BOE-Hydis to the Company will be kept under Industrial and Commercial Bank of China, Seoul Branch’s custody and the percentage of BOE’s shares in BOE-Hydis shall not be lower than 51% at any event until the loan and related interest of BOE-Hydis are repaid. Any stock or property representing stock or liquidating dividends or a distribution or return of capital or principal upon or in respect of any of the shares or resulting from a split-up, revision or reclassification of any of the shares, or received in exchange for any of the shares, as a result of a merger, consolidation or otherwise, will be paid or delivered to and retained by Industrial and Commercial Bank of China, Seoul Branch. (2) Conversion of capital reserves to ordinary shares At the Annual General Meeting on 18 April 2003, it was resolved that the capital reserves with amount of Rmb109,910,800 be converted to ordinary shares with a 10 to 2 ratio. The resolution has to be approved by the shareholders’ meeting scheduled at the end of May 2003. - 47 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) 33 Post balance sheet event (continued) (3) Beijing BOE Land Co., Ltd. On 11 March 2003, the Company invested certain of its buildings and land use right in Beijing BOE Land Co., Ltd. (originally known as Beijing Universal Plaza Co., Ltd., a jointly controlled entity of the Company) and owned 70% of its shares. According to the resolutions of Board of Directors meeting on 28 March 2003 and the Annual General Meeting on 18 April 2003, the Company will sell all its shares in Beijing BOE Lands Co., Ltd. to Beijing Electronics City Co., Ltd. (a subsidiary of the ultimate holding company) with a selling price of Rmb38,800,000 during 2003. 34 Approval of Financial Statements On 18 April 2003, BOE Technology Group Co. Ltd.’s Board of Directors authorised these financial statements for issue. - 48 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) - 49 - BOE TECHNOLOGY GROUP CO., LTD. FOR THE YEAR ENDED 31 DECEMBER 2002 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts are expressed in RMB’000 unless otherwise stated) Net assets Net Profit As reported under PRC GAAP 2,183,379 82,837 Adjustments to conform with IFRS - Difference in disposal of a subsidiary - (3,681) - Difference on the amortisation period of (2,667) (1,334) goodwill - Appropriation of staff bonus and welfare - (242) funds - Government grant (3,750) 1,000 - Others (572) 420 As reported under IFRS 2,176,390 79,000 - 50 -