瓦轴Ｂ(200706)2008年年度报告（英文版）

Wafangdian Bearing Company Limited 2008 Annual Report (Report period：Jan. 1, 2008－Dec. 31, 2008) Chairman（Signature）： Wang Lushun April 22, 2009 1 Important Notes The Board of Directors, board of supervisors, directors, supervisors, and top management of the Company hereby guarantee that there are no false record, misleading statements and important omission of the material in this report, and assume the individual and associated responsibilities for the truth, accuracy and completeness of the contents. Director Mr.Patrick Tong was absent and authorized director Mr. Magnus Johansson to attend the meeting. Director Mr.Jiang Zhongyuan was absent and authorized director Mr. Su Shaoli to attend the meeting. In 2008, Shine Wing Certified Public Accountants offered standard and unreserved auditing report. Chairman Mr. Wang Lushun, General Manager Mr. Shao Yang and General Accountant Mr. Zhang Xinghai declare: guarantee the truth and completeness of the financial report in the annual report. The report was made in both Chinese and English, should there be any discrepancy between the Chinese version and the English version, the Chinese version is prevailing. 2 Catalog Chapter One. Introduction to basic situation of the company 4 Chapter Two. Abstract of accounting data and business data 5 Chapter Three. Information on equity changes and shareholders 6 Chapter Four. Information on Directors, Supervisors, top management and employees 8 Chapter Five. Governing and managing structure of the Company 14 Chapter Six. Introduction to the shareholders’ meeting 17 Chapter Seven. Work report of the Board of Directors 17 Chapter Eight. Work report of the Supervisory Committee 23 Chapter Nine. Important events 25 Chapter Ten. Financial statements 29 Chapter Eleven. List of reference documents 87 3 2008 Annual Report of Wafangdian Bearing Company Limited Chapter One. Introduction to basic situation of the Company 1. Chinese name of the Company: 瓦房店轴承股份有限公司 Abbreviation of Chinese name: 瓦轴股份公司 English name of the Company: Wafangdian Bearing Company Limited Abbreviation of English name: WBC 2. Legal representative of the Company: Wang Lushun 3. Secretary of the Board of Directors of the Company: Zhang Xinghai Authorized Stock and Security Affairs Representative: Su Shaoli Correspondence address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China. Consulting telephone: 0411-85509888 ext. 3373 Fax: 0411-85500794 E-mail: zwz2308＠126.com 4. Registered address: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Office address of the Company: No. 1 Beigongji Street, Wafangdian City, Liaoning Province, China Post code: 116300 International net address: http//www.zwz-bearing.com E-mail address: zwz2308@126.com 5. The Company chose Securities Times, Hong Kong Commercial Newspaper, and Wen Wei Po for disclosure of information of the Company International net address for disclosure: http//www.cninfo.com.cn Preparation and liaison office of this report: Investment and Securities Department of the Company 6. Listing location of the Company’s stock:: Shenzhen Stock Exchange Abbreviated name of the stock: Wazhou B Stock code: 200806 7. Other relative information 1). The originally registered date of the company was March 20, 1997 The originally registered location of the company was: No. 1, Section 1, Beigongji Street, Wafangdian City, Liaoning Province, China 2). Business license registration No. of the entity: 大工商企法字 6-14522102001101996 3).Tax registration No. of the company: 国税大字 2102812242399712 4). Certified public accountants engaged by the company and its address: Shine wing Certified Public Accountants: Floor 9 of A section of FuHua mantion ,No. 8 ,north street of ChaoYang door ,Dong Cheng area ,Bei Jing . 4 Chapter Two. Abstract of accounting data and business data 1. Main economic indicators of WBC in the report year Unit: RMByuan Items Amount Operating profits 126,734,036.15 Total profits 126,644,848.05 Net profits available for shareholders of listing company 102,953,094.55 et profits available for shareholders of listing company with abnormal incomes deducted 103,019,985.62 Net cash flow from operation activities 168,283,672.09 Abnormal incomes Item Amount Notation Income from disposal of the non-current assets -2,976,798.78 Apply Unauthorized approval, no formal approval document and accidental tax refund 0.00 Apply and derate Total Government grants apportioned into the current 925,189.59 Apply Debt recombine revenue 1,558,505.76 Apply Total The net income from other non-operating business excluding above items 403,915.33 Apply Income tax impacting amount 22,297.03 Apply Total -66,891.07 - 2. Main accounting data and financial indicators for the previous three years up to the report period: (1)Main accounting data Unit: RMB yuan +/- to Year of 2008 Year of 2007 Year of 2006 previous After Before adjustment After adjustment Before adjustment adjustment Operating income 2,978,120,632.05 2,491,512,622.68 2,491,512,622.68 19.53% 2,246,962,931.64 2,241,682,463.73 Total profits 126,644,848.05 104,027,270.90 104,027,270.90 21.74% 53,843,154.51 53,843,154.51 Net profit available for shareholders of 102,953,094.55 88,209,124.81 88,209,124.81 16.71% 45,136,792.00 45,136,792.00 listing company Net profit available for shareholders of listing company with 103,019,985.62 80,363,524.80 80,363,524.80 28.19% 38,274,160.19 43,418,193.92 abnormal incomes deducted Net cash flows from 168,283,672.09 108,510,664.46 108,510,664.46 55.08% 179,305,909.92 179,305,909.92 operation activities +/- to Year-end of 2008 Year-end of 2007 Year-end of 2006 previous After Before adjustment After adjustment Before adjustment adjustment Total assets 2,869,772,017.86 2,665,493,049.26 2,665,493,049.26 7.66% 2,522,969,260.56 2,522,969,260.56 5 Owners’ equity (shareholders’ 1,300,780,197.09 1,202,777,114.55 1,213,931,102.54 7.15% 1,150,308,062.10 1,130,112,889.10 equity) Capital stock 402,600,000.00 402,600,000.00 402,600,000.00 0.00% 402,600,000.00 402,600,000.00 (2)Main financial indicators Unit: RMB yuan Year of 2008 Year of 2007 +/- to previous Year of 2006 Basic gains on per share 0.26 0.22 18.18% 0.09 Diluted gains on per share 0.26 0.22 18.18% 0.09 Basic gains on per share with abnormal 0.26 0.20 30.00% 0.09 incomes deducted Fully apportioned returns on net asset 7.91% 7.27% 0.64% 3.99% Weighted average net returns on net 8% 8% 0.00% 4.05% asset Fully apportioned returns on net asset 7.92% 6.62% 1.30% 3.84% with abnormal incomes deducted Weighted average net returns on net 8% 7% 1% 3.31% asset with abnormal incomes deducted Net cash flow on per share gained from 0.42 0.27 55.56% 0.45 operation activities Year-end of 2008 Year-end of 2007 +/- to previous Year-end of 2006 Net assets on per share available for 3.23 3.02 6.95% 2.81 shareholders Chapter Three. Information on equity changes and shareholders 1. Equity changes in the report period (1). The change of equity structure: Unit: Share Before the change Increase/decrease in the report period (+,-) After the change Issue new Gift Public reserves other proportion total quantity proportion quantity shares shares to shares s One. Non-marketable shares 244,000,000 60.61% 244,000,000 60.61% 1、 Sponsor’s shares 244,000,000 60.61% 244,000,000 60.61% Including: State-owned share 244,000,000 60.61% 244,000,000 60.61% Shares held by domestic legal person Shares held by foreign legal person Others 2、Collected legal person shares 3、Interior employee shares 4、Preferred shares and others Two. Marketable shares 158,600,000 39.39% 158,600,000 39.39% 1 、 Home listed RMB ordinary shares 2 、 Home listed foreign capital 158,600,000 39.39% 158,600,000 39.39% shares 3 、 Abroad listed foreign capital shares 4. Others Total of marketable shares 402,600,000 100.00% 402,600,000 100.00% (2). Share issue and listing situation: Type of share: Home listed foreign capital share (B-share) Share issue date: February 27, 1997 Share issue price: The offered price for general investors is 2.66 HK dollars per share and 3.575 HK 6 dollars per share for strategic investor, AKTIEBOLAGET SKF. Amount of shares issued: 330,000,000 shares Listing date: The shares were listed on March 20.1997 in Shenzhen Stock Exchange. (3). The situation of capital stock in this period. In this report period, there were no gift shares, transferred capital stock, allotment of shares and new issues. (4). In the report period, there was no interior employees’ shares. 2. Information on shareholders (1). Up to the report period, the company had 10,368 registered shareholders, including 1 state-owned shareholder and 10,367 public shareholders. (2) Information on the first ten shareholders and the top ten current shareholders up to year-end: Unit: Share Total shareholders 10,368 Top ten shareholders’ status Non-circulation Impawned and frozen Name Nature Proportion Total shares shares shares Wafangdian bearing State-owned 0 60.60% 244,000,000 244,000,000 company limited shareholder AKTIEBOLAGET SKF Foreign 0 79,300,000 0 shareholder 19.70% HANWHA DREAM & Domestic GREEN CHINA EQUITY private 0.70% 2,800,000 0 0 FUND 1 shareholder Domestic FORTIS BANQUE private 0.55% 2,226,408 0 0 LUXEMBOURG S.A shareholder Domestic CREDIT SUISSE (HONG private 0.25% 1,000,103 0 0 KONG) LIMITED shareholder Domestic Huang Junyue 0.18% 708,300 0 0 shareholder MAN,KWAI WING 文贵 Domestic 0.17% 695,401 0 0 荣 shareholder Commercial Securities Domestic Co.Ltd(HongKong) private 0.16% 637,000 0 0 shareholder Domestic Mo Lixia 0.12% 463,496 0 0 shareholder Domestic ABN AMRO BANK NV private 0.08% 341,574 0 0 shareholder Top ten current shareholders’ status Name Circulation shares’ amounts Sort AKTIEBOLAGET SKF 79,300,000 B HANWHA DREAM & GREEN CHINA EQUITY 2,800,000 B FUND 1 FORTIS BANQUE 2,226,408 B LUXEMBOURG S.A CREDIT SUISSE (HONG 1,000,103 B KONG) LIMITED Huang Junyue 708,300 B 7 MAN,KWAI WING 文贵 695,401 B 荣 Commercial Securities 637,000 B Co.Ltd(HongKong) Mo Lixia 463,496 B ABN AMRO BANK NV 341,574 B Xie Qingjun 300,000 B The explanation on the There was no relationship and consistent activities between the first big shareholder and other relationship and shareholders or the top ten common stock holders; The relationship among other shareholders, consistent activities top ten circulation shareholders, top ten circulation shareholders and other shareholders was not between above clear. shareholders Note: In the report period, the frozen period of the shares purchased by the company’s strategic investor AKTIEBOLAGET SK expired in 1999, and has not dealt with the releasing-procedure in this report period. 3. Introduction to the holding shareholders (1)Introduction to the first largest shareholder Name: Wafangdian Bearing Group Corporation Legal representative: Wang Lushun Date of establishment: 1995 Main business and product: Bearings, Machinery equipment, Automobile parts and relative products Registered capital: 360000000 Yuan RMB Wafangdian Bearing Group Corporation is a state-owned sole venture company, the actual controller is Supervising and Managing Committee of Dalian Government for Stated Owned Assets, the office Address is No.576, Zhongshan Road, Shahekou District Dalian City. And the director is Wang Chun. (2) Relationship of the property right and controlling between the Company and actual Controller: Supervising and Managing Committee of Dalian Government for State Owned Assets 100% shareholding Wafangdian Bearing Group Corporation 60.6% shareholding Wafangdian Bearing Company Limited 4. Introduction to shareholders with over (including) 10% of the total equity shares of the Company Name: AKTIEBOLAGET SKF (Swedish) Legal representative: Tom Gohnstone Date of establishment: 1907 Main business and products: Bearings, seals and relative products, and relative services Registered capital: 1,138,000,000 Swedish Koron Equity structure: totally 455,351,068 shares of the Company, including A type and B type shares, 10.49% of which go to A type, and 89.51% go to B type. 5. There was no change of holding shareholder in the report period . Chapter Four Information on Directors, Supervisors, senior management and employees 8 1.Introduction to Directors and Supervisors and top management Get salary in Shares Shares the listed Holding in Holding in the company and Name Position Sex Term the Age year-beginnin associated year-endin g companies(Y/ g N) Wang Lushun Chairman Male 58 2006.6-2009.6 0 0 Y Jiang Vice-Chairman Male 56 2006.6-2009.6 0 0 Y Zhongyuan Shao Yang Director, General Manager Male 42 2006.6-2009.6 0 0 N Zhang Director , Chief Accountant, Male 40 2006.6-2009.6 0 0 N Xinghai Secretary of BOD Su Shaoli Director Male 57 2006.6-2009.6 0 0 N Sun Najuan Director Female 40 2006.6-2009.6 0 0 Y Magnus Director Male 53 2006.6-2009.6 0 0 Y Johansson Patrick Tong Director Male 46 2006.6-2009.6 0 0 Y Gui Liyi Independent Director Male 65 2006.6-2009.6 0 0 N Zhang Li Independent Director Female 48 2006.6-2009.6 0 0 N Wu Chunyou Independent Director Male 63 2006.6-2009.6 0 0 N Li Yanxi Independent Director Male 38 2006.6-2009.6 0 0 N President of Supervisory Zhang Jiayi Male 59 2006.6-2009.6 0 0 Y Committee Cai Zhi’an Supervisor Male 60 2006.6-2009.6 0 0 Y Supervisor, Staff Wei Lifang Female 53 2006.6-2009.6 0 0 N representative Chen Jiajun Supervisor Female 41 2006.6-2009.6 0 0 Y Supervisor, Staff Li Zhixin Male 37 2006.6-2009.6 0 0 N representative Gao Vice-G.M. Male 55 2006.6-now 0 0 Y Yongyang Meng Wei Vice-GM Male 40 2006.6-now 0 0 N Shan Shikai Vice-G.M. Male 50 2006.6-now 0 0 N Jiang Yulin Supervisor Male 54 2008.4-now 0 0 N Total 0 0 Remarks: (1). Posts occupied by the directors and supervisors in the shareholding units Name Position in the shareholders’ units Office term Wang Lushun Chairman of Board of Directors, General Manager of Wafangdian Bearing From December 1998 to now Group Corp. Ltd Jiang Zhongyuan Vice-chairman of Board of Directors Wafangdian Bearing Group Corp. Ltd From May 2000 to now Zhang Jiayi Chairman of Trade Union Wafangdian Bearing Group Corp. Ltd From October 1995 to now Cai Zhian Vice-G.M. of Wafangdian Bearing Group Corp. Ltd From May 1999 to now Sun Najuan Vice-chief accountant of Wafangdian Bearing Group Corp. Ltd From August 1998 to now Chen Jiajun Charger of economic managing department of Wafangdian Bearing Group From October 2000 to now Corp. Ltd Magnus Johansson General Manager , SKF (China) Investment Co,. Ltd. From June 2005 to now Patrick Tong Market Majordomo of AB SKF Industrial Division From April 2004 to now (2). No director, supervisor and top management held stock of the Company. 2 The situation of directors attending the board meeting 9 Authorize Should By others in Attend in Name Position attend communicati Absence successive spot (times) on methods two times(Y/N) Wang Lushun Chairman 4 3 0 1 0 N Jiang Vice-Chairman 4 4 0 0 0 N Zhongyuan Shao Yang Director, General Manager 4 4 0 0 0 N Zhang Director , Chief Accountant, 4 4 0 0 0 N Xinghai Secretary of BOD Su Shaoli Director 4 4 0 0 0 N Sun Najuan Director 4 3 0 1 0 N Magnus Director 4 3 0 1 0 N Johansson Patrick Tong Director 4 1 0 3 0 N Gui Liyi Independent Director 4 4 0 0 0 N Zhang Li Independent Director 4 4 0 0 0 N Wu Chunyou Independent Director 4 4 0 0 0 N Li Yanxi Independent Director 4 2 0 2 0 N Explanation on the Authorizing others in successive two times Mr. Patrick Tong is in absence of the 9th meeting and 10th meeting of the 4th Board meeting due to the work Times of holding board meeting in the report 4 period Including：in spot (times) 4 By communication methods (times) 0 In spot combined with the communication 0 methods (times) 3.The main working experiences of directors, supervisors, and top management in recent 5 years : One. Director Mr. Wang Lushun，high-grade engineer. has assumed the office of director, General manger, chairman of Wafangdian Bearing Company Limited since 1995, and currently holds the post of chairman and General Manager of Wafangdian Bearing Group Corporation, Chairman of Dalian SKF-Wazhou Company Limited, Chairman of Wafangdian Rongtai Engineering Plastic production Company Limited, Chairman of Wafangdian Hongda CVJ Manufacturing Company Limited, Chairman of Dalian Koyo Wazhou Automobile Bearing Company Limited, Chairman of Wafangdian General Bearing Company Limited, DaLian THKWaZhou industrial company limited . Mr. Jiang Zhongyuan, has once assumed the office of the Section Chief of the Enterprise Section of Dalian Economy Committee since 1986, and currently holds the post of vice Chairman, vice General Manager, sectary of the party of Wafangdian Bearing Corporation, Chairman of Wafangdian Integrated Services Company Limited, chairman of Wafangdian Bearing Powering Company Limited., Chairman of Wafangdian Bearing Transportation Company Limited. Mr. Shao Yang, high-grade engineer, has assumed the office of the assist of General Manager, vice General Manager of Wafangdian Bearing Group Corporation, and currently holds the post of the director, General Manager of Wafangdian Bearing Company Limited, director of Dalian SKF-Wazhou Company Limited, Chairman of Wafangdian Bearing Precision Forging Company Limited, Chairman of Wa Zhou LiaoYang bearing manufacturing company limited , chairman of WBGC Slewing Bearing Company Limited. 10 Mr. Zhang Xinghai, high-grade accountant, has assumed the office of the vice General Accountant and Secretary of board of directors of Wafangdian Bearing Company Limited since 1998, and currently holds the post of the director, General Accountant and Secretary of board of directors of Wafangdian Bearing Company Limited, director of Wafangdian General Bearing Company Limited. Mr. Su Shaoli, Economist, has assumed the office of Department Manager of Operating and Managing Department, Department Manager of Investment and Securities Department, director of Wafangdian Bearing Company Limited since 1997, currently holds the post of director of Wafangdian Bearing Company Limited, Department Manager of Operating and Managing Department & Investment and Securities Department, director of Dalian SKF-Wazhou Bearing Company Limited, director of Wafangdian General Bearing Company Limited, director of WBGC Liaoyang Bearing Manufacturing Company Limited, director of Wa Zhou LiaoYang bearing manufacturing company limited . Ms. Sun Najuan, high-grade accountant, has assumed the office of the assistant of the General Manager and the manager of Financial Department in Sales Head Office of Wafangdian Bearing Company Limited, deputy general accountant and manager of Financial Checking Department of Wafangdian Bearing Group Corporation since 1997, and currently holds the post of the assistant of the General Manager, deputy General Accountant, manager of Financial Checking Department of Wafangdian Bearing Group Corporation. Mr. Magnus Johansson ,from 1998 to now ,he occupied the president of SKF Mekan AB ,the vice-president of human resources at Volvo car CO. LMT. Obtain Group six champion of sigma at SKF , now he occupy the manager of SKF(shanghai) investment and consultation CO.LMT , the director of Dalian SKF﹠ WBC bearing Cro.LTD. Mr. Patrick Tong，has assumed the office of the Manager, General Manager of SKF China Company Limited since 1989, currently holds the post of the Market Majordomo of AB SKF Industrial Division，Director of Dalian SKF-Wazhou Bearing Company Limited. Mr. Gui Liyi, Professor，has been assuming the office of the Director and Professor of Law College at Northeast Finance and Economics University from 1981 to now, the concurrent post of lawyer in Liaoning Shuanghu Law Office from 1986 to now, and independent director of Dalian Tiantu Television Network Company Limited from 2000 to now. Ms. Zhangli, Professor of Accountant, has been holding the post of teacher at Dalian Profession & Technology College from 1992to now ,currently holds the post of Professor of Accountant and Master Guider at Dalian Communication university , specially engaged professor at Dalian enterpriser market and Dalian manager united association, the chief teacher of CPA courses of Auditing and Financial Cost Management launched by Da Lian CPA Association , teacher of continued training for Da Lian Financial people . Mr. Li Yanxi, Associate Professor of Accountant, CPA，Registered Assets Assessor ,has been holding the post of teacher of Managing College at Dalian Science & Engineering University from 1992 to now, currently holds the posts of Subdecanal of management academy and superintendent of Financial Management Researching Institute at Dalian Science & Engineering University; has been holding the post of independent director at Liao Ning Cheng Da Co.,Ltd from 2003 to now, and the post of independent directors of at Da Lian Internatinal Cooperation (Group)Co.,Ltd ,Yun Nan City Real Estate Investment Co,Ltd ,Da Lian HuaXin Computer Co.,Ltd from 2008 to now. Mr. Wu Chunyou, Professor, from 1999to 2005, had assumed the Committeeman of Management Teaching Guiding committee of national education Department for two sessions ; from 1999 to 2005 ,and had ever assumed the dean of Management Academy of Dalian Science & Engineering University for two sessions ; had ever concurrently assumed the independent director of Liao He JinMa petroleum exploitation C.,Ltd from 2002 to 2006; now has been holding the post of teacher at Dalian Science & Engineering University , charger of ecology layout and development institute of Dalian Science & Engineering University , the charger of industrial and commercial doctor station , the charger of industrial and commercial postdoctor unfixed station , the initially registered management consulting engineer (investment) of china ; from 1996 to now , has been assuming the chairman of University Value Researching committee of China for tree sessions , 11 and the DaLian Enterprise Management Consulting and Researching Committee from 1999 to now . has been assuming the office of teacher at Dalian Science & Engineering University from 1970 to now, currently holds the post of the prexy of Managing College at Dalian Science & Engineering University，has been holding the concurrent post of commissary of Teaching Guidance Committee of managing kind in National Educating Committee from 1999 to now, the concurrent post of CDR of Value Engineering Seminar for Chinese University & College from 1996 to now, the concurrent post of CDR of Consulting Seminar for Enterprise Managing of Dalian from 1999 to now, the concurrent post of independent director of Liaohe Jinma Oil Field Company Limited from 2002 to now. Two. Supervisor Mr. Zhang Jiayi, high-grade economist, has assumed the office of secretary of Discipline Examining Committee, president of Labor Union of Wafangdian Bearing Group Corporation since 1992, currently holds the post of deputy secretary of Party Committee, President of Labor Union of Wafangdian Bearing Group Corporation. Mr. Cai Zhi’an，politics engineer, has assumed the office of deputy department manager and department manager of Human Resources Department of Wafangdian Bearing Company Limited, department manager of Human Resources Department, deputy secretary of Party Committee, secretary of Discipline Examining Committee of Wafangdian Bearing Group Corporation since 1997, currently holds the post of vice General Manager , secretary of Discipline Examining Committee of Wafangdian Bearing Group Corporation, director of Wa FANGdian TongDa bearing manufacturing company limited , chairman of Wa Fangdian bearing hospital company limited . Mr.Chen Jiajun , high-grade engineer , holds the post of charger of economic managing department of Wa Fangdian bearing group corporation limited from 2000 to now . Ms. Wei Lifang, high-grade engineer, has assumed the office of technical director, secretary of Roller Factory of Wafangdian Bearing Company Limited since 1998, and currently holds the post of director and secretary of Roller Factory of Wafangdian Bearing Company Limited. Mr. Li Zhixin, accountant, has assumed the office of director of the Bad Assets Clearing Office of Wafangdian Bearing Group Corporation , the assistant of the manager of Financial Department of Wafangdian Bearing Company Limited since 1999, the assistant of the manager of Investment & Securities Department of Wafangdian Bearing Company Limited, now he has quit from the company . Mr. Jiang Yulin, economist, from May 1975, has served as the tools workshop worker, planning department planner, and sales department planner. Then, served as the deputy-charger, charger, deputy- section chief, section chief and deputy-general controller of the general control center department in sequence. Then, served as the deputy-minister of the Management department, general manager assistant and manufacture minister, the marketing minister and has responsible for the Republic Party works. Now has been serving as general manager assistant and material flow minister. Three. top management Mr. Gao Yongyang, Economist, has assumed the office of the General manager, secretary of Party Branch of Huamei Bearing Company Limited, the General manager, secretary of Party Branch of Hongda CVJ Manufacturing Company Limited since 1991, currently holds the post of the Vice General Manager of Wafangdian Bearing Company Limited, Chairman of Wafangdian Bearing Precision Ball Manufacturing Company Limited. Mr. Shan Shikai, Economist, has assumed the office of department manager of Human Resources Department, the assistant of the General Manager of Wafangdian Bearing Company Limited since 1995, currently holds the post of Vice General Manager of Wafangdian Bearing Company Limited. Mr. Meng Wei, engineer, has assumed the office of the assistant of the General Manager, Vice General Manager of Die Company of Wafangdian Bearing Group Corporation since 1996, the General Manager of Equipment Company of Wafangdian Bearing Group Corporation, currently holds the post of Vice General 12 Manager of Wafangdian Bearing Company Limited. 4. Annual remuneration of the directors, supervisors and top management 1). The procedures and basis on determining the remuneration. In this report period, the remuneration of directors (excluding independent directors), supervisors and top management was paid as the salary of the administrative management of the company. 7 person including the directors, supervisors and top management could get the remuneration with a total payment of 374,724.96 RMByuan. The independent directors could only obtain the annual allowance rather than remuneration. The annual allowance of independent directors was 36,000 RMB (including income tax). 2). Annual payment information of the directors, supervisors, and top management in the report period. Unit: RMB Yuan0000’ Name duty Total remuneration Shaoyang Director, general manager 64,835.76 Zhangxinghai Director, general accountant , secretary of directorate 57,629.52 Sushaoli Director 45,663.84 Guiliyi independent Director No remuneration ,only allowance Zhang li independent Director No remuneration ,only allowance Li yanxi independent Director No remuneration ,only allowance Wu chunyou independent Director No remuneration ,only allowance Wei lifang Supervisor 43,248.00 Li zhixin Supervisor 0.00 Shan shikai Vice-manager 57,654.00 Mengwei Vice-manager 57,639.60 Jiang Yulin Vice-manager 48,054.24 3). Information on people who were not paid by the Company (1). The following people were paid by Wafangdian Bearing Group Corporation for their salaries and subsidies: Wang Lushun, Jiang Zhongyuan, Cai Zhian, Zhang Jiayi, Sun Najuan, Chen Jiajun, Gao Yongyang (2). The following people were paid by AKTIEBOLAGET SKF for their salaries and subsidies: Magnus Johansson, Patrick Tong 4. Changes of directors, supervisors and senior management . In this report period, Mr.Li Zhixin resigned the position of supervisor (employee representative) due to the work. Elected by 339 employee representatives, Mr.Jiang Yulin come in the 4th board of supervisors’ member. 5. Employee Up to the report period, the Company had a total employee of 6,862. 1). Classification according to specialty composing: Sales Financial Administrative worker Technician others people people staff Persons 5,126 219 203 86 511 717 Percentage 74.7 3.2 3 1.3 7.4 10.4 2). Among the employees on-the-job, according to the diploma: 1,157 were with junior college graduates. 2,405 were with poly-technical school graduates, mid-level technical titles or high- middle school students. 13 3). The number of retired workers whose relative expenses must be assumed by the Company was 2,240. Chapter Five. Governing and managing structure of the Company 1. Practical situation of corporation government The Company followed the regulations of Company Law, Corporation Government Rules, the AOA, etc to regulate its operations and perfect its corporation government step by step. 1)The holding of the shareholders, board of directors and board of supervisors, the voting procedures and the formation of the resolutions were totally subject to these regulations. 2)The Company has made its interior management systems and regulations for restriction of budgeting, purchasing, logistics and sale ,etc, and executed them strictly. 3)The company has Separated business, personnel, assets, interior organization and finance from its holding shareholder: (1) The Company had independent operations itself, with its business separated from its holding shareholders; (2)The Company was independent in terms of its personnel, labor and salary management, and had its own independent labor and personnel management systems. Except the Chairman of Board of Directors of the parent company Wafangdian Bearing Group Corporation who occupies as the Chairman of the Company, the General Manager, Deputy-General Managers and the Finance Controller of the Company were all independent from the controlling shareholder. (3)The production system, auxiliary production system and supplementary facilities of the Company were independent from the controlling shareholder. (4)The Company has separated the accounting from the controlling shareholder. The Company carried out independent finance and accounting on its own and paid taxes independently. (5)The Company has established the organizations independent on the holding shareholder. 2. The fulfillment of independent directors The four independent directors of the company have seriously fulfilled their authorities granted by the law, the statute and Articles of Association in the report period, participated in the board meeting, fulfilled their responsibilities carefully, raised independent advices to the associated business of the company, and raised opinions to the production and operation of the company in the light of laws and profession, protected the interest of the company and all the shareholders. 2.1 The information that the independent directors present the board meeting in the report period. Should attend Absence Name of independent director Attend in spot Authorize Remarks (times) （times） Gui Liyi 5 4 1 0 Zhang Li 5 4 1 0 Li Yanxi 5 3 2 0 Wu Chunyou 5 5 0 0 2.2 The information that the independent directors raise reject opinions about the relative items of the company in the report period. The four independent directors didn’t raise any reject opinions to the relative items of the company in the report period. 14 3 the self-assessment of interior controls 3.1 the summarization of interior controls In the report period, according to the relative regulations, such as ”company interior control basic rules” published by CSRC, Auditing Administration, Banking supervisor commission and insurance commission; “The Index of Interior Controls of Listed Company” sent by Shen Zhen Stock Exchange and Shenzhen Stock Exchange “Shenzhen listing company【2008】the 168th decree, that is ‘the announcement of doing well 2008 annual report of the listing company’ ”, the company has completely practiced the establishment, perfect, execution and effective supervision of the interior controls. In the report period, according to the requirements of “Index of Interior Controls” and the company’s real situation, the company has established the perfect interior control process and mechanism, including the AOA , the Assembly Principles of Shareholder’s meeting, Boar of Directors, Board of Supervisors, as well as general manager rules. In additional, each department of the company has perfect mechanisms, such as financial department, manufacture, and so on. Examine and evaluate the execution situation termly and play an important role of supervising, controlling and guiding for the operation and financial management. . Combined with real situation, the company has built a series of interior controls system and effectively executive, so that ensures the smooth operation. The BOD consider: generally speaking, the interior control shows the integrality, rationally and effectively. As a pioneer of china bearing industry, the company has realized there to be dozens of interior and external risks. The external risks showed the drastic competition in both of the global bearing industry and home bearing industry and the increasing rise in the price of raw materials and energy, etc; the interior risks showed the deficiency of the corporation government and management system. therefore , firstly ,the company has taken various ways to reduce the cost, adjust the products structure, develop high-tech products and the products replacing export, develop the customer groups, enhance the competition capacity of the company, strengthen the resistant to external risks; Secondly, the company has been constantly perfecting and improving the corporation government and interior control system, making the standard operation and the scientific management , and enhancing the controls over the company . In the report period, all the interior control activities and the relative system stipulated were in accordance with the national laws, regulations and the supervisory department’s requirement so that make sure the smooth operation of the company . 3.2 The main activities of interior controls 3.2.1 The structure of the subsidiaries controlled by the company, and the holding proportion Wa Fangdian Bearing Co.,Ltd 100% 75% Wa Zhou Liao Yang Bearing Co.,Ltd Wa Fangdian General BearCo.,Ltd 3.2.2 The interior controls over the subsidiaries The company has made the General Management System of Subsidiaries to enhance the management of subsidiaries. The company has established the effective control mechanism to risk-controls over the organization, resources, assets, investment and the operation of the listed company so that enhanced the integral operating efficiency and the risk-resisted capacity of the company. 3.2.3 The interior controls over the related transactions 15 The type, price confirmation, approval power, the procedures and the information disclosure, etc of the related transactions were all in accordance with the relative documents sent by the CSRC and Shen Zhen Stock Exchange, the Related Enterprise Accounting Rules released by Fiscal Administrative, and the AOA, with the principle of faith, equality, free of intention, justice, open and fairness, all the related transactions has not hurt the interests of the company and all the shareholders. 3.2.4 The interior controls over the external guarantee In order to strictly control over the external guarantee risks, the company strictly conformed to the relative laws and regulations released by CSRC and Shen Zhen Stock Exchange with the principles of legality, prudence, reciprocity and safe, and the AOA has definitely stipulated the approval power of shareholders’ meeting and board of directors for external guarantee so as to avoid the guarantee risks. 3.2.5 The interior controls over the utilization of B- share capital The company has stipulated the Management of B- Share Capital which definitely regulates the deposit ,approval , investment ,utilization ,supervision ,duty-running of the B-share capital , and standardized the management and utilization of B-share capital ,and protected the interests of the investors . In the report period, there was no new raise of B-share capital. 3.2.6 The interior control over the major investment The AOA and the Assembly Principles of Board of Directors, Board of Supervisors and shareholders’ meeting definitely stipulated the approval and review procedures of the shareholders’ meeting and board of directors for the major investment .all the major investment activities were strictly in accordance with the approval procedures and the obligation for the information disclosure. 3.2.7 The interior control over the information disclosure In order to standardize the information disclosure, enhance the management of information disclosure and protect the legal interests of investors, the company has made the Information Disclosure Management and Investor Relationship Management .following above stipulations, the company exercised the information disclosure and investor relationship management so as to ensure the information disclosure true, accurate, complete, timely and fair. 3.3 The problems in the interior control and the correcting plan The interior control is a long term work, which need to correct, improve and complement according to the changes of situation and development of the company. The company will change the method of interior controls with positively proposing advices instead of being passively advised, actively improve and prefect the systems of interior control, strengthen the training of interior controls for directors, supervisors and top management so that enhance the interior management and the consciousness of interior control. 3.4 The general assessment of interior controls Generally speaking, according to the relative laws and regulations of Company Law and Rules of Corporation Government ,the company has established the quite perfect corporation government and interior organization, built a scientific decision-making, execution and supervision system; the shareholders’ meeting, board of directors and board of supervisors have definitely divided their duties and standardized the operation .the interior controls have covered the every chains of the operation of the company , and have been able to prevent ,find and correct the mistakes that maybe occur in the operation in time , so ensured the operation of the company smooth, ensured the assets of the company safe and complete , and ensured the information disclosure truth ,accurate ,complete and timely . 3.5 The opinions of independent directors for self-assessment of interior controls The company has built the quite perfect interior control system, which were in accordance with the stipulations of relative national laws and regulations, the interior control systems stipulated by the company were legal, reasonable and valid. The self-assessment of the interior controls truly and objectively reflected the actual situation of the system establishment, execution and supervision of the interior controls. They hoped the company could further enhance the interior control and go on improving the systems of interior control to provide a powerful guarantee for the long-lasting, steady, standard and health development of the company. 16 6.The opinions of board of supervisors for self-assessment of interior controls The company has built the interior control mechanism, and established the complete interior control systems, which ensured the operation of the company was in order. In the report period, there were no activities against the Index of Interior Controls of Shen Zhen Stock Exchange and the Interior Control Systems of the company. The interior control systems have got a true and effective practice. The board of supervisors thought that the self-assessment of interior controls was complete, true and accurate and reflected the actual situation of the interior controls of the company. Chapter Six. Brief Introduction of the shareholders’ meeting One Shareholders’ meeting was held in the report period. Details are as follows: 1.The annual shareholders’ meeting of 2007 was held on June 18, 2008. The notice was published on May 27, 2008. The resolutions and announcements were released at the Securities Times, Hong Kong Commercial Newspaper, and Wen Wei Po in Hong Kong published on June 19, 2008. Chapter Seven. Work report of the Board of Directors 1. Operation information 1. 1 The review of whole operation of the company in the report period 1.1.1 The discussion and analysis on the whole operating situation in the report period In 2008, led by “the spirits of the 17th session republic party meeting”, the company seriously carried out the scientific outlook on development, stepped in the rapidly development period, completed the “great five” tasks, and achieved the six targets, so that offer largesse for the 70th anniversary of the company. The operating has speeded up the development, and steadily improved the operation quality; actively adjusted the products structure, pushed forward the technique reform according to the set target, and the technique innovation made a breakthrough; the maket has expanded, and accelerated the base construction of matched for major technique equipment; push forward the company reform roundly and establish the new marketlization mechanism; improve the interior mechanism adjustment, and optimize the management with the center of interior control; human-oriented and enhance the staff construction, improving the welfare of the staff. In 2008, the operating income of the company reached up to 297,812 RMB 0000yuan , increases by 19.53% compared with the same period in last year; the operating profits reached up to 12,673RMB 0000yuan, increase by 37.49% compared with the same period in last year; the net profit reached up to 10,292RMB 0000yuan, increases by 17.86% compared with the same period in last year; the net profit available for the parent company reached up to 10,295 RMB 0000yuan, increases by 16.71% compared with the same period in last year . . 1.1.2 Operation (1). The main business scope of the company and it’s actual situation The main business scope of the company includes the manufacture and sales of bearings, machinery equipment, automobile parts and components and other relative products, leasing of machinery equipment and houses, examination of bearings and relative machinery equipment and measuring apparatus. The company has come to modernized enterprises with production ,supply and sale integrated . (2). Composing of main business income and main business profit The main business according to the industry According to +/-(%) of Operating +/-(%) of industry or Operating cost BOI operating +/-(%) of BOI income operating cost product income Export 24,083.44 23,713.70 1.54% 16.86% 6.05% 10.04% Home 194,169.80 155,454.14 19.94% 28.19% 29.28% -0.68% Traffic bearing 78,411.63 70,717.25 9.81% 5.14% 4.47% 0.58% 17 Special-used 41,305.63 27,773.90 32.76% -11.90% -6.73% -3.73% bearing General-used 74,452.54 56,962.98 23.49% 148.06% 150.13% -0.63% bearing The main business according to the products Export 24,083.44 23,713.70 1.54% 16.86% 6.05% 10.04% Home 194,169.80 155,454.14 19.94% 28.19% 29.28% -0.68% Bearing and 21,054.85 19,787.21 6.02% -9.24% 0.90% -9.44% component (3). Main products and the market share 1). The market share of main products of the company (bearings) Order Product Name Occupation ratio (%) 1 Traffic bearing 41% 2 Specialized—use bearing 31% 3 General—use bearing 21% 2). In the report period, the main business or its structure, main business profitability didn’t change much compared with the last period. 1.1.3The financial situation, operating achievements and the analysis on the changes Unit : RMB yuan Items Year of 2008 Year of 2007 +/-(%) Total assets 2,869,772,017.86 2,665,493,049.26 7.66% Long-term borrowings 149,500,000 339,500,000 -55.96% Shareholders’ equity 1,300,780,197.09 1,213,931,102.54 7.15% operating profits 126,734,036.15 92,177,895.82 37.49% Net profits available for holding 102,953,094.55 88,209,124.81 16.71% shareholder Note: The long-term due borrowings transferred into the non-current liabilities within 1 year expire, leading to the long-term borrowings reducing. The reason why the net profits available for the holding shareholder increasing was that the product structure adjustment and price raising leading to the sales income increasing. 1.1.4 The changes in asset structure of the company in the report period : Unit: RMB Yuan Year of 2008 Year of 2007 Assets composing Proportion Proportion +/-(%) Amount occupying to Amount occupying to total assets (%) total assets (%) Receivables 701,641,881.64 24.45% 715,568,113.20 26.85% -1.95% Inventories 1,072,250,663.70 37.36% 913,169,979.17 34.26% 17.42% Long-term equity 78,810,523.20 2.75% 80,713,952.56 3.03% -2.36% investment Fixed assets 573,368,279.75 19.98% 563,385,979.48 21.14% 1.77% Construction in 71,494,307.74 2.49% 84,886,793.12 3.18% -15.78% progress Short-term 325,393,777.75 11.34% 233,470,235.14 8.76% 39.37% borrowing long-term borrowing 149,500,000.00 5.21% 339,500,000.00 12.74% -55.96% 18 1.1.5 The expense of the company in the report period : Unit :RMB yuan Expenses Year of 2008 Year of 2007 +/-(%) Sale expenses 142,615,399.27 141,321,510.73 0.92% Management expenses 88,652,341.44 78,693,679.96 12.65% Financial expenses 34,946,715.34 39,866,101.99 -12.34% Income taxes 23,721,408.49 16,700,779.31 42.04% 1.1.6 the structure of cash flow of the company in the report period : Unit : RMByuan Index Year of 2008 Year of 2007 Net cash flow from business activities 168,283,672.09 108,510,664.46 Net cash flow from investment activities -43,355,447.85 -135,735,407.28 Net cash flows form financing activities -62,065,717.73 -37,439,898.12 Net increment or decrement of cash and the equivalent 60,429,255.59 -65,269,208.63 1.1.7. General operating situation and performance of the holding company and joint stock company : 1) the situation of the controlled companies : Legal Establishm Registered Owned Nature or type Name Registered address Main business Representativ ent date capital capital of economy e No. 1, Section 1, General USD Produce bearings and Joint venture Beigongji Street, 1996.03.28 75% Wang Lushun Bearing 4,510,000 relative products Company Wafangdian Dalian Produce and sell Liaozhou No. 61, Weiguo Rd, Baita RMB Company 1996.11.22 100% bearings and machinery Feng Lijie Co., Ltd. Disc, Liaoyang City 19,350,000 Limited manufacture 2)Operating situation and performance of the holding company and joint stock company : Unit: RMB Yuan Name of invested company Equity share Main Business Total Profit Net profit percentage income Liaoyang Bearing Co., Ltd. 100% 81,584,070.14 652,986.01 652,986.01 WaTong Bearing Co., Ltd. 75% 2,299,484.23 -118,619.98 -118,619.98 Dalian SKF Wazhou Bearings Co., ltd. 49% 163,241,937.57 31,699,421.03 23,694,039.98 Shanghai Zhenxin Wazhou 40% Mechanical & Electrical Product Sales 3,832,969.87 -125,630.56 -155,028.55 Co., Ltd. Shanghai Aimuyi Mechanical & 4.76% Electrical Equipment Chain Co., Ltd. 277,546,118.69 16,248,734.58 16,264,759.46 3) Holding & joint stock company that investment gains can occupy over 10% of net profits of the company: Unit: RMB’ Yuan Name of joint stock company SKF Wazhou Bearing Co.,Ltd. The investment gains contributed in this Occupies % of net profit of the term 8,861,398.73 listed company 8.61% 19 Joint stock Operation scope Produce and sale of spherical roller bearing company Net profit 23,694,039.98 1.1.8 Information on main suppliers and clients 1). Total purchasing amount payable to the first five suppliers reach up to 44,850 RMB’0000 Yuan, which is equivalent to 33.03% of the total purchasing amounts. 2). The total sales amount collectable from the first five customers reach up to50,137.06 RMB’0000 Yuan, which is equivalent to 26% of the total sales value of the company. 1.2 The outlook of the company : 1.2.1The industry developing trend and the competition 1.2.1.1The industry developing trend The production volume of the domestic bearing industry has had a great increase in 10 years. The sales amount is following Japan, Germany and Sweden and ranks the 4th in the world. It is the critical point to step the world powerful bearing country. The global manufacturing industries are transferring their business to china, and series of the equipment and manufacture industries revival policies release. All these provide a sound market environment for the bearing industry development. According to the forecast of the bearing industry association, the bearing demand will reach up to 10.6 billion sets in 2010, increasing by 125.53% compared with year of 2005, thus, the domestic bearing industry will be prosperous in the coming years. 1.2.1.2The market competition The world famous companies secure a place in china quickly. The investment has been increased and the scope has been widened. With the more market opening, the import bearings flooded into and the price continuously decreased, so the price advantage of the domestic bearing will be weakened, the competition will be more drastic. The private companies develop quickly , and their market share is enlarging ; although the market share of state-owned or state holding companies is decreasing , they still play an important roles in the self-researched products , the certificates and importance of the products , and the contribution to the bearing Industry. 1.2.2 The chances that management concerned With the economy globalization and the high-speed development of china economy, especially the execution of the strategy of reconstruction of north-east industry bases and equipment manufacture industries, and the booming market demand, the company will get good chances in terms of market, policy and development. In 2009, the management will seriously practice the scientific development idea, guided by the “market expansion, structure adjustment, and increase guarantee”, orientate to the high-tech market, focus on developing high-tech products, improving the efficiency and quality guarantee ability and realizing the energy conservation and environment protection, stress the research ability , technology manufacture ability and the inspection and testing ability, put the technique development in the first place, launch the market development and the structure adjustment with the technique creation, push the company’s development with the technique development; revolve around improving the operation quality and profitability, fully change the operation increase way; establish the international sales service network; roundly exercise the value-added service, speed up the realization of target, realize the new breakthrough of operation ; fully push the management creation to accord with the international standards ; stick to human-oriented , enhance the construction of human resources , increase the welfare and salary , make the company come into the high-speed development and welcome and celebrate the 70-year anniversary with the excellent performance . 1.2.3 The negative factors of realization of the future development strategy and operation target 1) The global crisis makes the market situation worse, so does the Chinese equipment and manufacture industry. 2) The company faces the increase way changing, which transfers the quantity increase to the increase of self-research ability, bearing’s types, the high accuracy, high-tech and high value-added products, as well as 20 production ability of the special-used bearing. 3) The overseas companies swarmed in china, which quicken the steps to share the market with advance technology and substantial power. 4) The private companies develop rapidly. The mechanism of the emerging companies is supple. Under the same tax policies circumstance, the private companies have less social burden, and possess the high productivity as well as flexible marketing mechanism. 2 the company’s investment in the report periods: 2.1 Investment situation of B-share fund Up to the year 2002, the entire B-share fund has been run out on the promising investment items. So there was no raise of B-share funds in 2008. 2.2 Investment situation of non B-share fund: In 2008, the company plans to make the non B –share investment of 184.68 million RMB, up to the end of Dec. 2008, the company has made investment of 93.36 million RMB with achieved rate of 50.55%. The main reform projects in 2008 includes: DaLian factory moving and reforming, the machine precision bearing reform, the big-size bearings reform, the cage of precision bearing reform, the heat treatment equipment project, and update equipments of the lorry bearing, the roller and the automobile bearing. 2.3 Gain from investment situation The gain from investment of 2008: Dalian factory moving and reforming project has finished the workshop infrastructure and has been building the main body, which estimated to come into production in October, 2009. The technique equipment with high-accuracy and precision bearing has the mass production capacity. The precision bearing products standard reached the world first class, achieved the alternative import and the sales amount reached 170million RMB. The annual capacity of the big-size bearings reached 40thousand sets, and the sales amount reached 315million RMB. The capacity of producing precision machine tools bearings matched cage makes the precision bearings reaching the international advance standard roundly. Purchasing and installing a bainite heat treatment product line, improves the interior quality of the bearing products and capability, reliability as well as the life span. 3. Proposal on the resigning welfare adjustment In 2007, according to the new enterprise accounting rules relative stipulation about resigning welfare, the company planned to be accrual of impairment provisions with staff resigning compensatory payment 20,195,173.00 Yuan, which conforms to the estimate debt confirmation condition, in terms of the staff resigning plan (the plan of resigning staff 467 ). During the actual execution process, some staff haven’t resigned on schedule in the original plan In 2007 and 2008. 1n September, 2008, affected by the financial crisis, the national economic is slid. According to the DaLian Municipal government office [2009] 7th documents, that is “On Controlling And Standardizing Employer Cutting down the staff Related issues Notice” which stipulated the state-owned and the State-owned equtiy-held enterprise donot cut down the staff's, thus, the company will never cut down staff before 2009. Therefore this part of personnel resigns the compensatory payment 13,789,618.00 Yuan to flush, affected the reduction of staff salary 13,789,618.00 Yuan, and the increase of surplus reserve 2,068,442.70 Yuan. Date back to the 2007; the undistributed profit should correct to be 11,721,175.30 Yuan. Some staff has to resign the labor contracts, who haven’t resign on schedule in the original resigning plan. Please review and approve. 4. Daily work of the Board of Directors 4.1 The meetings and resolutions of the Board of Directors in the report period Four board meetings were held in the report period. The details are as follows: (1) The 7th meeting of 4th board session of the Company The 7th meeting of 4th board session was held on Jan. 25, 2008. The resolutions of the board meeting released at Securities Time, Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on 21 Jan. 26, 2008. (2) The 8th meeting of the 4th board session of the Company: The 8th meeting of the 4th board session was held on Apr. 24, 2008. The resolutions of the board meeting released at Securities Time, Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Apr. 29, 2008. (3) The 9th meeting of the 4th board session of the Company: The 9th meeting of the 4th board session of the Company was held on Aug. 15, 2008. The resolutions of the board meeting released at Securities Time, Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Aug. 19, 2008. (4) The 10th meeting of the 4th board session of the Company: The 10th meeting of the 4th board session of the Company was held on Oct. 22, 2008. The resolutions of the board meeting released at Securities Time, Hong Kong Commercial Newspaper and Hong Kong WenWei Po published on Oct. 24, 2008. 4.2. Execution of resolution of shareholders’ meeting 3.2.1 In the report period, the board of directors has fulfilled its duties in accordance with authorization of the shareholders’ meeting and the power scope regulated in AOA. The BOD effectively supervised the operation activities: production and operation plan and operating targets fixed at the year-beginning, and has finished the work authorized by the shareholders’ meeting such as profit distribution of 2007. 3.2.2 The draft of profit distribution of 2008 and profit distribution budget of 2009 The profit distribution draft of 2008 is as followings: According to the audit report offered by Shine Wing Auditing Firm, the annual net profit attributable to the holding company shareholder is 102,953,094.55 RMByuan; The statutory and free surplus public reserves is separately provided based on the tax-excluding net profits of parent company with a proportion of 10% and 20%; the profit available for the shareholders is 72,067,166.19 RMByuan; the undistributed profits at the year-beginning is 255,381,608.46 RMByuan; the total profits attributable to shareholders is 327,448,774.65 RMByuan. Based on the total capital stock of 402,600,000shars at the end of 2008, 0.4RMB Yuan will be paid per 10 shares (including tax), totally allocates cash of 16,104,000.00 RMByuan. The profits distribution plan of 2009 will be decided by the board of directors according to the actual situation. Above proposal should be submitted to 2008 annual shareholders’ meeting for approval. 3.2.3 The cash distribition situation in the last 3 years Unit: RMB yuan The net profit attributable to the The amount of cash Year holding company shareholder in The ratio distribution(tax included) the consolidated sheet 2007 16,104,000.00 88,209,124.81 18.26% 2006 14,091,000.00 45,136,792.00 31.22% 2005 16,500,000.00 30,840,267.03 53.50% 4.2.4 Execution situation of allotment of share, new issue in the report period There were no allotments of share, new issue in the report period. 4.2.5 In this report period, the shine wing Certified Public Accountants offered the standard and unreserved auditing report. 4.2.6 In this period, the shine wing Certified Public Accountants offered the special explanations on the capital employment by the holding shareholder ands other related parties. 22 4.3 The summary work report of the Auditing Committee of the Board of Directors 4.3.1 The Auditing Committee advised twice for the financial report of 2008 The Auditing Committee advised twice for the financial report of 2008. Before the annual auditing, the Auditing Committee showed its advice of the non-audited financial statements in a writing form for the first time, which after preliminary read of the financial statements of 2008, we think the company is in line with the regulations of New Accounting Rules, selects the correct accounting policies and right accounting estimation combining the actual situation of the company. We agree to start the auditing based on the financial statements, which truly show the financial situation, operating results and cash flow of 2008, After the CPA offered the initial version of the auditing report, the Auditing Committee review it immediately and communicate with the CPA, then show the second advices, that is, there is no dispute between the CPA and we on the important issues of the annual financial report, the preliminary audited financial statements basically show the operation results of 2008 , we agree to make the annual report of 2008 on the basis of these financial statements and submit it to the board meeting for approval . 4.3.2 The information of supervision the auditing of CPA During the auditing, the Auditing Committee concerned the auditing progress, and urged CPA to quicken, to offer the preliminary auditing on schedule and full complete the annual financial statements auditing. 4.3.3 The summary report of 2008 Annual Auditing Work of the Auditing Firm During the annual auditing, through communicating with Auditing Firm and examining the initial version of the annual auditing report, the Auditing Committee of the company thought that the Auditing Firm was strictly in accordance with the auditing statutes and rules, focused upon investigating the company and its operation environment, and the setup, improvement and practice of interior controls, with a quite strong risk consciousness, and completed the auditing work in time. The Auditing Committee of the company also considered that the current Auditing Firm took independence and prudence as its principles, and had well completed the 2008 annual financial auditing work and showed the objective and justice auditing report . 4.3.4 The proposal of engagement of the Auditing Firm of 2009 The Auditing Committee of Board of Directors considered that Shine Wing (HK) CPA Firm has standard occupation moral, professional auditing team and the ability of auditing for big listed company, so proposed to continue to engage shine wing (HK) CPA Firm as the Auditing Firm of 2008. 4.4 The summary work report of the Remuneration Committee of Board of Directors The Remuneration Committee was a special organization set up by the Board of Directors according to the AOA, which is responsible for researching and stipulating the examination standard of directors and top management, taking examinations and providing advice, stipulating and examining the remuneration policies and proposals of directors and top management. The Remuneration Committee consists of two independent directors and one director, and the Chief Commissioner is occupied by an independent director. In this report period, the Remuneration Committee examined the remuneration of directors, supervisors and top management according to the realization of 2008 annual main financial figure and operation target, and the situation of the main duty charged by top management. After auditing, the Remuneration Committee confirmed that the remuneration of the directors, supervisors and top management disclosed in the annual report is true, accurate, and accords the remuneration examining standard, and agree with the payments disclosed in the annual report. Chapter Eight. Work report of the Board of Supervisors In 2008, the board of supervisors fulfilled its duties and obligations according to Company Law and the AOA, and participated in all the activities of the Company and expressed its opinions. 23 1. Meetings in the report period Three meetings have been held in the report period: 1.1 The 5th supervisor’s meeting of 4th session of the Company was held at 16 O’clock, Apr. 24, 2008 at Meeting Room 307 of WBGC headquarters. The notice was sent in written on Apr.14, 2008. 4 supervisors attended and 1 supervisor was absent. The supervisor Mr.Li Zhixin was absent due to busy work, and authorized supervisor Ms.Wei Lifang to present. General Accountant of the company also attended meeting. The meeting was opened in accordance with the Company Law and AOA. After discussion, following resolutions made: (1).Discussed and unanimously passed 2007 annual Financial Final Reports (after audit) by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (2).Discussed and unanimously passed 2007 annual report of board of supervisors by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (3).Discussed and unanimously passed 2007 annual presupposed profit distribution plan by 5 approving vote, 0 rejecting vote and 0 abstaining vote. (4).Discussed and unanimously passed the proposal of daily related transaction of 2008 by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (5).Discussed and unanimously passed the proposal of accounting rules changing by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (6).Discussed and unanimously passed the proposal of engaging the certified public accountants of 2008 and the remuneration by 5 approving vote, 0 rejecting vote and 0 abstaining vote; (7).Elected by 339 employee representatives, Mr.Jiang Yulin and Ms.Wei Lifang come in the 4th board of supervisors’ member. 1.2 The 6th supervisor’s meeting of 4th session of the Company was held at 16 O’clock, Aug.15, 2008 at Meeting Room 307 of WBGC headquarters. The notice was sent in written on Aug.5, 2008. All supervisors attended. General Accountant of the company also attended meeting. The meeting was opened in accordance with the Company Law and AOA. After discussion, following resolution made: Discussed and unanimously passed the 2008 Mid-year report and abstract by 5 approving vote, 0 rejecting vote and 0 abstaining vote. 1.3 The 7th supervisor’s meeting of 4th session of the Company was held at 16 O’clock, Oct.22, 2008 at Meeting Room 307 of WBGC headquarters. The notice was sent in written on Oct. 12, 2008. All supervisors attended. General Accountant of the company also attended meeting. The meeting was opened in accordance with the Company Law and AOA. After discussion, following resolution made: Discussed and unanimously passed the 3rd quarter report of 2008 by 5 approving vote, 0 rejecting vote and 0 abstaining vote; 2. Statutory operation of the Company According to the Company Law of PRC and AOA, Board of Supervisors actively participated in the operation and management of the company, performed the obligations of tracking down the company legally operation situation and examined the financial situation. 2.1 Statutory operation of the company. In the report period, the decision-making procedure is regulative, and strictly executes relative laws, ordinances of the state and has established perfect interior controlling system. The supervisors supervised the fulfillment of function of the directors and managers, and didn’t find any violating laws, legal regulations, AOA or harming the interest of the Company. 2.2 Examination of the accounting of the Company In this report period, Shine wing Certified Public Accountants offered standard and unreserved auditing report. The board of supervisors considered that the audited financial report truly, accurately and fairly showed the financial situation and operation results, and there were no actions against the accounting rules and the relative stipulations of information disclosure. 24 2.3 The related transactions of the company were performed with the fair and reasonable price, and haven’t harmed the interest of listed company. . Chapter Nine. Important events 1. In the report period, the Company had no major lawsuits and arbitration. 2. In the report period, no purchasing or sales of significant assets, acquisition and merger. 3. Important associated transactions The company has been always taking the fairness, rightness and openness as the principles of the associated events and associated transactions, and following the principle of sufficient disclosure of the information of relative associated transactions. 3.1 The significant associated transactions of purchasing products(merchandise)or receiving labor in the report period : Proportion occupying Relative parties Content Principle of price Amount to same settlement transactio n Wafangdian precision steal Components Priced by market 17,021,372.30 0.51 Pay by cash ball bearing Manufacturing Lease of Co. Priced by market 106,700.00 100 Pay by cash housing Lease of Priced by market 261,012.00 100 Pay by cash housing WaFangdian Precision Components Priced by market 524,798,867.21 15.66 Pay by cash forging and pressing Co., Ltd. Lease of landing Priced by market 385,766.56 100 Pay by cash Dalian Wafangdian Bearing Group Corp. bearing Material Priced by market 26,428,706.42 0.79 Pay by cash equipment manufacturing Co. WBGC Slewing Bearing Bearings Priced by market 285,552,326.69 8.52 Pay by cash Co.,Ltd Dalian SKF Wazhou Bearing Priced by Bearings 167,641,367.73 5.00 Pay by cash Co., Ltd agreement Security and fire-fighting Priced by market 3,290,900.00 100 Pay by cash service Propagandize Priced by market 800,700.00 100 Pay by cash service Develop of technology Priced by market 5,400,000.00 100 Pay by cash service Wafangdian Bearing Group Use of Corp Priced by market 21,685,000.00 100 Pay by cash trademark Lease of land Priced by market 463,040.00 100 Pay by cash Lease of Priced by market 213,200.00 100 Pay by cash housing Lease of Priced by market 6,999,359.00 100 Pay by cash workshop Guarantee for Priced by market 248,000,000.00 100 Pay by cash borrowing 25 3.2 the significant associated transactions of selling products (merchandise)or offering labor : Proportion Principle of occupying to Relative parties Content Amount settlement price same transaction Priced by the Wafangdian precise Material 10,765,654.51 0.36 Pay by cash agreement steal ball bearing Priced by the Manufacturing Co. Components 71,563.91 0.00 Pay by cash agreement The outer sales Priced by Bearings 77,135,372.73 2.59 Pay by cash companies of WBGC market Wafangdian Priced by the Precision forging and Material 454,699,501.79 15.27 Pay by cash agreement pressing Co., Ltd. Dalian Wafangdian Bearing Group Corp. Priced by Material 2,895,993.86 0.10 Pay by cash Bearing Equipment market Manufacturing Corp. WBGC Slewing semi-manufactured Priced by the 135,240,074.00 4.54 Pay by cash Bearing Co.,Ltd products agreement Priced by the Components 51,264,589.48 1.72 Pay by cash agreement Dalian SKF Wazhou Bearing Co., Ltd Priced by the Components 3,176,362.58 0.11 Pay by cash agreement Wafangdian precision Priced by Material 1,705,335.52 0.06 Pay by cash transmission driving market bearing Co.Ltd After negotiation by the company and the WBGC, the company should pay the trademark use fee because its products were all sold with “ZWZ” trademark of WBGC marked. In 2008, based on the agreement between company and the WBGC ,the company should pay trademark use fee of 21,685,000.00 RMByuan, and 24,378,897.47 RMByuan have been paid in this period . In 2008, the company and the Wafangdian Precision forging and pressing Co., Ltd.signed the “lease of land use proporty right”contract. The land covers 482,20.82 square meters. The rent period is from Jan1,2008 to Dec 31, 2009. The lease fee is 385,766.56RMB in this period . The funds were all repaid in current month or the following month In 2008, the company and the Wafangdian Precision forging and pressing Co., Ltd.signed the “lease of worshop proporty right”contract. The land covers 8,249.00 square meters. The rent period is from Nov.1 ,2008 to Otc 31, 2009. The lease fee is 261,012.00 RMB in the period. The funds were all repaid in current month or the following month. The company and the Wazhou Group signed the lease of land agreement on Jan 5, 2008. The land covers 37,768.00 square meters, which is No.0862 普国有（1993）字. The land covers13,710.00 square meters, which is No.43 沙国有（1993）字. The rent period is from Jan 1 ,2008 to Dec31, 2008. The lease fee is 463,040.00 RMB in the period.YTD Dec 31,2008, the funds haven’t paid. The Company entered into a building lease contract with Wazhou Group on 5 January 2007 to support its operating activities.The rental period is from 1 January 2008 to 31 December 2008. The rented area is 2,605.8 m². The rental for the year was RMB 213,200.00. The rental was paid at 31 December 2008. The Company entered into a building lease contract with Wazhou Steel Ball Company on 5 January 2008 26 to support its operating activities.The rental period is from 1 January 2008 to 31 December 2008. The rented area is 1,233.75 m². The rental for the year was RMB 106,700.00. The rental was paid at 31 December 2008. Special Large Bearing Branch of the Company and Precision Bearing Branch of the Company were founded in 2007.Two branches rent the bulidings of induestial park of Wazhou Group as the workshop. Pursuant to Lease Contract signed with Wazhou Group on October 20 2007, the rental period from January 1 2007 to December 31 2011, the rental for this year is RMB 4,335,500.00, and the outstanding at the ended 31 December 2007 was RMB 3,003,005.60. Roller Branch and No. 2 Branch of the Company entered into a building lease contract with Wazhou Group on January 20 2008. The rental period from January 1 2008 to December 31 2012, the retal for the year is 2,663,859.00. The rental for this year is not paid for Wazhou Group as at December 31 2008. The land, house, workshop and trademak”ZWZ” is the necessity expense of company development and operation, so are Security and fire-fighting service, propagandize service and development of technology service. All the transcation, such as purchasing components, bearings, steels and other materials, are the normal operation activies for the company. So does the SKFwazhou. All the related transction are the daily business activities, based on the equal and mutual benefit, strictly executed by the relative agreement, which haven’t hurt the listed company’s interests and have no heavy influence on the financial situation and operation results, as well as the independent of the company. 4. the Information that the company entrusted, contracted and leased other company’s assets or other company entrusted ,contracted and leased the company’s assets The Company rented the land use right and part of workshops from its holding shareholder---Wafangdian Bearing Group Corporation, the Company’s subsidiary Company Wafangdian General Bearing Company Limited rented the workshops of the Company. The Company rented the workshops of Wafangdian Bearing Precision Steel Manufacturing Company Limited and an office building of Wafangdian Bearing Group Corporation. In the report period, the Company used ZWZ trademark of WBGC with compensation. In the year of 2008, the company has paid the trademark use fee of 24,378,897.47 RMByuan（including the last period payment）.. 5. In the report period , the company had no significant contract . 6. Up to the report period, the major guarantee of the company In 2002 , the company provided credit guarantee for the subsidiary Liao Yang forging and pressing machine Co. Ltd. to get a bank loan , which amounts to 3,150,000.00 RMByuan with guarantee term from Dec.25, 2002 to July.5, 2003. Ended on Dec.31, 2008 , the Liao Yang forging and pressing machine Co. Ltd had not repaid this borrowing . 7. In the report period, the Company did not entrust any other organization to manage its cash and assets. 8. The company, the shareholders with more than 5% (include 5%) shares of the company didn’t disclose any promising items on the appointed newspaper and websites. 9. In the report period, the situation of continuously engaging, changing or dismissing the certified public accountants. In the report period ,the company decided to continuously engage shine wing (HK) CPA as the auditing firm of 2008, which charges the annual audit of 450 thousand RMB yuan and provides the auditing service for three successive years; In the report period, the subsidiary Wafangdian Gneral bearing manufacturing Co.Ltd continuously engaged the shine wing (HK) CPA as the auditing firm of 2008, which charges the annual audit of 20 thousand RMB yuan and provides the auditing service for three successive years; In the report period, the subsidiary LiaoYang bearing manufacturing Corp.Ltd engaged the shine wing (HK) CPA as the auditing firm of 2008 , which charges the annual audit of 30 thousand RMB yuan and 27 provides the auditing service for three successive years . 10. In the report period, neither did the company, board of directors and the directors have check, administration penalty or criticism from CSRC nor publicly condemned by the Shenzhen Stock Exchange. 11. The reception of visitor According to the Index of Fair Disclosure of Information of Listed Company published by Shen Zhen Stock Exchange , the company has improved the management of information disclosure, further standardized the work and procedures of interior control of information disclosure, reception, promotion so that the company’s information disclosure was strictly under the principle of open ,fair and justice . In this period of time, there were no unfair information disclosure due to the investigation and visit of the special person. Followings were the details: Time place Method Unite Contents The operation situation and Mar.14, The office of secretary of Gao Sheng Gao Hua Spot Investigation the development strategy in 2008 board of directors securities Co.Ltd the future June.16, The office of secretary of Xi Jing investment The general information of Spot Investigation 2008 board of directors Co.,Ltd the company The office of secretary of Heng Mao Assets The operation information of July17,2008 Spot Investigation board of directors Management Co.,Ltd the company The business scope , the The office of secretary of Morgan Stanley products and the order-taking Aug.5, 2008 Telephone board of directors investment bank situation of the company , and the outlook of company 12. The 2007 annual auditing report was signed by the CPA Ye Shaoxun and Chao Xiaoyan. The 2008 annual auditing report was signed by the CPA Ye Shaoxun. 13. The disclosure information The important information was all published on the securities times, HongKong commercial newspaper, the Wen Wei Po HongKong, and http://www.cninfo.com.cn . Date Items Announcement of resolution of the 7th meeting of the 4th board session; Jan.26, 2008 Announcement of annual predicted increase of business results. Announcement of resolution of the 8h meeting of the 4th board session; Announcement of resolution of the 5th meeting of the 4th board of supervisors; Apr. 29, 2008 Announcement of daily related transactions of 2008; the annual report of 2007; the 1st quarter report of 2008 May. 28, 2008 The notice of holding the 2007 annual shareholders’ meeting Jun. 19, 2008 Announcement of resolution of 2007 annual shareholders’ meeting July 16, 2008 Announcement of Mid-year predicted increase of business results. The announcement of dividend distribution of 2007; Explanations on the special July 31, 2008 governing and managing of the company report The announcement of resolution of the 9th meeting of the 4th board session; the Aug.19, 2008 Mid-year report of 2008. Oct. 14, 2008 The announcement of the 3rd quarter predicted increase of business results Oct.24, 2008 The announcement of the 3rd quarter report 28 Chapter Ten Finance Statements Auditor’ Report (English Translation for Reference Only) XYZH/2008A7018 he Board of Directors and Shareholders To Shareholders of Wang Fang Dian Bearing Company Limited： We have audited the accompanying financial statements (consolidated and company) of Wang Fang Dian Bearing Company Limited (“the Company”), which comprise the balance sheet as at 31 Dec. 2008, and the income statement, and cash flow statement, and the statement of changes in equity for the year then ended, and notes to the financial statements. Management's Responsibility for the Financial Statements The Company’s management is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises and the Accounting Regulations for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China. This responsibility includes: designing, implementing and maintaining interior control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with China’s Auditing Standards for the Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers interior control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s interior control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements comply with the requirements of the Accounting Standards for Business Enterprises and the Accounting Regulations for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China and present fairly, in all material respects, the financial position of the Company as at 31 Dec.2008, and the results of operations and cash flows of the Company for the year then ended. ShineWing Certified Public Accountants Registered in the People’s Republic of China [Name of CPA1] Ye Shaoxun [Name of CPA2] Chao Xiaoyan [Date]2009-4-22 29 Wa Fangdian Bearing Co.,Ltd Balance Sheet From 2008.01.01 to 2008.12.31 Unit:RMByuan 2008.12.31 2008.01.01 Item Consolidated Parent Consolidated Parent Current assets ： Monetary fund 129,512,540.80 128,066,634.31 75,233,285.21 73,822,830.51 Financial assets held-for-trading Bills receivable 61,344,054.83 61,344,054.83 48,103,503.04 48,103,503.04 Account receivable 701,641,881.64 683,979,031.00 715,568,113.20 694,123,154.69 Account paid in advance 5,355,110.87 4,302,394.09 12,648,978.96 11,669,432.57 Interest receivable Other receivables 10,688,266.07 7,481,880.49 10,601,429.34 7,345,320.80 Inventory 1,072,250,663.70 1,006,291,300.51 913,169,979.17 852,502,171.17 Non-current assets due within 1 year Other current assets 309,149.38 309,149.38 374,565.91 374,565.91 Total current assets 1,981,101,667.29 1,891,774,444.61 1,775,699,854.83 1,687,940,978.69 Non-current assets Financial assets available-for-sale Investments held-to-maturity Long-term receivable Long-term equity investment 78,810,523.20 125,256,859.80 80,713,952.56 127,160,289.16 Investment property Fixed assets 573,368,279.75 562,834,590.51 563,385,979.48 550,890,501.05 Construction in progress 71,494,307.74 70,884,787.01 84,886,793.12 84,277,272.39 Construction materials Fixed assets disposal Biological assets Gas and petrol assets Intangible assets 144,793,523.11 144,793,523.11 148,922,178.35 148,922,178.35 Development expenditure Goodwill Long-term prepaid expense 2,276,409.35 2,276,409.35 3,016,919.03 3,016,919.03 Deferred tax assets 17,927,307.42 16,955,726.02 8,867,371.89 7,586,030.37 Other non-current assets Total non-current assets 888,670,350.57 923,001,895.80 889,793,194.43 921,853,190.35 Total assets 2,869,772,017.86 2,814,776,340.41 2,665,493,049.26 2,609,794,169.04 Wa Fangdian Bearing Co.,Ltd Balance Sheet (continue) From 2008.01.01 to 2008.12.31 Unit:RMByuan Current liabilities Short-term loan 325,393,777.75 304,233,542.61 233,470,235.14 207,000,000.00 Note payable 115,330,000.00 115,330,000.00 102,187,200.00 102,187,200.00 Accounts payable 632,582,740.43 591,553,783.91 492,774,489.35 458,495,088.93 Accounts received in advance 29,344,299.86 23,259,217.24 30,749,009.85 23,194,403.71 Commission charge payable Accrued payroll 29,872,800.60 20,072,752.22 32,589,820.52 21,411,365.83 Tax payable -402,118.38 -6,521,357.08 10,019,824.97 4,212,741.93 Interest payable 0.00 0.00 550,000.00 550,000.00 Dividends payable Other payables 87,802,183.41 82,874,804.88 106,662,693.80 100,737,326.10 Non-current liabilities due within I year 190,000,000.00 190,000,000.00 100,000,000.00 100,000,000.00 Other current liabilities 27,463.10 27,463.10 121,344.10 121,344.10 30 Total current liabilities 1,409,951,146.77 1,320,830,206.88 1,109,124,617.73 1,017,909,470.60 Non-current liabilities Long-term loan 149,500,000.00 148,000,000.00 339,500,000.00 338,000,000.00 Debenture payable Long-term payables 100,000.00 0.00 100,000.00 0.00 Special payables 201,698.98 201,698.98 201,698.98 201,698.98 Contingent liabilities Deferred tax liabilities Other non-current liabilities 6,633,000.00 6,633,000.00 0.00 0.00 Total non-current liabilities 156,434,698.98 154,834,698.98 339,801,698.98 338,201,698.98 Total liabilities 1,566,385,845.75 1,475,664,905.86 1,448,926,316.71 1,356,111,169.58 Owner’s equity (shareholders’ equity) Capital stock 402,600,000.00 402,600,000.00 402,600,000.00 402,600,000.00 Capital public reserves 485,431,518.07 482,563,945.37 485,431,518.07 482,563,945.37 Less:treasury share Surplus reserve 101,403,904.38 101,403,904.38 70,517,976.01 70,517,976.01 Undistributed profit 311,344,774.64 352,543,584.80 255,381,608.46 298,001,078.08 Difference of foreign currency translation Equity attributable to parent company 1,300,780,197.09 1,339,111,434.55 1,213,931,102.54 1,253,682,999.46 Minority interest 2,605,975.02 0.00 2,635,630.01 0.00 Total owner’s equity 1,303,386,172.11 1,339,111,434.55 1,216,566,732.55 1,253,682,999.46 Total owner’s equity and liabilities 2,869,772,017.86 2,814,776,340.41 2,665,493,049.26 2,609,794,169.04 Wa Fangdian Bearing Co.,Ltd Income statement From 2008.01.01 to 2008.12.31 Unit:RMByuan 2008.12.31 2008.01.01 Item Consolidated Parent Consolidated 1.Total operating income 2,978,120,632.05 2,927,127,375.11 2,491,512,622.68 2,437,456,144.84 Including: Operating revenue 2,978,120,632.05 2,927,127,375.11 2,491,512,622.68 2,437,456,144.84 Interest income Handling charge and commission income 2.Total operating cost 2,860,185,983.21 2,807,008,330.93 2,408,901,944.99 2,352,709,762.74 Including: Operating cost 2,532,813,927.93 2,499,787,579.06 2,126,908,837.38 2,091,239,602.43 Interest expenses Handling charge and commission income Tax & surcharges for main operations 10,696,122.23 10,300,074.47 10,867,344.84 10,377,619.50 Selling expenses 142,615,399.27 140,846,092.26 141,321,510.73 137,908,669.44 Administrative expense 88,652,341.44 73,972,795.86 78,693,679.96 64,441,504.10 Financial expense 34,946,715.34 33,345,386.44 39,866,101.99 38,089,036.49 Loss of impairment of assets 50,461,477.00 48,756,402.84 11,244,470.09 10,653,330.78 Add:Gains of change of fair value of assets(loss with"-") Investment income(loss with "-") 8,799,387.31 8,799,387.31 9,567,218.13 10,645,919.28 Including: Income form investment on associated enterprise and jointly 8,799,387.31 8,799,387.31 9,567,218.13 10,645,919.28 enterprise 3.Operating profit (loss with"-") 126,734,036.15 128,918,431.49 92,177,895.82 95,392,301.38 Add: Non-operating revenue 12,692,548.02 7,450,556.18 13,851,321.71 12,084,847.85 Less: Non-operating cost 12,781,736.12 11,424,904.21 2,001,946.63 1,198,515.96 Including: loss on disposal of non-current 3,747,871.22 3,747,871.22 905,473.57 613,635.54 assets 4.Profit before tax(loss with"-") 126,644,848.05 124,944,083.46 104,027,270.90 106,278,633.27 Less: Income tax expenses 23,721,408.49 23,411,648.37 16,700,779.31 17,982,120.83 31 5. Net profit(Loss with"-") 102,923,439.56 101,532,435.09 87,326,491.59 88,296,512.44 Net profit attributable to shareholders of 102,953,094.55 101,532,435.09 88,209,124.81 88,296,512.44 parent company Minority interests -29,654.99 0.00 -882,633.22 0.00 6.Earnings per share (1) Basic earnings per share 0.26 0.26 0.22 0.22 (2) Diluted earnings per share 0.26 0.26 0.22 0.22 The financial statements attached in the Notes is a component of this statement . Wa Fangdian Bearing Co.,Ltd Cash Flow Statement From 2008.01.01 to 2008.12.31 Unit:RMByuan 2008.12.31 2008.01.01 Item Consolidated Parent Consolidated Parent 1.cash from operating activities Cash received from sale of goods or 1,539,179,133.65 1,464,738,454.98 1,374,594,255.77 1,374,813,073.97 rendering of services Refund of taxes and fares 11,561,241.71 11,561,241.71 11,936,085.47 11,936,085.47 Other cash received relating to operating 3,022,309.90 2,815,815.85 8,279,075.48 8,150,030.21 activities Sub-total of cash inflows 1,553,762,685.26 1,479,115,512.54 1,394,809,416.72 1,394,899,189.65 Cash paid for goods and services 937,885,897.51 893,116,415.78 836,010,014.78 866,644,253.99 Cash paid to or on behalf of the employees 222,105,818.90 206,208,398.01 219,691,997.81 202,130,780.73 Tax payments 130,649,107.52 126,138,716.53 90,872,913.41 84,499,492.00 Other cash paid relating to operating 94,838,189.24 87,474,326.98 139,723,826.26 131,301,503.28 activities Sub-total of cash outflows 1,385,479,013.17 1,312,937,857.30 1,286,298,752.26 1,284,576,030.00 Net cash flows from operating activities 168,283,672.09 166,177,655.24 108,510,664.46 110,323,159.65 2.Cash flows from investing activities Cash received from return of investment Cash received from investment incomes Net cash received from disposal of fixed assets, intangible assets and other 796,217.01 773,217.01 248,325.53 245,925.53 long-term assets Proceeds from sale of subsidiaries and other operating units Other cash received relating to investing activities Sub-total of cash inflows 796,217.01 773,217.01 248,325.53 245,925.53 Cash paid to acquire fixed assets, intangible assets and other long-term 44,139,364.86 43,289,533.86 135,983,732.81 135,339,104.81 assets Cash paid to acquire investment Net cash used in acquiring subsidiaries and other operating units Other cash paid relating to investing 12,300.00 12,300.00 0.00 0.00 activities Sub-total of cash outflows 44,151,664.86 43,301,833.86 135,983,732.81 135,339,104.81 Net cash flows from investment -43,355,447.85 -42,528,616.85 -135,735,407.28 -135,093,179.28 activities 3.Cash flows from financing activities Cash received from absorbing investment Including: Cash received from increase in minority interest 32 Proceeds from borrowings 472,037,422.72 472,037,422.72 831,170,000.00 831,170,000.00 Other proceeds relating to financing 10,709,364.49 10,709,364.49 11,411,245.15 11,411,245.15 activities Sub-total of cash inflows 482,746,787.21 482,746,787.21 842,581,245.15 842,581,245.15 Repayment of borrowings 500,529,467.81 500,219,467.81 822,310,000.00 822,310,000.00 Distribution of dividends or profits & 36,757,649.17 35,823,915.11 46,709,190.87 45,716,494.76 interest expenses Including: dividends or profit paid to minority interest Cash paid for other financing activities 7,525,387.96 7,525,387.96 11,001,952.40 11,001,952.40 Sub-total of cash outflows 544,812,504.94 543,568,770.88 880,021,143.27 879,028,447.16 Net cash flows from financing activities -62,065,717.73 -60,821,983.67 -37,439,898.12 -36,447,202.01 4. Effects of foreign exchange rate -2,433,250.92 -2,433,250.92 -604,567.69 -823,385.89 changes on cash 5.Net increases in cash and cash 60,429,255.59 60,393,803.80 -65,269,208.63 -62,040,607.53 equivalents Add:cash and cash equivalent, at the 65,233,285.21 63,822,830.51 130,502,493.84 125,863,438.04 beginning of year 6.Cash and cash equivalent at the end 125,662,540.80 124,216,634.31 65,233,285.21 63,822,830.51 of the year The financial statements attached in the Notes is a component of this statement . The above balance sheet, income statement, cash flow statement have been passed at the board meeting held on Apr.22, 2009. Charger : Zhang Xinghai Charger: Su Shaoli Wa Fangdian Bearing Co.,Ltd The Supplement of Cash Flow Statement From 2008.01.01 to 2008.12.31 Unit :RMByuan Items 2008 2007 Adjusting net profit into cash flows of operating activities Net profit 102,923,439.56 87,326,491.59 Add: Provision for impairment of assets 50,461,477.00 11,244,470.09 Depreciaton of fixed assets 82,746,845.17 61,722,687.84 Amortisation of intangible assets 4,363,099.68 4,546,070.55 Amortisation of long-term deferred expenses 740,509.68 411,035.27 Loss of disposal of fixed assets, intangible assets, and long-term assets (income listed with”-”) 2,976,798.78 -1,011,020.86 33 Loss of rejection of fixed assets (income listed with”-”) 0.00 0.00 Profit and loss in fair value (income listed with”-”) 0.00 0.00 Fiancial expense (income listed with”-”) 32,350,420.13 34,496,458.35 Investment loss(income listed with”-”) -8,799,387.31 -9,567,218.13 Decrease of deferred tax assets(increase listed with”-”) -9,059,935.53 820,445.90 Increase of deferred tax liabilities(decrease listed with”-”) 0.00 -949,220.87 Decrease of inventories(increase listed with”-”) -190,791,260.79 -94,225,417.11 Decrease of operating receivable (increase listed with”-”) 11,835,955.23 -128,811,986.75 Increase of operating payable (decrease listed with”-”) 88,535,710.49 142,507,868.59 Others 0.00 0.00 Net cash flows arising from operating activities 168,283,672.09 108,510,664.46 2.Significant investment and financing activities unrelating to cash income and expenses Liabilities transferred to capital 0.00 0.00 Convertible bonds within 1 year 0.00 0.00 Financing lease fixed assets 0.00 0.00 3. Net increase( decrease) of cash and cash equivalent Ending balance of cash 125,662,540.80 65,233,285.21 Less: Beginning balance of cash 65,233,285.21 130,502,493.84 Add: Ending balance of cash equivalent 0.00 0.00 Less: Beginning balance of cash equivalent 0.00 0.00 Net increase of cash and cash equivalent 60,429,255.59 -65,269,208.63 The financial statements attached in the Notes is a component of this statement . Wa Fangdian Bearing Co.,Ltd The breakdown of the impairment of assets Unit:RMByuan Decrease Items 2007.12.31 Increase Others 2008.12.31 Reverse transferred out Provision for bad debts 49,209,463.67 7,478,538.73 0.00 11,421,782.83 45,266,219.57 Provision for impairment of inventories 39,770,878.66 39,984,362.20 0.00 8,273,785.94 71,481,454.92 Provision for impairment of financial 0.00 0.00 0.00 0.00 0.00 assets held for sale Provision for impaiment of investment 0.00 0.00 0.00 0.00 0.00 held for maturity Provision for impairment oflong term 0.00 0.00 0.00 0.00 0.00 equity investment Provision for impairment of investment 0.00 0.00 0.00 0.00 0.00 34 property Provision for impairment of fixed assets 1,424,606.14 2,998,576.07 0.00 81,343.90 4,341,838.31 Provision for impairment of project 0.00 0.00 0.00 0.00 0.00 materials Provision for impairment of construction 1,403,093.55 0.00 0.00 0.00 1,403,093.55 in progress Provision for impairment of biological 0.00 0.00 0.00 0.00 0.00 assets Provision for impairment of oil & gas 0.00 0.00 0.00 0.00 0.00 assets Provision for impairment of intangible 0.00 0.00 0.00 0.00 0.00 assets Provision for impairment of reputation 0.00 0.00 0.00 0.00 0.00 Others 0.00 0.00 0.00 0.00 0.00 Total 91,808,042.02 50,461,477.00 0.00 19,776,912.67 122,492,606.35 Wa Fangdian Bearing Co.,Ltd Loss of impairment of assets Unit:RMByuan Items 2008 2007 Provision for bad debts 7,478,538.73 3,051,209.46 Provision for impairment of inventories 39,984,362.20 8,193,260.63 Provision for impairment of financial assets held for sale Provision for impaiment of investment held for maturity Provision for impairment of long term equity investment Provision for impairment of investment property Provision for impairment of fixed assets 2,998,576.07 0.00 Provision for impairment of project materials Provision for impairment of construction in progress Provision for impairment of biological assets Provision for impairment of oil & gas assets Provision for impairment of intangible assets Provision for impairment of reputation Others Total 50,461,477.00 11,244,470.09 35 Wa Fanghdian Bearing Co.,Ltd The changes in shareholder’s equity (consolidated ) 2008.1.1-2008.12.31 Amount in current period Owner’s equity attributable to parent company Owner’s equity at Minority Item Capital Surplus General less： less： shareho Owner’ Capital Capital public public provisio Undistribut Other Capital treasu treasur lders’ s equity public stock reserve reserve n for ed profits s stock re e stock equity reserves s s risk stock 1,202,7 1.Balance at the end of last 402,600 485,431 68,449, 243,660,4 2,635,6 402,600 489,521, 77,114. year ,000.00 ,518.07 533.31 33.16 30.01 ,000.00 047.44 55 Add: changes in accounting policies 2,132,5 12,084,56 14,217, Changes in previous errors 71.00 9.00 140.00 Others 1,216,9 2.Balance at the beginning of 402,600 485,431 70,582, 255,745,0 2,635,6 402,600 489,521, 94,254. this year ,000.00 ,518.07 104.31 02.16 30.01 ,000.00 047.44 55 3. The changes in this year 30,885, 55,963,1 -29,654. 86,819, -4,089,52 （decrease with“-”） 928.37 66.18 99 439.56 9.37 102,953,0 -29,654. 102,923 1）Net profits 94.55 99 ,439.56 2）Profits and loss directly -4,089,52 recorded as owner’s equity 9.37 (1)The net amount of the changes in fair value of financial assets available-for-sale (2)he effect of the changes in other owner’s equity in the unite invested (3)he effect of the income tax relating to the items recorded as the owner’s equity -4,089,52 4．Others 9.37 102,953,0 -29,654. 102,923 -4,089,52 Total 1) and 2) 94.55 99 ,439.56 9.37 3）The assets invested or returned by the owners (1) capital invested by owners (2)he amount of share payment recorded owner’s equity (3)others 30,885, -46,989, -16,104, 4）profits distribution 928.37 928.37 000.00 (1)Provision for surplus 30,885, -30,885, public reserves 928.37 928.37 (2)provision for general risks (3)distribution for -16,104,0 -16,104, owner(shareholders) 00.00 000.00 (4)others 5 ） interior transference of owner’s equity (1)capital (capital stock)transferred by the capital public reserves (2)capital (capital stock)transferred by the surplus public reserves (3)loss offset by the surplus public reserves (4)others 101,4 1,303,8 4. Balance at the end of the 402,600 485,431 311,344 2,605,9 402,600 485,431, 03,90 13,694. current period ,000.00 ,518.07 ,774.64 75.02 ,000.00 518.07 4.38 11 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Wafangdian Bearing Co., Ltd Notes to financial statements For the year ended December 31 2008 (The currency is in RMB Yuan except otherwise indicated) 1. General information Wafangdian Bearing Company Limited (the “Company”) is a joint stock limited company established in the People’s Republic of China (the “PRC”) on 20 March 1997. In the opinion of the directors, its parent and ultimate holding company is Wafangdian Bearing Group Company Limited (“ZWZ Group”). Approved by the CSRC, the company have the right to issue and list on 29 Feb, 1997 The Company founded meeting and the 1st meeting of 1st board session meeting on 19 March 1997, made a resolution that the effective date of keeping accounts is 1 April 1997. The company acquired the business license on 20 March, 1997, which the registrated NO. is 大工商企法字 24239971-2. The Company is principally engaged in the manufacturing and sale of bearing products, engineering equipment, automobile spare parts and relating products. The Company’s B shares have been listed on the Shenzhen Stock Exchange since 25 March 1997, and raised the money 40,685 RMB 0000yuan. The registrated capital is 3300million RMByuan. The 9th meeting of the 2rd session board meeting on 7 Augst, 2003, the company changed the business scope, that is the manufacturing and sale of bearing products, engineering equipment, automobile spare parts and relating products; the lease of machine equipment and houses; the inspection of bearing, machine equipment and measure equipments. The company aslo changed the license. The registrated NO. 大商企法字 2102001. According to the supplementary notice regarding the stock distributing of listed company sent by Shen Zhen Stock Exchange on August ,30th,2006 (herein refers to as “supplementary notice”) and based on the audited financial statements offered on Sep.30,2006, the company decided to transfer the capital public reserves to the shares . with 2.2 shares gifted by per 10 shares, the total stocks of the company are up to 402,600,000 shares based on330,000,000 shares, totally adding 72,600,000 shares .the legal person shares owned by Wa Fangdian Bearing Group Corporation add up to 244,000,000 shares based on 200,000,000 shares ,which are equivalent to 60.6% of the total stock ; the shares held by SKF add up to 79,300,000 shares based on 65,000,000 shares, which are equivalent to19.7% of the total stock. the social public shares add up to 79,300,000 shares based on 65,000,000 shares, which are equivalent to19.7% of the total stock. After the distribution, the share structure of the company meets the stipulations of “Supplementary notice”. 2. Basis for preparation of financial statements The group prepares the fianancial statements on the basis of going cercern. 3. Complying with Accounting Standard for Business Enterprise The financial statements prepared by the Group according to the requirements of Accounting Standard for Business 38 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Enterprise, and reflect the relative information for the financial position, operating performance, cash flow of the Company truly and fully. 4. Changes of accounting policies, accounting estimates and correction of significant prior period accounting errors 4.1 Effects of changes in accounting policies The group has not any change in accounting polices during current report period. 4.2 Effects of changes in accounting estimates The group has not any change in accounting polices during current report period. 4.3 Effects of correction of significant prior period errors The Company recorded the termination benefits of RMB 21,000,000.00 in accordance with the plan of employee termination in 2007. But during 2007 and 2008, the parts of employees who the Company decided to dismiss are yet working for the Company. According to the 12th meeting of the 4th Board sesssionr, the plan for employee termination about the employees like those mentioned above will be ceased. Therefore this part of personnel resigns the compensatory payment 13,789,618.00 Yuan to flush, affected the reduction of staff salary 13,789,618.00 Yuan, and the increase of surplus reserve 2,068,442.70 Yuan. Date back to the 2007, the undistributed profit should correct to be 11,721,175.30 Yuan. 5. Significant accounting policies, accounting estimates and method for preparation of consolidated financial statements 5.1 Accounting period The Group adopts the Gregorian calendar year as accounting period, i.e. from Jan 1 to Dec 31. 5.2 Funcitonal currency The Group adopts RMB as functional currency. 5.3 Recording basis and pricing principle The accrual basis shall be adopted for accounting treatment to follow the historical cost method, except that the financial assets held for trading and sale are measured at fair value. 5.4 Cash and cash equivalent The cash listed on the cash flow statements of the Company refers to cash on hand and bank deposit. The cash equivalents refer to short-term (normally with original maturities of three months or less) and liquid investments which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. 5.5 Translation of foreign currency (1) Foreign currency transaction Foreign currency transactions are translated at the spot exchange rate issued by People’s Bank of China (“PBOC”) when the transaction incurs. Monetary assets and liabilities in foreign currencies are translated into RMB at the exchange rate prevailing at the balance sheet day. Exchange differences arising from the settlement of monetary items are charged as in profit or loss for the period. Exchange differences of specific borrowings related to the acquisition or construction of a fixed asset should be capitalized as occurred, before the relevant fixed asset being acquired or constructed is ready for its intended uses. The foreign currency non-monetary items recorded at fair value are translated at the exchange rate issued on the date of fair value recognized. Exchange differences are charged as profit and loss of change of fair value. The foreign currency non-monetary items recorded at historical cost are translated at the exchange rate issued on the date when the transaction incurs, don’t change the RMB amount. 39 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report (2) Translation of foreign currency financial statements The asset and liability items in the foreign currency balance sheet should be translated at a spot exchange rate at the balance sheet date. Among the owner’s equity items except “undistributed profit”, others should be translated at the spot exchange rate when they are incurred. The income and expense should be translated at spot exchange rate when the transaction incurs. Translation difference of foreign currency financial statements should be presented separately under the owner’s equity item. Exchange difference of movement of exchange rate should be presented separately as translation difference of foreign currency financial statement under the owner’s equity item when prepare the consolidated financial statements. When disposing an overseas business, the Group should shift the translation difference of foreign currency financial statement related to the overseas business into the disposal profits and losses of current period. Foreign currency cash flows are translated at the spot exchange rate on the day when the cash flows incur. The amounts resulted from change of exchange rate are presented separately in the cash flow statement. 5.6 Financial assets and financial liabilities (1) Financial assets The financial assets are classified into the following four categories according to investment purpose and economic substance. 1) Financial asset measured at fair value and the amount of the change in fair value of a financial asset is recognized in profit and loss in current period: mainly represents the objective of being held for sale in short term and presented at financial asset held for transaction in balance sheet. 2) Investment held to maturity: non-derivative financial assets of fixed maturity, fixed or confirmable recoverable amount, which management have definite purpose and capacity to hold to maturity. 3) Accounts receivable: represents non-derivative financial assets of no quote, fixed or confirmable recoverable amount, including notes receivable, accounts receivable, interest receivable, dividends receivable and others receivable etc. 4) Financial assets available for sale: financial assets available for sale include non-derivative financial assets available for sale when initially recognized and others financial assets which are classified. Financial assets should be initially recognized at fair value. Financial assets which are measured at fair value and the variation of fair value is charged as the profit or loss for the current period, related transaction expenses incurred when acquiring financial assets shall be directly charged as profit or loss for the current period. The transaction expenses of others financial assets shall be charged as initial amount. When the contractual rights for collecting the cash flow of the said financial asset are terminated, or when the risk and reward accompanied with the ownership of the said financial assets have been transferred to the receiving party, the recognition of financial assets shall be terminated. For the financial assets measured at their fair values and of which the variation is charged as the profit or loss for the current period and financial assets held for sale shall be measured subsequently at fair value. Accounts receivable and investment held to maturity shall be measured on the basis of the amortization costs by adopting actual interest rate method. For the financial assets measured at fair values and of which the variation is charged as profit or loss for the current period, changes of their fair values shall be recorded into changes of fair value of financial assets. The interest and cash dividends from financial assets when held shall be recognized investment income. When the financial assets are disposed, the difference between its fair value and initial recognition amount shall be recognized into investment profit or loss, and meanwhile, adjust the change of fair value of financial assets. 40 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report The change of fair value of financial assets held for sale shall be recorded as owner’s equity. The interests of the financial assets held for sale calculated according to the actual interest rate method shall be recorded into the investment income of the current period. The cash dividends of the equity instrument investments available-for-sale shall be recorded into the investment income of the current period when the investee announces the distribution of dividends. When the financial assets are disposed, the difference between the prices with carrying amount deducted accumulated change amounts of fair values which recorded into owner’s equity shall be recorded into investment profit and loss. The Group carries out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values. Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. Where a financial asset available-for-sale is impaired, even if the recognition of the financial asset has not been terminated, the accumulative losses arising from the decrease of the fair value of the owner’s equity which was directly included shall be transferred out and charged as the profit or loss for the current period. As for the debt instruments available-for-sale whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be reversed and be charged as the profit and loss for the current period. As for the debt instruments available-for-sale whose impairment-related losses have been recognized, if, within the accounting period thereafter, the fair value has risen and are objectively related to the subsequent events that occur after the originally impairment-related losses were recognized, the originally recognized impairment-related losses shall be reversed and be recorded as the owner’s equity. The impairment-related losses incurred to an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instrument, should not be reversed. (2) Fiancial liabilities The financial liabilities are classified into the financial liability at fair value through profit or loss and other financial liability. The financial liabilities at fair value through profit or loss include the financial liabilities held for trading and the designated financial liabilities at fair value through profit or loss when initial recognized. For this kind of financial liabilities should be measured at fair value, variation of fair value should be recorded into the current profit or loss. Other financial liabilities should be subsequently measured at amortization cost by adopting actual interest rate method. 5.7 Provision for bad debts of receivables The Group shall review the carrying amount of accounts receivable fully at the balance sheet date. The Group shall calculate the full provision for bad debts for the following accounts receivable: debtor has been log-out, bankruptcy, minus net asset, significant poor cash flow and significant nature disaster lead to stop production and the debtors could not pay for the debts in the expected future, debtors has unpaid for 3 years, other evidences indicate the accounts receivable shall not be paid. The Group calculates the provision for bad debts under the aging analysis method and exception identification method. The provision for bad debts shall be recorded into current profit or loss. For the no-recoverable accounts should be recognized as loss of bad debts and offset the provision for bad debts. The Group shall recognize it as significant accounts receivable when the amounts of the receivable exceed RMB 3 million. When there is evidence to prove that the Company can’t collect the receivable it shall made the impairment test and the provision for the bad debts based on the difference between the present value of cash flow and the carrying amounts. 41 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report For the single amount of non-significant accounts receivable, the Company will divide the amount into some combinations altogether with the individually tested and non-impaired significant accounts receivable according to their credit risk quality, and calculate the provision for bad debts for the current period based on the actual loss rate of the combination of accounts receivable which is the same as or similar to the previous years and with the similar credit risk quality, and the rate of provision for bad debts combined with the actual situation of current period. The Company recognizes the mortgage with the age more than three years and the amounts with the evidence showing non-collectable or little possibility on collection as special assets combination, and fully makes provision for bad debts. The rate of provision for bad debts based on the age of accounts receivable as follows:: Aging Proportion (%) Within year 1 1-2 years 5 2-3 years 20 Over 3 years 50 5.8 Inventories Classification of inventory: Inventories are classified as raw material, wrappage, low-valuable consumable, working-in-progress, and finished goods etc. Pricing of inventories received and sent out: The inventories are processed on perpetual inventory system, purchased and stored based on their standard cost. The raw materials are priced daily on their standard costs. The differences between the standard and actual costs is recorded into the costs of materials and for sending out according to proportion of storage and sending out of materials, and adjust the planned costs of raw material into actual costs. The working-in-progress finished goods are priced on their standard costs; the differences between the standard and actual costs are recorded into the costs of working-in-progress and finished goods according to the receiving and sending out proportion, and finaly adjust the planned costs into actual costs. At the balance sheet date inventory should be measured at the lower of the cost and realizable value. For the inventories which are damaged, fully or partly obsolete and selling price below cost, the Group should calculate the provision for impairment of inventories according to the estimated non-recoverable part of cost. Finished goods and a large amount raw materials should be calculated provision for impairment based on the difference of the cost exceed the realizable value of sole item. For raw and assistant materials with a large quantities and lower unit price should be calculated provision for impairment according to classify of inventory. For the goods, working in progress and raw material held for sale etc which shall be sold directly, their realizable value should be confirmed at the estimated selling price less estimated selling expenses and related tax and expenses. The raw material held for production, its realizable value should be confirmed at the estimated selling price of finished goods less estimated cost of completion, estimated selling expenses and related tax. The net realizable value of inventories held for execution of sale contracts or labor contracts shall be calculated based on the contract price. If the enterprise holds more inventories than quantities subscribed in the sales contracts, the net realizable value of the excessive part of the inventories should be calculated based on the general selling price. 5.9 Long-term equity investment 42 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Long-term equity investments include the equity investments which the Group can control, joint control or have significant influence on the investee, or the Group can not control, joint control or significant influence on the investee and there is no offer in the active market, fair value can not be reliably measured. Joint control refers to the control over an economic activity in accordance with contract. Any party of joint venture can not solely control the business activity of joint venture. The decision related to essence operating activities need any party unanimous consent Significant influence refers to the power to participate in making decisions on the financial and operating policies of investee, but not to control or do joint control together with other parties over the formulation of these policies. Significant influence confirm according to the Group holds the over 20% (including 20%) but lower than 50% voting shares. Unless there is evidence which indicate the Group can not participate in the decision of production and operating under the conditions above. The initial cost of long term equity investments formed in the merger of enterprise under the same control shall be recognized at the carry amounts of equity of the merged enterprise. The initial cost of long term equity investments acquired in the merger of enterprise under the different control shall be recognized at fair value of the assets paid, liabilities happened or charged, and equity securities issued. Besides the long-term equity investments acquired by the merger of enterprises, the initial cost of a long-term equity investment obtained by other means shall be ascertained in accordance with the provisions as follows: 1) The initial cost of a long-term equity investment obtained by making payment in cash shall be the purchase cost which is actually paid. The initial cost consists of the expenses directly relevant to the obtaining of the long-term equity investment, taxes and other necessary expenses. 2) The initial cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued. 3) The initial cost of a long-term equity investment of an investor shall be the value stated in the investment contract or agreement except the unfair value stated in the contract or agreement. 4) The initial cost of a long-term investment obtained by the exchange of non-monetary assets and the initial cost of a long-term equity investment obtained by debts restructuring shall be ascertained in accordance with related Accounting Standards for Enterprises. For the long-term equity investment in subsidiaries of the Company shall be measured in accordance with the cost method, and shall be adjusted when preparing consolidated financial statements in accordance with equity method. For the long-term equity investment of joint venture shall be measured in accordance with equity method. For the long-term equity investment of the investing enterprise that does not do joint control or does not have significant influences on the invested entity, and has no offer in the active market and its fair value cannot be reliably measured should be measured in accordance with cost method. For the long-term equity investment of the investing enterprise that does not do joint control or does not have significant influences on the invested entity, and has offer in the active market and its fair value can be reliably measured should be measured as the assets available for sale. 5.10 Fixed asset Recognition criteria of fixed assets: Fixed assets are defined as the tangible assets which are held for the purpose of producing goods, rendering services, leasing or for operation & management, and have more than one year of useful life, and whose unit price is over RMB2000. 43 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Classification of fixed assets: Building, machine, transportation equipment, electronic equipment and others. Measurement of fixed assets: Initial measurement of fixed assets shall be conducted on fixed assets according to the actual cost when obtained, including, the cost of purchased fixed asset including purchase price, value added tax, duty and other related tax and fee, other expenses that bring the fixed asset to the expected conditions for use and that may be relegated to the fixed asset. The cost of a self-constructed fixed asset shall be formed by the necessary expenses incurred for bringing the asset to the expected conditions for use. The cost of fixed asset which was invested by investor should be recorded in accordance with the price stipulated in the contract or agreement, other than those of unfair value as stipulated in the contract or agreement. The cost of fixed assets which is obtained by financial leasing should be measured at the lower one of fair value and the minimum lease payment in the beginning of lease. Depreciation method: the Company withdraws depreciation for all fixed assets except for the fixed assets which had been fully depreciated and are still being used. The Company withdraws depreciation by adopting straight-line method and depreciation rate of unit item on monthly basis, and brings it cost or expenses in current period. Estimated net residual value rate is 3%, useful life, depreciation rate as follows: Category Useful life(years) Annual depreciation rate Housing and Buildings Including: Buildings 15 6.47% Housing for productive 30 3.23% Housing for non-productive 35 2.77% Machinery equipments 10-15 6.47%～9.70% Transportation equipments 6 16.17% Electric equipments Including: Computer 4 24.25% General testing instruments 7 13.86% Specialized electronic equipments 8 12.13% Automated controlling equipments 8 12.13% Automated controlling meters 8 12.13% Others equipments Including: Industrial kiln 7 13.86% Tools & other production tools 9 10.78% Transmission equipments 15 6.47% Non-operational equipments and tools 18 5.39% Subsequent expenditure of fixed assets: Subsequent expenditure comprises repair expenditure, renewed & improvement expenditure, decoration expenditure and others, is recorded as cost of fixed asset when relevant economic benefit can flow into the Company and be measured reliably. For the parts of displacement, its book value should be derecognized. All the others subsequent costs should be recorded in profit and loss during current period. The Company should review the estimated useful life, estimated net residual value and depreciation method at the end of each year. If any change has occurred, it shall be regarded as a change in the accounting estimates. 44 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report The Company should derecognized fixed asset when the fixed asset has been disposed, or the fixed assets can’t generate any future economic benefit through using and disposal. The amount that income resulting from disposal of fixed asset deducts fixed asset’s book value and relevant tax shall be recorded in the profit and loss for the current period. 5.11 Construction in progress Measurement of CIP: Construction-in-progress is recognized at actual cost. Self-construction project is recognized at the cost of material, labor cost and construction expenses. Contractual construction is recognized at project price which should be paid. Installed construction is recognized at the value of equipment, installation and assembly cost. Besides above, the cost of CIP comprises borrowing cost and profit and loss resulting from foreign exchange. The criteria and time spot of constructions in progress’s being transferred to fixed assets: Constructions in progress are carried down to fixed assets on their actual costs when completing and achieving estimated usable status. The fixed assets that have been completed and reached estimated usable status but have not yet been through completion and settlement procedures are charged to an account according to their estimate values; adjustment will be conducted upon confirmation of their actual values. The Company should withdraw depreciation in the next month after completion. 5.12 Borrowing costs Recognition principles on capitalisation of borrowing cost: The Company should capitalizes the borrowing cost directly attributable to the acquisition, construction or production of a qualifying asset and record borrowing cost into cost of related asset. The Company should recognize the other borrowing cost as the current expense and charged it as profit and loss of current period. A qualifying asset refers to fixed asset, investment property and inventory need be constructed for so long time to its intended use or sale. Duration of capitalisation of borrowing cost: When expenditures and borrowing cost are being incurred, and activities that are necessary to put the asset available for use or sale are in progress, the capitalisation of borrowing costs as part of the cost of a qualifying asset should commence. Capitalisation of borrowing costs should be suspended during extended periods in which active development is interrupted and interruption period last for over 3 month. The borrowing cost incurred during the period should be recognized as expenses and recorded into the profit and loss in the current period. When all the activities for bringing the asset to its intended use or sale are completed, the capitalization of borrowing costs ceases, and the borrowing costs should be recognized as an expense in the period incurred. Measurement of borrowing cost: As for specifically borrowed loans for the acquisition and construction or production of assets eligible for capitalization, the to-be-capitalized amount of interests shall be determined as the difference of the actual cost incurred of the specially borrowed loan at the present period minus the income of interests earned on the unused borrowing loans as a deposit in the bank or as a temporary investment. Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the Company shall calculate and determine the to-be-capitalized amount of interests on the general borrowing by multiplying the weighted average asset disbursement of the part of the accumulative asset disbursements minus the general borrowing by the capitalization rate of the general borrowing used. The capitalization rate shall be calculated and determined at the weighted average interest rate of the general borrowing. 5.13 Intangible assets Measurement of intangible assets: The intangible assets of the Company refer to land use right, ERP system software. The cost of outsourcing intangible assets shall include the purchase price, relevant taxes and other necessary expenditures directly attributable to intangible assets. The cost invested into intangible assets by investors shall be determined according to 45 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report the stated value in the investment contract or agreement, except for those of unfair value in the contract or agreement. Amortisation method and period: The Company shall amortise land use right on the basis of its useful life by adopting straight line method from the time of acquiring. ERP system software and other intangible assets shall be amortised on the basis of shorter of estimated useful life, stated beneficial year in the contract, and legal available year. The amortization amount should be recorded into the cost or expense of relevant in the current period. The Company shall check the estimated useful life and amortization method of intangible assets with limited useful life at the end of each year, if any change has been made, it shall be adjusted. The Company shall check the estimated useful life of intangible assets with uncertain useful life during the each accounting period. If there are evidences to prove the useful life of intangible assets is limited, the Company shall estimate the useful life and amortize the intangible assets within estimated useful life. 5.14 Impairment of non-financial asset The Company checks the long-term equity investment for its subsidiaries, association and joint venture, fixed asset, construction-in-progress, intangible asset and others on each balance sheet date. There may be an impairment of asset when one of following indications occurs. The Company should test impairments. The company tests the impairment of goodwill, intangible asset with uncertain useful life on the end of every year. When it is difficult to measure the recoverable amount of asset, it should measure the recoverable amount of asset on the basis of asset group. After impairment test, if the book value exceeds the recoverable amount of the asset, the difference should be recognized as impairment loss. Once any loss of impairment is recognized, it shall not be reversed in the future accounting periods. The recoverable amount of asset refers to the higher one of the net amount of the fair value of asset minus disposal expense and the present value of estimated future cash flow of asset. Indications of impairment as follows: (1) During the period, an fair value of the asset in the market has declined significantly, which exceeds the expected decline as time passing or normal use; (2) Significant changes with an adverse effect on the Company have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated; (3) Market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate applied in calculating an asset's value in use and decrease the asset's recoverable amount materially; (4) Evidence is available of obsolescence or physical damage of an asset; (5) The asset has been idle or is becoming idle, discontinued, or plans to dispose of an asset before the previously expected date; (6) Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected; and (7) Other evidence indicates impairment of asset. 5.15 Long-term deferred expenses Long-term deferred expenses of the Group refer to expenses which are paid and should be deferred over the future period. The amortization peiod shall be more than one year (no including 1 year). The expenses should be amortised averagely over the benefial 46 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report period. If the deferred expense can not take benefit for the future accounting period, the unamortised balance of the deferred expenses should be transferred into the current profit or loss. 5.16 Employee compensation Employee compensation comprises salary, bonus, allowance, welfare, social insurance, housing fund, labor union expenditure, employee education expenditure and other relevant expenditures of service rendered by the employees. The Company should recognize the employee compensation as liability during the period of employee provide service to company. In accordance with the beneficiaries of the service rendered by employee, the Company should record the employee benefits into relevant cost and expense. For the compensation for employee due to cancellation of labor contract, the Company should charge the compensation as the profit and loss during the current period. Termination benefits are benefits payable as a result of cancellation of labor contract between the company and employees.Termination benefits comprise: (a) the company decides to terminate an employee's employment before the normal retirement date; (b) employee's decision to accept voluntary lay-off in exchange for those benefits; (c) the company decides to implement internal retire plan. Recognition principle of termination benefits: 1) The company has instituted formal termination plan or voluntary lay-off advice, and will implement them; 2) The company can’t recall the termination plan or voluntary lay-off advice unilateral. Measurement of termination benefits 1) For the termination benefits with no choice right for employee, the Company recognizes the employee compensation payable according to employee quantity, and compensation amounts; 2) For the voluntary termination advice, firstly estimates the amount of employees who will accept the termination advice, and then make the provision for compensation payable according to the expected amount of employees and termination compensation of each employee etc. For the termination plans with instalment or voluntary termination advice, when planning and checking the recognition condition of contingent liability for each period or stage, then the contingent liability caused by providing termination benefits shall be confirmed, and charged as management expenses satisfying the confirmation conditions of contingent liability for the current period. For the internal retirement plans according to the rules, the Company shall recognize the draft payment for the employees of internal retirement and social insurance premium, from the date of ceasing working to the date of normal retirement, as contingent liability, and recorded into management expenses for the current period. 5.18 Contigent liabilities (1) Recognition principle of contingencies: The obligation pertinent to a contingency shall be recognized as an estimated debt when the following conditions are satisfied simultaneously: 1) The obligation is a current obligation of the Company; 2) It is likely to cause any economic benefit to flow out of the Company as a result of performance of the obligation; and 3) The amount of the obligation can be measured reliably. (2) Measurement method of contigent liability: The estimated debts shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation, and the Company shall take into full consideration of the risks, uncertainty, time value of money, and other factors pertinent to the contingencies. If the time value of money is of great significance, the best estimate amounts shall be determined after discounting the relevant future outflow 47 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report of cash. The Company shall check the book value of the estimated debts on the balance sheet date. If there is any exact evidence indicating that the book value cannot really reflect the current best estimate amounts, the Company shall adjust the book value in accordance with the current best estimate amounts. 5.19 Principle of recognition of revenue The revenue of the Company is mainly from selling goods, providing labor services and abalienating the right of use assets. The relevant revenue shall be recognized, when the relevant economic benefits may flow into the Company, and the relevant amount of revenue can be measured reliably, and also satisfying the following recognition standards, (1) Revenue of selling goods The revenue from selling goods shall be recognized, when the significant risks and rewards of ownership of the goods have been transferred to the buyer by the Company, and the Company remains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods. (2) Revenue from providing labor services If the Company can, on the date of the balance sheet, reliably estimate the outcome of a transaction concerning the labor services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method. (3) Revenue from abalienating the use right of use assets The revenue from abalienating of use right of assets shall be recognized, when the relevant economic benefits are likely to flow into the Company, and the amount of revenues can be measured reliably. 5.20 Lease The leases of the Group refer to operating lease. The rents from operating leases shall be recorded by the lessee into the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. 5.21 Government grants A government subsidy of the Company shall be recognized if the Company can meet the conditions for the government subsidy and also can obtain the government subsidy. If a government subsidy is a monetary asset, it shall be measured in the light of the received or receivable amount. If a government subsidy is a non-monetary asset, it shall be measured at its fair value; if its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount (RMB 1). The government subsidies pertinent to assets shall be recognized as deferred income, equally distributed within the useful lives of the relevant assets, and included in the current prifits and losses. The government subsidies pertinent to incomes shall be treated respectively in accordance with the indications as follows: (1) those subsidies used for compensating the related future expenses or losses of the Company shall be recognized as deferred income and shall included in the current profits and losses during the period when the relevant expenses are recognized; or (2) those subsidies used for compensating the related expenses or losses incurred to the Company shall be directly included in the current profits and losses. 5.22 Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liability should be recognized at the differences (taxable temporary differences) between the tax base of an asset or liability and its carrying amount. The Company shall recognize the deferred income tax assets arising from a deductible temporary difference to the extent of the amount of the taxable income which it is most likely to obtain and which can be deducted from the deductible temporary difference. At the balance sheet date, deferred tax asset and deferred tax liability should be measured at applicable tax rate. 48 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report The Company shall recognize the deferred tax assets arising from a deductible temporary difference to the extent of the amount of the taxable income which is most likely to obtainand which can be deducted from the deductible temporary difference. For the deferred tax assets which already have been recognized, where there is any evidence showing that the Company is probablely unable to acquire sufficient amount of taxable income tax in a future period to offset against the deductible temporary difference, the book value of the deferred tax assets shall be deducted. Where it is likely to acquire sufficient amount of taxable income tax, the amount deducted shall be reversed. 5.23 Accounting treatment method of income tax The Company shall recognize income tax by balance sheet liability method. The income taxes of the current period and deferred income tax of the Company shall be treated as income tax expenses or incomes, and shall be recorded into the current profits and losses, excluding the income taxes incurred in the following circumstances: (1) the business combination; and (2) the transactions or events directly recognized as the owner’s equity. The income taxes of the current period and deferred income tax related to the transactions or events directly recorded as the owner’s equity shall be recorded into the owner’s equity. The income tax expenses for the current period the amount payable to the Tax Office which are calculated and recognized according to the tax law and transactions and events of the current period, i.e income taxes payable; the deferred income taxes refer to the differences recognized between the amounts at the end of the period and amounts recognized originally of deferred tax assets and liabilities according to the balance sheet liability method. 5.24 Business combination Business combination refers to transactions or events that two or more enterprises combinate as one report entity. The company get the assets and liabilities due to the combination on the combining day or purchasing day, which is the actual controlling is day. The assets and liabilities that the combining party obtains in a business combination under the same control should be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it, the capital surplus shall be adjusted. If the capital surplus is not sufficient to be offset, the retained earnings shall be adjusted. For a business combination not under same control, the combination cost shall be the fair value, on the acquisition date, of the assets paid, the liabilities incurred or assumed and equity securities issued by the acquirer in exchange for the control of the acquiree. The difference when combination cost exceeds the fair value of identifiable net assets of acquiree should be recognized as goodwill. If the combination cost is less than the he fair value of identifiable net assets of acquiree, the difference should be recognized as current profit or loss. 5.25 Segment report Operation segment refers to component that can be divided and provide the single item or a batch of related goods or service. The component assumes the different risk and reward with other components. Physical segment refers to component that can be divided and provide goods and service in the given economic environment, the component assumes the different risk and rewards compared to risk and rewards assumed when providing goods and service in the other economic environment. 5.26 Discontinued operation Discontinued operation represents the component of the Company that had been disposed or plan to sell, and the component can be separately divided when operating and preparing financial statements. The component shall be disposed 49 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report partly or wholly in accordance with the Company’s’ plan. The component of the Company shall be recognized as the component held for selling when satisfying the conditions as bellows: 1) The Company had made a decision on disposal of the component; 2) The Company had signed the irrepealable Transfer Agreement with transferee; and 3) The transfer shall be finished within one year. 5.27 Confirmation of fair value of financial instrument For the fiancial instruments with the active market, its fair value should be confirmed at the offering in the market. For the financial instruments with no active market, its fair value should be confirmed at the revaluation technology. 5.28 Method of preparation of consolidated financial statements (1) Recognition principle of scope of consolidation Scope of consolidated financial statements should include all subsidiaries and the special purpose entities. (2) Accounting method of consolidated financial statements The Company’s consolidated financial statements had been prepared in accordance with . All material intragroup transaction and balance had been eliminated in full. The parts of subsidiaries’ equity non-attributable to parent company shall be as minority equity lined separately in the ower’ equity on the face of consolidated financial statements. Where there are inconsistent accounting policies and accounting period, when preparing the consolidated financial statements, the Company shall adjust the subsidiaries’ financial statements in accordance with the Company’s accounting policies and accounting period. For the subsidiary obtained under different control, when preparing the consolidated financial statements, the Company shall adjust the separate financial statements based on the fair value of identifiable net assets at the purchase date; for the subsidiaries combined by the Company under the same control, regard the subsidiaries that they have been existing since the beginning of the period, and the assets, liabilities, operation performance and cash flows shall be consolidated into the financial statements of the beginning of the combination period according to their original book value. 6. Taxation The applicable tax to the Company as follows: 6.1 Enterprise income tax For the Company and its subsidiaries, Liaoyang Bearing Manufacture Co., Ltd (“Liaoyang Bearing”), the applicable income tax rate is 25% The other subsidiaries of the Company, Wafangdian General Bearing Co., Ltd. (“General Bearing”), are a foreign investment company. Therefore, its applicable income tax rate is 24%. 6.2 Value-added tax The valued-added tax is levied at 17% on domestic sales of goods and applicable rate on export sales of goods is zero, and the “exempt, offset, refund” refunding taxing policy is also applied on the export of the Company. VAT payable is the balance of the output VAT after deducting the input VAT for the period. 6.3 Operating tax The business tax of buildings rental income is levied at 5% of the income. 6.4 City construction tax and education surcharge 50 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report City construction tax is levied at 7% of net VAT payable & business tax. Education surcharge is levied at 3% of net VAT payable & business tax. 6.5 Real estate tax The real estate tax is levied at 1.2% of the 70% of the real estates’ initial carrying amounts or 12% of rental income of buildings. 6.6 Land use tax The subsidiary of the Company, “Liaoyang Bearing” pays Land use tax on its land use right at the rate of RMB 1.50 per square meter. The Company pays land use tax on its land user right at the rate of RMB 6.00 per square meter. 6.7 River toll fee The subsidiary of the Company, “Liaoyang Bearing” pays river toll fee at the rate of 1‰ on its sales revenue. 7. Business combination and consolidated fiancial statements (1) Subsidiaries Registered Company name Registered address Principal activities capital General Bearing No.1, Phrase 1, Gongji Street, USD4,510,000.00 Production and selling of Bearing Wafangdian North Liaoyang Bearing No.61, Weiguo road, Baita district 19,350,000.00 Production and selling of Bearing Liaoyang city (Continued) Company Investment amounts Equity interest Vote proportion Consolidation name General Bearing 28,030,385.50 75% 75% Yes Liaoyang Bearing 17,337,259.95 100% 100% Yes A. Approved by Dalian Municipal Commission of Foreign Economic Relations and Trade with Document DCFERT WAI ZI ZI [1996] No. 98 dated March 27, 1996 and the Approval Certificate (WAI JING MAO DA ZI [1996] No. 199) dated March 28, 1996, Wazhou Group and US General Bearing Co., Ltd. jointly invested and establish Watong Co. and the capital contribution proportions of both parties of the joint venture were 75% and 25% respectively. On November 1, 1996, with decision by a board meeting of Watong Co., Wazhou Group was approved to assign its owner’s equity in Watong Co. to the Company upon formal foundation and it was determined that the equity assignment in terms of accounting came into force on June 30, 1996. On December 27, 1996, Dalian Municipal Commission of Foreign Economic Relations and Trade approved the aforesaid equity assignment with Document DA WAI QI ZI [1996] No. 18. On August 13, 1997, approved by Dalian Municipal Administration for Industry and Commerce, Watong Co. handled the procedures for change of the registration with the industry and commerce authority and was granted the corporate business licence in the same year with the registration No.: QI HE LIAO DA ZONG ZI No. 05418. The Watong Co.has closed temporarily on Dec 1, 2007, which has approved on the 7th meeting of 4th board session and made announcement. YTD the report day, it haven’t write off the license. B. Liaozhou Co., whose former name was Liaoyang Bearing Plant, was entirely merged to Wazhou Group with approval by Dalian Municipal Commission of Foreign Economic Relations and Trade with Document LIAO JING MAO FA [1996] No. 420. On November 22, 1996, Liaozhou Co. was granted corporate business licence with registration No. 122822243 and was 51 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report renamed to the present name. On June 15, 1997, the board of directors of Wazhou Group, the Company and Liaozhou Co. formed respectively a resolution which approved Wazhou Group to assign the equity capital held by it in Liaozhou Co. by 100% to the Company; for return, the Company assigned the secured short term accounts receivable with the equal amount to Wazhou Group. On November 7, 1997, Wazhou Group and the Company executed the Ownership Assignment Agreement, according to which the equity assignment on accounting basis would come into force on January 1, 1998. The said equity assignment was approved by the Company’s Shareholders’ General Meeting on November 8, 1997. According to the Request for Instructions on Assignment of the Equity Held by the Chinese Party in Liaozhou Co. and Huamei Co. issued by Wazhou Group with Document WA ZHOU JI ZI [1998] No. 2, approved by Dalian Municipal State-owned Assets Supervision and Administration Bureau, the assignment price was determined based on the net asset determined by Liaozhou Co. through appraisal by Dalian Zhonghua Certified Public Accountants and confirmed by Dalian Municipal State-owned Assets Supervision and Administration Bureau with Document ZI PING GUAN REN ZI [1997] No. 102 after the appraisal on April 30, 1997 plus the amount of increase/ decrease of the net assets during the accounting period from May 1 to December 31, 1997. The procedures for change of registration with the Industry and Commerce Authority resulted from assignment of the equity are in process of handling. the Liao Yang Bearing Co.,Ltd changed the business license with the registered No. of 2110001100574 , and changed the name as Wa Zhou Liao Yang Bearing Manufacturing Co.,Ltd , the legal person was changed as Shao Yang and the registered capital was changed as 19.35 million RMByuan. (2) Change of scope of consolidation No change in scope of consolidation in 2008. 8. Notes to consolidated financial statements 8.1 Monetary funds Items 2008.12.31 2007.12.31 Original Exchange Original Exchange currency rate RMB currency rate RMB Cash on hand 269,518.30 1.00 269,518.30 279,106.62 1.00 279,811.42 Cash in bank - - 94,611,483.32 - - 50,998,880.72 Including:US $ 813,159.37 6.8346 5,557,619.06 133,120.75 7.3046 972,393.83 Other cash - - 34,631,539.18 - - 23,954,593.07 Including:EU 2,435.02 9.6590 23,519.83 921,224.20 10.24 9,433,337.47 Jan 26,526,743.69 0.0757 2,006,748.16 30,716,500.00 0.0644 1,977,519.05 Total - - 129,512,540.80 - - 75,233,285.21 Increase of monetary funds mainly due to the increase of sales and cash received increase. Note 1 Ending balance of cash in bank include fixed deposit used to pledge of RMB 2,343,470.00 (deposit period from August 7 2008 to Feburary 7 2009), pledged period is from May 6 2008 to Feburary 6 2009. Notes 2 Ending balance of cash in bank include safety production risk deposit of RMB 300.000.00. Notes 3 Ending balance of other cash include security deposit with over 3 mongths for bank acceptance notes of RMB 3,550,000.00. 8.2 Notes receivable 52 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Items 2008.12.31 2007.12.31 Bank acceptance notes 61,344,054.83 41,703,503.04 Commercial acceptance notes 0.00 6,400,000.00 Total 61,344,054.83 48,103,503.04 * No notes receivable used to pledged and mortgaged. 8.3 Accounts receivable (1) Aging of accounts receivable 2008.12.31 2007.12.31 Items Amounts Proportion Provision Amounts Proportion Provision % % Within 1 year 609,167,702.59 82.07 5,885,053.43 639,112,685.88 84.28 5,162,887.94 1-2 years 69,842,280.35 9.41 3,434,648.41 36,589,447.89 4.83 1,817,629.99 2-3 years 18,078,595.84 2.44 3,628,018.28 16,413,366.98 2.16 4,142,504.70 Over 3 years 45,195,999.32 6.09 27,694,976.34 66,196,272.71 8.73 31,620,637.63 Total 742,284,578.10 100.00 40,642,696.46 758,311,773.46 100.00 42,743,660.26 (2) The risk category of accounts receivable 2008.12.31 2007.12.31 Booking balance Provision Booking balance Provision Items Propor Propo Proporti Prop Amounts tion Amounts rtion( Amounts on Amounts ortio (%) %) (%) n(%) A/R with significant 395,322,545.57 53.26 12,813,703.05 31.53 419,104,028.32 55.27 15,322,063.98 35.85 single amounts Other A/R with insignificant 346,962,032.53 46.74 27,828,993.41 68.47 339,207,745.14 44.73 27,421,596.28 64.15 amounts Total 742,284,578.10 100.00 40,642,696.46 100.00 758,311,773.46 100.00 42,743,660.26 100.00 1) Accounts receivable with significant or insignificant balance which were made impairment test separately at the end of 2008: Provision for bad Proportion Reasons for Debtors name Booking balance debts (%) provision A/R with over 5 years Shenyang Sewerage Equipment Ltd 2,706,703.13 2,706,703.13 100.00 aging, no possible to Co., receive. A/R with over 5 years Shenyang Jinya Bearing Company 4,296,837.27 4,296,837.27 100.00 aging, no possible to receive. A/R with over 5 years Baoding NorthChina Machine & 3,910,007.43 3,910,007.43 100.00 aging, no possible to Electronic Equipment Ltd Co., receive. Total 10,913,547.83 10,913,547.83 2) Accounts receivable were cancelled after verification in 2008: 53 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report (3) Accounts receivable were cancelled after verification in 2008 Related party Debtor name Nature Amounts Reason of cancel transaction(Y or N) Changsha Internal Combustion Amount due 1,855,301.39 Engine Accessory Factory from No ways to receive customer N Wazhou Group The same 1,198,317.96 as above Debtor was logout Y Jiaxing Metallurgy Mechanism The same 253,920.25 N Factory as above Debtor bankruptcy Wazhou Material Supply and The same 221,079.47 N Marketing Company as above No ways to receive America General Bearing Co., Ltd The same 2,137,423.07 N as above Debtor was logout Other The same 793,827.44 Debtor was logout or N as above bankruptcy Total 6,459,869.58 3) Accounts receivable due from shareholder holding over 5% (including 5%) of the Company’s share 2008.12.31 2007.12.31 Debtor Provision for bad Provision for bad Amounts Amounts debt debt Wazhou Group 28,913,183.79 435,196.99 29,141,669.56 341,517.45 Total 28,913,183.79 435,196.99 29,141,669.56 341,517.45 4) The accounts receivables for the top 5 companies amounted to RMB 128,823,545.39, accounts for 17.35% of the total ending balance. 5) The accounts receivable from related parites amount to RMB 30,526,137.71, account for 4.11% of the total ending balance. 6) The accounts receivable includes the following foreign currency balance 2008.12.31 2007.12.31 Foreign Original Exchange RMB Original Exchange RMB currency currency rate currency rate US dollar 2,610,441.40 6.8346 17,841,322.79 4,660,402.89 7.3046 34,042,378.95 EU 622,211.20 9.6590 6,009,937.98 7,487.80 10.24 76,675.07 Total 23,851,260.77 34,119,054.02 8.4 Accounts paid in advance 2008.12.31 2007.12.31 Items Amounts Proportion% Amounts Proportion% Within one year 2,647,796.54 49.45 11,181,600.51 88.40 1-2 years 1,494,196.59 27.90 879,124.23 6.95 2-3 years 675,821.96 12.62 114,293.81 0.90 Over 3 years 537,295.78 10.03 473,960.41 3.75 Total 5,355,110.87 100.00 12,648,978.96 100.00 54 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report (1) Accounts paid in advance with over 1 year amounted to RMB 2,707,314.33, mainly due to materials purchased with poor quality, the accounts has been not paid in time. (2) Decrease of accounts paid in advance mainly due to control the payout of cash. (3) The accounts paid in advance for the top 5 companies amounted to RMB 2,544,514.50, accounts for 47.52% of the total ending balance. (4)No account paid in advance is due from shareholder holding over 5% (including 5%) of the Company’s share. 8.5 Other receivable (O/R) (1) The aging of other receivables 2008.12.31 2007.12.31 Items Amounts Proportion% Provision for Amounts Proportion% Provision for bad debts bad debts Within one year 5,177,176.31 33.81 4,659.46 4,404,453.60 25.81 3,156.14 1-2 years 922,376.13 6.02 1,849.31 1,325,052.17 7.76 155.42 2-3 years 640,392.80 4.18 42,575.31 793,848.40 4.65 86,032.85 Over 3 years 8,571,843.94 55.99 4,574,439.03 10,543,878.58 61.78 6,376,459.00 Total 15,311,789.18 100.00 4,623,523.11 17,067,232.75 100.00 6,465,803.41 (2) The risk category of other receivables item 2008.12.31 2007.12.31 Booking balance Provision Booking balance Provision Amounts Proportio Amounts Proportio Amounts Proporti Amounts Proportio n (%) n (%) on (%) n (%) O/R with significant single 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 amounts Other O/R with insignificant 15,311,789.18 100.00 4,623,523.11 100.00 17,067,232.75 100.00 6,465,803.41 100.00 amounts Total 15,311,789.18 100.00 4,623,523.11 100.00 17,067,232.75 100.00 6,465,803.41 100.00 (3) Other receivable was cancelled after verification in 2008 Related party Debtor name Nature Amounts Reason for cancellation transaction(Yor N) Shanghai Wugang Compnay Bearing 1,788,426.38 N sales No ways to receive Total 1,788,426.38 (4) No other receivable is due from shareholder holding over 5% (including 5%) of the Company’s share. (5) The other receivables for the top 5 debtors amounted to RMB 2,700,362.30, which is 17.63%. (6) The other receivables includes the following foreign currency balance 55 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 2008.12.31 2007.12.31 Foreign Original Ext. rate Original Ext. rate currency currency RMB currency RMB US $ 8,850.00 6.8346 60,486.21 0.00 0.00 0.00 Total 8,850.00 6.8346 60,486.21 0.00 0.00 0.00 8.6 Inventories and the provision for impairment of inventories (1) Category of inventories Items 2008.12.31 2007.12.31 Raw materials 173,693,542.79 132,023,050.12 Wrappage 548,899.37 442,163.07 Low-value comsuable 387,266.00 640,529.91 Finished goods 753,785,931.90 623,798,811.33 Consigned materials 1,209,400.25 419,157.56 Working in progress 214,107,078.31 195,617,145.84 Total 1,143,732,118.62 952,940,857.83 (2) Provison for impairment of inventories Decrease Items 2007.12.31 Increase Others 2008.12.31 Reverse transferred out Raw materials 1,178,956.97 1,480,301.10 0.00 0.00 2,659,258.07 Finished goods 35,205,822.14 26,405,474.78 0.00 4,315,252.37 57,296,044.55 Working in progress 3,386,099.55 12,098,586.32 0.00 3,958,533.57 11,526,152.30 Total 39,770,878.66 39,984,362.20 0.00 8,273,785.94 71,481,454.92 Provision for impairment of inventory has been made in 2008 mainly due to the fall selling price of goods and oboseleted working in progress. Method of calculation of provision for impairment of inventory refers to note5.8. 8.7 Other current assets Item 2008.12.31 Nature Rental 309,149.38 Deferred expenses Total 309,149.38 8.8 Long-term equity investment （1） Long-term equity investment Items 2008.12.31 2007.12.31 L-T equity investment under cost method 2,000,000.00 2,000,000.00 L-T equity investment under equity method 76,810,523.20 78,713,952.56 Total 78,810,523.20 80,713,952.56 56 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Less:provision for impairment 0.00 0.00 Net amounts 78,810,523.20 80,713,952.56 （2） According to cost and equity method Vote Cash Equity (%) Initial dividends Investee 2007.12.31 Increase Decrease 2008.12.31 % Amounts received in 2008 Cost method Shanghai ME machine-electrical 4.76 4.76 2,000,000.00 2,000,000.00 0.00 0.00 2,000,000.00 0.00 equitpment chain Ltd. Sub-total 2,000,000.00 2,000,000.00 0.00 0.00 2,000,000.00 0.00 Equity method Dalian SKF Wazhou Bearings 49.00 49.00 68,600,000.00 78,241,086.02 8,861,398.73 10,702,816.67 76,399,668.08 10,702,816.67 Co., Ltd. Shanghai Zhenxin Wazhou 40.00 40.00 400,000.00 472,866.54 0.00 62,011.42 410,855.12 0.00 Machinery and Electricity Co., Ltd. Sub－total 69,000,000.00 78,713,952.56 8,861,398.73 10,764,828.09 76,810,523.20 10,702,816.67 Total 71,000,000.00 80,713,952.56 8,861,398.73 10,764,828.09 78,810,523.20 10,702,816.67 （3） Investment in associations Registered Equity Net assets as at Net profit in Investee Business nature Vote % Sales in 2008 address % Dec.31 2008 2008 Dalian SKF No.1, Phrase 1, Manufacture Wazhou Gongji Street, and trading 49.00 49.00 163,728,673.63 163,241,937.57 23,694,039.98 Bearings Co., Wafangdian ball-surface Ltd. North rolling bearing Shanghai Zhenxin No.609, Bei Jing trading bearing Wazhou Dong Road, and spare 40.00 40.00 1,027,137.78 3,832,969.87 -155,028.55 Machinery Huangpu district, parts, etc. and Electricity Shanghai city Co., Ltd. Total 164,755,811.41 167,074,907.44 23,539,011.43 （4） No impairment in the long-term equity investment of the Company for the current report period. 8.9 Fixed assets (FA) （1） Details of fixed assets Items 2007.12.31 Increse Decrease 2008.12.31 Cost 1,227,288,885.73 118,801,227.16 55,897,958.77 1,290,192,154.12 Buildings 259,191,006.14 586,028.96 4,710,183.82 255,066,851.28 57 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Machinery 754,114,802.97 80,581,170.16 41,836,878.76 792,859,094.37 Transportaion equipment 18,451,165.36 2,400,496.21 1,013,667.64 19,837,993.93 Electrical equipment 49,653,050.83 6,315,972.23 1,610,000.00 54,359,023.06 Others 145,878,860.43 28,917,559.60 6,727,228.55 168,069,191.48 Deprecation 662,478,300.11 83,324,925.90 33,321,189.95 712,482,036.06 Buildings 141,741,737.51 8,143,726.55 1,886,112.31 147,999,351.75 Machinery 388,517,967.51 58,904,916.75 22,571,092.52 424,851,791.74 Transportaion equipment 12,491,278.15 1,782,446.35 933,580.52 13,340,143.98 Electrical equipment 36,174,603.49 3,909,006.69 1,310,381.89 38,773,228.29 Others 83,552,713.45 10,584,829.56 6,620,022.71 87,517,520.30 Provision for impairment 1,424,606.14 2,998,576.07 81,343.90 4,341,838.31 Buildings 0.00 0.00 0.00 0.00 Machinery 1,179,032.39 2,998,576.07 81,343.90 4,096,264.56 Transportaion equipment 200,000.00 0.00 0.00 200,000.00 Electrical equipment 0.00 0.00 0.00 0.00 Others 45,573.75 0.00 0.00 45,573.75 Booking value 563,385,979.48 32,477,725.19 22,495,424.92 573,368,279.75 Buildings 117,449,268.63 -7,557,697.59 2,824,071.51 107,067,499.53 Machinery 364,417,803.07 18,677,677.34 19,184,442.34 363,911,038.07 Transportaion equipment 5,759,887.21 618,049.86 80,087.12 6,297,849.95 Electrical equipment 13,478,447.34 2,406,965.54 299,618.11 15,585,794.77 Others 62,280,573.23 18,332,730.04 107,205.84 80,506,097.43 In 2008 the increase include the assets which were transferred from construction in progress amounted to RMB 116,869,493.60 （2） Temporary idle fixed assets as follows Accumulated Provision for Items Original cost Net book value depreciation impairment Machinery 26,838,888.22 21,595,695.98 4,050,002.63 1,193,189.61 Total 26,838,888.22 21,595,695.98 4,050,002.63 1,193,189.61 (3) Details of pledge of fixed assets refer to notes 8.15 and 22. 8.10 Construction in progress （3） Details of construction-in-progress Transferred The Sourc proport into the es of Current fixed Other ion(inv Name Budget 2007.12.31 2008.12.31 the increase assets in decreases estmen capit current al t/budge period t) Self M250Grinding 698,500.00 317,858.37 100,000.00 0.00 166,828.48 251,029.89 35.94 funded 58 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Machine /loan % Improvement Self 35.14 Forked truck 5,992,092.00 2,954,140.77 445,116.57 434,320.65 859,345.37 2,105,591.32 funded % /loan Improvement of plant 596,182.00 112,094.16 527,438.05 550,530.70 0.00 89,001.51 Self 14.93 funded % Installation of Self 15.45 super finish 47,697,236.00 13,560,373.97 6,337,894.42 12,530,910.73 0.00 7,367,357.66 funded % machine /loan Improvement Self 51.76 of finished 1,244,727.72 396,847.87 773,045.29 525,605.89 0.00 644,287.27 funded % goods storage /loan Dalian 84.03 industrial park 778,426.00 0.00 799,105.65 145,000.00 0.00 654,105.65 Self % project funded Self 33.91 Crane Project 153,615.00 163,311.81 9,961.79 121,183.27 0.00 52,090.33 funded % /loan Improvement Self of two-finished 4,754,934.00 6,238.71 4,463,248.93 4,170,248.73 0.00 299,238.91 funded 6.29% products /loan Improvement Self of rollers 15,716,343.00 0.00 12,885,009.40 11,025,564.86 430,730.74 1,428,713.80 funded 9.09% product line /loan Self Computer 298,620.00 564,218.06 0.00 274,933.70 289,284.36 0.00 funded 0.00% Project /loan Computer 4,654,861.00 3,875,272.82 1,298,270.78 3,084,543.06 1,863,921.27 225,079.27 project Loan 4.84% Precision Self project 1,062,300.00 0.00 1,307,749.57 1,307,749.57 0.00 0.00 funded 0.00% /loan Grinding Self product line 59,406,799.93 7,648,355.96 15,559,011.24 15,496,143.28 0.00 7,711,223.92 funde 12.98 d % Reconstruct in Self Pulandian 3,324,104.91 1,950,301.05 1,149,102.20 1,816,973.22 0.00 1,282,430.03 funde 38.58 d % Improvement of Self 31,354,233.00 3,189,132.80 4,117,368.02 5,180,164.19 0.00 2,126,336.63 seven-finished funde products d 6.78% Ball-surfac Self 47.22 e rolling 6,540,000.00 2,443,072.18 1,586,859.36 941,900.98 0.00 3,088,030.56 funded % grinder /loan Heat treatment 9,035,779.00 2,122,531.93 2,339,842.79 4,203,465.83 0.00 258,908.89 2.87% product line Loan Self Digital Boring 33.61 14,010,270.00 6,299,882.19 1,966,379.18 3,557,469.73 0.00 4,708,791.64 funded machine % /loan Self Double-produc 74.25 200,300.00 357,160.64 82,273.42 290,720.87 0.00 148,713.19 funded t lines % /loan Improvement 3,769,485.00 4,904,601.21 1,546,216.59 1,502,014.99 2,231,541.30 2,717,261.51 Self 72.09 59 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report of exploration funded % machinery /loan Improvement Self project of 10,948.92 117,629.56 0.00 0.00 24,290.96 93,338.60 funded 58.75% General /loan Bearing Pressure Self 46.97 1,569,402.00 928,216.63 391,286.46 146,796.81 435,631.60 737,074.68 Machine funded % Improvement Self of 79.53 3,457,362.99 414,572.61 2,924,210.71 588,991.84 0.00 2,749,791.48 funded one-fininshed % /loan products Instruments Self 5,871,052.00 2,927,643.44 426,842.74 843,985.45 1,433,424.50 1,077,076.23 37% funded Taper roller Self 1,824,000.00 497,525.63 489,904.46 0.00 0.00 987,430.09 39% assembly line funded Carbonization Self 3,600,000.00 1,421,588.20 0.00 0.00 0.00 1,421,588.20 45% furnace funded Self 22.59 Others 135,774,144.00 29,117,316.10 54,069,817.30 48,130,275.25 4,383,948.12 30,672,910.03 funded % /loan Total 363,464,718.47 86,289,886.67 115,595,954.92 116,869,493.60 12,118,946.70 72,897,401.29 Including: borrowing cost 11,814,803.44 14,721,261.77 10,764,643.30 0.00 15,771,421.91 capitalisation （4） Provision for impairment of construction in progress Decrease Items 2007.12.31 Increase Others 2008.12.31 Reverse transferred out Carbonization 1,378,940.55 0.00 0.00 0.00 1,378,940.55 furnace Vertex explore 24,153.00 0.00 0.00 0.00 24,153.00 instrument Total 1,403,093.55 0.00 0.00 0.00 1,403,093.55 8.11 Intangible assets (1) Intangible assets Items 2007.12.31 Increase Decrease 2008.12.31 Cost Land use right 148,782,429.50 0.00 0.00 148,782,429.50 ERP software 5,163,621.11 0.00 0.00 5,163,621.11 Others * 0.00 234,444.44 0.00 234,444.44 Total 153,946,050.61 234,444.44 0.00 154,180,495.05 Amortisation Land use right 3,997,074.03 3,719,515.44 0.00 7,716,589.47 ERP software 1,026,798.23 557,843.52 0.00 1,584,641.75 60 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Others* 85,740.72 0.00 85,740.72 Total 5,023,872.26 4,363,099.68 0.00 9,386,971.94 Provision for impairment Land use right 0.00 0.00 0.00 0.00 ERP software 0.00 0.00 0.00 0.00 Others* 0.00 0.00 0.00 0.00 Total 0.00 0.00 0.00 0.00 Booking value Land use right 144,785,355.47 -3,719,515.44 0.00 141,065,840.03 ERP software 4,136,822.88 -557,843.52 0.00 3,578,979.36 Others * 0.00 148,703.72 0.00 148,703.72 Total 148,922,178.35 -4,128,655.24 0.00 144,793,523.11 * Others include Yongyou financial software, anti versus software and OA software. In 2008 no any intangible asset was pledged or frozen. 8.12 Long-term deferred expenses Items 2008.12.31 2007.12.31 Right to use premise 1,064,005.81 1,131,836.17 License fee of SAP software 582,595.35 1,048,673.07 Heat fee etc 539,749.97 718,641.41 Others 90,058.22 117,768.38 Total 2,276,409.35 3,016,919.03 8.13 Deferred tax assets (1) Recognized deferred tax assets Items 2008.12.31 2007.12.31 Deferred tax assets of deductable temporary 17,927,307.42 8,867,371.89 difference Total 17,927,307.42 8,867,371.89 (2) The temporary differences Deductable temporary difference 2008.12.31 2007.12.31 Provision for bad debts 4,728,234.78 5,008,806.11 Provision for impairment of inventories 42,984,728.88 11,969,989.14 Depreciation of fixed assets 11,940,720.06 11,940,720.06 Impairment for fixed assets 4,341,838.31 1,424,606.14 Unrealizedt intragroup profit 7,713,707.70 5,125,366.08 Total 71,709,229.73 35,469,487.53 61 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 8.14 Statement of provision for impairment of assets Decrease Items 2007.12.31 Increase Others 2008.12.31 Reverse transferred out Provison for bad debts 49,209,463.67 7,478,538.73 0.00 11,421,782.83 45,266,219.57 Provision for impariment of 39,770,878.66 39,984,362.20 0.00 8,273,785.94 71,481,454.92 inventories Provision for impairment of 1,424,606.14 2,998,576.07 0.00 81,343.90 4,341,838.31 fixed assets Provision for construction 1,403,093.55 0.00 0.00 0.00 1,403,093.55 in progress Total 91,808,042.02 50,461,477.00 0.00 19,776,912.67 122,492,606.35 Note：others transferred out include cancel of receivables is RMB 8,248,295.96, the part is due to debt restructuring RMB 3,173,486.87. 8.15 Short-term loan (1) Loans according to currency Currency 2008.12.31 2007.12.31 RMB 321,160,235.14 233,470,235.14 US $ 4,233,542.61 0.00 Total 325,393,777.75 233,470,235.14 (2) Loans according to the loan conditions Items 2008.12.31 2007.12.31 Credit loan 300,000,000.00 207,000,000.00 Secured loan 20,970,235.14 26,280,235.14 Guarantee loan 190,000.00 190,000.00 Mortgage borrowing 4,233,542.61 0.00 Total 325,393,777.75 233,470,235.14 * the mortgage borrowing acquired by fixed deposit，details in reference to the relative paragraph. (3) Details of short-term loan with overdue Amounts Interest Loan Reason of Expected Remarks Bank name rate purpose unpaid on payment schedule date Liaoyang Branch of Operating 13,590,235.14 5.31% Production Uncertainty A Industrial and difficulty 62 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Commercial Bank of China Baita Branch of Operating Commercial Bank of 7,090,000.00 7.254% Production Uncertainty B difficulty Liaoyang Jiaotong Branch of Operating Commercial Bank of 290,000.00 7.956% Production Uncertainty C difficulty Liaoyang Sales Departmemt of Liaoyang Branch of Operating 190,000.00 8.892% Production Uncertainty D China Construction difficulty Bank Total 21,160,235.14 A Pursuant to the loan contract signed between Liaoyang Bearings and Liaoyang Zhanqian Branch, the Industrial and Commercial Bank of China, machinery equipments (with original amount RMB 22,930,000.00) were pledged for the loan of RMB 13,590,235.14 with annual interest rate of 5.31%. The loan has been overdue. B Liaoyang Bearing obtained a loan of RMB 7,090,000.00 by pleding its buildings (Liao-zi No.00161797 with assessed value RMB 16,480,000.00) and land use right (Liao-bai No.[2003]101700070). The annual interest rate is 7.254%. The loan has been overdue. C Pursuant to the loan contract signed between Liaoyang Bearings and Jiaotong Branch, Liaoyang Commercial Bank, real estate (Liao-zi No.0012443) was pledged for the loan with the principal of RMB 600,000.00 with annual interest rate 7.956%. The date of maturity was April 5, 2007. In 2008 Liaoyang Bearings paid RMB 310,000.00. The remaining amounts of RMB 290,000.00 as at December 31 2008. D Liaoyang Bearings obtained a loan of RMB 190,000.00. The loan was guaranteed by Liaoyang Forging Machine Tool Co., Ltd. The loan has been transferred to Dongfang Asset Management Ltd Co., 8.16 Notes payable Items 2008.12.31 2007.12.31 Bank acceptance notes 100,880,000.00 102,187,200.00 Commercial acceptance notes 14,450,000.00 0.00 Total 115,330,000.00 102,187,200.00 8.17 Accounts payable (1) Accounts payable Items 2008.12.31 2007.12.31 Total 632,582,740.43 492,774,489.35 Including:over 1 year 89,310,748.31 64,993,968.99 Increase of ending balance of A/P mainly due to purchasing raw materials increase and reasonably use of commercial credit term to control payment of cash. A/P with over 1 year mainly duo to accounts payable related to construction project has nao been paid in time. 63 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 1) Accounts payable due to shareholders who hold more than 5% (including 5%) of the Group’s shares : Company name 2008.12.31 2007.12.31 Wazhou Group 587,061.76 1,884,707.30 Total 587,061.76 1,884,707.30 2) The accounts payable include the following foreign currency balance 2008.12.31 2007.12.31 Foreign Original Exchange Orginal currency Exchange currency currency rate RMB rate RMB US $ 0.00 0.00 0.00 2,048,789.46 7.3046 14,965,587.49 Total 0.00 0.00 0.00 2,048,789.46 7.3046 14,965,587.49 8.18 Accounts received in advance (1) Accounts received in advance Items 2008.12.31 2007.12.31 Total 29,344,299.86 30,749,009.85 Including: over 1 year 4,579,767.35 1,542,303.72 (2) The account received in advance includes the following foreign currency balance: Foreign 2008.12.31 2007.12.31 currency Original Exchange Original Exchange currency rate RMB currency rate RMB US $ 303,634.18 6.8346 2,075,218.17 366,280.37 7.3046 2,675,531.59 EU 56,391.18 9.659 544,682.41 0.00 0.00 0.00 Total 2,619,900.58 2,675,531.59 8.19 Employee compensation payable Items 2007.12.31 本年增加 本年减少 2008.12.31 Salary(including bonus, allowance) 402,035.07 166,188,019.83 164,675,482.65 1,914,572.25 Employee welfare 0.00 2,387,010.16 2,387,010.16 0.00 Social insurance 11,535,852.96 65,113,532.54 65,092,235.90 11,557,149.60 Including:1.Medical insurance 873,931.83 12,709,260.77 12,608,349.33 974,843.27 2.Basis endowment insurance 10,072,310.11 43,754,141.46 43,811,593.63 10,014,857.94 3.Unemployment insurance 329,775.62 4,226,684.32 4,236,022.95 320,436.99 4.Compo insurance 194,936.75 3,290,530.44 3,300,208.64 185,258.55 5.Bearing insurance 64,898.65 1,132,915.55 1,136,061.35 61,752.85 Housing fund 5,360,679.09 18,679,401.10 20,040,595.43 3,999,484.76 Labour union expenditure & employee 10,770,671.04 3,830,557.70 2,627,156.75 11,974,071.99 64 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report education expenditure Non-monetary welfare 1,221.36 0.00 1,221.36 0.00 Compensation due to cancel of labor contract 4,519,361.00 24,216.88 4,116,055.88 427,522.00 Total 32,589,820.52 256,222,738.21 258,939,758.13 29,872,800.60 8.20 Tax payable Items Applicable tax 2008.12.31 2007.12.31 rate VAT 17% -6,080,140.55 70,157.41 Business tax 5% 0.00 46,053.93 City construction tax 7% 318,326.95 461,707.89 EIT 25% 3,406,523.71 7,172,165.64 Individual income tax 35,926.57 59,248.73 Real estate tax 1,050,425.73 1,404,995.82 Land use tax 18,341.40 18,341.40 Stamp tax 278,870.80 173,202.17 Education surcharge 3% 158,565.42 237,863.03 River toll fee 405,232.02 369,380.93 Education expenditure of region 3,959.91 6,516.02 Others 1,849.66 192.00 Total -402,118.38 10,019,824.97 8.21 Other payable (1) Other payable Items 2008.12.31 2007.12.31 Total 87,802,183.41 106,662,693.80 Including: over 1 year 48,815,059.27 57,428,222.66 (2) other payable due to shareholders who hold more than 5% (including 5%) of the Company’s shares Company name 2008.12.31 2007.12.31 Wazhou Group 71,115,922.83 86,861,270.58 Total 71,115,922.83 86,861,270.58 (3) Significant other payable at the end of the period Items Amounts Aging Nature Wazhou Group 71,115,922.83 1-3years Current account Wafangdian Zhouxin Intergrated Service Co., Lte 883,909.80 1-2years Material purchasing Counter-claim fund of Fugang quality from purchasing Dep. 3,978,000.00 Over 3 years Counter-claim fund 65 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Wafangdian Changqing Gardens Engine Co., Ltd 377,644.56 1-2 years Green Deposit from Labour union of Grinding Wheel Factory 1,260,000.00 2-3years The staff aftercare fee Total 77,615,477.19 (4) Other payable includes the following foreign currency balance 2008.12.31 2007.12.31 Foreign Original Exchange Original Exchange curency currency rate RMB currency rate RMB US dollar 8,850.00 6.8346 60,486.21 566,098.81 7.3046 4,135,125.37 Total 60,486.21 4,135,125.37 8.22 Non-current liabilities due within one year (1) Non-current liabilities due within one year Item 2008.12.31 2007.12.31 Long-term loan matured within one year 190,000,000.00 100,000,000.00 Total 190,000,000.00 100,000,000.00 (2) According to currency: Currency 2008.12.31 2007.12.31 RMB 190,000,000.00 100,000,000.00 Total 190,000,000.00 100,000,000.00 (3) According to loan conditions Items 2008.12.31 2007.12.31 Secured loan * 90,000,000.00 0.00 Guaranteed loans** 100,000,000.00 100,000,000.00 * The secured loan was borrowed from the Dalian Branch of China Import & Export Bank by the Company. The Company secured seven buildings (cost is RMB 65,624,684.74, net book value RMB 30,333,500.69 and appraisal value is RMB 54,222,947.00) and land use right (cost 80,504,866.27, net book value RMB 78,342,084.61, and appraisal valve is RMB 79,675,000.00). The loan’s matured date is Septem 16 2009. ** The guaranteed loans were guaranteed by Wazhou Group. 8.23 Long-term loan (1) According to currency Currency 2008.12.31 2007.12.31 RMB 149,500,000.00 339,500,000.00 Total 149,500,000.00 339,500,000.00 (2) According to loan conditions 66 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Items 2008.12.31 2007.12.31 Credit loan 1,500,000.00 1,500,000.00 Secured loan* 0.00 90,000,000.00 Guranteed loan** 148,000,000.00 248,000,000.00 Total 149,500,000.00 339,500,000.00 (3) * The secured loan mention above has been transferred into the non-current liabilites matured within one year in 2008. (4) ** The guaranteed loans were guaranteed by Wazhou Group. (5) Long-term accounts payable Items 2007.12.31 2008.12.31 Liaoyang Bureau of Environment 100,000.00 100,000.00 Total 100,000.00 100,000.00 (6) This is the loan for the improvement of forging from Liaoyan Bureau of Environment in 1999. (7) Special payable Items 2007.12.31 Increase Decrease 2008.12.31 Special pollution treatment 201,698.98 154,189.59 154,189.59 201,698.98 Total 201,698.98 154,189.59 154,189.59 201,698.98 (8) * This is the environmental protection subsidy granted by Wafangdian Bureau of Finance and Wafangdian Bureau of Environment Protection for the treatment of waste water pursuant to the circular No.[2004]217. (9) Other non-current liabilities Item 2007.12.31 Increase Decrease 2008.12.31 Improvement subsidy 0.00 7,370,000.00 737,000.00 6,633,000.00 Total 0.00 7,370,000.00 737,000.00 6,633,000.00 This is the railway transportation bearing technologic improvement subsidy granted by Bureau of Fiance Liao Ning province. The subsidy should be deferred over the useful life of related asset i.e. 10 years. In 2008 the revenue should be recognized at RMB 737,000.00. 8.24 Share capital Shareholders/category 2007.12.31 2008.12.31 Proportion Proportion Amounts Amounts (%) (%) Unlisted shares domestical legal person shares 244,000,000.00 60.61 244,000,000.00 60.61 Total of unlisted shares 244,000,000.00 60.61 244,000,000.00 60.61 Listed shares 67 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Domestically listed foreign shares 158,600,000.00 39.39 158,600,000.00 39.39 Total of listed shares 158,600,000.00 39.39 158,600,000.00 39.39 Total of shares 402,600,000.00 100.00 402,600,000.00 100.00 8.25 Capital surplus Items 2007.12.31 Increase Decrease 2008.12.31 Premium on issue of shares 201,956,446.52 0.00 0.00 201,956,446.52 Items 283,475,071.55 0.00 0.00 283,475,071.55 Total 485,431,518.07 0.00 0.00 485,431,518.07 8.26 Surplus reserve Items 2007.12.31 Increase Decrease 2008.12.31 Statutory surplus reserve 70,517,976.01 10,153,243.51 0.00 80,671,219.52 arbitrary 0.00 20,590,618.91 0.00 20,590,618.91 Total 70,517,976.01 30,885,928.37 0.00 101,403,904.38 According to the Company Law of China, the AOA of the company and the resolution of Board of Directors, the statutory surplus public reserves is provided based on 10,295,309.46 Yuan of net profits of parent company with a proportion of 10 percent, and distilled 20 percent arbitrary surplus public reverses 20,590,618.91Yuan based on the annual net profit attributable; 8.27 Undistributed profit Items 2008 2007 Undistributed profits at the beginning of the year 243,660,433.16 201,035,254.89 Add:Adjustment to undistributed profits at the beginning of the 11,721,175.30 -10,942,120.00 year Including:Charge of accounting policy 0.00 -22,663,295.30 Correction of prior period error 11,721,175.30 11,721,175.30 Restated Undistributed profit at the beginning of the 255,381,608.46 190,093,134.89 year Add: Current net profit 102,953,094.55 88,209,124.81 Less: Provision for statutory surplus reserve 10,295,309.46 8,829,651.24 Provision for arbitrary surplus reserve 20,590,618.91 0.00 Dividends for common shares 16,104,000.00 14,091,000.00 Undistributed profits at end of the year 311,344,774.64 255,381,608.46 Including:Propsoed dividends for common shares(refers to 22,143,000.00 16,104,000.00 note 15) Note: Adjustment to undistributed profits at the beginning of the year refers to note 4. 8.28 Minority interest Subsidiary name Minority interest (%) 2008.12.31 2007.12.31 General Bearing 25 2,605,975.02 2,635,630.01 Total 2,605,975.02 2,635,630.01 68 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 8.29 Operating revenue & Cost (1) Operating revenue Items 2008 2007 Sales 2,439,912,234.99 2,003,413,381.48 Others revenue 538,208,397.06 488,099,241.20 Total 2,978,120,632.05 2,491,512,622.68 Cost of sales 2,018,210,482.03 1,654,905,962.70 Others operating cost 514,603,445.90 472,002,874.68 Total 2,532,813,927.93 2,126,908,837.38 (2) Sales & cost of sales (Classified according to goods or operation nature) 2008 2007 Items Sales Cost of sales Sales Cost of sales Export 240,834,366.75 237,136,953.48 206,080,785.56 223,608,406.59 domestic 1,989,147,197.94 1,584,645,714.45 1,565,345,712.04 1,235,186,148.82 Including:Transportation vehicle bearings 800,588,923.91 717,424,006.54 760,808,979.55 677,850,255.55 Special use bearings 413,056,317.71 277,739,006.73 468,869,242.55 297,772,452.93 General use bearings 775,501,956.32 589,482,701.18 335,667,489.94 259,563,440.34 Income from Industri Operations 209,930,670.30 196,427,814.10 231,986,883.88 196,111,407.29 Total 2,439,912,234.99 2,018,210,482.03 2,003,413,381.48 1,654,905,962.70 (3) Sale amounts of top 5 customers are RMB 594,705,867.95, whice accounted for 24.37% of total sales. 8.30 Operating tax & surcharges for main operations Items Applicable tax rate(%) 2008 2007 Business tax 5 127,502.29 859,499.72 City construction tax 7 6,707,518.80 6,364,394.70 Education Surcharge 3 3,579,457.66 3,582,315.57 Other 281,643.48 61,134.85 Total 10,696,122.23 10,867,344.84 8.31 Financial expenses Items 2008 2007 Interest expenses 30,589,131.38 29,618,670.35 Less: interest income 1,099,704.28 1,125,211.12 Add: Exchange losses 2,428,524.11 3,142,333.13 69 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Add: Others expenditure 3,028,764.13 8,230,309.63 Total 34,946,715.34 39,866,101.99 8.32 Loss of impairment of assets Items 2008 2007 Loss of bad debts 7,478,538.73 3,051,209.46 Loss of impairment of inventories 39,984,362.20 8,193,260.63 Loss of impairment of fixed asset 2,998,576.07 0.00 Total 50,461,477.00 11,244,470.09 8.32 Investment income (1) Source of investment income Items 2008 2007 Investment income of long-term equity under cost method 0.00 0.00 Investment income of long-term equity under equity method 8,799,387.31 9,567,218.13 Total 8,799,387.31 9,567,218.13 There are no major restrictions regarding the remittance of the investment gains for the Company. (2) Investment income of long-term equity under equity method Items 2008 2007 SKF WaZhou 8,861,398.73 9,565,405.91 Shanghai ZhenXin -62,011.42 1,812.22 Total 8,799,387.31 9,567,218.13 8.33 Non-operating revenues (1) Non-operating revenues Items 2008 2007 Gains on disposal of non-current assets 771,072.44 1,916,494.42 Including: gains on disposal of fixed assets 771,072.44 1,916,494.42 Income from debt restructuring 7,743,038.48 2,143,441.83 Government grants 925,189.59 536,200.00 Insurance compensation 0.00 1,830,409.58 Others 3,253,247.51 7,424,775.88 Total 12,692,548.02 13,851,321.71 (2) Government grants Items 2008 2007 Source Railway transportation bearing 737,000.00 0.00 No.5 (2007) Bureau of Finance Liao technology improvement subsidy Ning Province 70 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Information construction subsidy 154,189.59 200,000.00 Bureau of Finance Dalian and Bureau of Information Dalian Environment protection sudsidy 34,000.00 0.00 Bureau of Finance Wafangdian Export subsidy 0.00 300,000.00 Publicity and education subsidy 0.00 30,000.00 Bureau of Finance Wafangdian other 0.00 6,200.00 Total 925,189.59 536,200.00 8.34 Non-operating cost Items 2008 2007 Gains on disposal of non-current assets 3,747,871.22 905,473.57 Including:Gains on disposal of fixed assets 3,747,871.22 905,473.57 Loss from debt restructuring 6,184,532.72 292,758.64 Donation 1,022,100.00 12,420.00 Others 1,827,232.18 791,294.42 Total 12,781,736.12 2,001,946.63 8.35 Income tax expenses (1) Income tax expenses Items 2008 2007 Current income tax expenses 32,781,344.02 16,829,554.28 Deferred income tax expenses -9,059,935.53 -128,774.97 Total 23,721,408.49 16,700,779.31 (2) Current income tax expenses Items Amounts Current period consolidation profit before tax 126,644,848.05 Add: adjustment to increase taxable profit 54,762,624.99 Less: adjustment to decreasetaxableprofit 47,330,973.41 Less: offset previous year loss 1,700,764.59 Current period taxable profit 132,375,735.04 Statutory income tax rate 25% Current period income tax payable 33,093,933.76 Less:derating income tax * 0.00 Less：offset income tax 312,589.74 Current period tax payable 32,781,344.02 Add: Income tax payable for the foreign profit 0.00 Less: Income tax ٛffsetting foreign profit 0.00 71 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Add: other adjustment factors 0.00 Current income tax expenses 32,781,344.02 8.37 Calculation of basic earnins per share and diluted earnings per share Items No. 2008 2007 Net profit attributable to shareholders of 1 88,209,124.81 parent company 102,953,094.55 Non-operating profit and loss attributable 2 7,774,105.84 to shareholders of parent company -1,238,735.44 Net profit after deducting non-operating profit and loss attributable to 3=1-2 104,191,829.99 80,435,018.97 shareholders of parent company Total number of shares at the period 402,600,000.00 402,600,000.00 begin 4 The number of shares increased due to transferring capital reserve into share 5 0.00 0.00 capital or dividend distribution of shares during report period(Ⅰ) The number of shares increased due to issuance of new shares or debt for equity 6 0.00 0.00 swap during the report period (Ⅱ) the number of shares (Ⅱ)from the next month to the end of the report period for 7 0.00 0.00 increase of shares The number of months decreased due to stock repurchase or draw back stock 8 0.00 0.00 during the report period The number of months from the next month to the end of the report period for 9 0.00 0.00 decrease of shares Number of months during the report 10 12 12 period Weighted average number of ordinary 11=4+5+6×7÷10 402,600,000.00 402,600,000.00 shares issued out -8×9÷10 EPS – basis (Ⅰ) 12=1÷11 0.26 0.22 EPS – basis (Ⅱ) 13=3÷11 0.26 0.20 Potential diluted interests of ordinary 14 0.00 0.00 shares recognized as expense Transfer fee 15 0.00 0.00 EIT rate 16 0.00 0.00 Weighted average amount of ordinary shares increased due to warrant, share 17 0.00 0.00 options EPS – diluted (Ⅰ) 18=[1+(14-15)×(1-16)]÷(11+17) 0.26 0.22 EPS – diluted (Ⅱ) 19=[3+(14-15)×(1-16)]÷(11+17) 0.26 0.20 8.38 Cash flow statement (1) Cash and cash equivalent listed in the cash flow statement including: Items 2008 2007 Cash 125,662,540.80 65,233,285.21 72 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Including: Cash on hand 269,518.30 279,811.42 Bank deposit used for paying at any moment 94,311,483.32 50,998,880.72 Other cash used for paying at any moment 31,081,539.18 13,954,593.07 Cash equivalent 0.00 0.00 Balance of cash and cash equivalent at the end of period 125,662,540.80 65,233,285.21 Including: Cash and cash equivalent used restrictedly in 0.00 0.00 parent company or subsidiaries under the Group Note: there is difference between cash and cash equivalent and monetary fund at the end of this year, the main reason refers to notes 8.1. (2) Other cash received or paid relating to operating, investment, and finance activities 1) Other cash received relating to operating activities Items 2008 2007 Income from penalty 59,250.00 165,841.00 Government subsidy 217,874.38 1,000,000.00 Insurance compensation 1,511,389.57 1,679,321.74 Interest income 11,262.19 0.00 enalty arising form nonobservance labor contract 38,750.00 130,200.00 Deposit 93,500.00 248,000.00 Gurantee cash 182,967.00 1,922,098.30 Return of traveling expenses 13,485.22 36,823.57 Others current account received 0.00 675,530.00 Reward income 0.00 259,298.00 Others 893,831.54 2,161,962.87 Total 3,022,309.90 8,279,075.48 2) Other cash paid relating to operating activities Items 2008 2007 Security and fire protection expense paid to Wazhou Group 1,100,070.00 1,000,000.00 Operating propaganda expense paid to Wazhou Group 300,015.00 788,800.00 Technical Research expensed paid to Wazhou Group 2,150,115.00 1,700,000.00 Land rent paid to Wazhou Group 3,153,192.42 460,000.00 Transportation expense 15,514,639.81 28,041,215.88 Commission 208,413.38 679,730.68 Repairment fee 1,846,314.96 8,683,411.71 Transportation allowance for employee 1,222,007.00 1,145,707.97 Power fee 6,092,010.89 13,593,332.65 Market exploiture expenses 3,742,479.33 456,992.00 73 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Trademark use fee paid to Wazhou Group 16,378,897.47 9,372,600.00 Operation activity expenses 3,307,234.41 7,765,418.18 Meeting expense 1,266,420.39 6,325,000.14 Sea transportation expenses 7,053,688.57 10,039,817.92 Deposit of purchasing scraps returned 1,410,557.00 1,472,992.00 Travelling expenses 8,958,146.57 13,609,191.50 Storage expenses 1,519,329.40 2,920,965.69 Insurance 4,297,613.34 1,341,260.90 Others 15,317,044.30 30,327,389.04 Total 94,838,189.24 139,723,826.26 3) Others cash received relating to financing activities Interest income 2008 2007 Deposit for bank acceptance notes with a fixed term longer than 3 months 709,364.49 907,340.86 Interest income 10,000,000.00 10,503,904.29 Total 10,709,364.49 11,411,245.15 4) Others cash paid relating to financing activities Items 2008 2007 Guarantee fee paid to Wazhou Group 3,517,910.11 1,000,000.00 Deposit for bank acceptance notes with a fixed term more than 3 months 3,550,000.00 10,000,000.00 Others 457,477.85 1,952.40 Total 7,525,387.96 11,001,952.40 (3) Supplementary information of consolidated cash flow statement Items 2008 2007 1. Adjusting net profit into cash flows of operating activities: Net profit 102,923,439.56 87,326,491.59 Add: Provision for impairment of assets 50,461,477.00 11,244,470.09 Depreciaton of fixed assets 82,746,845.17 61,722,687.84 Amortisation of intangible assets 4,363,099.68 4,546,070.55 Amortisation of long-term deferred expenses 740,509.68 411,035.27 Loss of disposal of fixed assets, intangible assets, and long-term assets (income listed with”-”) 2,976,798.78 -1,011,020.86 Loss of rejection of fixed assets (income listed with”-”) 0.00 0.00 Profit and loss in fair value (income listed with”-”) 0.00 0.00 Fiancial expense (income listed with”-”) 32,350,420.13 34,496,458.35 Investment loss(income listed with”-”) -8,799,387.31 -9,567,218.13 Decrease of deferred tax assets(increase listed with”-”) -9,059,935.53 820,445.90 74 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Increase of deferred tax liabilities(decrease listed with”-”) 0.00 -949,220.87 Decrease of inventories(increase listed with”-”) -190,791,260.79 -94,225,417.11 Decrease of operating receivable (increase listed with”-”) 11,835,955.23 -128,811,986.75 Increase of operating payable (decrease listed with”-”) 88,535,710.49 142,507,868.59 Others 0.00 0.00 Net cash flows arising from operating activities 168,283,672.09 108,510,664.46 2. Significant investment and financing activities unrelating to cash income and expenses Liabilities transferred to capital 0.00 0.00 Convertible bonds within 1 year 0.00 0.00 Financing lease fixed assets 0.00 0.00 3. Net increase( decrease) of cash and cash equivalent Ending balance of cash 125,662,540.80 65,233,285.21 Less: Beginning balance of cash 65,233,285.21 130,502,493.84 Add: Ending balance of cash equivalent 0.00 0.00 Less: Beginning balance of cash equivalent 0.00 0.00 Net increase of cash and cash equivalent 60,429,255.59 -65,269,208.63 9. Notes to parent financial statements 9.1 Accounts receivable (1) Aging of accounts receivable 2008.12.31 2007.12.31 Items Amounts Proportion Provision for Amounts Proportion Provision for bad debts bad debts Within 1year 600,624,200.61 83.67 5,799,738.09 627,317,824.57 86.11 5,044,939.33 1-2 years 67,898,023.32 9.46 3,337,435.55 34,205,823.35 4.70 1,707,198.07 2-3 years 16,772,221.39 2.34 3,353,449.20 15,464,443.92 2.12 3,917,722.80 Over 3 years 32,544,635.03 4.53 21,369,426.51 51,499,331.57 7.07 23,694,408.52 Total 717,839,080.35 100.00 33,860,049.35 728,487,423.41 100.00 34,364,268.72 (2) The risk category of accounts receivable Items 2008.12.31 2007.12.31 Booking value Provision for bad debts Balance in the account Bad debt reserve Amounts Proportion(%) Amounts Proportion(%) Amounts Proportion(%) Amounts Proportion(%) A/R with significant 395,350,815.03 55.08 12,813,985.75 37.84 416,748,946.97 57.21 13,435,031.81 39.10 single amounts 75 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report A/R with significant 322,488,265.32 44.92 21,046,063.60 62.16 311,738,476.44 42.79 20,929,236.91 60.90 single amounts Total 717,839,080.35 100.00 33,860,049.35 100.00 728,487,423.41 100.00 34,364,268.72 100.00 1) Accounts receivable with significant or insignificant balance which were made impairment test separately at the end of 2008 Proportion Debtors name Booking balance Provision for bad debts Reasons for provision (%) Shenyang Sewerage Equipment Ltd A/R with over 5 years Co., 2,706,703.13 2,706,703.13 100.00 aging, no possible to receive. A/R with over 5 years Shenyang Jinya Bearing Company 4,296,837.27 4,296,837.27 100.00 aging, no possible to receive. Baoding NorthChina Machine & A/R with over 5 years Electronic Equipment Ltd Co., 3,910,007.43 3,910,007.43 100.00 aging, no possible to receive. Total 10,913,547.83 10,913,547.83 (3) Accounts receivable were cancelled after verification in 2008 Reasons for Resulting from related Debtors name Nature Amounts cancellation party transaction(Yor N) Changsha Internal Combustion Amount due Engine Accessory Factory from customer 1,855,301.39 No ways to receive N The same as Wazhou Group above 1,198,317.96 Debtor was logout Y Jiaxing Metallurgy Mechanism The same as Factory above 253,920.25 Debtor bankruptcy N Wazhou Material Supply and The same as Marketing Company above 221,079.47 No ways to receive N The same as Debtor was logout and Other above 518,406.26 or bankruptcy N Total 4,047,025.33 (4) Accounts receivable due from shareholder holding over 5% (including 5%) of the Company’s share 2008.12.31 2007.12.31 Name Provision for bad Provision for bad Amounts Amounts debt debt Wazhou Group 28,913,183.79 435,196.99 29,141,669.56 341,517.45 Total 28,913,183.79 435,196.99 29,141,669.56 341,517.45 (5) The accounts receivables for the top 5 companies amounted to RMB 128,823,545.39, accounts for 17.91% of the total ending balance. (6) The accounts receivable from related parites amount to RMB 28,913,183.79 元，account for 4.03% of the total ending balance. (7) The accounts receivable includes the following foreign currency balance Foreign 2008.12.31 2007.12.31 currency Original Exchange Original Exchange currency rate RMB currency rate RMB 76 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report US $ 2,610,441.40 6.8346 17,841,322.79 4,660,402.89 7.3046 34,042,378.95 EU 622,211.20 9.6590 6,009,937.98 7,487.80 10.24 76,675.07 Total 23,851,260.77 34,119,054.02 9.2 Other receivable (1) Aging of other receivable 2008.12.31 2007.12.31 Items Amounts Proportion Provision for Amounts Proportion Provision for bad debts % bad debts % Within one year 4,999,767.31 58.76 2,885.37 4,347,099.51 43.03 2,885.37 1-2 years 888,498.33 10.44 155.42 1,251,523.47 12.39 155.42 2-3 years 583,964.10 6.86 31,289.57 793,732.00 7.86 31,289.57 Over 3 years 2,036,996.33 23.94 993,015.22 3,708,961.93 36.72 2,721,665.75 Total 8,509,226.07 100.00 1,027,345.58 10,101,316.91 100.00 2,755,996.11 (2) The risk category of others receivable 2008.12.31 2007.12.31 Book balance Provision for bad debts Book balance Provision for bad debts Items Amount s Proportio Amount s Proportio Amount s Proportion Amount s Proportion n n (%) (%) (%) (%) A/R with significant single amounts 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 A/R with significant single amounts 8,509,226.07 100.00 1,027,345.58 100.00 10,101,316.91 100.00 2,755,996.11 100.00 Total 8,509,226.07 100.00 1,027,345.58 100.00 10,101,316.91 100.00 2,755,996.11 100.00 (3) Accounts receivable were cancelled after verification in 2008 Resulting from Reason for Debtor name Nature Amounts related party cancellation transaction(Yor N) Shanghai Wugang Company Amounts 1,788,426.38 N due from customer With 5 years aging Total 1,788,426.38 (3) No other receivable due from shareholder holding over 5% (including 5%) of the Company’s share (4) The other receivables for the top 5 companies amounted to RMB 928,904.5, accounts for 10.92% of the total ending balance. (5) The accounts receivable includes the following foreign currency balance Foreign 2008.12.31 2007.12.31 77 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report currency Original Exchange Original Exchange rate currency rate RMB currency RMB US $ 0.00 - 8,850.00 6.8346 60,486.21 0.00 Total 0.00 - 8,850.00 6.8346 60,486.21 0.00 9.3 Long-term equity investment (1) Long-term equity investmen Items 2008.12.31 2007.12.31 L-T equity investment under cost method 47,367,635.45 47,367,635.45 L-T equity investment under equity method 77,889,224.35 79,792,653.71 Total 125,256,859.80 127,160,289.16 Less: Provison for impairment of L-T investments 0.00 0.00 Net amounts 125,256,859.80 127,160,289.16 (2) According to cost and equity method Vote Cash Orignial dividends Investee Percentage 2007.12.31 Increase Decrease 2008.12.31 Amounts received in 2008 Cost method General Bearing 75.00% 75.00% 28,030,375.50 28,030,375.50 0.00 0.00 28,030,375.50 0.00 Liaoyang Bearing 100.00% 100.00% 17,337,259.95 17,337,259.95 0.00 0.00 17,337,259.95 0.00 ME Lta 4.76% 4.76% 2,000,000.00 2,000,000.00 0.00 0.00 2,000,000.00 0.00 Subtotal 47,367,635.45 47,367,635.45 0.00 0.00 47,367,635.45 0.00 Equity method Dalian SKF 49.00% 49.00% 68,600,000.00 79,319,787.17 8,861,398.73 10,702,816.67 77,478,369.23 10,702,816.67 Shanghai Zhenxin 40.00% 40.00% 400,000.00 472,866.54 -62,011.42 0.00 410,855.12 0.00 Subtotal 69,000,000.00 79,792,653.71 8,799,387.31 10,702,816.67 77,889,224.35 10,702,816.67 Total 116,367,635.45 127,160,289.16 8,799,387.31 10,702,816.67 125,256,859.80 10,702,816.67 (3) Investments in associations Registered Equity Vote Net assets as Net profit in Investee Business nature Sales in 2008 address % % at Dec.31 2008 2008 No.1, Phrase 1, Manufacture Dalian SKF Wazhou Gongji Street, and trading 49.00% 49.00% 163,728,673.63 163,241,937.57 23,694,039.98 Bearings Co., Ltd. Wafangdian ball-surface North rolling bearing Shanghai Zhenxin No.609, Bei Jing trading bearing Wazhou Machinery Dong Road, and spare 40.00% 40.00% 1,027,137.78 3,832,969.87 -155,028.55 and Electricity Co., Huangpu district, parts, etc. Ltd. Shanghai city Total 164,755,811.41 167,074,907.44 23,539,011.43 (4) No impairment of long term equity investment in 2008. 9.4 Operating revenue and cost 78 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report (1) Operating revenue Items 2008 2007 Sales 2,393,080,895.34 1,952,829,100.98 Others operating revenue 534,046,479.77 484,627,043.86 Total 2,927,127,375.11 2,437,456,144.84 Cost of sales 1,989,550,420.14 1,622,138,407.24 Others operating cost 510,237,158.92 469,101,195.19 Total 2,499,787,579.06 2,091,239,602.43 (2) Sales and Cost of sales (Classified by goods or operation nature) 2008 2007 Items Sales Cost of sales Sales Cost of sales Export 240,834,366.75 237,136,953.49 206,080,785.56 223,608,406.59 Domestic 1,941,697,998.74 1,554,541,370.79 1,514,761,431.54 1,202,418,593.36 Including: Transportation vehicle 745,751,524.91 676,913,671.56 bearings 784,116,311.47 707,172,525.44 Special use 468,869,242.55 297,772,452.93 bearings 413,056,317.71 277,739,006.73 General use 300,140,664.08 227,732,468.87 bearings 744,525,369.56 569,629,838.62 Income from 231,986,883.88 196,111,407.29 Industrial Operations 210,548,529.85 197,872,095.86 Total 2,393,080,895.34 1,989,550,420.14 1,952,829,100.98 1,622,138,407.24 9.5 Investment income (1) Source of investment income Items 2008 2007 Investment income from long-term equity 8,799,387.31 10,645,919.28 investment under equity method Total 8,799,387.31 10,645,919.28 (2) Long-term equity investment under the equity method Item 2008 2007 Total 8,799,387.31 10,645,919.28 Including:Dalian SKF Wazhou Bearings Co., Ltd. 8,861,398.73 10,644,107.06 Shanghai Zhenxin Wazhou Machinery and Electricity Co., Ltd. -62,011.42 1,812.22 10. Debt restructuring In 2008, the Company entered into Debt Restructuring Agreement wih the Company’s debtors, whereby, the amount paid by the debtors to the Company was less than the carrying amount. This agreement resulted in a loss restructuring of RMB 79 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 6,184,532.72 and which was charged in the non-operating cost account. The amount of debts restructured was RMB 93,106,962.94. In 2008, the Company entered into Debt Restructuring Agreement wih the Company’s creditors, whereby, the amount paid by the Company was less than the carrying amount of accounts payable. This agreement resulted in a restructing gain of RMB 3,304,424.27and such restructuring gain was recognized in non-operating revenue. The total amount of debts restructured was RMB 51,688,386.42. General Bearing paid for the loan by the disposal of machinery equipment (cost was RMB 22,877,995.88, net book value was RMB 572,217.21, revaluation value was RMB 1,359,850.00). The treatment resulted in restructuring gain of 4,438,614.21. Both of two mentioned above resulted in total restructuring gain of 7,743,038.48, which was recognized as non-operating cost in the income statement. 11. Lease 11.1 Let assets under operating lease 2008.12.31 2007.12.31 Classify of let assets Net book value Net book value Builidings 4,949,640.00 0.00 Land use right 19,772,031.73 0.00 Total 24,721,671.73 0.00 11.2 Minimize lease payment under significant operating lease Lease term Minimize lease payment Within one year(including one year) 6,999,359.00 1-2 year(including 2 year) 6,999,359.00 2-3 year(including 3 year) 6,999,359.00 Over 3 years 2,663,859.00 Total 23,661,936.00 12. Related parties relationship & transactions 12.1 Related parties relationship (1) Parent company 1) General information of parent company Parent company Nature Registered address Leg representative Business nature Wazhou Group State-Owned No. 1 North Gongji Wang lushun Manufacture and sale Street, Wafangdian of bearing and other City, Dalian kinds of equipment 80 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 2) Movement of registered capital of parent company Parent company 2007.12.31 Increase Decrease 2008.12.31 Wazhou Group 360,000,000.00 0.00 0.00 360,000,000.00 3) Share held and its movement of related parties with controlled relationship Amounts Percentage Vote percentage Parent (%) (%) company 2008.12.31 2007.12.31 2008.12.31 2007.12.31 2008.12.31 2007.12.31 Wazhou 244,000,000.00 244,000,000.00 Group 60.61% 60.61% 60.61% 60.61% (2) Subsidairy 1) General information Subsidiairy Classify Registered address Legal reprentative Business nature No.1, Phrase 1, Gongji Manufacture and trading Subsidiariy of bearing products General Bearing Street, Wafangdian Wang lushun controlled North Manufacture and trading Subsidiariy No.61, Weiguo road, of bearing products Liaoyang Bearing controlled Baita district Liaoyang Shao yang wholly city 2) Movement of registered capital of subsidiairy Name 2007.12.31 Increase Decrease 2008.12.31 General Bearing USD4,510,000.00 0.00 0.00 USD4,510,000.00 Liaoyang Bearing 19,350,000.00 0.00 0.00 19,350,000.00 3) Change of share interests in subsidiairies Amount Percentage Vote percentage Name (%) (%) 2008.12.31 2007.12.31 2008.12.31 2007.12.31 2008.12.31 2007.12.31 General Bearing 28,030,385.50 28,030,385.50 75 75 75 75 Liaoyang Bearing 17,337,259.95 17,337,259.95 100 100 100 100 (3) Association 1) Association Leg Register Registered Business Voting Name Classify representat ed Interest address nature percentage ive capital No.1, Phrase 1, Manufacture Dalian SKF Wazhou Limited Wang Gongji Street, and trading 1.4 亿元 49.00% 49.00% Bearings Co., Ltd. company lushun Wafangdian ball-surface 81 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report North rolling bearing Shanghai Zhenxin No.609, Bei Jing trading Wazhou Machinery Limited Dong Road, bearing and Shan shikai 100 万元 40.00% 40.00% and Electricity Co., company Huangpu district, spare parts, Ltd Sh h i it t 2) Financial accounting information 2008.12.31(‘0000) 2008(‘0000) Association Equity Operating Assets Liabilities Net profit revenue Dalian SKF Wazhou Bearings 19,738.17 3,365.30 16,372.87 16,324.19 2,369.40 Co., Ltd. Shanghai Zhenxin Wazhou Machinery and Electricity Co., 106.27 3.56 102.71 383.30 -15.50 Ltd. Total 19,844.44 3,368.86 16,475.58 16,707.49 2,354.08 Related party relationship Name of related party 主要交易内容 1)Other companies controlled under the Purchasing and seling RM an d same parent company Dalian Wazhou Manufacturing Equipment Co., Ltd/ goods Wazhou Steel Ball Company Purchasing and seling RM an d WIP Wazhou Exact Forge Ltd., Seling RM an d WIP Wazhou Group Turnplate Bearing Ltd Purchaing of goods Wazhou Group Exact Transmission Bearing Co., Ltd Selling of RM 2)Association Purchasing and seling RM an d Dalian SKF Wazhou Bearings Co., Ltd. goods (4) Other related parties 12.2 Related party transaction (1) Puchasing goods and materials 2008 2007 Classify of Related party Principle of pricing Percentage Percentage transaction Amounts Amounts (%) (%) selling price according SKF Wazhou Purchasing of to the terms of 167,641,367.73 5.00 164,076,639.83 5.03 company finished goods agreement in 2002 Wazhou Steel Ball Purchasing of Marketing price 17,021,372.30 0.51 20,337,351.68 0.62 Company WIP Wazhou Exact Purchasing of Marketing price 524,798,867.21 15.66 458,239,183.22 14.05 Forge Ltd., WIP Dalian Wazhou Manufacturing Purchasing of Marketing price 26,428,706.42 0.79 28,617,220.07 0.88 Equipment Co., material Ltd/ 82 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Wazhou Group Marketing price after Purchasing of Turnplate Bearing deducting related 285,552,326.69 8.52 72,770,623.20 2.23 finished goods Ltd selling expenses Total 1,021,442,640.35 30.48 744,041,018.00 22.81 (2) Sales of goods, raw materials and working in progress 1) Sales of goods Classify of 2008 2007 Principle of Related party related party Percentage Percentage pricing Amounts Amounts transaction (%) (%) Wazhou Group Sales of goods Marketing price 77,135,372.73 2.59 512,157.09 0.02 Selling price SKF Wazhou according to the Sales of WIP 51,264,589.48 1.72 53,528,504.01 2.00 company terms of agreement in 2002 Agreement price Wazhou Steel BallSales of raw plus handling fee 10,765,654.51 0.36 11,063,115.14 0.41 Company material Agreement price Wazhou ExactSales of raw plus handling fee. 454,699,501.79 15.27 361,750,859.83 13.52 Forge Ltd., material Dalian Wazhou Sales of raw Manufacturing Marketing price 2,895,993.86 0.10 2,843,139.04 0.11 material Equipment Co., Ltd Wazhou Group Turnplate BearingSales of WIP Marketing price 135,240,074.00 4.54 62,774,183.48 2.35 Ltd Wazhou Group Sales of raw Exact Transmission Marketing price 1,705,335.52 0.06 0.00 0.00 materia Bearing Co., Ltd Total 733,706,521.89 24.64 492,471,958.59 18.41 (3) Redering service Classify of 2008 2007 Principle of Related party related party Percentage Percentage pricing Amounts Amounts transaction (%) (%) Selling price according to Industrial SKF Wazhou company the terms of 3,176,362.58 0.11 3,083,049.24 0.10 operations agreement in 2002 Industrial Agreement Wazhou Steel Ball Company 71,563.91 0.00 1,217,357.05 0.04 operations price Total 3,247,926.49 0.11 4,300,406.29 0.14 The price is determined according to the terms of agreement in 2002. (4) Lease 1) Leased assets A Leased land use right The Company entered into a land use right lease contract with Wazhou Exact Forge Ltd., in 2008. The rented area is 2,605.8 m².The rental period is from 1 January 2008 to 31 December 2009. The rental for the year was RMB 385,766.56. The rental was received at 31 December 2008. 83 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report B Leased buildings The Company entered into a building lease contract with Wazhou Exact Forge Ltd., in 2008. The rented area is 8,249.00 m².The rental period is from 1 November 2008 to 31 October 2009. The rental for the year was RMB 261,012.00. The rental was received at 31 December 2008. 2) Assets leased in A Leased land use right The Company entered into two land use right lease contract with Wazhou Group in 2008. One land area is 37,768.00 m², the other land area is 13,710.00 m². The rental period is from 1 January 2008 to 31 December 2009. The rental for the year was RMB 463,040.00. The rental was not paid at 31 December 2008. B Leased buildings The Company entered into a building lease contract with Wazhou Group on 5 January 2007 to support its operating activities.The rental period is from 1 January 2008 to 31 December 2008. The rented area is 2,605.8 m². The rental for the year was RMB 213,200.00. The rental was paid at 31 December 2008. The Company entered into a building lease contract with Wazhou Steel Ball Company on 5 January 2008 to support its operating activities.The rental period is from 1 January 2008 to 31 December 2008. The rented area is 1,233.75 m². The rental for the year was RMB 106,700.00. The rental was paid at 31 December 2008. Special Large Bearing Branch of the Company and Precision Bearing Branch of the Company were founded in 2007.Two branches rent the bulidings of induestial park of Wazhou Group as the workshop. Pursuant to Lease Contract signed with Wazhou Group on October 20 2007, the rental period from January 1 2007 to December 31 2011, the rental for this year is RMB 4,335,500.00, and the outstanding at the ended 31 December 2007 was RMB 3,003,005.60. Roller Branch and No. 2 Branch of the Company entered into a building lease contract with Wazhou Group on January 20 2008. The rental period from January 1 2008 to December 31 2012, the retal for the year is 2,663,859.00. The rental for this year is not paid for Wazhou Group as at December 31 2008. (5) Warranty provided by related party Whether the Inception of Maturity of Warrantor Warrantee Amounts warranted warranty warranty warranty finished(Yor N) Wazhou Group The Company 248,000,000.00 November 2004 October 2012 N (6) Use of trademark Pursuant to agreement made by the Company and Wazhou Group, the Company should pay trademark license fee. The payable fee in 2008 is RMB 21,685,000.00. At December 31, 2008, the Company has paid trademark license fee was RMB 24,378,897.47(including payable fee of 2007) to Wazhou Group till Dec 31, 2008. (7) Receipt of integrated services In this fiscal year, other fees which should be paid to Wazhou Group are as follows: Items 2008 2007 84 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report Security and fire protection fees 3,290,900.00 3,290,900.00 Technical research expenses 5,400,000.00 5,400,000.00 Public relationship expenses 800,700.00 800,700.00 Total 9,491,600.00 9,491,600.00 (8) Receiving the settlement on behalf of Wazhou Group Certain of the accounts receivable were transferred to Wazhou Group while the Company was in the process of listing. The Company is still managing these amounts for Wazhou Group and recognizes as payable to Wazhou Group while receiving the settlement. In 2008, the accumulated amount received was RMB 652,870.89. The outstanding amount was at 31 December 2008. 12.3 Related parties accounts receivable and payable (1) Accounts receivable due from related parties Related party 2008.12.31 2007.12.31 Parent company 28,913,183.79 29,141,669.56 Other companies controlled by the same parent company 1,612,953.92 379,540.00 Less: provision for bad debts 451,326.53 295,212.10 Total 30,074,811.18 29,225,997.46 (2) Accounts payable due to related parties Related party 2008.12.31 2007.12.31 Parent company 587,061.76 1,884,707.30 Association 85,566,943.68 45,904,091.86 Other companies controlled by the same parent company 120,621,228.71 57,955,293.75 Total 206,775,234.15 105,744,092.91 (3) Other payable due to related parties Related party 2008.12.31 2007.12.31 Parent company 71,115,922.83 86,861,270.58 Total 71,115,922.83 86,861,270.58 13. Contingency 13.1 Contingent liabilities arising from pending litigations or arbitrations The company lodged litigations for customers who can't pay under the terms stipulated in contracts. The total litigation amounts are RMB 6,150,458.02. At present, some of the cases have been registered, another are in inquisition. 13.2 Contigent liabilites arising from guarantee As at the balance sheet date, Liaoyang Bearing has an unsettled guarantee of a bank loan of RMB 3,150,000 granted to a third party (Liao yang Forge Machine tool Ltd.). Guarantee period is from December 25 2002 to July 5 2003. As at December 31 2008, Liaoyang Forge Machine tool Ltd has not paid for the loan. 13.3 Besides the contingent events mentioned above, there is no other material contingent event at 31 December 2008. 85 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report 14. Commitment As at December 31 2008, the Group has not any material commitment. 15. Events after the balance sheet date According to the decision of the 12th meetings of 4th Board session 22 April 2009. Based on the total capital stock of 402,600,000shars at the end of 2008, 0.4 RMB Yuan will be paid per 10 shares (including tax) , totally allocates cash of 16,104,000.00 RMB . Besides the event after the balance sheet date mentioned above, there is no other material Events after the balance sheet date at 31 December 2008. 16. Other significant events 16.1 Significant investment income The Company accounts for its investment income of RMB 8,861,398.73in SKF Wazhou Company under the equity method according to the audited financial statements of SKF for the year ended December 31, 2008, which represents 8.61% of the Company’s consolidated net profit in 2008. 16.2 Cease of operation In Dec 2007 General Bearing decided to cease operation because of loss for a long time. On January 26 2008 Board of Dirctor of the Company decided to suspend operation. General Bearing has not been log out yet until the report date. 17. Supplementary informations 17.1 Non-operating profit or loss Items 2008 2007 Gain or loss from disposal of non-current assets -2,976,798.78 1,011,020.85 Government grants recored into profit or loss during current period 925,189.59 536,200.00 Profit or loss from debts restructuring 1,558,505.76 1,850,683.19 Others net profit and loss besides items mentioned above 403,915.33 8,451,471.04 Subtotal -89,188.10 11,849,375.08 Effect from income tax -22,297.03 4,003,775.07 Total of Non-operating profit and loss -66,891.07 7,845,600.01 Including: Non-operating profit and loss attributable to shareholders of -1,238,735.44 7,774,105.84 parent company 17.2 Return on equity and earnings per share (1) Return on equity and earnings per share in 2008 Return on equity Earnings per share (EPS) Profit of report period Diluted fully Weighted Basic EPS Diluted EPS average Net profit attributable to shareholders of 0.08 0.08 0.26 0.26 86 Wafangdian Bearing Co., Ltd（Wazhou B） 2008 Annual Report parent company Net profit after deducting non-operating profit and loss attributable to shareholders of parent company 0.08 0.08 0.26 0.26 (2) Return on equity and earnings per share in 2007 Profit of report period Return on equity Earnings per share (EPS) Diluted fully Weighted Basic EPS Diluted EPS average Net profit attributable to shareholders of parent company 0.07 0.08 0.22 0.22 Net profit after deducting non-operating profit and loss attributable to shareholders of parent company 0.07 0.07 0.20 0.20 18. Approval of fianancial statements The parent and consolidated financial statements of the Company was approved by the Board of Directors of the Company on April 22, 2009. Chapter Eleven. List of reference documents 1. Accounting statements with the signatures and seals of the legal representative, financial controller and the director of the accounting department of the company; 2. The 2007 annual audit report and the financial statement with the seal of the Certified Public Accountants and the personal signature and seal of the certified public accountant. 3. The documents and notices of the company disclosed in newspapers designated by the Security Supervisory Committee of China in the report period. Above documents were kept in the Investment and Securities Department of the company. 87