大冷Ｂ(200530)2008年年度报告（英文版）

Dalian Refrigeration Co., Ltd. 2008 Annual Report Dalian Refrigeration Co., Ltd. 2008 Annual Report CONTENTS §1 Important Notes………………………………………………………………………2 § 2 C o m p a n y Pro fi le… … … … … … … … … … … … … … … … … … … … … … … … … 2 §3 Summary of Accounting Data and Business Data……………………………………3 §4 Changes in Share Capital and Particulars about Shareholders…………………… 4 §5 Directors, Supervisors, Senior Staff Members and Employees of the Company……7 §6 The Administrative System of the Company…………………………………………11 §7 Brief Introduction to the Shareholders General Meeting……………………………12 §8 Report of the Board of Directors……………………………………………………13 §9 Report of the Supervisory Board……………………………………………………23 §10 Important Matters……………………………………………………………………25 §11 Financial Report………………………………………………………………………29 §12 Contents of Reference Documents……………………………………………………76 1 Dalian Refrigeration Co., Ltd. 2008 Annual Report §1 Important Notes 1.1 The directors and the Board of Directors, the supervisors and the Supervisory Board, and Senior staff members of Dalian Refrigeration Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are not any important omissions, fictitious statements or serious misleading carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completeness of the whole contents. 1.2 All directors attend the meeting of the Board of Directors. 1.3 The financial report has been audited by ZON ZUN Certified Public Accounts Office Ltd. who has presented unqualified opinion audit report. 1.4 Chairman of the Board of Directors of the Company Mr. Zhang He, Financial Majordomo and the head of Accounting Department Ms. Xu Junrao hereby confirm that the financial report of the annual report is true and complete. 1.5 This report is written respectively in Chinese and in English. In the event of any discrepancy between the two above-mentioned versions, the Chinese version shall prevail. §2 Company Profile 2.1 Basic information Short form of the stock DALENG GUFEN; DALENG-B Stock code 000530; 200530 Listed stock exchange Shenzhen Stock Exchange Registered address and office address 888 Xinan Road, Shahekou District, Dalian Post code 116033 Internet web site of the Company www.daleng.cn E-mail of the Company dlzqb@bingshan.com 2.2 Contact person and method Secretary of the Board of Directors Authorized representative in charge of securities affairs Name Ms. Lv Lianzhen Mr. Song Wenbao Contact address Office of Dalian Refrigeration Co., Securities Department of Dalian Ltd. Refrigeration Co., Ltd. Telephone 0086-411-86538100 0086-411-86654530 Fax 0086-411-86641470 0086-411-86654530 E-mail bingzhen@bingshan.com 000530@bingshan.com 2 Dalian Refrigeration Co., Ltd. 2008 Annual Report §3 Summary of Accounting Data and Financial Indexes 3.1 Main accounting data (Unit: RMB Yuan) Increase/decrease 2008 2007 compared with 2006 previous year (%) Operating revenue 1,513,436,237.50 1,653,955,364.95 -8.50% 1,617,170,091.55 Total profit 136,450,555.42 150,369,336.01 -9.26% 157,509,855.26 Net profit attributable to shareholders of listed companies 127,359,605.47 128,827,637.59 -1.14% 125,901,875.54 Net profit belonging to the shareholders of listed companies after 116,490,123.80 120,253,807.16 -3.13% 118,723,595.10 the deduction of non-recurring profit and loss Net cash flow from operating activities 71,202,362.48 23,446,251.91 203.68% 74,937,630.78 Increase/decrease At the end of 2008 At the end of 2007 compared with At the end of 2006 previous year（％） Total assets 2,719,626,555.64 2,582,893,670.98 5.29% 2,229,097,060.83 Owner's equity 1,656,813,415.66 1,584,284,582.78 4.58% 1,493,570,967.33 Share capital 350,014,975.00 350,014,975.00 0.00% 350,014,975.00 3.2 Main financial indexes (Unit: RMB Yuan) Increase/decrease compared with 2008 2007 2006 previous year（％） Basic earning per share 0.36 0.37 -2.70% 0.36 Diluted earnings per share 0.36 0.37 -2.70% 0.36 Basic earning per share after deduction of incidental profit and loss 0.33 0.34 -2.94% 0.34 Fully diluted return on net assets 7.69% 8.13% Decrease 0.44 percentage points 8.43% Weighted average return on net asset yield 7.83% 8.43% Decrease 0.60 percentage points 8.62% Fully diluted return on net assets after deduction of incidental profit and loss 7.03% 7.59% Decrease 0.56 percentage points 7.95% Weighted average return on net asset after deduction of incidental profit and loss 7.16% 7.87% Decrease 0.71 percentage points 8.13% Per share net cash flow from operating activities 0.203 0.067 202.99% 0.214 At the end of At the end Increase/decrease compared with At the end 2008 of 2007 previous year（％） of 2006 Per share net assets belonging to the shareholders of listed companies 4.73 4.53 4.42% 4.27 Note: Deduction of incidental profit and loss and the amount involved Disposal gains and losses of non-current asset 4,017,415.76 Documents approved beyond authority or without official approval, or tax returned/reduced by chance 473,425.23 Government subsidies included in current profit or loss 2,885,000.00 Loss or gain due to debt reorganization 3,709,299.32 Other non-operating revenue or expense 5,027,212.30 Influence on income tax -2,536,044.22 Influence on minority shareholders -2,706,826.72 Influence on net profit 10,869,481.67 3.3 Difference in net profit as audited by Chinese Accounting Standards (CAS) and International Financial Reporting Standards (IFRS): None 3 Dalian Refrigeration Co., Ltd. 2008 Annual Report §4 Changes in Share Capital and Particulars about Shareholders 4.1 Statement on changes in capital stock (unit: share) Before change Increase/decrease（+，-） After change Shares New Bonus Quantity Proportion converted from Other Subtotal Quantity Proportion issue Share PAF Ⅰ. Shares with sale 76,957,374 21.99% 76,957,374 21.99% restriction 1.Shares held by the State 76,855,683 21.96% -76,855,683 -76,855,683 0 0.00% 2.Shares held by state-owned corporates 3.Shares held by other 101,691 0.03% 76,855,683 76,855,683 76,957,374 21.99% domestic investors In which: Shares held by domestic non-state-owned 0 0.00% 76,855,683 76,855,683 76,855,683 21.96% corporates Shares held by domestic 101,691 0.03% 101,691 0.03% natural persons 4.Shares held by foreign corporations In which: Shares held by foreign investors Shares held by foreign natural persons Ⅱ. Shares without sale 273,057,601 78.01% 273,057,601 78.01% restriction 1.RMB ordinary shares 158,057,601 45.16% 158,057,601 45.16% 2.Foreign-funded shares 115,000,000 32.86% 115,000,000 32.86% listed at home 3.Foreign-funded shares listed abroad 4.Others Ⅲ. Total shares 350,014,975 100.00% 350,014,975 100.00% Statement on changes in shares with sale restriction (unit: share) Shares with sale Release of shares with Increase in release of Shares with sale Date of release Name of shareholders restriction at the sale restriction this shares with sale restriction at the end Cause of sale restriction of sale beginning of the year year restriction this year of the year restriction No sale on the market Dalian Bingshan 76,855,683 0 0 76,855,683 within 60 months after Jan. 09, 2011 Group Co., Ltd. obtaining listing right. Total 76,855,683 0 0 76,855,683 － － 4 Dalian Refrigeration Co., Ltd. 2008 Annual Report 4.2 Statement of shares held by the top ten shareholders There were 41,994 shareholders totally as of the end of the report period, with an increase of 119 compared with that as of the end of 2007, which including 32,176 Total shareholders at the end of report year A-share holders totally, with a comparable decrease of 141, and 9,818 B-share holders, with a comparable increase of 260. Shareholding of top ten shareholders Number of Number of shares Name Nature Proportion Total number pledged shares with sale restriction or shares frozen Dalian Bingshan Group Co., Ltd. Domestic non-state-owned legal person 21.96% 76,855,683 76,855,683 0 Sanyo Electric Co., Ltd. Overseas legal person 10.00% 35,001,500 0 0 Bony-Dreyfus Pifi-Dreyfus Premier Greater Overseas legal person 4.58% 16,033,167 0 0 China China Life Insurance Co., Ltd. Domestic non-state-owned legal person 1.71% 6,000,000 0 0 Jiuzhou Development Co. of Jilin Province Domestic non-state-owned legal person 0.90% 3,150,000 0 3,150,000 Di Rong Domestic natural person 0.64% 2,231,600 0 0 Dalian State-Owned Assets Operation Co., State-owned legal person 0.47% 1,650,000 0 0 Ltd. Dalian Industrial Development Investment State-owned legal person 0.46% 1,622,250 0 0 Corp. Dalian Huaxin Trust Co., Ltd. Domestic non-state-owned legal person 0.45% 1,576,800 0 0 Jingyou Economic & Trade Development Co. Domestic non-state-owned legal person 0.45% 1,575,000 0 1,575,000 of Harbin City Shareholding of top ten shareholders without sale restriction Number of shares without sale Name Type of shares restriction Sanyo Electric Co., Ltd. 35,001,500 Domestically listed foreign shares Bony-Dreyfus Pifi-Dreyfus Premier Greater China 16,033,167 Domestically listed foreign shares China Life Insurance Co., Ltd. 6,000,000 RMB denominated ordinary shares Jiuzhou Development Co. of Jilin Province 3,150,000 RMB denominated ordinary shares Di Rong 2,231,600 RMB denominated ordinary shares Dalian State-Owned Assets Operation Co., Ltd. 1,650,000 RMB denominated ordinary shares Dalian Industrial Development Investment Corp. 1,622,250 RMB denominated ordinary shares Dalian Huaxin Trust Co., Ltd. 1,576,800 RMB denominated ordinary shares Jingyou Economic & Trade Development Co. of Harbin City 1,575,000 RMB denominated ordinary shares Huaxia Securities Co., Ltd. 1,575,000 RMB denominated ordinary shares Notes to the associated relationship and uniform actions of the above No information is available concerning the association relationship among the above shareholders shareholders. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 5 Dalian Refrigeration Co., Ltd. 2008 Annual Report 4.3.2 Introduction of especial situation for controlling shareholder and other actual controller The holding shareholder of the Company is Dalian Bingshan Group Co., Ltd. That company has the registered capital of 140.6 million yuan and is operating as a Sino-foreign joint venture company. Its legal representative is Zhang He. Its business scope covers research & development, manufacture, sale, service and installation of the products such as industrial refrigerators, freezers and refrigerators, large-, mid- and small-size air-conditioners, petrochemical equipment, electronic and electric appliances, household appliances and environment protection equipment. Dalian State-Owned Assets Operation Administration Commission under State-owned Assets Supervision & Dalian Zhonghuida Refrigeration Dalian Municipal Government Sanyo Electric Co., Ltd. Yida Group Co., Ltd. Dayang Co., Ltd. Technology Co., Ltd. Co., Ltd. 100% 25% 5% 15% 15% 10% 30% Dalian Bingshan Group Co., Ltd. 21.96% Dalian Refrigeration Co., Ltd. 6 Dalian Refrigeration Co., Ltd. 2008 Annual Report §5 Particulars about the Directors, Supervisors and Senior Staff Members 5.1 Particulars about changes in shares held by directors, supervisors and senior staff members Term of Shareholding Shareholding Name Position Age duty at BOY at EOY x Directors (9 persons): Zhang He M Chairman 71 04.6—09.5 33,345 33,345 Mu Chuanjiang M Vice chairman 59 04.6—09.5 29,445 29,445 Yang Bin M Director 52 04.6—09.5 0 0 Xu Junrao F Director 45 04.6—09.5 3,900 3,900 Shimada Tadao M Director 64 04.6—09.5 0 0 Chen Geng M Director 41 04.6—09.5 0 0 Lv Zhongli M Independent director 67 04.6—09.5 9,262 9,262 Wang Dong M Independent director 72 04.6—09.5 0 0 Zhang Guile M Independent director 68 04.6—09.5 0 0 Supervisors (3 persons): Yu Fuchun M Chairman 50 04.6—09.5 10,140 10,140 Men Yuesheng M Supervisor 56 04.6—09.5 975 975 Chi Feng F Supervisor 37 04.6—09.5 0 0 Senior staff members: Zhang He M General manager 71 04.6—09.5 33,345 33,345 Yang Bin M Standing deputy 52 04.6—09.5 0 0 general manager Zhang Hongzhi M Deputy general 50 04.6—09.5 27,462 27,462 manager Wang Dekun M Deputy general 57 04.6—09.5 18,525 18,525 manager Wang Zhiqiang M Deputy general 47 04.6—09.5 0 0 manager Hu Xitang M Deputy general 41 04.6—09.5 0 0 manager Xu Junrao F Financial majordomo 45 04.6—09.5 3,900 3,900 Lv Lianzhen F secretary of BOD 56 04.6—09.5 3,510 3,510 5.2 Particulars about the annual remuneration of directors, supervisors and senior staff members Name Annual remuneration and allowance Zhang He 477,000 Mu Chuanjiang 477,000 Yang Bin 450,000 Xu Junrao 349,000 Lv Zhongli 50,000 Wang Dong 50,000 Zhang Guile 50,000 7 Dalian Refrigeration Co., Ltd. 2008 Annual Report Zhang Hongzhi 349,000 Wang Dekun 349,000 Wang Zhiqiang 349,000 Hu Xitang 349,000 Total 3,299,000 Chen Geng, Shimada Tadao, Men Yuesheng, and Chi Feng received remuneration and allowance from the shareholder's unit or other associated unit without pay from the Company. 5.3 Presence of directors on the meeting of board of directors Practical Times of Times of Times of Consecutive Name of times of presence in presence in Times of Concrete duty presence acc. two-times directors presence on manner of form of absence stipulation absence the spot communication entrusting Zhang He Chairman 4 2 2 0 0 None Mu Chuanjiang Vice chairman 4 2 2 0 0 None Yang Bin Director 4 2 2 0 0 None Xu Junrao Director 4 2 2 0 0 None Shimada Tadao Director 4 0 2 2 0 None Chen Geng Director 4 2 2 0 0 None Lv Zhongli Independent Director 4 2 2 0 0 None Wang Dong Independent Director 4 2 2 0 0 None Zhang Guile Independent Director 4 2 2 0 0 None Times of Board of Directors meeting held within the year 4 Among them: Times of meeting held in on the spot 2 Times of meeting held in the manner of communication 2 Times of meeting held in the manner of on the spot and by communication jointly 0 5.4 The brief incumbency history of directors, supervisors and senior staff members The directors and supervisors who hold positions in the shareholders’ companies: Zhang He holding the position of the chairman of Dalian Bingshan Group Co., Ltd.; Mu Chuanjiang holding the position of the general manager of Dalian Bingshan Group Co., Ltd. The brief incumbency history of each of the present directors, supervisors and senior staff members and their holding or concurrently holding positions other than in the shareholder’s own unit: Holding positions or concurrently holding positions of Name Brief incumbency history units other than the shareholder’s own unit Having acted as the vice chief engineer, the plant The chairman of Dalian Bingshan Group Imp. & Exp. Zhang He manager, and the general manager and chairman of Co., Ltd.; and the chairman of Dalian Bingshan Metal the company. Processing Co., Ltd. Having acted as the plant deputy manager, the deputy The Chairman of Board of Directors of Linde Mu Chuanjiang general manager, and the general manager and vice Engineering (Dalian) Co., Ltd chairman of the company. 8 Dalian Refrigeration Co., Ltd. 2008 Annual Report Having acted as the chief of the Design Dept., the The chairman of Beijing Bingshan Package Refrigerator chief of the Business Planning Dept., the assistant to & Air Conditioner Co., Ltd.; the chairman of Beijing the general manager, the deputy general manager, the Huashang Bingshan Package Refrigerator & Air Yang Bin standing deputy general manager and the director of Conditioner Co., Ltd.; the chairman of Dalian Bingshan the company. Group Sales Co., Ltd.; and the chairman of Shanghai Bingshan Package Refrigerator & Air Conditioner Sales Service Co., Ltd. Having acted as the deputy chief and the chief of the Xu Junrao Finance Dept., the assistant chief accountant, the None financial majordomo and the director of the company. Having acted as the executive director of Sanyo Shimada Tadao None Electric Co., Ltd. Having acted as the assistant to the president and the Chen Geng general manager and vice president of the Investment Unknown & Banking Dept. of Junan Securities Co. Having acted as the chief of the Industrial Dept., the assistant to the president and the chief auditor of Lv Zhongli Unknown Industrial and Commercial Bank of China Dalian Branch. Having acted as the associate professor and the Wang Dong professor of Northeast University of Finance and Unkown Economics. Having acted as the associate professor, the professor, the dean of faculty, the member of the university Zhang Guile Party committee, the member of the academic board Unkown of the university, and the head of the economics group of Northeast University of Finance and Economics. Having acted as the vice chairman of the Trade Union Yu Fuchun None of the company. Having acted as the chief of the Assets Management Men Yuesheng Dept., the chief of the Audit & Supervision Dept. and None the Price Dept. of the company. Having acted as the deputy chief of the Assets Chi Feng None Management Dept. of the company. Having acted as the deputy chief of the Chief The chairman of Dalian Bingshan Group Cold-Drink Engineer’s Office, the chief engineer and the deputy Equipment Co., Ltd.; the chairman of Dalian Bingshan Zhang Hongzhi general manager of the company. Group Refrigerator Co., Ltd.; and the chairman of Dalian Bingshan Group Refrigerator & Air-Conditioner Installation Co. Having acted as the deputy chief of the workshop, the chief of the Imp. & Exp. Dept., the assistant secretary Wang Dekun None of the Party committee, the chairman of the Trade Union, and the deputy general manager of the 9 Dalian Refrigeration Co., Ltd. 2008 Annual Report company. Having acted as the department’s deputy chief and Wang Zhiqiang chief, the chief engineer and the deputy general None manager of the company. Having acted as the deputy chief of the Political & Ideological Work Dept., the secretary of Committee Hu Xitang for Discipline Inspection, the assistant secretary of the None Party committee and the deputy general manager of the company. Having acted as the manager and deputy manager of Lv Lianzhen the General Office and the secretary of the Board of None Directors of the Company. 5.5 Employees According to the statistics by Dec. 31, 2008, the Company had 1,120 employees including 586 production personnel (52.3% of the total), 217 technicians (19.4% of the total), 193 salesmen (17.2 of the total), and 124 administrative personnel (11.1% of the total). There were 418 persons employed by the Company who had the educational background of university or technical college, accounting for 37.3%. The social insurance institute paid the retirement pension and medical expenses for retirees of the Company. 10 Dalian Refrigeration Co., Ltd. 2008 Annual Report §6 Corporate Governance Structure 6.1 Corporate governance As of the end of the report period, the Company’s actual governance status had no inconformity to the requirement in the related documents of China Securities Regulatory Commission. 6.2 Discharge of duty of the independent directors Now the Company has three independent directors. These independent directors punctually attended the board meetings and actively presented their independent opinions, well implementing their duty and effectively protecting the legal rights and interests of the Company’s minority shareholders. On Apr. 11, 2008, they gave the prior approval for the major matters, such as the Company’s daily associated transactions to be dealt with associated companies; engagement of the audit office for the Company in 2008; and additional investment to Shenyang Sanyo Air-Conditioner Co., Ltd. On Apr. 23, 2008, they presented their independent opinions on the major matters, such as the Company’s annual incomes on business in 2007; the accumulated and current external guarantees of the Company and their compliance with the related regulations; the Company’s daily associated transactions in 2007 and the estimate of daily associated transactions for 2008; the additional investment to Shenyang Sanyo Air-Conditioner Co., Ltd.; and the self-evaluation on internal control of the Company. 6.3 Separation of the Company from the holding shareholders in business, personnel, assets, organizational mechanism and finance (1) Separation in business. The Company's business is independent of the holding shareholders. The Company has its own complete business system and the capability of independent operation. (2) Separation in personnel. The Company is independent in labor, personnel and salary management. (3) Complete assets. The Company has the independent production system, auxiliary production system and supporting facilities. The Company owns the invisible assets including the industrial property right, trademark and non-patent technologies. The Company has its own purchase and sales systems. (4) Independent organizational mechanism. The Company has an organizational mechanism completely independent of the holding shareholders without joint office with the holding shareholder. (5) Independent accounting system. The Company has its own accounting department with the independent accounting system and the financial management system, and has its own bank accounts. 6.4 Opinions of the Company’s independent directors on the report of self-evaluation on internal control of the Company The Company has established the complete internal control systems which comply with the related requirement and are applicable to the condition of the Company. The Company actively corrected the problems found in the Company’s special campaign of governance and the on-site inspection by Dalian Securities Regulatory Bureau in 2008 so that the Company’s internal control was improved further. The Company had no inconformity to the Guidelines of Internal Control for Listed Companies. In conclusion, we agree on the self-evaluation report on internal control of the Company. 11 Dalian Refrigeration Co., Ltd. 2008 Annual Report 6.5 The assessment and stimulation mechanism for senior managerial persons The company evaluated and rewarded superior managers according to assets operation performance evaluation method during reporting period. §7 A Brief Introduction to the Shareholders General Meeting The Company held the 2007 general meeting in the Company’s head office in the morning of May 20, 2008. The announcement on the resolutions adopted at this general meeting was published on China Securities Daily and Wen Wei Po dated of May 21, 2008. 12 Dalian Refrigeration Co., Ltd. 2008 Annual Report §8 Report of the Board of Directors 8.1 Discussion and analysis of the management A. Review of the Company’s business status in the report period (1) Summary of the Company’s overall business status in the report period The Company is the largest industrial refrigerator producer in China, and owns the famous trademark in Chinese industrial refrigeration industry. The main products of the Company are: reciprocating refrigeration compressors, screw type refrigeration compressors, centrifugal type refrigeration compressors, and pressure vessels, combined storage, gas-conditioned freshness-keeping storage, plate type freezers, tunnel type freezers, block ice makers, flake ice makers and ice particle makers in five series (refrigerating, freezing, air-conditioning, cold storage, and freshness keeping) and six packages (air-conditioning package, civilwork cold storage package, combined cold storage package, ice-making package, special engineering package, and gas-conditioned freshness keeping package). These products can be used in such fields as scientific research, petroleum, chemical industry, textile, pharmacy, power plants, agriculture, stock raising, fishing and catering service. a. Main business In 2008, the Company took positive actions to cope with the adverse factors and severe market challenges. Aiming at making more profit, the Company laid stress on playing the comparative advantages, timely adjusted and changed the marketing strategy, rationally adjusted the product prices, strengthened the management and the saving, and tapped all the potentialites, in order to improve the operation effectiveness and quality, and to strive to fulfill all of the major business targets. In 2008, the Company made the income on business of 1,513.44 million yuan, accounting for 94.6% of the Company’s 2008 annual business target of 1,600 million yuan, with a comparable decrease of 8.5%; and made the total amount of profit of 136.45 million yuan, accounting for 101.1% of the Company’s 2008 annual business target of 135 million yuan, with a comparable decrease of 9.3%. In 2008，the Company took the strategy of simultaneously promoting the new products and the old products according to the demand and specializing and subdividing the market to meet the demand of different customers. It rapidly and fully put the new series of energy-saving and environment-friendly screw-type products into market, which consolidated and increased the market share in the fields such as industrial refrigerators and deep processing of agricultural products. In 2008, based on the ten-day plan, the Company applied the management of fine production, which made the production plan more scientific, uniform and timely, reduced the error rate, more effectively controlled the quality and progress of package projects, and minimized the fund needed in process. In 2008, the Company put more effort to research and development of 41 new products including the new series of screw-type compressors, the vacuum freezing drier, and the air-conditioner unit special for precision machine room. b. Joint venture companies As of the end of 2008, the Company’s Sino-foreign joint venture companies using the equity method in their accounting had the total assets of 5,779.25 million yuan, with a comparable growth of 6.95%, and the net assets of 2,591.09 million yuan, with a comparable growth of 10.41%. 13 Dalian Refrigeration Co., Ltd. 2008 Annual Report In 2008, the Company’s Sino-foreign joint venture companies using the equity method in their accounting made the sales income of 6,752.61 million yuan, with a comparable growth of 1.05%. The Company gained the returns on investment of 80.92 million yuan, with a comparable decrease of 13.80%. In the report period, there were three Sino-foreign joint venture companies that made the returns on investment accounting for 10% or higher of the net profit of the Company and they were Dalian Sanyo Compressor Co., Ltd., Dalian Sanyo Air-Conditioner Co., Ltd., and Dalian Sanyo Cold Chain Co., Ltd. In the report period, nine of these joint venture companies using the equity method in their accounting made the income on main business of more than 100 million yuan, and among them three made the income on main business of more than 1 billion yuan. Five joint venture companies made the net profit of more than 10 million yuan and among them one made the net profit of more than 50 million yuan. In 2008, Dalian Sanyo Compressor Co., Ltd. completed the design and development of 58 new models. The company coordinated the international marketing channels to win more major air-conditioner manufacturers in the world. The sales volumes of B and C Series of scroll type compressors in European market were increased by 34% and 62% respectively. In 2008, Dalian Sanyo Air-Conditioner Co., Ltd. took advantage of the high efficient energy-saving products to keep a stable sales volume in the international market and overfulfilled the annual target of export value by 23%. The company acquired the controlling shares of Shenyang Sanyo Air-Conditioner Co., Ltd. by putting additional investment. In 2008, the third plant of Dalian Sanyo Cold Chain Co., Ltd. – the production lines of bio-medical equipment and of air cooler – went into production. Such a production expansion with additional investment further optimized the strategic frame of future business, i. e. to further expand the business fields of beverage showcases and bio-medical equipment on the foundation of the equipment for supermarkets, convenient stores and commercial kitchens. In 2008, Dalian Sanyo Refrigeration Co., Ltd. developed several new products such as the new variable-frequency screw-type chiller unit to meet the hot point of market development and demand such as conserving energy & reducing emissions and clean energy, which caused a great increase of the volume of exported products and expanded the export market from Japan solely to Europe expansively. (2) Analysis on the company’s main business ① Products in main business and their regional distribution The Company’s income on main business all came from the refrigeration and air-conditioner products. The products are produced in two cities of Dalian and Wuhan and sold all over the country without distinct regional distribution. The exported products accounted for about 8% of the income on main business in the same period. For the breakdown of the incomes on main business listed on the basis of industries and geographic distribution, see the Explanatory Note 5-30 and 5-43 to the Accounting Report. ②Major suppliers and customers The Company purchased goods from the first five suppliers with the total amount of 167.72 million yuan, accounting for 14.21% of the Company's annual total amount of purchase. The Company sold products to the first five customers with the total sales of 209.51 million yuan, 14 Dalian Refrigeration Co., Ltd. 2008 Annual Report accounting for 13.84% of the Company's total sales. (3) Financial status of the Company a. Composition of assets (unit: RMB 10 thousand) 2008 2007 Proportion to Item Proportion to the Change Amount the total assets Amount total assets % % Receivables 48,481 17.83% 44,264 17.14% +9.53% Inventory 33,771 12.42% 30,750 11.91% +9.82% Real estate investment 0 0.00% 0 0.00% 0.00% Long-term equity 101,465 37.31% 97,571 37.78% +3.99% investment Fixed assets 38,413 14.12% 39,017 15.11% -1.55% Construction in progress 478 0.18% 887 0.34% -46.11% Short-term loans 11,000 4.04% 7,000 2.71% +57.14% Long term loans 0 0.00% 5,000 1.94% -100.00% Total assets 271,963 100% 258,289 100% +5.29% Note: ① The increase of receivables occurred mainly because the increase quality earnest money which is not expired for complete set projects. ② The increase of stored goods occurred mainly because of the increase of stored goods due to postponed contracts. ③ The decrease of projects under construction occurred mainly because the majority of subsidiaries which must be moved and reconstructed already have been put into operation. ④ The increase of short-term loan occurred mainly because the flow fund of the parent company and its subsidiaries needs to be added for their big complete set projects. ⑤ The decrease of long-term loan occurred mainly because the bank loan which will expire within one year changed over into the long term debt accounting which will expire within one year acc. stipulation. b. Expenses and income tax (unit: RMB 10 thousand) Item 2008 2007 change Sales expense 9,871 10,169 -2.93% Management expense 13,881 12,791 +8.52% Financial expense 940 350 +168.57% Income tax 82 815 -89.94% Note: ① The increase of management expenses occurred mainly because a sum of 8.8 million balanced welfare funds have eat up part of management funds, due to first execution Accounting Guideline in Enterprises in 2007. ② The increase of financial funds occurred mainly because the short-term loan has increased compared with that in the first half-year. ③ The decrease of income tax occurred mainly because the unified income tax rate has been put into use so that the tax for investment gain needs not be made up. 15 Dalian Refrigeration Co., Ltd. 2008 Annual Report c. Composition of cash flow (Unit: RMB 10 thousand) Item 2008 2007 Change Net amount of cash flow generated in operating activities 7,120 2,345 +203.62% Net amount of cash flow generated in investment activities 3,397 -9,567 +135.51% Net amount of cash flow generated in fund raising activities -3,748 1,915 -295.72% Note: ① The increase of the net amount of cash flow due to management activity occurred mainly because the return payment of sales were good and the payable account amount for the bank acceptance draft is increased. ② The increase of the net amount of cash flow due to investment activity occurred mainly because of the cash from the investment activity gain has been received. ③ The decrease of the net amount of cash flow due to raised funds occurred mainly because the net amount of pay-off loan in this year is less than that in last year. (4) Business status and performances of the principal holding subsidiary companies and participating companies a. Main holding subsidiary companies ① Dalian Bingshan Group Refrigerator & Air-conditioner Installation Co. With a registered capital of 20.04 million yuan and 100% of its shares held by the Company, Dalian Bingshan Group Refrigerator & Air-conditioner Installation Co. is engaged mainly in installation and test of complete sets of refrigeration equipment. The company realized the sales of 95.74 million yuan and net profit of 290 thousand yuan in 2008, with total assets of 58.48 million yuan and net assets of 22.36 million yuan. ② Dalian Bingshan Group Sales Co., Ltd. With a registered capital of 18 million yuan and 90% of its shares held by the Company, Dalian Bingshan Group Sales Co., Ltd. is engaged mainly in selling the products of the member enterprises of Dalian Bingshan Group. The company realized the sales of 37.26 million yuan and net profit of 630 thousand yuan in 2008, with total assets of 38.89 million yuan and net assets of 22.45 million yuan. ③ Dalian Bingshan Air-conditioning Equipment Co., Ltd. With a registered capital of 700 million Japanese yen and 70% of its shares held by the Company, Dalian Bingshan Air-conditioning Equipment Co., Ltd. is engaged mainly in production and sale of the terminal products for air conditioners such as fan coils and air processors. The company realized the sales of 131.70 million yuan and net profit of 4,850 thousand yuan in 2008, with total assets of 126.07 million yuan and net assets of 68.04 million yuan. ④ Dalian Bingshan Ryosetsu Fast Frozen Equipment Co., Ltd. With a registered capital of US$ 1 million and 70% of its shares held by the Company, Dalian Bingshan Ryosetsu Fast Frozen Equipment Co., Ltd. produces and selling fast frozen equipment. The company realized the sales of 29.11 million yuan and net profit of 430 thousand yuan in 2008, with total assets of 30.28 million yuan and net assets of 8.64 million yuan. ⑤ Dalian Bingshan Metal Processing Co., Ltd. With a registered capital of US$ 2.35 million and 64.25% of its shares held by the Company, Dalian Bingshan Metal Processing Co., Ltd. produces and supplies metal plate works and stampings for the established joint venture companies and the Company. The company realized 16 Dalian Refrigeration Co., Ltd. 2008 Annual Report the sales of 30.03 million yuan and net profit of -1,730 thousand yuan in 2008, with total assets of 29.14 million yuan and net assets of 18.83 million yuan. ⑥ Dalian Bingshan Guardian Automation Co., Ltd. With a registered capital of GBP 210 thousand and 60% of its shares held by the Company, Dalian Bingshan Guardian Automation Co., Ltd. engaged mainly in supplying automated control technology for refrigeration & other fields. The company realized the sales of 20.97 million yuan and net profit of 3,370 thousand yuan in 2008, with total assets of 9.86 million yuan and net assets of 6.92 million yuan. ⑦ Wuhan New World Refrigeration Industry Co., Ltd. With a registered capital of 30 million yuan and 51% of its shares held by the Company, Wuhan New World Refrigeration Industry Co., Ltd. engaged mainly in producing and selling screw type refrigeration compressor. The company realized the sales of 300.72 million yuan and net profit of 19,040 thousand yuan in 2008, with total assets of 365.18 million yuan and net assets of 94.88 million yuan. b. Main participating companies Name Sales（thousand yuan） Net profit（thousand yuan） Dalian Sanyo Compressor 1,291,520 85,010 Dalian Sanyo Air Conditioner 2,251,950 46,980 Dalian Sanyo Cold-chain 1,527,160 31,740 B. Development prospect of the Company (1) Trend of the industrial development The Company is in the refrigeration and air-conditioning industry. Refrigerators and air-conditioners are used widely with increasing expansion of the service field. Refrigerators and air-conditioners are indispensable to whether industries, agriculture, construction, commerce, scientific research, national defense, education, culture and public health, or food, clothing, housing and transport in people’s living. Rapid growth of the national economy and comprehensive promotion of the moderately prosperous society provide the refrigeration and air-conditioning industry, which manufactures supporting equipment for all fields of the national economy, with a broader space to develop. As the reform and opening up is being depended and the import tariff is reduced step by step after China’s accession to the WTO, more and more products of the international competitors go into Chinese market, causing higher pressure on Chinese refrigeration and air-conditioning industry. (2) Opportunities and challenges faced by the Company For the more general category, the Company’s products can be regarded as the supporting equipment for both the investment-based industries and the consumption-based industries. It is the comprehensive supporting capability covering the two major fields of the investment-based industries and the consumption-based industries that provides the Company with the higher resistance to cyclicity and the low sensitivity to macro adjustment and control. In comparison with the international competitors, there still is a gap between the Company and them mainly on the aspect of technical progress. However, the Company has many comparative advantages, including the nationwide marketing network, after-sale network and resources of customers, and the high cost performance of products. 17 Dalian Refrigeration Co., Ltd. 2008 Annual Report (3) Development plan of the Company With the guiding ideology of “development, reform, innovation, harmony”, and based on the main business of refrigerators and air-conditioners, the Company will put much efforts to research & development of high technical products with energy saving and low consumption in the refrigerating & heating and ecological and environmental protection fields, form the industrial chain and further increase the market shares in domestic and overseas markets, to win honors for Chinese machine-building industry and serve for improving the living conditions of human. (4) Demand for funds and fund source plan The estimated funds that the Company needed in 2009 will be from its own funds and debt financing. (5) Business plan for 2009 The Company’s business targets for 2009: Sales income: 1,350 million yuan Total amount of profit: 150 million yuan ① The Company should make a full estimation on the severe domestic and overseas economic environments, further strengthen the ability of self-innovation and market responsiveness, orient the business to the refrigeration, heating and environment-friendly products, put more effort to expansion of the domestic and international markets and strive to promote the collective sale in order to ensure fulfillment of the annual business targets. ② The Company will take the economic effectiveness as the center and make a breakthrough in the management innovation of the Company; pay attention to the management of cash flow, especially the management of receivable accounts and inventory financing, and strictly control the bank loan. It is highly necessary to control the cost, and well do the cost reduction among all employees on all aspects in the whole process; and well control the quality and strengthen the quality supervision in all sections from procuring, outsourcing, designing, manufacturing and installing. ③ The Company will take the opportunity of restructuring of the major shareholder to actively promote the reform of the personnel, labor employment and income distribution systems of the Company. (6) Main risk faced by the Company and countermeasures The main risk faced by the Company is insufficiency of orders. In 2009, the Company will draw up a more thorough preplan against market changes in order to improve its ability of market responsiveness. It will flexibly and rapidly orient its marketing strategy to market changes; keep accelerating optimization and upgrading of the product mix to incubate new profit-making points in the market; concentrate the development of the modern service industry while improving the competitive power of products for adapting to the trend of market development; and speed up the alignment of sales resources of the group and energetically drive the collective sale of the group. 18 Dalian Refrigeration Co., Ltd. 2008 Annual Report 8.2 Statement of core business classified according to industry or product (Unit: RMB’0000) Increase/decr Increase/decr Increase/decreas ease of Classified ease of cost e of gross profit revenue according to Gross profit compared margin Revenue Cost compared industry or ratio with the compared with with the product previous year the previous previous year (%) year (%) (%) Refrigeration and Increase 1.23 air-conditioning 148,044.60 120,112.52 18.87% -10.49% -11.82% percentage industries points 8.3 Particulars about core business classified according to area (Unit: RMB’0000) Increase/decrease of revenue compared with Area Revenue the previous year（％） Northeast China area 118,827.57 -13.11% East China area 3,379.28 -8.56% Middle China area 29,136.77 16.82% 8.4 Item measured by means of fair value (Unit: RMB Yuan) √Applicable □Inapplicable Loss and gain Change of Amount at the Value decrease due to fair value accumulated fair Amount at the Item beginning of of count-drawn change in this value counted end of term term in this term term into equity Financial assets for selling 17,280,900.00 0.00 -7,985,250.00 0.00 6,633,900.00 8.5 Application of the raised proceeds □Applicable √Inapplicable 8.6 Application of the proceeds not raised through share offering √Applicable □Inapplicable In the report period, the Company put an additional investment to Shenyang Sanyo Air-Conditioner Co., Ltd. with the Company’s own fund of 24,478,593 yuan and the Company holds 10% of its shares finally. 8.7 Explanation of the Board of Directors on Company’s accounting policy, the cause and influence on change of accounting estimation or on the correction of great error(s) in accounting □Applicable √Inapplicable 8.8 Explanation of the “Non-standardized Opinion” of Certified Public Accountants by the Board of Directors □Applicable √Inapplicable 19 Dalian Refrigeration Co., Ltd. 2008 Annual Report 8.9 The preplan of the profit distribution and capitalization of capital public reserve of the Board of Directors According to the audit by ZON ZUN Certified Public Accounts Office Ltd., the net profit made by the parent company of the company in 2008 was RMB 122.787 million and 10% of the net profit (RMB12.279 million) was drawn as the legal surplus reserve. Therefore, the profit distributable to the shareholders in the current year was RMB 110.508 million. Plus the initial undistributed profit of RMB 264.266 million and minus the dividend of RMB 52.502 million of common shares paid in 2007 and the drawn free surplus reserve of RMB 22.866 million (20%), the accumulated profit distributable to the shareholders is RMB 299.406 million, in which, RMB 24.557 million (20%) was drawn as the free surplus reserve, and RMB 52.502 million is distributed as the dividend, and the balance of RMB 222.347 million is transferred to the future for distribution. The company’s dividend distribution preplan for 2008: Based on the total capital stock of 350,014,975 shares at the end of 2008, the dividend of RMB 1.5 in cash (including tax) is distributed for every 10 shares, and the cash dividend for B share is converted and paid in Hong Kong dollars. The company will not transfer the capital reserve to increase capital stock. The above preplan shall be submitted to the shareholders general meeting 2008 for review and approval. The Company’s cash profit distribution in the previous 3 years: Unit ：（RMB）yuan Net profit belonging to parent Cash profit distribution Net profit ratio belonging to company owners in the consolidated (incl. tax ) parent company’s owners statistical tables and reports 2007 52,502,246.25 128,827,637.59 40.75% 2006 52,502,246.25 125,901,875.54 41.70% 2005 52,502,246.25 101,496,541.38 51.73% 8.10 The holding of financial assets and abilities in foreign currency □Applicable √Inapplicable 8.11 Routine work of the Board of directors 1. Meetings and resolutions of the board of directors in the report period (1) The 15th meeting of the 4th board of directors The Company’s 4th board of directors held the 15th meeting in the conference room at the 8th floor of the Company’s head office on Apr. 23, 2008. The announcement on the resolutions adopted at that board meeting was published on China Securities Daily and Wen Wei Po dated of Apr. 25, 2008. (2) The 16th meeting of the 4th board of directors The Company’s 4th board of directors held the 16th meeting in the manner of fax on Jul. 18, 2008. That meeting discussed and adopted the description of correcting the problems listed in the report on correction in the Company’s special campaign of governance. (3) The 17th meeting of the 4th board of directors The Company’s 4th board of directors held the 17th meeting in the conference room at the 6th floor of the Company’s head office on Aug. 20, 2008. The announcement on the resolutions adopted at that board meeting was published on China Securities Daily and Wen Wei Po dated of Aug. 22, 2008. 20 Dalian Refrigeration Co., Ltd. 2008 Annual Report (4) The 18th meeting of the 4th board of directors The Company’s 4th board of directors held the 18th meeting in the manner of fax on Oct. 23, 2008. That meeting discussed and adopted the quarterly report for the 3rd quarter of 2008 of the Company. 2. Board of directors’ implementation of the resolutions adopted at the general meeting The Company’s board of directors earnestly implemented the resolutions adopted at the 2007 general meeting. The Company’s profit distribution plan for the year 2007 has been implemented by the board of directors in July 2008. 3. Summary report on discharge of duty of the auditing committee under the board of directors The auditing committee under the Company’s board of directors discharged its duty according to the Implementation Rules of the Auditing Committee under the Board of Directors and the Work Procedure for Annual Report of the Auditing Committee of the Company. It supervised the internal audit system of the Company and its implementation, audited the financial information of the Company and its disclosure, and evaluated the performance of the external audit office. The auditing committee paid attention to the situation that the Company changed the engagement of the certified public accountants during auditing the annual report. Without delay, the auditing committee met the former certified public accountants and that to be engaged, and gave rational evaluations on their practice quality, deeming that such a change was fully reasonable and its procedure complied with the laws and regulations. In the audit work in 2008, the auditing committee effectively communicated and coordinated with the audit office ZON ZUN Certified Public Accounts Office Ltd. Before the audit office entered into the audit service officially, the committee contacted its principal in charge of the project for the matters such as the audit work plan and schedule and the issues they should be aware of in the audit and made agreement with them. During the audit, the committee kept close information on the progress and urged several times the audit office to ensure the quality and schedule in their audit work. After completion of the audit work, the committee carefully reviewed the Company’s financial report and the annual report, deeming that the Company’s financial report was complete and authentic and the Company’s information to be disclosed such as the financial report was objective and authentic and correctly reflected the annual financial status of the Company. The auditing committee thinks that ZON ZUN Certified Public Accounts Office Ltd. complied with the practice guideline of independency, objectiveness and fairness in the 2008 audit service for the Company, provided the audit service for the Company, strictly abiding by the new accounting standards with a thorough plan and appropriate allocation of personnel. Being industrious and conscientious, they initiatively contacted the auditing committee and the independent directors, and well completed the 2008 audit service for the Company. The committee suggests that the Company should renew the engagement of ZON ZUN Certified Public Accounts Office Ltd. as the audit office for the 2009 audit service for the Company. 4. Summary report on discharge of duty of the remuneration and evaluation committee under the board of directors The remuneration and evaluation committee under the board of directors discharged its duty according to the Implementation Rules for the Remuneration and Evaluation Committee of the Board of Directors and examined the annual salary of the directors, supervisors and senior executives of the Company. The committee thinks that the procedure of deciding the remuneration for the above persons and the standard for remuneration distribution complied with the laws and 21 Dalian Refrigeration Co., Ltd. 2008 Annual Report regulations and the Company’s regulations and the remuneration information disclosed in the 2008 annual report of the Company was authentic and exact. 5. The independent directors’ special description and independent opinion about the Company’s accumulated and current guarantee issuance and compliance with the related regulations The examination showed that the Company did not issue any guarantees for the holding shareholder, other associated parties with the shareholding less than 50%, any non-legal-person units and individuals, and the amount of guarantee issuance of the Company accounted for 0% of the net assets listed in the consolidated accounting statement in the last fiscal year. To sum up, we believe that the Company is well compliant with the related regulations. 22 Dalian Refrigeration Co., Ltd. 2008 Annual Report §9 Report of the Supervisory Committee In the report period, the board of supervisors held three meetings. The 13th meeting of the 4th board of supervisors was held in the conference room at the 5th floor of the Company’s headoffice on Apr. 23, 2008. The meeting discussed and adopted the 2007 work report of the board of supervisors of the Company; “the report of the board of supervisors” in the 2007 annual report of the Company; the examination opinion on the 2007 annual report and the quarterly report for the first quarter of 2008; the opinion of self-evaluation on internal control of the Company; and the report on postponing the office term of the board of supervisors of the Company. The 14th meeting of the 4th board of supervisors was held in the conference room at the 5th floor of the Company’s headoffice on Aug. 20, 2008. The meeting discussed and adopted the 2008 semiannual report of the Company and its abstract; and the written examination opinions on the 2008 semiannual report. The 15th meeting of the 4th board of supervisors was held in the conference room at the 5th floor of the Company’s headoffice on Oct. 23, 2008. The meeting discussed and adopted the quarterly report for the third quarter of 2008 of the Company; and the written examination opinions on the quarterly report for the third quarter of 2008. The Supervisory Board gave the independent comments on the following matters: (1) About legal operation of the Company. The Company had a legal resolution-making process and built a quite perfect internal control system. No acts of the directors and managers of the Company in the course of performing their duties were found to violate laws, regulations and the Articles of Association of the Company or to harm the interests of the Company. (2) About the financial condition of the Company. ZON ZUN Certified Public Accounts Office Ltd. has presented the unqualified-opinions auditor's report. The accounting report reflected the actual financial status and operation results of the Company. (3) In the report period, the Company had neither raised funds nor use of any raised fund that took place in the previous period and went down to this report period. (4) In the report period, associated transactions taking place on the Company in the report period mainly were purchase of goods from the associated companies and putting investment together with the associated parties. The above transactions were fair with no prejudice to the interests of the Company. (5) The procedures of withdrawing provisions for devaluation of assets in 2008 were legitimate and valid. Hereunder are the written examination opinions on the Company’s 2008 Annual Report: (1) The preparation and review procedures for this Annual Report comply with the laws and regulations, and the stipulations of the Articles of Association and the Company’s management rules. (2) The content and format of this Annual Report comply with the regulations of China Securities Regulatory Commission and Shenzhen Securities Exchange, and its content reflects on all aspects the authentic business management and financial status of the Company in 2008. (3) Before this Annual Report was worked out, no persons engaged in preparation and review of this Annual Report were found conducting with violation of the confidentiality requirements. 23 Dalian Refrigeration Co., Ltd. 2008 Annual Report Hereunder is the opinion in the self-evaluation report on internal control of the Company: The current situation of the Company’s internal control systems complied with the requirement and the actuality of the Company. The Company’s internal control systems have been well implemented in the process of production and operation of the Company and were playing an important role. The problems found in the Company’s special campaign of governance and the on-site inspection of Dalian Securities Regulatory Bureau in 2008 have been corrected really. To sum up, we agree with the self-evaluation report on internal control of the Company. 24 Dalian Refrigeration Co., Ltd. 2008 Annual Report §10 Significant Events 10.1 Purchase of assets □Applicable √Inapplicable 10.2 Sales of assets □Applicable √Inapplicable 10.3 Important guarantee □Applicable √Inapplicable 10.4 Important matters concerning associated transactions 10.4.1 associated transactions taking place in purchase of goods (Unit: RMB’0000) √Applicable □Inapplicable purchasing auxiliary products for selling auxiliary spare parts to package projects from associate associate parties parties Associated party Proportion to the Proportion to the Amount similar Amount similar transactions transactions Dalian Bingshan Group Import&Export Co., Ltd. and 21,516 14.53% 20,827 17.64% other associated party Total 21,516 14.53% 20,827 17.64% Including：In the report period the Company made associative trade amounting to 151,840 thousand yuan in the form of products selling or labor providing for holding shareholders and its subsidiaries. 10.4.2 associated debts and claims □Applicable √Inapplicable 10.4.3 Associated transactions in joint external investments by the Company and the associated parties √Applicable □Inapplicable In the report period, the Company, together with the associated parties, Sanyo Electric Co., Ltd., Sanyo Electric (China) Co., Ltd. and Dalian Sanyo Air-Conditioner Co., Ltd., put the additional investment to Shenyang Sanyo Air-Conditioner Co., Ltd. The associated transaction announcement for the above matter was published on China Securities Daily and Wen Wei Po dated of Apr. 25, 2008. 10.4.4 Progress in occupation of funds and clear-off debts □Applicable √Inapplicable 10.5 Entrusted financing □Applicable √Inapplicable 10.6 Undertaking matters for trial sales of state shares and implementation √Applicable □Inapplicable Bingshan Group undertook that the Dalian Refrigeration Co., Ltd.’s state shares held by it would not be listed for trading or assigned within 12 months from the date when their being allowed to be listed for trading in the A-share market; that the shares would not be listed for trading within 48 months after expiry of the aforementioned undertaking; that it would submit the dividend distribution proposal for the annual dividend from 2005 to 2007 not lower than 50% of the 25 Dalian Refrigeration Co., Ltd. 2008 Annual Report distributable profit of Dalian Refrigeration Co., Ltd. for respective years, and ensure that it votes for that proposal at the general meeting; and that after this trial sales of state shares is completed, it would authorize the Board of Directors of Dalian Refrigeration Co., Ltd. to work out and apply as soon as possible the management incentive and restriction system with share options according to the state’s policies, laws and regulations. Bingshan Group well fulfilled the above undertaking. 10.7 Significant lawsuit and arbitration □Applicable √Inapplicable 10.8 Other significant items 10.8.1 Securities investment □Applicable √Inapplicable 10.8.2 Holding of share equity of other listing companies √Applicable □Inapplicable （RMB）Yuan Unit： Proportion Profit Amount of of share Book value at and Change of Security Abbreviation primary equity in the end of loss owner’s equity code of security investment that period within within period company period 600346 Da Xiangsuo 2,307,692.31 1.11% 6,633,900.00 0.00 -7,985,250.00 600728 SST Xintai 3,000,000.00 1.40% 3,000,000.00 0.00 0.00 Total 5,307,692.31 - 9,633,900.00 0.00 -7,985,250.00 10.8.3 Holding of share equity of non-listing financial enterprises and intending to list enterprises √Applicable □Inapplicable Proportion Change of Amount of of share Book value at Profit and Name of Quantity owner’s primary equity in the end of loss within object held (Shares) held equity within investment that period period period company Guotai Junan Secunities 30,098,895.00 30,098,895 0.64% 30,098,895.00 15,049,447.50 15,049,447.50 Co., Ltd Total 30,098,895.00 30,098,895 0.64% 30,098,895.00 15,049,447.50 15,049,447.50 10.8.4 Buy and sell securities of other listed companies □Applicable √Inapplicable 10.9 In the report period, there was a change in the certified public accountants engaged by the Company. In Dec. 2008, Dalian Hualian Certified Public Accountants, the audit office originally engaged by the Company, merged with ZON ZUN Certified Public Accounts Office Ltd. in order to further develop the business. For this reason, the Company changed to engage ZON ZUN Certified Public Accounts Office Ltd. as the audit office for 2008 for the Company. There were no expenses other than the audit expense of 550,000 yuan paid to ZON ZUN Certified Public Accounts Office Ltd. in the report year, and the travel expense was borne by that company itself. Now the continual period of audit service provided by ZON ZUN Certified Public Accounts 26 Dalian Refrigeration Co., Ltd. 2008 Annual Report Office Ltd. for the Company is one year. 10.10 In the report period, Dalian Bingshan Group Co., Ltd., the Company’s major shareholder, smoothly carried into execution the restructuring through diversity of equities. On Jul. 30, 2008, the Sino-foreign joint venture Dalian Bingshan Group Co., Ltd. (hereinafter referred to as “the new Bingshan”) was established. On Sept. 1, 2008, the new Bingshan held the 1st meeting of the 1st board of directors. The meeting established the business policy and development plan “to take the economic effectiveness as the center and realize the collectivization, specialization and internationalization” and decided that Zhang He was the new Bingshan’s chairman of the board of directors and Mu Chuanjiang was its vice chairman and general manager. 10.11 List of the activities such as investigations, view exchanges and interviews received in the report period Reception Reception Topic in talk and Reception time Visitor location method information offering Jan. 17, 2008 Company researcher of CITIC Securities Restructuring of the By telephone researcher of Shanghai Rongrui Company’s major Mar. 11, 2008 Company Investment shareholders Apr. 10, 2008 Company researcher of Guotai-Jun’an Spot researcher of China Post & Capital May 29, 2008 Company investigation Fund Information about the July 23, 2008 Company researcher of Huaxia Fund basic aspect of the Oct. 28, 2008 Company researcher of Hengmao Investment By telephone Company Nov. 12, 2008 Company researcher of Ping’an Securities Spot Nov. 14, 2008 Company researcher of Donghai Securities investigation 10.12 Index of the information announcements concerning important matters in the report period Announcement Announcement Announcement description No. date Announcement on Development of Major Matters 2008-001 20080102 (restructuring of the major shareholders) 2008-002 Announcement on Development of Major Matters 20080107 2008-003 Announcement on Development of Major Matters 20080114 2008-004 Announcement on Development of Major Matters 20080121 2008-005 Announcement on Development of Major Matters 20080128 Announcement on Development of Major Matters and 2008-006 20080204 Continuation of Suspending the Trading of Stocks 2008-007 Announcement on Development of Major Matters 20080218 2008-008 Announcement on Development of Major Matters 20080225 2008-009 Announcement on Development of Major Matters 20080303 2008-010 Announcement on Development of Major Matters 20080310 2008-011 Announcement on Development of Major Matters 20080317 Announcement on Development of Major Matters and 2008-012 20080324 Resumption of the Trading of Stocks 27 Dalian Refrigeration Co., Ltd. 2008 Annual Report Announcement on Abnormal Fluctuation in the Trading of 2008-013 20080326 Stocks 2008-014 Abstract of the Annual Report 2007 Announcement on the Resolutions at the 15th Meeting of the 2008-015 4th Board of Directors Announcement on the Resolutions at the 13th Meeting of the 2008-016 4th Board of Supervisors 20080425 2008-017 Notice on Convening the General Meeting 2007 2008-018 Quarterly Report for the 1st Quarter, 2008 2008-019 Announcement on Routine Associated Transactions Announcement on Associated Transactions (adding investment 2008-020 to Shenyang Sanyo Air-Conditioner) 2008-021 Announcement on the Resolutions at the General Meeting 2007 20080521 Announcement that the 2007 annual dividend pay-out was 20080701 2008-022 received from Guotai Jun'an 2008-023 Announcement on the 2007 annual dividend distribution 20080704 Announcement on progress of the important matters (The restructuring of Bingshan was approved by the Council of State 2008-024 20080716 State-owned Assets Supervision & Administration Commission.) The description of correcting the problems listed in the 2008-025 correction report in the Company’s special campaign of 20080719 governance. Announcement on progress of the important matters (The new 20080804 2008-026 Bingshan completed the registration with the Administration for Industry & Commerce.) 2008-027 Abstract of the 2008 semiannual report 20080822 2008-028 Quarterly report for the third quarter of 2008 20081027 28 Dalian Refrigeration Co., Ltd. 2008 Annual Report §11 Financial Report 11.1 Auditor’s Report ZonZun (2009) No. 6034 TO THE SHAREHOLDERS OF DALIAN REFRIGERATION COMPANY LIMITED We have audited the accompanying financial statements of Dalian Refrigeration Company Limited (hereinafter referred to as the “Company”), which comprise the consolidated balance sheet and balance sheet as at 31 December 2008, the consolidated income statement and income statement, the consolidated statement of changes in equity and statement of changes in equity, the consolidated cash flow statement and cash flow statement 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 China Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China. This responsibility includes: designing, implementing and maintaining internal 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 Standards on Auditing for 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 internal 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 internal 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 China Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China and present fairly, in all material respects, the consolidated financial position and financial position of the Company as at 31 December 2008, and the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Company for the year then ended. ZonZun Certified Public Accountants Co., Ltd. China CPA: Sui Guojun Beijing, China China CPA: Yang Yingjin April 23, 2009 29 Dalian Refrigeration Co., Ltd. 2008 Annual Report 11.2 Accounting statement (attached hereunder) 11.3 Notes to the accounting statement (All amounts in RMB Yuan unless otherwise stated) Ⅰ.General information Dalian Refrigeration Company Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 18 December 1993 as a joint stock limited company. The principal activities of the Company are manufacture, sale and installation of refrigeration equipment. The Company together with its subsidiaries is hereinafter collectively referred to as the “Group”. The address of the Company’s registered office is No.888 Xinan Road, Shahekou District, Dalian. The Company’s domestically listed RMB denominated ordinary shares (“A shares”) and domestically listed foreign investment ordinary shares (“B shares”) were listed on the Shenzhen Stock Exchange in the PRC in December 1993 and March 1998 respectively. The immediate and ultimate parent company of the Company is Dalian Bingshan Group Company Limited (“Bingshan Group”). Ⅱ. The main accounting policies, accounting estimation of the Company and the way of working out the consolidated financial statements 1. Declaration on following Accounting Standard for Business Enterprises Declaration from the Company: the Financial Report made by the Company was in line with Accounting Standard, which reflected the financial status, business result and cash flow of the Company truly and objectively. 2. Compiling foundation of financial statements On the basis of continual management, according to the occurred transactions and events, recognizing and measuring by the corresponding Accounting Standard for Business Enterprises or Accounting System for Business Enterprises and its supplementary regulations and appendixed financial accounting policies in each reporting period. The company had been implementing the former Accounting Standard for Business Enterprises and Accounting System for Business Enterprises and its supplementary regulations before December 31,2006 and started to implement the new Accounting Standard for Business Enterprises published by Ministry of Finance and the application guidance from January 1, 2007. 3. Fiscal year The Company adopts the calendar year as its fiscal year, i.e. from January 1 to December 31. 4. Functional currency RMB was the functional currency of the Company. 5. The items of the statements of which the measurement attributes changed and the adopted measurement attributes in the report period. The Company measured according to the canonical accounting measurement attributes. In the report period, measurement attributes were not changed. The Company conducted the measurement of the accounting elements commonly by historical cost. If using the way of replacement cost, net realizable value, present value and fair value, the measurement should be on the basis of the amount of the accounting element which could be obtained and measured reliably. 6. The standard for recognizing cash equivalent when making cash flow statement Cash equivalent means the highly liquid, very safe investment which can be easily converted into cash, and the company can hold it for a very short time (3 months from the date of purchase). 30 Dalian Refrigeration Co., Ltd. 2008 Annual Report 7. Method of foreign currency translation When foreign currency translation occurs, the spot exchange rate on the date of translation (i.e., the middle price of the intraday foreign exchange rate of RMB published by People’s Bank of China) shall be converted into RMB for keeping accounts while the occurred foreign currency exchange or the foreign exchange transactions shall be translated according to exchange rate adopted in actual transactions. On the balance sheet date, the foreign currency monetary items and foreign currency non-monetary items shall be treated in accordance with the following provisions: The foreign currency monetary items shall be translated at the spot exchange rate on balance sheet date, of which happen during the normal business period shall be recorded into gains and losses at the current period; of which happen during organization period shall be recorded into long-term deferred expense. The exchange gains or losses caused by the borrowing belonging to acquiring fixed assets shall be treated by the capitalization of borrowing costs. Foreign currency non-monetary items shall be translated at spot rate on the date of transaction, not changing the amount of functional currency. 8. The recognition and measurement of financial instruments and the transfer of the financial instruments (1) Recognition of the financial assets When an enterprise becomes a party to a financial instrument, it shall recognize a financial asset or financial liability. Where a financial asset satisfies any of the following requirements, the recognition of it shall be terminated: ① Where the contractual rights for collecting the cash flow of the said financial assets are terminated; ②Where the said financial asset has been transferred and meets the conditions for recognizing the termination of financial assets as provided for in Accounting Standard for Business Enterprises No. 23 – Transfer of Financial Assets. Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the financial liability be terminated in all or partly. (2) The classification, recognition and measurement of financial assets and financial liabilities The financial assets or financial liabilities got or born by the Company are measured according to the following classifications: ① The financial assets or financial liabilities which are measured at their fair value and the variation of which is recorded into the profits and losses of the current period The interest rate or cash dividend which was gained in the period when the financial assets held by the Company are measured at its fair value and of which the variation is recorded into the profits and losses in the current period shall be recognized as investment income. On balance sheet date, the in change in the fair value of the financial asset or financial liability which is measured at its fair value and of which the variation is recorded into the profits and losses of the current period, shall be recorded into the profits and losses of the current period; When the said financial assets of financial liabilities are on disposal, the difference between the fair value and the amount in initial account shall be recognized as investment income, meanwhile, the profits and losses arising from the change in fair value shall be adjusted. ② The investments which will be held to their maturity The investments which will be held to their maturity will regard the sum between the gained fair value and the transaction expense thereof as the initially recognized amount. The interest on bonds in payment, of which the mature interest is not drawn, shall be solely recognized as the receivables. The interest revenue which is measured and recognized by the amortized cost and actual interest rate during the period of the investments which will be held to their maturity shall be recorded into investment income. The actual interest rate which is recognized in the period of gaining the investments which will be held to their maturity, shall maintain unchanged within the 31 Dalian Refrigeration Co., Ltd. 2008 Annual Report predicted term of existence or within a shorter applicable term of the said investment which will be held to their maturity. The little difference between actual interest rate and coupon rate of which interest revenue can be measured at the coupon rate shall be recorded into the profits of losses in the current period. When the investments which will be held to their maturity are on disposal, the difference between the obtained price and investment book value shall be recorded into the profits and losses in the current period. ③ The accounts receivables The creditor’s right receivable formed during the Company selling commodity outside or offering labor shall be regarded as the initially recognize amount in according with the receivable price stipulated in the contract or agreement signed between the Company and the buyers. When the Company recovers or disposes the accounts receivable, the difference between the obtained price and the book value of the accounts receivable shall be recorded into the profits and losses in the current period. ④ Financial assets available for sale The financial assets available for sale will be regarded as the initial recognized amount in according with the sum between the fair value obtained from the said financial assets and the transaction expense thereof. The interest on bonds of which the mature interest rate is not drawn in the payment or the cash dividend which is declared but not extended in the payment shall be solely recognized as the receivables. The interest rate or cash dividend gained during the period of holding the financial assets available for sale shall be recorded into investment income. On balance sheet date, the financial assets shall be measured through fair value, while the change in fair value is recorded into capital reserves (other capital reserves). When the financial assets are on disposal, the difference between the obtained price and the book value of the financial assets shall be recorded into investment income, meanwhile, the amount on proposal transferring out from the accumulated amount which is directly recorded into shareholders’ equity and arises from the variation of the fair value, shall be recorded into investment income. ⑤ Other financial liabilities Other financial liabilities are regarded as the initial recognized amount in accordance with the sum between the fair value and the transaction expense thereof. The Company shall make subsequent measurement on other financial liabilities on the basis of the post-amortization costs. (3) Main recognition method for the fair value of the financial assets or financial liabilities ① The quotation in the active market shall be used to recognize the fair value of the financial assets or financial liabilities existing in active market. ② If the financial instruments do not exist in the active market, the fair value shall be recognized by value appraisal techniques. ③ As for the financial assets initially obtained of produced at source and the financial liabilities assumed, the fair value thereof shall be determined on the basis of the transaction price of the market. (4) Main impairment test method of the financial assets and impairment provision method The recognition standard for impairment provision of the financial assets: the Company shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. Where there is any objective evidence proving that such financial asset has been impaired, an impairment provision shall be made. The withdrawal method for impairment provision of the financial assets: as for the impairment provision of the financial assets is measured on the basis of post-amortization costs, if the current value of the predicted future cash flow of the financial assets is below the difference in the carrying amount of the said financial asset, the impairment provision of the financial assets shall be made; as for the impairment provision of the financial assets 32 Dalian Refrigeration Co., Ltd. 2008 Annual Report available for sale, if the recoverable amount is below the difference in the carrying amount, the impairment provision shall be made. Where a sellable financial asset 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 owners’ equity which was directly included shall be transferred out and recorded into the profits and losses of the current period. 9. The recognition standard and the withdrawal method for the bad debt provision of the accounts receivable (1) Receivables are considered uncollectible after liquidation with statutory procedures for debtors are in canceling or bankrupt, due death of debtors who has no bequest and no undertaker on obligation, or caused by debtors fail to perform their obligation to pay a debt over five years, and it will be recognized as bad debt. (2) The bad debt losses are accounted by the allowance method. The Company recognized the bad debt provision on the basis of the accounts age analysis method based on the actual financial status and the cash flow of the debt units, which shall be recorded into the profits and losses of the current period. As for the accounts receivable of the related party of the Company with continuous operation ability, the withdrawal of bad debt reserves should not reach 100% at most. The proportion taking up the withdrawal of the bad debt provision for the accounts receivable in every account age phase is described as follows: Account age Proportion taking up the bad debt Proportion taking up the bad debt provision for the accounts receivable (%) provision for the other accounts receivable (%) Within one year 5 5 One to two years 10 10 Two to three years 30 30 Three to four years 50 50 Four to five years 80 80 Over five years 100 100 10. The classification, pricing and accounting methods for inventories; the recognition standard and withdrawal method of the inventories falling price reserves (1) Classification of the inventories: purchased materials, stocking materials, material cost difference, entrusted processing materials, unfinished products, finished products, working on project and etc. (2) The inventory system is on the basis of perpetual inventory method. (3) The inventories are priced by the historical cost method, so are the raw material and auxiliary material, the sold material cost is carried over on the basis of first-in first-out method; the product cost is accounted through standard cost method, the difference between the standard cost and historical cost is undertaken by the cost of the finished goods in process, while the cost of sales is carried over on the basis of weighted average method; low-value consumption goods will be amortized once when drawn. (4) As for the inventory write-down provided: each kind of inventories at the end of the report period will be measured at the lower of cost or net realizable value, and a provision for inventory write-down will be established for any difference between the cost and the lower net realizable value. The net realizable value refers to the value minus the predicted expense needed in the process of completing the production and sales from the predicted price for sale and the taxes. 11. The method for measuring long-term equity investment (1). Confirmation of initial investment cost of long-term equity investment For the consolidation of enterprises that under the same control, take the book value proportion of the owner’s equity of consolidated party on consolidation date as initial investment cost of long-term equity investment. The balance of initial investment cost of long-term equity investment and paid cash, transferred non-cash asset, and 33 Dalian Refrigeration Co., Ltd. 2008 Annual Report book value of debt taken, should adjust capital public reserve; and adjust retained earning while the capital public reserve isn’t enough to offset. For the consolidation of enterprises that under different control, take assets paid out in order to acquire the control right of purchased party on purchase date, occurred or undertaken debt and fair value of issued equity securities as initial investment cost of long-term equity investment. The long-term equity investment acquired in other manners except from the enterprise consolidation, should confirm its initial investment cost according to following regulations: ①. The long-term equity investment acquired by paying cash, should take purchasing price that actually paid as initial investment cost. Initial investment cost including expense, tax and other necessary payout that directly related with acquiring the long-term equity investment. ②. The long-term equity investment acquired by issuing equity securities, should take fair value of the issued equity securities as initial investment cost. ③. The long-term equity investment invested by investors, should take the promised value in investment contract or agreement as initial investment cost, excluding those promised in the contract or agreement that the value is not fair. ④. The long-term equity investment acquired by non-monetary asset exchange, its initial investment cost should be confirmed according to Accounting Standards of Business Enterprise No.7—Non-monetary Asset Exchange. ⑤. The long-term equity investment acquired by debt reorganization, its initial investment cost should be confirmed according to Accounting Standards No.12—Debt Restructuring. (2). Subsequent measurement of long-term equity investment ①. The following long-term equity investments adopt cost calculation method: i. The long-term equity investment on the invested units controlled by the Company. The investment of the Company on the subsidiaries and calculated on cost method and adjusted according to equity method while compiling the consolidated financial statements. ⅱ. The long-term investment that the Company hasn’t together control or material influence on invested party, and hasn’t quoted price on active market so its fair value can’t be dependably measured. ②. The long-term equity investment that the Company has together control or material influence on the invested party, adopt equity method to calculated. 12. The fixed assets pricing and depreciation method (1) Definition of fixed assets The fixed assets refer to the assets related to production and operation that has over 1 year lifetime. (2). Classification The fixed assets include property and plant, machinery and equipment, motor vehicles, electric equipments and other equipments etc. (3). Pricing of fixed assets The initial measurement of a fixed asset shall be made at its cost. The cost of a purchased fixed asset is based on the actual expense; the cost invested to a fixed asset by the investor shall be ascertained in accordance with the value as stipulated in the investment contract or agreement; the cost of a self-constructed fixed asset shall be formed by the necessary expenses incurred for bringing the asset to the expected condition for use; the costs of fixed assets acquired through the exchange of non-monetary assets, recombination of liabilities, merger of enterprises, and financial leasing shall be respectively ascertained in accordance with the Accounting Standard for Business Enterprises No. 7 - Exchange of Non-monetary Assets, the Accounting Standard for Business Enterprises No. 12 – Debt Restructuring, the Accounting Standard for Business Enterprises No. 21 – Leases. (4).Deprecation method of fixed assets Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their 34 Dalian Refrigeration Co., Ltd. 2008 Annual Report estimated useful lives, as follows: Fixed assets Estimated lifetime Annual depreciation Expected residual rates value rates Buildings 20-40 years 2.25-4.85% 3%、 5%、10% Machinery and equipment 10-22 years 4.09-9.7% 3%、 5%、10% Motor vehicles 4-15 years 6-23.75% 3%、 5%、10% Electric equipments 5 years 18-19.4% 3%、 5%、10% Other equipments 10-15 years 6-9.7% 3%、 5%、10% The asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. 13. Construction-in-progress (1). Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. (2). This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. (3). When construction engineering in process has reached the scheduled state in commission, and has proceeded the final accounts of completing, validate all the actual expenses as the fixed asset; if the fixed asset has reached the scheduled state in commission without proceeding the final accounts of completing, validate the cost and adjust the original provisional estimated value according to the actual costs after finishing the final accounts of completing. 14. The pricing and amortizing method of intangible assets (1) Pricing of the intangible assets The intangible assets shall be initially measured according to its cost. ① The cost of outsourcing intangible assets shall include the purchase price, relevant taxes and other necessary expenditure directly attributable to intangible assets for the expected purpose. ② The cost of self-developed intangible assets shall include the total expenditures incurred during the period from the time when it meets the following conditions to the time when the expected purposes of use are realized, except that the expenditures which have already been treated prior to the said period shall not be adjusted. ⅰ. It is feasible technically to finish intangible assets for use or sale; ⅱ. It is intended to finish and use or sell the intangible assets; ⅲ. The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufacturing by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally. ⅳ. It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; ⅴ. The development expenditures of the intangible assets can be reliably measured. ③ The cost invested into intangible assets by investors shall be determined according to the conventional value in the investment contract or agreement. ④ The costs of intangible assets acquired from non-monetary assets transaction, debt recombination, government subsides, and merger of enterprises shall be determined respectively according to the Accounting Standard for Business Enterprises No. 7 - Non-monetary Assets, Accounting Standard for Business Enterprises No. 12 – Debt Restructurings, Accounting Standard for Business Enterprises No. 16 – Government Grants and Accounting Standard for Business Enterprises No. 20 – Business Combinations. 35 Dalian Refrigeration Co., Ltd. 2008 Annual Report (2) Amortization of the intangible assets ①As for the intangible assets with limited service life, which are amortized by straight-line method when it is available for use within the service period, shall be recorded into the current profits and losses. The Company shall, at least at the end of each year, check the service life and the amortization method of intangible assets with limited service life. When the service life and the amortization method of intangible assets are different from those before, the years and method of the amortization shall be changed. ② Intangible assets with uncertain service life may not be amortized. However, the Company shall check the service life of intangible assets with uncertain service life during each accounting period. Where there are evidences to prove the intangible assets have limited service life, it shall be estimated of its service life, and be amortized according to the above method mentioned in (1). 15. Impairment of long-term assets (1) At the end of accounting period, the Company shall check the long-term assets. There may be an impairment of assets when the following signs occur. The recoverable amount shall be estimated and the asset impairment loss shall be made in light of the difference that the recoverable amount of assets is less than the book value when the impairment happens. The signs are stated as follows: ① The current market price of assets falls, and its decrease is obviously higher than the expected drop over time or due to the normal use; ②The economic, technological or legal environment in which the enterprise operates, or the market where the assets is situated will have any significant change in the current period or in the near future, which will cause adverse impact on the enterprise; ③The market interest rate or any other market investment return rate has risen in the current period, and thus the discount rate of the enterprise for calculating the expected future cash flow of the assets will be affected, which will result in great decline of the recoverable amount of the assets; ④Any evidence shows that the assets have become obsolete or have been damaged substantially; ⑤ The assets have been or will be left unused, or terminated for use, of disposed ahead of schedule; ⑥ Any evidence in the internal report of the enterprise shows that the economic performance of the assets has been or will be lower than the expected performance, for example, the net cash flow created by assets or the operating profit (or loss) realized is lower (higher) than the expected amount; ⑦Other evidence indicates that the impairment of assets has probably occurred. (2) The evidences to withdraw the impairment provision of long-term investment, fixed assets, construction in process and intangible asset: at the end of the report period, the Company will withdraw the asset impairment provision according to the difference that the recoverable amount of single asset is less than the book value. The recoverable value shall be recognized according to the high one between the net amount of fair value deducting disposal charge and the current value of the expected future cash flow of assets. If the recoverable amount of the single asset cannot be obtained, the recoverable amount shall be recognized on the basis of the asset group to which the asset belongs. (3) The business reputation formed by merger of enterprises shall be distributed into the related asset group at the end of every year, then the asset group shall have the impairment test to measure the recoverable amount, comparing to the book value, if the recoverable amount of the asset group is less than the book amount, the difference shall first charge against the book value of the business reputation which is apportioned to the asset group; if the book value of the business reputation is not enough to charge against the difference, the uncharged balance shall be distributed by the other assets of the asset group in accordance with the book value. (4) The recognition of the asset group under impairment test: the related minimum of asset groups that can share the synergetic benefit brought from merger through the prediction of the Company. 36 Dalian Refrigeration Co., Ltd. 2008 Annual Report (5) The above impairment losses of assets cannot be reversed as soon as they are recognized. 16. Calculation method of loan expenses (1) The loan expenses occurred to the Company includes loan interest, amortization of reduction price and premium price, assistant expenses and the exchange balance from foreign currency loan. The amortization of the interest, discount or premium and exchange difference from, the specific loan for purchasing fixed assets, if meeting the following three conditions, loan expenses should be capitalized. ① Asset disburses have been occurred. ② The borrowing costs has already incurred. ③ Purchase construction activity for achieving the asset utility condition has started. Other loan interest, amortization of reduction price and premium price and the exchange balance from foreign currency loan should be deemed as expenses of the period while they occur. (2)Where a general borrowing is used for the acquisition and construction or production of assets eligible for capitalization, the enterprise 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. Auxiliary expense of general loan should be counted into current loss and interest. (3)To determine capitalized amount： Capitalized interest for purchasing fixed asset at the end of the current period is the accumulated expense and weight average asset multiplied capitalization rate. And the capitalization rate is determined by following principles： ①Interest of the specialized loan for purchasing fixed assets is the capitalization rate； ②Above single specialized loan for purchasing fixed assets, the capitalization rate is the weighted average interest rate of these general borrowings. (4)Temporary stop of capitalization: If the purchase and building activities for fixed assets stop abnormally and the interruption interval exceeds three months, the capitalization of borrowing cost should be stopped temporarily and deemed as the expenses of current period until the re-start of purchasing and building activities for assets. (5)Stop of capitalization: When the purchased fixed assets have reached the expected serviceable condition, stop the capitalization of borrowing cost. 17. Calculating method on salary payable to staff The staff’ salary means that the enterprise gives various remunerations for obtaining services providing by the employees or other relevant expenses. It includes: i. Staff’s salary, bonus, allowance and subsidy; ii. Staff’s welfare; iii. Hospitalization insurance, endowment insurance, unemployment insurance, occupational injury insurance and childbirth insurance, etc. social insurances; iv. Housing public reserve; v. Labor union expenditure and personnel education expense; vi. Non-monetary welfare; vii. Compensation for rescinding the labor relationship with employee; viii. Other expenses related with the services the employee supply. During the accounting period of an employee' providing services to an enterprise, the Company shall recognize the compensation payable as liabilities. Except for the compensations for the cancellation of the labor relationship with the employee, the enterprise shall, in accordance with beneficiaries of the services offered by the employee, treat the following circumstances respectively: (1)The compensation for the employee for producing products or providing services shall be recorded as the 37 Dalian Refrigeration Co., Ltd. 2008 Annual Report product costs and service costs; (2)The compensation for the employee for any on-going construction project or for any intangible asset shall be recorded as the costs of fixed asset or intangible assets; (3)The compensation for the employee other than those as mentioned in Items (1) and (2) shall be recorded as profit or loss for the current period. The social insurance such as hospitalization insurance, endowment insurance, unemployment insurance, occupational injury insurance and childbirth insurance; and housing public reserve handed by the company for the staff should be calculated in proportion of total salary according to the relevant regulations of local government during the accounting period of the services the employee supply to the company. Before the expiration of the contract, the company rescinds the labor relationship between the company and the staff or encourage staff accept the suggestion on compensation for accepting reduction at will, at the same time satisfy the following conditions, projected liabilities occurs for confirming rescinding the labor relationship with employee and giving compensation and is reckoned into current gains and losses: i. The company officially established the plan on rescinding the labor relationship or brings forward the suggestions on reduction at will, and will be implemented; ii. The company could not singly withdraw rescinding the labor relationship or suggestions of reduction. 18. Measurement method of estimated debts The obligation pertinent to Contingencies shall be recognized as estimated debts when the following conditions are satisfied simultaneously: (1) That obligation is a current obligation of the enterprise; (2) It is likely to cause any economic benefit to flow out of the enterprise as a result of performance of the obligation; (3) The amount of the obligation can be measured in a reliable way. 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, the Company will adjust the book value in accordance with the current best estimate. 19. Revenue recognition (1) The recognition of the revenue from selling goods: the revenue from selling shall be recognized by the following conditions: The significant risks and rewards of ownership of the goods have been transferred to the buyer by the Company; the Company retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; the relevant amount of revenue can be measured in a reliable way; the relevant revenue and costs of selling goods can be measured in a reliable way. (2) The recognition of the revenue from providing labor services: When the total revenue and costs from providing labor can be measured in a reliable way; the relevant economic benefits are likely to flow into the enterprise; the schedule of completion under the transaction can be measured in a reliable way, the revenue from providing labor shall be recognized. When the outcome of a contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognized when incurred. 20. Calculation method of government grants The government grants related to the proceeds, if those used for compensating the relevant future expenses or losses of the enterprise shall be recognized as deferred income and shall, during the period when the relevant expenses are recognized, recorded in the current profits and losses; or if those used for compensating the relevant expenses or losses that have been incurred to the enterprise shall be directly recorded in the current profits and 38 Dalian Refrigeration Co., Ltd. 2008 Annual Report losses. The government grants related to the assets shall be recognized as deferred income and shall be distributed averagely in the related asset using period, then counted into current loss and interest. However, government subsidiary according to nominated amount shall be counted into current loss and interest directly. 21. Income tax Where there is difference (temporary difference) between the carrying amounts of the assets or liabilities and its tax base, the deferred income tax assets or the deferred income tax liabilities shall be determined. According to tax law, the deductible loss and tax deduction which can deduct the taxable amount in the subsequent years, regarding as temporary difference, shall be recognized as the corresponding deferred income tax assets. As for the temporary difference arising from the initial recognition of the goodwill, the corresponding deferred income tax liabilities. When the temporary difference is arisen from the initial recognition of the assets or liabilities incurring in the transaction which is not business combination and does not affect the accounting profits or the taxable amount (or the deductible loss), the corresponding deferred income tax assets and deferred income tax liabilities shall not recognized. On the balance sheet date, the deferred income tax assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. The Company shall recognize the deferred income tax assets to the extent of the amount of the taxable income which it is likely to obtain and which can be deducted from the deductible temporary difference, deductible loss and tax deduction. The deferred income tax liabilities arising from the temporary differences related to the investments of subsidiary companies, associated enterprises and joint enterprises shall be recognized. However, the deferred tax income assets and deferred income tax liabilities shall not recognized which meet the conditions that the Company can control the time of the reverse of temporary differences which are likely to be reversed in the expected future. 22. Measure method of business combination 1) The business combination under the same control: the consideration paid by combining party and the net assets obtained by the combining party shall be measured according to the book value. 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 and the total par value of the shares issued, the additional paid-in capital shall be adjusted. The direct cost for the business combination of the combining party shall be recorded into the profits and losses at the current period. The bonds issued for a business combination or the handling fees, commissions and other expenses for assuming other liabilities shall be recorded into the amount of initial measurement of the bonds or other debts. 2) The business combination not under the same control: the combination costs of the acquirer and the identifiable net assets obtained by the acquirer shall be measured based on fair value. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. The combination costs are less than the fair value of the identifiable net assets it obtains from the acquiree, it shall record the balance into the profits and losses of the current period. The direct cost for the business combination of the combining party shall be recorded into costs of business combination. The bonds issued for a business combination or the handling fees, commissions and other expenses for assuming other liabilities shall be recorded into the amount of initial measurement of the bonds or other debts. 23. Method for compiling consolidated financial statements The consolidation scope of the consolidated financial statements includes the Company and its subsidiaries. Since the actual control right of the subsidiary was obtained, the Company has started to bring it into combination, which shall be suspended since the actual control date ends. All the significant current balance, transactions and unrealizable profits of the Group shall be offset when the consolidated financial statements were made. The shareholder’s interest of the subsidiaries which doesn’t belong to the portion that the Company owns shall be 39 Dalian Refrigeration Co., Ltd. 2008 Annual Report represented solely as the minority interest in the shareholders’ interest of the consolidated financial statements. When the accounting policies or accounting period between the Company and its subsidiaries, when the consolidated financial statements are made, the financial statements of the subsidiaries shall be adjusted and combined according to the accounting policies or accounting period of the Company. As for the subsidiaries obtained from business combination not under the same control, when the financial statements are made, the specific financial statements shall be adjusted on the basis of the fair value of identifiable net assts on the acquisition date. As for the subsidiaries obtained from business combination under the same control, when the financial statements are made, the sides anticipated in the combination shall exist at the present situation when the final controller started to implement control. 24. Earnings per share (1) Basic earnings per share = net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares (2) Diluted earnings per share= net profit attributable to common shareholders or net profit attributable to common shareholders after deducting extraordinary items ÷ outstanding weighted average of ordinary shares after adjusted (3) If the outstanding or potential common shareholders change during the report period but do not affect the total amount of shareholders equity, the earnings per share should be recalculated. If the above changes happened during the date of balance sheet and the date of financial statements approval, the earnings per share of the report period should be recalculated. Ⅲ. Taxation 1. Value added tax (“VAT”) The Group is subject to VAT, which is a tax charged on top of the selling price at a general rate of 17%. An input credit is available whereby VAT previously paid on purchases of raw materials and semi-finished products can be used to offset the VAT on sales to determine the net VAT payable. 2. Tax on city maintenance and construction and extra-charges for education Tax on city maintenance and construction, extra-charge for education: shall be paid by measuring according to the rules of the tax paying unit which belongs to the Local Taxation Bureau. 3. Tax on real estate The tax rate of the real estate for self-use of which tax is measured at 70% of the original value of the real estate at the end of last year, shall be 1.2%. The tax rate of the real estate for renting, of which tax is measured according to the revenue from leasing real estate, shall be 12%. 4. Income tax (1)Income tax shall be measured at 25% in total. (2)Income tax of subsidiaries and associates Taxation on profit of subsidiaries and associates is calculated at the applicable rates in accordance with the relevant tax regulations. Certain subsidiaries and associates enjoy preferential income tax policies with approvals from tax authorities. The applicable income tax rates of major subsidiaries and associates for 2008 are as follows: Applicable income tax Relationship with the Name of the entity Company rate in 2008 Dalian Bingshan Group Refrigeration Installation Subsidiary 25% Company Dalian Bingshan Air-Conditioning Equipment Co. Ltd. Subsidiary 18% Dalian Bingshan Ryosetsu Quick Freezing Equipment Subsidiary 25% Co., Ltd. Dalian Bingshan Group Sales Company Subsidiary 25% 40 Dalian Refrigeration Co., Ltd. 2008 Annual Report Dalian Bingshan Metal Processing Co. Ltd. Subsidiary Dalian Bingshan Guardian Automation Co., Ltd. Subsidiary 25% Shanghai Bingshan Serial Refrigeration Equipment Subsidiary 25% Sales Company Wuhan New World Refrigeration Industrial Co., Ltd. Subsidiary 12.5% (“WNWRI”) Wuhan New World Refrigeration Air Conditioner Subsidiary 25% Engineering Co. Ltd. Ⅳ. Business combination and consolidated financial statements The principal activities of its subsidiaries are shown as below. As of 31 December 2008 the Company had direct equity interests in the following subsidiaries, all of which were incorporated in the PRC: Legal Percentage Registered representative Registered of equity Name of subsidiaries address person capital interest Principal activities Dalian Bingshan Group Shahekou Zhang RMB 100% Installation and testing of Refrigeration Installation Dist., Dalian Hongzhi 20,040,000 refrigeration equipment Company (“Installation Company”) Dalian Bingshan Group Shahekou Yang Bin RMB 90% Sale of refrigeration Sales Company (“Sales Dist., Dalian 18,000,000 equipment Company”) Dalian Bingshan Development Yamamoto JPY 70% Manufacture and sale of Air-Conditioning Zone, Shunniti 700,000,000 accessories of Equipment Co. Ltd. Dalian refrigeration equipment (“Bingshan Air-Conditioning”) Dalian Bingshan Metal Development Zhang He USD 64.25% Process and sale of metal Processing Co. Ltd. Zone, 2,350,000 punching parts (“Metal Processing”) Dalian Dalian Bingshan Guardian High & new Mike Murphy GBP 60% Research, design and Automation Co., Ltd. Technology 210,000 develop refrigerator Dist., Dalian automation parts Dalian Bingshan Ryosetsu Development Yamati USD 70% Manufacture and sale of Quick Freezing Equipment Zone, Yashuhiro 1,000,000 deepfreezing equipment Co., Ltd. Dalian 41 Dalian Refrigeration Co., Ltd. 2008 Annual Report Shanghai Bingshan Serial Jiading Dist., Yang Bin RMB 45% Sale and installation of Refrigeration Equipment Shanghai 2,000,000 refrigeration equipment Sales Company Wuhan New World Dongxihu Mu RMB 51% Design, manufacture, Refrigeration Industrial Co. Dist., Chuanjiang 30,000,000 sale, installation and test Ltd. (“WNWRI”) Wuhan of screw type refrigeration compressor and refrigeration equipment Wuhan New World Dongxihu Ding Jie RMB 5% Design, installation, test Refrigeration Air Dist., 8,000,000 and repair of Conditioner Engineering Wuhan refrigeration equipment Co. Ltd. Dalian Daleng Metal Lvshunkou Zhang He RMB 100% Manufacture of metal Technology Co. Ltd. ① Dist., Dalian 20,000,000 founding parts and pipe parts; process of metal machine parts(Preparing to construct) All of the above subsidiaries are included in the consolidated scope. ① The Company exercises its control over Shanghai Bingshan Serial Refrigeration Equipment Sales Company by assigning three members of Board of Directors out of total five members and having power to govern the financial and operating policy of Shanghai Bingshan Serial Refrigeration Equipment Sales Company. ② Wuhan New World Refrigeration Industrial Company Limited holds 95% equity interest of Wuhan New World Refrigeration Air Conditioner Engineering Company Limited, and through Wuhan New World Refrigeration Industrial Company Limited , the Company have the whole power to govern Wuhan New World Refrigeration Air Conditioner Engineering Company Limited. 42 Dalian Refrigeration Co., Ltd. 2008 Annual Report Ⅴ. Notes to the consolidated financial statements 1 Monetary fund Item 31-12-2008 31-12-2007 Cash on hand 166,274.45 162,280.96 Cash in bank 312,171,509.30 244,637,445.15 Total 312,337,783.75 244,799,726.11 Particular about foreign monetary funds in the monetary funds: 31-12-2008 31-12-2007 Foreign Original RMB Original RMB currency Exchange rate Exchange rate currency equivalent currency equivalent USD 22,420.52 6.8346 153,235.29 373,178.79 7.3046 2,725,921.80 JPY 5,87427 0.07565 44,438.85 740,000.00 0.064064 47,407.36 HKD 230.39 0.88189 203.17 228.06 0.9364 213.52 EUR 14,982.75 9.659 144,718.38 Total 342,595.69 2,773,542.68 2 Notes receivable Item 31-12-2008 31-12-2007 Bank acceptance 27,176,226.89 35,845,834.90 Trade acceptance 18,306,521.96 25,259,626.58 Total 45,482,748.85 61,105,461.48 *The amount of notes receivable at the year-end decreased 25.57% compared with that at last year-end, which was mainly because of being endorsed. 3 Accounts receivable (1) Classified by account nature 31-12-2008 31-12-2007 Item Amount Proportion (%) Amount Proportion Receivables that are individually 43,958,199.00 8.48 51,694,352.77 11.11 significant Receivables not individually significant but with high risk in groups Other insignificant items 474,428,444.26 91.52 413,481,223.77 88.89 Total 518,386,643.26 100 465,175,576.54 100 (2) The ageing of accounts receivable and related provisions for bad debts 31-12-2008 31-12-2007 Account age Proportion Provision for Proportion Provision for Amount Amount (%) bad debts (%) bad debts Within1 year 308,176,275.20 59.44 15,408,813.76 297,130,147.65 63.88 14,823,890.73 1 to 2 years 109,434,039.07 21.11 10,893,795.29 92,822,493.19 19.95 7,720,073.71 2 to 3 years 49,123,197.21 9.48 16,315,260.35 30,612,113.86 6.58 13,869,621.12 3 to 4 years 20,561,430.25 3.97 10,280,715.13 20,870,212.64 4.49 10,435,106.33 43 Dalian Refrigeration Co., Ltd. 2008 Annual Report 4 to 5 years 13,408,482.81 2.59 10,726,786.25 7,417,631.50 1.59 5,934,105.20 Over 5 years 17,683,218.72 3.41 17,683,218.72 16,322,977.70 3.51 16,322,977.70 Total 518,386,643.26 100 81,308,589.50 465,175,576.54 100 69,105,774.79 *(1) No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts receivable. (2) The arrearage total of the first five arrearage entities listed in the balance of accounts receivable at the end of 2008 is defined as the individually significant receivables. 4 Account paid in advance 31-12-2008 31-12-2007 Account age Amount Proportion (%) Amount Proportion (%) Within1 year 23,315,557.88 96.75 29,855,794.43 100 1 to 2 years 783,710.50 3.25 Total 24,099,268.38 100 29,855,794.43 100 *No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of account paid in advance. 5 Dividends receivable 31-12-2008 31-12-2007 3,244,600.00 15,799,774.90 * The amount of dividends receivable at the year-end decreased 79.46% compared with that at last year-end, which was mainly because dividends from associates and joint ventures received. 6 Other accounts receivable (1) Classified by account nature 31-12-2008 31-12-2007 Item Proportion Proportion Amount Amount (%) (%) Receivables that are individually significant 7,032,050.00 27.24 2,244,494.38 12.33 Receivables not individually significant but with high risk in groups Other insignificant items 18,778,985.17 72.76 15,955,384.74 87.67 Total 25,811,035.17 100 18,199,879.12 100 (2) The ageing of other accounts receivable and related provisions for bad debts 31-12-2008 31-12-2007 Account Proportion Provision for Proportion Provision for age Amount Amount (%) bad debts (%) bad debts Within1year 16,444,831.57 63.71 595,291.54 14,287,403.09 78.51 714,370.16 1 to 2 years 7,264,132.58 28.14 726,413.25 2,813,962.70 15.46 281,396.26 2 to 3 years 1,397,213.81 5.41 419,164.15 680,645.15 3.74 204,193.55 3 to 4 years 476,987.40 1.85 238,493.70 189,699.03 1.04 94,849.51 4 to 5 years 125,326.53 0.49 100,261.22 165,470.66 0.91 132,376.53 Over 5 years 102,543.28 0.40 102,543.28 62,698.49 0.34 62,698.49 Total 25,811,035.17 100 2,182,167.14 18,199,879.12 100 1,489,884.50 44 Dalian Refrigeration Co., Ltd. 2008 Annual Report *(1)RMB4,539,000.00 from the shareholders holding over 5% (including 5%) of the equity of the Company ---Japan Sanyo Electricity Co., Ltd. existed in the balance of accounts receivable. (2)The arrearage total of the first five arrearage entities listed in the balance of accounts receivable at the end of 2008 is defined as the individually significant receivables. (3) The amount of other accounts receivable at the year-end increased 41.82% compared with that at last year-end, which was mainly because Japan Sanyo Electricity Co., Ltd. will pay back RMB4,539,000.00 according to the contracts of Shenyang Sanyo Air-conditioner Co., Ltd’s share transfer. 7 Inventories (1)Cost Current year Current year Item 31-12-2007 31-12-2008 addition disposal Raw materials 81,900,726.65 764,438,260.20 773,150,559.31 73,188,427.54 Materials on Consignment for 3,393,189.80 9,312,821.60 10,690,803.60 2,015,207.80 further processing Low-value 110,636.66 5,494,707.11 5,430,484.97 174,858.80 consumption Work-in-progress 104,411,622.16 1,695,126,852.51 1,697,432,266.06 102,106,208.61 Self-manufactured semi-finished 24,369,055.49 269,740,912.59 260,002,302.89 34,107,665.19 products Finished goods 96,665,152.36 1,168,416,666.71 1,149,640,493.24 115,441,325.83 Constructing projects 1,857,035.72 112,364,612.09 100,109,917.22 14,111,730.59 Total 312,707,418.84 4,024,894,832.81 3,996,456,827.29 341,145,424.36 (2) Provision for impairment of inventories: Current year Current year Item 31-12-2007 31-12-2008 addition disposal Finished goods 5,211,215.24 1,778,823.83 3,432,391.41 Total 5,211,215.24 1,778,823.83 3,432,391.41 8 Financial assets available for sale Item 31-12-2008 31-12-2007 Notes available-for-sale Equity instruments available-for-sale Others 6,633,900.00 17,280,900.00 Total 6,633,900.00 17,280,900.00 * (1) Other financial assets available for sale are 1.17 million legal person shares of Dalian Rubber & Plastics Machinery Co., Ltd. (2) The amount of financial assets available for sale at year-end decreased 61.61% compared with that at last year-end, which was mainly because the share price of Dalian Rubber & Plastics Machinery Co., Ltd. decreased. 45 Dalian Refrigeration Co., Ltd. 2008 Annual Report 9 Long-term equity investments Item 31-12-2008 31-12-2007 Associates 936,462,882.49 930,961,478.46 Joint ventures 18,080,176.62 18,740,512.31 Other long-term equity investments 77,104,778.22 43,006,159.50 Less: Provision for impairment of long-term equity 16,995,796.52 16,995,796.52 investments Total 1,014,652,040.81 975,712,353.75 (1) Long-term equity investment calculated by cost method Name of invested Nature of Initial amount Shareholding Impairment company shares percentage 31-12-2007 31-12-2008 31-12-2007 31-12-2008 Zibo Electric Traction Legal person Machine Group Co., 1,735,142.50 1,735,142.50 1.465% shares Ltd. Liaoning Mec Group Legal person 1,020,000.00 1,020,000.00 2% Co., Ltd. shares Suntek Technology Legal person 3,000,000.00 3,000,000.00 1.4% 3,000,000.00 3,000,000.00 Co., Ltd. shares Guotai Junan Legal person 30,098,895.00 30,098,895.00 0.64% 1,582,164.89 1,582,164.89 Securities Co., Ltd. shares Thermo King Container Legal person 3,310,806.00 3,310,806.00 10% Temperature Control shares (Suzhou) Co., Ltd. Dalian Bingshan Legal person Group Materials 250,000.00 250,000.00 5% shares Trading Co., Ltd. Liaoning Enterprises Legal person United Industry 105,000.00 105,000.00 4.2% 105,000.00 105,000.00 shares Company Guotai Junan Investment Legal person 3,057,316.00 3,057,316.00 0.22% 2,688,605.91 2,688,605.91 Management Co., shares Ltd. Shenyang Sanyo Legal person Air-conditioner Co., 34,098,618.72 10% 9,620,025.72 shares Ltd. Wuhan Steel and Legal person 429,000.00 429,000.00 0.056% Electricity Co., Ltd. shares Total 43,006,159.50 77,104,778.22 7,375,770.80 16,995,796.52 46 Dalian Refrigeration Co., Ltd. 2008 Annual Report (2) Long-term equity investment calculated by equity method Accumulated Changes in Cash dividend Name of invested Shareholder Initial Amount additional 31-12-2007 current year received in 31-12-2008 company percentage Investment profit/loss current year Thermo King-Dalian Transport Refrigeration 6,313,174.25 25% 26,058,938.37 2,532,226.68 28,591,165.05 Co., Ltd. Dalian Grand Ocean Thermo King Transport 2,871,708.00 40% 5,330,868.32 1,364,578.33 993,115.96 5,702,330.69 Refrigeration Engineering Co., Ltd Dalian Sanyo 40,606,709.20 40% 101,416,014.40 8,992,436.96 6,400,000.00 104,008,451.36 Refrigeration Co., Ltd. Dalian Honjo Chemical 3,908,911.50 30% 9,566,117.16 1,012,896.75 1,380,900.00 9,198,113.91 Co., Ltd. Dalian Sanyo 134,658,753.75 40% 182,414,300.56 12,432,505.14 8,000,000.00 186,846,805.70 Cold-chain Co., Ltd Grand Ocean-showa Auto Air Conditioning 24,402,234.58 20% 21,386,481.14 2,457,326.15 23,843,807.29 (Dalian) Co., Ltd. Dalian Sanyo 176,953,841.88 40% 265,367,144.62 32,883,841.79 28,800,000.00 269,450,986.41 Compressor Co., Ltd. Dalian Meica 9,649,590.00 30% 17,452,292.03 1,103,612.18 300,000.00 18,255,904.21 Electronics Co., Ltd. Dalian Sanyo Air-conditioner Co., 176,953,841.88 40% 189,960,064.76 18,638,952.37 21,611,025.00 186,987,992.13 Ltd. Dalian Sanyo Home 19,666,212.00 40% 22,356,360.40 -380,441.61 21,975,918.79 Appliance Co., Ltd. Dalian Bingshan Group Import & Export Co. , 1,200,000.00 24% 4,760,736.51 1,286,686.96 6,047,423.47 Ltd. Beijing Huashang Bingshan Refrigeration 490,000.00 49% 441,059.73 54,804.26 495,863.99 and Air-conditioning Machinery Co., Ltd. Dalian Bingshan H2O3 Environmental 2,731,377.50 33% 1,462,570.99 -930,096.37 532,474.62 Solution Co. , Ltd. Dalian Fuji Bingshan Vending Machine Co., 66,416,364.00 49% 54,176,823.33 111,989.59 54,288,812.92 Ltd. Shenyang Sanyo 9,564,120.00 40% 9,620,025.72 Air-conditioner Ltd.* 47 Dalian Refrigeration Co., Ltd. 2008 Annual Report Daliian Sanyo High-Efficient 20,000,000.00 25% 19,191,680.42 1,045,151.53 20,236,831.95 Refrigeration System Co., Ltd. Dalian Bingshan – P&A Recreation 1,034,675.00 50% 2,940,695.15 51,840.14 2,992,535.29 Development Engineering Limited Dalian Jiale Vending Machine Operation 18,750,000.00 50% 15,799,817.16 -712,175.83 15,087,641.33 Co., Ltd. Total 716,171,513.54 949,701,990.77 81,946,135.02 67,485,040.96 954,543,059.11 *In the current period, the shareholders of Shenyang Sanyo Air-conditioner Co., Ltd. increased the investment to Shenyang Sanyo Air-conditioner Co., Ltd., and respectively the Company increased the investment of RMB24,478,593.00. After increasing investment, the shareholder percentage of Company decreased from 40% to 10%, and accordingly the calculated method of the investment changed from equity method to cost method. (3) Provision for impairment of long-term equity investments Name of invested company 31-12-2008 31-12-2007 Suntek Technology Co., Ltd 3,000,000.00 3,000,000.00 Guotai Junan Securities Co., Ltd. 1,582,164.89 1,582,164.89 Guotai Junan Investment Management Co., Ltd. 2,688,605.91 2,688,605.91 Liaoning Enterprises United Industry Company 105,000.00 105,000.00 Shenyang Sanyo Air-conditioner Co. Ltd. 9,620,025.72 9,620,025.72 Total 16,995,796.52 16,995,796.52 10 Fixed assets (1) Increase or decrease change in fixed assets 31-12-2007 Current year Current year 31-12-2008 Item addition disposal 1. Original value 787,934,756.92 35,791,514.78 24,193,758.63 799,532,513.07 Including: Buildings 259,766,326.18 5,389,723.48 3,722,753.00 261,433,296.66 Machinery 488,774,388.71 26,364,850.61 16,303,959.55 498,835,279.77 Vehicles 23,948,879.51 2,315,474.77 3,365,366.68 22,898,987.60 Other equipments 15,445,162.52 1,721,465.92 801,679.40 16,364,949.04 2. Accumulated depreciation 388,341,224.33 34,831,162.40 16,302,307.07 406,870,079.66 Including: Buildings 75,867,114.67 6,709,700.56 343,231.94 82,233,583.29 Machinery 294,992,883.58 23,789,633.12 12,645,884.02 306,136,632.68 Vehicles 9,570,794.04 2,055,294.20 2,602,694.05 9,023,394.19 Other Equipments 7,910,432.04 2,276,534.52 710,497.06 9,476,469.50 3.Net book value 399,593,532.59 392,662,433.41 Including: Buildings 183,899,211.51 179,199,713.37 48 Dalian Refrigeration Co., Ltd. 2008 Annual Report Machinery 193,781,505.13 192,698,647.09 Vehicles 14,378,085.47 13,875,593.41 Other Equipments 7,534,730.48 6,888,479.54 *The original value of fixed assets RMB21,740,328.09 transferred from construction in progress during 2008. (2) Provision for the impairment of fixed assets Current year Item 31-12-2007 Current year disposal 31-12-2008 addition Machinery 9,419,812.77 886,923.47 8,532,889.30 Total 9,419,812.77 886,923.47 8,532,889.30 11 Construction in progress Percentage Name of 31-12-2007 Current year Transferred to Sources of Budget 31-12-2008 of projects addition fixed assets funds completion Internally Buildings 7,000,000.00 5,905,311.00 28,513,471.57 33,747,838.08 670,944.49 generated 80% fund Internally Machinery 2,882,157.12 5,762,875.89 4,831,292.99 3,813,740.02 generated fund Internally Others 450,000.00 80,809.50 210,201.10 291,010.60 generated fund Total 8,868,277.62 34,486,548.56 38,579,131.07 4,775,695.11 *(1) No interests capitalized during the current period. (2) The ending balance of construction in progress decreased 46.15% during the current period, because most of the movement and innovation projects of subsidiary company are finished. 12 Intangible assets Current The rest the way Current year Item Original cost 31-12-2007 year 31-12-2008 duration for obtained disposal addition amortization Land use rights Buy 113,192,497.39 102,888,738.36 2,263,850.27 100,624,888.09 38-48 years Non-patented Buy 515,224.41 51,522.09 51,522.09 technology Others Buy 3,882,012.92 2,351,984.13 969,572.66 96,472.10 3,225,084.69 38 years Total 117,589,734.72 105,292,244.58 969,572.66 2,411,844.46 103,849,972.78 *(1) There was no circumstance that the intangible assets needed withdraw the provision for devaluation during the current period. (2) No research and development expenses capitalized during the current period. 49 Dalian Refrigeration Co., Ltd. 2008 Annual Report 13 Long-term prepayments Current year Current year The rest duration Item 31-12-2007 31-12-2008 addition disposal for amortization Rental fee 3,673,910.22 138,478.32 3,535,431.90 25 years Organization expenses 24,715.84 24,715.84 Total 3,698,626.06 163,194.16 3,535,431.90 14 Deferred tax assets Item 31-12-2008 31-12-2007 Provision for bad debts 9,735,752.55 6,373,035.26 Provision for obsolete inventory 858,097.85 1,302,803.81 Impairment provision of fixed assets 2,133,222.33 2,354,953.19 Deferred income 5,738,542.50 Total 18,465,615.23 10,030,792.26 15 Short-term loans Terms of borrowing 31-12-2008 31-12-2007 Credit loan 100,000,000.00 50,000,000.00 Guarantee loan 20,000,000.00 Mortgage loan 10,000,000.00 Total 110,000,000.00 70,000,000.00 * The amount of short-term loans at the year-end increased 57.14% compared with that at last year-end, which was mainly because of the increasing amount of credit loan to reinforce the liquid fund. 16 Notes payable Item 31-12-2008 31-12-2007 Bank acceptance notes 62,113,880.30 30,665,261.59 Trade acceptance notes 14,775,137.00 4,559,797.47 Total 76,889,017.30 35,225,059.06 * The amount of notes payable at the year-end increased 118.28% compared with that at last year-end, which was mainly because of the increasing amount of notes settlement. 17 Accounts payable 31-12-2008 31-12-2007 Ages Amount Proportion (%) Amount Proportion (%) Within1 year 383,120,493.63 96.43 352,282,568.48 92.66 1 to 2 years 7,110,718.55 1.79 14,754,243.73 3.88 2 to 3 years 3,533,766.15 0.89 10,834,420.52 2.85 3 to 4 years 1,347,349.73 0.34 297,420.30 0.08 4 to 5 years 236,409.08 0.06 1,074,465.35 0.28 Over 5 years 1,938,000.96 0.49 937,596.08 0.25 Total 397,286,738.10 100 380,180,714.46 100 *There were no accounts due to the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts payable at the end of current year. 50 Dalian Refrigeration Co., Ltd. 2008 Annual Report 18 Accounts received in advance 31-12-2008 31-12-2007 Ages Proportion Proportion Amount Amount (%) (%) Within1 year 138,667,936.31 82.41 149,463,189.22 85.17 1 to 2 years 8,596,088.60 5.11 10,670,207.72 6.08 2 to 3 years 6,059,890.14 3.61 10,022,671.95 5.71 3 to 4 years 9,779,400.00 5.81 658,834.35 0.38 4 to 5 years 546,811.97 0.32 1,118,320.47 0.64 Over 5 years 4,613,375.26 2.74 3,547,018.46 2.02 Total 168,263,502.28 100 175,480,242.17 100 *There were no accounts due to the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts received in advance at the end of current year. 19 Employee’s compensation payable Item 31-12-2007 addition reduction 31-12-2008 Wages and salaries, bonuses, allowances 23,943,773.99 113,839,333.31 114,076,693.28 23,706,414.02 and subsidies Staff welfare 16,306,594.69 7,798,350.09 6,837,266.99 17,267,677.79 Social security contributions 1,204.67 32,692,975.71 32,693,436.38 744.00 Housing funds 1,013,540.74 8,114,510.48 8,869,244.53 258,806.69 Labor union and employee education funds 435,862.49 2,490,494.27 2,145,385.85 780,970.91 Non-currency welfare 65,482.20 65,482.20 Compensation giving because of 283,079.00 283,079.00 severing labor relations Total 41,700,976.58 165,284,225.06 164,970,588.23 42,014,613.41 20 Taxes payable Item 31-12-2008 31-12-2007 Value-added tax -980,632.17 -360,590.57 Business tax 1,286,229.22 1,481,204.93 City maintenance and construction tax 149,488.38 196,415.20 Enterprise income tax 8,759,535.67 -988,476.79 Individual income tax 376,549.46 1,715,127.91 Land tax 11,187.90 Stamp duty 40,620.44 64,096.19 Education development expenses 20,298.40 Withholding business tax for foreign owners 27,018.91 32,726.60 Withholding income tax for foreign owners 51,335.93 Extra-charges for education 87,422.36 103,336.01 Water project fund/River route maintenance fee 508,087.54 634,515.53 Safeguard fund for disables 636.00 480.00 Total 10,306,291.74 2,910,321.31 51 Dalian Refrigeration Co., Ltd. 2008 Annual Report * The amount of taxes payable at the year-end increased 254.13% compared with that at last year-end, which was mainly because of the increasing amount of the enterprise income tax which generated from the government assistance fund received. 21 Dividend payable Name of investors 31-12-2008 31-12-2007 State-owned shares 9,028,352.45 Legal person shares 6,724,584.76 2,249,266.01 Total 6,724,584.76 11,277,618.46 * (1) The amount of dividend payable at the year-end decreased 40.37% compared with that at last year-end, which was mainly because of the dividend paid during the current year. (2) The amount of dividend payable at the year-end 2008 included dividend payable to Dalian Bingshan Group Co. Ltd. RMB3,325,000.00 and dividend payable to Japan Sanyo Electricity Co., Ltd. RMB2,100,000.00. 22 Other accounts payable 31-12-2008 31-12-2007 Ages Proportion Proportion Amount Amount (%) (%) Within1 year 23,719,711.37 56.89 39,140,376.38 68.22 1 to 2 years 7,327,186.11 17.57 11,727,686.49 20.44 2 to 3 years 6,139,629.20 14.73 2,027,661.00 3.53 3 to 4 years 200,000.00 0.48 1,113,488.90 1.94 4 to 5 years 1,096,428.20 2.63 1,986,838.72 3.46 Over 5 years 3,211,700.86 7.70 1,376,684.86 2.41 Total 41,694,655.74 100 57,372,736.35 100 *(1)There were RMB11,183,795.81 due to the shareholders holding over 5% (including 5%) of the equity of the Company——Dalian Bingshan Group Co., Ltd. (2) The amount of dividend payable at the year-end decreased 27.33% compared with that at last year-end, which was mainly because of the subsidiary company--- Wuhan New World Refrigeration Industrial Co., Ltd. paid the expenses of movement and innovation projects during the current year. 23 Long-term loans Terms of Loan date due date Interest Rate 31-12-2008 31-12-2007 borrowing Credit loan 2004-11-22 2009-11-21 6.48%-7.65% 50,000,000.00 Total 50,000,000.00 24 Deferred tax liabilities Item 31-12-2008 31-12-2007 Provision for bad debts 72,075.65 Financial assets available for sale 1,081,551.92 3,743,301.92 Long-term equity investments 7,121,588.05 Total 1,081,551.92 10,936,965.62 52 Dalian Refrigeration Co., Ltd. 2008 Annual Report 25 Other non-current liabilities —Deferred income Item 31-12-2008 31-12-2007 Subsidy fund for enterprise 105,000.00 informationization construction Interest subsidy for agricultural products intensive processing and screw rod 12,854,170.00 16,717,545.00 technology Subsidy fund for highly effective heat 7,800,000.00 7,800,000.00 pump and related system Contribution to subsidiary company 53,472,003.00 54,586,000.00 relocation Subsidy fund for deep-sea fishery 2,300,000.00 equipments Total 76,426,173.00 79,208,545.00 *The balance of above items didn’t meet the conditions being converted to income at the end of year 2008. 26 Share capitals Shares Issuance of Item 31-12-2007 converted Others 31-12-2008 new shares from reserve I. Non-circulating share capital with restricted trade conditions 1. State-owned shares 76,855,683.00 -76,855,683.00 2. Shares held by domestic legal persons 3. Other domestic shares 101,691.00 76,855,683.00 76,957,374.00 Including: Shares held by 101,691.00 101,691.00 domestic natural person II. Circulating share capital 1. Domestically listed ordinary 158,057,601.00 158,057,601.00 shares (A-share) 2. Domestically listed ordinary 115,000,000.00 115,000,000.00 shares (B-share) III Total 350,014,975.00 350,014,975.00 * The non-circulating share capital of Dalian Bingshan Group Co. Ltd. will circulate on January 8, 2011, but Dalian Bingshan Group Co. Ltd. declared that these stocks would not be listed to sell in the Shenzhen Stock Exchange within 5 years after the circulate date. 27 Capital surpluses Current year Current year Item 31-12-2007 31-12-2008 addition reduction Capital premium 513,645,432.79 513,645,432.79 Other capital surplus 75,108,050.43 9,342,819.78 7,985,250.00 76,465,620.21 Total 588,753,483.22 9,342,819.78 7,985,250.00 590,111,053.00 * (1) The current year addition included provision for long-term equity investments RMB 1,025,319.78 and 53 Dalian Refrigeration Co., Ltd. 2008 Annual Report subsidy fund from government RMB8,317,500.00. The current year reduction was the price change of financial assets available for sale. (2)Other capital surplus included value increases of assets valuation RMB 40,090,787.33. 28 Surplus reserves Current year Current year Item 31-12-2007 31-12-2008 addition reduction surplus reserves 332,959,114.14 35,144,631.70 368,103,745.84 Total 332,959,114.14 35,144,631.70 368,103,745.84 *The increase of the surplus reserves in 2008 was because the statutory reserved capital were withdrawn respectively on the basis of 10% of the net profit of the Company in 2008 and other reserved capital were withdrawn respectively on the basis of 20% of the net profit of the Company in 2007 according to the resolution of the Board of Directors. 29 Retained earnings Item 2008 2007 Retained earnings at the year-end of the prior year 312,557,010.42 272,901,829.75 Add: Changes in accounting policies At beginning of year after retrospective adjustment 312,557,010.42 272,901,829.75 Add: Net profit 127,359,605.47 128,827,637.59 Less: Appropriation of surplus reserves 35,144,631.70 34,891,977.77 distribution of dividends 52,502,246.25 52,502,246.25 Including: cash dividends 52,502,246.25 52,502,246.25 Dividends transferred to share capital Appropriation of employee welfare and bonus fund 3,686,096.12 1,778,232.90 Retained earnings at the year end 348,583,641.82 312,557,010.42 * (1) The Company withdrew surplus reserves respectively on the basis of 10% of the net profit of the Company in 2008 and withdrew respectively on the basis of 20% of the net profit of the Company in 2007. (2) The shareholders approved the distribution of a cash dividend of RMB 0.15 per share, totaling RMB 52,502,246.25. 30 Revenue and cost of sales (1) Revenue from main operations and cost of goods sold Revenue Cost Item 2008 2007 2008 2007 Refrigeration equipments 1,480,446,048.66 1,631,848,236.62 1,201,125,172.50 1,344,842,140.02 54 Dalian Refrigeration Co., Ltd. 2008 Annual Report (2) Other revenue and cost Revenue Cost Item 2008 2007 2008 2007 Sale of raw materials 32,990,188.84 22,107,128.33 26,881,430.37 17,285,101.80 and others * The total sales income from the first five clients of the Company was RMB 209,513,702.90, taking up13.84% of the whole sales income of the Company. 31 Taxes and associate charges Item Basis of taxes calculated 2008 2007 Business tax 3% or 5% of Revenue 2,991,693.71 2,342,548.09 City maintenance and 7% of Business tax and 2,133,270.46 2,576,119.34 construction tax Value-added tax Education additional 3% of Business tax and 925,331.34 1,104,830.12 expenses Value-added tax 1% of Business tax and Local educational expenses 315,221.74 379,226.69 Value-added tax Others 2,875.17 841.40 Total 6,368,392.42 6,403,565.64 32 Selling and distribution expenses Item 2008 2007 Office expenses 2,025,242.53 1,883,470.28 Travel expenses 16,655,418.64 13,258,715.16 On behalf charges 4,168,662.00 4,690,143.43 Communication expenses 1,886,095.26 1,968,282.10 Wages and attachment 34,209,645.38 29,648,120.82 Advertising expenditure 1,720,497.16 1,576,940.24 Transportation cost 13,172,373.81 14,263,996.77 Business entertainment 10,637,038.30 10,992,179.89 Expenses of inviting tenders 1,109,001.60 1,444,620.50 Expenditure of agent 4,011,328.48 2,896,530.53 Post-sale service fee 4,976,078.89 5,846,877.01 Others 4,135,670.51 13,216,200.71 Total 98,707,052.56 101,686,077.44 33 Administrative expenses Item 2008 2007 Office expenses 4,894,885.78 4,809,142.07 Travel expenses 4,939,376.41 3,636,920.79 Insurance premium 1,687,496.75 2,351,992.51 Other taxes and fees 6,425,730.08 7,777,194.55 Wages subsidy and additional charges 43,333,451.05 35,128,639.36 Housing fund 4,152,790.50 3,736,206.45 Social security contributions 26,500,195.36 25,403,088.59 55 Dalian Refrigeration Co., Ltd. 2008 Annual Report Auditing fee 1,153,100.01 1,186,000.00 Checking and testing expenses 3,681,640.10 1,727,104,06 Maintenance cost 1,468,792.24 1,622,041.41 Advertising expenditure 1,102,983.19 1,811,488.61 Depreciation expenses 9,795,292.66 9,354,828.87 Amortization of intangible assets and 2,537,662.78 2,638,559.90 long-term prepayments Water, electricity and heating fee 6,890,496.07 8,116,873.67 Others 20,248,128.30 18,606,287.85 Total 138,812,021.28 127,906,374.63 34 Financial expenses Item 2008 2007 Interest expenses 10,848,073.02 5,466,644.60 Less: interest income 1,523,468.14 2,411,030.92 Exchange losses 231,853.60 370,766.07 Less: exchange gain 515,320.55 289,321.33 Others 357,643.65 358,841.98 Total 9,398,781.58 3,495,900.40 * The amount of financial expenses during year 2008 increased 168.85% compared with last year, which was mainly because of the increasing of loans. 35 Impairment losses Item 2008 2007 Bad debt provision 15,209,219.34 13,474,289.61 Provision for obsolete inventories -1,778,823.83 Provision for the impairment of available-for-sale financial assets Provision for the impairment of held to maturity investments Provision for the impairment of long-term equity investments Provision for the impairment of Investing property Provision for the impairment of fixed assets Provision for the impairment of construction materials Provision for the impairment of construction in progress Provision for the impairment of Bearer biological asset Provision for the impairment of Oil assets Provision for the impairment of intangible assets Provision for the impairment of goodwill Provision for the impairment of other assets Total 13,430,395.51 13,474,289.61 56 Dalian Refrigeration Co., Ltd. 2008 Annual Report 36 Gain/ (loss) from investments Item 2008 2007 Long-term equity investment income 80,920,815.24 93,878,758.86 accounted by using equity method Gain or loss arising from the disposal of 25,841.84 long-term equity investments Other investment income 15,352,547.50 2,925,292.00 Total 96,273,362.74 96,829,892.70 * There was no significant limitation of investment income return. 37 Non-business incomes Item 2008 2007 Gain on the disposal of non-current assets 5,934,483.74 432,750.82 Penalty and fine income 4,680,635.98 313,709.01 The tax returns and rewards 2,923,946.51 1,239,860.94 Gain from debt restructuring 21,900.00 Relocation offsetting receipts 2,289,429.80 Deferred income 5,789,327.51 10,046,445.00 Debts need not paid 3,709,299.32 666,300.80 Others 765,835.57 181,347.26 Total 23,803,528.63 15,191,743.63 * The amount of non-business incomes during year 2008 increased 56.69% compared with last year, which was mainly because of the increasing of gain on the disposal of non-current assets and penalty and fine income. 38 Non-business expenses Item 2008 2007 Loss on the disposal of 1,917,067.98 356,803.39 non-current assets Fines and penalties 8,588.15 84,148.48 Donation expenditure 236,075.00 50,000.00 Others 177,596.10 23,263.86 Total 2,339,327.23 514,215.73 * The amount of non-business expenses during year 2008 increased 354.93% compared with last year, which was mainly because of the increasing of loss on the disposal of non-current assets. 39 Income tax expense Item 2008 2007 Current income tax expense 16,450,320.57 19,397,463.09 Deferred income tax expense -15,628,486.67 -11,248,748.00 Total 821,833.90 8,148,715.09 *The amount of income tax expenses during year 2008 decreased 89.91% compared with last year, which was mainly because the gain from long term investment needn’t make up income tax and deferred income tax changed. 57 Dalian Refrigeration Co., Ltd. 2008 Annual Report 40 Other cash received relating to operating activities Item 2008 2007 Government grants 5,080,000.00 16,799,420.00 Returns travel expense receivable 5,831,547.01 3,746,836.31 Deposit received 22,385,293.32 11,849,605.94 Received amount paid on behalf of related companies 278,650.28 Others 11,709,089.13 6,796,743.48 Total 45,005,929.46 39,471,256.01 41 Other cash paid relating to operating activities Item 2008 2007 Travel expense 25,548,638.70 19,917,856.87 Deposit paid 16,204,877.28 11,314,961.00 Sales expenditure 27,735,135.03 20,421,241.58 Administrative expenditure 17,796,894.41 16,515,382.26 Amount paid on behalf of related companies 689,256.10 666,250.28 Others 2,353,035.21 4,701,092.65 Total 90,327,836.73 73,536,784.64 42 Complementary information for consolidated cash flow statement (1) The relationship between the net profit and the net cash flows from operating activities Item 2008 2007 1. Reconciliation from the net profit to the cash flows from operating activities Net profit 135,628,721.52 142,220,620.92 Add: Provisions for assets impairment 13,430,395.51 13,474,289.61 Depreciation of fixed assets 34,831,162.40 34,929,133.70 Amortization of intangible assets 2,411,844.46 2,544,057.57 Amortization of long-term deferred expenses 163,194.16 138,478.32 Losses on disposal of fixed assets, intangible assets and other -1,329,379.70 -205,440.01 long-term assets Losses on scrapping of fixed assets -2,688,036.06 129,492.58 Losses on variation of fair value Finance expenses 10,392,722.46 5,427,944.37 Investment losses -96,273,362.74 -96,829,892.70 Decrease in deferred tax assets -8,434,822.97 189,770.47 Increase in deferred tax liabilities -9,855,413.70 -7,786,194.28 Decrease in inventory -28,438,005.52 -54,165,926.66 Decrease in operating receivables -96,991,095.35 -102,848,372.86 Increase in operating payables 118,354,438.01 86,228,290.88 Others Net cash flows from operating activities 71,202,362.48 23,446,251.91 2. Investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Convertible bonds to be expired within one year Fixed assets under finance lease 3. Net increase in cash and cash equivalents Cash at the end of the period 312,337,783.75 244,799,726.11 Less: Cash at the beginning of the period 244,799,726.11 298,205,958.75 Plus: Cash equivalents at the end of the period 58 Dalian Refrigeration Co., Ltd. 2008 Annual Report Less: Cash equivalents at the beginning of the period Net increase in cash and cash equivalents 67,538,057.64 -53,406,232.64 (2) Cash and cash equivalents Item 2008 2007 Cash Including: cash on hand 166,274.45 162,280.96 Bank deposits that can be used for payment whenever necessary 312,171,509.30 244,637,445.15 Other monetary capital that can be used for payment whenever necessary Balance of cash and cash equivalents at the end of the year 312,337,783.75 244,799,726.11 43 Segments statement Item Northeast of China East of China Mid of China Counteract Total 1、Total sales 1,268,108,299.73 43,242,418.67 300,718,079.65 98,632,560.55 1,513,436,237.50 Include： Income from 1,188,275,741.42 33,792,751.03 291,367,745.05 1,513,436,237.50 outside Income from 79,832,558.31 9,449,667.64 9,350,334.60 98,632,560.55 segments 2 、 Selling and 72,683,646.97 2,670,786.56 23,784,319.03 431,700.00 98,707,052.56 distribution expenses 3、Operating profit 110,216,689.18 575,995.12 18,453,697.60 14,260,027.88 114,986,354.02 4、Total assets 2,491,576,722.29 25,083,963.30 365,175,582.95 162,209,712.90 2,719,626,555.64 5、Total liabilities 722,056,971.53 18,750,808.34 270,296,689.86 30,417,341.48 980,687,128.25 44 Provision for impairment of assets 31-12-2007 Current year Current year 31-12-2008 Item addition reductions Bad debt provision 70,595,659.29 15,901,529.72 3,006,432.35 83,490,756.66 Including: Accounts receivable 69,105,774.79 15,209,247.08 3,006,432.35 81,308,589.52 Other accounts receivable 1,489,884.50 692,282.64 2,182,167.14 Provision for obsolete inventory 5,211,215.24 1,778,823.83 3,432,391.41 Including: Finished goods 5,211,215.24 1,778,823.83 3,432,391.41 Provision for impairment of 16,995,796.52 16,995,796.52 long-term equity investments Provision for the impairment of fixed 9,419,812.77 886,923.47 8,532,889.30 assets Including: Machinery and equipment 9,419,812.77 886,923.47 8,532,889.30 59 Dalian Refrigeration Co., Ltd. 2008 Annual Report Ⅵ.Notes to the financial statements of the parent company 1 Accounts receivable (1) Classified by account nature 31-12-2008 31-12-2007 Item Amount Proportion (%) Amount Proportion (%) Receivables that are individually 42,771,693.00 14.63 51,694,352.77 18.49 significant Receivables not individually significant but with high risk in Other insignificant items 249,518,823.74 85.37 227,898,104.25 81.51 Total 292,290,516.74 100 279,592,457.02 100 (2) The ageing of accounts receivable and related provisions for bad debts 31-12-2008 31-12-2007 Proportion Provision for bad Proportion Provision for bad Ages Amount Amount (%) debts (%) debts Within1 year 160,830,908.98 55.03 8,006,093.69 176,298,299.86 63.06 8,813,486.99 1 to 2 years 70,421,079.27 24.09 7,042,107.93 48,192,091.84 17.24 4,819,209.18 2 to 3 years 22,216,835.70 7.60 6,665,050.71 21,381,077.46 7.65 6,414,323.24 3 to 4 years 14,083,662.94 4.82 7,041,831.47 15,093,362.37 5.40 7,546,681.19 4 to 5 years 9,974,046.16 3.41 7,979,236.93 5,412,045.14 1.93 4,329,636.11 Over 5 years 14,763,983.69 5.05 14,763,983.69 13,215,580.35 4.72 13,215,580.35 Total 292,290,516.74 100 51,498,304.42 279,592,457.02 100 45,138,917.06 *No arrearage from the shareholders holding over 5% (including 5%) of the equity of the Company existed in the balance of accounts receivable. 2 Other accounts receivable (1) Classified by account nature 31-12-2008 31-12-2007 Item Proportion Proportion Amount Amount (%) (%) Receivables that are individually 21,925,284.54 89.46 1,603,000.00 32.83 significant Receivables not individually significant but with high risk in Other insignificant items 2,584,229.26 10.54 3,279,034.70 67.17 Total 24,509,513.80 100 4,882,034.70 100 60 Dalian Refrigeration Co., Ltd. 2008 Annual Report (2) The ageing of other accounts receivable and related provisions for bad debts 31-12-2008 31-12-2007 Ages Proportion Provision for bad Proportion Provision for bad Amount Amount (%) debts (%) debts Within1 year 23,184,676.72 94.60 176,622.11 3,664,306.35 75.06 183,215.32 1 to 2 years 669,095.93 2.73 66,909.59 687,148.20 14.08 68,714.82 2 to 3 years 314,070.05 1.28 94,221.02 403,853.25 8.27 121,155.97 3 to 4 years 301,538.00 1.23 150,769.00 4 to 5 years 126,726.90 2.59 101,381.52 Over 5 years 40,133.10 0.16 40,133.10 Total 24,509,513.80 100 528,654.82 4,882,034.70 100 474,467.63 *(1)RMB4,539,000.00 from the shareholders holding over 5% (including 5%) of the equity of the Company ---Japan Sanyo Electricity Co., Ltd. existed in the balance of accounts receivable. (2)The arrearage total of the first five arrearage entities listed in the balance of accounts receivable at the end of 2008 is defined as the individually significant receivables. (3) The amount of other accounts receivable at the year-end increased 402.03% compared with that at last year-end, which was mainly because of the amount due from the subsidiary company--- Dalian Bingshan Group Refrigeration Installation Company increasing. 3 Long-term equity investments Item 31-12-2008 31-12-2007 subsidiaries 131,792,371.42 131,792,371.42 Associates 936,462,882.49 930,961,478.46 Joint venture 18,080,176.62 18,740,512.31 Other long-term equity investments 75,360,635.72 41,262,017.00 Less: Provision for impairment of 16,995,796.52 16,995,796.52 long-term equity investments Total 1,144,700,269.73 1,105,760,582.67 (1) Other long-term equity investment calculated by cost method Name of invested Nature of Initial Amount Shareholding impairment company shares percentage 31-12-2007 31-12-2007 31-12-2007 31-12-2007 Zibo Electric Traction Legal Machine Group Co., person 420,000.00 420,000.00 0.7% Ltd. share Legal Liaoning Mec Group person 1,020,000.00 1,020,000.00 2% Co., Ltd. share Legal Suntek Technology Co., person 3,000,000.00 3,000,000.00 1.4% 3,000,000.00 3,000,000.00 Ltd. share Legal Guotai Junan Securities person 30,098,895.00 30,098,895.00 0.64% 1,582,164.89 1,582,164.89 Co., Ltd. share 61 Dalian Refrigeration Co., Ltd. 2008 Annual Report Thermo King Container Legal Temperature Control person 3,310,806.00 3,310,806.00 10% (Suzhou) Co., Ltd. share Dalian Bingshan Group Legal Materials Trading Co. , person 250,000.00 250,000.00 5% Ltd. share Liaoning Enterprises Legal United Industry person 105,000.00 105,000.00 4.2% 105,000.00 105,000.00 Company share Guotai Junan Legal Investment person 3,057,316.00 3,057,316.00 0.22% 2,688,605.91 2,688,605.91 Management Co., Ltd. share Legal Shenyang Sanyo Air person 34,098,618.72 10% 9,620,025.72 Conditioner Co., Ltd. share Total 41,262,017.00 75,360,635.72 7,375,770.80 16,995,796.52 *In the current period, the shareholders of Shenyang Sanyo Air-conditioner Co., Ltd. increased the investment to Shenyang Sanyo Air-conditioner Co., Ltd., and respectively the Company increased the investment of RMB24,478,593.00. After increasing investment, the shareholder percentage of Company decreased from 40% to 10%, and accordingly the calculated method of the investment changed from equity method to cost method (2) Investment to subsidiaries calculated by cost method Current Shareholding 31 December Current year 31 December Name of invested company Initial Amount year percentage 2007 addition 2008 reductions Dalian Bingshan Group Refrigeration 20,036,841.62 100% 20,036,841.62 20,036,841.62 Installation Company Dalian Bingshan Group Sales 16,200,000.00 90% 16,200,000.00 16,200,000.00 Company Dalian Bingshan Metal Processing 12,501,344.60 64.25% 12,501,344.60 12,501,344.60 Co., Ltd. Dalian Bingshan Air-conditioning 36,506,570.00 70% 36,506,570.00 36,506,570.00 Equipment Co., Ltd. Dalian Bingshan Guardian 1,522,117.80 60% 1,522,117.80 1,522,117.80 Automation Co., Ltd. Dalian Bingshan Ryosetsu Quick 5,745,097.40 70% 5,745,097.40 5,745,097.40 Freezing Equipment Co., Ltd. Shanghai Bingshan Serial Refrigeration Equipment Sales Co., 900,000.00 45% 900,000.00 900,000.00 Ltd. Wuhan New World Refrigeration 17,980,400.00 51% 17,980,400.00 17,980,400.00 Industrial Co., Ltd. Wuhan New World Refrigeration Air 400,000.00 5% 400,000.00 400,000.00 Conditioner Engineering Co., Ltd. 62 Dalian Refrigeration Co., Ltd. 2008 Annual Report Dalian daleng Metal Technology Co., 20,000,000.00 100% 20,000,000.00 20,000,000.00 Ltd. Total 131,792,371.42 131,792,371.42 131,792,371.42 (3) Long-term equity investment calculated by equity method Accumulated Changes in Cash dividend Name of invested Shareholding Initial Amount additional 31-12-2007 current year received in 31-12-2008 company percentage Investment profit/loss current year Thermo King-Dalian Transport 6,313,174.25 25% 26,058,938.37 2,532,226.68 28,591,165.05 Refrigeration Co., Ltd. Dalian Grand Ocean Thermo King Transport 2,871,708.00 40% 5,330,868.32 1,364,578.33 993,115.96 5,702,330.69 Refrigeration Engineering Co., Ltd. Dalian Sanyo Refrigeration Co., 40,606,709.20 40% 101,416,014.40 8,992,436.96 6,400,000.00 104,008,451.36 Ltd. Dalian Honjo 3,908,911.50 30% 9,566,117.16 1,012,896.75 1,380,900.00 9,198,113.91 Chemical Co., Ltd. Dalian Sanyo 134,658,753.75 40% 182,414,300.56 12,432,505.14 8,000,000.00 186,846,805.70 Cold-chain Co., Ltd. Grand Ocean-showa Auto Air 24,402,234.58 20% 21,386,481.14 2,457,326.15 23,843,807.29 Conditioning (Dalian) Co., Ltd. Dalian Sanyo 176,953,841.88 40% 265,367,144.62 32,883,841.79 28,800,000.00 269,450,986.41 Compressor Co., Ltd. Dalian Meica 9,649,590.00 30% 17,452,292.03 1,103,612.18 300,000.00 18,255,904.21 Electronics Co., Ltd. Dalian Sanyo Air-conditioner Co., 176,953,841.88 40% 189,960,064.76 18,638,952.37 21,611,025.00 186,987,992.13 Ltd. Dalian Sanyo Home Appliance 19,666,212.00 40% 22,356,360.40 -380,441.61 21,975,918.79 Co., Ltd. Dalian Bingshan Group Import & 1,200,000.00 24% 4,760,736.51 1,286,686.96 6,047,423.47 Export Co. , Ltd. Beijing Huashang Bingshan 490,000.00 49% 441,059.73 54,804.26 495,863.99 Refrigeration and 63 Dalian Refrigeration Co., Ltd. 2008 Annual Report Air-conditioning Machinery Co., Ltd. Dalian Bingshan H2O3 Environmental 2,731,377.50 33% 1,462,570.99 -930,096.37 532,474.62 Solution Co. , Ltd. Dalian Fuji Bingshan Vending Machine 66,416,364.00 49% 54,176,823.33 111,989.59 54,288,812.92 Co., Ltd. Shenyang Sanyo Air 9,564,120.00 40% 9,620,025.72 Conditioner Co., Ltd. Daliian Sanyo High-Efficient 20,000,000.00 25% 19,191,680.42 1,045,151.53 20,236,831.95 Refrigeration System Co., Ltd. Dalian Bingshan – P&A Recreation 1,034,675.00 50% 2,940,695.15 51,840.14 2,992,535.29 Development Engineering Co., Ltd. Dalian Jiale Vending Machine Operation 18,750,000.00 50% 15,799,817.16 -712,175.83 15,087,641.33 Co., Ltd. Total 716,171,513.54 949,701,990.77 81,946,135.02 67,485,040.96 954,543,059.11 (4) Provision for impairment of long-term equity investments Name of invested company 31-12-2008 31-12-2007 Suntek Technology Co., Ltd. 3,000,000.00 3,000,000.00 Guotai Junan Securities Co., Ltd. 1,582,164.89 1,582,164.89 Guotai Junan Investment Management Co., Ltd. 2,688,605.91 2,688,605.91 Liaoning Enterprises United Industry Company 105,000.00 105,000.00 Shenyang Sanyo Air-conditioner Co., Ltd. 9,620,025.72 9,620,025.72 Total 16,995,796.52 16,995,796.52 4 Revenue and cost of sales (1) Revenue from main operations and cost of goods sold Revenue Cost Item 2008 2007 2008 2007 Refrigeration plant 932,490,141.63 1,105,629,826.23 781,075,560.52 943,125,446.05 Item 2008 2007 Revenue Northeast of China 932,490,141.63 1,105,629,826.23 Total 932,490,141.63 1,105,629,826.23 64 Dalian Refrigeration Co., Ltd. 2008 Annual Report Cost Northeast of China 781,075,560.52 943,125,446.05 Total 781,075,560.52 943,125,446.05 (2) Other revenue and cost Revenue Cost Item 2008 2007 2008 2007 Sales of raw 26,100,150.76 21,597,738.86 22,861,958.36 19,510,431.53 materials and others Item 2008 2007 Revenue Northeast of China 26,100,150.76 21,597,738.86 Total 26,100,150.76 21,597,738.86 Cost Northeast of China 22,861,958.36 19,510,431.53 Total 22,861,958.36 19,510,431.53 5 Gain/ (loss) from investments Item 2008 2007 Gain arising from dividends of subsidiaries 14,260,027.88 7,522,106.46 Long-term equity investment income accounted for 80,920,815.24 93,878,758.86 by using the equity method Gain or loss arising from the disposal of 25,841.84 long-term equity investments Other equity investment income 15,307,947.50 2,841,667.00 Total 110,488,790.62 104,268,374.16 Ⅶ. The relationship of the related parties and transactions 1. The related parties existing controlling relationship （1）The related parties existing controlling relationship Legal Relationshi Registered representative Registered p with the Nature of Name of enterprise address person capital Company Principal activities enterprise Dalian Bingshan Group Co., Shahekou Zhang He RMB Parent Installation and Limited Ltd. Dist., Dalian 140,600,000 Company manufactory of liabilities refrigeration company equipment Dalian Bingshan Group Shahekou Zhang RMB Subsidiary Installation and Limited Refrigeration Installation Dist., Dalian Hongzhi 20,036,841.62 testing of liabilities Company (“Installation refrigeration company Company”) equipment 65 Dalian Refrigeration Co., Ltd. 2008 Annual Report Dalian Bingshan Group Shahekou Yang Bin RMB Subsidiary Sale of Limited Sales Company (“Sales Dist., Dalian 18,000,000 refrigeration liabilities Company”) equipment company Ningbo Bingshan Ningbo Yang Bin RMB Subsidiary Installation, Limited Refrigeration Air 3,000,000 of wholesale and liabilities Conditioner Engineering subsidiary repair of company Co., Ltd. refrigeration equipment Dalian Bingshan Development Yamamoto JPY Subsidiary Manufacture and Limited Air-Conditioning Zone, Dalian Shunniti 700,000,000 sale of liabilities Equipment Co., Ltd. accessories of company (“Bingshan refrigeration Air-Conditioning”) equipment Dalian Bingshan Metal Development Zhang He USD Subsidiary Process and sale Limited Processing Co., Ltd. Zone, Dalian 2,350,000 of metal liabilities (“Metal Processing”) punching parts company Dalian Bingshan Guardian High & new Mike Murphy GBP Subsidiary Research, design Limited Automation Co., Ltd. Technology 210,000 and develop liabilities Dist., Dalian refrigerator company automation parts Dalian Bingshan Ryosetsu Development Yamati USD Subsidiary Manufacture and Limited Quick Freezing Equipment Zone, Dalian Yashuhiro 1,000,000 sale of liabilities Co., Ltd. deepfreezing company equipment Shanghai Bingshan Serial Jiading Dist., Yang Bin RMB Subsidiary Sale and Limited Refrigeration Equipment Shanghai 2,000,000 installation of liabilities Sales Company refrigeration company equipment Wuhan New World Dongxihu Mu RMB Subsidiary Design, Limited Refrigeration Industrial Dist., Wuhan Chuanjiang 30,000,000 manufacture, liabilities Co., Ltd. (“WNWRI”) sale, installation company and test of screw type refrigeration compressor and refrigeration equipment 66 Dalian Refrigeration Co., Ltd. 2008 Annual Report Wuhan New World Dongxihu Ding Jie RMB Subsidiary Design, Limited Refrigeration Air Dist., Wuhan 8,000,000 of installation, test liabilities Conditioner Engineering subsidiary and repair of company Co., Ltd. refrigeration equipment Dalian Daleng Metal Lvshunkou Zhang He RMB Subsidiary Manufacture of Limited Technology Co., Ltd. Dist., Dalian 20,000,000 metal founding liabilities parts and pipe company parts; process of metal machine parts(Preparing to construct) (2) Registered capital of the related parties existing controlling relationship and the changes Decrease in Name of enterprise 31-12-2007 Increase in the period 31-12-2008 the period Dalian Bingshan Group Co., Ltd. RMB140,600,000.00 RMB14,060,000.00 RMB126,540,000.00 Dalian Bingshan Group Refrigeration RMB20,036,841.62 RMB20,036,841.62 Installation Company Dalian Bingshan Group Sales Company RMB18,000,000.00 RMB18,000,000.00 Ningbo Bingshan Refrigeration Air RMB3,000,000.00 RMB3,000,000.00 Conditioner Engineering Co., Ltd. Dalian Bingshan Air-Conditioning JPY700,000,000.00 JPY700,000,000.00 Equipment Co., Ltd. Dalian Bingshan Ryosetsu Quick Freezing USD1,000,000.00 USD1,000,000.00 Equipment Co., Ltd. Dalian Bingshan Metal Processing Co., USD2,350,000.00 USD2,350,000.00 Ltd. Dalian Bingshan Guardian Automation GBP210,000.00 GBP210,000.00 Co., Ltd. Shanghai Bingshan Serial Refrigeration RMB2,000,000.00 RMB2,000,000.00 Equipment Sales Company Wuhan New World Refrigeration RMB30,000,000.00 RMB30,000,000.00 Industrial Co., Ltd. Wuhan New World Refrigeration Air RMB8,000,000.00 RMB8,000,000.00 Conditioner Engineering Co., Ltd. Dalian Daleng Metal Technology Co., Ltd. RMB20,000,000.00 RMB20,000,000.00 67 Dalian Refrigeration Co., Ltd. 2008 Annual Report （3）The shares or equity held by the related parties with controlling relationships and its changes 31-12-2007 Increase Decrease 31-12-2008 Name of enterprise in the in the Amount Proportion period Amount Proportion period RMB RMB Dalian Bingshan Group Co., Ltd. 21.96% 21.96% 76,855,683.00 76,855,683.00 Dalian Bingshan Group RMB RMB Refrigeration Installation 100% 100% 20,036,841.62 20,036,841.62 Company Dalian Bingshan Group Sales RMB RMB 90% 90% Company 16,200,000.00 16,200,000.00 Ningbo Bingshan Refrigeration RMB Air Conditioner Engineering Co., 45.90% RMB3,000,000.00 45.90% 3,000,000.00 Ltd. Dalian Bingshan JPY JPY Air-Conditioning Equipment Co., 70% 70% 490,000,000.00 490,000,000.00 Ltd. Dalian Bingshan Ryosetsu Quick USD350,000.00 70% USD350,000.00 70% Freezing Equipment Co., Ltd. Dalian Bingshan Metal USD1,510,000.00 64.25% USD1,510,000.00 64.25% Processing Co., Ltd. Dalian Bingshan Guardian GBP126,000.00 60% GBP126,000.00 60% Automation Co., Ltd. Shanghai Bingshan Serial Refrigeration Equipment Sales RMB900,000.00 45% RMB900,000.00 45% Company Wuhan New World Refrigeration RMB RMB 51% 51% Industrial Co., Ltd. 15,300,000.00 15,300,000.00 Wuhan New World Refrigeration Air Conditioner Engineering Co., RMB400,000.00 5% RMB400,000.00 5% Ltd. Dalian Daleng Metal Technology RMB RMB 100% 100% Co., Ltd. 20,000,000.00 20,000,000.00 2、Type of the related parties without controlling relationship Registered Relationship with the Name of the related parties Nature of enterprise place Company Thermo King-Dalian Transport Refrigeration Co., Limited liabilities Company Shenzhen Affiliated company Ltd. Dalian Sanyo Refrigeration Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Grand Ocean Thermo King Transport Limited liabilities Company Dalian Affiliated company Refrigeration Engineering Co., Ltd. Grand Ocean-showa Auto Air Conditioning (Dalian) Limited liabilities Company Dalian Affiliated company Co., Ltd. 68 Dalian Refrigeration Co., Ltd. 2008 Annual Report Dalian Sanyo Cold-chain Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Free Trade Zone Sanyo Air conditioner Sales Subsidiary of affiliated Limited liabilities Company Dalian Co., Ltd. company Dalian Sanyo Air-conditioner Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Sanyo Compressor Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Honjo Chemical Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Sanyo Meica Electronics Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Sanyo Home Appliance Co., Ltd. Limited liabilities Company Dalian Affiliated company Dalian Bingshan H2O3 Environmental Solution Limited liabilities Company Dalian Affiliated company Co. , Ltd. Beijing Huashang Bingshan Serial Refrigeration Limited liabilities Company Beijing Affiliated company Equipment Co., Ltd. Dalian Fuji Bingshan Vending Machine Co., Ltd. Limited liabilities Company Dalian Affiliated company Shenyang Sanyo Air-conditioner Co., Ltd Limited liabilities Company Shenyang Affiliated company Dalian Sanyo High-Efficient Refrigeration System Co., Limited liabilities Company Dalian Affiliated company Ltd. Dalian Jiale Vending Machine Operation Co., Ltd. Limited liabilities Company Dalian Joint Ventures Dalian Bingshan – P&A Recreation Development Limited liabilities Company Dalian Joint Ventures Engineering Limited Dalian Bingshan Group Cold Drink Equipment Co., Subsidiary of Dalian Limited liabilities Company Dalian Ltd. Bingshan Group Dalian Bingshan Group Refrigeration Equipment Subsidiary of Dalian Limited liabilities Company Dalian Co., Ltd. Bingshan Group Subsidiary of Dalian Dalian Third Refrigeration Equipment Factory Limited liabilities Company Dalian Bingshan Group Dalian Bingshan Group Jinzhou Heavy Machinery Subsidiary of Dalian Limited liabilities Company Dalian Co., Ltd. Bingshan Group Subsidiary of Dalian Dalian Bingshan Group Import & Export Co. , Ltd. Limited liabilities Company Dalian Bingshan Group Beijing Bingshan Serial Refrigeration Equipment Subsidiary of Dalian Limited liabilities Company Beijing Co., Ltd. Bingshan Group Subsidiary of Dalian Dalian Bingshan Group Materials Trading Co. , Ltd. Limited liabilities Company Dalian Bingshan Group Affiliated company of Dalian Seiko Electric Control Co., Ltd. Limited liabilities Company Dalian Dalian Bingshan Group Affiliated company of Dalian Spindle Cooling Towers Co., Ltd. Limited liabilities Company Dalian Dalian Bingshan Group Affiliated company of Dalian Bingshan Metal Technology Co., Ltd. Limited liabilities Company Dalian Dalian Bingshan Group Dalian Mahe Level Control Electrical Appliances Affiliated company of Limited liabilities Company Dalian Co., Ltd. Dalian Bingshan Group Affiliated company of Dalian JCI Cryogenic Industries Co., Ltd. Limited liabilities Company Dalian Dalian Bingshan Group 69 Dalian Refrigeration Co., Ltd. 2008 Annual Report Affiliated company of Linde Engineering (Dalian) Co., Ltd. Limited liabilities Company Dalian Dalian Bingshan Group Dalian Bingshan Sanyo Laundering and Dyeing Co., Affiliated company of Limited liabilities Company Dalian Ltd. Dalian Bingshan Group Affiliated company of BAC Dalian Co., Ltd. Limited liabilities Company Dalian Dalian Bingshan Group 3、The transactions between the Company and the related parties (1) Purchases of goods from related parties: Name of the related parties 2008 2007 Dalian Sanyo Refrigeration Co., Ltd. 8,522,879.09 8,436,588.03 Dalian Sanyo Cold-chain Co., Ltd. 441,847.55 88,642,621.54 Dalian Sanyo Air-conditioner Co., Ltd. 12,359,818.07 9,718,541.06 Dalian Free Trade Zone Sanyo Air-conditioner Sales Co., Ltd. 68,710,596.58 Thermo King-Dalian Transport Refrigeration Co., Ltd. 58,063.20 Dalian Sanyo Compressor Co., Ltd. 8,953,488.22 14,148,777.09 BAC Dalian Co., Ltd. 63,451,049.57 83,762,623.93 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 24,332,629.95 40,858,616.79 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 39,183,231.10 29,966,358.85 Dalian Third Refrigeration Equipment Factory 4,512,356.58 4,954,396.04 Dalian Sanyo Home Appliance Co., Ltd. 6,928.21 8,691.45 Dalian Seiko Electric Control Co., Ltd. 2,693,344.44 884,579.49 Dalian Spindle Cooling Towers Co., Ltd. 1,964,649.57 11,201,384.62 Dalian Bingshan Group Jinzhou Heavy Machinery Co., Ltd. 76,923.08 Dalian Bingshan Group Import & Export Co. , Ltd. 23,611,471.39 58,578,135.22 Dalian Bingshan Group Materials Trading Co. , Ltd. 17,143,328.55 41,049,121.96 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd. 257,008.55 295,042.74 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 9,761,582.42 Dalian Sanyo Meica Electronics Co., Ltd. 459,692.63 270,944.96 Dalian Fuji Bingshan Vending Machine Co., Ltd. Dalian Jiale Vending Machine Operation Co., Ltd. Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd. 137,001.50 15,173.07 Dalian Bingshan Metal Technology Co., Ltd. 238,864.96 Total 208,269,589.93 471,398,762.12 * The Company purchased goods from related parties is 17.64% of total purchases during 2008. (2) Providing services to related parties Name of the related parties 2008 2007 BAC Dalian Co., Ltd. 670,922.00 1,253,727.00 Total 670,922.00 1,253,727.00 70 Dalian Refrigeration Co., Ltd. 2008 Annual Report (3) Sales of goods to related parties Name of the related parties 2008 2007 Dalian Sanyo Compressor Co., Ltd. 13,161,507.14 9,582,962.26 Dalian Sanyo Refrigeration Co., Ltd. 979,094.04 5,837,896.68 Dalian Sanyo Meica Electronics Co., Ltd 32,991.45 5,435.90 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 2,938,156.93 312,618.80 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 368,181.80 Thermo King-Dalian Transport Refrigeration Co., Ltd. 15,094,570.24 14,934,674.10 Grand Ocean-showa Auto Air Conditioning (Dalian) Co., Ltd. 8,255.01 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 7,794,615.98 23,596,195.93 Beijing Huashang Bingshan Refrigeration and 6,668,585.95 6,861,920.73 Air-conditioning Machinery Co., Ltd. Dalian Bingshan Group Import & Export Co. , Ltd. 140,476,891.42 171,823,168.66 Dalian Sanyo Air-conditioner Co., Ltd. 22,410,249.50 32,420,818.47 Dalian Seiko Electric Control Co., Ltd. 115,134.19 774,275.67 Dalian Bingshan Group Materials Trading Co. , Ltd. 865,058.12 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd. 854.70 7,692.31 Dalian Sanyo Cold-chain Co., Ltd. 1,281,089.88 2,184,152.40 Dalian Bingshan – P&A Recreation Development -158,012.82 4,254,667.52 Engineering Limited BAC Dalian Co., Ltd. 102,444.44 492,510.26 Dalian Fuji Bingshan Vending Machine Co., Ltd. 1,258,080.36 1,783,436.79 Dalian Bingshan Metal Technology Co., Ltd. 185,236.92 163,580.09 Shenyang Sanyo Air-conditioner Co., Ltd. 1,878,698.29 3,242,329.40 Dalian Third Refrigeration Equipment Factory 155,580.38 297,000.00 Dalian Mahe Level Control Electrical Appliances Co., Ltd. 39,026.23 Linde Engineering (Dalian) Co., Ltd. 22,633.76 Dalian Sanyo High-Efficient Refrigeration System Co., Ltd. 350,374.80 Total 215,155,985.58 279,448,649.10 * The Company sales income from related parties is 14.53% of total sales income during 2008. (4) Leasing fees from related party Name of the related party 2008 2007 Dalian Bingshan Group Co., Ltd. 95,400.00 95,400.00 * The Company signed a leasing agreement with Dalian Bingshan Group Co., Ltd., and leased 530 ㎡ of offices to Dalian Bingshan Group Co., Ltd. The rental of offices is RMB 95,400.00 every year, and the effective period of the contract is 5 years. 71 Dalian Refrigeration Co., Ltd. 2008 Annual Report 4 Amounts due from/to related parties (1) Notes receivable Name of the related parties 31-12-2008 31-12-2007 Dalian Sanyo Refrigeration Co., Ltd. 2,943,848.38 Thermo King-Dalian Transport Refrigeration Co., Ltd. 1,100,000.00 Dalian Sanyo Air-conditioner Co., Ltd. 12,804,446.17 4,444,274.17 Shenyang Sanyo Air-conditioner Co., Ltd. 1,870,200.35 1,831,158.40 Dalian Bingshan Group Import & Export Co. , Ltd. 444,678.03 17,071,358.01 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 700,000.00 1,750,000.00 (2) Account paid in advance Name of the related parties 31-12-2008 31-12-2007 Dalian Sanyo Refrigeration Co., Ltd. 404,000.00 Dalian Bingshan Group Import & Export Co. , Ltd. 224,673.68 Dalian Sanyo Air-conditioner Co., Ltd. 1,507,912.00 2,726,440.00 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd. 1,306.49 Dalian Sanyo Cold-chain Co., Ltd. 621,531.00 BAC Dalian Co., Ltd. 1,600.00 (3) Accounts receivable Name of the related parties 31-12-2008 31-12-2007 Dalian Sanyo Compressor Co., Ltd. 404,362.25 2,647,569.00 Dalian Sanyo Refrigeration Co., Ltd. 8,302.00 411,426.98 Grand Ocean-Showa Auto Air Conditioning (Dalian) Co., Ltd. 9,658.36 Dalian Sanyo Cold-chain Co., Ltd. 113,175.00 635,495.00 Beijing Bingshan Serial Refrigeration Equipment Co., Ltd. 199,641.75 140,733.98 Thermo King-Dalian Transport Refrigeration Co., Ltd. 5,480,916.91 7,365,599.77 Dalian Sanyo Air-conditioner Co., Ltd. 5,970,426.41 1,700,214.92 Dalian Bingshan Group Import & Export Co. , Ltd. 3,812,695.95 1,545,992.13 Dalian Bingshan – P&A Recreation Development Engineering 66,094.55 724,627.55 Limited Beijing Huashang Bingshan Refrigeration and 613,659.85 2,666,332.93 Air-conditioning Machinery Co., Ltd. Dalian Seiko Electric Control Co., Ltd. 3,150.00 138,020.00 Dalian Fuji Bingshan Vending Machine Co., Ltd. 343,461.82 391,403.75 BAC Dalian Co., Ltd. 30,100.00 5,636.00 Shenyang Sanyo Air-conditioner Co., Ltd. 90,928.00 Dalian Sanyo High-Efficient Refrigeration System Co., Ltd. 212,215.00 (4) Other accounts receivable Name of the related parties 31-12-2008 31-12-2007 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd. 3,500.00 Dalian Bingshan Group Import & Export Co. , Ltd. 40,767.35 501,123.43 72 Dalian Refrigeration Co., Ltd. 2008 Annual Report (5) Dividends receivable Name of the related parties 31-12-2008 31-12-2007 Dalian Sanyo Refrigeration Co., Ltd. 3,200,000.00 5,920,000.00 Dalian Grand Ocean Thermo King Transport Refrigeration 1,913,107.90 Engineering Co., Ltd. Thermo King-Dalian Transport Refrigeration Co., Ltd. 2,000,000.00 Dalian Sanyo Meica Electronics Co., Ltd. 3,000,000.00 Wuhan Steel and Electricity Co., Ltd. 44,600.00 (6) Notes payable Name of the related parties 31-12-2008 31-12-2007 Dalian Seiko Electric Control Co., Ltd. 380,000.00 Dalian Spindle Cooling Towers Co., Ltd. 556,110.00 200,000.00 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 6,000,000.00 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 5,450,000.00 1,550,000.00 BAC Dalian Co., Ltd. 19,300,000.00 9,963,260.00 Dalian Bingshan Group Materials Trading Co. , Ltd. 1,200,000.00 6,680,000.00 Dalian Third Refrigeration Equipment Factory 380,000.00 Dalian Bingshan Group Import & Export Co. , Ltd. 625,137.00 (7) Accounts payable Name of the related parties 31-12-2008 31-12-2007 Dalian Third Refrigeration Equipment Factory 2,526,963.67 1,078,230.67 Dalian Bingshan Group Cold Drink Equipment Co., Ltd. 9,209,908.66 16,915,754.51 BAC Dalian Co., Ltd. 11,589,413.27 12,999,531.73 Dalian Seiko Electric Control Co., Ltd. 925,023.00 860,171.00 Dalian Bingshan Group Jinzhou Heavy Machinery Co., Ltd. 4,500.00 Dalian Sanyo Air-conditioner Co., Ltd. 2,217.10 78,346.86 Dalian Free Trade Zone Sanyo Air-conditioner Sales Co., Ltd. 135,353.00 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 6,613,327.81 7,056,347.35 Dalian Sanyo Refrigeration Co., Ltd. 145,300.00 179,101.80 Dalian Sanyo Cold-chain Co., Ltd. 165,664.53 63,066.50 Dalian Meica Electronics Co., Ltd. 317,005.60 Dalian Sanyo Home Appliance Co., Ltd. 42,570.00 42,570.00 Dalian Spindle Cooling Towers Co., Ltd. 1,014,643.35 1,465,993.30 Dalian Bingshan Group Import & Export Co. , Ltd. 1,441,878.76 1,122,968.98 Dalian Sanyo Compressor Co., Ltd. 120,613.50 Dalian Bingshan Metal Technology Co., Ltd. 279,472.00 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd. 38,693.51 73 Dalian Refrigeration Co., Ltd. 2008 Annual Report (8) Accounts received in advance Name of the related parties 31-12-2008 31-12-2007 Dalian Sanyo Air-conditioner Co., Ltd. 343,493.64 Dalian Bingshan Group Refrigeration Equipment Co., Ltd. 4,469.50 10,000.00 Dalian Sanyo Cold-chain Co., Ltd. 241,824.28 261,756.79 Dalian Sanyo Refrigeration Co., Ltd. 6,461.23 Shenyang Sanyo Air-conditioner Co., Ltd. 39,041.95 (9) Other accounts payable Name of the related parties 31-12-2008 31-12-2007 Dalian Bingshan Group Co., Ltd. 11,183,795.81 10,107,841.16 Dalian Bingshan Sanyo Laundering and Dyeing Co., Ltd. 14,400.00 32,442.00 Dalian Third Refrigeration Equipment Factory 101,000.00 101,000.00 Dalian Bingshan H2O3 Environmental Solution Co. , Ltd. 566,360.68 Ⅷ. Contingencies and Commitments Up to Dec.31, 2008, the Company and its subsidiaries has no significant contingents or commitments. Ⅸ. Supplementary Information 1 Non-recurring profits and losses Non-recurring gains and losses item 2008 2007 1. Gain/loss from disposal of non-current assets 4,017,415.76 75,947.43 2.Tax return or exemption exceeding authority or without formal 473,425.23 authorization documents 3.Governmental subsidy written into current gains and losses 2,885,000.00 12,461,735.34 4. Interest from non-financial enterprises written into current gains and losses 5.Gains/Losses on debt restructuring 6.Reversal of provision for impairment of long-term assets 7. Other net income and expense from non-operation 8,736,511.62 1,025,845.93 Total 16,112,352.61 13,563,528.70 Less：Affected amount of income tax from non-recurring gains and 2,536,044.22 4,176,917.79 losses non-recurring gains and losses 13,576,308.39 9,386,610.91 Included: Attributable to minority interest 2,706,826.72 812,780.48 Attributable to parent company 10,869,481.67 8,573,830.43 74 Dalian Refrigeration Co., Ltd. 2008 Annual Report 2 Earnings per share Item 2008 2007 Net profit attributable to the Company’s ordinary shareholders 0.36 0.37 Net profit attributable to the Company’s ordinary shareholders after 0.33 0.34 deducting non-recurring gains and losses 3. Return on equity Item 2008 2007 Weighted Weighted Fully diluted Fully diluted average average Net profit attributable to the Company’s 7.69% 7.83% 8.13% 8.43% ordinary shareholders Net profit attributable to the Company’s ordinary shareholders after deducting 7.03% 7.16% 7.59% 7.87% non-recurring gains and losses Ⅹ.Approval of the financial statements The financial statements were approved by the board of directors on 23 April, 2009. 75 Dalian Refrigeration Co., Ltd. 2008 Annual Report §12 Reference Documents 1. The accounting statements bearing the signatures and seals of the legal representative, the financial majordomo and the accountants in charge. 2. The original copy of the auditor's report bearing the seal of the certified public accountants and the signatures and seals of the certified accountants. 3. The original copies of all the Company's documents and the original copies of the bulletins published on the newspapers designated by the China Securities Regulatory Commission in the report period. 4. Time for reference: from Monday to Friday 8:00 - 12:00 (a. m.) 1:00 - 5:00 (p. m.) Liaison persons: Song Wenbao Tel: 0086-411-86654530 0086-411-86538130 Fax: 0086-411-86654530 Board of Directors of Dalian Refrigeration Co., Ltd. April 24,2009 76 Dalian Refrigeration Co., Ltd. 2008 Annual Report CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2008 Prepared by Dalian Refrigeration Company Limited 31 December 2008 Unit: RMB Yuan Consolidation Parent company Items Ending balance Beginning Balance Ending balance Beginning Balance Current Assets: Monetary funds 312,337,783.75 244,799,726.11 228,316,557.10 145,162,895.61 Transaction financial asset Notes receivable 45,482,748.85 61,105,461.48 43,487,353.38 33,923,196.41 Account receivable 437,078,053.74 396,069,801.75 240,792,212.32 234,453,539.96 Account paid in advance 24,099,268.38 29,855,794.43 4,009,891.07 7,857,424.76 Interest receivable 3,244,600.00 15,799,774.90 11,235,833.74 17,047,781.57 Other account receivable 23,628,868.03 16,709,994.62 23,980,858.98 4,407,567.07 Financial assets purchased under agreements to resell Inventories 337,713,032.95 307,496,203.60 218,598,315.29 213,598,247.96 Non-current assets due within 1 year Other current assets Total current assets 1,183,584,355.70 1,071,836,756.89 770,421,021.88 656,450,653.34 Non-current assets: Loans and advance Available for sale financial assets 6,633,900.00 17,280,900.00 6,633,900.00 17,280,900.00 Held to maturity investments Long-term account receivable Long-term equity investment 1,014,652,040.81 975,712,353.75 1,144,700,269.73 1,105,760,582.67 Investing property Fixed asset 384,129,544.11 390,173,719.82 228,202,302.25 247,509,889.22 Project in construction 4,775,695.11 8,868,277.62 3,159,913.69 499,955.08 Engineering material Fixed asset disposal Bearer biological asset Oil assets Intangible assets 103,849,972.78 105,292,244.58 30,499,281.97 30,409,717.89 Development expense Goodwill Long-term expense to be 3,535,431.90 3,698,626.06 3,094,243.49 3,215,191.13 apportioned Deferred tax assets 18,465,615.23 10,030,792.26 13,038,422.19 6,026,979.10 Other non-current assets Total non-current assets 1,536,042,199.94 1,511,056,914.09 1,429,328,333.32 1,410,703,215.09 Total assets 2,719,626,555.64 2,582,893,670.98 2,199,749,355.20 2,067,153,868.43 77 Dalian Refrigeration Co., Ltd. 2008 Annual Report CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF 31 DECEMBER 2008 Prepared by Dalian Refrigeration Company Limited 31 December 2008 Unit: RMB Yuan Items Consolidation Parent company Ending balance Beginning Balance Ending balance Beginning Balance Current liabilities: Short-term borrowings 110,000,000.00 70,000,000.00 100,000,000.00 50,000,000.00 Transaction financial liabilities Notes payable 76,889,017.30 35,225,059.06 58,483,522.81 12,500,000.00 Account payable 397,286,738.10 380,180,714.46 232,111,721.35 236,013,225.16 Account received in advance 168,263,502.28 175,480,242.17 92,541,212.02 93,657,056.53 Employee’s compensation payable 42,014,613.41 41,700,976.58 16,850,545.94 20,559,393.99 Tax payable 10,306,291.74 2,910,321.31 5,621,080.62 1,679,395.17 Interest payable Dividend payable 6,724,584.76 11,277,618.46 533,156.00 10,742,758.45 Other account payable 41,694,655.74 57,372,736.35 13,165,466.39 21,782,704.31 Non-current liabilities due within 1 50,000,000.00 50,000,000.00 year Other current liabilities Total current liabilities 903,179,403.33 774,147,668.39 569,306,705.13 446,934,533.61 Non-current liabilities: Long-term borrowings 50,000,000.00 50,000,000.00 Debentures payable Long-term payables Specific purpose account payables Provisions for contingent liabilities Deferred tax liabilities 1,081,551.92 10,936,965.62 1,081,551.92 10,936,965.62 Other non-current liabilities 76,426,173.00 79,208,545.00 22,954,170.00 24,517,545.00 Total non-current liabilities 77,507,724.92 140,145,510.62 24,035,721.92 85,454,510.62 Total liabilities 980,687,128.25 914,293,179.01 593,342,427.05 532,389,044.23 Owner’s equity Share capital 350,014,975.00 350,014,975.00 350,014,975.00 350,014,975.00 Capital surplus 590,111,053.00 588,753,483.22 588,882,125.38 587,524,555.60 Less: Treasury Stock Reserved fund 368,103,745.84 332,959,114.14 368,103,745.84 332,959,114.14 General risk provision Retained earnings 348,583,641.82 312,557,010.42 299,406,081.93 264,266,179.46 Foreign exchange difference Total owners' equity attributable to 1,656,813,415.66 1,584,284,582.78 1,606,406,928.15 1,534,764,824.20 holding company Minority interest 82,126,011.73 84,315,909.19 Total owner’s equity 1,738,939,427.39 1,668,600,491.97 1,606,406,928.15 1,534,764,824.20 Total liabilities and owner’s equity 2,719,626,555.64 2,582,893,670.98 2,199,749,355.20 2,067,153,868.43 78 Dalian Refrigeration Co., Ltd. 2008 Annual Report CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008 Prepared by Dalian Refrigeration Company Limited Year of 2008 Unit: RMB Yuan Items Consolidation Parent company 2008 2007 2008 2007 I. Total sales 1,513,436,237.50 1,653,955,364.95 958,590,292.39 1,127,227,565.09 Including: Operating income 1,513,436,237.50 1,653,955,364.95 958,590,292.39 1,127,227,565.09 II. Total operating cost 1,494,723,246.22 1,615,093,449.54 965,313,122.96 1,120,985,460.34 Including: Operating cost 1,228,006,602.87 1,362,127,241.82 803,937,518.88 962,635,877.58 Taxes and associate charges 6,368,392.42 6,403,565.64 3,195,339.60 3,961,247.60 Selling and distribution expenses 98,707,052.56 101,686,077.44 54,831,558.82 63,575,794.26 Administrative expenses 138,812,021.28 127,906,374.63 87,920,295.09 78,403,570.60 Financial expense 9,398,781.58 3,495,900.40 8,286,759.80 3,794,047.24 Impairment loss 13,430,395.51 13,474,289.61 7,141,650.77 8,614,923.06 Add: gain from change in fair value Gain/(loss) from investment 96,273,362.74 96,829,892.70 110,488,790.62 104,268,374.16 Including: income form investment on affiliated enterprise and jointly 80,920,815.24 93,878,758.86 80,920,815.24 93,878,758.86 enterprise Foreign exchange difference III. Operating profit 114,986,354.02 135,691,808.11 103,765,960.05 110,510,478.91 Add: non-business income 23,803,528.63 15,191,743.63 14,341,814.05 10,437,992.08 Less: non-business expense 2,339,327.23 514,215.73 502,453.62 336,663.65 Including: loss from non-current 1,917,067.98 292,046.68 400,994.98 228,447.58 asset disposal IV. Total profit 136,450,555.42 150,369,336.01 117,605,320.48 120,611,807.34 Less: Income tax 821,833.90 8,148,715.09 -5,181,459.94 6,282,039.06 V. Net profit 135,628,721.52 142,220,620.92 122,786,780.42 114,329,768.28 Net profit attributable to parent 127,359,605.47 128,827,637.59 122,786,780.42 114,329,768.28 company Minority shareholders’ gains and 8,269,116.05 13,392,983.33 losses VI. Earnings per share (I) basic earnings per share 0.36 0.37 (II) diluted earnings per share 0.36 0.37 79 Dalian Refrigeration Co., Ltd. 2008 Annual Report CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008 Prepared by Dalian Refrigeration Company Limited Year of 2008 Unit: RMB Yuan Items 2008 2007 Consolidation Parent company Consolidation Parent company 1. Cash flows arising from operating activities: Cash received from sales of goods or rending of services 1,288,578,596.54 1,537,696,618.96 832,884,207.95 1,016,357,518.90 Refund of tax and fare received 3,699,299.04 188,810.40 33,754.82 Other cash received relating to operating activities 45,005,929.46 39,471,256.01 31,106,839.80 18,342,948.10 Sub-total of cash inflows 1,337,283,825.04 1,577,356,685.37 863,991,047.75 1,034,734,221.82 Cash paid for goods and services 930,068,444.51 1,227,117,455.15 631,054,227.53 830,044,228.06 Cash paid to and on behalf of employees 164,920,588.23 156,993,819.06 93,870,468.06 97,143,478.69 Tax and fare paid 80,764,593.09 96,262,374.61 49,019,669.63 63,434,410.08 Other cash paid relating to operating activities 90,327,836.73 73,536,784.64 46,412,999.46 38,977,210.59 Sub-total of cash outflows 1,266,081,462.56 1,553,910,433.46 820,357,364.68 1,029,599,327.42 Net cash flow from operating activities 71,202,362.48 23,446,251.91 43,633,683.07 5,134,894.40 2. Cash Flows arising from Investment Activities: Cash received from return of investments Cash received from investment income 70,554,621.46 44,507,636.46 74,552,882.28 51,946,117.92 Net cash received from disposal of fixed assets, intangible 6,212,004.20 6,083,591.11 4,513,163.00 115,753.35 assets and other long-term assets Proceeds from sale of subsidiaries and other operating units 2,041,356.64 2,041,356.64 Other cash received relating to investment activities 14,897,870.03 57,400,957.71 11,090,000.00 1,439,112.77 Sub-total of cash inflows 91,664,495.69 110,033,541.92 90,156,045.28 55,542,340.68 Cash paid for acquiring fixed assets, intangible assets and 32,214,725.35 121,304,888.17 4,520,413.04 10,390,365.23 other long-term assets Cash paid for acquiring investments 24,478,593.00 84,399,473.79 24,478,593.00 84,399,473.79 Net cash used in loans Net cash used in acquiring subsidiaries and other operating 20,000,000.00 units Other cash paid relating to investment activities 1,000,000.00 Sub-total of cash outflows 57,693,318.35 205,704,361.96 28,999,006.04 114,789,839.02 Net cash flow from investing activities 33,971,177.34 -95,670,820.04 61,157,039.24 -59,247,498.34 3. Cash Flows arising from Financing Activities: Cash received from absorbing investment 68.53 Including: Cash received from increase in minority interest 68.53 Cash received from borrowings 118,653,346.00 79,702,034.80 100,000,000.00 50,000,000.00 Cash received from issuing debentures Other proceeds relating to financing activities 17,400.96 Sub-total of cash inflows 118,653,414.53 79,719,435.76 100,000,000.00 50,000,000.00 Cash paid for settling debt 78,550,000.00 2,740,108.89 50,000,000.00 Cash paid for distribution of dividends or profit or 77,467,215.03 57,825,652.34 71,636,229.69 48,789,370.17 reimbursing interest Including: dividends or profit paid to minority interest 5,392,195.50 7,114,737.64 Other cash payments relating to financing activities 118,693.75 Sub-total of cash outflows 156,135,908.78 60,565,761.23 121,636,229.69 48,789,370.17 80 Dalian Refrigeration Co., Ltd. 2008 Annual Report Net cash flow from financing activities -37,482,494.25 19,153,674.53 -21,636,229.69 1,210,629.83 4. Influence on cash due to fluctuation in exchange rate -152,987.93 -335,339.04 -831.13 -887.20 5. Increase in cash and cash equivalents 67,538,057.64 -53,406,232.64 83,153,661.49 -52,902,861.31 Add : Cash and cash equivalents at year-begin 244,799,726.11 298,205,958.75 145,162,895.61 198,065,756.92 6.Cash and cash equivalents at the end of the year 312,337,783.75 244,799,726.11 228,316,557.10 145,162,895.61 81 Dalian Refrigeration Co., Ltd. 2008 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 Prepared by Dalian Refrigeration Company Limited Year of 2008 Unit: RMB Yuan 2008 Owners’ equity attributable to parent company Items Lessen: General Minority Total of owners’ share capital Capital suplus treasury Surplus reserve risk Retained profits Others equity equity stock reserve I. balance at the end of last 350,014,975.00 588,753,483.22 332,959,114.14 312,557,010.42 84,315,909.19 1,668,600,491.97 year 1. Change of accounting policy 2. Correction of errors in previous period II. Balance at the beginning of 350,014,975.00 588,753,483.22 332,959,114.14 312,557,010.42 84,315,909.19 1,668,600,491.97 this year III. Increase/ decrease of amount in this year (“-” 1,357,569.78 35,144,631.70 36,026,631.40 -2,189,897.46 70,338,935.42 means decrease) (I) Net profit 127,359,605.47 8,269,116.05 135,628,721.52 (II)Gain/loss listed to owners’ 1,357,569.78 1,357,569.78 equity directly 1. Net amount on changes in book value of financial assets -7,985,250.00 -7,985,250.00 available for sale 2.Effect on changes in other owners’ equity of invested 1,025,319.78 1,025,319.78 units under equity method 3. Effect on income tax -2,772,500.00 -2,772,500.00 related to items 4. Others 11,090,000.00 11,090,000.00 Subtotal of (I)and (II) 1,357,569.78 127,359,605.47 8,269,116.05 136,986,291.30 (III) Input an reduced capital 589,750.79 589,750.79 of owners 1. Input capital of owners 589,750.79 589,750.79 2.Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution 35,144,631.70 -91,332,974.07 -11,048,764.30 -67,237,106.67 1. Withdrawing surplus 35,144,631.70 -35,144,631.70 public reserve 2. Withdrawing general risk reserve 3. Distribution to all owners -52,502,246.25 -11,048,764.30 -63,551,010.55 (shareholders) 4. Others -3,686,096.12 -3,686,096.12 (V)Internal carrying forward of owners’ equity 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others IV. Balance at the end of this 350,014,975.00 590,111,053.00 368,103,745.84 348,583,641.82 82,126,011.73 1,738,939,427.39 period 82 Dalian Refrigeration Co., Ltd. 2008 Annual Report 2007 Owners’ equity attributable to parent company Items Lessen: General Minority Total of owners’ share capital Capital surplus treasury Surplus reserve risk Retained profits Others equity equity stock reserve I. balance at the end of last 350,014,975.00 572,587,026.21 298,067,136.37 272,901,829.75 78,037,663.50 1,571,608,630.83 year 1. Change of accounting policy 2. Correction of errors in previous period II. balance at the beginning of 350,014,975.00 572,587,026.21 298,067,136.37 272,901,829.75 78,037,663.50 1,571,608,630.83 this year III. Increase/ decrease of amount in this year 16,166,457.01 34,891,977.77 39,655,180.67 6,278,245.69 96,991,861.14 (“-” means decrease) (I) Net profit 128,827,637.59 13,392,983.33 142,220,620.92 (II)Gain/loss listed to owners’ 16,166,457.01 16,166,457.01 equity directly 1. Net amount on changes in book value of financial assets 11,229,905.77 11,229,905.77 available for sale 2.Effect on changes in other owners’ equity of invested 736,551.24 736,551.24 units under equity method 3. Effect on income tax related to items 4. Others 4,200,000.00 4,200,000.00 Subtotal of (I)and (II) 16,166,457.01 128,827,637.59 13,392,983.33 158,387,077.93 (III) Input an reduced capital of owners 1. Input capital of owners 2.Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution 34,891,977.77 -89,172,456.92 -7,114,737.64 -61,395,216.79 1. Withdrawing surplus 34,891,977.77 -34,891,977.77 public reserve 2. Withdrawing general risk reserve 3. Distribution to all owners -52,502,246.25 -7,114,737.64 -59,616,983.89 (shareholders) 4. Others -1,778,232.90 -1,778,232.90 (V)Internal carrying forward of owners’ equity 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others IV. Balance at the end of this 350,014,975.00 588,753,483.22 332,959,114.14 312,557,010.42 84,315,909.19 1,668,600,491.97 period 83 Dalian Refrigeration Co., Ltd. 2008 Annual Report STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 Prepared by Dalian Refrigeration Company Limited Year of 2008 Unit: RMB Yuan 2008 Owners’ equity attributable to parent company Items Lessen: General Total of owners’ share capital Capital surplus treasury Surplus reserve risk Retained profits Others equity stock reserve I. balance at the end of last 350,014,975.00 587,524,555.60 332,959,114.14 264,266,179.46 1,534,764,824.20 year 1. Change of accounting policy 2. Correction of errors in previous period II. balance at the beginning of 350,014,975.00 587,524,555.60 332,959,114.14 264,266,179.46 1,534,764,824.20 this year III. Increase/ decrease of amount in this year (“-” 1,357,569.78 35,144,631.70 35,139,902.47 71,642,103.95 means decrease) (I) Net profit 122,786,780.42 122,786,780.42 (II)Gain/loss listed to owners’ 1,357,569.78 1,357,569.78 equity directly 1. Net amount on changes in book value of financial assets -7,985,250.00 -7,985,250.00 available for sale 2.Effect on changes in other owners’ equity of invested 1,025,319.78 1,025,319.78 units under equity method 3. Effect on income tax -2,772,500.00 -2,772,500.00 related to items 4. Others 11,090,000.00 11,090,000.00 Subtotal of (I)and (II) 1,357,569.78 122,786,780.42 124,144,350.20 (III) Input an reduced capital of owners 1. Input capital of owners 2.Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution 35,144,631.70 -87,646,877.95 -52,502,246.25 1. Withdrawing surplus 35,144,631.70 -35,144,631.70 public reserve 2. Withdrawing general risk reserve 3. Distribution to all owners -52,502,246.25 -52,502,246.25 (shareholders) 4. Others (V)Internal carrying forward of owners’ equity 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others IV. Balance at the end of this 350,014,975.00 588,882,125.38 368,103,745.84 299,406,081.93 1,606,406,928.15 period 84 Dalian Refrigeration Co., Ltd. 2008 Annual Report 2007 Owners’ equity attributable to parent company Items Lessen: General Total of owners’ share capital Capital surplus treasury Surplus reserve risk Retained profits Others equity stock reserve I. balance at the end of last 350,014,975.00 571,358,098.59 298,067,136.37 237,330,635.20 1,456,770,845.16 year 1. Change of accounting policy 2. Correction of errors in previous period II. balance at the beginning of 350,014,975.00 571,358,098.59 298,067,136.37 237,330,635.20 1,456,770,845.16 this year III. Increase/ decrease of amount in this year (“-” 16,166,457.01 34,891,977.77 26,935,544.26 77,993,979.04 means decrease) (I) Net profit 114,329,768.28 114,329,768.28 (II)Gain/loss listed to owners’ 16,166,457.01 16,166,457.01 equity directly 1. Net amount on changes in book value of financial assets 11,229,905.77 11,229,905.77 available for sale 2.Effect on changes in other owners’ equity of invested 736,551.24 736,551.24 units under equity method 3. Effect on income tax related to items 4. Others 4,200,000.00 4,200,000.00 Subtotal of (I)and (II) 16,166,457.01 114,329,768.28 130,496,225.29 (III) Input an reduced capital of owners 1. Input capital of owners 2.Amount of Shares included in the owners’ equity 3. Others (IV) Profit distribution 34,891,977.77 -87,394,224.02 -52,502,246.25 1. Withdrawing surplus 34,891,977.77 -34,891,977.77 public reserve 2. Withdrawing general risk reserve 3. Distribution to all owners -52,502,246.25 -52,502,246.25 (shareholders) 4. Others (V)Internal carrying forward of owners’ equity 1. New increase of capital (share capital) from capital reserves 2. Convert surplus reserves to capital(share capital) 3. Surplus reserves make up losses 4. Others IV. Balance at the end of this 350,014,975.00 587,524,555.60 332,959,114.14 264,266,179.46 1,534,764,824.20 period 85