京东方Ｂ(200725)2008年年度报告（英文版）

BOE TECHNOLOGY GROUP CO., LTD. ANNUAL REPORT 2008 Important Notes The Board of Directors, Supervisory Committee, as well as directors, supervisors and Senior Executives of BOE TECHNOLOGY GROUP CO., LTD. (hereinafter referred to as “the Company”) hereby confirm that there exists no omission, misstatement, or misleading information in this report, and accept, individually and collectively, the responsibility for the correctness, accuracy and completeness of the contents of this report. Mr. Wang Dongsheng, Chairman of the Board, Mr. Chen Yanshun, President of the Company, Ms. Sun Yun, Chief Financial Officer of the Company, as well as Ms. Yang Xiaoping who is in charge of the Planning & Financing Department, hereby confirm that the Financial Statements enclosed in the Annual Report is true and complete. Annual Report 2008 was prepared in accordance with the Accounting Standards for Business Enterprises and other relevant provisions. KPMG Huazhen Certified Public Accountants produced the standard Auditors’ Report with unqualified opinion for the Company. This report was prepared in both Chinese and English. Should there be any difference in interpretation between the Chinese version and English version, the Chinese version shall prevail. 17 April 2009 Contents Chapter Ⅰ. Company Profile Chapter Ⅱ. Summary of Financial Highlights and Business Highlights Chapter Ⅲ. Changes in Share Capital and Particulars about Shareholders Chapter Ⅳ. Directors, Supervisors, Senior Executives and Employees Chapter Ⅴ. Corporate Governance Chapter Ⅵ. Introduction of Shareholders’ General Meeting Chapter Ⅶ. Report of the Board of Directors Chapter Ⅷ. Report of the Supervisory Committee Chapter Ⅸ. Significant Events Chapter Ⅹ. Financial Report Chapter Ⅺ. Documents for Reference 1 Chapter I Company Profile 1. Legal Name of the Company: In Chinese: 京东方科技集团股份有限公司 In English: BOE TECHNOLOGY GROUP CO., LTD. Abbr. in Chinese: 京东方 Abbr. in English: BOE 2. Legal Representative: Wang Dongsheng 3. Secretary of the Board of Directors: Feng Liqiong Securities Affairs Representative: Liu Hongfeng Contact Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Tel: 010 – 64318888 ext. Fax: 010 – 64366264 E-mail: fengliqiong@boe.com.cn liuhongfeng@boe.com.cn 4. Registered Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Office Address: No. 10, Jiuxianqiao Road, Chaoyang District, Beijing Post Code: 100016 The Company’s Internet Website: http://www.boe.com.cn E-mail: web.master@boe.com.cn 5. Newspapers Designated for Information Disclosure: Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao Internet Website Designated from CSRC for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: The office of Secretary of the Board of Directors 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form for A-share: BOE-A Stock Code for A-share: 000725 Short Form for B-share: BOE-B Stock Code for B-share: 200725 7. Other Related Information: Initial registration date: Apr. 9, 1993 Initial registration place: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registrations date after the latest changing: 8 Sep. 2008 Registration place after the latest changing: No.10, Jiuxianqiao Road, Chaoyang District, Beijing Registration number for enterprise corporate business license: 110000005012597 Registration number of taxation: JSZZi No.110105101101660 Organization Code: 10110166-0 Certified Public Accountants engaged by the Company: Name: KPMG Huazhen Certified Public Accountants Office Address: the 8th Floor, Office Tower E2, Oriental Plaza, No.1 East Chang An Avenue, Beijing 2 Chapter II Summary of Financial Highlights and Business Highlights I. Major accounting data of the year 2008 (Unit: RMB Yuan) Item Amount Operating profit -1,060,303,372 Total profit -929,351,296 Net profit attributable to shareholders of the Company -807,525,473 Net profit attributable to shareholders of the Company after deducting -1,019,040,570 extraordinary gains and losses Net cash flow from operating activities 1,127,969,877 Note: ① Items of non-recurring gains and losses (Unit: RMB Yuan) Items of non-recurring gains and losses Amount Disposal of non-current assets 70,751,075 Non-rationed Government grants 60,898,346 Excess of interest in the fair value of investee’s identifiable net 38,526,616 assets over investment costs of subsidiaries acquired Reversal of impairment provisions of receivable assessed on an 36,124,577 individual basis Adjustment on staff welfare - Other non-operating net income 32,032,960 Subtotal 238,333,574 Less: Effect on taxation 6,177,933 Total 232,155,641 Attributable to: Shareholders of the parent company 211,515,097 Minority interests 20, 640,544 ② There is no difference between the financial statements prepared in line with PRC GAAP and the financial statements prepared in line with IFRS. PRC GAAP IFRS Net profit -996,771,096.00 -996,771,096.00 Net assets 6,718,801,623.00 6,718,801,623.00 Explanation on the difference Naught II. Major accounting data and financial index over the past three years as at 31 Dec. 2008 1. Major accounting data (Unit: RMB Yuan) Increase/decrease Items 2008 2007 2006 yea-on-year (%) Operating income 8,334,015,771 11,170,448,855 -25.39% 8,839,664,291 3 Total profit -929,351,296 840,799,064 -210.53% -1,774,051,251 Net profit attributable to shareholders of the -807,525,473 690,945,815 -216.87% -1,770,802,475 Company Net profit attributable to shareholders of the Company after -1,019,040,570 518,950,766.00 -296.37% -1,788,310,829 deducting extraordinary gain and loss Net cash flow arising from operation 1,127,969,877 2,292,098,399 -50.79% 836,205,986 activities 31 December 31 December Increase/decrease 31 December Items 2008 2007 yea-on-year (%) 2006 Total assets 13,941,120,322 13,381,274,861.00 4.18% 16,554,514,012 Owners’ equity 5,936,222,532 4,570,579,149 29.88% 3,889,076,397 (shareholders’ equity) 2. Major financial index (Unit: RMB Yuan) Increase/decrease Items 2008 2007 2006 yea-on-year (%) Basic earnings per share -0.27 0.24 -212.50% -0.75 (RMB/share) Diluted earnings per -0.27 0.24 -212.50% -0.75 share (RMB/share) Basic earnings per share after deducting -0.33 0.18 -283.33% -0.76 extraordinary gain and loss (RMB/share) Fully diluted return on -13.60% 15.12% -28.72% -45.53% net assets (%) Weighted average return -15.94% 16.33% -32.27% -51.16% on net assets (%) Fully diluted return on net assets after deducting -17.17% 11.35% -28.52% -45.98% extraordinary gain and loss (%) Weighted average return on net assets after -20.11% 12.26% -32.37% -51.66% deducting extraordinary gain and loss (%) Net cash flow per share arising from operation 0.34 0.80 -57.50% 0.29 activities (RMB/share) 4 31 December 31 December Increase/decrease 31 December Items 2008 2007 yea-on-year (%) 2006 Net assets per share attributable to 1.81 1.59 13.84% 1.35 shareholders of the Company (RMB/share) 5 Chapter III Changes in Share Capital and Particulars about Shareholders I. Changes in share capital 1. Statement of changes in share capital as at the end of reporting period Unit: share Subsequent to the Prior to the change Increase/ decrease (+, -) change Item Issuance of Other Number Ratio new share Subtotal Number Ratio (Note 2) (Note 1) I. Shares subject to trading 1,066,120,896 37.127% 411,334,552 -648,177,570 -236,843,018 829,277,878 25.261% moratorium 1. Shares held by the State 290,697,675 10.123% 290,697,675 8.855% 2. Shares held by 775,357,803 27.002% 411,334,552 -648,177,570 -236,843,018 538,514,785 16.404% state-owned corporation 3. Shares held by other 0 0.000% 0 0 0 0 0.000% domestic investors Including: Shares held by domestic non-stated 0 0.000% 0 0 0 0 0.000% corporation Shares held by domestic 0 0.000% 0 0 0 0 0.000% natural persons 4. Shares held by 0 0.000% 0 0 0 0 0.000% foreign investors Including: Shares held by 0 0.000% 0 0 0 0 0.000% foreign corporation Shares held by foreign 0 0.000% 0 0 0 0 0.000% natural persons 5. Shares held by senior 65,418 0.002% 0 0 0 65,418 0.002% management II. Shares not subject to 1,805,446,999 62.873% 0 648,177,570 648,177,570 2,453,624,569 74.739% trading moratorium 1. RMB common shares 689,896,999 24.025% 0 648,177,570 648,177,570 1,338,074,569 40.759% 2. Domestically listed 1,115,550,000 38.848% 0 0 0 1,115,550,000 33.980% foreign shares 3. Overseas listed foreign 0 0.000% 0 0 0 0 0.000% shares 4. Other 0 0.000% 0 0 0 0 0.000% III. Total shares 2,871,567,895 100.00% 411,334,552 0 411,334,552 3,282,902,447 100.00% Note: Details for change in shares of the Company: (1) During the reporting period, as approved by CSRC with ZJXK [2008] No. 587 document, the Company completed the private placement of A-share totaling to 411,334,552 shares in July 2008. Therefore, the total share capital has increase to 6 3,282,902,447 shares. (2) On 1 Dec. 2008, Beijing BOE Investment & Development Co., Ltd., the controlling shareholder of the Company, in accordance with commitment made in the Share Merger Reform, released from the trading moratorium, totalling to 648,177,570 shares. Change in shares subject to trading moratorium Name of shareholder Number of Number of Increased Number of Reason Date of shares subject shares number of shares releasing to trading released from shares subject subject to trading moratorium trading to trading trading moratorium at year-begin moratorium in moratorium in moratorium current year current year at year-end Beijing BOE Investment & private issuing of 775,357,803 648,177,570 0 127,180,233 9 Oct. 2009 Development Co., Ltd. A-shares Bejing Electronics Holdings private issuing of 290,697,675 0 0 290,697,675 9 Oct. 2009 Co., Ltd. A-shares Chengdu Industry private issuing of 0 0 201,096,892 201,096,892 16 Jul. 2009 Investment Group Co., Ltd. A-shares Chengdu Hi-tech private issuing of 0 0 127,970,749 127,970,749 16 Jul. 2009 Investment Group Co., Ltd. A-shares Beijing Economic-Technological private issuing of 0 0 82,266,911 82,266,911 16 Jul. 2009 Investment & Development A-shares Co., Ltd. Director, senior Wang Dongsheng 18,691 0 0 18,691 － management Liang Xinqing 7,477 0 0 7,477 Director － Director, senior Han Guojian 7,476 0 0 7,476 － management Mu Chengyuan 1,869 0 0 1,869 Supervisor － senior Song Ying 18,691 0 0 18,691 － management senior Wang Yanjun 7,476 0 0 7,476 － management senior Sun Yun 3,738 0 0 3,738 － management Total 1,066,120,896 648,177,570 411,334,552 829,277,878 － － 2. Issuance and listing of securities in recent three years as at 31 Dec. 2008 (1) As approved by CSRC with ZJFX Zi [2006] No. 36 document, the Company completed the private placement of A-share amounting to 675,872,095 shares in Oct. 2006. Therefore, the total share capital of the Company has increase to 2,871,567,895 shares from 2,195,695,800 shares. 7 As approved by CSRC with ZJXK [2008] No. 587 document, the Company completed the private placement of A-share totaling to 411,334,552 shares in July 2008. Therefore, the total share capital of the Company has increase to 3,282,902,447 shares from 2,871,567,895 shares. (2) The Company has no staff shares. II. About shareholders 1. Number of shareholders and shares held by shareholders The top ten shareholders as at Dec. 31, 2008 (Unit: share) 97,086 shareholders in total Total number of shareholders (including 57,940 ones of A-share and 39,146 ones of B-share) Particulars about shares held by top ten shareholders Nature of Proportion Share pledged Name of shareholder Total shares Conditional shares shareholders (%) or frozen BEIJING BOE INVESTMENT & State-owned 23.68% 777,357,803 127,180,233 0 DEVELOPMENT CO., LTD. corporation BEJING ELECTRONICS Share of the State 8.85% 290,697,675 290,697,675 290,697,675 HOLDINGS CO., LTD. CHENGDU INDUSTRY State-owned 6.13% 201,096,892 201,096,892 0 INVESTMENT GROUP CO., LTD. corporation CHENGDU HI-TECH State-owned 3.90% 127,970,749 127,970,749 0 INVESTMENT GROUP CO., LTD. corporation FIELDS PACIFIC LIMITED Foreign corporation 2.77% 90,825,678 0 0 BEIJING INDUSTRY DEVELOPMENT & Share of the State 2.61% 85,823,132 0 0 INVESTMENT MANAGEMENT CO., LTD. BEIJING STATE-OWNED ASSETS MANAGEMENT CO., Share of the State 2.55% 83,690,185 0 0 LTD. BEIJING ECONOMIC-TECHNOLOGICAL State-owned 2.51% 82,266,911 82,266,911 0 INVESTMENT & corporation DEVELOPMENT CO., LTD. BOCI SECURITIES Unknown 1.00% 32,803,045 0 0 LIMITED SBCI FINANCE ASIA LTD Unknown 0.99% 32,461,315 0 0 A/C SBC HONG KONG Top ten shareholders not subject to trading moratorium Number of shares not subject to Name of shareholders Nature of shares trading moratorium BEIJING BOE INVESTMENT & DEVELOPMENT CO., LTD. 650,177,570 A-share FIELDS PACIFIC LIMITED 90,825,678 B-share BEIJING INDUSTRY DEVELOPMENT & INVESTMENT 85,823,132 A-share 8 MANAGEMENT CO., LTD. BEIJING STATE-OWNED ASSETS MANAGEMENT CO., LTD. 83,690,185 A-share BOCI SECURITIES LIMITED 32,803,045 B-share SBCI FINANCE ASIA LTD A/C SBC HONG KONG 32,461,315 B-share HUANG YING SHAN 27,221,211 B-share PERSHING LLC 12,258,959 B-share SUN HUNG KAI INVESTMENT SERVICES 11,563,643 B-share LTD-CUSTOMERS A/C HENAN TIANMING PROPERTY CO., LTD. 9,956,439 A-share 1. Beijing Industry Development & Investment Management Co., Ltd. is the Explanation on associated wholly-owned subsidiary company of Beijing State-Owned Assets Management Co., relationship among the top ten Ltd. There exists an associated relationship between them. shareholders or action-in-concert 2. Except for the above shareholders, The Company is not aware of whether there is any associated relationship or not among top ten tradable shareholders. Note: As at 31 Dec. 2008, Beijing Electronics Holdings Co., Ltd., the actual controller of the Company, has handled mortgage of its 145,348,837 shares of the Company. The rest 145,348,838 shares of the Company held by it have been frozen judicially. 2. Number of shares held by shareholders subject to trading moratorium and trading moratorium Number of Number of shares subject to Date to be additional Name of shareholders Trading moratorium trading listed marketable moratorium shares Shares shall not be Beijing BOE Investment & After T1+36 127,180,233 127,180,233 transferred within 36 Development Co., Ltd. months months since T1 Shares shall not be Bejing Electronics Holdings After T1+36 290,697,675 290,697,675 transferred within 36 Co., Ltd. months months since T1 Shares shall not be Chengdu Industry Investment After T2+12 201,096,892 201,096,892 transferred within12 Group Co., Ltd. months months since T2 Shares shall not be Chengdu Hi-tech Investment After T2+12 127,970,749 127,970,749 transferred within12 Group Co., Ltd. months months since T2 Beijing Shares shall not be Economic-Technological After T2+12 82,266,911 82,266,911 transferred within12 Investment & Development months months since T2 Co., Ltd. T1 refer to 9 Oct. 2006, the date on which the register of private placement of A-share was completed in China Securities Depository & Clearing Corporation Limited, Shenzhen Branch in 2006. 9 T2 refer to 16 Jul. 2008, the date on which the register of private placement of A-share was completed in China Securities Depository & Clearing Corporation Limited, Shenzhen Branch in 2008. 3. Introduction to controlling shareholder and the actual controller (1) About the controlling shareholders Beijing BOE Investment & Development Co., Ltd. holds 23.68% of the total shares of the Company. Therefore, it is the actual controlling shareholder of the Company. Its general information is as follows: Name: Beijing BOE Investment & Development Co., Ltd. Legal Representative: Wang Dongsheng Date of Foundation: Apr. 21, 2005 Address: No.10 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 680.982 million Type of the company: Sino-foreign Equity Joint Ventures Enterprises (proportion of foreign-currency is lower than 25%) Business scope: R&D and production of electronic products, electronic raw materials and components; the relevant technical development, technical consultation, technical service and transfer; sales of self-produced products. (Other than projects with limit and special provision invested by foreign investors) (2) About the actual controller Beijing Electronics Holdings Co., Ltd. holds 56.25% of the shares of Beijing BOE Investment & Development Co., Ltd. and 8.85% of the shares of the Company directly. Therefore, it is the actual controller of the Company. Beijing Electronics Holdings Co., Ltd. belongs to Beijing Municipal state-owned holding company, as well as a Beijing municipal state-owned assets authorized operation unit. Its general information is as follows: Name of the enterprise: Beijing Electronics Holding Co., Ltd. Legal Representative: Bu Shicheng Date of Foundation: Apr. 8, 1997 Location: No.12 Jiuxianqiao Road, Chaoyang District, Beijing Registered Capital: RMB 1,307.37 million Type: Limited Company (State-owned sole corporations) Business scope: operation and management of state-owned assets within authorization; communications equipments, audio & visual products for broadcasting and television; computer and its supporting equipments and the applied products; electronic raw material and components; home electric appliances and electronic products; electronic surveying instruments and meters; mechanical and electric equipments; electronic transportation products and investment in business fields other than electronics and its management; development of real estate, lease and sales of commodity apartments; property management. (3) The property right and controlling relationship between the actual controller and the Company are as follows: 10 State-owned Assets Supervision & Administration Wang Dongsheng 20%, Jiang Yukun 10%, Liang Xinqing 10%, Zhao Caiyong Commission of Beijing People’s Government 6.667%, Shi Dong 6.667%, Chen Yanshun 6.667%, Song Ying 6.667%, Han 100% Guojian 6.667%, Gong Xiaoqing 3.333%, Wang Yanjun 3.333%, Wang Jiaheng 3.333%, Liu Xiaodong 3.333%, Ren Jianchang 1.667%, Sun Jiping 1.667%, Zhang Peng 1.667%, Wang Ai’zhen 1.667%, Mu Chengyuan 1.667%, Beijing State-owned Capital Management Xu Yan 1.667%, Hua Yulun 1.667%, Zhong Huifeng 1.667% Administrative Center 100% 100% Beijing Electronics Holdings Co., Ltd. Marubeni Corporation Beijing Intelligent Kechuang Technology Development Co., Ltd. 56.25% 10% 33.75% Beijing BOE Investment & Development Co., Ltd. 23.68% 8.85% BOE Technology Group Co., Ltd. Note: 1. The Company regards Beijing Intelligent Kechuang Technology Development Co., Ltd. as a platform to implement equity incentive for wholly core technology manager, the aforesaid 20 subscribers are nominal shareholders, each investment proportion is not actual equity proportion, the equities of Beijing Intelligent Kechuang Technology Development Co., Ltd. are held in common by all implemented objectives of simulate plan of equity incentive mechanism. 2. In Feb. 2009, the State-owned Assets Supervision and Administration Commission of Beijing Municipality transferred Beijing Electronics Holdings Co., Ltd. to Beijing State-owned Capital Management Administrative Center. After transfer, the shares of the Company held by Beijing Electronics Holdings Co., Ltd. (the actual controller of the Company) remained unchanged, and the actual controller remained unchanged, still is Beijing Electronics Holdings Co., Ltd.. For details, please refer to Suggestive Public Notice disclosed on 4 Feb. 2009. 11 Chapter IV Directors, Supervisors, Senior Executives and Employees I. Directors, supervisors and senior executives 1. General information of directors, supervisors and senior executives Number of Number of Reason Beginning date of Ending date of shares held shares held Name Position Sex Age for office term office term at the at the change year-begin year-end Chairman of the Board Wang Director of Male 51 25 May 2007 25 May 2010 24,921 24,921 - Dongsheng executive committee Vice Chairman Han Yansheng Male 61 25 May 2007 25 May 2010 0 0 - of the Board Vice Chairman Liang Xinqing Male 56 25 May 2007 25 May 2010 9,969 9,969 - of the Board Executive Chen Yanshun director, Male 42 25 May 2007 25 May 2010 0 0 - President Executive Han Guojian director, Male 55 16 Nov. 2007 25 May 2010 9,968 9,968 - Vice President Executive Wang Jiaheng director, Male 39 25 May 2007 25 May 2010 0 0 - Vice President Gui Jinghua Director Female 35 25 May 2007 25 May 2010 0 0 - Independent Zhang Baizhe Male 65 25 May 2007 25 May 2010 0 0 - director Independent Dong Ansheng Male 57 25 May 2007 25 May 2010 0 0 - director Ouyang Independent Male 62 16 Nov. 2007 25 May 2010 0 0 - Zhongcan director Independent Geng Jianxin Male 54 30 Dec. 2008 25 May 2010 0 0 - director Convener of Wu Wenxue Supervisory Male 42 25 May 2007 25 May 2010 0 0 - Committee Mu Chengyuan Supervisor Male 41 25 May 2007 25 May 2010 2,492 2,492 - Chen Ping Supervisor Female 48 25 May 2007 25 May 2010 0 0 - Employee Yang Anle Male 38 25 May 2007 25 May 2010 0 0 - supervisor Employee Li Wei Male 44 25 May 2007 25 May 2010 0 0 - supervisor 12 Liu Xiaodong Vice President Male 44 29 Aug. 2007 25 May 2010 0 0 - Song Ying Vice President Female 51 25 May 2007 25 May 2010 24,921 24,921 - Wang Yanjun Vice President Male 39 22 Aug. 2007 25 May 2010 9,968 9,968 - Sun Yun CFO Female 39 22 Aug. 2007 25 May 2010 4,984 4,984 - Dong Youmei Vice President Female 45 22 Aug. 2007 25 May 2010 0 0 - Auditor General, Su Zhiwen Male 39 30 Oct. 2007 25 May 2010 0 0 - Chief Risk Officer Chief Lawyer Officer, Feng Liqiong Female 36 22 Aug. 2007 25 May 2010 0 0 - Secretary of the Board Total - - - - - 87,223 87,223 - 2. Main work experience and part-time job of directors, supervisors and senior executives Directors Particulars (1) Mr. Wang Dongsheng, Master of Engineering, ever took the posts of Chairman of the Board and President of the 1st and 2nd Board of Directors, and Chairman of the 3rd Board of Directors of the Company, as well as Chairman of Executive Committee, CEO, and the Chairman of the 4th Board of Directors of the Company and Chairman of Executive Committee. Now he takes the posts of Chairman of the 5th Board of Directors, Director of Executive Committee of the Company, Vice Chairman of the Board of Beijing Electronics Holding Co., Ltd. and concurrently takes the posts of Chairman of the Board of Beijing BOE Investment and Development Co., Ltd., Chairman of the Board of Beijing BOE Optoelectronics Technology Co., Ltd., Director of Beijing Intelligent Kechuang Technology Development Co., Ltd. and Vice President of China Electronic Chamber of Commerce. (2) Mr. Han Yansheng, Associated Colleges Degree, he had taken the posts of Factory Managing Director, a member of the Communist Party of Beijing No.1 Semiconductor Device Factory, Director of Adjustment Office of Beijing Government Electronic Office, Deputy Manager of Beijing Government Electronic Office, Director and Deputy General Manager of Beijing Electronic Information Industry (Group) Co., Ltd., Vice Chairman of the 4th Board of Directors. Now he served as Vice Chairman of the 5th Board of Director and Vice Chairman of Beijing BOE Investment and Development Co., Ltd. (3) Mr. Liang Xinqing, Senior Engineer. He has taken the posts of Managing Director, Vice President of the 1st Board of Directors, Director of the 2nd Board of Directors, Executive Director, President and COO of the 3rd Board of the Directors, Vice Chairman of 4th Board of Directors, Director of Beijing Matsushita Color CRT Co., Ltd. and the Chairman of the Board in Beijing Asahi Glass Electronic Co., Ltd.. Now he takes the posts of Vice Chairman of the 5th Board of Directors, Chairman of the Board of Beijing Nittan Electronics Co., Ltd., Chairman of the Board of Beijing Nissin Electronics Precision Component Co., Ltd, Director of Beijing Intelligent Kechuang Technology Development Co., Ltd, Director and President of 13 Beijing BOE Investment & Development Co., Ltd. (4) Mr. Chen Yanshun, Master of Economics, has ever taken the posts of lecturer of Chongqing Industry & Commerce University. He had served in the Company form the year of 1993, has taken the posts of Secretary of the Board of the 1st Board of Directors of the Company, Secretary and Vice President of the 2nd Board of Directors and Executive Director and Senior Vice President of the 3rd Board of Directors, Executive Director and President of the 4th Board of Directors. Now he takes the posts of Executive Director and the President of the 5th Board of Directors, Director of Beijing BOE Optoelectronics Technology Co., Ltd., Director of Zhejiang BOE Display Technology Co., Ltd., Chairman of the Board of Chengdu BOE Optoelectronics Technology Co., Ltd., Vice Chairman of the Board of Hefei BOE Optoelectronics Technology Co., Ltd. and Director and Chairman of the Board in Beijing Matsushita Color CRT Co., Ltd.. (5) Mr. Han Guojian, Bachelor Degree, Senior Engineer, he successively took Technical Chief Officer in Division under the Company, Deputy General Manager of Beijing Asahi Glass Electronics Co., Ltd. and Chairman of the Board of Beijing BOE YAMATO Photoelectron Co., Ltd., Representative Director and Deputy Proprietor of BOE HYDIS Technology Co., Ltd, Senior Vice President of Beijing BOE Investment & Development Co., Ltd. Now he takes the posts of Executive Director of the 5th Board of Directors, Vice President of the Company, Director and General Manager of Beijing BOE Optoelectronics Technology Co., Ltd., Chairman of the Board of Beijing BOE Special Display Technology Co., Ltd. and Director of Chengdu BOE Optoelectronics Technology Co., Ltd.. (6) Mr. Wang Jiaheng, MBA, he ever took the post of General Manager of Electronic Components Division of the Company. Now he takes the posts of Executive Director of the 5th Board of Directors, Vice President of the Company, Chairman of the Board of BOE Hyundai (Beijing) Display Technology Co., Ltd, Chairman of the Board of BOE (Hebei) Mobile Display Technology Co., Ltd., Director and General Manager in Chengdu BOE Optoelectronics Technology Co., Ltd., as well as Director of Zhejiang BOE Display Technology Co., Ltd. (7) Ms. Gui Jinghua, Master. She has taken the posts of Project Manager of China National Aero-Technology Import & Export Company, Assistant Manager of Sun Media Group Holdings Limited and Manager of Investment Department of Panasia International Media Holdings Co., Ltd., Director of the 4th Board of Directors of the Company. Now she takes the posts of Director of the 5th Board of the Directors, as well as Deputy General Manager of Infrastructure Investment Department of Beijing State-owned Assets Management Co., Ltd. Independent Directors Particulars (8) Mr. Zhang Baizhe, senior engineer of Tsinghua University, Expert in LCD. He has ever worked as Independent Director of the 3rd and 4th Board of the Directors. He is now an Independent Director of the 5th Board of the Directors; General Manager of Beijing Yongsheng Huatsing Liquid Crystal Co. Ltd., Executive Director of Beijing TSING 14 Electronics Co., Ltd., consular of Beijing Tsinghua ERC of Liquid Crystal Technology, and Independent Director of Success Electronics Ltd.. (9) Mr. Dong Ansheng, Doctor of Laws, Professor of School of Law of Remin University of China, Doctor Advisor, Researcher of Financial and Securities Research Institute, Researcher of Finance and Financial Policy Research Center, Deputy Director of Research Center for Civil and Commercial Law. He also held the posts of Chinese Counselor-at-law on A shares, B shares, H shares and Hong Kong shares’ issuing and listing for more than 40 listed companies, had wrote more works in securities field and had rich practical experience. Now he takes the posts of Independent Director of the 5th Board of Directors in the Company, Independent Director of Beijing Wangfujing Department Store (Group) Co., Ltd, Independent Director of Beijing Capital International Airport Co., Ltd, Independent Director of Zhejiang New Jialian Electronics Co., Ltd; concurrently vice-chairman of China Securities Law Association, councilman and members for many law societies, and Arbitrator of Shenzhen Arbitration Commission. (10) Ouyang Zhongcan, Theoretical Physical Scientist. He graduated from Tsinghua University as Automation Major. He worked at Lanzhou Chemical Factory as Assistant Engineer from 1968 to 1978. In 1978 he studied to proceed the Doctor with the major of Liquid Crystal Nonlinear Optics Theory in Tsinghua University and won Doctor Degree in 1984. Between 1985 and 1986, he researched the fractal growth theory as post-doctoral in Institute of Theoretical Physical, Chinese Academy of Science; during 1987 to 1988, he invited the Free University of Berlin with the position of Alexander von Humboldt Fellow to study the theory of liquid morphology of vesicles following up the professor W. Helfrich who invented the Twisted Nematic Liquid Crystal Display. Then in the year of 1989, he returned to work in Institute of Theoretical Physical, Chinese Academy of Science as Associate Researcher and became researcher in 1992, as the Director there from Dec. 1998 to Mar. 2007. Now he takes the posts of Director of Academic Committee Institute of Theoretical Physical, Chinese Academy of Science; Vice-president of the Council of the National Science Foundation for Post-doctor in China; Executive Director of Beijing Minicipal Science Association, Executive Director of Chinese Physical Society, Director of Liquid Crystals Physics Branch; Editor in Chief of Acta Physica Sinica and China Phys B (2008-2011), and Editorial Member in International Journal of Modern Physics B ( Singapore, from 2004 up to now), Journal of Computational and Theoretical Nanoscience ( America, from 2004 up to now), Soft Materials ( German, from 2004 up to now), and Electronic Communication of Liquid Crystals( America, from 2003 up to now). He was elected as an academician of Chinese Academy of Sciences in 1997, as an academician of the Third World Academy of Sciences. In 2008, he was elected as member of the national committee of CPPCC. (11) Mr. Geng Jianxin, Doctor, Professor, as well as Doctoral advisor At present he serves as a member of scholarship committee of School of Business of People’s University of China, as Professor in charge of Principles of Accounts, as member of Chian Accounting Standards Committee, as Director and academic member of Councils of China Accounting Association, as Director of China Audit Society, Deputy Director of Academic 15 Committee, as Independent Director in Beijing DHC Digital Technology Co., Ltd. and Triangle (Weihai) Tire Co., Ltd respectively. He starts to enjoy government special allowance since 2002. Supervisors Particulars (12) Mr. Wu Wenxue, Master of Economics, he served as the project manager of Issuing Development of Huaxia Securities, as Deputy Factory Manager of Beijing Foster Automobile Decorations Factory, as Deputy Chief of Comprehensive Management Dept., Deputy Directors of Policies Research Office of Beijing Gongmei Group Company, Deputy General Manager of Beijing Wangfujing Gongmei Building, as General Manager of Beijing Wolafey Decoration Co., Ltd., as Deputy General Manager and a member of CPC Committee of Beijing Gongmei Group Co., Ltd., as Deputy General Manager of China Youfa International Project Design Consulting Co., Ltd, the Convener of the 4th Supervisory Committee of the Company. Now he holds the positions of the convener of the 5th Supervisory Committee of the Company, as well as Vice President of Beijing Electronics Holdings Co., Ltd. (13) Mr. Mu Chengyuan, Bachelor Degree, Economist, he ever took the posts of Manager of comprehensive department of International Trade Branch of the Company, Deputy General Manager of Beijing Orient Lighting Fixture Engineering Co., Ltd., Division Chief of Assets Operating and Management Division of and Deputy Factory Manager of Beijing Electronic Tube Factory, Supervisor of the 3rd and 4th Supervisory Committee of the Company, Secretary of the 4th Supervisory Committee. Now he is the Supervisor and Secretary of the 5th Supervisory Committee, Department Director of Display Division of Beijing Electronics Holdings Co., Ltd., as well as Vice President and Secretary of the Board of Beijing BOE Investment & Development Co., Ltd. (14) Ms. Chen Ping, College diploma, Senior Accountant. She has served as Deputy General Accountant and Manager of Planning and Financing Department in Beijing BOE Investment & Development Co., Ltd., as Supervisor of the 4th Supervisory Committee of the Company. As present, she is the Supervisor of the 5th Supervisory Committee, as well as Chief Accountant and Manager of Planning and Financing Department of Beijing Dongdian Industrial Development Corporation. (15) Mr. Yang Anle, graduate student. He has taken the posts of Deputy Division Chief of Planning and Financing Division of Beijing Electronic Tube Factory, Manager of Planning and Financing Dept. in Beijing BOE Investment & Development Co., Ltd., Chief Financial Officer of Beijing Dongdian Industrial Development Corporation, as well as Supervisor of the 2nd, 3rd and 4th Supervisory Committee of the Company. Now, he acts as Chief Investment Officer of the Company and Staff Supervisor of the 5th Supervisory Committee, as well as Director in many subsidiaries of the Company such as Beijing BOE Orient Vacuum Electric Co., Ltd.. (16) Mr. Li Wei, graduate student. He has served as Secretary of CYL Committee, minister of PKU Department of Publicity in Beijing Matsushita Color CRT Co., Ltd. and as General 16 Manager of Beijing Yansong Hongda Electronics Components Co., Ltd. At present, he is Staff Supervisory of the 5th Supervisory Committee of the Company and Chief Human Resource Officer (CHO) of Suzhou BOE Chatani Electronics Co., Ltd.. Senior Management Staffs (17) For details of resume of Mr. Wang Dongsheng, please see “(1)” under “Director Particulars”. (18) For details of resume of Mr. Chen Yanshun, please see “(4)” under “Director Particulars”. (19) For details of resume of Mr. Han Guojian, please see “(5)” under “Director Particulars”. (20) For details of resume of Mr. Wang Jiaheng, please see “(6)” under “Director Particulars”. (21) Mr. Liu Xiaodong, Undergraduate, Engineer, he ever worked in Research Institute of Beijing Information Optics Apparatus. He successively took the posts of Director, Deputy General Manager and Secretary of CPC of Beijing·Matsushita Color CRT Co., Ltd. and Director and General Manager of Beijing BOE Optoelectronics Technology Co., Ltd., as well as Senior Vice President of Beijing BOE Investment & Development Co., Ltd. Now he is Vice President of the Company, Director and General Manager of Hefei BOE Optoelectronics Technology Co., Ltd., Director of Beijing BOE Optoelectronics Technology Co., Ltd., Director of Suzhou BOE Chatani Electronics Co., Ltd., Director of Beijing BOE Chatani Electronics Co., Ltd., as well as Director of Xiamen BOE Electronics Co., Ltd.. (22) Ms. Song Ying, Senior Accountant, she has ever taken the posts of Division Chief of Planning and Financing Division in Beijing Electronic Tube Factory, Manager of Financial Department and Chief Financial Officer of the Company, Director and Standing Vice President of the 2nd Board of Directors of the Company, Executive Director and Senior Vice president of the 3rd Board of Directors of the Company. At present she serves as Secretary of CPC and Vice President of the Company and concurrently Vice Chairman of the Board of Zhejiang BOE Display Technology Co., Ltd., Director of Beijing·Matsushita Color CRT Co., Ltd. and Director of Beijing Intelligent Kechuang Technology Development Co., Ltd. (23) Mr. Wang Yanjun, Accountant, obtained EMBA of Euro-China International Business College. He ever took the posts of Division Chief in Financial Division of Beijing Electronic Tube Factory, Department Director of Financial Department and Chief Financial Officer of the Company, Director of Beijing Asahi Glass Electronics Co., Ltd., Director of Beijing Nissin Electronics Precision Component Co., Ltd., Director of Beijing Orient Top Victory Electronics Co., Ltd., Director of Zhejiang BOE Display Technology Co., Ltd., Director of Beijing Star City Real Estate Co. Ltd., Director of TPV Technology Co., Ltd. Now he is the Vice President of the Company, concurrently acts as Supervisor of Zhejiang BOE Display Technology Co., Ltd., Chairman of the Board of Beijing Asahi Glass Electronics Co., Ltd., Chairman of the Board of Beijing BOE Land Co., Ltd., Chairman of the Board of Beijing 17 Yinghe Century Science & Technology Development Co., Ltd., as well as Director of Beijing Electron City Co., Ltd. . (24) Ms. Sun Yun, Master of Business. She is the member of CPA Australia and Senior Accountant. She has successively taken the posts of Deputy Department Director, Department Director of Financial Department of the Company, as well as Deputy Chief Financial Officer and Chief Auditor of the Company. Now she is Chief Financial Officer of the Company, Director of Beijing BOE Land Co., Ltd., Director of Beijing Yinghe Century Science & Technology Development Co., Ltd., Director of Chengdu BOE Optoelectronics Technology Co., Ltd., as well as Supervisor of Beijing BOE Vacuum Electric Co., Ltd.. (25) Ms. Dong Youmei, Bachelor Degree. She has successively taken the posts of Deputy Director of New Product Development Division, Shuguang Electronic Group Corp., Deputy Chief Engineer, and Deputy Director of Liquid Crystal Center in Tsinghua University, Deputy Chief Technical Officer and Strategic Chief Technical Officer of the Company. Now she serves as Vice President of the Company, as Director in Suzhou BOE Chatani Electronics Co., Ltd., in Xiamen BOE Electronics Co., Ltd., in Beijing BOE Chatani Electronics Co., Ltd. and in Beijing BOE Special Display Technology Co., Ltd. respectively, as Member of Advisory Committee for the State Information, Part-time Professor of Science School in Beijing Jiaotong University; Standing Vice Director of LCD Branch, China Optics and Optoelectronics Manufactures Association; Deputy Director of National Technical Committee on Optical Functional Film Materials of Standardization Administration of China, Group Leader of Working Group for Flat Display Technology LC Branch under National Technical Committee on Optical Functional Film Materials of Standardization Administration of China, and editorial member of Chinese Journal such as Liquid Crystals and Displays, and Advanced Display. (26) Mr. Su Zhiwen, membership of Hong Kong, China, MBA in Hong Kong Technology University, a member of Hong Kong Accountant Association and experienced member of the Association of Chartered Certified Accountants in UK. He has taken the posts of Manager of Check and Consulting Department of PriceWaterhouseCoopers CPAs, Chief Financial Officer of Hong Kong Economic Daily Group and Assistant of Chairman of the Board of the Company in succession. He is now the Chief Auditor and Chief Risk Officer of the Company, as well as Chief Auditor of Beijing BOE Optoelectronics Technology Co., Ltd. (27) Ms. Feng Liqiong, Bachelor Degree and Lawyer, she has served as Department Director of Law Affairs Department of the Company. Now she is Chief Law Officer and Secretary to the Board of the Company, Director of Beijing BOE Land Co., Ltd., as well as Director of Beijing Yinghe Science & Century Technology Development Co., Ltd.. 3. Directors and supervisors holding the posts in the shareholders entities and relevant compensation received 18 Office title in the Shareholders entities Name Company Name of shareholders Office title Han Vice Chairman of Beijing BOE Investment & Development Vice Chairman of the Board Yansheng the Board Co., Ltd. Liang Vice Chairman of Beijing BOE Investment & Development Director and President Xinqing the Board Co., Ltd. Deputy General Manager of Beijing State-owned Assets Management Gui Jinghua Director Infrastructure Investment Co., Ltd. Department Convener of the Vice President Wu Wenxue Supervisory Beijing Electronics Holdings Co., Ltd. Committee Supervisor Chief Accountant Beijing Dongdian Industrial Development Chen Ping Manager of Planning and Co., Ltd Financing Department Director of Display Beijing Electronics Holdings Co., Ltd. Mu Division Department Supervisor Chengyuan Beijing BOE Investment & Development Vice President Co., Ltd. Secretary of the Board II. Remunerations for directors, supervisors and senior executives The Nomination, Remuneration and Appraisal Committee of the Board of Directors shall set down the Measure concerning remuneration, welfare and appraisal for directors and senior executives of the Company, and also shall conduct the performance appraisal to directors and senior executives. The remuneration and welfare standards shall be set down according to the market remuneration level as well as the real status of the Company and the individual status of the directors and senior executives. The actual remuneration shall, combining the results of the performance appraisal, be proposed by the Nomination, Remuneration and Appraisal Committee according to the remuneration and welfare standards, and then will be implemented after submitting to the Board of Directors for examination and approval. During the reporting period, among the current directors, supervisors and senior executives, there are 17 persons draw their remuneration from the Company with total remuneration of RMB 7,242,900 (before tax). Allowance for independent directors is RMB 100,000 (after tax) per year. Total remuneration drawn from Whether they draw their the Company in the reporting compensation from the Name Office title period（RMB ’0000） shareholders entities or other （before tax） associated entities or not Chairman of the Board Wang Dongsheng 99.09 No Director of executive committee Han Yansheng Vice Chairman of the Board 0.00 Yes Liang Xinqing Vice Chairman of the Board 0.00 Yes Chen Yanshun Executive director, 79.40 No 19 President Executive director, Han Guojian 60.09 No Vice President Executive director, Wang Jiaheng 48.28 No Vice President Gui Jinghua Director 6.71 Yes Zhang Baizhe Independent director 10.92 No Dong Ansheng Independent director 10.92 No Ouyang Zhongcan Independent director 7.79 No Geng Jianxin Independent director 0.00 No Convener of Supervisory Wu Wenxue 0.00 Yes Committee Mu Chengyuan Supervisor 0.00 Yes Chen Ping Supervisor 0.00 Yes Yang Anle Employee supervisor 25.28 No Li Wei Employee supervisor 21.46 No Liu Xiaodong Vice President 48.28 No Song Ying Vice President 48.40 No Wang Yanjun Vice President 48.28 No Sun Yun CFO 42.43 No Dong Youmei Vice President 42.54 No Auditor General, Su Zhiwen 87.24 No Chief Risk Officer Feng Liqiong Secretary of the Board 37.18 No Total - 724.29 - Note: Mr. Xie Zhihua resigned from the post of Independent Director of the Company on 12 Dec. 2008, but he held such position till 30 Dec. 2008. In 2008, Mr. Xie got his remuneration of RMB 109,200 (before tax) from the Company. III. Changes of directors, supervisors and senior executives in the reporting period On 12 Dec. 2008, the Company received the resignation from Mr. Xie Zhihua, Independent Director of the Company. Mr. Xie resigned from the post Independent Director of the Company due to the expiration of six-year office term. Meanwhile, he also resigned the post in the Audit Committee and Nomination of and Remuneration and Appraisal Committee of the Board of Directors. On the same day, as examined and approved at the 19th meeting of the 5th Board of Directors of the Company, the Board of Director nominated Mr. Geng Jianxin as Independent Director Candidate of the 5th Board of Directors, meanwhile, he also took the place of Mr. Xie to hold the post in each special committees of the Board of Directors. On 30 Dec. 2008, as examined and approved at the 3rd extraordinary shareholders’ general meeting for the year 2008, Mr. Geng Jianxin was elected as Independent Director of 20 the 5th Board of Directors of the Company. IV. Schedule to the employees of the Company By the end of 2008, there were 9661 on-the-job workers in the Company. Their professional division and education levels as follows (Unit: person) R&D Professional Marketing Management Financial Production Profession Other Technology skills personnel personnel personnel personnel Number 339 1158 233 902 159 6516 354 Proportion 3.51% 11.99% 2.41% 9.34% 1.65% 67.45% 3.66% Doctor & Junior Technical Master Bachelor Other Post-Doctor College secondary school Number 39 336 1540 1337 4379 2030 Proportion 0.40% 3.48% 15.94% 13.84% 45.33% 21.01% 21 Chapter V Corporate Governance I. Particulars about Checking the Corporate Governance against the Requirements in Regulatory Documents of Corporate Governance for Listed Companies The Company has stringently followed the requirements in the laws, regulations and regulatory documents for listed companies, to continuously improve the corporate governance and internal control system of the Company, as well as standardize the operation of the Company. Currently, the actual situation and requirement of the Company’s corporate governance is in accordance with the requirements. Since 2007, the Company has actively promoted the special campaign on corporate governance, and achieved relatively good results. In 2008, the Company continued to conduct self-check on capital transaction among affiliated parties and external guarantee based on the requirement of China Securities Regulatory Commission and Beijing Securities Regulatory Commission. Meanwhile, based on the new requirements as well as its actual situation, the Company duly revised and improved the Articles of Association of BOE TECHNOLOGY GROUP CO., LTD, Provisions on the Control over Shares of the Company Held by Directors, Supervisors, and Senior Executives as well as Change of Such Shares, Independent Directors Work System about Annual Report, Control System of Raised Proceeds, Control System of Information Disclosure Affairs, Control System of Affiliated Transactions. Besides, the Company compiled and printed the System of Corporate Governance and Operation, improved the corporate governance structure and internal regulations and systems, as well as regulated information disclosure, so as to effectively safeguard the legitimate rights of the Company, its shareholders and creditors. Corporate governance is long-term work. The Company will continue to follow the concept of “honesty, standard, transparency, and responsibility”, regulate itself and continuously improve the level of governance. II. Duty Performance of Independent Directors The current Independent Directors of the Company are experts in Finance, Law and thin film transistor liquid crystal display (hereinafter refer to as “TFT-LCD”) etc. respectively. In 2008, each Independent Director fulfilled his duty strictly in accordance with relevant provisions in Guidelines on Establishing the Independent Director System in Listed Companies, participated in the work of every special committee actively and expressed independent opinions on resolutions deliberated by the Board of Directors. In this way, it played an important role in decision-making of development strategy and significant business, as well as brought the functions of Independent Directors into full play. 22 1. Attendance of Independent Directors at the Board meetings in the reporting period: Times that should be Times of personal Times of Times of Name present at the Board presence (including commission absence meeting signing written opinions) presence 12 11 1 0 Zhang Baizhe 12 12 0 0 Xie Zhihua 12 12 0 0 Dong Ansheng 12 12 0 0 Zhongcan 0 0 0 0 Geng Jianxin Notes: On Dec. 12, 2008, the Company received the letter of resignation from Independent Director Xie Zhihua. Mr. Xie has been Independent Director of the Company for six years and he resigned due to the expiration of his appointment. Meanwhile, he also gave up his appointment in the Audit Committee, the Nomination Committee, the Remuneration and Appraisal Committee of the Company. On the 19th meeting of the 5th Board on Dec. 12, 2008, as well as the 3rd Extraordinary Shareholders General Meeting in 2008 on Dec. 30, 2008, Mr. Geng Jianxin was elected as Independent Director of the 5th Board. 2. In the reporting period, the Independent Directors of the Company expressed their independent opinions concerning affiliated transaction, external guarantee, and appointment of senior executives in compliance with relevant regulations. 3. The Independent Directors of the Company had no objection to any resolutions deliberated by the Board meetings as well as other issues of the Company in the reporting period. III. Independence in Business, Personnel, Assets, Organization, Finance and Internal Auditing of the Company from the Controlling Shareholder The Company was independent from the controlling shareholder and the actual controller in terms of businesses, personnel, assets, organization, finance and internal auditing, with independent personnel, finance, organizations, internal audit, as well as complete business and capability to operate independently. 1. In businesses, the Company was independent from the controlling shareholder and the actual controller, with its own independent purchase and sales systems, through which the purchase of major raw materials and the sales of products were all conducted. Besides, the Company had the capability to make its own decisions, assumed sole responsibility for its profits and losses, and operate the Company independently, with independent and complete business. The affiliated transactions were conducted normatively according to the market principles, and there were no damage to the legitimate interests of the Company and all the shareholders. 2. In personnel, the Company was completely independent in labor, personnel and remunerations, etc.. Chairman, Vice Chairman, Chief Financial Officer, Secretary of the 23 Board as well as other Senior Executives of the Company all worked full-time in the Company and did not held any posts in the controlling shareholder’s entities. 3. In assets, the Company had independent and complete assets. With clear property ownership, it independently owned the production system, ancillary production system as well as supporting facilities for major business, as well as assets like land use rights and intellectual property rights, etc. Neither the controlling shareholder nor the actual controller appropriated any assets of the Company. 4. In organization, the Company had established organizations completely independent from the controlling shareholder and the actual controller, with independent and sound organizations as well as corporate governance structure. It had not handled any official affairs jointly with the controlling shareholder or the actual controller. 5. In finance, the Company had established independent financial departments, with full-time finance personnel. The Company had also formulated a standard and independent finance accounting system as well as a financial management system for its subsidiaries, established the corporate financial management archives and deployed relevant administrative personnel for them. 6. In internal auditing, the Company had established independent internal auditing department with full-time auditors. The Company had also standardized rules for internal auditing and set up a sound internal auditing system. IV. Establishment and Improvement of the Internal Control System of the Company 1. Profile of the Company’s Internal Control With the joint effort of the Board, the Management Team, and the entire staff, the Company has established a relatively sound internal control system, including the internal control system of corporate governance, finance management, personnel management, external investment management, technology management, information disclosure etc., which constitutes the internal control system of the Company. The Company has set up and improved the relevant rules and regulations about Shareholders’ General Meeting, the Board of Directors and Supervisory Committee, so that they can exercise the right to make decisions, execute them and supervise them. There are three special committees subordinate to the Board of Directors, which are the Executive Committee, the Audit Committee, as well as the Nomination, Remuneration and Appraisal Committee. Each committee takes up the responsibility of participating in discussion and decision-making of significant events according to related work rules, so as to improve the operation efficiency of the Board of Directors. The Audit Committee under the Board is responsible for supervising the establishment and improvement of the corporate internal control system, ensuring the effective implementation of the internal control, and supervising the self-appraisal of internal control. The Division of Auditing & Supervision is directly under the guidance of the Audit Committee, and the General Auditor is selected for appointment by 24 the Board, which ensures the independence of the organization division, personnel deployment, and its operation. The Supervisory Board is responsible for supervising over establishment and implementation of internal control system by the Board. 2. Key Internal Control Activities of the Company The key internal control activities of the Company includes the control over controlling subsidiaries, significant investments, related transactions, external guarantees, raised proceeds, information disclosure and IT management. In 2008, the Company combed the internal control system of the Company, as well as conduct systematic self-appraisal of internal design and execution, with the Basic Internal Control Norms for Enterprises as reference, which is released by five Ministries and Commissions, including Ministry of finance. 3. The Company issued the 2008 Annual Report on Self-Appraisal of Internal Control. KPMG Huazhen Certified Public Accountants examined the report and issued the Special Statement about the 2008 Annual Report on Self-Appraisal of Internal Control of BOE TECHNOLOGY GROUP CO., LTD, which were all published on http://www.cninfo.com.cn. V. Performance Appraisal and Incentives Mechanism for Senior Executives According to the performance appraisal method of the Company, Senior Executives sign an Annual Target Responsibility Paper with the Company, which sets the annual operation targets, key performance indicators (KPI) as well as the evaluation, reward and punishment standards. As for the accomplishment of the targets, quarterly analyses, semi-annual reports and annual appraisal will be conducted. The examination and evaluation results will determine the remunerations, position changes as well as the trainings to receive of Senior Executives. VI. Fulfillment of Social Responsibility This year, the Company published the Corporate Social Responsibility Report for the first time, which records the fulfillment of social responsibility by the Company in 2008. The Corporate Social Responsibility Report of BOE TECHNOLOGY GROUP CO., LTD in 2008 has been published on http://www.cninfo.com.cn. 25 Chapter VI Shareholders’ General Meeting In the reporting period, The Company held 4 Shareholders’ General Meetings, with details as follows: I. Annual Shareholders’ General Meeting 2007 On Apr. 24, 2008, the Annual Shareholders’ General Meeting 2007 was held. The meeting deliberated and approved the following resolutions: Annual Report on the Work of the Board 2007, Annual Report on the Work of the Supervisory Committee 2007, Annual Report 2007 and its Summery, Annual Auditing Report 2007 and Annual Business Plan 2008, Profit Distribution Preplan 2007, Resolution of borrowing limits in 2008, Resolution of providing loan guarantee for Zhejiang BOE Display Technology Co., Ltd, Resolution of routine affiliated transaction in 2008, Resolution of appointing KPMG Huazhen Certified Public Accountants as the Company’s annual auditing institution, and Resolution of adjusting the allowance of Directors and Supervisors. The public notice on these resolutions was published on Apr. 25, 2008. II. The 1st Extraordinary Shareholders’ General Meeting 2008 On Aug. 15, 2008, the 1st Extraordinary Shareholders’ General Meeting 2008 was held. The meeting deliberated and approved the following resolutions: Resolution of adjusting and changing the use of some raised proceeds, and Resolution of revising the Articles of Association. The public notice on these resolutions was published on Aug. 16, 2008. III. The 2nd Extraordinary Shareholders’ General Meeting 2008 On Nov. 25, 2008, the 2nd Extraordinary Shareholders’ General Meeting 2008 was held. The meeting deliberated and approved the following resolutions: Resolution of Investing in the Construction of the 6th generation TFT-LCD Production Line, Resolution of the Company meeting the requirement for A share private placement, Resolution of the offer plan for A share private placement, Resolution of Signing a share subscription agreement subject to a condition with strategic investors, Resolution of feasibility analysis of the raising proceeds through private placement project, Resolution of report on the use of the latest raised proceeds, Resolution of all shareholders enjoying the same rights and benefits of shareholders, Resolution of requesting the Shareholders’ General Meeting to give the Board full authority to handle relevant issues of the share private placement. The public notice on these resolutions was published on Nov. 26, 2008. 26 IV. The 3rd Extraordinary Shareholders’ General Meeting 2008 On Dec. 30, 2008, the 3rd Extraordinary Shareholders’ General Meeting 2008 was held. The meeting deliberated and approved the following resolutions: Resolution of Electing Independent Directors. The public notice on these resolutions was published on Dec. 31, 2008. The previous mentioned public notices were all published on Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Pung Pao. 27 Chapter VII Report of the Board of Directors I. Particulars about Operation of the Company (I) Retrospection of the Company’s Operation in the Reporting Period In 2008, the development of the Company experienced ups and downs. View from the macro-environment, the international economic environment in the first half year was in turmoil. With the rising price of energy and materials, frequent occurrence of natural disasters in the nation and the prosperity of capital market sharply turning down, it was particularly difficult for the Company to raise fund. In the second half year, under the influence of American sub-prime crisis, the global economy experienced recession, with a decline in consumption confidence and purchasing power, especially the shrink of high end products market. Viewed from the industrial environment, Flat Panel Display (FPD) Industry has developed into a period of value creation, technology innovation, mode reformation, as customers’ demands are always changing, technology is in rapid advancement, and market competition is becoming fiercer and fiercer. Meanwhile, under the influence of macro-environment, the market demand shrank and product price declined, leading to operational losses in the whole industry and bringing a sever business condition to the Company. On the one hand, due to the significant decrease in product price and market demand in the second half year, the business income of the Company was RMB 8.334 billion in 2008. With obvious loss in operation, and it failed to meet various operation targets set by the Board. On the other hand, some significant strategic projects of the Group specified in the business plan 2008 were in progress as scheduled, with good implementation. Specific information about the accomplishment of plans in each business unit: 1. TFT-LCD as well as Relevant Industry TFT-LCD used for IT and TV: In the first half year, the Company stressed production guarantee, construction of supply chain, market exploration, and product sale, through active promotion of “Four Stratagems”, and achieved fine business results. Since mid June, the price of liquid crystal display dropped significantly, and JPY continuously appreciated, which brought sever situation in front of the Company. Under such circumstance, the Company actively took action, duly adjusted business strategies, and made the shift from “promoting production in full capacity through good sales” to “ensuring cash flow at the core”. The Company promoted the shift of product structure and achieved soft balancing among market sales, production activation, and materials supplies, with product as the core and sales as the pacemaker. Besides, efforts were made to control BOM cost and expenses, reduce the percentage of defective products, and expand market sales, which had reduced operational losses in a certain degree. 28 TFT-LCD for Mobile and Application Products: the Company focused on product transformation, tried to digest and reduce inventory and ensured safety of cash flow through overall implementation of the “Four Stratagems”. Meanwhile, the Company has established coordinated operation management mechanism in factories of other places and enhanced the function of local marketing, R&D, and purchase, as well as the function of stable production and quality guarantee in Beijing. Besides, the Company enhanced its capability to respond to the market, explore the market, manage the supply chain, as well as to research and develop new products, laying a relatively good foundation for the launch of 4.5 generation production line. Products of lighting display: the Company overcame the pressure from market shrink and price decrease, made huge contribution for maintaining the stable production of TFT-LCD industry, and further improved the basic management ability as well as production level at the same time. Display systems and solutions: the Company has achieved some progress in market exploration and wafer foundry service, acquired relatively large customer base, as well as enjoyed relatively wide popularity in the industry, which helped the Company gained experience for business development. 2. Business of Other Display Devices and Supporting Products CRT and VFD Products: confronted with the decline of market, the Company actively adjusted product structure, enhanced its effort in market exploration of its auxiliary business, strived to control cost and increase income, as well as steadily promoted structure adjustment steadily at the same time. Precision Electronic Components & Materials Business: the Company continuously introduced products with high added value, eliminated outdate products and optimized the market structure as well as client structure, by seizing the market opportunities. Meanwhile, the Company conducted technical innovation so as to enhance production capacity without increasing investment in equipments and achieved an overall accomplishment of the business plan 2008. 3. International Business Park The real estate business of the Business Park has hit the target in business plan 2008, with the overall planning of the Business Park basically completed. The 9th meeting of the 5th Board deliberated and approved the resolution of increasing investment in Beijing Yinghe Century Science & Technology Development Co., Ltd by means of putting in cash and part of real estate. In this way, a platform for the Group’s real estate development was built, the centralized and unified leadership were enhanced, and the capability of professional management on real estate business was further improved. 29 (II) Orderly Advancement of Significant Projects as Scheduled 1. Chengdu the 4.5th Generation TFT-LCD Production Line Project: with the support of Chengdu municipal Party Committee and government as well as the support from high and new technology industrial development zone, the 4.5th Generation TFT-LCD Production Line Project started on Mar. 26, 2008, and carried on smoothly in various aspects, overcoming the adverse effects such as earthquake, significant fluctuation of construction material prices, etc.. In late Sep. 2008, the factory workshops were topped off as scheduled, and decoration of clean rooms was accomplished. In Feb. 2009, the whole projected was completed and currently it is furnished with equipments. It is predicted that trial production will begin in Jul. 2009, while volume production in Oct. 2009. 2. Hefei the 6th Generation TFT-LCD Production Line Project: on 12 Sep. 2008, the Company signed Frame Agreement on Investment of Hefei TFT-LCD the 6th Generation Production Line with Hefei People’s Government, Hefei Xincheng State-owned Assets Management Co., Ltd and Hefei Construction Investment Holdings (Group) Co., Ltd. Hefei BOE Optoelectronics Technology Co., Ltd. (hereinafter refer to as “Hefei BOE”) was registered on Oct. 16, 2008. Currently, the Project has acquired the Letter for Record of the 6th Generation TFT-LCD Production Line Project of Hefei BOE (FGGJ [2009] No. 17) from Anhui Development and Reform Commission, as well as documents of approval such as Reply to EIS of the 6th Generation TFT-LCD Production Line Project of Hefei BOE (HS [2009] No. 44) issued by the Ministry of Environmental Protection etc.. Hefei the 6th Generation TFT-LCD Production Line Project started on Apr. 13, 2009. Up to the publication date of this report, BOE TECHNOLOGY GROUP CO., LTD has twice increased unilateral investment in Hefei BOE, with the accumulated amount aggregating RMB 600 million. After the increase of investment, the Company held 93.769% shares of Hefei BOE. For details please refer to the Public Notice on the progress of Hefei the 6th Generation TFT-LCD Production Line Project (serial No.: 2009-009) published on Mar. 21, 2009. 3. National Engineering Laboratory of TFT-LCD Technical Skill: In 2008, BOE acquired the approval of the Development and Reform Commission to construct National Engineering Laboratory of TFT-LCD Technical Skill independently, which is the first one and also the only one laboratory of TFT-LCD Technical Skill constructed with the permission of the state. This project had significant effect and meaning in further enhancing the Company’s capacity of technology innovation, and reflected the advantages as well as capacity of the Company in self-development and innovation of TFT-LCD business at home. The project will start on Apr. 21, 2009. 4. Significant Capital Items: (1) In Jul. 2008, the Company accomplished the private displacement of A share under an unfavorable the capital market environment, raising capital of RMB 2.25 billion; (2) the Company actively promoted the private displacement of A share project, which was deliberated and approved by the Company’s 2nd Extraordinary 30 Shareholders’ General Meeting on Nov. 7, 2008, so as to raise proceeds for Hefei the 6th Generation TFT-LCD Production Line Project. On Apr. 1, 2009, the share project was conditionally approved by the Stock Issuance Examination Committee of China Securities Regulatory Commission. 5. Significant capital financial items: (1) In the first half year, the Company seized the favorable opportunities in the market, and paid the bank loan of RMB 1.54 billion with operating cash flow. Besides, it also accomplished the project of A share private displacement in 2007, expanded the capital scale, improve the financial structure and promoted construction of key projects. Through active communication with various banks, the Company had accomplished the syndicated loan project of about RMB 1.82 billion for Chengdu the 4.5th generation production line project and the syndicated loan project for Hefei the 6th Generation TFT-LCD Production Line Project is being pushed forward actively as scheduled. (III) Major Business Scope and Overall Operation 1. Major Business Scope The Company belongs to electronics and information industry, mainly engaging in manufacture, sale as well as research & development of TFT-LCD. The major business scope includes business of TFT-LCD used in IT & televisions, business of TFT-LCD used in mobile and application products, product of lighting display devices, display system and solutions, other display parts, other display devices & supporting products, as well as international business park. 2. Operation of Main Business (1) Composition of Main Business by Product Category Unit: RMB 0,000 Products Business income Business cost Gross profit Increase or decrease Increase or decrease Increase or decrease ratio of business income of business cost of gross profit ratio year-on-year year-on-year year-on-year TFT-LCD 663,547.90 625,307.87 5.76% -31.09% -22.31% -64.89% Small-size 90,416.63 86,126.18 4.75% -13.47% -11.25% -33.39% flat display Other 171,634.69 138,689.33 19.20% 6.65% 5.75% 3.72% business Internal offset -92,197.64 -81,971.20 11.09% -17.19% -23.18% 166.22% Total 833,401.58 768,152.18 7.83% -25.39% -17.08% -54.13% (2) Composition of Main Business by Regional Distribution Unit: RMB 0,000 Regions Business income Increase or decrease of business income year-on-year (%) China 445,848.76 -19.78% Other Asian countries and regions 334,674.43 -31.10% Europe 36,409.90 -23.18% The Americas 16,468.49 -41.36% 31 Total 833,401.58 -25.39% (3) Major Suppliers and Clients Total sale amount of top five clients reached RMB 3,070,740,000, accounting for 37% of total business income of the Company, while total purchase amount of top five suppliers reached RMB 2,583,140,000, accounting for 34% of the total purchase amount of the Company. 3. Analysis of Finance (1) Analysis on Change of Major Items in Balance Sheet Due to the influence of global financial crisis, the major finance indicator had obvious fluctuation in the reporting period. Unit: RMB 0,000 31 Dec. 2008 31 Dec. 2007 Amplitude of Main influencing factors Items fluctuation Private displacement of A share increased Money funds 390,374 170,444 129% money funds. Notes receivable 30,534 17,578 74% More payment with notes The sale and product price of major products Accounts receivable 48,592 179,361 -73% declined. Advance payment The advance payment for equipment purchase was returned in this year, as the 4,647 11,204 -59% other party failed to deliver the goods as scheduled. Under the influence of financial crisis, the price of major products dropped, therefore Inventory 47,223 79,170 -40% the Company vigorously digested the inventory, and withdrew inventory devaluation from the remaining inventory. The increase was a result of increase in Other current assets 29,005 484 5893% remaining credits of VAT. Financial assets The decrease was due to the decrease in 5,371 12,911 -58% share price of TPV, part of whose equity was available for sale held by the Company. Long-term equity It was because the net assets of the affiliated 34,078 64,165 -47% companies decreased significantly in the investment year. The Company acquired some new Investment Real Estate 17,455 12,637 38% investment real estate in this year. There was construction and equipment Net bal of construction 44,545 5,475 714% purchase of the 4.5th generation of the in progress Company. The production of the Company’s major Accounts payable 106,225 149,899 -29% products declined. Advance from It was a result of the increase in advance 22,537 17,644 28% customers payment for goods from customers. Non-current liabilities Part of the long-term loan would be due 200,914 69,270 190% due within one year within one year. Part of the long-term loan would be due Long-term loans 293,413 449,467 -35% within one year, and there was some other long-term equity. 32 It was because of the private displacement of Capital Reserves 450,496 274,063 64% A share. (2) Analysis on Change of Assets Composition Unit: RMB 0,000 Dec. 31, 2008 Dec. 31, 2007 Amplitude of Items Main influencing factors Amount Proportion Amount Proportion fluctuation The private displacement of A share Money Fund 390,374 27.99% 170,444 12.74% 119.70% increased money fund. Accounts It was because the sale and product 48,592 3.49% 179,361 13.40% -73.96% receivable price of major products declined. Under the influence of financial crisis, the price of major products dropped, therefore the Company vigorously Inventory 47,223 3.39% 79,170 5.92% -42.74% digested the inventory, and withdrew inventory devaluation from the remaining inventory. It was mainly because the production of Accounts payable 106,225 7.62% 149,899 11.20% -31.96% the Company’s major products declined. Non-current Part of the long-term loan would be due liabilities due 200,914 14.41% 69,270 5.18% 178.19% within one year. within one year Part of the long-term loan would be due Long-term loans 293,413 21.05% 449,467 33.59% 37.33% within one year, and there was some other long-term equity. It was because of the private Capital Reserves 450,496 32.31% 274,063 20.48% 57.76% displacement of A share. (3) Analysis on Change of Expense and Income Tax in the Reporting Period Unit: RMB 0,000 Amplitude of Items In 2008 In 2007 Main influencing factors fluctuation Under the influence of financial crisis, the Business market demand for major products declined -833,402 -1,117,045 -25% income slightly and the price slid significantly, which led to the decrease of income. Administrati Due to the influence of financial crisis, the ve expenses stream efficiency in the fourth quarter was insufficient, and the withdrawal of the 81,489 55,982 46% depreciation of equipments, which were not used due to insufficient stream efficiency, was accounted into this item. 33 Financial The decline in financial expense in this Expenses period was due to the repayment of debts in the previous period, and the 19,119 28,985 -34% significant decrease of exchange gain compared with that in the previous period. Under the influence of financial crisis, price Asset of the Company’s major products dropped impairmen 31,250 11,978 161% significantly, and the Company withdrew t loss part of provision for inventory based on the lower of cost or market principle. Investment It was mainly because of the decrease in net -20,603 -12,832 61% income assets of the affiliated companies. Due to the violent fluctuation of TFT Income tax 6,742 -5,631 -220% industry, the deferred income tax assets were re-determined. (4) Analysis on Change of Cash flow Unit: RMB 0,000 Amplitude of Items In 2008 In 2007 Main influencing factors fluctuation It was because that the Company Subtotal of cash transferred part of equity of Top inflow from investing 18,007 239,606 -92% Victory Electronic Co., Ltd in the activities previous period. Subtotal of cash The production line was reformed outflow from investing 115,211 37,946 204% and expanded. activities Subtotal of cash It was due to the increase private inflow from financing 491,982 172,103 186% displacement and new loans for the activities 4.5 generation production line. Subtotal of cash It was because the Company repaid outflow from 298,645 601,423 -50% bank loans in the previous period. financing activities 4. Analysis on the Operations and Business Achievements of the Major Controlling Subsidiaries and Joint-Stock Companies (1) Subsidiaries Unit: RMB’0000 Name of Company Main products Registered Total Net assets Operation Operation Net capital assets income profit profit Beijing BOE Photo Development USD 550 773,222 287,313 663,548 -75,620 -74,774 Electricity Technology and million 34 Co., Ltd. production of TFT-LCD (2) Shareholding companies Unit: RMB’0000 Name of Company Main Registered Total Net assets Operation Operation Net profit products capital assets income profit Beijing Panasonic Color picture JPY Color Picture Tubes tubes 28,412,282,664 126,406 86,347 175,693 -27,660 -84,933 Co., Ltd. Ⅱ Outlook for future development of the Company 1. Macro-economic policy TFT-LCD industry is one of those greatly encouraged by China. In the National Outline for Medium and Long-term Planning for Scientific and Technological Development (2006-2020), it is clearly stated that the country will focus on developing display products with high definition and large screens, as well as establish the industrial chain of flat panel display materials and devices. Meanwhile, in the Ninth Five-Year Plan of PRC for National Economic and Social Development and the Outline of the Long-term Development Target for the Year 2010, the electronic industry is considered as one of the pillar industries of the national economy, with the LCD devices as one of the new-typed electronic components to be focused on. Also, the LCD device is included in the Catalogue of Industries, Products and Technologies Currently Particularly Encouraged by the State for Development. The State Council states clearly that TFT-LCD industry will be the top priority in the encouragement and support for the electronic devices sector in the Eleventh Five-year Plan. As said previously, developing the display products with high definition and large screens is also a priority in the National Outline for Medium and Long-term Planning for Scientific and Technological Development. On 15 Dec. 2008, the Tariff Commission of the State Council issued the 2009 Plan for Tariff Implementation, which adjusted the tariff rate on the imported LCD panels in actual execution beginning from 1 Jan. 2009. To be specific, the LCD panels below 26 inches (excluding 26-inch LCD panels) will have its tariff rate raised from 3% to 5%, which will strengthen the competitiveness of the mainland enterprises in the domestic market. On 18 Feb. 2009, the State Council Routine Conference examined and approved in principle the Plan for Adjusting and Invigorating Electronic Information Industry. It is clearly stated in the plan that the country’s newly increased investments will incline to the electronic information industry, with great efforts to direct the capital investments to the industry; that the country will implement six major projects (including the transformation project of new-typed display products and color TV sets) and eliminate the development bottleneck in 35 the new-typed display industry; that the new-typed display industry will be improved with the panel production as its center; and that more social resources will be directed to the electronic information industry. On 25 Feb. 2009, the National Development and Reform Commission unveiled the Circular on Relevant Issues on Implementing the Strategic Transformation of Color TV Industry as a Special Industrialization Campaign. According to the Circular, the strategic transformation of the color TV industry will be promoted as a special industrialization campaign for the next three years beginning from 2009, so as to implement the plan for the development of high-tech industries and the plan for the development of information industry stated in the Eleventh Five-year Plan, and carry forward the strategic transformation of the color TV industry, as well as the development of the flat panel display industry. And the production techniques and industrialization of the sixth-generation to eighth-generation TFT-LCD panel module will be supported as a priority in the campaign. 2. Development trends of the industry, as well as opportunities and challenges faced by the Company 2009 is an extraordinarily tough year for the Company’s operation when the double attacks of the global financial crisis and the slump of the industry bring the Company to a depressed market with a falling demand and a fierce competition; and the Company’s single product line and the slow development of new products and exploration of new markets also challenge the competitiveness of the Company’s fifth-generation production line. Meanwhile, in order to stabilize the economy and promote the development, China put forward a series of measures to stimulate the domestic demand, with particular encouragement to the high-tech industries with national strategic importance and strong economic driving power. And the local governments also give great support to the major projects with strong industrial driving power. To sum up, the Company faces both challenges and opportunities in 2009. In view of that, the Company formulates its development strategies in the current situation, i.e. to implement the operating strategy of “keeping the core position of cash flows” and carry out the specific measures of “keeping sales as the leading force, the products as the core, and the balance among production, sales and inventory as a guarantee”; to combine the strategic importance of the Company’s products, the excellent market prospects and the great support from the central and local governments with the Company’s advantages in technologies, products, production techniques, market, supply chain and operating capacity, etc. as the Company’s development strategies, and seize the opportunities so as to achieve a leapfrog development and turn the market slump into an opportunity for the Company’s growth. 3. Development strategies and working principle for 2009 The Company’s vision is to become a leading enterprise in the global display field. In order to realize the vision, the Company has to adopt correct business strategies and establish a long-term growing mode of stability and profitability. Based on its current 36 development and its position in the industry, the Company formulates the “steel-sword” strategy with its basic objectives as “to strengthen the mechanism for immediate responsiveness to market conditions, and establish a long-term operation mode and structure of stability and profitability”. In 2009, the Company will conduct business activities on the principles of implementing the “steel-sword” strategy, speeding up the development of new products and markets, increasing the profits and turning the market slump into a chance for growth. 4. Outlook for development of specific businesses (1) TFT-LCD applied in IT and TV sectors The establishment of a long-term operation mode of stability and profitability is set as the objective; On the principles of miniaturization, complete machines and the flexible production line, the Company will strengthen the development of new products and the exploration of new markets, as well as upgrade its production line, so as to increase the competitiveness of the fifth-generation production line and the added value of its products; Also, the Company will strengthen its internal management to control the cost, reduce its fixed expenses and improve the cash flows; Meanwhile, the Company is to vertically extend the industrial chain of its products and improve the Company’s performance through vertical integration. (2) TFT-LCD applied in mobile and application products Following the principle of maximizing the base-plate marginal revenue, the Company will speed up the development of new products and establish a diversified business mode. At the same time, in view of the great changeability, high demand elasticity and high technical requirements of the small-sized products, the Company will introduce products with higher added value to ensure a steady start in the market. In terms of the mobile module business, the sales will be expanded to ensure the marginal contribution. And a coordinated R&D team, an integrated module material purchase team, and an integrated product planning team will be set up. (3) Display lighting products The Company will intensify its market expansion by looking for new customers and developing new products to meet the market need. Meanwhile, it will try to make innovations in the business mode and continuously reduce the cost, so as to promote a stable, specialized and strong backlight business. (4) Other display devices & auxiliary products 37 The product structure will be further optimized to improve the profitability. At the same time, making full use of the existing resources of personnel, materials and management techniques, the Company will look for new opportunities to promote the industrial integration, as to make sure the sustained and stable development of business, as well as the smooth transition of the company transformation. (5) International business parks In the integration of the business park real estate business, the Company will work hard to train the personnel, increase its strength of development and seize the opportunities of external expansion. Meanwhile, the Company will maintain a stable operation and orderly development, ensuring long-term and stable cash flows and profits for the Company. III. Investment of the Company during the reporting period 1. Use of proceeds raised in the reporting period Unit: RMB ’0000 Total amount of raised capital which Total amount of capital was used in the reporting year 130,0820 343,720 raised Accumulative amount of raised 181,873 capital which was used Changed Planned Actual Compliance with Estimated Accrued amount of Committed projects projects or investment Investment planned progress earnings earnings not amount amount Capital increase and production expansion project of Beijing BOE Not 74,520 39,112 100% 32,971 good Optoelectronics Technology Co., Ltd. Production line project of color filters used in Yes 250,000 0 0% 33,017 inapplicable large-sized TFT-LCD Production line project of the 4.5-generation Not 220,000 36,437 100% TFT-LCD (4.5G 26,700 0 Project) Project of increasing capital to Beijing BOE Optoelectronics 0 inapplicable yes 226,800 0 0% Technology Co., Ltd. and repaying its bank loans Project for Not 18,200 43,644 100% supplementing the 756 good 38 working capital Total 789,520 119,193 - 93,444 - Explanation on failing to catch up with the planned progress or achieve the estimated No earnings (with details of each involved project) According to the Proposal on Increasing capital to Chengdu BOE Optoelectronics Technology Co., Ltd. approved at the 10th meeting of the 5th Board of Directors dated 26 May 2008, the Company Statements on the invested self-raised capital into the 4.5G Project before the arrival of the publicly-raised capital in project changes and 2008. By 4 Jul. 2008, the Company had input into the 4.5G Project an accumulative self-raised procedures of changes capital amounting to RMB 245,454,000.00. According to the Rules of Shenzhen Stock Exchange on (with details of each Fund-raising Management of Listed Companies, the Company replaced the self-raised capital involved project) previously invested into the 4.5G Project with the publicly-raised capital of RMB 245,454,000.00 upon the arrival of the publicly-raised capital, as approved at the 12th meeting of the 5th Board dated 28 Jul. 2008. The remaining raised capital will be mainly used for the production line project of the 4.5-generation Use of the remaining TFT-LCD, which will be put into the special saving account and strictly managed by Chengdu BOE raised capital Optoelectronics Technology Co., Ltd.—the company in charge of the project implementation. (2) Use of raised capital after changes Unit: RMB ’0000 Total amount of capital involved in 80,419 changing the investment projects Planned Original Actual Estimated Projects after investment Compliance with Accrued amount committed investment earnings of change amount into planned progress of earnings projects amount changed projects changed projects The second capital Production line increase and project of color production filters used in expansion project large-sized 67,739 50,000 100% 21,668 0 of Beijing BOE TFT-LCD Optoelectronics Technology Co., Ltd. Production line Project for project of color supplementing filters used in 12,680 12,680 100% 0 0 working capital large-sized TFT-LCD 39 Total 80,419 62,680 - 21,668 0 Explanation on failing to catch up with the planned progress or achieve the No estimated earnings (with details of each involved project) 2. Significant investments with non-raised funds Unit: RMB ’0000 Accrued earnings of Name of project Investment amount Project progress project Reconstruction of UP3 plant of Beijing Yinghe Century Science & Technology 6,939 Good 97% Development Co., Ltd. Phosphorus handling system 5,588 Good 26% Main plants of Xiamen BOE Electronics 1,701 Good Co., Ltd. 100% Total 14,228 - - 3. Available-for-sale financial assets held by the Company The available-for-sale financial assets held by the Company were its stock investment into Guanjie Technology Co., Ltd. (hereinafter referred to as “Guanjie Technology”), of which the balance at the period-end was measured by fair value. Guanjie Technology was listed in Hong Kong Stock Exchange (with its stock code as “0903”). By 31 Dec. 2008, calculated according to the closing price, the fair value of the shares of Guanjie Technology held by the Company amounted to HKD 60,900,478 (RMB 53,707,522). Gains or Accumulative Impairment losses due fair value Amount at withdrawn Amount at Items to fair value changes period-begin in this period-end changes in included in the period this period equity Financial assets: Of which: 1. Financial assets measured at fair value and the changes were included in the gains or losses in the current 40 period Of which: derivative financial assets 2. Available-for-sale 129,109,597.00 75,402,075.00 53,707,522.00 financial assets Sub-total of financial assets 129,109,597.00 75,402,075.00 53,707,522.00 Financial liabilities Investment real estate Productive biological assets Others Total 129,109,597.00 75,402,075.00 53,707,522.00 IV. Routine work of Board of Directors (Ⅰ) Meetings and resolutions of the Board during the reporting period In the reporting period, the Board of Directors convened 12 meetings, with six of them as locale meetings and the other six held through telecommunication means. And the details of the meetings are as follows: 1. The 8th meeting of the 5th Board was held as a locale meeting on 29 Mar. 2008, where the following proposals were reviewed and approved: the 2007 Annual Operation Report, the 2007 Annual Work Report of Board of Directors, the Full-text of 2007 Annual Report and its Summary, the 2007 Final Financial Accounts Report and Business Plan for 2008, the 2007 Profit Distribution Preplan, the 2007 Report on Self-evaluation of Internal Control, the 2007 Special Statement on the Deposit and Use of Raised Capital, the 2008 Proposal on Amount of Loans; the Proposal on Getting Loans for Project Development of Chengdu BOE Optoelectronic Technology Co., Ltd., the Proposal on Providing a Bank Loan Guarantee for Zhejiang BOE Display Technology Co., Ltd., the Proposal on Routine Related Transactions in 2008, the Proposal on Employing KPMG as Audit Agency in 2008, the Proposal on Determining Annual Salaries for Senior Management Personnel, the Proposal on Adjusting the Allowances for Directors and Supervisors, the 2008 Proposal on Board of Director’s Authorizing its Chairman to Execute Power and Responsibilities, the Proposal on Formulating and Implementing Rules for Independent Directors Concerning Annual Reports, the Proposal on Formulating and Implementing Rules for Managing the Shares held by Directors, Supervisors and Other Senior Management Personnel and the Share Changes, the Proposal on Applying to Shenzhen Stock Exchange for the Cancellation of Delisting Risk Warning, and the Proposal on Convening 2007 Annual Shareholders’ General Meeting. And the relevant resolutions were published on 1 Apr. 2008. 2. The 9th meeting of the 5th Board was convened as a locale meeting on 25 Apr. 2008, where the following proposals were reviewed and approved: the 1st Quarterly Report of 2008, and the Proposal on Increasing Capital to Beijing Yinghe Century Science & Technology Development Co., Ltd.. And the relevant resolutions were disclosed on 28 Apr. 2008. 41 3. The 10th meeting of the 5th Board was convened by means of communications on 26 May 2008, where the following proposals were reviewed and approved: the Proposal on Increasing Capital to Chengdu BOE Optoelectronics Technology Co., Ltd., the Proposal on Revising the Management Rules for the Use of Raised Funds, the Proposal on Establishing a Special Account for Raised Funds, and the Proposal on the Provision of Reciprocal Guarantee for an External Party by Zhejiang BOE Display Technology Co., Ltd. And the relevant resolutions were disclosed on 27 May 2008. 4. The 11th meeting of the 5th Board was convened by means of communications on 16 Jun. 2008, where the Proposal on Purchasing Part of Equity of Beijing Asahi Glass Electronics Co., Ltd. was reviewed and approved. And the relevant resolution was disclosed on 18 Jun. 2008. 5. The 12th meeting of the 5th Board was convened as a locale meeting on 28 Jul. 2008, where the following proposals were reviewed and approved: the Proposal on Adjusting the Use of Part of Raised Capital, the Proposal on Replacing the Self-raised Capital Previously Invested into the Raised Capital Investment Projects with Raised Capital, the Proposal on the Application of Chengdu BOE Optoelectronics Technology Co., Ltd. for Syndicated Loans, the Proposal on Reviewing the Self-inspection Report on the Irregular Occupation by the Actual Controller and Controlling Shareholder of the Listed Company’s Capital, the Proposal on Reviewing the Report on the Rectification Progress of Corporate Governance Special Campaign, the Proposal on Revising the Management Rules for Information Disclosure Affairs, the Proposal on Revising the Articles of Association, and the Proposal on Convening the 1st Provisional Shareholders’ General Meeting in 2008. And the relevant resolutions were disclosed on 29 Jul. 2008. 6. The 13th meeting of the 5th Board was convened by means of communications on 6 Aug. 2008, where the Proposal on Transferring the Equity of Beijing Electronics Zone Co., Ltd. was reviewed and approved. 7. The 14th meeting of the 5th Board was convened as a locale meeting on 25 Aug. 2008, where the Proposal on Full-text and Summary of 2008 Semi-yearly Report, and the Proposal on Reviewing the Management Rules for Related Transactions were reviewed and approved. And the relevant resolutions were disclosed on 27 Aug. 2008. 8. The 15th meeting of the 5th Board was convened by means of communications on 17 Sept. 2008, where the following proposals were reviewed and approved: the Proposal on Increasing Total Investment of the 4.5-generation TFT-LCD Project of Chengdu BOE Optoelectronic Technology Co., Ltd., the Proposal on Reviewing the Framework Agreement of Investment for Hefei Sixth-generation Production Line Project, and the Proposal on the Provision of a Reciprocal Guarantee by Zhejiang BOE Display Technology Co., Ltd. to an External Party. And the relevant resolutions were disclosed on 19 Sept. 2008. 42 9. The 16th meeting of the 5th Board was convened as a locale meeting on 28 Oct. 2008, where the 3rd Quarterly Report in 2008 and the Proposal on the Merger of Beijing Nissin Electronics Precision Component Co., Ltd. and Nissin (Beijing) Metal Components Co., Ltd. were reviewed and approved. And the relevant resolutions were disclosed on 30 Oct. 2008. 10. The 17th meeting of the 5th Board was convened by means of communications on 7 Nov. 2008, where the following proposals were reviewed and approved: the Proposal on Investing in and Developing the Production Line Project of the Sixth-generation TFT-LCD, the Proposal on the Company’s Being Qualified for A-shares Private Listing, the Proposal on the Plan for A-shares Private Listing, the Proposal on Signing Stock Subscription Agreements with Strategic Investors with Their Taking Effect When Certain Conditions Are Met, the Proposal on Feasibility Analysis on Raising Capital for Project Investment through Private Share Listing, the Report on the Use of Capital Raised in the Previous Period, the Proposal on Existing and New Shareholders’ Sharing the Shareholder Equity, the Proposal on Referring to the Shareholders’ General Meeting for Granting the Board of Directors Full Authority to Conduct Private Listing Affairs, and the Proposal on Convening the 2nd Provisional Shareholders’ General Meeting. And the relevant resolutions were disclosed on 8 Nov. 2008. 11. The 18th meeting of the 5th Board was convened by means of communications on 4 Dec. 2008, where the Proposal on Establishing Beijing BOE Display Technology Co., Ltd. was reviewed and approved. 12. The 19th meeting of the 5th Board was convened as a locale meeting on 12 Dec. 2008, where the following proposals were reviewed and approved: the Proposal on Electing Independent Directors, the Proposal on the Project for Establishing a State-level Engineering Lab of TFT-LCD Technology, the Proposal on Getting Loans for Project Development of Hefei BOE Optoelectronic Technology Co., Ltd., the Proposal on Re-examining the Related Transaction Agreements with a Term over 3 Years, the Proposal on Reviewing the Rules for Decision-making Advisory Committee of BOE Technology Group Co., Ltd., and the Proposal on Convening the 3rd Provisional Shareholders’ General Meeting in 2008. And the relevant resolutions were disclosed on 13 Dec. 2008. All the above-mentioned resolutions were disclosed on Securities Times, China Securities Journal, Shanghai Securities News and Ta Kung Pao (HK). (II) Board of Directors’ execution of resolutions passed at Shareholders’ General Meeting In the reporting period, the Board of Directors actively promoted the implementation of all the resolutions passed at the Shareholders’ General Meeting, with execution details as follows: 1. Execution of the proposal on A-share private listing in 2007 43 As approved by the Reply of CSRC on Approving the Private Stock Listing of BOE Technology Group Co., Ltd. (ZJXK【2008】No. 587), the Company issued 411,334,552 A-shares to three investors (Chengdu Industry Investment Co., Ltd., Chengdu Hi-tech Investment Group Co., Ltd. and Beijing Economic-Technological Investment & Development Corporation) at 5.47 Yuan/share. And the said stocks were listed on 23 Jul. 2008. 2. Execution of the proposal on adjusting the use of part of raised capital In the reporting period, due to an insufficient amount of the capital raised through private stock listing, the Company adjusted the use of part of the raised capital and properly handled the financing gap of the raised capital investment projects on the basis of the actual amount of the raised capital, as well as the capital needs of the projects. In order to ensure a smooth implementation of the projects, the Proposal on Adjusting the Use of Part of the Raised Capital was reviewed and approved at the 1st Provisional Shareholders’ General Meeting in 2008. In the reporting period, as authorized by the Shareholders’ General Meeting, the Company adjusted the amount of raised capital invested in the 4.5-generation Production Line Project from RMB 2.2 billion to RMB 1,805,454,000, terminated the Project for Increasing Capital to and Repaying Loans for Beijing BOE Optoelectronics Technology Co., Ltd., and supplemented the working capital with the remaining raised capital. With its construction started on 26 Mar. 2008, the 4.5-generation Production Line Project went through the earthquake, the great fluctuation of prices of construction materials and other adverse conditions, and is now in smooth progress in all aspects. At the end of Sept. 2008, the workshop building topped out with the finished decoration of the clean rooms. At Feb. 2009, the project was generally accomplished with the installation of the equipments started in March. The trial production and mass production were expected to start respectively in July and October of 2009. 3. Execution of the proposal on developing the sixth-generation TFT-LCD production line, as well as the proposal on the plan for A-share private listing The Proposal on Developing the Sixth-generation TFT-LCD Production Line, the Proposal on the Plan for A-share Private Listing and other relevant proposals were reviewed and passed at the 2nd Provisional Shareholders’ General Meeting in 2008. By the date of the issuance of this report, the Board has finished the unilateral capital increase of RMB 600 million to Hefei BOE Optoelectronic Technology Co., Ltd., as well as the preliminary approval procedures for the project by obtaining the Letter for Record of the Sixth-generation TFT-LCD Project of Hefei BOE Optoelectronic Technology Co., Ltd. (FGGJH【2009】No. 17) issued by Anhui Provincial Development and Reform Commission, the Reply of Environmental Impact Statement on the Sixth-generation TFT-LCD Project of Hefei BOE Optoelectronic Technology Co., Ltd. (HS【2009】No. 44), and the State-owned Land Use Permit (HXZGY【2009】No. 003) for the land to be used in the project. On 13 Apr. 2009, the Hefei Sixth-generation Production Line Project began its construction. 44 In the reporting period, as authorized by the Shareholders’ General Meeting, the Board actively prompted the A-share private listing project. On 1 Apr. 2009, the project was conditionally approved by the Share Issuance Examination Committee of CSRC, and is currently in smooth progress. (Ⅲ) Duty fulfillment of special committees of the Board of Directors In the reporting period, in accordance with the Code of Corporate Governance for Listed Companies, the Articles of Association of BOE Technology Group Co., Ltd., and the Rules of Procedure for Board of Directors, as well as the rules and the specific rules for implementation for the special committees, the three special committees of the Board conscientiously performed their responsibilities: 1. Duty fulfillment of Execution Committee of the Board In the reporting period, in accordance with the Code of Corporate Governance for Listed Companies, the Articles of Association of BOE Technology Group Co., Ltd., and the Rules for Execution Committee of the Board of Directors, the Execution Committee effectively monitored the Company’s strategic management and coordination, as well as the Company’s major business activities. During the recess of the board meeting, the Execution Committee was in charge of working out the major strategies and policies of the Company, planning its significant investment and financing projects, and monitoring its major business activities, which played an important role in ensuring the Company’s smooth operation, as well as its healthy and steady development in 2008. 2. Duty fulfillment of Audit Committee of the Board In the reporting period, in accordance with the Code of Corporate Governance for Listed Companies, the Articles of Association of BOE Technology Group Co., Ltd., and the Specific Rules of Implementation for Audit Committee of the Board of Directors, the Audit Committee conscientiously performed its duties. Before the regular reports were submitted to the Board for review, the Audit Committee convened special meetings to discuss the reports. At the meetings, the committee members listened to the Chief Auditor’s report, expressed their opinions and put forward constructive advices concerning the Company’s internal control, financial auditing and so on. The work of the Audit Committee in the 2008 annual audit was detailed as follows: Before the audit, the Committee discussed and decided the schedule for the annual report auditing with KPMG Huazhen Certified Public Accountants (hereinafter referred to as “KPMG”). Before the presence of KPMG, the Committee reviewed the financial and accounting statements prepared by the Company and formed a written opinion. Upon the presence of KPMG, the Audit Committee convened special meetings to communicate with KPMG, reviewed the Company’s financial and accounting statements following the 45 preliminary audit opinion issued by KPMG, and formed the written opinion concerned. Meanwhile, in the audit process, the Committee issued a written Audit Urge Letter to KPMG, asking KPMG to finish the audit in an orderly manner in strict accordance with the set schedule, so as to submit the 2008 annual audit report in time. Before the annual report was submitted to the Board for review, the Audit Committee convened special meetings to vote on the relevant matters such as the annual financial statements and the engagement of the CPA firm, and formed the relevant resolutions, which were later submitted to the Board for review. The Audit Committee is of the opinion that the Company enjoys steady and consistent accounting policies, and that the financial report is thorough, factual and in accordance with the accounting standards for business enterprises, as well as other relevant regualtions. Based on its understanding and communication with KPMG, the Audit Committee summarizes the 2008 annual audit conducted by KPMG as follows: Enjoying a professional audit team and strong technological support, KPMG conducted the 2008 annual audit in a precise and responsible manner. In addition, KPMG becomes fairly familiar with the Company’s operation and development due to the steady cooperation. Therefore, the Audit Committee hereby proposes to renew the employment of KPMG Huazhen Certified Public Accountants as the Company’s audit agency for the year 2009. 3. Duty fulfillment of Nomination & Remuneration & Appraisal Committee of the Board In the reporting period, in accordance with the Code of Corporate Governance for Listed Companies, the Articles of Association of BOE Technology Group Co., Ltd., and the Specific Rules of Implementation for Nomination & Remuneration & Appraisal Committee of the Board of Directors, the Nomination & Remuneration & Appraisal Committee conscientiously performed its rights and duties endowed by the Board through strictly executing the appointment procedure of directors, as well as the appraisal procedure for directors and other senior management personnel. In 2008, the Nomination & Remuneration & Appraisal Committee conducted discussion and examination on the relevant matters including adjusting the allowance standard for directors and supervisors, adjusting the annual salaries of senior management personnel and electing independent directors. Upon a careful examination, the Nomination & Remuneration & Appraisal Committee is of the opinion that the fourth chapter of this report discloses the remuneration of the Company’s directors, supervisors and other senior management personnel in a factual and accurate way. Ⅴ Preplan for profit distribution and turning capital surplus to share capital in 2008 As audited by KPMG, the Company achieved, in 2008, a consolidated net profit of RMB -996,771,096, and a net profit attributable to the parent company’s shareholders reaching 46 RMB -807,525,473. By the end of 2008, the accumulative undistributed profit of the Company stood at RMB -2,347,930,741. 2008 saw a deficit of the Company. According to the Company Law of PRC and the Articles of Association of BOE Technology Group Co., Ltd., the Company plans not to conduct profit distribution, or turn capital surplus to share capital for 2008. The Company’s distribution of cash dividends in the previous three years was specified as follows: (Unit: (RMB) Yuan) Net profit attributable to Proportion in the net profit Amount of cash dividends the parent company’s attributable to the parent Item (tax included) owners in the company’s owners in the consolidated statement consolidated statement Y2007 0 690,945,815 0 Y2006 0 -1,770,802,475 0 Y2005 0 -1,245,993,960 0 Ⅵ. In 2008, Securities Times, China Securities Journal, Shanghai Securities News and Ta Kung Pao (HK) were designated by the Company as the newspapers for information disclosure. 47 Chapter VIII Report of the Supervisory Committee I. Work of the Supervisory Committee In 2008, the Supervisory Committee fulfilled its duties strictly in accordance with the Company Law, Article of Association and the Rules for Procedure of the Supervisory Committee. Moreover, members of the Supervisory Committee conducted supervision over convening procedures and decision-making procedures of the Shareholders’ General Meeting and the Board of Directors, the implementation of the resolutions of the Shareholders’ General Meeting by the Board, as well as the operation on the decision of the Company. The Supervisory Committee supervised the Board of Directors and the Managements to work legally and make decision reasonably, which ensured the Company’s finance could be worked out canonically and safeguarded the interest of the Company and its shareholders. The Supervisory Committee held 5 meetings in the report period. All of the supervisors were present at the Board meetings and participated in the discussion on significant events, as well as appraised the periodic reports and issued the written review opinions. The meetings held by the Supervisory Committee were listed with details as follows: 1、The 4th meeting of the 5th Supervisory Committee was held on 29 Mar. 2008, at which reviewed and approved the following proposals: Work Report of the Supervisory Committee for the year 2007, Annual Report 2007 and its Summary, Profit Distribution Preplan 2007, Self-appraisal report on Internal Control for the Year 2007, Proposal on the Routine Related Transaction in 2008, Proposal on Engaging KPMG Huazhen Certified Public Accountants as Audit Institution of the Company for the Year 2008 and Proposal on Adjustment Allowance of Directors and Supervisors. Relevant public notice on resolutions was disclosed on 1 Apr. 2008. 2、The 5th meeting of the 5th Supervisory Committee was held on 25 Apr. 2008, at which reviewed and approved the following proposals: the 1st Quarterly Report 2008. 3、The 6th meeting of the 5th Supervisory Committee was held on 28 Jul. 2008, at which reviewed and approved the following proposals: Proposal on Adjustment and Change of Usage of Part Raised Capital, Proposal on Replacement of Self-financing Capital that has been Invested with Raise Capital. Self-examination on Capital Occupation by Actual Controller and Principal Shareholders. Relevant Public notice on resolutions was disclosed on 29 Jul. 2009. 4、The 7th meeting of the 5th Supervisory Committee was held on 25 Aug. 2008, at which reviewed and approved the following proposal: Semi-annual Report 2008. 5、The 8th meeting of the 5th Supervisory Committee was held on 28 Oct. 2008, at which reviewed and approved the following proposals: The 3rd Quarterly Report 2008. Newspaper for disclosing public the above resolutions are Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao. II. The Supervisory Committee expressed opinion on the following events 1. Operation under laws In the report period, all supervisors attended the Board Meetings, and conducted supervision on operation of the Company. The Supervisor Committee considered that: along with deepening of construction of internal control system, governance structure of the 48 Company further perfected and decision-making procedures was in line with laws and statutes. In 2008, directors and senior executives were diligence in duty performance, and no directors or senior executives of the Company were found to violate laws, regulations and the Articles of Association of the Company or harm the interests of the Company and shareholders when they performed duties. 2. Financial inspection In the report period, the Supervisory Committee carefully inspected financial status of the Company and issued audit opinion on periodic financial reports. The Supervisor Committee considered that: The financial report objectively, fairly and truly reflected the Company's financial position and operating results. The KPMG Huazhen Certified Public Accountants audited the Financial Report of the Company 2008 and issued the standard unqualified auditor's reports on the Company's financial affairs for 2008. 3. Usage of raised funds With method of examination of financial statements and inspection investment projects, the Supervisory Committee trailed and examined usage of raised fund from public offering A shares in 2008, verified adjustment and changes on use of part raised capital and expressed opinion. The Supervisory Committee considered that: adjustment and changes on use of part raised capital was in accordance with actuality of the Company and was good for reasonable ultization of raised capital, which was in compliance with all shareholders’ interest, and decision-making was legitimate and valid. 4. Sales of assets In the report period, the Company sold holding equities of Star City. The Supervisory Committee considered that the voting procedure on the previous transaction was legal, public, fair and reasonable; no internal transaction harmed part of shareholders’ equity or caused the asset loss of the Company, which was in line with the demand on the business development of the Company. 5. Related transaction In the reporting period, the related transactions existing between the Company and the related parties were equal with fair value, which did not harm the interest of the Company and its shareholders. 6. Internal Control Self-appraisal Report on Internal Control 2008 issued by the Board of Directors truly and completed reflected actuality of internal control of the Company. The Company has set up perfect internal control system. Framework of internal control was appropriate and effective. 49 Chapter IX. Significant Events I. Significant lawsuits and arbitrations (I) The Company sue Beijing Star City Real Estate Development Co., Ltd for debt dispute In accordance with provisions in Civil Mediation Agreement ((2007) EZMC Zi No. 859) of Beijing Second Intermediate Peoples’ Court, title transfer of property for debt under Civil Mediation Agreement has been completed, and the Company has got House Ownership Certificate. According to the aforesaid agreement, Beijing Star City Real Estate Development has to repay RMB 1,441,556.28 to the Company before 26 Sep. 2009. (II) Beijing BOE Real Estate Co., Ltd, subsidiary of the Company, sued Beijing Star City Real Estate Development Co., Ltd for debt dispute In accordance with provisions in Civil Mediation Agreement ((2007) EZMC Zi No. 858) of Beijing Second Intermediate Peoples’ Court, title transfer of property for debt under Civil Mediation Agreement has been completed, and the Company has got House Ownership Certificate. According to the aforesaid agreement, Beijing Star City Real Estate Development has to repay RMB 1,613,916.59 to Beijing BOE Real Estate Co., Ltd before 26 Sep. 2009. II. Events on acquisition and sales of assets and merger of enterprises 1. The 6th meeting of the 5th Board of Directors reviewed and approved Proposal on Transferring Equity of Beijing Star City Real Estate Held, which agree to transfer 40% holding equity of Beijing Star City Real Estate to Xiong Shi Investment Pte Ltd with consideration of Singapore Dollar equaling to RMB 60 million. On 12 Jan. 2008, Star City Company obtained Certificate of Approval for Establishment of Enterprises with Foreign Investment in the People’s Republic of China issued by Beijing Municipal Bureau of Commerce; On 2 Feb. 2008, Star City Company got new business license. During the report period, Xiong Shi Investment Pte Ltd transferred Singapore Dollar equaling to RMB 60 million to designated account of the Company, and the Company confirmed income from share transfer in current period. 2. Proposal on Acquisition of Part Shares of Beijing Asahi Glass Electronics Co., Ltd was reviewed and approved at the 11th Meeting of the 5th Board of Directors. The acquisition has been completed during the report period. 3. Proposal on Share transfer of Beijing Electron City Co., Ltd. was reviewed and approved at the 13th Meeting of the 5th Board of Directors, which planned to transfer 2.73% equity of Beijing Electron City Co., Ltd. held. During the report period, the project has no progress. 4. Proposal on Merger of Beijing Nissin Electronic Precision Parts Co., Ltd and Nissin (Beijing ) Metal Components Co., Ltd was reviewed and approved at the 16th Meeting of the 5th Board of Directors. The merger will further enhance perfect of supply system of TFT-LCD, and no influence on profit and cash flows of BOE. At present, the project was in progress of examination and approval. 50 III. Significant related transactions 1. Related transaction concerning routine operation Transactions of the Company with the related parties were carried out based on market principle and Annual Routine Related Transaction Limit 2008 which was approved at the Shareholders’ General Meeting. For details, Please refer to relationship of related parties and content of transaction in notes to Accounting Statements. 2. No related transaction on purchased and sales of assets occurred. 3. No related transaction on external investment by the Company and related parties occurred. 4. Current of creditor’ right & debt and guarantee between the Company and related parties At the end of the report period, Beijing Electronics Holding Co., Ltd, actual controller of the Company, provided a joint responsibility guarantee for Beijing BOE Optoelectronics Technology Co., Ltd, shareholding subsidiary of the Company. The guarantee amount paid by the Company in 2008 was RMB 1,673,204. 5. During the report period, there was no non-operating capital occupation between controlling shareholders of the Company & its related parties and the Company. KPMG Huazhen Certified Public Accountants issued Specific Explanation on Non-operating Capital Occupation and Other Related Capital Flows in 2008 for the Company, which was published in website www.cninfo.com.cn. IV. Significant contract and fulfillment 1. There were no events of trusteeship, contracting and lease in the report period. 2. Significant guarantees (1) External guarantees Zhejiang BOE Display Technology Co., Ltd (hereinafter refer to as “Zhejiang BOE”) provided guarantee for Zhejiang Huanyu Construction Group Co., Ltd with the ceiling of guarantee being RMB 40 million (year 2007: RMB 45.41 million million). As of Dec. 31, 2008, actual balance of this borrowing was RMB 20 million (year 2007: RMB 45.41 million). The term of this debt is from 18 Jun. 2008 to 30 Oct. 2009. Zhejiang BOE provided guarantee for Zhejiang Yuegong Steel Structure Co., Ltd with the ceiling of guarantee being RMB 11 million (year 2007: RMB 20 million). As of Dec. 31, 2008, actual balance of this borrowing was RMB 11 million (year 2007: RMB 15 million). The term of this debt is from 15 Oct. 2008 to 18 Apr. 2009. Zhejiang BOE provided guarantee for Shaoxing City Huifeng Automobile Sales & Service Co., Ltd with the ceiling of guarantee being RMB 9 million (year 2007: 0). As of 31Dec. 2008, actual balance of this borrowing was RMB 9 million (year 2007: 0). Term of the debt is from 10 Oct. 2008 to 10 Oct. 2009. (2) Guarantees for subsidiary companies In the report period, the Company provided guarantee to Zhejiang BOE, subsidiary company of the Company, for loan of RMB 50 million (year 2006: RMB62 million), as well as offering guarantee of RMB 2,068,111,266 (year 2007: RMB 1,385,289,575) to Beijing BOE Optoelectronics Technology Co., Ltd, subsidiary company of the Company, for loan of USD 740 million (year 2007: RMB 740 million) and charged the guarantee fee from BOEOT. 3. In the report period, the Company consigned no one to manage cash assets. 4. The Company had no other significant contract. 51 V. Implementation of commitments 1. Commitment of share merger reform: All non-circulating shareholders promised no trading or transfer of shares of the Company held by them occurred before Nov. 29, 2006. Meanwhile, controlling shareholder of Beijing BOE Investment Development Co., Ltd further committed: after the accomplishment of the former commitment period, the proportion of sold shares of the total shares listing and trading through Shenzhen Stock Exchange is no more than 5% within 12 months and no more 10% within 24 months. As at the end of report period, Beijing BOE Investment Development Co., Ltd held 777,357,803 shares of the Company, of which 648,177,570 shares released from trading moratorium on 1 Dec. 2008. Release procedure and reduced proportion was strictly followed the above commitment. At the end of report period, frozen shares of Beijing BOE Investment Development Co., Ltd, controlling shareholder of the Company, in share merger reform has been completely released from trading moratorium, and 127,180,233 shares need to be released, which was non-public offering shares subscribed in Oct. 2006 with frozen term of 3 years. 2. Details for commitments please refer to commitments of notes to Accounting Statements. 3. In the report period, no other commitments were made by the Company or shareholders holding over 5% shares of the Company VI. Engagement and dismissal of accounting firms The Company engaged KPMG Huazhen Certified Public Accountants as its accounting firm, which has been serving for the Company for 4 years. Payment for KPMG Huazhen Certified Public Accountants by the Company amounted to RMB 3.3 million. VII. In the report period, neither the Company, nor its Board ,directors, supervisors or any other senior executives had been received any administrative punishments of circulating criticism from the CSRC, or publicly criticized by the Shenzhen Stock Exchange. VIII. Particulars about reception of investigation, interview and communication in the report period The Company always pay attention to relationship of investors, and made effort to improve transparency. In 2008. communication between the Company and investors further strengthened, During the report period, the Company accepted 25 visits and organized 1 net roadshow. In the report period, the Company awarded the top one hundred listed companies of A share that keep good relationship with investors, which was sponsored by Management and Research Center on Relationship among Investors of Listed Companies and guided by Shenzhen Stock Exchange and Shanghai Stock Exchange. In 2008, statement on acceptance of investors by the Company was as follows” Discussed content and Reception Reception place Reception way Reception object materials provided by the date Company Meeting room of the 7 Jan. 2008 Field research HSBC Jintrust Fund Management Co., Ltd Company Investment Strategic Meeting of CJIS 11 Jan. 2008 Zhuhai CJIS Securities Securities 2008 52 Hanlun Investing Consultant (Shanghai) Main content of discussion: Co., Ltd, CPFC, CNGC North Industries 1. Operation of the Group Finance, USA International United Company and future Meeting room of the 15 Jan. 2008 Field research Business Group, CCB Principal Asset development strategy; Company Management Co., Ltd, Taikang Asset 2. Status quo of the Management Co., Ltd, Zhonghai Trust industry and the Co., Ltd and Acru Jiashi Assets development trend; TX Investment Consulting Co., Ltd, 3. Matters on publishing Shanxi Securities Co., Ltd, Galaxy Asset shares non-publicly by the Management Co., Ltd, Yinhua Fund Company; Meeting room of the Management Co., Ltd, Xinhua Assets 4. New-built Gen 4.5 Line. 16 Jan. 2008 Field research Company Management Co., Ltd, Essence Securities Co., Ltd, CITICS, Boshi Fund Information provided: Management Co., Ltd and Orient public information such as Securities Company Annual Report 2007 of the Meeting room of the Company and the 25 Jan. 2008 Field research South China Securities Co., Ltd throwaway of the Company Meeting room of the Company. 4 Mar. 2008 Field research Libao Fengyi (Beijing) Assets Operation Center Company Meeting room of the 6 Mar. 2008 Field research Lingrui Assets Management Co., Ltd. Company Meeting room of the 7 Mar. 2008 Field research Bohai Investment Company 14 Mar. Meeting room of the 2008 Field research Mitsubushi UFJ Securities Co., Ltd. Company Meeting room of the Shanghai Yinglian Investment 9 Apr. 2008 Field research Company Management C., Ltd Meeting room of the Shanghai Kunyang Investment 17 Apr. 2008 Field research Company Management Co., Ltd Meeting room of the 25 Apr. 2008 Field research N M Rothschild & Sons ( Hong Kong ) Limited Company Communication Communication through 5 May 2008 through Value Partners telephone telephone Meeting room of the 7 May 2008 Field research Sinolink Securities Company Meeting room of the 7 May 2008 Field research Morley Fund Management Company Meeting room of the 8 May 2008 Field research China Investment Corporation Company 19 May Meeting room of the 2008 Field research PICC Health Insurance Co., Ltd Company 22 May Meeting room of the 2008 Field research Polunin Capital Partners Company 28 May Meeting room of the 2008 Field research Chang Xin Asset Management Company Meeting room of the 3 Jun. 2008 Field research China Asset Management Co., Ltd Company TX Investment Consulting Co., Ltd, Shanxi Securities Co., Ltd, Capital Securities Co., Ltd, Minsheng Securities Co., Ltd, Xiangcai Securities Meeting room of the Co., Ltd, CICC, Dongxing Securities Co., Ltd, 12 Jun. 2008 Field research Caida Securities Co., Ltd, South west Securities Company Co., Ltd, Wanlian Securities Co., Ltd, Zhejiang Zhongda Group Investment Co., Ltd and Shanghai Lu’an Investment Co., Ltd The First Summit 18 Jun. 2008 The Ritz-Carlton Beijing meeting of Morgan Customer of Morgan Stanley Stanley Meeting room of the 29 Jul. 2008 Field research PiperJaffray Company 28 Aug. Meeting room of the 2008 Field research Morgan Stanley Taiwan Limited Company Meeting room of the 31 Oct. 2008 Field research Guosen Securities Co., Ltd Company 18 Nov. Meeting room of the 2008 Field research Morgan Stanley Taiwan Limited Company 53 IX. Subsequent events For relevant contents, please refer to events after balance sheet of notes to financial statements. Chapter X Financial Report I. Financial Statements (refer to attachment) II. Notes to financial statements (refer to attachments) Chapter XI Documents Available for Reference I. Financial statements with seals and signatures of legal representative, CFO and principal of Financial Department. II. Original the auditor's report with seal of accounting firms and signature of CPA. III. Full text of all documents and originals of public notice publicly disclosed on the newspapers designated by China Securities Regulatory Commission in the report period. Chairman of the Board: Mr. Wang Dongshen (signature) Board of Directors of BOE Technology Group Co., Ltd 17 Apr. 2009 54 BOE TECHNOLOGY GROUP COMPANY LIMITED ENGLISH VERSION OF FINANCIAL STATEMENTS FOR THE YEAR 1 JANURARY 2008 TO 31 DECEMBER 2008 IF THERE IS ANY CONFLICT OF MEANING BETWEEN THE CHINESE AND ENGLISH VERSIONS, THE CHINESE VERSION WILL PREVAIL 55 AUDITORS’ REPORT KPMG-A(2009)AR No.0396 All Shareholders of BOE Technology Group Company Limited: We have audited the accompanying financial statements of BOE Technology Group Company Limited (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 (2006) 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. Auditors’ 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 as to whether the financial statements are free from material misstatement. 1 AUDITORS’ REPORT (continued) KPMG-A(2009)AR No.0396 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ 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 auditors consider 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 entity’s internal control. An audit also evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as 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 (2006) 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. KPMG Huazhen Certified Public Accountants Registered in the People’s Republic of China Zhang Huan Beijing, the People’s Republic of China Yang Ming 17 April 2009 2 BOE Technology Group Company Limited Consolidated balance sheet as at 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Assets Current assets Cash at bank and on hand 7 3,903,740,704 1,704,436,404 Bills receivable 8 305,340,503 175,783,058 Accounts receivable 9 485,918,608 1,793,612,342 Prepayments 10 46,467,616 112,038,696 Interest receivable 11 6,561,758 1,516,906 Other receivables 13 91,430,944 80,595,468 Inventories 14 472,233,966 791,698,020 Other current assets 5 290,049,691 4,841,501 Total current assets 5,601,743,790 4,664,522,395 ------------------- ------------------- Non-current assets Available-for-sale financial assets 15 53,707,522 129,109,597 Held-to-maturity investments 16 - - Long-term equity investments 17 340,783,862 641,652,657 Investment property 18 174,553,402 126,367,406 Fixed assets 19 6,542,076,001 6,897,275,352 Construction in progress 20 445,452,403 54,745,615 Intangible assets 21 715,814,320 742,637,961 Goodwill 22 47,364,310 47,364,310 Long-term deferred expenses 23 14,611,367 1,266,496 Deferred tax assets 24 5,013,345 76,333,072 Total non-current assets 8,339,376,532 8,716,752,466 ------------------- ------------------- Total assets 13,941,120,322 13,381,274,861 The notes on pages 18 to 120 form part of these financial statements. 1 BOE Technology Group Company Limited Consolidated balance sheet as at 31 December 2008 (continued) (Expressed in Renminbi yuan) Note 2008 2007 Liabilities and shareholders’ equity Current liabilities Short-term loans 27 509,073,028 428,011,512 Bills payable 28 106,000,000 55,000,000 Accounts payable 29 1,062,249,179 1,498,985,231 Advances from customers 30 225,371,127 176,435,585 Employee benefits payable 31 109,085,872 153,060,763 Taxes payable 5 15,774,385 50,273,186 Interest payable 11,781,276 21,207,784 Dividends payable 32 8,093,845 6,668,965 Other payables 33 129,185,287 159,051,186 Non-current liabilities due within one year 34 2,009,143,046 692,700,000 Other current liabilities 35 29,974,002 57,740,852 Total current liabilities 4,215,731,047 3,299,135,064 ------------------- ------------------- Non-current liabilities Long-term loans 36 2,934,127,561 4,494,667,804 Deferred tax liabilities 24 - 19,333,205 Other non-current liabilities 37 72,460,091 46,799,614 Total non-current liabilities 3,006,587,652 4,560,800,623 ------------------- ------------------- Total liabilities 7,222,318,699 7,859,935,687 ------------------- ------------------- The notes on pages 18 to 120 form part of these financial statements. 2 BOE Technology Group Company Limited Consolidated balance sheet as at 31 December 2008 (continued) (Expressed in Renminbi yuan) Note 2008 2007 Liabilities and shareholders’ equity (continued) Shareholders’ equity Share capital 38 3,282,902,447 2,871,567,895 Capital reserve 39 4,504,955,589 2,740,627,893 Surplus reserve 40 499,092,613 499,092,613 Accumulated losses 41 (2,347,930,741) (1,540,405,268) Translation differences of financial statements denominated in foreign currency (2,797,376) (303,984) Total equity attributable to shareholders of the Company 5,936,222,532 4,570,579,149 Minority interests 782,579,091 950,760,025 Total equity 6,718,801,623 5,521,339,174 ------------------- ------------------- Total liabilities and shareholders’ equity 13,941,120,322 13,381,274,861 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 3 BOE Technology Group Company Limited Balance sheet as at 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Assets Current assets Cash at bank and on hand 7 572,867,082 936,584,272 Bills receivable 8 3,583,603 6,119,683 Accounts receivable 9 34,063,202 28,017,264 Prepayments 10 948,730 2,542,716 Interest receivable 11 438,965 1,516,906 Dividends receivable 12 8,204,147 8,204,147 Other receivables 13 632,207,456 106,249,337 Inventories 14 4,789,090 9,789,493 Total current assets 1,257,102,275 1,099,023,818 ------------------- ------------------- Non-current assets Available-for-sale financial assets 15 53,707,522 129,109,597 Held-to-maturity investments 16 - - Long-term equity investments 17 6,275,363,309 4,679,889,634 Investment property 18 79,259,202 35,603,254 Fixed assets 19 151,948,575 163,064,649 Construction in progress 20 21,543,069 18,510,239 Intangible assets 21 52,228,556 52,095,063 Long-term deferred expenses 23 3,583,125 - Total non-current assets 6,637,633,358 5,078,272,436 ------------------- ------------------- Total assets 7,894,735,633 6,177,296,254 The notes on pages 18 to 120 form part of these financial statements. 4 BOE Technology Group Company Limited Balance sheet as at 31 December 2008 (continued) (Expressed in Renminbi yuan) Note 2008 2007 Liabilities and shareholders’ equity Current liabilities Accounts payable 29 4,207,258 4,798,143 Advances from customers 30 41,183,980 3,338,989 Employee benefits payable 31 27,241,016 24,323,520 Taxes payable 5 2,398,167 5,965,964 Interest payable 6,210,585 12,054,232 Dividends payable 32 6,453,790 6,455,264 Other payables 33 32,696,258 42,350,819 Non-current liabilities due within one year 34 510,000,000 682,500,000 Total current liabilities 630,391,054 781,786,931 ------------------- ------------------- Non-current liabilities Long-term loans 36 45,000,000 277,500,000 Other non-current liabilities 37 49,553,200 26,797,146 Total non-current liabilities 94,553,200 304,297,146 ------------------- ------------------- Total liabilities 724,944,254 1,086,084,077 ------------------- ------------------- The notes on pages 18 to 120 form part of these financial statements. 5 BOE Technology Group Company Limited Balance sheet as at 31 December 2008 (continued) (Expressed in Renminbi yuan) Note 2008 2007 Liabilities and shareholders’ equity (continued) Shareholders’ equity Share capital 38 3,282,902,447 2,871,567,895 Capital reserve 39 4,525,326,846 2,770,165,978 Surplus reserve 40 499,092,613 499,092,613 Accumulated losses 41 (1,137,530,527) (1,049,614,309) Total equity 7,169,791,379 5,091,212,177 ------------------- ------------------- Total liabilities and shareholders’ equity 7,894,735,633 6,177,296,254 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 6 BOE Technology Group Company Limited Consolidated income statement for the year ended 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Operating income 42 8,334,015,771 11,170,448,855 Less: Operating costs 7,681,521,839 9,263,870,340 Business taxes and surcharges 43 27,616,539 16,445,071 Selling and distribution expenses 160,568,845 197,845,776 General and administrative expenses 814,893,919 559,821,122 Financial expenses 44 191,186,036 289,848,468 Impairment losses 45 312,504,311 119,783,374 Add: Investment losses 46 (206,027,654) (128,315,862 (Including: Losses from investment in associates and a jointly controlled enterprise) (281,318,326) (83,656,078) Operating (loss)/profit (1,060,303,372) 594,518,842 Add: Non-operating income 47 136,176,234 278,274,136 Less: Non-operating expenses 48 5,224,158 31,993,914 (Including: Losses from disposal of non-current assets) 923,859 3,078,825 (Loss)/profit before income tax (929,351,296) 840,799,064 The notes on pages 18 to 120 form part of these financial statements. 7 BOE Technology Group Company Limited Consolidated income statement for the year ended 31 December 2008 (continued) (Expressed in Renminbi yuan) Note 2008 2007 (Loss)/profit before income tax (929,351,296) 840,799,064 Less: Income tax expenses/ (benefit) 49 67,419,800 (56,307,888) Net (loss)/profit for the year (996,771,096) 897,106,952 Attributable to: Shareholders of the Company (807,525,473) 690,945,815 Minority shareholders (189,245,623) 206,161,137 (Losses)/earnings per share 58(1) Basic and Diluted (losses)/ earnings per share (0.27) 0.24 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 8 BOE Technology Group Company Limited Income statement for the year ended 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Operating income 42 218,786,056 207,253,580 Less: Operating costs 77,561,223 129,275,928 Business taxes and surcharges 43 9,289,154 3,941,274 Selling and distribution expenses 2,057,073 2,460,586 General and administrative expenses 111,150,512 81,743,957 (Net financial income)/financial expenses 44 (35,663,153) 41,317,382 Impairment loss 45 (33,083,486) 12,270,098 Add: Investment loss 46 (170,132,415) (118,074,757 (Including: Losses from investment in associates and a jointly controlled enterprise) (255,893,534) (83,656,078) Operating loss (82,657,682) (181,830,402) Add: Non-operating income 47 13,409,258 91,692,474 Less: Non-operating expenses 48 1,634,952 2,085,647 (Including: Losses from disposal of non-current assets) 551,024 1,753,361 Loss before income tax (70,883,376) (92,223,575) Less: Income tax benefit 49 - (15,624,951) Net loss for the year (70,883,376) (76,598,624) These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 9 BOE Technology Group Company Limited Consolidated cash flow statement for the year ended 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Cash flows from operating activities: Cash received from sale of goods and rendering of services 10,070,416,783 11,237,354,875 Refund of taxes 33,802,207 12,648,968 Other cash received relating to operating activities 131,279,170 116,063,939 Sub-total of cash inflows 10,235,498,160 11,366,067,782 ------------------- ------------------- Cash paid for goods and services (8,073,366,615) (8,245,828,893) Cash paid to and for employees (677,493,272) (557,309,348) Cash paid for all types of taxes (180,754,345) (114,212,824) Other cash paid relating to operating activities (175,914,051) (156,618,318) Sub-total of cash outflows (9,107,528,283) (9,073,969,383) ------------------- ------------------- Net cash inflow from operating activities 50(1) 1,127,969,877 2,292,098,399 ------------------- ------------------- Cash flows from investing activities: Cash received from disposal of investments 58,927,049 2,159,086,728 Cash received from return on investments 6,071,049 86,169,745 Net cash received from disposal of fixed assets intangible assets and other long-term assets 63,499,757 64,459,631 Cash received from return on restricted deposits 9,935,800 52,416,698 Other cash received relating to investing activities 41,639,495 33,924,559 Sub-total of cash inflows 180,073,150 2,396,057,361 ------------------- ------------------- Cash paid for acquisition of fixed assets, intangible assets and other long-term assets (1,085,482,340) (374,009,390) Cash paid for acquisition of investments (54,500,000) (5,454,000) Cash paid for acquisition of subsidiaries (12,126,325) - Sub-total of cash outflows (1,152,108,665) (379,463,390) ------------------- ------------------- Net cash (outflow)/inflow from investing activities (972,035,515) 2,016,593,971 ------------------- ------------------- The notes on pages 18 to 120 form part of these financial statements. 10 BOE Technology Group Company Limited Consolidated cash flow statement (continued) for the year ended 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Cash flows from financing activities: Cash received from investors 2,248,499,999 - Cash received from borrowings 2,671,321,134 1,721,033,502 Sub-total of cash inflows 4,919,821,133 1,721,033,502 ------------------- ------------------- Cash repayments of borrowings (2,677,373,775) (5,493,863,572) Cash paid for dividends, profits distribution or interest (301,061,093) (514,475,334) (Including: Dividends and profits paid to minority shareholders of subsidiaries) (4,520,000) (1,152,000) Other cash paid relating to financing activities (8,014,259) (5,895,098) Sub-total of cash outflows (2,986,449,127) (6,014,234,004) ------------------- ------------------- Net cash inflow/(outflow) from financing activities 1,933,372,006 (4,293,200,502) ------------------- ------------------- Effect of foreign exchange rate changes on cash and cash equivalents (12,868,754) (16,046,045) ------------------- ------------------- Net increase/(decrease) in cash and cash equivalents 50(2) 2,076,437,614 (554,177) Add: Cash and cash equivalents at the beginning of the year 1,452,160,200 1,452,714,377 Cash and cash equivalents at the end of the year 3,528,597,814 1,452,160,200 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 11 BOE Technology Group Company Limited Cash flow statement for the year ended 31 December 2008 (Expressed in Renminbi yuan) Note 2008 2007 Cash flows from operating activities: Cash received from sale of goods and rendering of services 134,382,267 178,176,343 Refund of taxes 1,187,201 760,952 Other cash received relating to operating activities 225,127,027 359,688,715 Sub-total of cash inflows 360,696,495 538,626,010 ------------------- ------------------- Cash paid for goods and services (82,786,947) (88,966,023) Cash paid to and for employees (54,785,358) (54,075,409) Cash paid for all types of taxes (21,888,671) (13,621,433) Other cash paid relating to operating activities (92,836,614) (384,466,381) Sub-total of cash outflows (252,297,590) (541,129,246) ------------------- ------------------- Net cash inflow/(outflow) from operating activities 50(1) 108,398,905 (2,503,236) ------------------- ------------------- Cash flows from investing activities: Cash received from disposal of investments 58,927,049 2,189,018,147 Cash received from return on investments 16,541,495 86,069,746 Net cash received from disposal of fixed assets intangible assets and other long-term assets 23,786,879 951,495 Cash received from return on restricted deposits in financial institution 8,400,000 34,920,000 Other cash received relating to investing activities 78,965,912 112,309,096 Sub-total of cash inflows 186,621,335 2,423,268,484 ------------------- ------------------- Cash paid for acquisition of fixed assets, intangible assets and other long-term assets (15,000,781) (13,495,244) Cash paid for acquisition of investments (1,674,500,000) (106,104,076) Cash paid for acquisition of subsidiaries (240,100,050) - Other cash paid relating to investing activities (531,500,000) (113,500,000) Sub-total of cash outflows (2,461,100,831) (233,099,320) ------------------- ------------------- Net cash (outflow)/inflow from investing activities (2,274,479,496) 2,190,169,164 ------------------- ------------------- The notes on pages 18 to 120 form part of these financial statements. 12 BOE Technology Group Company Limited Cash flow statement for the year ended 31 December 2008 (continued) (Expressed in Renminbi yuan) Note 2008 2007 Cash flows from financing activities: Cash received from investors 2,248,499,999 - Cash received from borrowings 241,368,000 467,000,000 Sub-total of cash inflows 2,489,867,999 467,000,000 ------------------- ------------------- Cash repayments of borrowings (646,368,000) (2,564,000,000) Cash paid for dividends, profits distribution or interest (25,269,508) (54,708,438) Other cash paid relating to financing activities (6,247,196) - Sub-total of cash outflows (677,884,704) (2,618,708,438) ------------------- ------------------- Net cash inflow/(outflow) from financing activities 1,811,983,295 (2,151,708,438) ------------------- ------------------- Effect of foreign exchange rate changes on cash and cash equivalents (1,219,894) (5,078,869) ------------------- ------------------- Net (decrease)/increase in cash and cash equivalents 50(2) (355,317,190) 30,878,621 Add: Cash and cash equivalents at the beginning of the year 928,184,272 897,305,651 Cash and cash equivalents at the end of the year 572,867,082 928,184,272 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 13 BOE Technology Group Company Limited Consolidated statement of changes in equity for the year ended 31 December 2008 (Expressed in Renminbi yuan) Attributable to shareholders of the Company Translation differences of financial statements Share Capital Surplus Retained denominated in Note capital reserve reserve earnings foreign currency Balance at 1 January 2008 2,871,567,895 2,740,627,893 499,092,613 (1,540,405,268) (303,984) 4,5 ------------------- ------------------- ------------------- ------------------- ------------------- ------ Changes in equity for the year 1. Net loss for the year - - - (807,525,473) - (80 2. Gains and losses recognised directly in equity - Net changes in fair value of available-for-sale financial assets - (75,402,075) - - - (7 - Effect of changes in equity excluding retained earnings of investee under equity method39(c) - 9,166,828 - - - - Effect of acquisition of subsidiaries on minority interests 6(2)(b) - - - - - - Translation differences of financial statements denominated in foreign currency - - - - (2,493,392) Subtotal of 1&2 - (66,235,247) - (807,525,473) (2,493,392) (87 ------------------- ------------------- ------------------- ------------------- ------------------- ------ 3. Shareholders’ contributions of capital 38 411,334,552 1,830,562,943 - - - 2,24 4. Appropriation of profits - Distributions to shareholders 41 - - - - - ------------------- ------------------- ------------------- ------------------- ------------------- ------ Balance at 31 December 2008 3,282,902,447 4,504,955,589 499,092,613 (2,347,930,741) (2,797,376) 5,93 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 14 BOE Technology Group Company Limited Consolidated statement of changes in equity for the year ended 31 December 2007 (continued (Expressed in Renminbi yuan) Attributable to shareholders of the Company Translation differences of financial statements Share Capital Surplus Retained denominated in Note capital reserve reserve earnings foreign currency Balance at 1 January 2007 2,871,567,895 2,746,176,454 499,092,613 (2,231,351,083) 3,590,518 3,8 ------------------- ------------------- ------------------- ------------------- ------------------- ------ Changes in equity for the year 1. Net profit for the year - - - 690,945,815 - 69 2. Gains and losses recognised directly in equity - Net changes in fair value of available-for-sale financial assets - (5,548,561) - - - - Effect of disposal of subsidiaries on minority interests - - - - - - Translation differences of financial statements denominated in foreign currency - - - - (3,894,502) Subtotal of 1&2 - (5,548,561) - 690,945,815 (3,894,502) 68 ------------------- ------------------- ------------------- ------------------- ------------------- ------ 3. Appropriation of profits - Distributions to shareholders 41 - - - - - ------------------- ------------------- ------------------- ------------------- ------------------- ------ Balance at 31 December 2007 2,871,567,895 2,740,627,893 499,092,613 (1,540,405,268) (303,984) 4,57 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 15 BOE Technology Group Company Limited Statement of changes in equity for the year ended 31 December 2008 (Expressed in Renminbi yuan) Note Share capital Capital reserve Surplus reserve Balance at 1 January 2008 2,871,567,895 2,770,165,978 499,092,613 ------------------- ------------------- ------------------- Changes in equity for the year 1. Net loss for the year - - - 2. Losses recognised directly in equity - Net changes in fair value of available-for-sale financial assets - (75,402,075) - - Effect of changes from equity method to cost method 6(2)(a) - - - Subtotal of 1&2 - (75,402,075) - ------------------- ------------------- ------------------- 3. Shareholders’ contributions of capital 38 411,334,552 1,830,562,943 - ------------------- ------------------- ------------------- Balance at 31 December 2008 3,282,902,447 4,525,326,846 499,092,613 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 16 BOE Technology Group Company Limited Statement of changes in equity for the year ended 31 December 2007 (continued) (Expressed in Renminbi yuan) Share capital Capital reserve Surplus reserve R Balance at 1 January 2007 2,871,567,895 2,775,714,539 499,092,613 ------------------- ------------------- ------------------- Changes in equity for the year 1. Net loss for the year - - 2. Losses recognised directly in equity - Net changes in fair value of available-for-sale financial assets - (5,548,561) - Subtotal of 1&2 - (5,548,561) - ------------------- ------------------- ------------------- Balance at 31 December 2007 2,871,567,895 2,770,165,978 499,092,613 These financial statements have been approved by the Board of Directors of the Company on 17 April 2009. Wang Dongsheng Chen Yanshun SunYun (Company stamp) Chairman of the Board [President Chief Financial Officer The notes on pages 18 to 120 form part of these financial statements. 17 BOE Technology Group Company Limited Notes to the financial statements (Expressed in Renminbi) 1 Company status BOE Technology Group Company Limited (the “Company”) is a company limited by shares established on 9 April 1993 in Beijing, with its head office located in Beijing. The parent of the Company is Beijing Electronic Tube Factory (after “debt-equity swap” restructuring converted to “Beijing Orient Investment and Development Company Limited” (“BOID”)). The Company’s ultimate holding company is Beijing Electronics Holdings Co., Ltd. (“Electronics Holdings”). With the approval of the Office of Economic Restructuring of Beijing Municipality JTGBZ [1992] No. 22, the Company was founded by the former Beijing Electronic Tube Factory as the main promoter by way of directional stock flotation. In accordance with relevant China laws and regulations, the related assets and liabilities transferred from the former Beijing Electronic Tube Factory were revalued and the revaluation amount was certified by the governmental state-owned assets supervision and administration department. The Company used the revaluation amount as the initial value for Company’s accounting records. As approved by the State Council Securities Commission through document ZWF [1997] No. 32, the Company issued 115,000,000 B shares on 19 May 1997 at Shenzhen Stock Exchange, with a face value of RMB 1.00 each, getting listed on 10 June 1997 on the Shenzhen Stock Exchange. As approved by China Securities Regulatory Commission (“CSRC”) through document ZJGSZ [2000] No. 197, the Company issued 60,000,000 ordinary shares denominated in renminbi on 23 November 2000 at Shenzhen Stock Exchange, with a face value of RMB 1.00 each, getting listed on 12 January 2001 on the Shenzhen Stock Exchange. As approved by the CSRC through document ZJFXZ [2004] No. 2, “The Notice on approving BOE Technology Group Company Limited’s further share offering”, the Company additionally issued 316,400,000 B shares on 16 Jan 2004, with a face value of RMB 1.00 and issuing value of HKD 6.32, which raised capital amounting to HKD 1,999,648,000. After accounting for all the relevant issuance fees, the B shares further offering raised capital of HKD 1,922,072,431 (RMB 2,048,160,383), with total share capital increased to RMB 975,864,800. Pursuant to the resolution approved by the 2003 Annual General Meeting held on 28 May 2004, the Company implemented its plan of transferring capital reserve into share capital at the rate of “5 shares for every 10 shares” to all shareholders in June 2004. Upon the completion of the transfer, the Company’s total share capital increased to RMB 1,463,797,200. Pursuant to the resolution passed by the 2005 1st Extraordinary General Meeting held on 5 July 2005, based on the total share capital of 1,463,797,200 shares as at 31 December 2004, the Company transferred capital reserve into share capital at the rate of “5 shares for every 10 share” to all shareholders on 19 July 2005. Upon completion of the transfer, the Company’s total share capital increased to RMB 2,195,695,800. 18 1 Company status (continued) In accordance with “The Approval Notice on BOE’s State-owned Share Reform Plan” issued by Stated-owned Assets Supervision and Administration Commission of Beijing Municipality (JGZCQZ [2005] No. 119), the Company implemented its state-owned share reform plan agreed by the shareholders on 24 November 2005. According to the plan, those registered tradable RMB-denominated ordinary share shareholders on 29 November 2005 would receive 4.2 shares for every 10 listed shares. This had contributed to the change in percentage of tradable and non-tradable shares of the Company. Pursuant to the 21st session of the 4th directors meeting and the Extraordinary General Meeting held on 18 April 2006 and 19 May 2006 respectively, and the approval from the CSRC through document ZJFXZ [2006] No. 36, the Company issued 675,872,095 non-public targeted ordinary shares (A shares) with face value of RMB 1. On 9 October 2006, the Company completed shares registration and escrow in China Securities Depository and Clearing Corporation Limited Shenzhen branch. Upon completion of the issuance, the Company’s total share capital increased to RMB 2,871,567,895. Pursuant to the 3rd session of the 5th directors meeting and the 2007 4th Extraordinary General Meeting held on 29 August 2007 and 26 September 2007 respectively, and the approval from the CSRC through document ZJFXZ [2008] No. 587, the Company issued 411,334,552 non-public targeted RMB-denominated ordinary share with the face value of RMB 1. On 16 July 2008, the Company completed shares registration and escrow in China Securities Depository and Clearing Corporation Limited Shenzhen branch. Upon completion of the issuance, the Company’s total share capital increased to RMB 3,282,902,447. The Company revised its Articles of Association on August 2008, and obtained the renewed the business license as legal person with No. 110000005012597 on 8 September 2008. The Company and its subsidiaries (“the Group”) comprise two main business segments on a worldwide basis: Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) business, and Application Special Device (“ASD”) business and other business. The other business includes precision electronic parts and materials business and proprietary property development and management business, etc. 2 Basis of preparation (1) Statement of compliance The financial statements have been prepared in accordance with the requirements of the China Accounting Standards for Business Enterprises (CAS (2006)) issued by the Ministry of Finance (“MOF”). These financial statements present truly and completely the consolidated financial position and financial position, the consolidated results of operations and results of operations and the consolidated cash flows and cash flows of the Company. 19 2 Basis of preparation (continued) These financial statements also comply with the disclosure requirements of “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports” as revised by the CSRC in 2007. (2) Accounting year The accounting year of the Group is from 1 January to 31 December. (3) Measurement basis The measurement basis used in the preparation of the financial statements is historical cost basis except that the assets and liabilities set out below: − Available-for-sale financial assets(See Note 3(12)) (4) Functional currency and presentation currency The Company’s functional currency is renminbi. These financial statements are presented in renminbi. The Company translates the financial statements of subsidiaries from their respective functional currencies into renminbi (see Note 3(2)) if the subsidiaries’ functional currencies are not renminbi. 3 Significant accounting policies and accounting estimates (1) Business combination and consolidated financial statements (a) Business combination involving entities under common control A business combination involving enterprises under common control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities obtained are measured at the carrying amounts as recorded by the enterprise being combined at the combination date. The difference between the carrying amount of the net assets obtained and the carrying amount of consideration paid for the combination (or the total face value of shares issued) is adjusted to share premium in the capital reserve. If the balance of share premium is insufficient, any excess is adjusted to retained earnings. The combination date is the date on which one combining enterprise effectively obtains control of the other combining enterprise. 20 3 Significant accounting policies and accounting estimates (continued) (b) Business combinations involving entities not under common control A business combination involving entities not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination. The cost of a business combination paid by the acquirer is the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer, in exchange for control of the acquiree plus any cost directly attributable to the business combination. The difference between the fair value and the carrying amount of the assets given is recognised in profit or loss. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. The acquirer, at the acquisition date, allocates the cost of the business combination by recognising the acquiree’s identifiable asset, liabilities and contingent liabilities at their fair value at that date. Any excess of the cost of a business combination over the acquirer’s interest in the fair value of the acquiree’s identifiable net assets is recognised as goodwill (See Note 3(10)). Any excess of the acquirer’s interest in the fair value of the acquiree’s identifiable net assets over the cost of a business combination is recognised in profit or loss. (c) Consolidated financial statements The consolidated financial statements comprise the Company and its subsidiaries. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its operating activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where a subsidiary was acquired during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary’s assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amount from the date that common control was established. 21 3 Significant accounting policies and accounting estimates (continued) Where a subsidiary was acquired during the reporting period through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, base on the fair value of those identifiable assets and liabilities at the acquisition date. Where the Company acquired a minority interest from a subsidiary’s minority shareholders, the difference between the investment cost for acquiring the minority interest and the corresponding reduction of minority interest in the consolidated financial statements, is adjusted to the capital reserve in the consolidated balance sheet. If the credit balance of capital reserve is insufficient, any excess is adjusted to retained earnings. Minority interest is presented separately in the consolidated balance sheet within shareholders’ equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item. Where losses attributable to the minority shareholders of a subsidiary exceeds the minority shareholders’ interest in of the equity of the subsidiary, the excess, and any further losses attributable to the minority shareholders, are allocated against the equity attributable to the Company except to the extent that the minority shareholders have a binding obligation under the articles of association or an agreement and are able to make additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the equity attributable to the Company until the minority shareholders’ share of losses previously absorbed by the Company has been recovered. When the accounting period or accounting policies of a subsidiary are different from those of the Company, the Company makes necessary adjustments to the financial statements of the subsidiary based on the Company’s own accounting period or accounting policies. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment. (2) Translation of foreign currencies When the Group receives capital in foreign currencies from investors, the capital is translated to renminbi at the spot exchange rate at the date of the receipt. Other foreign currency transactions are, on initial recognition, translated to renminbi at the spot exchange rates at the dates of the transactions. 22 3 Significant accounting policies and accounting estimates (continued) A spot exchange rate is an exchange rate quoted by the People’s Bank of China, the State Administration of Foreign Exchanges or a cross rate determined based on quoted exchange rates. A rate that approximates the spot exchange rate is a rate determined under a systematic and rational method, normally weighted average exchange rate of the current period. Monetary items denominated in foreign currencies are translated to renminbi at the spot exchange rate at the balance sheet date. The resulting exchange differences are recognised in profit or loss, except those arising from the principals and interests on foreign currency borrowings specifically for the purpose of acquisition and construction of qualifying assets (see Note 3(19)). Non-monetary items denominated in foreign currencies that are measured at historical cost are translated to renminbi using the foreign exchange rate at the transaction date. Non-monetary items denominated in foreign currencies that are measured at fair value are translated using the foreign exchange rate at the date the fair value is determined; the exchange differences are recognised in profit or loss, except for the differences arising from the translation of available-for-sale financial assets, which is recognised in capital reserve. The assets and liabilities of foreign operation are translated to renminbi at the spot exchange rate at the balance sheet date. The equity items, excluding “Retained earning”, are translated to renminbi at the spot exchange rates at the transaction dates. The income and expenses of foreign operation are translated to renminbi at the rates that approximate the spot exchange rates at the transaction dates. The resulting exchange differences are recognised in a separate component of equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relates to that foreign operation is transferred to profit or loss in the period in which the disposal occurs. (3) Cash and Cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid investments, which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value. (4) Inventories Inventories are carried at the lower of cost and net realisable value. Cost of inventories comprises all costs of purchase, costs of conversion and other costs. Inventories are initially measured at their actual cost. Cost of inventories is calculated using the weighted average method. In addition to the purchasing cost of raw materials, work in progress and finished goods include direct labour costs and an appropriate allocation of production overheads. 23 3 Significant accounting policies and accounting estimates (continued) Any excess of the cost over the net realisable value of each class of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs to completion and the estimated expenses and related taxes necessary to make the sale. Reusable materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss. The Group maintains a perpetual inventory system. (5) Long-term equity investments (a) Investments in subsidiaries In the Group’s consolidated financial statements, investment in subsidiaries are accounted for in accordance with the principles described in Note 3(1)(c). In the Company’s financial statements, investments in subsidiaries are accounted for using the cost method. The investments are stated at cost less impairment losses (see Note 3(13)(c)) in the balance sheet. At initial recognition, such investments are measured as follows: − The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the Company’s share of the subsidiary’s equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings. − The initial investment cost of a long-term equity investment obtained through a business combination involving entities not under common control is the cost of acquisition determined at the acquisition date. − An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual payment cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by shareholders. 24 3 Significant accounting policies and accounting estimates (continued) (b) Investment in jointly controlled enterprises and associates A jointly controlled enterprise is an enterprise which operates under joint control in accordance with a contractual agreement between the Group and other parties. Joint control is the contractual agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing the control. An associate is an enterprise over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of an investee but is not control or joint control over those policies. An investment in a jointly controlled enterprise or an associate is accounted for using the equity method, unless the investment is classified as held for sale (see Note 3(11)). At year-end, the Group makes provision for impairment loss of investments in jointly controlled enterprises and associates (see Note 3(13)(c)). An investment in a jointly controlled enterprise or an associate is initially recognised at actual payment cost if the Group acquires the investment by cash, at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by an investor. The Group makes the following accounting treatments when using the equity method: − Where the initial investment cost of a long-term equity investment exceeds the Group’s interest in the fair value of the investee’s identifiable net assets at the date of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group’s interest in the fair value of the investee’s identifiable net assets at the date of acquisition, the investment is initially recognised at the investor’s share of the fair value of the investee’s identifiable net assets, and the difference is charged to profit or loss. − After the acquisition of the investment, the Group recognises its share of the investee’s net profits or losses after deducting the amortisation of the debit balance of equity investment difference as investment income or losses, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group. 25 3 Significant accounting policies and accounting estimates (continued) The Group recognises its share of the investee’s net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee’s identifiable net assets at the date of acquisition. Unrealised profits and losses resulting from transactions between the Group and its associates or jointly controlled enterprises are eliminated to the extent of the Group’s interest in the associates or jointly controlled enterprises. Unrealised losses resulting from transactions between the Group and its associates or jointly controlled enterprises are eliminated in the same way as unrealized gains but only to the extent that there is no evidence of impairment. − The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that in substance forms part of the Group’s net investment in the associate or the jointly controlled enterprise is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. Where net profits are subsequently made by the associate or jointly controlled enterprise, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. (c) Other long-term equity investments Other long-term equity investments refer to investments where the Group does not have control, joint control or significant influence over the investees, and the investments are not quoted in an active market and their fair value cannot be reliably measured. Such investments are initially recognised at the cost determined in accordance with the same principles as those for jointly controlled enterprises and associates, and then accounted for using the cost method. At year-end the Group makes provision for impairment losses on such investments (see Note 3(13)(b)). (6) Investment property Investment property is a property held either to earn rental income or for capital appreciation or for both. Investment property is accounted for using the cost model and stated in the balance sheet at cost less accumulated depreciation, amortisation and impairment loss (see Note 3(13)(c)). Investment property is depreciated or amortised using the straight-line method over its estimated useful life, unless the investment property is classified as held for sale (see Note 3(11)). Estimated Estimated Depreciation useful life residual value rate Building 25-35 years 3%-10% 2.6%-3.9% Land use right 50 years 0% 2% 26 3 Significant accounting policies and accounting estimates (continued) (7) Fixed assets and construction in progress Fixed assets represent the tangible assets held by the Group for use in the production of goods or supply of services for rental to others or for operation and administrative purposes with useful lives over one year. Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(13)(c)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(13)(c)). The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(19)), and any other costs directly attributable to bringing the asset to working condition for its intended use. Construction in progress is transferred to fixed assets when it is ready for its intended use. No depreciation is provided against construction in progress. Where parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a separate fixed asset. The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred. Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. Fixed assets are depreciated using the straight-line method over their estimated useful lives, unless the fixed assets is classified as held for sale (see Note 3(11)). The estimated useful lives, residual values and depreciation rates of each class of fixed assets are as follows: Estimated Depreciation Useful life residual value rate Plants and buildings 20-40 years 3%-10% 2.3%-4.9% Equipment 2-15 years 0-10% 6%-50% Others 2-10 years 0-10% 9%-50% Useful lives, residual values and depreciation methods are reviewed at least each year-end. 27 3 Significant accounting policies and accounting estimates (continued) (8) Leases A lease is classified as either a finance lease or an operating lease. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of a leased asset to the lessee, irrespective of whether the legal title to the asset is eventually transferred or not. An operating lease is a lease other than a finance lease. (a) Assets acquired under finance leases When the Group acquires an asset under a finance lease, the asset is measured at an amount equal to the lower of its faire values and the present value of the minimum lease payments, each determined at the inception of the lease. The minimum lease payments are recorded as long-term payables. The difference between the value of the leased assets and the minimum lease payments is recognised as unrecognised finance charges. Initial direct costs that are attributable to a finance lease incurred by the Group are added to the amounts recognised for the leased asset. Depreciation and impairment losses are accounted for in accordance with the accounting policies described in Notes 3(7) and 3(13)(c), respectively. If there is reasonable certainty that the Group will obtain ownership of a leased asset at the end of the lease term, the leased asset is depreciated over its estimated useful life. Otherwise, the leased asset is depreciated over the shorter of the lease term and its estimated useful life. Unrecognised finance charge under finance lease is amortised using an effective interest method over the lease term. The amortisation is accounted for in accordance with policies of borrowing costs (see Note 3(19)). At the balance sheet date, long-term payables arising from finance leases, net of the unrecognised finance charges, are presented into long-term payables and non-current liabilities due within one year, respectively in the balance sheet. (b) Operating lease charges Rental payments under operating leases are recognised as costs or expenses on a straight-line basis over the lease term. 28 3 Significant accounting policies and accounting estimates (continued) (c) Assets leased out under operating leases Fixed assets leased out under operating leases, except for investment property (see Note 3(6)), are depreciated in accordance with the Group’s depreciation policies described in Note 3(7). Impairment losses are provided for in accordance with the accounting policy described in Note 3(13)(c). Income derived from operating leases is recognised in the income statement using the straight-line method over the lease term. If initial direct costs incurred in respect of the assets leased out are material, the costs are initially capitalised and subsequently amortised in profit or loss over the lease term on the same basis as the lease income. Otherwise, the costs are charged to profit or loss immediately. (9) Intangible assets Intangible assets are stated in the balance sheet at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see Note 3(13)(c)). For an intangible asset with finite useful life, its cost less residual value and impairment loss is amortised on the straight-line method over its estimated useful life, unless the intangible assets is classified as held for sale (see Note 3(11)). The respective amortisation periods for such intangible assets are as follows: Useful lives Land use right 35-50 years Technology rights 8-20 years Patent 5-10 years Computer software 3-10 years An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Group. At the balance sheet date, the Group doesn’t have any intangible assets with indefinite useful lives. Expenditures on an internal research and development project are classified into expenditures on the research phase and expenditures on the development phase. Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products or processes before the start of commercial production or use. Expenditures on research phase are recognised in profit or loss when incurred. Expenditures on development phase are capitalised if development costs can be measured reliably, the product or process is technically and commercially feasible, and the Group intends to and has sufficient resources to complete development. Capitalised development costs are stated at cost less impairment losses (see Note 3(13)(c)). Other development expenditures are recognised as expenses in the period in which they are incurred. 29 3 Significant accounting policies and accounting estimates (continued) (10) Goodwill Goodwill represents the excess of cost of acquisition over the acquirer’s interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control. Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(13)(c)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the calculation of the profit or loss on disposal. (11) Non-current assets held for sale A non-current asset is classified as held for sale when the Group has made a decision and signed a non-cancellable agreement on the transfer of the asset with the transferee, and the transfer is expected to be completed within one year. Such non-current assets may be fixed assets, intangible assets, investment property subsequently measured using the cost model, long-term equity investment etc. but not include deferred tax assets. Non-current assets held for sale are stated at the lower of carrying amount and net realisable value. Any excess of the carrying amount over the net realisable value is recognised as impairment loss. At balance sheet date, non-current assets held for sale are still presented under corresponding asset classification as they were. (12) Financial instruments Financial instruments comprise cash at bank and on hand, investments in equity securities other than long-term equity investments (see Note 3(5)), receivables, payables, loans and borrowings and share capital, etc. (a) Recognition and measurement of financial assets and financial liabilities A financial asset or financial liability is recognised in the balance sheet when the Group becomes a party to the contractual provisions of a financial instrument. The Group classifies financial assets and liabilities into different categories at initial recognition based on the purpose of acquiring assets or assuming liabilities: financial assets and financial liabilities at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial liabilities. 30 3 Significant accounting policies and accounting estimates (continued) Financial assets and financial liabilities are measured initially at fair value. For financial assets and financial liabilities at fair value through profit or loss, any directly attributable transaction costs are charged to profit or loss; for other categories of financial assets and financial liabilities, any attributable transaction costs are included in their initial costs. Subsequent to initial recognition financial assets and liabilities are measured as follows: − Financial assets and financial liabilities at fair value through profit or loss (including financial assets or financial liabilities held for trading) A financial asset or financial liability is classified as at fair value through profit or loss if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is a derivative. Subsequent to initial recognition, financial assets and financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. − Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, receivables are subsequently stated at amortised cost using the effective interest method. − Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are stated at amortised cost using the effective interest method. − Available-for-sale financial assets Available-for-sale financial assets include non-derivative financial assets that are designated upon initial recognition as available for sales and other financial assets which do not fall into any of the above categories. An investment in equity instrument which does not have a quoted market price in an active market and whose fair value cannot be reliably measured is measured at cost subsequent to initial recognition. 31 3 Significant accounting policies and accounting estimates (continued) Other than investments in equity instruments whose fair value cannot be measured reliably as described above, subsequent to initial recognition, other available-for-sale financial assets are measured at fair value and changes therein, except for impairment losses and foreign exchange gains and losses from monetary financial assets, which are recognised directly in profit or loss, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is removed from equity and recognised in profit or loss. Dividend income from these equity instruments is recognised in profit or loss when the investee declares the dividends. Interest on available-for-sale financial assets calculated using the effective interest method is recognised in profit or loss (see Note 3(17)(c)). − Other financial liabilities Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include the liabilities arising from financial guarantee contracts. Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Where the Group issues a financial guarantee, subsequent to initial recognition, the guarantee is measured at the higher of the amount initially recognised less accumulated amortisation and the amount of a provision determined in accordance with the principles of contingent liabilities (see Note 3(16)). Except for the liabilities arising from financial guarantee contracts described above, subsequent to initial recognition, other financial liabilities are measured at amortised cost using the effective interest method. (b) Determination of fair values If there is an active market for a financial asset or financial liability, the quoted price in the active market without adjusting for transaction costs that may be incurred upon future disposal or settlement is used to establish the fair value of the financial asset or financial liability. For a financial asset held or a financial liability to be assumed, the quoted price is the current bid price and, for a financial asset to be acquired or a financial liability assumed, it is the current asking price. If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties; reference to the current fair value of another instrument that is substantially the same and discounted cash flow analysis. The Group calibrates the valuation technique and tests it for validity periodically. 32 3 Significant accounting policies and accounting estimates (continued) (c) Derecognition of financial assets and financial liabilities A financial asset is derecognised if the Group’s contractual rights to the cash flows from the financial asset expire or if the Group transfers substantially all the risks and rewards of ownership of the financial asset to another party. Where a transfer of a financial asset in its entirety meets the criteria of the derecognition, the difference between the two amounts below is recognised in profit or loss: − carrying amount of the financial asset transferred − the sum of the consideration received from the transfer and any cumulative gain or loss that has been recognised directly in equity. The Group derecognises a financial liability (or part of it) only when the underlying present obligation (or part of it) is discharged. (d) Equity instrument An equity instrument is a contract that proves the ownership interest of the assets after deducting all liabilities in the Company. The consideration received from the issuance of equity instruments net of transaction costs is recognised in share capital and capital reserve. Consideration and transaction costs paid by the Company for repurchasing self-issued equity instruments are deducted from shareholders’ equity. (13) Impairment of financial assets and non-financial long-term assets (a) Impairment of financial assets The carrying amounts of financial assets (other than those at fair value through profit or loss) are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided. − Receivables and held-to-maturity investments Held-to-maturity investments are assessed for impairment on an individual basis. Receivables are assessed for impairment both on an individual basis and on a collective group basis. 33 3 Significant accounting policies and accounting estimates (continued) Where impairment is assessed on an individual basis, an impairment loss in respect of a receivable or held-to-maturity investment is calculated as the excess of its carrying amount over the present value of the estimated future cash flows (exclusive of future credit losses that have not been incurred) discounted at the original effective interest rate. All impairment losses are recognised in profit or loss. The assessment is made collectively where receivables share similar credit risk characteristics (including those having not been individually assessed as impaired), based on their historical loss experiences, and adjusted by the observable figures reflecting present economic conditions. If, after an impairment loss has been recognised on receivables or held-to-maturity investments, there is objective evidence of a recovery in value of the financial asset which can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss. A reversal of an impairment loss will not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years. − Available-for-sale financial assets Available-for-sale financial assets are assessed for impairment on an individual basis. When an available-for-sale financial asset is impaired, the cumulative loss arising from decline in fair value that has been recognised directly in equity is removed from equity and recognised in profit or loss even though the financial asset has not been derecognised. If, after an impairment loss has been recognised on an available-for-sale debt instrument, the fair value of the debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. An impairment loss recognised for an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. (b) Impairment of other long-term equity investments Other long-term equity investments (see Note 3(5)(c)) are assessed for impairment on an individual basis. For other long-term equity investments, the amount of the impairment loss is measured as the difference between the carrying amount of the investment and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversed. 34 3 Significant accounting policies and accounting estimates (continued) (c) Impairment of non-financial long-term assets The carrying amounts of the following assets are reviewed at each balance sheet date based on the internal and external sources of information to determine whether there is any indication of impairment: − fixed assets − construction in progress − intangible assets − investment property measured using a cost model − long-term equity investments in subsidiaries, associates and jointly controlled entities. If any indication exists that an asset may be impaired, the recoverable amount of the asset is estimated. In addition, the Group estimates the recoverable amount of goodwill at no later than each year-end, irrespective of whether there is any indication of impairment or not. Goodwill is tested for impairment together with its related asset groups or sets of asset groups. An asset group is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or asset groups. An asset group is composed of assets directly relating to cash-generation. Identification of an asset group is based on whether major cash inflows generated by the asset group are largely independent of the cash inflows from other assets or asset groups. In identifying an asset group, the Group also considers how management monitors the Group’s operations and how management makes decisions about continuing or disposing of the Group’s assets. The recoverable amount of an asset, asset group or set of asset groups is the higher of its fair value less costs to sell and its present value of expected future cash flows. An asset’s fair value less costs to sell is the amount determined by the price of a sale agreement in an arm’s length transaction, less the costs that are directly attributable to the disposal of the asset. The present value of expected future cash flows of an asset is determined by discounting the future cash flows, estimated to be derived from continuing use of the asset and from its ultimate disposal, to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 35 3 Significant accounting policies and accounting estimates (continued) If the result of the recoverable amount calculating indicates the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is recognised as an impairment loss and charged to profit or loss for the current period. A provision for impairment loss of the asset is recognised accordingly. For impairment losses related to an asset group or a set of asset groups, first reduce the carrying amount of any goodwill allocated to the asset group or set of asset groups, and then reduce the carrying amount of the other assets in the asset group or set of asset groups on a pro rata basis. However, the carrying amount of an impaired asset will not be reduced below the highest of its individual fair value less costs to sell (if determinable), the present value of expected future cash flows (if determinable) and zero. Once an impairment loss is recognised, it is not reversed in a subsequent period. (14) Employee benefits Employee benefits are all forms of considerations given and other relevant expenditures incurred in exchange for services rendered by employees. Except for termination benefits, employee benefits are recognised as a liability in the period in which the associated services are rendered by employees, with a corresponding increase in cost of relevant assets or expenses in the current period. (a) Pension benefits Pursuant to the relevant laws and regulations of the PRC, the Group has joined a basic pension insurance for the employees arranged by local Labour and Social Security Bureaus. The Group makes contributions to the pension insurance at the applicable rates based on the amounts stipulated by the government organisation. The contributions are recognised as cost of assets or charged to profit or loss on an accrual basis. When employees retire, the local Labour and Social Security Bureaus are responsible for the payment of the basic pension benefits to the retired employees. The Group does not have any other obligations in this respect. (b) Housing fund and other social insurances Besides the pension benefits, pursuant to the relevant laws and regulations of the PRC, the Group has joined defined social security contributions for employees, such as a housing fund, basic medical insurance, unemployment insurance, injury insurance and maternity insurance. The Group makes contributions to the housing fund and other social insurances mentioned above at the applicable rate(s) based on the employees’ salaries. The contributions are recognised as cost of assets or charged to profit or loss on an accrual basis. 36 3 Significant accounting policies and accounting estimates (continued) (c) Termination benefits When the Group terminates the employment relationship with employees before the employment contracts have expired, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided, is recognised in profit or loss when both of the following conditions have been satisfied: - The Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly. - The Group is not allowed to withdraw from termination plan or redundancy offer unilaterally. (15) Income tax Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity. Current tax is the expected tax payable calculated at the applicable tax rate on taxable income for the year, and any adjustment to tax payable in respect of previous years. At the balance sheet date, current tax assets and liabilities are offset if the taxable entity has a legally enforceable right to set off them and the entity intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases, which include the deductible losses and tax credits carry forward to subsequent periods. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised for the temporary differences arising from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit nor taxable profit (or tax loss). Deferred tax is not recognised for taxable temporary differences arising from the initial recognition of goodwill. At the balance sheet date, the amount of deferred tax recognised is measured based on the expected manner of recovery or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is recovered or the liability is settled in accordance with tax laws. 37 3 Significant accounting policies and accounting estimates (continued) At the balance sheet date, deferred tax assets and liabilities are offset if all the following conditions are met: - the taxable entity has a legally enforceable right to set off current tax assets against current tax liabilities, and - they relate to income taxes levied by the same tax authority on either: - the same taxable entity; or - different taxable entities which either to intend to settle the current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. (16) Provisions and contingent liabilities A provision is recognised for an obligation related to a contingency if the Group has a present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows. In terms of a possible obligation resulting from a past transaction or event, whose existence will only be confirmed by the occurrence or non-occurrence of uncertain future events or a present obligation resulting from a past transaction or event, where it is not probable that the settlement of the above obligation will cause an outflow of economic benefits, or the amount of the outflow can not be estimated reliably, the possible or present obligation is disclosed as a contingent liability. (17) Revenue recognition Revenue is the gross inflow of economic benefit arising in the course of the Group’s ordinary activities when the inflows result in increase in shareholder’s equity, other than increase relating to contributions from shareholders. Revenue is recognised in profit or loss when it is probable that the economic benefits will flow to the Group, the revenue and costs can be measured reliably and the following respective conditions are met: (a) Sale of goods Revenue from sale of goods is recognised when all of the general conditions stated above and following conditions are satisfied: − The significant risks and rewards of ownership of goods have been transferred to the buyer; 38 3 Significant accounting policies and accounting estimates (continued) − The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. Revenue from the sale of goods is measured at the fair value of the considerations received or receivable under the sales contract or agreement. (b) Rendering of services At the balance sheet date, where the outcome of a transaction involving the rendering of services can be estimated reliably, revenue from the rendering of services is recognised in the income statement by reference to the stage of completion of the transaction based on the progress of work performed. Where the outcome of rendering of services cannot be estimated reliably, if the costs incurred are expected to be recoverable, revenues are recognised to the extent that the costs incurred that are expected to be recoverable, and an equivalent amount is charged to profit or loss as service cost; if the costs incurred are not expected to be recoverable, the costs incurred are recognised in profit or loss and no service revenue is recognised. (c) Interest income Interest income is recognised on a time proportion basis with reference to the principal outstanding and the applicable effective interest rate. (d) Operating lease income Rental income generated from operating lease is recognised based on straight line method over the lease term. (18) Government grants Government grants are transfers of monetary assets or non-monetary assets from the government to the Group at no consideration except for the capital contribution from the government as an investor in the Group. Special funds such as investment grants allocated by the government, if clearly defined in official documents as part of “capital reserve” are dealt with as capital contributions, and not regarded as government grants. A government grant is recognised when there is reasonable assurance that the grant will be received and that the Group will comply with the conditions attaching to the grant. If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount that is received or receivable. If a government grant is in the form of a transfer of a non-monetary asset, it is measured at its fair value. 39 3 Significant accounting policies and accounting estimates (continued) A government grant related to an asset is recognised initially as deferred income and amortised to profit or loss on a straight-line basis over the useful life of the asset. A grant that compensates the Group for expenses to be incurred in the subsequent periods is recognised initially as deferred income and recognised in profit or loss in the same periods in which the expenses are recognised. A grant that compensates the Group for expenses incurred is recognised in profit or loss immediately. (19) Borrowing costs Borrowing costs incurred directly attributable to the acquisition, construction of a qualifying asset are capitalised as part of the cost of the asset. Except for the above, other borrowing costs are recognised as financial expenses in the income statement when incurred. During the capitalisation period, the amount of interest (including amortisation of any discount or premium on borrowing) to be capitalised in each accounting period is determined as follows: − Where funds are borrowed specifically for the acquisition, construction of a qualifying asset, the amount of interest to be capitalised is the interest expense calculated using effective interest rates during the period less any interest income earned from depositing the borrowed funds or any investment income on the temporary investment of those funds before being used on the asset. − Where funds are borrowed generally and used for the acquisition, construction of a qualifying asset, the amount of interest to be capitalised on such borrowings is determined by applying a capitalisation rate to the weighted average of the excess amounts of cumulative expenditures on the asset over the above amounts of specific borrowings. The capitalisation rate is the weighted average of the interest rates applicable to the general-purpose borrowings. The effective interest rate is determined as the rate that exactly discounts estimated future cash flow through the expected life of the borrowing or, when appropriate, a shorter period to the initially recognised amount of the borrowings. During the capitalisation period, exchange differences related to the principal and interest on a specific-purpose borrowing denominated in foreign currency are capitalised as part of the cost of the qualifying asset. The exchange differences related to the principal and interest on foreign currency borrowings other than a specific-purpose borrowing are recognised as a financial expense in the period in which they are incurred. 40 3 Significant accounting policies and accounting estimates (continued) The capitalisation period is the period from the date of commencement of capitalisation of borrowing costs to the date of cessation of capitalisation, excluding any period over which capitalisation is suspended. Capitalisation of borrowing costs commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities of acquisition, construction or production that are necessary to prepare the asset for its intended use are in progress, and ceases when the assets become ready for their intended use. Capitalisation of borrowing costs is suspended when the acquisition, construction activities are interrupted abnormally and the interruption lasts over three months. (20) Dividends appropriated to investors Dividends or distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the balance sheet date, are not recognised as a liability at the balance sheet date but disclosed in the notes separately. (21) Related parties If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control, jointly control, or significant influence from another party, they are considered to be related parties. Related parties may be individuals or enterprises. Enterprises with which the Company is under common control only from the State and that have no other related party relationships are not regarded as related parties of the Group. Related parties of the Group and the Company include, but are not limited to: (a) the Company’s parent (b) the Company’s subsidiaries (c) enterprises that are controlled by the Company’s parent (d) investors that have joint control or over exercise significant influence over the Group (e) enterprise or individuals if a party has control, joint control or significant influence over both the enterprises or individuals and the Group (f) joint ventures of the Group (g) associates of the Group (h) principal individual investors and close family members of such individuals (i) key management personnel of the Group and close family members of such individuals (j) key management personnel of the Company’s parent (k) close family members of key management personnel of the Company’s parent; and (l) other enterprises that are controlled, jointly controlled or significantly influenced by principal individual investors, key management personnel of the Group, and close family members of such individuals. 41 3 Significant accounting policies and accounting estimates (continued) Besides the related parties stated above determined in accordance with the requirements of CAS (2006), the following enterprises and individuals are considered as (but not restricted to) related parties based on the disclosure requirements of “Administrative Procedures on the Information Disclosures of Listed Companies” issued by the CSRC: (m) enterprises, or persons that act in concert, that hold 5% or more of the Company’s shares or persons that act in concert (n) individuals and close family members of such individuals who directly or indirectly hold 5% or more of the Company’s shares (o) enterprises that satisfy any of the aforesaid conditions in (a), (c) and (m) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement; (p) individuals who satisfy any of the aforesaid conditions in (i), (j) and (n) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement; and (q) enterprises, other than the Company and subsidiaries controlled by the Company, which are controlled directly or indirectly by an individual defined in (i), (j), (n) or (p), or in which such an individual assumes the position of a director or senior executive. (22) Segment reporting Segment information is presented in respect of the Group’s business and geographical segments. A business segment is a distinguishable component of the Group that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other component. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment, which is subject to risks and rewards that are different from those of other segments. In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements. Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties. Segment capital expenditure is the total cost incurred during the period to acquire or construct segment fixed assets and intangible assets. 42 3 Significant accounting policies and accounting estimates (continued) Unallocated items mainly comprise interest income and expenses, dividend income, investment income or loss arising from long-term equity investment, non-operating income and expenses, and income tax expenses. (23) Significant accounting estimates and judgments The preparation of financial statements requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Notes 22 and 52 contain information about the assumptions and their risk factors relating to impairment of goodwill and fair value of financial instruments. Other key sources of estimation uncertainty are as follows: (a) Impairment of receivables As described in Note 3(13)(a), receivables that are measured at amortisation cost are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, impairment loss is provided. Objective evidence of impairment includes observable data that comes to the attention of the Group about loss events such as a significant decline in the estimated future cash flow of an individual debtor or the portfolio of debtors, and significant changes in the financial condition that have an adverse effect on the debtor. If there is an indication that there has been a change in the factors used to determine the provision for impairment, the impairment loss recognised in prior years is reversed. (b) Impairment of non-financial long-term assets As described in Note 3(13)(c), non-financial long-term assets are reviewed at each balance sheet date to determine whether the carrying amount exceeds the recoverable amount of the assets. If any such indication exists, impairment loss is provided. The recoverable amount of an asset (asset group) is the greater of its net selling price and its present value of expected future cash flows. Since a market price of the asset (the asset group) cannot be obtained reliably, the fair value of the asset cannot be estimated reliably. In assessing value in use, significant judgements are exercised over the asset’s production, selling price, related operating expenses and discounting rate to calculate the present value. All relevant materials which can be obtained are used for estimation of the recoverable amount, including the estimation of the production, selling price and related operating expenses based on reasonable and supportable assumption. 43 3 Significant accounting policies and accounting estimates (continued) (c) Depreciation and amortisation As described in Notes 3(6), (7) and (9), investment property, fixed assets and intangible assets are depreciated and amortised using the straight-line method over their useful lives after taking into account residual value. The useful lives are regularly reviewed to determine the depreciation and amortisation costs charged in each reporting period. The useful lives are determined based on historical experiences of similar assets and the estimated technical changes. If there is an indication that there has been a change in the factors used to determine the depreciation or amortisation, the amount of depreciation or amortisation is revised. (d) Warranty provisions As described in Note 35, the Group makes provisions under the warranties it gives on sale of its TFT-LCD products taking into account the group’s recent claim experience. Any increase or decrease in the provision will affect profit or loss in future years. 4 Taxation (1) The types of taxes applicable to the Group’s sale of goods and rendering of services include business tax, value added tax (“VAT”), city construction tax, education surcharge and land appreciation tax etc. Business tax rate: 5% VAT rate: 13% or 17% City construction tax rate: 7% Education surcharge rate: 1-5% Land appreciation tax rate: 30% (2) Income tax The income tax rate applicable to the Company for the year is 15% (2007: 15%). The Corporate Income Tax Law of the People’s Republic of China (“new tax law”) took effect on 1 January 2008. According to the new tax law, a unified enterprise income tax rate of 25% is applied to PRC entities from 1 January 2008. Corporate income tax for key advanced and new technology enterprises supported by the State shall be at a reduced tax rate of 15%. 44 4 Taxation (continued) Certain entities previously taxed at a preferential rate are subject to a transition period during which their tax rate will gradually be increased to the unified rate of 25% over a five year period starting from 1 January 2008. The enterprises that previously enjoy “2-year exemption and 3-year half payment”, “3-year exemption and 3-year half payment” of the enterprise income tax may, after the implementation of the new tax law,, continue to enjoy the relevant preferential treatments under the preferential measures and the time period prescribed in the former tax law, administrative regulations and relevant documents until the expiration of the said time period. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make profits, its preferential time period shall be calculated from 2008. Pursuant to the Administration and Measures on the Recognition of High-tech Enterprises and the Guidelines for the Administration of the Recognition of High-tech Enterprises, the Company was recognised as a high-tech enterprise and obtained No. GR200811000615 High-tech Enterprise Certificate on 18 December 2008 after applied to and assessed by the experts of Beijing Municipal Science and Technology Commission, Beijing Municipal Financial Bureau, Beijing Municipal State Administration of Taxation and Beijing Municipal Local Administration of Taxation. The Company is subject to a preferential income tax rate of 15% since the date of certification with the valid period of three years. Pursuant to the new tax law, the income tax rate applicable to other subsidiaries of the Group is changed to 25% from 1 January 2008 apart from the following subsidiaries. The subsidiaries that are entitled to preferential tax treatments are as follows: Preferential Name of enterprises rate Reason Beijing BOE 15% Obtained the High-tech Enterprises Certificate of No Vacuum GR200811000215 jointly issued by Beijing Municipal Science Electronics Co., and Technology Commission, Beijing Municipal Financial Ltd. Bureau, Beijing Municipal State Administration of Taxation and Beijing Municipal Local Administration of Taxation on 18 December 2008. Subject to a preferential enterprise income tax rate of 15% within the valid period of three years. Suzhou BOE 9% Pursuant to Reply of State Council on Issues relating to Chatani Development and Construction of Suzhou Industrial Park Electronics Co., (Guohan [1994] No.9), foreign investment enterprises Ltd. established in Suzhou Industrial Park engaging in manufacturing activities is subject to a preferential corporate income tax rate of 15%, and entitled to full exemption of income tax from the first and second profit making year, followed by a 50% reduction of income tax from the third to fifth year. Further pursuant to Notice of the State Council on the Implementation of the Transitional Preferential Policies in respect of corporate Income Tax, the enterprise is subject to the corporate income tax rate of 18% in 2008, and continues to enjoy the preferential treatments of “2-year exemption and 3-year half payment” until the expiration of the said time period. 2005 is the first profit making year of Suzhou BOE Chatani Electronics Co., Ltd. And 2008 is the second entitlement year for 50% reduction of enterprise income tax. 45 4 Taxation (continued) Name of Preferential enterprises rate Reason BOE 15% Obtained the High-tech Enterprises Certificate of No Semi-conductor GR200811001006 jointly issued by Beijing Municipal Co., Ltd. Science and Technology Commission, Beijing Municipal Financial Bureau, Beijing Municipal State Administration of Taxation and Beijing Municipal Local Administration of Taxation on 18 December 2008. Subject to a preferential enterprise income tax rate of 15% within the valid period three years. Beijing BOE 7.5% Pursuant to Provisional Regulations of Beijing Optoelectronics Municipality Concerning The New Technology Technology Co., Industry Development Zone approved by the State Ltd. Council of China (Guohan [1988] No.74), the high-tech enterprise in the New Technology Industry Development Zone is subject to a preferential enterprise income tax rate of 15%, and exempted from income tax payment for its first three years of the operation. After the approval by the competent department authorized by the Beijing Municipal People’s Government, the high-tech enterprise may be entitled to a 50% reduction of income tax from the fourth to the sixth year of its operation. Beijing BOE Optoelectronics Technology Co., Ltd. was founded in 2003. And 2008 is the last year that it is entitled to 50% deduction of enterprise income tax. Obtained the High-tech Enterprises Certificate of No GR200811000214 jointly issued by Beijing Municipal Science and Technology Commission, Beijing Municipal Financial Bureau, Beijing Municipal State Administration of Taxation and Beijing Municipal Local Administration of Taxation on 18 December 2008 with the valid period of three years. BOE (Hebei) 0% The foreign investment enterprise is exempted from Mobile income tax payment for its first and second year of Technology Co., making profits, and entitled to a 50% reduction of Ltd. income tax from the third to the fifth year. Because the enterprise has not enjoyed the preferential treatments yet because of its failure to make profits, its preferential time period is calculated from 2008. 46 5 Taxes payable The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB VAT payable 1,912,114 28,948,263 613,791 4,598,255 Business tax payable 1,856,061 985,994 1,117,216 412,462 Income tax payable 4,948,921 8,163,713 - - Education surcharge payable 325,783 1,273,923 51,930 150,322 Land appreciation tax payable - 1,904,180 - - Withholding individual income tax 4,306,554 6,201,168 494,059 454,175 Others 2,424,952 2,795,945 121,171 350,750 Total 15,774,385 50,273,186 2,398,167 5,965,964 As at 31 December 2008, the Group reclassified the balance of prepaid income tax amounting to RMB 19,045,056 and VAT deductible amounting to RMB 270,903,115 to other current assets. 47 6 Business combination and the consolidated financial statements (1) As at 31 December 2008, the Company’s subsidiaries are as follows: Closing balance of the Organization Registration Registered Business nature Company’s Name of investee code place capital and scope investment Zhejiang BOE Display 14590874-9 Shaoxing, China RMB 129,194,000 Research, development, RMB 106,391,635 RMB 10 Technology Co., Ltd. manufacture and sale of (ZJBOE) small size electronic display components, display module and related fittings; engaged in import and export business Beijing BOE Vacuum 63370950-3 Beijing, China RMB 35,000,000 Manufacture and sale of RMB 19,250,000 RMB 1 Electronics Co., Ltd. vacuum electronic products; (Vacuum Electronics) development, consulting, service, transfer and training of related technology; sale of self-developed products except for the projects of specific approval BOE Semi-conductor 10171147-7 Beijing, China RMB 15,000,000 Process, manufacture, sale of RMB 9,450,000 RMB Co., Ltd. precision electronic metal (BOE Semi- conductor) accessory, semi-conductor products and micromodule; micro-electronics components and electronic material; telecommunication, broadcasting and television equipment projects; import and export of goods Beijing BOE Special 70022206-9 Beijing, China RMB 60,000,000 Development of display RMB 60,000,000 RMB 6 Display Technology products, network and Co., Ltd. telecommunication technology; (Special Display) sale of electronic products, computer software and hardware, telecommunication equipments and computer system integration 48 6 Business combination and the consolidated financial statements (continued) Closing balance of the Organization Registration Registered Business nature Company’s Name of investee code place capital and scope investment Beijing Yinghe Century 60006648-4 Beijing, China RMB 69,931,560 Lease and operation of offices RMB 123,271,833 RMB 12 Co., Ltd. (Predecessor: and middle grade hotel houses; Beijing Orient Heng business and entertainment Tong Property Center) service; toll parking lots (Yinghe Century) (b) Suzhou BOE Chatani 73574009-3 Suzhou, China USD 8,552,000 Development and manufacture RMB 53,087,904 RMB 5 Electronics Co., Ltd. of backlight and related parts (Suzhou Chatani) and components for LCD BOE Hyundai LCD 73765024-3 Beijing, China USD 5,000,000 Development, manufacture RMB 31,038,525 RMB 3 (Beijing) Display and sale of liquid display for Technology Co., Ltd. mobile termination; sale and (BOE Hyundai) technical service for self-manufactured products Beijing BOE 74935339-3 Beijing, China USD 550,000,000 Research, development, RMB 3,494,892,513 RMB 3,49 Optoelectronics design and manufacture of Technology Co., Ltd. TFT-LCD; debugging, (BOEOT) maintain, technical consulting and service or self-manufactured products BOE Land Co., Ltd. 60003888-9 Beijing, China RMB 55,420,000 Development, construction, RMB 7,731,474 RMB (BOE Land) property management and service of workshop and ancillary facilities; real estate information consulting (excluding agency service); lease of commercial facilities; operation of catering, commecial service and other ancillary facilities Beijing BOE Chatani 77255085-4 Beijing, China RMB 37,244,248 Manufacture of flat screen RMB 372,443 RM Electronics Co., Ltd. display products and related (Beijing Chatani) parts. Beijing BOE Digital 60008644-2 Beijing, China USD 10,000,000 Research, development RMB 12,416,550 RMB 1 Technology Co., Ltd. manufacture and sale of digital (BOE Digital) cameras and digital visual wireless transfer platform 49 6 Business combination and the consolidated financial statements (continued) Closing balance of the Organization Registration Registered Business nature Company’s Name of investee code place capital and scope investment BOE Optoelectronics N/A British Virgin USD 600,000 Design, manufacture and RMB 1,654,700 RMB Holding Company Ltd. Island trading of electronics (Optoelectronics Holding) information technology products and investing activities BOE (Hebei) Mobile 78574713-8 Langfang, China USD 20,000,000 Manufacture and sale of RMB 120,307,500 RMB 12 Technology Co., Ltd. mobile flat screen display (BOE Hebei) technical products and related services Beijing BOE Sales 79160756-1 Beijing, China RMB 500,000 Sales of communications RMB 500,000 RM and Marketing Co., Ltd. equipment (except for radio (BOE Sales &Marketing) transmission equipment), computer hardware, software and peripheral equipment, electronic products, equipment maintenance (except for special approval of the project); technology development, transfer, consulting and services; import and export of products, agency and technology BOE (Korea) Co., Ltd. N/A Korea USD 100,000 Research, development and sale RMB 788,450 RM (BOE Korea) of products and related supporting services Beijing BOE Vacuum 66050630-6 Beijing, China RMB 32,000,000 Development of vacuum RMB 32,000,000 RMB 3 Technology Co., Ltd. technology, design, manufacture (Vacuum Technology) and sale of vacuum products and related services; technical development and transfer, consulting and services, exhibition contractor Xiamen BOE Electronics 66474162-9 Xiamen, China RMB 37,500,000 Development, manufacture RMB 37,500,000 RMB 3 Co., Ltd. (Xiamen BOE) and sale of LCD products and related parts; Assembly production detection of electronic components and parts; Sale of products; Export of products and import of materials 50 6 Business combination and the consolidated financial statements (continued) Closing balance of the Organization Registration Registered Business nature Company’s Name of investee code place capital and scope investment Shaoxing BOE Ueno 71549059-2 Shaoxing, China RMB 27,000,000 Development, manufacture and - Electronics Apparatus sale of electronics products Co., Ltd. (Shaoxing BOE) and mold; processing and sale of conductive glass and flat glass BOE Optoelectronics N/A Bermuda USD 600,000 Investment holding - Technology Co., Ltd. (Optoelectronics Technology) BOE Technology N/A USA USD 200,000 Research, development, RMB 1,743,697 RMB Incorporation manufacture and sale of (BOE Technology)(a) high technology electronic infrastructure products Beijing Asahi Electron 60001557-2 Beijing, China RMB 61,576,840 Development, manufacture RMB 30,888,470 RMB 3 Glass Co., Ltd. and sale of glass products (BeiAsahi Glass ) and TV multiform glass (Note 6 (2) (a)) rod and CTV glass frit; sale of self-manufactured products Chengdu BOE. 66755664-8 Chengdu, China RMB 1,830,000,000 Development, manufacture RMB 1,805,454,000 RMB 1,80 Optoelectronics. TFT-LCD; investment, Technology Co., Ltd. construction, research , (Chengdu BOE.) development, manufacture (Note 6 (2) (b)) and sale of TFT-LCD products And ancillary products Beijing BOE. 68285446-7 Beijing, China RMB 500,000 Technology development, - LCD Display service and counseling to Technology Co., Ltd. display product, computer network, (BOE LCD) and telecommunication products; sales of electronic products, hardware and software of computers and telecommunication equipments; computer system integration; import and export of products, agency of import and export; manufacture of LCD products 51 6 Business combination and the consolidated financial statements (continued) (a) Since Optoelectronics Technology has entered into write-off procedure, the Company did not include it into the consolidation financial statements and has provided full impairment losses for the related long-term equity investments (see Note 17(4)). (b) On 28 August 2008, pursuant to the resolution passed by the 9th meeting of 5th Board of Directors, the Company injected additional capital investment amounting to RMB 60 million to Yinghe Century. Shinewing Certified Public Accountants has verified the capital injection and issued the capital verification report, numbered XYZH/2008A1008. (c) The Company holds 1% of the sharholder’s equity of Beijing Chatani and holds the remaining 99% through its 75% shareholding subsidiary, Suzhou Chatani; The Company holds 60% of the sharholder’s equity of Shaoxing BOE through its 69.28% shareholding subsidiary, ZJBOE; The Company holds 100% of the sharholder’s equity of BOE LCD through its 100% shareholding subsidiary, Special Display. (2) Business combinations involving entities not under common control during the year (a) BeiAsahi Glass At the acquisition date of 31 August 2008, the Company acquired a 50% interest in BeiAsahi Glass, by paying equivalence RMB 50 in cash as purchased consideration. The total amount of the acquisition cost at the acquisition date was RMB 100,050 including the direct expense for the transaction. Beijng YUEHUA DEWEI Certified Public Appraiser has appraised BeiAsahi Glass by cost method on benchmark date of 30 April 2008, and issued the appraisal report, numbered YUEHUADEWEI （2008） No 127. The Company verified the fair value of the acquired identifiable assets and liabilities on 31 August 2008. The fair value of 50% of BeiAsahi Glass’s equity acquired by the Company was RMB 38,626,666 on 31 August 2008; RMB 38,526,616 in the excess of the fair value over combination cost is recognised as non-operating income. For the current reporting year, BeiAsahi Glass has been included in the consolidated financial statements since 31 August 2008. 52 6 Business combination and the consolidated financial statements (continued) BeiAsahi Glass is a company registered in Beijing on 16 November 1993, with its headquarter located in Beijing, and is engaged in manufacture and sale of glass products, TV multiform glass and CTV glass frit. Before the acquisition, the Company held 50% equity of BeiAsahi Glass, Asahi Glass Co., Ltd, Marubeni Corporation and Kyoei Shoji Co., Ltd held 25%, 20% and 5% equity of BeiAsahi Glass respectively. The retained earning of the Company was reduced by RMB 17,032,842, due to the carrying amount of long-term investment is retrospectively adjusted under cost method. BeiAsahi Glass’s financial information is as follows: From 31 August 2008 to 31 December 2008 RMB Revenue 26,226,244 Net profit 4,712,597 Net cash inflow 5,811,363 The identifiable assets and liabilities: 31 August 2008 31 December 2007 Carrying Carrying amount Fair value amount Fair value RMB RMB RMB RMB Cash at bank and on hand 8,980,430 8,980,430 14,098,742 14,098,742 Bills receivable 15,049,146 15,049,146 11,317,499 11,317,499 Accounts receivable, prepayments, and other receivable 26,808,583 26,808,583 22,283,144 22,283,144 Inventories 13,826,570 13,826,570 21,589,094 21,589,094 Fixed assets and construction in progress 30,565,688 18,838,568 32,522,941 18,846,740 Intangible assets 2,487,099 4,829,893 2,524,974 4,756,205 Long-term deferred expenses 2,856,335 - 3,265,190 - Accounts and other payable (4,140,209) (4,140,209) (14,049,270) (14,049,270) Employee benefits payable (6,463,779) (6,463,779) (7,850,366) (7,850,366) Taxes payable (475,872) (475,871) (295,520) (295,520) Identifiable net assets 89,493,991 77,253,331 85,406,428 70,696,268 53 6 Business combination and the consolidated financial statements (continued) The fair values of the above identifiable assets are identified or calculated based on the appraisal report which issued by Beijng YUEHUA DEWEI Certified Public Appraiser. For the above identifiable liability, the payable amount or the present value of the payable amount is its fair value. There are no assets and liabilities of BeiAsahi Glass have been disposed or are to be disposed after combination date. (b) Chengdu BOE Chengdu BOE was established on 29 September 2007. As at 31 December 2007, Chengdu BOE was an associate company, and the Company held 18.18% of the shareholder’s equity. Pursuant to the resolution passed by the 10th meeting of the 5th Board of Directors’ held on 26 May 2008, the Company injected additional investment amounting to RMB 240 million to Chengdu BOE. Since then the Company held 90.91% of the shareholder’s equity, and acquired the actual control over Chengdu BOE. The Company injected additional investment to Chengdu BOE amounting to RMB 360 million and RMB 1,200 million separately at 10 September 2008 and 23 October 2008, increased the shareholding percentage to 96.10% and 98.66% respectively. Chengdu BOE’s financial information is as follows: From 31 May 2008 to 31 December 2008 RMB Revenue - Net loss 30,311,395 Net cash inflow 2,416,995,208 54 6 Business combination and the consolidated financial statements (continued) The identifiable assets and liabilities: 31 May 2008 31 December 2007 Carrying Carrying amount Fair value amount Fair value RMB RMB RMB RMB Cash at bank and on hand 218,993,295 218,993,295 23,828,873 23,828,873 Accounts and other receivable 2,931,476 2,931,476 4,537,799 4,537,799 Fixed assets and construction in progress 20,115,997 20,115,997 2,377,452 2,377,452 Intangible assets 14,896,122 14,896,122 - - Long-term deferred expenses - - - - Accounts and other payable (1,685,952) (1,685,952) (2,392,873) (2,392,873) Employee benefits payable (1,626,001) (1,626,001) - - Taxes payable (75,790) (75,790) - - Identifiable net assets 253,549,147 253,549,147 28,351,251 28,351,251 Chengdu BOE was established on 29 September 2007. As at 31 December 2008, it is in the progress of construction and did not commence operation. There is no significant difference between book value and fair value of the identifiable assets and liabilities at acquisition date. (3) Minority interests in subsidiaries Losses /(profit) of Minority the year allocated interests Minority interests to minority at beginning Subsidiary at closing date shareholders Others date RMB RMB RMB RMB BOEOT 616,574,239 (160,465,798) 2,326,672 774,713,365 ZJBOE 14,524,493 (26,527,037) - 41,051,530 BOE Hebei 35,598,946 (711,483) - 36,310,429 Vacuum Technology 30,810,011 5,737,318 (1,800,000) 26,872,693 Chengdu BOE 23,918,773 (403,664) 24,322,437 - Other subsidiaries 61,152,629 (6,874,959) (3,784,420) 71,812,008 Total 782,579,091 (189,245,623) 21,064,689 950,760,025 55 7 Cash at bank and on hand 2008 2007 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents The Group Cash on hand - RMB 133,851 220,688 - USD 53,967 6.8346 368,840 101,410 7.3046 740,756 - Japanese Yen 1,839,794 0.0757 139,180 3,716,226 0.0641 238,076 - Korean Won 633,906 0.0045 3,221 2,899,356 0.0077 22,291 - Other foreign currencies 73,444 99,551 Subtotal 718,536 1,321,362 ------------------ ------------------ Current deposit - RMB 384,395,723 422,551,177 - USD 170,417,115 6.8346 1,164,732,814 18,348,894 7.3046 134,031,328 - Hong Kong Dollar 1,214,357 0.8819 1,070,930 1,596,644 0.9364 1,495,097 - Japanese Yen 200,519 0.0757 15,169 707,585 0.0641 45,331 - Korean Won 16,327,404 0.0045 74,201 93,033,338 0.0077 714,403 - Other foreign currencies 929,939 1,676,204 Subtotal 1,551,218,776 560,513,540 ------------------ ------------------ Time deposit - RMB 1,959,506,463 882,000,611 - USD 2,288,962 6.8346 15,644,142 2,289,610 7.3046 16,724,687 - Korean Won 335,532,595 0.0045 1,509,897 200,000,000 0.0077 1,535,800 Subtotal 1,976,660,502 900,261,098 ------------------ ------------------ Other monetary funds - RMB 360,766,393 152,670,746 - USD 765,621 6.8346 5,232,706 10,587,576 7.3046 77,338,015 - Japanese Yen 120,869,678 0.0757 9,143,791 192,000,201 0.0641 12,300,377 - Other foreign currencies - 31,266 Subtotal 375,142,890 242,340,404 ------------------ ------------------ Total 3,903,740,704 1,704,436,404 56 7 Cash at bank and on hand (continued) 2008 2007 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents The Company Cash on hand - RMB 37,768 33,569 - USD 48,212 6.8346 329,508 96,014 7.3046 701,344 - Japanese Yen 1,488,859 0.0757 112,632 3,172,241 0.0641 203,226 - Korean Won 249,465 0.0045 1,332 249,265 0.0077 1,914 - Other foreign currencies 70,402 78,331 Subtotal 551,642 1,018,384 ------------------ ------------------ Current deposit - RMB 101,420,778 75,247,973 - USD 544,059 6.8346 3,718,426 499,448 7.3046 3,648,268 - Hong Kong Dollar 1,214,357 0.8819 1,070,930 1,596,644 0.9364 1,495,097 Subtotal 106,210,134 80,391,338 ------------------ ------------------ Time deposit - RMB 452,436,106 840,565,350 - USD 2,000,000 6.8346 13,669,200 2,000,000 7.3046 14,609,200 Subtotal 466,105,306 855,174,550 ------------------ ------------------ Total 572,867,082 936,584,272 All of other monetary funds are the deposits in commercial banks as security (2007: all). As at 31 December 2008, the subsidiary of the Group, Chengdu BOE, has an ending balance of cash at bank and on hand amounting to RMB 2,635,988,503, which are mainly from non-public targeted offering by the Company and the long-term specific loan borrowed from China Development Bank and Bank of Chengdu Co., Limited in 2008. According to the regulation of offering usage and loan contracts, the above cash at bank and on hand will be used to the construction for the 4.5 generation TFT-LCD project of Chengdu BOE. 57 8 Bills receivable The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Bank acceptance bills 286,797,950 145,683,058 3,583,603 6,119,683 Commercial acceptance bills 18,542,553 30,100,000 - - Total 305,340,503 175,783,058 3,583,603 6,119,683 All of the above bills are due within one year. As at 31 December 2008, the bank acceptance bills that have been pledged by the Group amounting to RMB 24,711,454 (2007: RMB 26,316,216), including bills amounting to RMB 16,711,454 for short-term loans, and ones amounting to RMB 8,000,000 for bank acceptance bills used for payment, and all of which are due by 27 March 2009 (2007: due by 3 March 2008). No bank acceptance bills were pledged by the Company (2007: nil). As at 31 December 2008, the Group’s outstanding endorsed bank acceptance bills (with recourse) amounting to RMB 111,757,171, all of which will be due by 17 June 2009. The Company had no outstanding endorsed or discounted bank acceptance bills (with recourse) (2007: nil). For the current year, there is no amount transferred to accounts receivable from acceptance bills due to non-performance of the issuers by the Group and the Company (2007: nil). No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of bills receivable. 9 Accounts receivable (1) Accounts receivable by customer type The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Amounts due from subsidiaries - - 24,357,251 20,337,582 Amounts due from other related parties 7,270,364 51,253,410 519,696 1,438,953 Amounts due from other customers 502,036,135 1,761,447,563 11,288,641 8,359,495 Subtotal 509,306,499 1,812,700,973 36,165,588 30,136,030 Less: provision for bad and doubtful debts 23,387,891 19,088,631 2,102,386 2,118,766 Total 485,918,608 1,793,612,342 34,063,202 28,017,264 58 9 Accounts receivable (continued) The Group’s accounts receivable by currency type 2008 2007 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents - RMB 300,306,295 1,115,785,434 - USD 30,579,727 6.8346 209,000,204 95,407,762 7.3046 696,915,539 Subtotal 509,306,499 1,812,700,973 Less: provision for bad and doubtful debts 23,387,891 19,088,631 Total 485,918,608 1,793,612,342 As at 31 December 2008, the Company had no accounts receivable denominated in foreign currencies (2007: nil). As at 31 December 2008, the Group’s and the Company’s accounts receivable due from related parties amounting to RMB 7,270,364 and RMB 24,876,947, respectively (2007: RMB 51,253,410 and RMB 21,776,535, respectively), or 1% and 69% (2007: 3% and 72%, respectively) of the total accounts receivable respectively. No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of account receivables. As at 31 December 2008, the account receivables that have been pledged by the Group amounting to RMB 76,070,625 (2007: RMB 150,455,565), all of which are as security for short-term loans amounting to USD 9,238,567 (2007: RMB 117,363,290). As at 31 December 2008, the total amount of accounts receivable due from the five biggest debtors of the Group and the Company are as follows: The Group The Company 2008 2007 2008 2007 Amounts (RMB) 216,681,532 814,560,912 25,145,884 20,488,355 Percentage of total accounts receivable 43% 45% 70% 68% As at 31 December 2007 and 31 December 2008, all the balances of accounts receivable due from the Group’s and the Company’s top five debtors are due within one 1 year. 59 9 Accounts receivable (continued) (2) The ageing analysis of accounts receivable is as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Within 1 year (inclusive) 482,897,180 1,746,212,907 33,074,743 28,214,192 1 and 2 years (inclusive) 8,515,458 56,735,761 1,311,102 372,058 2 and 3 years (inclusive) 10,108,061 5,416,347 325,915 269,423 Over 3 years 7,785,800 4,335,958 1,453,828 1,280,357 Subtotal 509,306,499 1,812,700,973 36,165,588 30,136,030 Less: provision for bad and doubtful debts 23,387,891 19,088,631 2,102,386 2,118,766 Total 485,918,608 1,793,612,342 34,063,202 28,017,264 The ageing is counted starting from the date accounts receivable is recognised. (3) An analysis of provision for bad and doubtful debts is as follows: The Group 2008 2007 Percentage Percentage of total of total accounts Bad debts Rate of accounts Bad debts Rate of Amount receivable provision provision Amount receivable provision provision RMB RMB RMB RMB - Individually significant 369,777,148 73% 9,010,104 2% 1,683,128,561 93% 5,206,327 0.3% - Other immaterial item 139,529,351 27% 14,377,787 10% 129,572,412 7% 13,882,304 11% Total 509,306,499 100% 23,387,891 5% 1,812,700,973 100% 19,088,631 1% The Company 2008 2007 Percentage Percentage of total of total accounts Bad debts Rate of accounts Bad debts Rate of Amount receivable provision provision Amount receivable provision provision RMB RMB RMB RMB - Individually significant 20,078,854 56% 497,314 2% 17,813,382 59% 811,144 5% - Other immaterial items 16,086,734 44% 1,605,072 10% 12,322,648 41% 1,307,622 11% Total 36,165,588 100% 2,102,386 6% 30,136,030 100% 2,118,766 7% As at 31 December 2008, the Group and the Company assessed all the account receivable balances for impairment on an individual basis. The impairment will be recognised immediately, if there exists the objective evidence indicating that the amount could not be recovered. During the year ended 31 December 2008, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years. 60 10 Prepayments (1) The prepayments by category: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Prepayment for equipment 2,399,143 78,476,780 597,400 - Prepayment for inventory 38,885,081 25,648,034 15,330 - Others 5,183,392 7,913,882 336,000 2,542,716 Total 46,467,616 112,038,696 948,730 2,542,716 (2) The ageing analysis of prepayments is as follows: The Group 2008 2007 Amount Percentage Amount Percentage RMB RMB Within 1 year (inclusive) 41,900,028 90% 111,238,291 99% 1 and 2 years ((inclusive) 3,905,314 9% 167,143 - 2 and 3 years (inclusive) 31,263 - 548,467 1% Over 3 years 631,011 1% 84,795 - Total 46,467,616 100% 112,038,696 100% The Company 2008 2007 Amount Percentage Amount Percentage RMB RMB Within 1 year (inclusive) 948,730 100% 2,537,716 100% 1 and 2 years (inclusive) - - 5,000 - Total 948,730 100% 2,542,716 100% 61 10 Prepayments (continued) The ageing is counted starting from the date prepayments is recognised. As at 31 December 2008, the Group’s prepayments with ageing more than one year are mainly prepayment in relation to the purchasing activities which has yet to make settlement. No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of prepayment. As at 31 December 2008, the Group’s had no prepayments due from related parties (2007: RMB 50,000,000 or 45% of the total prepayments). As at 31 December 2008, the Company’s had no prepayments due from related parties (2007: RMB 343,000 or 13% of the total prepayments). As at 31 December 2008, no amount of individual prepayments that are 30% or more of the total amount is included in the above balance of prepayments. 11 Interests receivable The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Time deposit interest 6,561,758 1,516,906 438,965 1,516,906 No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of interest receivable. At 31 December 2008, no significant amount of interest receivable of the Group and the Company is denominated in foreign currency. 12 Dividends receivable The Company 2008 2007 RMB RMB Yinghe Century 8,204,147 8,204,147 62 13 Other receivables (1) Other receivables by customer type The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Amounts due from subsidiaries - - 578,380,754 102,681,475 Amounts due from other related parties 50,615 35,267,681 47,682 35,267,681 Amounts due from other customers 95,589,628 79,332,673 54,043,262 5,143,336 Subtotal 95,640,243 114,600,354 632,471,698 143,092,492 Less: Provision for bad and doubtful debts 4,209,299 34,004,886 264,242 36,843,155 Total 91,430,944 80,595,468 632,207,456 106,249,337 The Group’s other receivables by currency 2008 2007 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents - RMB 94,509,200 112,918,363 - Korean Won 174,874,490 0.0045 795,404 170,000,000 0.0077 1,305,430 - Other foreign currencies 335,639 376,561 Subtotal 95,640,243 114,600,354 Less：Provision for bad and doubtful debts 4,209,299 34,004,886 Total 91,430,944 80,595,468 As at 31 December 2008, the Company had no accounts receivable denominated in foreign currencies (2007: nil). As at 31 December 2008, the Group’s and the Company’s other receivable due from related parties are amounting to RMB 50,615 and RMB 578,428,436, respectively (2007: RMB 35,267,681 and RMB 137,949,156, respectively), or 0.01% and 91% (2007: 31% and 96%, respectively) of the total other receivables respectively. No amount due from shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of other receivables. 63 13 Other receivables (continued) As at 31 December 2008, the total amount of other receivables due from the five biggest debtors of the Group and the Company are as follows: The Group The Company 2008 2007 2008 2007 Amounts (RMB) 21,760,431 86,840,854 557,382,657 131,112,676 Percentage of other receivables 23% 76% 88% 92% As at 31 December 2008, all the balances of accounts receivable due from the Group’s and the Company’s top five debtors are due within one 3 year (2007: RMB 30,046,679 and RMB 58,134,856, respectively). (2) The ageing analysis of other receivables is as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Within 1 year (inclusive) 77,556,595 71,866,267 587,971,293 72,914,317 1 and 2 years (inclusive) 6,822,690 7,803,195 25,976,373 556,621 2 and 3 years (inclusive) 7,685,217 3,303,754 507,368 9,991,698 Over 3 years 3,575,741 31,627,138 18,016,664 59,629,856 Subtotal 95,640,243 114,600,354 632,471,698 143,092,492 Less: Provision for bad and doubtful debts 4,209,299 34,004,886 264,242 36,843,155 Total 91,430,944 80,595,468 632,207,456 106,249,337 The ageing is counted starting from the date of recognition of other receivables. (3) An analysis of provision for bad or doubtful debts for other receivables is as follows: The Group 2008 2007 Percentage Percentage of total other Bad debts Rate of of total other Bad debts Rate of Amount receivables provision provision Amount receivables provision provision RMB RMB RMB RMB - Individually significant 63,567,095 66% 877,423 1% 83,240,883 73% 30,071,188 36% - Other immaterial item 32,073,148 34% 3,331,876 10% 31,359,471 27% 3,933,698 13% Total 95,640,243 100% 4,209,299 4% 114,600,354 100% 34,004,886 30% 64 13 Other receivables (continued) The Company 2008 2007 Percentage Percentage of total other Bad debts Rate of of total other Bad debts Rate of Amount receivables provision provision Amount receivables provision provision RMB RMB RMB RMB - Individually significant 623,297,304 99% - - 134,121,464 94% 35,801,572 27% - Other immaterial item 9,174,394 1% 264,242 3% 8,971,028 6% 1,041,583 12% Total 632,471,698 100% 264,242 - 143,092,492 100% 36,843,155 26% As at 31 December 2008, the Group and the Company assessed all the other receivable balances for impairment on an individual basis. The impairment will be recognised immediately, if there exists the objective evidence indicating that the amount could not be recovered. The Group and the Company had other receivables due from Beijing Star City Real Estate Development Co., Ltd. (“Star City Real Estate”) amounting to RMB 30,046,679, which has been fully provided allowance considering the deterioration of financial condition of Star City Real Estate and the impossibility of recover the receivables. After mediation by the courts, the Company signed the debt settlement agreement with Star City Real Estate, claiming Star City Real Estate should discharge the debt with physical assets. Since the Company had obtained the physical assets and related property certificates from Star City Real Estate in November 2008, the Group and the Company reversed bad debt provision for the receivables. For the current year, the Group and the Company do not have any individually significant other receivables with full bad-debts provision or with a significant bad-debts provision made in previous years which have been fully or partly written off during the year. 14 Inventories (1) An analysis of the movements of inventories for the year is as follows: The Group Opening balance Addition Reduction Closing balance at the beginning during during at the end of the year the year the year of the year RMB RMB RMB RMB Raw materials 464,842,278 7,643,390,769 (7,756,465,659) 351,767,388 Work in progress 132,071,280 6,876,578,526 (6,949,697,296) 58,952,510 Finished goods 271,135,756 9,243,156,996 (9,197,368,855) 316,923,897 Reusable materials 40,106,705 220,042,479 (208,555,958) 51,593,226 Subtotal 908,156,019 23,983,168,770 (24,112,087,768) 779,237,021 Less: Provision for diminution in value of inventories 116,457,999 325,324,724 (134,779,668) 307,003,055 Total 791,698,020 23,657,844,046 (23,977,308,100) 472,233,966 65 14 Inventories (continued) The Company Opening balance Addition Reduction Closing balance at the beginning during during at the end of the year the year the year of the year RMB RMB RMB RMB Raw materials 2,813,017 3,469,632 (3,906,520) 2,376,129 Work in process 15,478,535 6,354,539 (10,686,644) 11,146,430 Finish goods 7,381,156 10,925,740 (11,342,833) 6,964,063 Reusable materials 91,922 18,225 (45,667) 64,480 Subtotal 25,764,630 20,768,136 (25,981,664) 20,551,102 Less: Provision for diminution in value of inventories 15,975,137 876,785 (1,089,910) 15,762,012 Total 9,789,493 19,891,351 (24,891,754) 4,789,090 As at 31 December 2008, the Group and the Company had no inventory pledged as security (2007: nil). (2) An analysis of provision for diminution in value of inventories is as follows: Opening balance Provision Reduction Closing balance at the beginning made for during the year at the end of the year the year Reversal Write-off of the year RMB RMB RMB RMB RMB The Group Raw materials 42,187,114 118,206,194 - (13,140,053) 147,253,255 Work in progress 14,040,116 1,825,781 (145,967) (38,795) 15,681,135 Finished goods 58,923,322 204,264,857 (55,463) (121,399,390) 141,733,326 Reusable materials 1,307,447 1,027,892 - - 2,335,339 Total 116,457,999 325,324,724 (201,430) (134,578,238) 307,003,055 The Company Raw materials 234,062 506,386 - (143,843) 596,605 Work in progress 9,868,523 58,704 (145,967) (38,795) 9,742,465 Finished goods 5,847,785 280,920 (55,463) (705,842) 5,367,400 Reusable materials 24,767 30,775 - - 55,542 Total 15,975,137 876,785 (201,430) (888,480) 15,762,012 As at 31 December 2008, the provision for diminution in value of inventories of the Group was primarily due to the costs of inventories of TFT-LCD products and the related raw materials higher than their net realisable value. The provision for diminution in value of inventories of the Company is mainly against the slow-moving inventories. 66 15 Available-for-sale financial assets The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Equity instrument 53,707,522 129,109,597 53,707,522 129,109,597 The available-for-sale financial asset held by the Group and the Company represented stock investment in TPV Technology Limited (“TPV Technology”), which was measured at fair value at year end. TPV Technology is listed on the Stock Exchange of Hong Kong (Stock code: 0903). As at 31 December 2008, the fair value of the investment in TPV Technology held by the Group and the Company was HKD 60,900,478, which is equivalent to RMB 53,707,522 (2007: HKD 137,878,681, which is equivalent to RMB 129,109,597). 16 Held-to-maturity investments The Group and the Company’s held-to-maturity investments represented the convertible bonds of Hyundai LCD Inc. (“Hyundai LCD”). Due to business operation difficulties, Hyundai LCD could not pay back the convertible bond. Thus, the Group and the Company had provided full impairment losses for the convertible bond balances amounting to USD 2,170,000 (RMB 17,960,946) in 2005. As at 31 December 2008, the Company have not received the equity nor interest, and the Group and the Company retain the previous provision since the recoverability of this claim is uncertain. 17 Long-term equity investments The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Investments in subsidiaries - - 5,946,995,997 4,050,653,527 Investments in joint ventures - 47,821,261 - 47,821,261 Investments in associates 323,415,862 603,321,242 323,415,862 603,321,242 Other long-term equity investments 19,866,697 19,866,697 19,866,697 19,866,697 Sub total 343,282,559 671,009,200 6,290,278,556 4,721,662,727 Less: Provision for impairment 2,498,697 29,356,543 14,915,247 41,773,093 Total 340,783,862 641,652,657 6,275,363,309 4,679,889,634 67 17 Long-term equity investments (continued) (1) As at 31 December 2008, the Company’s investments in subsidiaries were as follows: Vacuum Yinghe BOE Semi- Suzhou BOE Electronics Century conductor Chatani BOE Special Beijing Optoelectronics BOE Sales and ZJBOE Co., Ltd. Co., Ltd. Co., Ltd. Co., Ltd. Hyundai BOE Land BOEOT Display Chatani BOE Hebei Holding Korea Marketing RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB Initial investment cost 106,391,635 19,250,000 123,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 12 Movement of investment cost Balance at the beginning of the year 106,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 12 Add: Acquisition of subsidiaries - - - - - - - - - - - - - - Addition - - 60,000,000 - - - - - - - - - - - Balance at the end of the year 106,391,635 19,250,000 123,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 12 ------------------ -------------- ------------------ -------------- -------------- -------------- -------------- ------------------ -------------- -------------- ------------------ -------------- -------------- -------------- ---- Less: Provision for impairment Balance at the beginning of the year - - - - - - - - - - - - - - 12 Balance at the end of the year - - - - - - - - - - - - - - 12 ------------------ -------------- ------------------ -------------- -------------- -------------- -------------- ------------------ -------------- -------------- ------------------ -------------- -------------- -------------- ---- Carrying amounts At the year end 106,391,635 19,250,000 123,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 At the beginning of the year 106,391,635 19,250,000 63,271,833 9,450,000 53,087,904 31,038,525 7,731,474 3,494,892,513 60,000,000 372,443 120,307,500 1,654,700 788,450 500,000 For detailed information about the subsidiaries, please refer to Note 6(1). As at 31 December has mortgaged 15% (2007: 15%) of the equity interest in BOEOT held by the Company. Plea provides guarantees for loans borrowed by its subsidiaries, ZJBOE and BOEOT. Please information. (2) As at 31 December 2007, the investment in joint ventures of the Group and the Company is the 31 December 2008, the Group and the Company had no investment in joint ventures. For detai 6(2)(a). 68 17 Long-term equity investments (continued) (3) At 31 December 2008, the Group and Company’s investments in associates are as follows: (a) The Group’s and Company’s associates Beiji Hefei BOE Beijing E Optoelectronics Julong Nittan Technology Electronics Electronic Co Co., Ltd. Co., Ltd. Co., Ltd. Star City Chengdu BOE (“Hefei BOE”) (“Julong”) (“Nittan”) ( RMB RMB RMB RMB RMB Initial investment cost 48,637,846 5,454,000 9,500,000 8,000,000 6,650,640 18 Movement of investment costs Balance at the beginning of the year 26,857,846 5,454,000 - 8,000,000 11,352,384 37 Add: Addition - - 9,500,000 - - Adjustments under equity method - - (617,432) (1,053,001) 573,020 Less: Disposal 26,857,846 - - - - Acquisition of subsidiary - 5,454,000 - - - Cash dividends receivable - - - - - 1 Balance at the end of the year - - 8,882,568 6,946,999 11,925,404 36 ------------------- ------------------- ------------------- ------------------- ------------------- -------- Less: Provision for impairment Balance at the beginning of the year 26,857,846 - - - - Written off on disposal (26,857,846) - - - - Balance at the end of the year - - - - - ------------------- ------------------- ------------------- ------------------- ------------------- -------- Carrying amounts At the year end - - 8,882,568 6,946,999 11,925,404 36 At the beginning of the year - 5,454,000 - 8,000,000 11,352,384 37 69 17 Long-term equity investments (continued) (b) Details of the Company’s associates are as follows: The Company’s At the Organisation Shareholders voting Tot Name of investee code Registered plce Business nature Registered capital percentage rights asse RM Hefei BOE 66755664-8 New station Provide investment, RMB 30,000,000 19% 40% 46,902,47 Industrial park construct, development, Anhui manufacture and sale of TFT-LCD products and related services (as at 31 December 2008 Hefei BOE is preparing to Construction) Julong 78525829-7 13th floor Skyworth Research, develop, RMB 20,000,000 40% 40% 17,367,49 Tower Gao Xin South manufacture and sale 1 Avenue Shennan of TFT-LCD products District, Shenzheng and related services (as at 31 December 2008 Julong is preparing to Construction) Nittan 60004203-6 No. 10, Manufacture USD 2,000,000 40% 40% 43,401,49 Jiuxianqiao Road and sale of Chaoyang District, terminals connectors Beijing and stampers Nissin 60004233-5 No. 10, Manufacture and USD 7,100,000 40% 40% 104,183,70 Jiuxianqiao Road sale of electronics Chaoyang District, connectors and Beijing spare parts Matsushita 60000014-3 No.9 Manufacture and JPY 28,412,280,000 30% 30% 1,264,056,49 Jiuxianqiao Road sale of color picture Chaoyang District, tubes and color Beijing display tubes 70 17 Long-term equity investments (continued) (4) At 31 December 2008, other long-term equity investments of the Group and Company are as follo The Group and the Company’s other equity investments: Beijing Beijing Municipal Beijing Damei Beijing Orient Chinatelecom Administration Texfile Electronics Xinke Network BOE & Communication Ele Group Corp. Industry Co., Ltd. System Co., Ltd. Technology Card Co., Ltd. RMB RMB RMB RMB RMB Initial investment cost 100,000 180,000 475,000 1,743,697 2,500,000 Movement of investment costs Balance at the beginning/end of the year 100,000 180,000 475,000 1,743,697 2,500,000 Less: Provision for impairment Balance at the beginning/end of the year 100,000 180,000 475,000 1,743,697 - Carrying amount At the beginning/end of the year - - - - 2,500,000 The Group and the Company had provided all impairment losses for the long-term equity investm 71 18 Investment property The Group The company Land use rights Buildings Total Land use rights Buildings Total RMB RMB RMB RMB RMB RMB Cost: Balance at the beginning of the year - 177,219,977 177,219,977 - 53,846,304 53,846,304 Additions during the year 13,617,550 89,607,812 103,225,362 - 45,087,555 45,087,555 Disposals during the year - (46,828,538) (46,828,538) - - - Balance at the end of the year 13,617,550 219,999,251 233,616,801 - 98,933,859 98,933,859 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Less: Accumulated depreciation or amortization Balance at the beginning of the year - 50,852,571 50,852,571 - 18,243,050 18,243,050 Charge for the year 1,452,818 7,330,413 8,783,231 - 1,431,607 1,431,607 Written off during the year - (572,403) (572,403) - - - Balance at the end of the year 1,452,818 57,610,581 59,063,399 - 19,674,657 19,674,657 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Carrying amounts: At the end of the year 12,164,732 162,388,670 174,553,402 - 79,259,202 79,259,202 At the beginning of the year - 126,367,406 126,367,406 - 35,603,254 35,603,254 As at 31 December 2008, the Group mortgaged the buildings in investment property with the carrying amount of RMB 76,359,399 (2007: RMB 80,621,887) and land use rights with the carrying amount of RMB 7,626,850 (2007: nil) as security for short-term loans, long-term loans and non-current liabilities due within one year. 72 19 Fixed assets The Group Plant & buildings Equipment Others Total RMB RMB RMB RMB Cost: Balance at the beginning of the year 1,362,468,794 8,598,374,710 24,796,913 9,985,640,417 Additions during the year 8,517,487 50,311,413 4,091,032 62,919,932 Transfer from construction in progress 33,579,885 629,379,551 - 662,959,436 Acquisition of subsidiaries 13,081,506 6,585,612 1,005,322 20,672,440 Disposals during the year (28,738,439) (8,624,606) (568,627) (37,931,672) Balance at the end of the year 1,388,909,233 9,276,026,680 29,324,640 10,694,260,553 ------------------ ------------------ ------------------ ------------------ Less: Accumulated depreciation Balance at the beginning of the year 223,993,821 2,795,223,975 13,702,609 3,032,920,405 Charge for the year 41,332,870 1,043,138,839 2,888,828 1,087,360,537 Acquisition of subsidiaries - 114,726 33,317 148,043 Written off on disposals (28,738,439) (5,902,032) (477,355) (35,117,826) Balance at the end of the year 236,588,252 3,832,575,508 16,147,399 4,085,311,159 ------------------ ------------------ ------------------ ------------------ Less: Provision for impairment Balance at the beginning of the year - 55,444,660 - 55,444,660 Charge for the year - 12,582,720 - 12,582,720 Written off on disposals - (1,153,987) - (1,153,987) Balance at the end of the year - 66,873,393 - 66,873,393 ------------------ ------------------ ------------------ ------------------ Carrying amounts: At the end of the year 1,152,320,981 5,376,577,779 13,177,241 6,542,076,001 At the beginning of the year 1,138,474,973 5,747,706,075 11,094,304 6,897,275,352 73 19 Fixed assets (continued) The Company Plant & buildings Equipment Others Total RMB RMB RMB RMB Cost: Balance at the beginning of the year 210,515,340 88,458,681 3,764,697 302,738,718 Additions during the year 2,340,000 2,852,876 533,000 5,725,876 Transfer from construction in progress 1,252,680 1,042,997 - 2,295,677 Disposals during the year - (4,562,111) (423,237) (4,985,348) Balance at the end of the year 214,108,020 87,792,443 3,874,460 305,774,923 ------------------ ------------------ ------------------ ------------------ Less: Accumulated depreciation Balance at the beginning of the year 71,279,243 60,821,120 2,129,064 134,229,427 Charge for the year 8,994,595 6,188,449 413,560 15,596,604 Written off on disposals - (2,782,057) (339,234) (3,121,291) Balance at the end of the year 80,273,838 64,227,512 2,203,390 146,704,740 ------------------ ------------------ ------------------ ------------------ Less: Provision for impairment Balance at the beginning of the year - 5,444,642 - 5,444,642 Charge for the year - 2,830,953 - 2,830,953 Written off on disposals - (1,153,987) - (1,153,987) Balance at the end of the year - 7,121,608 - 7,121,608 ------------------ ------------------ ------------------ ------------------ Carrying amounts: As at the end of the year 133,834,182 16,443,323 1,671,070 151,948,575 As at the beginning of the year 139,236,097 22,192,919 1,635,633 163,064,649 As at 31 December 2008, the Group mortgaged plants and buildings with carrying amount of RMB 801,317,977(2007: RMB 834,166,644) and equipment with carrying amount of RMB 5,107,479,332 (2007: RMB 5,423,190,473) as security for short-term loans, long-term loans due within one year and long-term loans. The Group mortgaged buildings with carrying amount of RMB 42,288,342 as security for the Letter of credit with maximum amount of RMB 40 million. As at 31 December 2008, there is no restriction placed on the ownership of fixed assets of the Company. 74 19 Fixed assets (continued) As at 31 December 2008, certain fixed assets with the cost of RMB 171,597,781 (2007: RMB 104,537,114) are fully depreciated but still in use by the Group. As at 31 December 2008, certain fixed assets with the cost of RMB 45,023,005 (2007: RMB 42,225,577) are fully depreciated but still in use by the Company. As at 31 December 2008, a number of equipments of the Group and the Company were technological obsolete and damaged, the net realised value of which are estimated as nil. Thus the Group and the Company have provided full impairment losses for these equipments amounting to RMB 12,582,720 and RMB 2,830,953, respectively (2007: RMB 37,766,642 and RMB 288,292, respectively). As at 31 December 2008, the Group’s and the Company’s fixed assets acquired under finance leases were set out as follows: The Group The Company RMB RMB Balance at the end of the year Cost 11,291,665 11,291,665 Less: Accumulated depreciation 1,779,849 1,779,849 Carrying amount 9,511,816 9,511,816 Balance at the beginning of the year Cost 11,291,665 11,291,665 Less: Accumulated depreciation 1,506,026 1,506,026 Carrying amount 9,785,639 9,785,639 As at 31 December 2008, the Group and the Company had no fixed assets leased out under operating leases (2007: nil). 75 20 Construction in progress The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Cost Balance at the beginning of the year 76,374,610 86,059,102 40,139,234 33,218,015 Additions during the year 1,051,557,239 72,050,564 5,328,507 6,921,219 Acquisition of subsidiaries 18,430,169 - - - Transfer to fixed assets (662,959,436) (80,117,703) (2,295,677) - Decrease due to other reasons (16,321,184) (1,617,353) - - Balance at the end of the year 467,081,398 76,374,610 43,172,064 40,139,234 ----------------- ----------------- ----------------- ----------------- Less: Provision for impairment Balance at the beginning of the year 21,628,995 21,628,995 21,628,995 21,628,995 Balance at the end of the year 21,628,995 21,628,995 21,628,995 21,628,995 ----------------- ----------------- ----------------- ----------------- Carrying amounts At the end of the year 445,452,403 54,745,615 21,543,069 18,510,239 At the beginning of the year 54,745,615 64,430,107 18,510,239 11,589,020 The carrying amounts of the Group at the end of the year included capitalized borrowing cost of RMB 2,691,277 (2007: nil). The interest rate per annum, at which the borrowing costs were capitalized for the current year by the Group were 5.58% to 6.34% (2007: nil). The carrying amounts of the Company did not include capitalized borrowing cost at the end of 2007 and 2008. As at 31 December 2008, the Group mortgaged construction in process with carrying amount of RMB 334,910,754 (2007: nil) as security for long-term loans. As at 31 December 2008, there is no restriction placed on the ownership of construction in process of the Company. 76 20 Construction in progress (continued) As at 31 December 2008, the group’s major construction projects in progress were set out as follows: Opening Transfer to Decreases due Project Budget Balance Additions fixed assets to other reasons RMB RMB RMB RMB RMB The 4.5th generation TFT-LCD production line in Chengdu 3,413,951,817 - 334,910,754 - - 3 Expanding 5th generation TFT-LCD production line 668,160,000 1,730,783 639,698,114 （641,428,897) - Yinghe Century UP3 workshop reconstruction 69,390,000 17,888,237 49,490,387 (1,793,000) - P-WWT SYSTEM 55,882,900 - 14,643,915 - - BOE Electronic workshop project (a) 30,000,000 12,137,020 2,878,055 - - ZJBOE RTP project 23,710,000 1,264,676 4,816,974 (6,081,650) - Xiamen BOE workshop project 17,012,036 11,565,300 5,446,736 (2,906,145) (14,105,891) Others - 10,159,599 18,102,473 (10,749,744) (2,215,293) Total 54,745,615 1,069,987,408 (662,959,436) (16,321,184) 4 (a) The Group has made provision of impairment loss amounting to RMB 21,628,995 for BOE Electr 77 21 Intangible assets The Group Land Technology use right rights Patent Software Total RMB RMB RMB RMB RMB Cost Balance at the beginning of the year 107,056,290 654,058,394 1,750,000 133,978,807 896,843,491 Addition for the year 454,336 - - 17,383,531 17,837,867 Acquisition of subsidiaries 19,726,015 - - - 19,726,015 Transfer to investment property (13,617,550) - - - (13,617,550) Balance at the end of the year 113,619,091 654,058,394 1,750,000 151,362,338 920,789,823 ----------------- --------------------------------------------------- ----------------- Less: Accumulated Amortisation Balance at the beginning of the year 12,969,012 105,222,659 1,414,583 34,599,276 154,205,530 Charge for the year 2,582,532 35,249,456 175,000 14,215,803 52,222,791 Transfer to investment property (1,452,818) - - - (1,452,818) Balance at the end of the year 14,098,726 140,472,115 1,589,583 48,815,079 204,975,503 --------------- --------------- -------------- ---------------- ---------------- Carrying amounts At the end of the year 99,520,365 513,586,279 160,417 102,547,259 715,814,320 At the beginning of the year 94,087,278 548,835,735 335,417 99,379,531 742,637,961 78 21 Intangible assets (continued) The Company Land use right Software Tota; RMB RMB RMB Cost Balance at the beginning of the year 59,791,931 2,190,190 61,982,121 Addition during the year - 1,881,046 1,881,046 Balance at the end of the year 59,791,931 4,071,236 63,863,167 ------------------ ------------------ ------------------ Less: Accumulated Amortisation Balance at the beginning of the year 7,938,934 1,948,124 9,887,058 Addition during the year 1,281,246 466,307 1,747,553 Balance at the end of the year 9,220,180 2,414,431 11,634,611 --------------------- --------------------- --------------------- Carrying amounts At the end of the year 50,571,751 1,656,805 52,228,556 At the beginning of the year 51,852,997 242,066 52,095,063 As at 31 December 2008, the Group mortgaged land use right in intangible assets with carrying amount of RMB 30,771,608 (2007: RMB 33,384,419) as security for short-term loans, long-term loans and non-current liabilities due within one year. The Group mortgaged land use right with carrying amount of RMB 944,444 as security for the Letter of credit with maximum amount of RMB 40 million. As at 31 December 2008, there is no restriction placed on the ownership of intangible assets of the Company. The carrying amounts of the Group and the Company did not include capitalized borrowing cost at the end of 2007 and 2008. 79 22 Goodwill The Group Yinghe Century Others Total RMB RMB RMB Cost Balance at the beginning/ end of the year 42,940,434 4,423,876 47,364,310 Carrying amounts Balance at the beginning/ end of the year 42,940,434 4,423,876 47,364,310 (1) Yinghe Century The Group paid RMB 63,271,833 as combination cost for the purchase of 95% equity interest of Yinghe Century in 2001. The excess of combination cost over the Group’s interest in the book value of Yinghe Century’s identifiable assets and liabilities, amounting to RMB 53,340,273, was recognised as goodwill attributable toYinghe Century. During the prior periods, the goodwill was amortised on a straight line basis and recorded into profit or loss for the periods. The Group retrospectively adjusted the amount of the goodwill to RMB 42,940,434 at 1 January 2007. The Group performed an impairment test on the 31 December 2008 and determined that no provision on impairment loss needs to be made. The recoverable amount of Yinghe Century is determined based on the present value of expected future cash flows. According to the most recent past performance, assuming future cash flows to be stable, the Group calculated the present value of expected future cash flows for future operation period, based on a pre-tax discount rate of 5.76%. 23 Long-term deferred expenses The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Cost of operating lease assets improvement 11,028,242 1,266,496 - - Others 3,583,125 - 3,583,125 - Total 14,611,367 1,266,496 3,583,125 - 80 24 Deferred tax assets and liabilities The Group 2008 2007 RMB RMB Deferred tax assets, net 5,013,345 76,333,072 Deferred tax liabilities, net - (19,333,205) Total 5,013,345 56,999,867 Deferred tax assets / (liabilities) Current year Ending increase/decrease balances of Opening charged to Ending temporary balance profit or loss balance differences RMB RMB RMB RMB Provision for bad and doubtful debts 676,266 176,476 852,742 5,480,461 Provision for diminution in value of inventories 5,937,107 (2,970,623) 2,966,484 21,262,629 Provisions for warranty 1,991,292 (1,991,292) - - Unrealised profit and loss within the group 383,358 (298,960) 84,398 562,653 Provision for impairment against fixed assets 601,251 313,517 914,768 7,113,387 Unutilised tax losses 66,200,338 (66,200,338) - - Difference of depreciation/ amortization (18,789,745) 18,984,698 194,953 2,072,027 Total 56,999,867 (51,986,522) 5,013,345 36,491,157 Unrecognised deferred tax assets At at 31 December 2008, the Company and subsidiary BOEOT is still under a cumulative losses condition. The Company and BOEOT has not recognised deferred tax assets in respect of cumulative tax losses as it is not very probable that future taxable profits will be available against which that can be utilised. In accordance with the accounting policy set out in Note 3(15), the Group wrote off the related deferred tax assets recognised in prior year amounting to RMB 57,043,261. As at 31 December 2008, the Group has not recognised deferred tax assets in respect of cumulative tax losses of RMB 1,492,289,775 (2007: RMB 68,213,178) as it is not probable that future taxable profits against which the losses can be utilised will be available in related taxable entities. The deductible tax losses will expire in 2013 under current tax law. 81 25 Provisions for impairment As at 31 December 2008, the provisions for impairment of the Group are set out as follows: Balance at Balance the beginning Charge at the end Note of the year for the year Decreasing during the year of the year Item Reversal Write off RMB RMB RMB RMB RMB Account Receivables 9 19,088,631 10,035,136 (5,444,053) (291,823) 23,387,891 Other Receivables 13 34,004,886 887,738 (30,680,524) (2,801) 4,209,299 Inventories 14 116,457,999 325,324,724 (201,430) (134,578,238) 307,003,055 Held-to-maturity investments 16 17,960,946 - - - 17,960,946 Long-term equity investments 17 29,356,543 - - (26,857,846) 2,498,697 Fixed assets 19 55,444,660 12,582,720 - (1,153,987) 66,873,393 Construction in progress 20 21,628,995 - - - 21,628,995 Total 293,942,660 348,830,318 (36,326,007) (162,884,695) 443,562,276 As at 31 December 2008, the provisions for impairment losses of the Company are set out below: Balance at Balance the beginning Charge at the end Note of the year for the year Decreasing during the year of the year Item Reversal Write off RMB RMB RMB RMB RMB Account Receivables 9 2,118,766 299,465 (310,346) (5,499) 2,102,386 Other Receivables 13 36,843,155 - (36,578,913) - 264,242 Inventories 14 15,975,137 876,785 (201,430) (888,480) 15,762,012 Held-to-maturity investments 16 17,960,946 - - - 17,960,946 Long-term equity investments 17 41,773,093 - - (26,857,846) 14,915,247 Fixed assets 19 5,444,642 2,830,953 - (1,153,987) 7,121,608 Construction in progress 20 21,628,995 - - - 21,628,995 Total 141,744,734 4,007,203 (37,090,689) (28,905,812) 79,755,436 Please refer to the respective notes of the assets for reasons of provision. 82 26 Restricted assets As at 31 December 2008, the assets with restrictions placed on their ownership were as follows: The Group Type Balance at Balance at the beginning Charge Decrease the end Expiration Notes of the year for the year during the year of the year Date RMB RMB RMB RMB Assets guaranteed -Cash at bank and on hand 7 242,340,404 368,500,913 (235,698,427) 375,142,890 30/06/2009 -Bills receivables 8 26,316,216 136,468,625 (26,316,216) 136,468,625 17/06/2009 -Account receivables 9 150,455,565 12,247,723 (86,632,663) 76,070,625 16/09/2009 -Investment property 18 80,621,887 7,796,650 (4,432,288) 83,986,249 26/08/2012 -Fixed assets 19 6,257,357,117 713,837,307 (1,020,108,773) 5,951,085,651 29/10/2016 - Construction in progress 20 - 334,910,754 - 334,910,754 29/10/2016 -Intangible assets 21 33,384,419 16,141,398 (17,809,765) 31,716,052 29/10/2016 Total 6,790,475,608 1,589,903,370 (1,390,998,132) 6,989,380,846 As at 31 December 2008, The Group and the Company has mortgaged 15% (2007: 15%) of the equity interest in BOEOT held by the Company to secure non-current liabilities due within one year. Except for the above, There is no other restriction placed on the ownership of the assets of the Company. Please refer to the respective notes of the assets for reasons of restrictions on the assets. 27 Short-term loans The Group 2008 Exchange RMB/RMB Annual Secured/ Principal rate equivalent interest rate guaranteed RMB Bank loans - RMB 130,700,000 5.29%-8.64% Mortgage - RMB 103,000,000 5.31%-9.49% Secured - RMB 26,211,454 3.20%-7.23% Pledge Foreign currency bank loans - USD 2,050,000 6.8346 14,010,930 3.60% Mortgage - USD 400,000 6.8346 2,731,520 3.67% Secured - USD 9,238,567 6.8346 63,141,907 5.10%-6.92% Pledge - JPY 2,237,636,702 0.0757 169,277,217 3.31% Credit 509,073,028 83 27 Short-term loans (continued) 2007 Exchange RMB/RMB Interest Secured/ Principal rate equivalent rate guaranteed RMB Bank loans - RMB 125,180,000 7.03%-8.75% Secured - RMB 137,600,000 7.02%-8.45% Mortgage - RMB 36,720,000 5.59%-6.57% Pledge - RMB 16,400,000 5.22%-9.48% Mortgage & Secured Foreign currency bank loans - USD 13,778,070 7.3046 100,643,290 5.97%-6.38% Pledge - USD 1,570,000 7.3046 11,468,222 5.24%-7.78% Secured 428,011,512 As at 31 December 2008, the secured short-term loans of ZJBOE, amounting to RMB 48,000,000 were guaranteed by Zhejiang Huanyu Construction Company Limited. RMB 5,000,000 and USD 400,000 were guaranteed by Zhejiang Yuegong Steel Structure Co., Ltd.. The other secured short-term loans were guaranteed by the entities within the Group. As at 31 December 2008, the short-term loans of the Group, amounting to RMB 117,500,000, was secured by plant and buildings with the carrying amounts of RMB 109,569,599, land use rights of RMB 5,534,271 and investment property with the carrying amounts of RMB 3,112,972. As at 31 December 2008, the short-term loans of the Group, amounting to RMB 13,200,000 and USD 2,050,000, were secured by plant and buildings with the carrying amount of RMB 41,632,288. As at 31 December 2008, the short-term loan of the Group, amounting to USD 9,238,567, was pledged by accounts receivable with the carrying amount of RMB 76,070,625. As at 31 December 2008, the short-term loans of the Group, amounting to RMB 16,711,454, was pledged by bills receivable with the carrying amount of RMB 16,711,454. As at 31 December 2008, the short-term loans of the Group, amounting to RMB 9,500,000, was pledged by guarantee deposit with the amount of RMB 10,000,000. No amount due to shareholders who hold 5% or more of the voting rights of the Company was included in the above balance of short-term loans. 84 28 Bills payable The Group 2008 2007 RMB RMB Bank acceptance bills 106,000,000 55,000,000 The above bills are due within one year. No amount due to shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of bills payable. 29 Accounts payable The Group’s accounts payable by currency type 2008 2007 Original Exchange RMB/ Original Exchange RMB/ currency rate RMB equivalents currency rate RMB equivalents - RMB 393,703,871 489,473,409 - USD 60,425,837 6.8346 412,991,645 78,868,307 7.3046 576,101,437 - JPY 3,378,382,010 0.0757 255,553,663 6,758,301,370 0.0641 432,966,043 - Korean Won - 57,864,699 0.0077 444,342 Total 1,062,249,179 1,498,985,231 As at 31 December 2008, the Company had no accounts payable denominated in foreign currencies (2007: nil). Except for the balance disclosed in Note 56, no amount due to shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of accounts payable. As at 31 December 2008, the Group and the Company had no individually significant accounts payable more than one year past due. 85 30 Advances from customers The Group’s advances from customers by currency type: 2008 2007 Original Exchange RMB/ Original Exchange RMB/ currency rate RMB equivalents currency rate RMB equivalents - RMB 14,322,693 15,047,985 - USD 30,748,821 6.8346 210,155,892 22,093,969 7.3046 161,387,600 - Others 892,542 - Total 225,371,127 176,435,585 The Company’s advances from customers by currency type 2008 2007 Original Exchange RMB/ Original Exchange RMB/ currency rate RMB equivalents currency rate RMB equivalents - RMB 40,446,079 2,810,579 - USD 57,982 6.8346 396,286 72,339 7.3046 528,410 - Others 341,615 - Total 41,183,980 3,338,989 No amount due to shareholders who hold 5% or more of the voting rights of the Company was included in the above balance of advances from customers. As at 31 December 2008, the Group and the Company had no individually significant advances from customers more than one year past due. 86 31 Employee benefits payable The Group Balance at the Increase Decrease Balance at the beginning of the year during the year during the year end of the year RMB RMB RMB RMB Salaries, bonuses, allowances 111,806,898 461,036,223 (525,817,086) 47,026,035 Staff welfare fees - 58,695,011 (58,695,011) - Social insurances Medical insurance premium 10,906,684 22,623,201 (18,416,868) 15,113,017 Pension insurance premium 3,868,601 35,248,515 (34,115,375) 5,001,741 Unemployment insurance premium 369,759 2,891,802 (2,850,296) 411,265 Work injury insurance premium 116,004 1,861,103 (1,839,364) 137,743 Maternity insurance premium 137,902 1,797,993 (1,724,997) 210,898 Housing fund 1,462,947 17,296,740 (16,506,186) 2,253,501 Labour union fee, staff and workers’ education fee 17,551,858 16,005,775 (10,177,244) 23,380,389 Termination benefits - 937,308 (937,308) - Staff bonus and welfare fund 6,271,322 9,007,502 (839,282) 14,439,542 Others 568,788 6,117,208 (5,574,255) 1,111,741 Total 153,060,763 633,518,381 (677,493,272) 109,085,872 The Company Balance at the Accrued Paid Balance at the beginning of the year during the year during the year end of the year RMB RMB RMB RMB Salaries, bonuses, allowances 14,099,207 43,781,035 (43,976,792) 13,903,450 Staff welfare fees - 1,069,808 (1,069,808) - Social insurances Medical insurance premium 5,791,300 3,417,078 (916,455) 8,291,923 Pension insurance premium 834,902 3,769,619 (3,530,022) 1,074,499 Unemployment insurance premium 58,919 282,495 (257,715) 83,699 Work injury insurance premium 32,055 194,764 (183,275) 43,544 Maternity insurance premium 49,837 143,001 (154,243) 38,595 Housing fund (2,460) 2,125,485 (2,125,485) (2,460) Labour union fee, staff and workers’ education fee 3,457,593 2,070,852 (1,720,679) 3,807,766 Termination benefits - 71,959 (71,959) - Others 2,167 776,758 (778,925) - Total 24,323,520 57,702,854 (54,785,358) 27,241,016 No arrear is included in the above balance of employee benefits payable. 87 32 Dividends payable The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Beijing Picture Tubes Factory 1,504,649 1,504,649 1,504,649 1,504,649 Beijing Huayin Industrial Development Company 1,436,963 1,436,963 1,436,963 1,436,963 Internal employee’s share 2,605,645 2,607,119 2,605,645 2,607,119 Others 2,546,588 1,120,234 906,533 906,533 Total 8,093,845 6,668,965 6,453,790 6,455,264 Dividend payables mainly represented the unclaimed dividends for non-transferable shareholders. 33 Other payables The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Lease deposits 24,112,838 22,476,810 - 3,167,740 Agency fee payable 8,836,200 10,071,526 8,836,200 9,018,667 Accrued freight charges for export 11,490,985 15,240,452 - - Technical commission 6,797,501 21,419,277 - - Freight agent fees 7,456,834 22,649,139 - - Others 70,490,929 67,193,982 23,860,058 30,164,412 Total 129,185,287 159,051,186 32,696,258 42,350,819 The Group’s other payables by currency type 2008 2007 Original Exchange RMB/RMB Original Exchange RMB/RMB currency rate equivalents currency rate equivalents - RMB 129,068,877 158,674,595 - USD 309 6.8346 2,115 - - Other foreign currencies 114,295 376,591 Total 129,185,287 159,051,186 As at 31 December 2008, the Company had no other payables denominated in foreign currencies (2007: nil). Except for the balance disclosed in Note 56, no amount due to the shareholders who hold 5% or more of the voting rights of the Company was included in the balance of other payables. As at 31 December 2008, the Group and the Company’s individually significant other payables more than one year past due mainly represent lease deposits. 88 34 Non-current liabilities due within one year Note The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Long-term loans due within one year(1) 2,009,143,046 242,700,000 510,000,000 232,500,000 Long-term payables due within one year(2) - 450,000,000 - 450,000,000 Total 2,009,143,046 692,700,000 510,000,000 682,500,000 (1) The analysis of loans due within one year is set out as follows: The Group 2008 Original Exchange RMB/ Annual Secured/ currency rate RMB equivalent interest rate guaranteed RMB Bank loans Mortgage - RMB 715,994,915 5.94.% & secured - RMB 10,200,000 7.38% Mortgage Mortgage - USD 113,093,397 6.8346 772,948,131 LIBOR+1.8% & secured Other loans - RMB Entrust loans 310,000,000 5.76% Mortgage - RMB Entrust loans 200,000,000 Interest exempted Credit Total 2,009,143,046 2007 Original Exchange RMB/ Annual Secured/ currency rate RMB equivalent interest rate guaranteed RMB Bank loans - RMB loans 10,200,000 7.38% Mortgage Other loans - RMB Entrust loans 232,500,000 7.74% Mortgage Total 242,700,000 89 34 Non-current liabilities due within one year (continued) The Company 2008 2007 Annual Secured/ Annual Secured/ Principal interest rate guaranteed Principal interest rate guaranteed Other loans - RMB Entrust loans 310,000,000 5.76% Mortgage 232,500,000 7.74% Mortgage - RMB Entrust loans 200,000,000 Interest exempted Credit - 510,000,000 232,500,000 As at 31 December 2008, the non-current loan due within one year of the Group and the Company, amounting to RMB 310,000,000 (2007: RMB 310,000,000, included long-term loan RMB 77,500,000), was the entrust loan borrowed from Beijing State-owned Assets Management Co., Ltd.(“BSOAMC”), which was secured by the 15% (2007: 15%) of equity interest in BOEOT held by the Company. Please refer to Note 36 for the mortgage information for loans due within one year of the Group, amounting to RMB 715,994,915 and USD 113,093,397. Please refer to Note 36 for the mortgage information for loans due within one year of the Group, amounting to RMB 10,200,000. The above balance of non-current liabilities due within one year include an interest exempted loan from Langfang Branch, Bank of China Company Limited, which is entrusted by Administration Committee of Langfang Gu’an Industrial Area to the Group and the Company, for the purpose of supporting the construction and development of flat screen display project of the subsidiary of the Company BOE Hebei. No amount due to the shareholders who hold 5% or more of the voting rights of the Company was included in the above balance of long-term loans due within one year. (2) The other long-term payables due within one year are as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Entrusted investment - 450,000,000 - 450,000,000 The Company repaid Beijing Economic-Technological Investment & Development Corporation (“BETIDC”) RMB 450 million entrusted investment on 28 August 2008. 90 35 Other current liabilities The Group 2008 2007 RMB RMB Deferred income -Subsidies on interest payment - 24,135,844 -Research and development fund - 6,982,572 Provisions -warranty 29,974,002 26,622,436 Total 29,974,002 57,740,852 The provision for warranties mainly relates to the after-sales repair warranty to the customers of the TFT-LCD products. The provision is estimated by the Management, based on historical warranty data and current actual sales outcomes against current year sales situation. 36 Long-term loans The Group 2008 Exchange RMB/RMB Annual Secured/ Principal rate equivalent interest rate guaranteed RMB Bank loans -RMB 558,281,701 5.94% Mortgage & secured -RMB 26,200,000 7.38% Mortgage -USD 186,938,937 6.8346 1,277,652,860 LIBOR+1.8% Mortgage & secured -USD 150,000,000 6.8346 1,025,193,000 LIBOR+3.5% Mortgage & secured Other loans - Entrust loans 45,000,000 0.01% Credit - Loan transferred from state bond 1,800,000 2.55% Credit 2,934,127,561 91 36 Long-term loans (continued) 2007 Exchange RMB/RMB Annual Secured/ Principal rate equivalent interest rate guaranteed RMB Bank loans -RMB 1,689,393,249 6.30-7.74% Mortgage & secured -RMB 36,400,000 7.38% Mortgage -USD 340,822,845 7.3046 2,489,574,555 LIBOR+1.8% Mortgage & secured Other loans - Entrust loans 200,000,000 Interest exempted Credit - Entrust loans 77,500,000 7.74% Mortgage - Loan transferred from state bond 1,800,000 2.55% Credit 4,494,667,804 The Company 2008 2007 Annual Secured/ Annual Secured/ Principal interest rate guaranteed Principal interest rate guaranteed Other loans - Entrust loans 45,000,000 0.01% Credit 200,000,000 Interest exempted Credit - Entrust loans - - - 77,500,000 7.74% Mortgage Total 45,000,000 277,500,000 As at 31 December 2008, the long-term bank loans of the Group, amounting to RMB 358,281,701 and USD 186,938,937, and the loans due within one year of the Group, amounting to RMB 715,994,915 and USD 113,093,397 were secured by plant and buildings, equipment and land use right with the respective carrying amount of RMB 650,116,090, RMB 5,105,580,902, and RMB 10,040,383, and partially guaranteed by Electronics Holdings. As at 31 December 2008, the long-term bank loan of the Group, amounting to RMB 200,000,000 and USD 150,000,000 were secured by construction in progress, land use right and equipments with the respective carrying amount of RMB 334,910,754, RMB 15,196,954 and RMB 1,898,430. RMB loans were guaranteed by Chengdu Hi-tech Investment Group Co., Ltd. USD loans were guaranteed by Chengdu Industry Investment Group Co., Ltd. and Chengdu Hi-tech Investment Group Co., Ltd. 92 36 Long-term loans (continued) As at 31 December 2008, the long-term bank loan of the Group, amounting to RMB 26,200,000, and long-term loans due within one year of the Group, amounting to RMB 10,200,000 were secured by investment property, included plant and buildings and land use right with the respective carrying amount of RMB 73,246,427 and RMB 7,626,850. As at 31 December 2008, the loan transferred from state bond was provided to ZJBOE by the Finance Bureau of Shaoxing in 2003, with a maturity of ten years and bearing interest per annum at 2.55%. The entrust loans of the Company with amount to RMB 45,000,000 was provided by BETIDC from Beijing Economic Technological Development Area Branch of China Construction Bank Corporation, bearing interest per annum at 0.01% and a maturity of three years. No amount due to the shareholders who hold 5% or more of the voting rights of the Company is included in the above balance of long-term loans. The maturity analysis of the Group’s and the Company’s long-term loans, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the balance sheet date), is set out below: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Due after 1 year but within 2 years (inclusive) 1,308,800,390 2,829,213,447 - 281,898,900 Due after 2 years but within 3 years (inclusive) 651,137,532 1,314,714,229 45,013,500 - Due after 3 years 1,331,585,898 572,807,103 - - Total contractual undiscounted cash flows 3,291,523,820 4,716,734,779 45,013,500 281,898,900 Carry amounts 2,934,127,561 4,494,667,804 45,000,000 277,500,000 37 Other non-current liabilities Note The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Deferred income Fund for research and development (1) 57,736,291 31,355,814 49,553,200 26,797,146 Workshop construction fund (2) 14,560,000 15,280,000 - - Deposits of employees’ apartments 163,800 163,800 - - Total 72,460,091 46,799,614 49,553,200 26,797,146 93 37 Other non-current liabilities (continued) (1) The balance of fund for research and development is the unclaimed portion of research and development for the in-progress projects. (2) BOE Hebei obtained the plant from Administration Committee of Langfang Gu’an Industrial Area in 2006 for free. BOE Hebei recorded the plant in fixed assets with the estimated amount of RMB 16,000,000. The depreciation of the plant is RMB 720,000 charged for the year ended with 31 December 2008. Meanwhile, government grants amounting to RMB 720,000 was recognised as non-operating income with regard to the related assets. 38 Share capital The Company’s share capital status at 31 December is as follows: 2008 2007 RMB RMB (1)Shares subject to selling restrictions − State-owned shares 290,697,675 290,697,675 − Shares held by state-owned legal persons (a) 538,514,785 775,357,803 − Shares held by domestic natural persons 65,418 65,418 (2)Shares not subject to selling restrictions − RMB-denominated ordinary shares(a) 1,338,074,569 689,896,999 − Domestically listed foreign shares 1,115,550,000 1,115,550,000 Total 3,282,902,447 2,871,567,895 (a)The movement is due to the issue of new non-public shares and the circulation of shares subject to selling restrictions. The Company issued 411,334,552 shares with RMB 1 per share non-publicly. The circulation and the capital share are recognised by KPMG, according to the certification of KPMG-A(2008)CR No.0013 at 10 July 2008. According to the regulation of China Securities Regulatory Commision, this non-public offering of shares may not be sold in the 12 months from the issuing date. The state-owned shares obtained the right to list of 648,177,570 shares at 1 December 2008, according to Approval on Matters Related to BOE Technology Group Co., Ltd.’s Share Reform (document JGZCQZ [2005] No. 119), issued by the State-owned Assets Supervision and Administration Commission of Beijing Municipal Government. 94 39 Capital reserve The Group Balance at the Addition Decrease beginning during during Balance at the of the year the year the year end of the year RMB RMB RMB RMB Share premiums 2,746,176,454 1,830,562,943 - 4,576,739,397 Other capital reserves - Available-for-sale financial assets (a) (5,548,561) - (75,402,075) (80,950,636) -Equity investment provision (c) - 9,166,828 - 9,166,828 Total 2,740,627,893 1,839,729,771 (75,402,075) 4,504,955,589 The Company Balance at the Addition Decrease beginning during during Balance at the of the year the year the year end of the year RMB RMB RMB RMB Share premiums 2,746,176,454 1,830,562,943 - 4,576,739,397 Other capital reserves - Available-for-sale financial assets (a) (5,548,561) - (75,402,075) (80,950,636) - Transfer from items under previous standards (b) 29,538,085 - - 29,538,085 Total 2,770,165,978 1,830,562,943 (75,402,075) 4,525,326,846 (a) Available-for-sale financial assets arise from the change in the fair value of the equity interest in TPV Technology Limited (see Note 15). (b) Transfer from previous capital reserves arises from price differences of related party transactions in previous years. (c) Equity investment provision arises from sharing of the increase of capital reserve in subsidiary caused by the special government grants. 40 Surplus reserve Statutory Discretionary surplus reserve surplus reserve Total RMB RMB RMB Balance at the beginning /end of the year 209,421,304 289,671,309 499,092,613 As the Group and the Company are at accumulated losses by the end of 2008, they were not required to appropriate the statutory surplus reserve and discretionary surplus reserve. 95 41 Appropriation of profits and Retained earnings The increase of accumulated losses is arising from net losses transferred in. During current year, certain subsidiaries declared and paid a cash dividend amounting to RMB 5,801,620 to its minority shareholders (2007: RMB1,152,000). 42 Operating income The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Operating income from principal activities - Sale of goods 7,880,796,499 10,768,300,822 10,755,254 65,875,225 - Rendering of service 163,947,341 152,687,734 126,804,142 113,345,000 Subtotal 8,044,743,840 10,920,988,556 137,559,396 179,220,225 ------------------- ------------------- ------------------- ------------------- Other operating income - Sale of inferior goods 188,521,380 231,418,462 - - - Sale of real estate 63,646,752 - - - - Sale of raw materials 10,570,484 5,318,259 4,620 266,420 - Others 26,533,315 12,723,578 81,222,040 27,766,935 Subtotal 289,271,931 249,460,299 81,226,660 28,033,355 ------------------- ------------------- ------------------- ------------------- Total 8,334,015,771 11,170,448,855 218,786,056 207,253,580 The information of revenue, expenses and profit about major business have been provided in Note 51. The Group and the Company’s sales to the top five customers for the year are amounting to RMB 3,070,738,361 and RMB 37,439,948, respectively (2007: RMB 4,267,691,074 and RMB 87,690,135), which accounts for 37% and 17%, respectively of the total sales (2007: 39% and 42%). 96 43 Business taxes and surcharges The Group The Company Taxation basis and rates 2008 2007 2008 2007 RMB RMB RMB RMB Business tax 5% of taxable income 15,244,895 7,405,837 8,259,009 2,817,738 City maintenance and construction tax 7% of VAT and business tax paid 5,051,354 5,645,649 721,101 786,474 Education surcharge 1-5% of VAT and business tax paid 2,577,614 3,393,585 309,044 337,062 Land appreciation tax Appreciation amount in transferring property and applicable tax rate of 30% 4,742,676 - - - Total 27,616,539 16,445,071 9,289,154 3,941,274 44 Financial expenses The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Interest expenses from loans and payables 289,949,122 513,663,316 19,424,387 58,463,957 Less: Borrowing costs capitalized 2,691,277 - - - Net interest expenses 287,257,845 513,663,316 19,424,387 58,463,957 Interest income from deposits and receivables (53,497,635) (32,630,742) (57,548,085) (22,433,862) Net exchange (gains)/losses (51,535,615) (203,680,256) 2,388,047 5,078,869 Other financial expenses 8,961,441 12,496,150 72,498 208,418 Total 191,186,036 289,848,468 (35,663,153) 41,317,382 45 Impairment losses The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Asset Item Receivables (25,201,703) 1,457,960 (36,589,794) 7,294,496 Inventories 325,123,294 73,493,886 675,355 4,571,977 Fixed assets 12,582,720 44,716,195 2,830,953 288,292 Intangible assets - 115,333 - 115,333 Total 312,504,311 119,783,374 (33,083,486) 12,270,098 97 46 Investment losses Note The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Long-term equity investments losses (1) (281,318,326) (82,965,059) (245,423,087) (72,723,954) Income/ (losses) from disposal of investments (2) 60,000,000 (47,105,150) 60,000,000 (47,105,150) Available-for-sale financial assets - Dividends received (3) 15,290,672 - 15,290,672 - - (Losses)/income on sale of assets (4) - 1,754,347 - 1,754,347 Total (206,027,654) (128,315,862) (170,132,415) (118,074,757) No severe restrictions exist on investees’ ability to transfer investment income to the Group and the Company. (1) The analysis of the Group’s long-term equity investment (losses)/income from major investees is as follows: 2008 2007 RMB RMB Jointly controlled entities - BeiAsahi Glass (9,194,596) (1,087,437) Associates - TPV - 73,812,028 - Matsuhita (254,798,050) (156,030,282) - Nissin 1,929 219,788 - Nittan 573,020 (462,550) - Mosler - (107,625) - Chengdu BOE (16,230,196) - - Hefei BOE (617,432) - - Julong (1,053,001) - Subtotal (281,318,326) (83,656,078) ----------------- ----------------- Other enterprises - 691,019 ----------------- ----------------- Total (281,318,326) (82,965,059) 98 46 Investment losses (continued) The analysis of the Company’s long-term equity investment income/(losses) from major investees is as follows: 2008 2007 RMB RMB Subsidiaries - BOE-Hyundai 1,500,000 - - Semi-conductor 3,780,000 - - Yinghe Century - 8,833,105 - Vacuum Electronics 2,200,000 1,408,000 - BOE Land 2,990,447 - Subtotal 10,470,447 10,241,105 ----------------- ----------------- Jointly controlled entities - BeiAsahi Glass - (1,087,437) Associates - TPV - 73,812,028 - Matsuhita (254,798,050) (156,030,282) - Nissin 1,929 219,788 - Nittan 573,020 (462,550) - Mosler - (107,625) - Hefei BOE (617,432) - - Julong (1,053,001) - Subtotal (255,893,534) (83,656,078) ----------------- ----------------- Other enterprises - 691,019 ----------------- ----------------- Total (245,423,087) (72,723,954) As the Company acquired partial equity of BeiAsahi Glass and injected additional investment to Chengdu BOE (see Note 6(2)), they have become the subsidiaries of the Company from the jointly controlled and associate company. As at the acquisition date, the Company retrospectively adjusted the carrying amount of long-term investment formerly under equity method to the original acquisition cost under cost method. Meanwhile, the Company reversed the investment income / (losses) recognised in prior years under equity method. 99 46 Investment losses (continued) (2) Income/ (loss) from disposal of investments The Group and the Company’s net investment disposal gains for 2008 is mainly due to its sale of 40% Star city shares in 2008. The Group and the Company’s net investment disposal loss for 2007 is mainly due to its first sale of TPV shares in January 2007. (3) Available-for-sale financial assets - Dividends received The Group and the Company’s dividends received from available-for-sale financial assets is mainly from TPV in 2008. (4) Available-for-sale financial assets – Profit or loss on sale of assets Since 30 November 2007, the Group and the Company’s holding shares in TPV have been transferred from long-term equity investment to available-for-sale financial assets. The Group and the Company’s income on sale of assets is due to its second sale of TPV shares in December 2007. 47 Non-operating income Note The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Gains on disposal of fixed assets 418,013 21,608,566 40,133 1,847,669 Gains on disposal of intangible assets - 1,489,910 - 56,700 Total gains on disposal of non-current assets 418,013 23,098,476 40,133 1,904,369 ------------------- ------------------- ------------------- ------------------- Government grants (1) 60,898,346 217,006,018 13,190,346 84,079,790 Penalty income 11,557,469 1,830,197 12,200 201,045 Gain from acquisition of subsidiaries (2) 38,526,616 - - - Others 24,775,790 36,339,445 166,579 5,507,270 Total 136,176,234 278,274,136 13,409,258 91,692,474 100 47 Non-operating income (continued) (1) Government grants The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB -LCD project (a) 24,135,844 91,393,665 - - - Key technology research for the 5th generation of TFT-LCD - 27,800,000 - 6,000,000 - Research on large dimension liquid crystal TV (b) 9,382,572 8,567,428 1,200,000 600,000 -International economic & technology cooperation project - 53,270,000 - 53,270,000 -Others 27,379,930 35,974,925 11,990,346 24,209,790 Total 60,898,346 217,006,018 13,190,346 84,079,790 (a) Pursuant to Reply of Preferential Policies Concerning BOE Technology Company’s LCD Project (the B.M.S& T.C’s document [2003] No. 47), Beijing Municipal Science & Economic Commission agreed to provide subsidies for the loan interest of the Group’s total borrowings of USD 740 million for the TFT-LCD project. The subsidies are calculated at 2 percent of the total loan amount. The interest subsidies will be remitted to the Group’s account annually for three consecutive years. This project had been closed by April 7th 2008. (b) Pursuant to TFT-LCD Key Technology research contract signed with Beijing Municipal Science & Economic Commission and the Management Office of the Electronic Development Fund of the Ministry of Industry and Information Technology of People’s republic of China, the project had been completed in 2008. Government grants have be recognised in profit or loss by reference to the stage of completion of the project. (2) The gain was realized from the acquisition of BeiAsahi Glass，the information have been provided in Note 6(2)(a). 48 Non-operating expenses The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Losses on disposal of fixed assets 923,859 3,078,825 551,024 1,753,361 Total losses on disposal of non-current assets 923,859 3,078,825 551,024 1,753,361 ------------------- ------------------- ------------------- ------------------- Donation expense 1,343,767 - 1,080,000 - Penalty expense 2,433,735 22,322,458 - - Others 522,797 6,592,631 3,928 332,286 Total 5,224,158 31,993,914 1,634,952 2,085,647 101 49 Income tax expenses/(benefit) (1) Income tax expenses/(benefit) for the year represent The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Current tax expenses for the year 15,433,278 (1,111,501) - (15,624,951) Deferred taxation 51,986,522 (55,196,387) - - Total 67,419,800 (56,307,888) - (15,624,951) The analysis of deferred tax expenses/(benefit) is set out below: The Group 2008 2007 RMB RMB Origination and reversal of temporary differences (5,056,739) 11,003,951 Deduction for deferred tax recognised in pervious years 57,043,261 - Recognition of previously unutilized tax losses - (66,200,338) 51,986,522 (55,196,387) (2) Reconciliation between income tax expenses/(benefit) and accounting profits is as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB (Losses)/profits before taxation (929,351,296) 840,799,064 (70,883,376) (92,223,575) Expected income tax expenses at a tax rate of 15% (139,402,694) 126,119,860 (10,632,506) (13,833,536) Difference in effective tax rate of subsidiaries (13,165,251) (13,630,400) - - Tax effect of non-deductible expenses 48,490,404 47,710,704 27,301,622 13,688,589 Tax effect of non-taxable income (35,965,334) (14,845,392) (19,200,887) (3,789,092) Utilisation of prior year tax losses (10,482,208) (94,283,419) (9,431,544) (17,327,671) Tax effect of tax losses not recognised for deferred tax 101,142,357 18,138,627 - - Temporary difference not recognised 59,759,265 21,261,710 11,963,315 21,261,710 Tax concession - (75,518,645) - - Recognition of previously unrecognised temporary differences in current year - (55,635,982) - - Deduction for deferred tax recognised in previous year 57,043,261 - - - Adjustment for over provision for income tax in respect of preceding year - (15,624,951) - (15,624,951) Income tax expenses/(benefit) 67,419,800 (56,307,888) - (15,624,951) 102 50 Supplement to cash flow statement (1) Reconciliation of net profit to cash flows from operating activities: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Net (loss)/ profit (996,771,096) 897,106,952 (70,883,376) (76,598,624) Add: Impairment provisions 312,504,311 119,783,374 (33,083,486) 12,270,098 Depreciation of fixed assets and investment property 1,096,143,768 1,093,023,844 17,028,211 20,588,310 Amortisation of intangible assets 52,222,791 51,729,826 1,747,553 1,737,590 Amortisation of long-term deferred expenses 4,436,020 3,986,830 91,875 - Gains on disposal of fixed assets assets, intangible assets and other long-term assets (16,507,622) (23,098,476) (40,133) (1,904,369) Losses on scrapping of fixed assets 923,859 3,078,825 551,024 1,753,361 Financial expense 108,130,630 309,445,380 (31,437,218) 43,306,369 Losses arising from investments 206,027,654 128,315,862 170,132,415 118,074,757 Decrease/(increase) in deferred tax assets 71,319,727 (74,501,318) - - (Decrease)/ increase in deferred tax liabilities (19,333,205) 19,304,931 - - Decrease in gross inventories 8,167,330 492,862,300 4,325,048 27,322,852 Decrease/(increase) in operating receivables 935,305,620 (817,663,165) (7,518,925) 41,831,595 (Decrease) /increase in operating payables (596,073,294) 88,723,234 57,485,917 (190,885,175) Gain realised from acquisition of BeiAsahi Glass (38,526,616) - - - Net cash flow from operating activities 1,127,969,877 2,292,098,399 108,398,905 (2,503,236) (2) Change in cash and cash equivalents of the Group and the Company: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Cash at the end of the year 3,528,597,814 1,452,160,200 572,867,082 928,184,272 Less: Cash at the beginning of the year 1,452,160,200 1,452,714,377 928,184,272 897,305,651 Net increase/ (decrease) in cash and cash equivalents 2,076,437,614 (554,177) (355,317,190) 30,878,621 103 50 Supplement to cash flow statement (continued) (3) Cash and cash equivalents held by the Group and Company are as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB (a) Cash at bank and on hand 3,903,740,704 1,704,436,404 572,867,082 936,584,272 - Cash on hand 718,536 1,321,362 551,642 1,018,384 - Bank deposits available on demand 3,527,879,278 1,450,838,838 572,315,440 927,165,888 - Cash with restricted usage 375,142,890 252,276,204 - 8,400,000 (b) Closing balance of cash and cash equivalents 3,903,740,704 1,704,436,404 572,867,082 936,584,272 Less: cash with restricted usage 375,142,890 252,276,204 - 8,400,000 (c) Closing balance of cash and cash equivalents available on demand 3,528,597,814 1,452,160,200 572,867,082 928,184,272 (4) Information on acquisition of subsidiaries during the current year: The Group The Company RMB RMB Consideration of acquisition 240,100,050 240,100,050 Cash and cash equivalents paid for acquiring subsidiaries 240,100,050 240,100,050 Less: cash and cash equivalents held by subsidiaries 227,973,725 - Net cash paid for the acquisition 12,126,325 240,100,050 Non-cash assets and liabilities held by the acquired subsidiaries Current assets 58,615,775 - Non-current assets 58,680,580 - Current liabilities (14,467,602) - 104 51 Segment reporting In accordance with the Group’s internal financial reporting process, business segment information format, and geographical segment information as the secondary reporting format. The Group comp namely TFT-LCD, ASD and other business. Other business includes Digital Products and Serv Components and materials business, and real estate management business. Reportable information on each of the Group’s business segment is set out as follows: Primary segment reporting (business segments) Item TFT-LCD ASD Others Elimination 2008 2007 2008 2007 2008 2007 2008 2007 RMB RMB RMB RMB RMB RMB RMB RMB Operating income 6,635,478,960 9,629,527,390 904,166,379 1,044,927,914 1,716,346,852 1,609,368,592 (921,976,420) (1,113,375,041) Including: external transaction 6,521,747,224 9,583,708,940 660,164,895 813,426,857 1,152,103,652 773,313,058 - - inter-segment transaction 113,731,736 45,818,450 244,001,484 231,501,057 564,243,200 836,055,534 (921,976,420) (1,113,375,041) Operating expenses 7,422,022,241 8,599,778,653 1,020,077,440 1,132,742,833 1,672,240,965 1,533,633,706 (847,499,488) (1,108,389,509) 12 Operating profits/(losses） (786,543,281) 1,029,748,737 (115,911,061) (87,814,919) 44,105,887 75,734,886 (74,476,932) (4,985,532) (12 Total assets 10,775,345,455 9,136,138,665 820,136,928 1,176,758,808 9,174,726,778 7,417,696,716 (6,834,102,184) (4,425,652,400) Total liabilities 6,118,975,181 1,399,413,527 565,345,393 559,067,567 851,722,225 640,983,305 (868,724,100) (374,241,233) 55 Supplementary information: 1 Depreciation and amortization expense1,044,093,291 1,024,813,504 49,666,656 63,095,730 58,608,668 59,741,224 433,964 1,090,042 2 Impairment loss for current period 284,585,654 31,174,490 42,750,430 73,323,082 (21,162,917) 11,620,095 6,331,144 3,665,707 3 Capital expenditure 1,049,260,661 48,659,750 12,483,406 34,431,859 99,485,996 72,477,748 (25,240,025) (7,977,685) 105 51 Segment reporting (continued) Secondary segment reporting (geographical segments) Item Revenue from external customers 2008 2007 RMB RMB PRC 4,458,487,627 5,558,000,667 Other Asian regions 3,346,744,303 4,857,598,018 Europe 364,098,965 473,988,387 America 164,684,876 280,861,783 Total 8,334,015,771 11,170,448,855 Almost all of the Group’s assets locate in PRC. 52 Risk analysis, sensitivity analysis, and determination of fair values for financial instruments The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Liquidity risk • Interest rate risk • Foreign currency risk This note presents information about the Group’s exposure to each of the above risks and their sources, the Group’s objectives, policies and processes for measuring and managing risks, etc. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The internal audit of the Group undertakes both regular and ad hoc reviews of risk management controls and procedures. 106 52 Risk analysis, sensitivity analysis, and determination of fair values for financial instruments (continued) (1) Credit risk The Group’s credit risk is primarily attributable to receivables. Exposure to these credit risks are monitored by management on an ongoing basis. In respect of receivables, the Group’s Board of Director has established a credit policy under which individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the external ratings of the customers and the record of fore passed transactions. Receivables are due within 15 to 120 days from the date of billing. Debtors with balances that are past due are requested to settle all outstanding balances before any further credit is granted. Normally, the Group does not demand collateral from customers. The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the industry, country or area in which the customers operate and therefore significant concentrations of credit risk arise primarily when the Group has significant exposure to individual customers. At the balance sheet date, the Group and the Company had a certain concentration of credit risk, as 25% and 4% (2007: 42% and 15%) of the total accounts receivable and other receivables was due from the five largest customers of the Group and the Company within LCD products business segment, respectively. The Group and the Company did not possess any significant account receivable that are past due but not impaired on individual and collective assessment. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. Except for the financial guarantees given by the Group and the Company as set out in Notes 54(2) and 54(3), the Group and the Company do not provide any other guarantees which would expose the Group or the Company to credit risk. The maximum exposure to credit risk in respect of these financial guarantees at the balance sheet date is disclosed in Notes 54(2) and 54(3). (2) Liquidity risk The Company and its individual subsidiaries are responsible for their own cash management, including short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the Company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash, readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. The maturity analysis of long-term debts is disclosed in Note 36. 107 52 Risk analysis, sensitivity analysis, and determination of fair values for financial instruments (continued) (3) Interest rate risk Interest-bearing financial instruments at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest risk, respectively. (a) As at 31 December, the Group and the Company held the following interest-bearing financial instruments (see Notes 7, 27, 34, and 36): The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Fixed rate instruments Financial assets -Cash at bank and on hand 3,903,022,168 1,703,115,042 572,315,440 935,565,888 Financial liabilities -Non-current liabilities due within one year (200,000,000) - (200,000,000) - -Long-term loans (46,800,000) (201,800,000) (45,000,000) (200,000,000) 3,656,222,168 1,501,315,042 327,315,440 735,565,888 Variable rate instruments Financial liabilities -Short-term loans (509,073,028) (428,011,512) - - -Non-current liabilities due within one year (1,809,143,046) (692,700,000) (310,000,000) (682,500,000) -Long-term loans (2,887,327,561) (4,292,867,804) - (77,500,000) (5,205,543,635) (5,413,579,316) (310,000,000) (760,000,000) (b) Sensitivity analysis As at 31 December 2008, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would decrease/increase the Group’s and the Company’s net profit and equity by RMB 52,060,000 and RMB 3,100,000 respectively (2007: RMB 50,650,000 and RMB 7,600,000 respectively). In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group or the Company at the balance sheet date, the impact on the net profit and equity is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis for 2007. 108 52 Risk analysis, sensitivity analysis, and determination of fair values for financial instruments (continued) (4) Foreign currency risk In respect of accounts receivables and payables denominated in foreign currencies other than the functional currency, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. (a) The Group’s and the Company’s exposure as at 31 December to currency risk arising from recognised assets or liabilities denominated in foreign currencies (see Notes 7, 9, 27, 29, 30, 34 and 36) is as follows. For presentation purposes, the amounts of the exposure are shown in renminbi, translated using the spot rate at the balance sheet date. Differences resulting from the translation of the financial statements denominated in foreign currency are excluded. The Group Expressed in RMB 2008 2007 USD KRW JPY USD KRW JPY Cash at bank and on hand 1,185,978,502 1,587,319 9,298,140 228,834,786 2,272,494 12,583,784 Accounts receivable 209,000,204 - - 696,915,539 - - Short-term loans (79,884,357) - (169,277,217) (112,111,512) - - Advances from customers (210,155,892)) - - (161,387,600) - - Non-current liabilities due within one year (772,948,131) - - - - - Long-term loans (2,302,845,860) - - (2,489,574,555) - - Accounts payable (412,991,645) - (255,553,663) (576,101,437) (444,342) (432,966,043) Gross balance sheet exposure (2,383,847,179) 1,587,319 (415,532,740) (2,413,424,779) 1,828,152 (420,382,259) The Company Expressed in RMB 2008 2007 USD KRW JPY USD KRW JPY Cash at bank and on hand 17,717,134 1,332 112,632 18,958,812 1,914 203,226 Advances from customers (396,286) - - (528,410) - - Gross balance sheet exposure 17,320,848 1,332 112,632 18,430,402 1,914 203,226 (b) The following are the significant exchange rates applied by the Group and Company: Reporting date Average rate mid-spot rate 2008 2007 2008 2007 USD 6.9253 7.5567 6.8346 7.3046 KRW 0.0066 0.0080 0.0045 0.0077 JPY 0.0675 0.0648 0.0757 0.0641 109 52 Risk analysis, sensitivity analysis, and determination of fair values for financial instruments (continued) (c) Sensitivity analysis Assuming all other risk variables remained constant, a 5% strengthening of the renminbi against the US dollar, KRW and JPY dollar at 31 December would have increased (decreased) equity and net profit by the amount shown below, whose effect is in RMB and translated using the spot rate at the balance sheet date: Equity Net profit The Group The Company The Group The Company RMB RMB RMB RMB As at 31 December 2008 USD 119,192,359 (866,042) 119,192,359 (866,042) KRW (79,366) (67) (79,366) (67) JPY 20,776,637 (5,631) 20,776,637 (5,631) Total 139,889,630 (871,740) 139,889,630 (871,740) As at 31 December 2007 USD 120,671,239 (921,520) 120,671,239 (921,520) KRW (91,408) (96) (91,408) (96) JPY 21,019,113 (10,161) 21,019,113 (10,161) Total 141,598,944 (931,777) 141,598,944 (931,777) The sensitivity analysis above assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group or the Company which expose the Group or the Company to foreign currency risk at the balance sheet date. The analysis excludes differences that would result from the translation of the financial statements denominated in foreign currency. The analysis is performed on the same basis for 2007. (5) Other price risks Other price risks mainly include stock price risk. (6) Fair values All financial instruments are carried at amounts not materially different from their fair values as at 31 December. 110 52 Risk analysis, sensitivity analysis, and determination of fair values for financial instruments (continued) (7) Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of financial assets and liabilities held for trading and available-for-sale financial assets on the balance sheet date. (a) Debts and equity investments Fair value is based on quoted market prices at the balance sheet date for available-for-sale financial assets if there is an active market. (b) Receivables The fair value is estimated as the present value of the future cash flows, discounted at the market interest rates at the balance sheet date. (c) Loans The fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. (d) Interest rates used for determining fair value The interest rates used to discount estimated cash flows are based on the market interest rates for the financial instruments of comparable credit status at the balance sheet date. 53 Commitments (1) Capital commitments As at 31 December, the capital commitments of the Group and the Company are summarised as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Investment contracts entered into but not performed or performed partially 3,417,770,912 564,182,226 2,006,295,381 4,781,200 The above balance includes a capital injection scheme of the Company for Hefei BOE, amounting to RMB 2,000,000,000. For detailed information about the capital injection scheme, please refer to Note 55(2). 111 53 Commitments (continued) (2) Operating lease commitments As at 31 December, the total future minimum lease payments under non-cancellable operating leases of properties of the Group and the Company were payable as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Within 1 year (inclusive) 3,012,702 12,536,225 145,000 955,200 After 1 year but within 2 years (inclusive) 931,872 548,160 - - After 2 years but within 3 years (inclusive) 975,725 566,432 - - After 3 years (inclusive) 975,725 937,354 - - Total 5,896,024 14,588,171 145,000 955,200 54 Contingencies As at 31 December 2008, the contingent liabilities of the Group and the Company are summarized as follows: (1) Outstanding litigations and arbitration The Group is a defendant in certain lawsuits as well as the plaintiff in other proceedings arising in the ordinary course of business. Although the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have a material adverse impact on the financial position or operating results of the Group. (2) Guarantees provided for external entities As at 31 December 2008, according to the guarantee agreements, the subsidiary of the Group, ZJBOE, provided maximum guarantees of RMB 40,000,000 (2007: RMB 45,410,000) to Zhejiang Huanyu Construction Company Limited, and the actual balance of security loan was RMB 20,000,000 (2007: RMB 45,410,000) as at 31 December 2008. ZJBOE provided maximum guarantees of RMB 11,000,000 (2007: RMB 20,000,000) to Zhejiang Yuegong Steel Structure Co., Ltd with equivalent balance of the security loan. ZJBOE provides maximum guarantees of RMB 9,000,000 (2007: nil) to Shaoxing Huifeng Vehicle Sales Service Co., Ltd. with equivalent balance of the security loan. 112 54 Contingencies (continued) (3) Guarantees provided for internal entities As at 31 December 2008, the Company provides guarantees for loans amounting to RMB 50,000,000 (RMB: 62,000,000), which was borrowed by its subsidiaries ZJBOE. Furthermore, the Company and Electronics Holdings provided maximum co-guarantees amounting to USD 740,000,000 for the long-term loans which were borrowed by the subsidiary of the Company, BOEOT. According to the guarantees agreement, as at 31 December 2008, the guarantee amount actually provided by the Company is RMB 2,068,111,266 (2007: RMB 1,385,289,575). The Company charged guarantee fee to BOEOT. 55 Non-adjusting post balance sheet events (1) Pursuant to the resolution passed by the 18th session of the 5th directors meeting held on 4 December 2008, the Company and BETIDC jointly invested in the establishment of Beijing BOE Display Technology Co., Ltd(“BOE DT”), which had obtained business license ‘QDJZZ No.11030211569201’ issued by Beijing Municipal Administration for Industry and Commerce on 6th January 2009. BOE DT is mainly engaged in the design, research, development and sale of TFT-LCD, sale of LCD display, LCD TV and other electronic products with registered capital of RMB 50 million and an operating period of 20 years. (2) On 16th October 2008, the Company, Hefei Municipal government, Hefei Construction Investment Holding. Co. (“Hefei CIH”) and Hefei Xin City State Asset Management Co. Ltd. (“Hefei Xin City”) jointly invested in the establishment of Hefei BOE with a sixth generation of TFT-LCD production line. The Registered Capital of Hefei BOE is RMB 50 million, with BOE owning 19% stockholder’s rights, Hefei CIH owning 51% stockholder’s rights and Hefei Xin City owning 30% stockholder’s rights. On 26 December 2008, the Company signed ‘Share Capital Increase Agreement’ with Hefei CIH and Hefei Xin City. Pursuant to the agreement, the Company will invest an additional RMB 2 billion in 2009 and the other two investors will give up the right to make additional investment. On 5 January 2009 and 3 March 2009, the Company separately invested twice into Hefei BOE with the total amount of 600 million, whose registered capital then became 650 million. Upon to the capital injection, the Company held 93.77% stockholder’s rights, while Hefei CIH and Hefei Xin City hold 3.92% and 2.31% stockholder’s rights respectively. (3) As at 1 April 2009, the Company obtained conditional approval on non-public issuance of ordinary shares denominated in renminbi. Till the reporting date, the Company has yet to obtain the formal approval document from CSRC. (4) As at 7 April 2009, the Company’s subsidiary, BOEOT, signed the second modification agreement for syndicated loans contract with lending banks, according to which, the lending banks consent to a three-year-extension for the due date of loans due within one year (see Note 34) amounting to RMB 715,994,915 and USD 113,093,397, and long-term loans (see Note 36) amounting to RMB 358,281,701 and USD 186,938,937. 113 56 Related party relationships and transactions (1) Information on the parent of the Company is listed as follows: Company name Organisation code Registered place Business nature Registered cap R Electronics Holding 63364799-8 No. 12, Jiuxianqiao Road Operation and 1,307,370, Chaoyang District, Beijing management of state-owned assets within authorization BOID 10110124-9 No. 10, Jiuxianqiao Road Manufacture and sale 680,982, Chaoyang District, Beijing electronic product 114 56 Related party relationships and transactions (continued) (2) For the information on the subsidiaries of the Company, refer to Note 6(1). (3) Transactions with its key management personnel 2008 2007 RMB’000 RMB’000 Remuneration of key management personnel 7,243 7,476 (4) Transactions with related parties other than its key management personnel (a) Transaction amounts with related parties: The Group The Company 2008 2007 2008 2007 Percentage Percentage Percentage Percentage on similar on similar on similar on similar Amount deals Amount deals Amount deals Amount deals RMB % RMB % RMB % RMB % Sales of goods (i) 23,092,412 - 869,064,624 8% 2,000,959 19% 27,121,974 41% Purchase of goods (ii) 8,873,068 - 264,560,603 3% 5,959,114 63% 3,412,941 6% Rendering of services (iii) 9,060,787 14% 16,524,637 32% 49,471,803 64% 73,566,698 91% Receiving services (iv) 5,601,533 68% 3,899,470 56% 5,274,339 100% 3,842,210 56% Related-party loans and advanced disbursement payable (v) 16,309,133 100% 3,008,889 100% 563,519,297 100% 3,008,889 100% Lease income (vi) 3,783,251 3% 4,056,114 4% 18,581,424 33% 16,986,890 43% Guarantees secured (vii) 1,673,204 100% 5,739,395 100% - - - - Providing guarantees (viii) - - - - 66,216,187 100% 923,921 100% Payment for interest (ix) 19,424,387 7% 22,472,423 4% 19,424,387 100% 22,472,423 38% Others 1,536,580 568,782 3,636,275 7,170,691 (i) Sales of goods primarily represent the sale of precision electronic metal parts and semiconductor devices. (ii) Purchase of goods mainly represents the purchase of materials and public service directly related with the Group’s and the Company’s business. (iii) Rendering of services represents property management business, water, electricity and gas supply, equipment repair and other services provided by the Group and the Company. (iv) Receiving services mainly represents property management services accepted by the Group and the Company. (v) Advanced disbursement payable represents payment of wage and other expenses of Hefei BOE and Chengdu BOE. As a result of being included in the consolidated financial statement by the Group at 31 May 2008 (see Note 6(2)b), the current year transaction amounts with related parties of Chengdu BOE is transactions from January to May 2008. 115 56 Related party relationships and transactions (continued) (vi) Lease income represents the rental fee for related parties taking the property on lease from the Group and the Company. (vii) Guarantees secured represents the guarantee fee for the loan guarantee provided by the related parties and accepted by the Group and the Company. (viii) Providing guarantee represents the Company’s guarantee fee income for providing loan guarantee to BOEOT. (ix) Payment for interest represents the interest charges on the entrust loans obtained from BSOAMC. The above transactions with related parties were conducted under normal commercial terms or relevant agreements. (b) The balances of transactions with related parties as at 31 December are set out as follows: The Group The Company 2008 2007 2008 2007 RMB RMB RMB RMB Accounts receivable 7,270,364 51,253,410 24,876,947 21,776,535 Other receivables 50,615 35,267,681 578,428,436 137,949,156 Prepayment - 50,000,000 - 343,000 Accounts payable 2,528,504 167,321 1,500,000 - Other payables 248,354 5,200,000 12,734,151 17,842,359 116 56 Related party relationships and transactions (continued) (c) Relationships with related parties under the transactions stated in (4)(a)&(b) above Relationship with the Group/ Company Electronics Holdings Ultimate holding company BOID Direct holding company BSOAMC Investors that exercise significant influence over the Group BETIDC Investors that exercise significant influence over the Group Beijing Dongdian Industrial Development Co., Ltd Enterprises that are controlled by the Company’s ultimate holding company Beijing SevenStar Front Electronics Co.,Ltd. Enterprises that are controlled by the Company’s ultimate holding company Beijing SevenStar Hongtai Electronics Equipment Enterprises that are controlled by the Co.,Ltd. Company’s ultimate holding company Beijing Sevenstar Electronics Co.,Ltd. Enterprises that are controlled by the Company’s ultimate holding company Beijing SevenStar Flight Electronics Co.,Ltd. Enterprises that are controlled by the Company’s ultimate holding company Beijing Zhengdong Electronic Power Group Co., Ltd. Enterprises that are controlled by the Company’s ultimate holding company Beijing Sevenstar huasheng Electronics & Machinary Enterprises that are controlled by the Co., Ltd. Company’s ultimate holding company Beijing Orient Electronics Material Corp. Enterprises that are controlled or significant influenced by the Company’s ultimate holding company Beijing Jiuxin Property Management Co., Ltd. Enterprises that are controlled or significant influenced by the Company’s ultimate holding company Nissin Associates Nittan Associates Matsushita Associates Hefei BOE Associates Chengdu BOE Associates 117 57 Extraordinary gain and loss In accordance with Interpretive Pronouncement on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 1 – Extraordinary Gain and Loss (2008), the extraordinary gain and loss of the Group is listed as follows: 2008 2007 RMB RMB Note Extraordinary gain and loss for the year Disposal of non-current assets 70,751,075 (25,331,152) Non-rationed Government grants 60,898,346 217,006,018 Excess of interest in the fair value of investee’s identifiable net assets over investment costs of subsidiaries acquired 38,526,616 - Reversal of impairment provisions of receivable assessed on an individual basis 36,124,577 20,681,426 Adjustment on staff welfare - 20,748,620 Other non-operating net income 32,032,960 9,254,553 Subtotal 238,333,574 242,359,465 Less: Effect on taxation 6,177,933 31,817,917 Total 232,155,641 210,541,548 Attributable to: Equity shareholders of the Company 211,515,097 171,995,049 Minority interests 20,640,544 38,546,499 Note: the above figures for 2007 have been adjusted. These retrospective adjustments were made in accordance with Interpretive Pronouncement on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 1 – Extraordinary Gain and Loss (2008). 118 58 Earnings per share and return on net assets (1) The Group’s (losses)/earnings per share 2008 2007 Basic Diluted Basic Diluted RMB RMB RMB RMB (a) (Losses)/earnings per share inclusive of extraordinary gain and loss (0.27) (0.27) 0.24 0.24 - (Losses)/profit attributable to the Company’s ordinary equity shareholders (807,525,473) (807,525,473) 690,945,815 690,945,815 - Weighted average number of the Company’s ordinary shares 3,042,957,292 3,042,957,292 2,871,567,895 2,871,567,895 (b) (Losses)/earnings per share net of extraordinary gain and loss (0.33) (0.33) 0.18 0.18 - (Lossed)/Profit deducted extraordinary gains and loss attributable to the Company’s ordinary equity shareholders (1,019,040,570) (1,019,040,570) 518,950,766 518,950,766 - Weighted average number of the Company’s ordinary shares 3,042,957,292 3,042,957,292 2,871,567,895 2,871,567,895 Weighted average number of the Company’s ordinary shares: 2008 2007 Issued ordinary shares at 1 January 2,871,567,895 2,871,567,895 Add: Weighted average number of ordinary shares issued during current period 171,389,397 - Weighted average number of ordinary shares at 31 December 3,042,957,292 2,871,567,895 Weighted average number of the Company’s ordinary shares (diluted): 2008 2007 Issued ordinary shares at 1 January 2,871,567,895 2,871,567,895 Add: Weighted average number of ordinary shares issued during current period 171,389,397 - Weighted average number of ordinary shares (diluted) at 31 December 3,042,957,292 2,871,567,895 119 58 Earnings per share and return on net assets (continued) (2) Return on net assets of the Group In accordance with “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 9 - Calculation and Disclosure of the Return on Net Assets and Earnings Per Share” (2007 revised) issued by the CSRC, the Group’s return on net assets are calculated as follows: 2008 2007 Fully diluted Weighted average Fully diluted Weighted average (a) (Losses)/return on net assets inclusive of extraordinary gain and loss (14%) (16%) 15% 16% - Net (losses)/profit attributable to the Company’s ordinary equity shareholders (807,525,473) (807,525,473) 690,945,815 690,945,815 - Year-end equity attributable to the Company’s ordinary equity shareholders 5,936,222,532 - 4,570,579,149 - - Weighted average of equity attributable to the Company’s ordinary equity shareholders - 5,066,576,049 - 4,232,139,673 (b) (Losses)/return on net assets net of extraordinary gain and loss (17%) (20%) 11% 12% - Net (losses)/profit deducted extraordinary gain and loss attributable to the Company’s ordinary equity shareholders (1,019,040,570) (1,019,040,570) 518,950,766 518,950,766 - Year-end equity attributable to the Company’s ordinary equity shareholders 5,936,222,532 - 4,570,579,149 - - Weighted average of equity attributable to the Company’s ordinary equity shareholders - 5,066,576,049 - 4,232,139,673 Note: the above figures for 2007 have been adjusted. These retrospective adjustments were made in accordance with Interpretive Pronouncement on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 1 – Extraordinary Gain and Loss (2008). 120