LU THAI TEXTILE CO., LTD. THE THIRD QUARTERLY REPORT FOR 2012 I. Important Notes The Board of Directors, the Supervisory Committee, directors, supervisors and other senior management personnel of Lu Thai Textile Co., Ltd. (hereinafter referred to as “the Company”) hereby guarantee that this report carries no false information, misleading statements or major omissions, and accept, individually and collectively, the responsibility for the factuality, accuracy and completeness of the information set forth herein. All directors attended the board session for reviewing this report. Mr. Liu Shizhen, Principal of the Company, Ms. Zhang Hongmei, Person in charge of accounting work and Mr. Zhang Keming, Person in charge of accounting organ (Financial Manager) hereby confirmed that the Financial Report enclosed in the third quarterly report is true and complete. The Financial Report in the third quarterly report has not been audited by a CPA firm. II. Company Profile (I)Major accounting data and financial indexes Any retrospective adjustment in previous financial statements? □ Yes √ No □ Inapplicable 30 Sept. 2012 31 Dec. 2011 Increase/decrease (%) Total assets (RMB Yuan) 7,694,438,414.93 7,751,885,340.43 -0.74% Owners’ equity attributable to shareholders of the Company 5,141,176,016.41 5,086,100,453.10 1.08% (RMB Yuan) Share capital (Share) 1,008,954,800.00 1,008,954,800.00 0% Net assets per share attributable to shareholders of 5.10 5.04 1.19% the Company (RMB Yuan/share) YoY increase/decrease YoY increase/decrease Jul.-Sept. 2012 Jan.-Sept. 2012 (%) (%) Gross operating revenues 1,398,771,930.43 -5.72% 4,206,797,495.19 -5.77% (RMB Yuan) Net profit attributable to shareholders of the Company 159,815,718.16 -28.97% 461,319,006.35 -35.63% (RMB Yuan) Net cash flow from operating -- -- 732,296,823.97 -19.74% activities (RMB Yuan) Net cash flow per share from operating activities (RMB -- -- 0.73 -18.89% Yuan/share) Basic EPS (RMB Yuan/share) 0.16 -30.43% 0.46 -36.11% Diluted EPS (RMB 0.16 -30.43% 0.46 -36.11% Yuan/share) Weighted average ROE (%) 3.06% -1.64% 8.9% -6.43% Weighted average ROE after deducting non-recurring gains 2.68% -1.73% 8.55% -6.15% and losses (%) 1 Items of non-recurring gains and losses √Applicable □Inapplicable Amount during Item Jan.-Sept. 2012 (RMB Notes Yuan) Gains and losses on disposal of non-current assets 199,165.76 Tax rebate, reduction or exemption due to un-authorized approval or the lack of formal approval documents Government grants recognized in the current year, except for those acquired in the ordinary course of business or 18,566,486.48 granted at certain quotas or amounts according to the country’s unified standards Gains and losses on fair value changes of transactional financial assets and liabilities, and investment gains on disposal of transactional financial assets and liabilities and 5,527,306.19 available-for-sale financial assets, except for the effective hedging business related to the Company’s normal operation Other non-operating incomes and expenses besides the 4,127,305.76 items above Other gain and loss items that meet the definition of non-recurring gains and losses Minority interests effects -2,315,538.76 Income tax effects -7,697,071.90 Total 18,407,653.53 -- “Other gain and loss items that meet the definition of non-recurring gains and losses” & non-recurring gain and loss items recognized as recurring gain and loss items according to the natures and characteristics of the Company’s normal business Involved amount (RMB Item Notes Yuan) 0.00 (IIII)Total number of shareholders and top 10 shareholders at the period-end Total number of shareholders 114,841 Particulars about shares held by the top ten shareholders holding tradable shares Number of tradable shares held Type and number of shares Name of shareholder at period-end Type Number ZIBO LUCHENG TEXTILE 123,314,700 RMB ordinary shares 123,314,700 INVESTMENT CO., LTD. DBS VICKERS (HONG Domestically listed foreign 40,528,642 40,528,642 KONG) LTD A/C CLIENTS shares FIRST SHANGHAI Domestically listed foreign 8,037,715 8,037,715 SECURITIES LIMITED shares AVIVA LIFE & PENSIONS Domestically listed foreign 3,930,923 3,930,923 UK LIMITED shares CHINA INCOME FUND 3,639,157 RMB ordinary shares 3,639,157 INDUSTRIAL TREND 3,153,442 RMB ordinary shares 3,153,442 INVESTMENT MIXED TYPE NATIONAL SOCIAL 3,007,858 RMB ordinary shares 3,007,858 SECURITY FUND SINOCOT DEVELOPMENT Domestically listed foreign 2,981,000 2,981,000 COMPANY LIMITED shares CREDIT SUISSE (HONG Domestically listed foreign 2,962,887 2,962,887 KONG) LIMITED shares 2 TOYO SECURITIES ASIA Domestically listed foreign 2,958,112 2,958,112 LIMITED-A/C CLIENT. shares Among the shareholders above, except ZIBO LUCHENG TEXTILE INVESTMENT CO., LTD. is Explanation on particulars of the first majority shareholder of the Company, the other shareholders are all tradable A-share and shareholders B-share holders. III. Significant Events I ) Significant changes in major accounting data, financial highlights and reasons for these changes √Applicable □Inapplicable (1) Monetary funds stood at RMB 498,070,581.88 on 30 Sept. 2012, down 38.60% over the opening amount, which was mainly because the Company paid for the B-share buyback and unginned cotton. (2) Transactional financial assets stood at RMB 6,321,347.70 on 30 Sept. 2012, down 69.81% over the opening amount, which was mainly because transactional financial assets were delivered upon maturity and gains on fair value changes decreased. (3) Prepayments stood at RMB 151,219,291.17 on 30 Sept. 2012, down 50.33% over the opening amount, which was mainly because the accounts prepaid for purchases in the last period were settled in this period. (4) Other receivables stood at RMB 127,434,551.45 on 30 Sept. 2012, up 70.97% over the opening amount, which was mainly because of the increase of the export tax rebates receivable. (5) Construction in progress stood at RMB 297,561,248.81 on 30 Sept. 2012, down 40.74% over the opening amount, which was mainly because the 50-million-meter high-quality piece-dyed fabric project and the 40-million-meter high-quality yarn-dyed fabric production line project partly went into production and the relevant construction in progress turned into fixed assets. (6) Other non-current assets stood at RMB 7,890,690.00 on 30 Sept. 2012, down 68.94% over the opening amount, which was mainly because the prepayments for land turned into intangible assets. (7) Notes payable stood at RMB 16,230,868.14 on 30 Sept. 2012, up 35.46% over the opening amount, which was mainly because notes were adopted more often in settlement. (8) Taxes and fares payable stood at RMB 5,657,428.35 on 30 Sept. 2012, down 81.50% over the opening amount, which was mainly because of the increase of input VAT deductions. (9) Interest payable stood at RMB 3,409,471.91 on 30 Sept. 2012, up 61.35% over the opening amount, which was mainly because of the increase of interest provisions. (10) Non-current liabilities due within one year stood at RMB 17,257,250.00 on 30 Sept. 2012, down 75.01% over the opening amount, which was mainly because of the decrease of long-term borrowings due within one year. (11) Long-term borrowings stood at RMB 0.00 on 30 Sept. 2012, down 100.00% over the opening amount, which was mainly because mature borrowings were repaid. (12) Deferred income tax liabilities stood at RMB 3,088,552.41 on 30 Sept. 2012, down 41.31% over the opening amount, which was mainly because of the decrease of the taxable temporary difference resulted from the fair value changes of transactional financial assets. (13) Treasury stock stood at RMB 167,604,401.19 on 30 Sept. 2012, up 100% over the opening amount, which was mainly because of the buyback of B-shares. (14) Business taxes and surtaxes for the reporting period stood at RMB 12,292,119.83, down 55.47% over the same period of last year, which was mainly because of the decrease of the city maintenance & development tax and the educational surcharge payable. (15) Financial expenses for the reporting period stood at RMB 52,047,616.39, up 47.08% over the same period of last year, which was mainly because of the decrease of exchange gains. (16) Asset impairment loss for the reporting period stood at RMB 229,769.28, down 84.91% over the same period of last year, which was mainly because bad-debt provisions decreased as assets changed. (17) Investment income for the reporting period stood at RMB 19,596,338.49, down 64.59% over the same period of last year, which was mainly because of the decrease of the investment income from transactional financial assets. 3 (18) Non-operating expenses for the reporting period stood at RMB 3,559,910.03, down 75.84% over the same period of last year, which was mainly because of the decrease of the loss on non-current asset disposal. (19) Income tax expenses for the reporting period stood at RMB 77,844,369.77, down 47.45% over the same period of last year, which was mainly because of the decrease of the total profit. (20) Total profit for the reporting period stood at RMB 544,604,740.28, down 39.49% over the same period of last year, which was mainly because the operating revenues decreased 5.77% and the operating costs increased 3.40% on a year-on-year basis. (21) Net cash flows from investing activities for the reporting period stood at RMB -510,472,041.17, down 74.79% over the same period of last year, which was mainly because of a greater input to the 50-million-meter high-quality piece-dyed fabric project and the 40-million-meter high-quality yarn-dyed fabric production line project. II Progress of significant events and its influence, as well as the analysis and explanation on solutions 1. About non-standard audit opinion □Applicable √Inapplicable 2. The Company offers capital to the controlling shareholder or its related parties or provides external guarantees in violation of the prescribed procedures. □Applicable √Inapplicable 3. Signing and execution of significant contracts concerning routine operation □Applicable √Inapplicable 4. Others √Applicable □Inapplicable 1. The Proposal on Repurchase of Partial Domestically Listed Foreign Shares (B-share) of the Company and the Preplan on Repurchase of Partial Domestically Listed Foreign Shares (B-share) of the Company were reviewed and approved at the 21st Session of the 6th Board of Directors on 6 Jun. 2012 and the 2nd Special Shareholders’ General Meeting for 2012 on 25 Jun. 2012 held by the Company. The Company decided to, within 12 months since the repurchase resolution was made at the shareholders’ general meeting, repurchase domestically listed foreign shares (B-shares) not exceeding 100 million shares (it’s subject to the actual amount of repurchased shares upon the repurchase expires) with its self-owned funds. And the repurchase price should not be higher than HK$ 7.38/share (after adjustment), the Company also authorized the Board of Directors to write off the repurchased shares after completing the repurchase event. The Company has finished all the approval procedures for repurchasing B-share on 8 Sept. 2012 and implemented the repurchase on 10 Sept. 2012. Up to the period-end, 29,749,762 B-shares have been repurchased, accounting for 2.95% of the total share capital of the Company, buying at the maximum price of HK$ 6.94/share and the minimum price of HK$ 6.80/share, and a total amount of HK$ 204,976,962.04 (including stamp duty and commission) were paid. 2. The Proposal on Adjusting the Depreciation Period for Fixed Assets was reviewed and approved at the 24th Session of the 6th Board of Directors held by the Company on 24 Sept. 2012, at which the Company decided to adjust the depreciation period of fixed assets since 1 Oct. 2012, relevant announcement has been published on Securities Times, Shanghai Securities News and Ta Kung Pao as well as www.cninfo.com.cn dated 25 Sept. 2012. ( III Commitments of the Company or shareholders with an over 5% shareholding made in or carried down into the reporting period √Applicable □Inapplicable Event Commitment Commitment Commitment Commitment Execution 4 maker contents time period Zibo Lucheng will not reduce its shareholding within 60 months after share merger reform and, within 24 months after that, the price of selling holding shares shall not be lower than RMB 15 per share (if the share capital changes, Lucheng ex-rights will be fulfilled the conducted); it commitment of proposed and Zibo Lucheng increasing its voted for a cash will not reduce shareholding distribution not its shareholding with the lower than 50% within 60 dividends it of the profit months after received in 2005 available for share merger and 2006. The distribution in reform and, total profit for the year at the within 24 2008 went up Zibo Lucheng 2006 months after 58.06% over Textile Shareholders’ Commitment made in a share reform 12 Jun. 2006 that, the price of 2005. Up to 12 Investment Co., General Meeting selling holding Jun. 2011, the Ltd. and 2007 shares shall not trading Shareholders’ be lower than moratorium on General RMB 15 per the 98,358,000 Meeting; it will share (if the shares held by increase the LU share capital Lucheng THAI A shares changes, expired, which held by it ex-rights will be became tradable through trading conducted) on 24 Jun. 2011. at the secondary No shareholding market with the decrease has dividends taken place yet. received in 2005 and 2006, and the increase of the LU THAI A shares held shall be accomplished within 12 months after the dividend is transferred to its account. In 2008, the total profit increased by not less than 30% compared with that in 2005. Commitment made in an acquisition report Naught Naught Naught Naught a report changes of exchange orCommitmenton made in assetowners’ equity Naught Naught Naught Naught Raised funds The Lu Thai Textile 150,000-Ingot Commitment made in share issuance investment 19 Dec. 2008 Co., Ltd. Top-grade Fine projects Combed Yarn 5 Project, the 50-thousand Ingot Two-for-one Twisting Production Line Project, the Project for Supplementing the Working Capital and the Production Line Project for 10-million-mete r Top-grade Jacquard Fabrics for Women’s Wear among raised funds investment projects have been completed. On 18 Oct. 2011, as reviewed and approved at the 3rd Special Shareholders’ General Meeting for 2011, raised funds of RMB 140 million for the Marketing Network Development Project were transferred to a new production line project for 40-million Meter top-grade yarn-dyed fabric. By the end of the reporting period, the yarn-dyed fabric project had been completed and the Brand and Marketing Network Development is still going on. Commitments made to minority Naught Naught Naught Naught shareholders fulfilled in time or not Commitment √ Yes □ No □ Inapplicable Specific reasons for failing to fulfill the Naught commitment and plan for the next step Make commitments regarding the horizontal competition and related-party √ Yes □ No □ Inapplicable transactions caused or not Promised deadline for solving the problem Naught 6 Ways of solving the problem Naught Execution of the commitment Naught (IV Predict the 2012 annual operating results Warnings of possible loss or large-margin change of the accumulated net profit made during the period from the beginning of the year to the end of the next reporting period compared with the same period of the last year according to prediction, as well as explanations on the reasons □Applicable √Inapplicable (V)Other significant events that need to be explained 1. Securities investment □Applicable √Inapplicable 2. Investments in derivatives √Applicable □Inapplicable The Company conducted derivatives products transaction in order for hedging. And the forward settlement hedging was operated by installments, with the relevant amount not more than the planned derivatives products transactions. And all derivatives products transaction was zero-deposit. Meanwhile, the Company had a complete risk control system for sufficient analysis and prevention of possible risks such as risk of laws and regulations, credit risk, operation risk and market risk. 1. Risk of laws and regulations The Company conducted derivatives products transaction in strict accordance with relevant laws and rules as well as regulatory policies from government securities regulatory authorities, if there were no standard operation procedures and strict approval procedures, it was easy to cause compliant and regulatory risks existing in the validity and feasibility of contract, commitments and other legal documents signed. Precautionary measures: The Company carefully studied and mastered laws, regulations and policies relevant to derivative products transaction, formulated internal control rules for the Analysis on risks and control measures of derivative products forward settlement hedging business, standardized the operation held in the reporting period (including but not limited to procedures. And strengthened the compliant examination on market risk, liquidity risk, credit risk, operation risk, law risk, derivative products investment business, and strictly abided by etc.) relevant laws, regulations and the Company’s internal management rules. 2. Credit risk and liquidity risk When the contract matures, the Company couldn’t deliver as scheduled due to insufficient liquidity, and the counterparty or the Company couldn’t fulfill the contract due to other aspects except the liquidity, which would cause credit risk and further economic losses for the Company. Precaution measure: the Company chose the powerful financial institutions with good reputation as the counterparty, and signed standard derivative products transaction contract, as well as strictly controlled the credit risk of counterparty. The Company conducted derivative investment transactions according to the relevant approval procedure, which was in line with relevant laws, regulations, the Company’s Articles of Association, the Management Rules for Derivative Investment of Lu Thai Textile Co., Ltd. and the Plan for Derivative Transactions in 2012 approved at the First Special Session of the Shareholders’ General Meeting for 2012 on 5 Mar. 2012, and performed relevant information disclosure 7 responsibilities. The Company decided the up limit for the amount of derivative products transaction according to the production and operation scale and the progress of foreign exchange income for the Company, and delivered by phases. It was also possible to use extension of term and other ways to ensure the fulfillment of contract as schedules upon the mature of contract, and wouldn’t cause any loss of credit risk for the Company due to insufficient liquidity or other reasons. 3. Operation risk The derivative financial transactions had high specialty and complexity, so imperfect internal operation procedures, staffs and external events would make the Company to undertake risks during the transaction. Precaution measure: The Company promulgated strict authorization and approval system and perfect regulatory mechanism, fixed the departments, operation procedures and approval procedures system to conduct derivative products transaction, established special risk control positions, implemented strict authorization and post checks and balances system, meanwhile, it improved the overall quality of relevant personnel through strengthening the business training and professional ethics education for them. Besides, it established the System of Reporting the Abnormal Situation Timely, formed an efficient risk management procedures, so as to ensure to lower the operation risks to the maximum. 4. Market risk The forward settlement of exchange is an important derivative products transaction, which was significantly affected by the exchange rate fluctuation due to its large amount. The Central Bank decided to expand the fluctuation range of RMB exchange rate from bidirectional 0.5% to bidirectional 1% since 16 Apr. 2012, which would increase the difficulty in the operation of forward settlement of exchange. Besides, if the RMB is devalued by a large margin on the basis of the current situation before the contract is due, so then, the larger losses shall incur in the contract on forward settlement of exchange signed by the Company. Risk analysis and precaution measure: Renminbi appreciated significantly compared with that before the exchange rate reform, but Renminbi internationalization would be a long-term goal, which decided that Renminbi would not depreciated significantly. Although the increased fluctuation range added the operation difficulty, it provided a certain opportunity, which required relevant personnel of the Company actively master the market trend, carefully operate and hold positive opportunity, so as to try the best to reduce the market risks under the condition of increased market difficulty. 1. Up to 30 Sept. 2012, the Company held 31 undue financial derivative product contracts, totaled US$ 246 million, of which there were 30 forward settlement contracts valuing US$ 240 million; 1 forward purchase foreign exchange contract valuing US$ 6 million (all due before Mar. 2013). The above financial derivative products accounted for 30.34% of the closing net assets attributable to Changes of market prices or fair values in the reporting period shareholders of the Company. of the invested derivatives. And the analysis on the fair value 2. From Jan. 2012 to Sept. 2012, the due financial derivative of the derivatives should include the specific use methods and products of the Company totally equaled to US$ 516,003,200, of the relevant assumptions and parameters. which US$ 376,003,200 was actually delivered and the gain generated was RMB 20,145,300. The due forward settlement was US$ 459.5 million, of which US$ 319.5 million was delivered as scheduled, generating gain of RMB 19,759,500; US$ 140 million was extended; and the due forward foreign exchange trading amount equaled to US$ 56,503,200, which was all delivered as scheduled and generated gain of RMB 385,800. Whether significant changes occurred to the Company’s accounting policy and specific accounting principles of Unchanged derivatives in the reporting period compared to the previous reporting period Specific opinion from independent directors on the Concerning the Company’s derivative transactions, the Company’s Company’s derivatives investment and risk control independent directors Zhou Zhiji, Hong Xiaobin, Qi Haodong, Bi 8 Xiuli and Wang Lei issued their professional opinions as follows: 1. Up to 30 Sept. 2012, the Company held 31 undue financial derivative product contracts, totaled US$ 246 million, of which there were 30 forward settlement contracts valuing US$ 240 million; 1 forward purchase foreign exchange contract valuing US$ 6 million (all due before Mar. 2013). The above financial derivative products accounted for 30.34% of the closing net assets attributable to shareholders of the Company. 2. From Jan. 2012 to Sept. 2012, the due financial derivative products of the Company totally equaled to US$ 516,003,200, of which US$ 376,003,200 was actually delivered and the gain generated was RMB 20,145,300. The due forward settlement was US$ 459.5 million, of which US$ 319.5 million was delivered as scheduled, generating gain of RMB 19,759,500; US$ 140 million was extended; and the due forward foreign exchange trading amount equaled to US$ 56,503,200, which was all delivered as scheduled and generated gain of RMB 385,800. 3. The Company conducted derivative investment transactions according to the relevant approval procedure, which was in line with relevant laws, regulations, the Company’s Articles of Association, the Management Rules for Derivative Investment of Lu Thai Textile Co., Ltd. and the Plan for Derivative Transactions in 2012 approved at the First Special Session of the Shareholders’ General Meeting for 2012 on 5 Mar. 2012 4. The Company has formulated and improved the organizational structure, business operation flow chart, approval flow chart and other internal control rules for derivative transactions, which are executed effectively. 5. On the basis of its normal operation, the Company used its own funds to conduct derivative investment transactions, which could help the Company avoid the risk of RMB exchange rate changes and improve the Company’s resistance ability to exchange rate fluctuations. Such a move of the Company would do no harm to the interest of the Company and its shareholders. 6. In accordance with the Article 26 of the Memorandum of the Shenzhen Stock Exchange for Information Disclosure - Derivative Investment, the Company performed the relevant information disclosure duty in its report for the third quarter of 2012. To sum up, we were of the opinion that it would strengthen the Company’s competitiveness to use derivative transactions with focus on forward settlement and purchase as an effective tool to avoid foreign exchange risks, to strengthen the relevant internal control and to carry out the loss and risk prevention measures so as to improve the operation and management. It was considered feasible for the Company to conduct derivative transactions with focus on forward settlement and purchase, and no harm was done to interests of the Company’s shareholders. 3. Derivative investments held at the period-end √Applicable □Inapplicable Proportion of the closing Opening contract amount Closing contract amount Gain or loss in the contract amount in the Type of contract (RMB Yuan) (RMB Yuan) reporting period closing net assets of the Company (%) Forward settlement and purchase of exchange 3,367,888,570.00 1,559,936,250.00 20,145,338.49 30.34% contract Total 3,367,888,570.00 1,559,936,250.00 20,145,338.49 30.34% 4. Researches, visits and interviews received in the reporting period Time of reception Place of reception Way of reception Visitor type Visitor Main discussion and 9 materials provided by the Company Deng Yafeng from Shanghai Chaos Reception Room of Basic information 12 Jan. 2012 Field research Institution Daoran Asset the Company about the Company Management Co., Ltd. Zhao Bing and Zhao Reception Room of Basic information 12 Jan. 2012 Field research Institution Duo from Sealand the Company about the Company Securities Co., Ltd. Wang Bing and Xu Reception Room of Wenfeng from Basic information 12 Jan. 2012 Field research Institution the Company Rising Securities about the Company Co., Ltd. Zhou Ying and Huang Ruiqing from Reception Room of Basic information 12 Jan. 2012 Field research Institution Caitong Fund the Company about the Company Management Co., Ltd. Dong Lanfeng from Reception Room of Yinhua Fund Basic information 19 Jan. 2012 Field research Institution the Company Management Co., about the Company Ltd. Reception Room of Jin Ge and Liu Bing Basic information 2 Feb. 2012 Field research Institution the Company from CICC about the Company Yuan Li and Ma Tao Reception Room of Basic information 15 Feb. 2012 Field research Institution from GF Securities the Company about the Company Co., Ltd. Shan Huijin from Reception Room of China Asset Basic information 15 Feb. 2012 Field research Institution the Company Management Co., about the Company Ltd. Gao Yuanyuan from Reception Room of ICBC Credit Suisse Basic information 15 Feb. 2012 Field research Institution the Company Asset Management about the Company Co., Ltd. 5. Corporate bonds issued Any corporate bonds issued? □ Yes √ No IV. Appendix (I) Financial statements Consolidated statements or not? √ Yes □ No □ Inapplicable The currency unit for data of the financial statements below is RMB Yuan unless otherwise specified. 1. Consolidated balance sheet Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Balance as at 30 Sept. 2012 Balance as at 30 Jun. 2012 Current Assets: Monetary funds 498,070,581.88 811,148,146.93 Transactional financial assets 6,321,347.70 20,939,380.00 10 Notes receivable 131,037,353.44 160,499,797.76 Accounts receivable 171,519,752.82 201,327,903.05 Accounts paid in advance 151,219,291.17 304,469,373.14 Interest receivable Dividend receivable Other accounts receivable 127,434,551.45 74,534,378.60 Financial assets purchased under agreements to resell Inventories 1,728,513,630.12 1,666,911,255.92 Non-current assets due within 1 year Other current assets Total current assets 2,814,116,508.58 3,239,830,235.40 Non-current assets: Available-for-sale financial assets Held-to-maturity investments Long-term accounts receivable Long-term equity investment 67,442,600.00 68,942,600.00 Investing property Fixed assets 4,065,694,194.07 3,486,072,973.42 Construction in progress 297,561,248.81 502,165,921.54 Engineering materials 43,492,287.45 39,746,597.82 Disposal of fixed assets Intangible assets 323,498,678.61 309,099,281.13 R&D expense Goodwill 20,613,803.29 20,563,803.29 Long-term deferred expenses Deferred income tax assets 54,128,404.12 60,061,475.83 Other non-current assets 7,890,690.00 25,402,452.00 Total of non-current assets 4,880,321,906.35 4,512,055,105.03 Total assets 7,694,438,414.93 7,751,885,340.43 Current liabilities: Short-term borrowings 1,145,243,257.70 1,151,414,422.38 Transactional financial liabilities Notes payable 16,230,868.14 11,981,603.44 Accounts payable 327,765,270.15 284,362,673.51 Accounts received in advance 97,331,403.74 91,026,359.71 Employee’s compensation payable 338,368,656.34 435,106,415.39 Tax payable 5,657,428.35 30,576,451.34 Interest payable 3,409,471.91 2,113,143.22 Dividend payable 459,109.44 442,309.44 Other accounts payable 138,850,353.63 110,780,795.92 Non-current liabilities due within 1 year 17,257,250.00 69,058,740.00 Other current liabilities Total current liabilities 2,090,573,069.40 2,186,862,914.35 Non-current liabilities: Long-term borrowings 12,675,030.00 Long-term payables 9,735,560.00 9,735,560.00 11 Deferred income tax liabilities 3,088,552.41 5,262,675.09 Other non-current liabilities 66,425,915.61 67,441,604.49 Total non-current liabilities 79,250,028.02 95,114,869.58 Total liabilities 2,169,823,097.42 2,281,977,783.93 Owners’ equity (or shareholders’ equity) Paid-up capital (or share capital) 1,008,954,800.00 1,008,954,800.00 Capital reserves 1,243,637,832.04 1,200,110,642.06 Less: Treasury stock 167,604,401.19 Surplus reserves 515,895,752.76 515,895,752.76 Retained profits 2,546,001,430.11 2,367,189,767.76 Foreign exchange difference -5,709,397.31 -6,050,509.48 Total equity attributable to owners of the 5,141,176,016.41 5,086,100,453.10 Company Minority interests 383,439,301.10 383,807,103.40 Total owners’ (or shareholders’) equity 5,524,615,317.51 5,469,907,556.50 Total liabilities and owners’ (or 7,694,438,414.93 7,751,885,340.43 shareholders’) equity Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 2. Balance sheet of the Company Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Balance as at 30 Sept. 2012 Balance as at 30 Jun. 2012 Current Assets: Monetary funds 299,641,817.38 443,347,389.73 Transactional financial assets 5,382,918.70 15,609,030.00 Notes receivable 114,784,229.95 123,468,955.42 Accounts receivable 202,319,835.06 286,596,629.41 Accounts paid in advance 149,563,107.73 390,452,279.69 Interest receivable Dividend receivable Other accounts receivable 66,677,255.80 36,382,500.69 Inventories 1,096,145,890.24 1,089,685,685.73 Non-current assets due within 1 year Other current assets Total current assets 1,934,515,054.86 2,385,542,470.67 Non-current assets: Available-for-sale financial assets Held-to-maturity investments Long-term accounts receivable Long-term equity investment 1,101,936,804.88 1,063,495,189.90 Investing property Fixed assets 2,438,572,204.88 2,216,930,369.90 Construction in progress 165,239,100.65 139,596,130.53 Engineering materials 43,329,894.29 37,171,903.43 12 Disposal of fixed assets Intangible assets 192,845,892.25 176,687,021.73 R&D expense Goodwill Long-term deferred expenses Deferred income tax assets 30,562,562.79 30,180,069.34 Other non-current assets 7,890,690.00 25,402,452.00 Total of non-current assets 3,980,377,149.74 3,689,463,136.83 Total assets 5,914,892,204.60 6,075,005,607.50 Current liabilities: Short-term borrowings 622,039,819.90 687,511,722.38 Transactional financial liabilities Notes payable 9,300,868.14 9,531,302.09 Accounts payable 155,200,281.92 91,559,699.03 Accounts received in advance 43,690,015.75 41,115,833.49 Employee’s compensation payable 291,442,960.84 379,732,952.85 Tax payable 36,322,073.43 44,571,730.86 Interest payable 2,345,364.68 2,113,143.22 Dividend payable 459,109.44 442,309.44 Other accounts payable 19,020,618.89 16,585,657.28 Non-current liabilities due within 1 year 17,257,250.00 69,058,740.00 Other current liabilities Total current liabilities 1,197,078,362.99 1,342,223,090.64 Non-current liabilities: Long-term borrowings 12,675,030.00 Long-term payables Estimated liabilities Deferred income tax liabilities 807,437.81 2,341,354.50 Other non-current liabilities 31,988,546.56 32,494,901.59 Total non-current liabilities 32,795,984.37 47,511,286.09 Total liabilities 1,229,874,347.36 1,389,734,376.73 Owners’ equity (or shareholders’ equity) Paid-up capital (or share capital) 1,008,954,800.00 1,008,954,800.00 Capital reserves 1,249,990,513.13 1,206,463,323.15 Less: Treasury stock 167,604,401.19 Surplus reserves 515,895,752.76 515,895,752.76 Retained profits 2,077,781,192.54 1,953,957,354.86 Foreign exchange difference Total owners’ (or shareholders’) equity 4,685,017,857.24 4,685,271,230.77 Total liabilities and owners’ (or 5,914,892,204.60 6,075,005,607.50 shareholders’) equity Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 3. Consolidated income statement for the reporting period Prepared by Lu Thai Textile Co., Ltd. 13 Unit: RMB Yuan Item Jul.-Sept. 2012 Jul.-Sept. 2011 I. Total operating revenues 1,398,771,930.43 1,483,566,032.99 Including: Sales income 1,398,771,930.43 1,483,566,032.99 II. Total operating cost 1,234,138,524.76 1,230,292,674.90 Including: Cost of sales 1,025,358,240.45 1,012,327,690.00 Business taxes and surcharges 9,931,184.90 17,419,527.01 Selling and distribution expenses 41,772,534.98 37,155,185.35 Administrative expenses 144,692,946.98 154,597,082.53 Financial expenses 15,309,785.44 10,467,508.48 Asset impairment loss -2,926,167.99 -1,674,318.47 Add: Gain/(loss) from change in fair value 16,428,997.70 1,895,055.00 (“-” means loss) Gain/(loss) from investment (“-” 543,700.00 14,879,900.00 means loss) Foreign exchange gains (“-” means loss) III. Business profit (“-” means loss) 181,606,103.37 270,048,313.09 Add: non-operating income 6,299,925.96 5,543,864.18 Less: non-operating expense 1,417,101.47 3,463,627.25 Including: loss from non-current 30,679.93 1,039,001.06 asset disposal IV. Total profit (“-” means loss) 186,488,927.86 272,128,550.02 Less: Income tax expense 28,078,150.98 45,355,704.85 V. Net profit (“-” means loss) 158,410,776.88 226,772,845.17 Attributable to owners of the 159,815,718.16 225,012,704.00 Company Gains/losses of minority shareholders -1,404,941.28 1,760,141.17 VI. Earnings per share -- -- (I) Basic earnings per share 0.16 0.23 (II) Diluted earnings per share 0.16 0.23 VII. Other comprehensive incomes 133,122.26 -654,686.42 VIII. Total comprehensive incomes 158,543,899.14 226,118,158.75 Attributable to owners of the 159,948,840.42 224,358,017.58 Company Attributable to minority shareholders -1,404,941.28 1,760,141.17 Where business mergers under the same control occurred in this reporting period, the net profit achieved by the merged parties before the business mergers was RMB 0. Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 4. Income statement of the Company for the reporting period Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Jul.-Sept. 2012 Jul.-Sept. 2011 I. Total sales 1,104,690,533.54 1,253,073,223.08 Less: cost of sales 809,243,308.96 895,692,345.48 Business taxes and surcharges 9,017,860.60 14,410,854.40 14 Distribution expenses 14,857,809.51 16,665,839.07 Administrative expenses 107,957,950.39 121,480,380.13 Financial costs 6,683,900.73 644,912.97 Impairment loss -2,100,700.89 -1,969,523.71 Add: gain/(loss) from change in fair 14,471,618.70 850,380.00 value (“-” means loss) Gain/(loss) from investment (“-” 35,171,514.98 12,853,400.00 means loss) II. Business profit (“-” means loss) 208,673,537.92 219,852,194.74 Add: non-business income 2,589,163.44 4,758,424.40 Less: non-business expense 295,197.62 2,260,338.38 Including: loss from non-current 24,617.74 31,446.80 asset disposal III. Total profit (“-” means loss) 210,967,503.74 222,350,280.76 Less: income tax expense 23,280,045.49 33,503,948.49 IV. Net profit (“-” means loss) 187,687,458.25 188,846,332.27 V. Earnings per share -- -- (I) Basic earnings per share 0.18 0.19 (II) Diluted earnings per share 0.18 0.19 VI. Other comprehensive income VII. Total comprehensive income 187,687,458.25 188,846,332.27 Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 5. Consolidated income statement from 1 Jan. 2012 to 30 Sept. 2012 Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Jan.-Sept. 2012 Jan.-Sept. 2011 I. Total operating revenues 4,206,797,495.19 4,464,379,130.19 Including: Sales income 4,206,797,495.19 4,464,379,130.19 II. Total operating cost 3,690,064,019.10 3,607,886,092.01 Including: Cost of sales 3,080,464,968.97 2,979,098,155.74 Taxes and associate charges 12,292,119.83 27,603,473.30 Selling and distribution expenses 118,932,826.07 106,805,780.83 Administrative expenses 426,096,718.56 457,468,203.51 Financial expenses 52,047,616.39 35,387,456.57 Asset impairment loss 229,769.28 1,523,022.06 Add: Gain/(loss) from change in fair -14,618,032.30 -18,733,931.72 value (“-” means loss) Gain/(loss) from investment (“-” 19,596,338.49 55,348,967.77 means loss) Foreign exchange gains (“-” means loss) III. Business profit (“-” means loss) 521,711,782.28 893,108,074.23 Add: non-operating income 26,452,868.03 21,676,511.86 Less: non-operating expense 3,559,910.03 14,733,777.72 Including: loss from non-current 657,200.55 9,249,096.93 asset disposal 15 IV. Total profit (“-” means loss) 544,604,740.28 900,050,808.37 Less: Income tax expense 77,844,369.77 148,134,647.59 V. Net profit (“-” means loss) 466,760,370.51 751,916,160.78 Attributable to owners of the Company 461,319,006.35 716,659,769.96 Minority shareholders’ income 5,441,364.16 35,256,390.82 VI. Earnings per share -- -- (I) Basic earnings per share 0.46 0.72 (II) Diluted earnings per share 0.46 0.72 VII. Other comprehensive incomes 341,112.17 199,755.89 VIII. Total comprehensive incomes 467,101,482.68 752,115,916.67 Attributable to owners of the 461,660,118.52 716,859,525.85 Company Attributable to minority shareholders 5,441,364.16 35,256,390.82 Where business mergers under the same control occurred from 1 Jan. 2012 to 30 Sept. 2012, the net profit achieved by the merged parties before the business mergers was RMB 0. Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 6. Income statement of the Company from 1 Jan. 2012 to 30 Sept. 2012 Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Jan.-Sept. 2012 Jan.-Sept. 2011 I. Total sales 3,301,306,015.59 3,699,110,303.48 Less: cost of sales 2,488,425,975.64 2,554,814,764.34 Business taxes and surcharges 9,176,999.11 21,427,438.98 Distribution expenses 44,805,496.22 41,192,622.84 Administrative expenses 314,274,476.87 355,585,477.43 Financial costs 22,261,994.38 4,607,584.62 Impairment loss -273,666.92 1,833,529.77 Add: gain/(loss) from change in fair -10,226,111.30 -17,303,306.72 value (“-” means loss) Gain/(loss) from investment (“-” 49,626,749.47 211,443,467.77 means loss) II. Business profit (“-” means loss) 462,035,378.46 913,789,046.55 Add: non-business income 13,024,305.73 9,125,918.66 Less: non-business expense 649,987.36 10,860,526.73 Including: loss from non-current 26,377.61 5,801,925.69 asset disposal III. Total profit (“-” means loss) 474,409,696.83 912,054,438.48 Less: income tax expense 68,078,515.15 109,648,111.24 IV. Net profit (“-” means loss) 406,331,181.68 802,406,327.24 V. Earnings per share -- -- (I) Basic earnings per share 0.4 0.81 (II) Diluted earnings per share 0.4 0.81 VI. Other comprehensive income 1,570,000.00 VII. Total comprehensive income 406,331,181.68 803,976,327.24 16 Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 7. Consolidated cash flow statement from 1 Jan. 2012 to 30 Sept. 2012 Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Jan.-Sept. 2012 Jan.-Sept. 2011 I. Cash flows from operating activities: Cash received from sale of commodities 4,107,295,281.30 4,481,585,423.26 and rendering of service Tax refunds received 125,546,066.56 193,331,421.72 Other cash received relating to operating 43,373,629.01 63,060,906.00 activities Subtotal of cash inflows from operating 4,276,214,976.87 4,737,977,750.98 activities Cash paid for goods and services 2,319,321,904.77 2,683,764,197.49 Cash paid to and for employees 837,281,504.97 729,048,411.27 Various taxes paid 176,239,257.42 222,115,998.92 Other cash payment relating to operating 211,075,485.74 190,662,666.44 activities Subtotal of cash outflows from operating 3,543,918,152.90 3,825,591,274.12 activities Net cash flows from operating activities 732,296,823.97 912,386,476.86 II. Cash flows from investing activities: Cash received from withdrawal of investments Cash received from return on investments Net cash received from disposal of fixed assets, intangible assets and other 1,378,946.15 2,083,765.33 long-term assets Net cash received from disposal of 951,000.00 subsidiaries or other business units Other cash received relating to investing 23,511,937.33 60,001,566.53 activities Subtotal of cash inflows from investing 25,841,883.48 62,085,331.86 activities Cash paid to acquire fixed assets, 536,263,924.65 354,126,661.31 intangible assets and other long-term assets Cash paid for investment Net cash paid to acquire subsidiaries and 50,000.00 other business units Other cash payments relating to investing activities Subtotal of cash outflows from investing 536,313,924.65 354,126,661.31 activities Net cash flows from investing activities -510,472,041.17 -292,041,329.45 III. Cash Flows from Financing Activities: Cash received from capital contributions 19,249,218.56 70,802,250.00 Including: Cash received from minority shareholder investments by subsidiaries Cash received from borrowings 1,316,561,060.88 1,121,885,167.43 17 Cash received from issuance of bonds Other cash received relating to financing 36,000,000.00 107,790,000.00 activities Subtotal of cash inflows from financing 1,371,810,279.44 1,300,477,417.43 activities Repayment of borrowings 1,390,227,588.90 1,142,503,972.99 Cash paid for interest expenses and 343,326,414.61 282,390,869.34 distribution of dividends or profit Including: dividends or profit paid by subsidiaries to minority shareholders Other cash payments relating to 175,904,401.19 20,460,000.00 financing activities Sub-total of cash outflows from financing 1,909,458,404.70 1,445,354,842.33 activities Net cash flows from financing activities -537,648,125.26 -144,877,424.90 IV. Effect of foreign exchange rate 2,745,777.41 -2,683,967.79 changes on cash and cash equivalents V. Net increase in cash and cash -313,077,565.05 472,783,754.72 equivalents Add: Opening balance of cash and cash 811,148,146.93 522,955,236.37 equivalents VI. Closing balance of cash and cash 498,070,581.88 995,738,991.09 equivalents Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming 8. Cash flow statement of the Company from 1 Jan. 2012 to 30 Sept. 2012 Prepared by Lu Thai Textile Co., Ltd. Unit: RMB Yuan Item Jan.-Sept. 2012 Jan.-Sept. 2011 I. Cash flows from operating activities: Cash received from sale of commodities 3,381,590,117.40 3,658,909,852.77 and rendering of service Tax refunds received 82,373,642.84 145,528,035.36 Other cash received relating to operating 12,518,689.73 35,644,777.16 activities Subtotal of cash inflows from operating 3,476,482,449.97 3,840,082,665.29 activities Cash paid for goods and services 1,858,985,788.02 2,319,678,241.68 Cash paid to and for employees 647,634,486.61 576,809,098.53 Various taxes paid 98,433,076.87 130,202,880.89 Other cash payment relating to operating 102,031,275.37 103,351,891.51 activities Subtotal of cash outflows from operating 2,707,084,626.87 3,130,042,112.61 activities Net cash flows from operating activities 769,397,823.10 710,040,552.68 II. Cash flows from investing activities: Cash received from retraction of investments Cash received from return on 25,000,000.00 investments 18 Net cash received from disposal of fixed assets, intangible assets and other 978,946.15 2,076,735.72 long-term assets Net cash received from disposal of 951,000.00 subsidiaries or other business units Other cash received relating to investing 17,504,139.16 50,621,898.51 activities Subtotal of cash inflows from investing 44,434,085.31 52,698,634.23 activities Cash paid to acquire fixed assets, 317,222,587.89 165,265,464.41 intangible assets and other long-term assets Cash paid for investment 39,941,614.98 Net cash paid to acquire subsidiaries and other business units Other cash payments relating to investing activities Subtotal of cash outflows from investing 357,164,202.87 165,265,464.41 activities Net cash flows from investing activities -312,730,117.56 -112,566,830.18 III. Cash flows from financing activities: Cash received from capital 70,802,250.00 contributions Cash received from borrowings 559,030,956.56 635,421,850.55 Cash received from issuance of bonds Other cash received relating to 82,790,000.00 financing activities Subtotal of cash inflows from financing 559,030,956.56 789,014,100.55 activities Repayment of borrowings 690,702,932.18 673,671,836.31 Cash paid for interest expenses and 302,289,518.99 267,046,504.87 distribution of dividends or profit Other cash payments relating to 167,604,401.19 financing activities Sub-total of cash outflows from financing 1,160,596,852.36 940,718,341.18 activities Net cash flows from financing activities -601,565,895.80 -151,704,240.63 IV. Effect of foreign exchange rate 1,192,617.91 277,815.28 changes on cash and cash equivalents V. Net increase in cash and cash -143,705,572.35 446,047,297.15 equivalents Add: Opening balance of cash and 443,347,389.73 280,772,869.89 cash equivalents VI. Closing balance of cash and cash 299,641,817.38 726,820,167.04 equivalents Legal representative: Liu Shizhen Person-in-charge of the accounting work: Zhang Hongmei Chief of the accounting division: Zhang Keming (II) Audit report Auditor’s opinion Un-audited Summary of audit report 19