SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2003
CHINA SOUTHERN AIRLINES COMPANY LIMITED
(Translation of registrant's name into English)
Baiyun International Airport
Guangzhou, People's Republic of China
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F. X Form 40-F.
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(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes. No. X
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(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
China Southern Airlines Company Limited (the "Company") on September 26,
2003 distributed its supplemental report entitled "Supplementary U.S. GAAP
Financial Information relating to the 2002 Annual Report", in English and
Chinese to its shareholders. A copy of the Supplemental Report (in English) is
included in this Form 6-K of the Company.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
SUPPLEMENTARY U.S. GAAP FINANCIAL INFORMATION
RELATING TO THE 2002 ANNUAL REPORT
INTRODUCTION
In connection with the annual report of China Southern Airlines Company
Limited ("the Company") for the year 2002, set forth below is certain financial
information prepared in accordance with accounting principles generally accepted
in the United States of America ("U.S. GAAP") for shareholders' information.
SUPPLEMENTARY U.S. GAAP FINANCIAL INFORMATION
(Expressed in Renminbi)
Set forth below are effects of significant differences between
International Financial Reporting Standards ("IFRS") and U.S. GAAP on the
consolidated profit attributable to shareholders and shareholders' equity as
reported in the consolidated financial statements of the Company and
subsidiaries ("the Group"), prepared under IFRS, contained in the annual report
of the Company for the year 2002:
2002 2001
Note RMB'000 RMB'000
---- --------- ---------
Consolidated profit attributable to
shareholders under IFRS 575,761 340,225
U.S. GAAP adjustments:
Sale and leaseback accounting (a) (100,664) 54,254
Lease arrangement (b) (49,960) -
Capitalised interest (c) (31,473) 18,000
Reversal of additional depreciation
arising from revaluation of fixed assets (d) 33,000 65,000
Investments in associated company
and jointly controlled entity (e) (541) 3,546
2002 2001
Note RMB'000 RMB'000
---- --------- ---------
Deferred tax effects 47,849 (50,369)
Consolidated profit attributable to shareholders
under U.S. GAAP 473,972 430,656
Basic earnings per share under U.S. GAAP RMB0.14 RMB0.13
Basic earnings per ADS under U.S. GAAP* RMB7.02 RMB6.38
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* Basic earnings per ADS is calculated on the basis that one ADS is equivalent
to 50 H shares.
2002 2001
Note RMB'000 RMB'000
---- --------- ---------
Shareholders' equity under IFRS 9,613,207 9,221,663
U.S. GAAP adjustments:
Sale and leaseback accounting (a) (586,989) (486,325)
Lease arrangement (b) (49,960) -
Capitalised interest (c) 381,021 412,494
Revaluation of fixed assets, net of
depreciation (d) (46,120) (253,348)
Investments in associated company and jointly
controlled entity (e) (118,003) (40,346)
Deferred tax asset adjustment on revaluation
of fixed assets 9,719 80,888
Deferred tax effects 84,456 22,933
Shareholders' equity under U.S. GAAP 9,287,331 8,957,959
Notes:
(A) SALE AND LEASEBACK ACCOUNTING
Under IFRS, gains on sale and leaseback transactions where the subsequent
lease is an operating lease are recognised as income immediately, if the
transactions are established at fair value. Differences between the sale
price and fair value are deferred and amortised over the period for which
the assets are expected to be used. Under U.S. GAAP, such gains are
deferred and amortised over the term of the lease.
(B) LEASE ARRANGEMENT
As disclosed in note 10 to the consolidated financial statements, during
the year the Group entered into an arrangement with certain independent
third parties under which the Group sold an aircraft and then immediately
leased back the aircraft for a minimum lease period of 16.6 years. As a
result of the
arrangement, the Group received a net cash benefit of RMB51,682,000 which
has been recognised as income for the year under IFRS. Under U.S. GAAP,
such benefit is deferred and amortised over the minimum lease period.
In addition, under the lease arrangement, the commitments by the Group to
make long-term lease payments have been defeased by the placement of
security deposits. As such, under IFRS such commitments and deposits are
not recognised on the consolidated balance sheet. Under U.S. GAAP, such
commitments and deposits would be recognised on the consolidated balance
sheet, as such commitments are not deemed as extinguished by the placement
of security deposits.
(C) CAPITALISED INTEREST
Under IFRS, the Group capitalises interest costs to the extent the related
borrowings are directly attributable to the acquisition or construction of
an asset.
Under U.S. GAAP, interest costs capitalised are determined based on
specific borrowings related to the acquisition or construction of an asset,
if an entity's financing plans associate a specific new borrowing with a
qualifying asset. If average accumulated expenditures for the asset exceed
the amounts of specific new borrowings associated with the asset,
additional interest costs capitalised are based on the weighted average
interest rate applicable to other borrowings of the entity.
(D) REVALUATION OF FIXED ASSETS
In connection with the Reorganisation, the fixed assets of the Group were
revalued as of 31 December, 1996. Such fixed asset revaluation resulted in
an increase in shareholders' equity with respect to the increase in
carrying amount of certain fixed assets above their historical cost bases,
while a charge to the profit and loss account was recorded with respect to
the reduction in carrying amount of certain fixed assets below their
historical cost bases. In addition, the revalued fixed asset amounts serve
as the tax bases of fixed assets for years beginning in 1997. Accordingly,
the fixed asset revaluation eliminated certain of the temporary differences
which gave rise to a deferred tax asset as of 31 December, 1996. Such tax
asset was offset against the revaluation surplus.
Under U.S. GAAP, fixed assets are stated at their historical cost unless an
impairment loss has been recorded. An impairment loss on fixed assets is
recorded under U.S. GAAP if the carrying amount of such asset exceeds its
future undiscounted cash flows, excluding finance costs. The future
undiscounted cash flows, excluding finance costs, of the Group's fixed
assets whose carrying amount was reduced in connection with the
Reorganisation, exceed their historical cost carrying amount and,
therefore, impairment of such assets is not appropriate under U.S. GAAP.
Accordingly, the revaluation reserve recorded directly to shareholders'
equity and the charge recorded under IFRS in 1996 and the additional
depreciation charges recorded in the six years ended 31 December, 2002, as
a result of the Reorganisation are reversed for U.S. GAAP purposes.
However, as a result of the tax deductibility of the net revaluation
reserve, a deferred tax asset related to the reversal of the net
revaluation reserve is created under U.S. GAAP with a corresponding
increase in shareholders' equity as of 31 December, 1996. Such deferred tax
asset will be reversed upon depreciation of the net revaluation surplus
included in the fixed assets beginning 1997.
(E) INVESTMENTS IN AFFILIATED COMPANY AND JOINTLY CONTROLLED ENTITY
During the year, the Company invested in an affiliated company and a
jointly controlled entity, which were PRC state-owned enterprises. Under
IFRS, such investments are initially recorded on a fair value basis at the
cost of purchases borne by the Company. In the consolidated profit and loss
account, the equity share of results of the investees are measured based on
the fair value of underlying net assets determined on the date of
acquisitions.
Under U.S. GAAP, such transactions would be considered to be "combinations
of businesses under common control". Under U.S. GAAP, such investments are
initially recorded at the Company's equity share of net assets of the
investees determined on a historical cost basis. The differences between
such amounts and the cost of purchases are reflected as movements in the
shareholders' equity. In the
consolidated profit and loss account, the equity share of results of the
investees are measured based on the historical cost basis.
(F) ACQUISITION OF SUBSIDIARIES FROM CSAHC
In August 2002, the Company acquired 90% equity interest in certain
subsidiaries from China Southern Airlines Holding Company ("CSAHC"). Under
IFRS, the purchase method of accounting was applied to such business
combination such that as from the date of combination, the results of the
acquired subsidiaries and their assets and liabilities are included in the
consolidated financial statements of the Group.
Under U.S. GAAP, such transaction would be considered to be "a combination
of entities under common control". Under U.S. GAAP, combination of entities
under common control are accounted for under the "as if pooling-of-
interests method" where assets and liabilities are accounted for at
historical cost and financial statements of previously separate entities
for periods prior to the combination generally are restated on a combined
basis. The effect of this difference was not material to the years
presented.
(G) FINANCIAL STATEMENTS PRESENTATION AND DISCLOSURES
In the consolidated profit and loss account presented under IFRS,
gain/(loss) on sale of fixed assets is classified under "Non-operating
income/(expenses)". Under U.S. GAAP, such gain/(loss) would be classified
under "Operating income/(expenses) -D General and administrative".
As disclosed in note 16 to the consolidated financial statements, deferred
tax assets are presented on a net basis under IFRS. Under U.S. GAAP, the
gross amounts of such deferred tax assets and any applicable valuation
allowances would be separately disclosed.
(H) NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 143
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires the Group to record the fair value of
an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Group is also required to
record a corresponding asset which is depreciated over the life of the
asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to
reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Group adopted SFAS No. 143 on 1 January,
2003. The Group does not expect the adoption of SFAS No. 143 will have a
material impact on its consolidated financial statements.
SFAS No. 145
In April 2002, the FASB issued SFAS No. 145, which rescinds SFAS No. 4
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment
of that Statement, SFAS No. 64 "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". SFAS No. 145 also rescinds SFAS No. 44
"Accounting for Intangible Assets of Motor Carriers". SFAS No. 145 amends
SFAS No. 13 "Accounting for Leases", to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. SFAS No. 145 also amends other
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under
changed conditions.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are
applied in fiscal years beginning after 15 May, 2002. The provisions in
paragraphs 8 and 9(c) of SFAS No. 145 related to SFAS No. 13 were effective
for transactions occurring after 15 May, 2002. All other provisions of SFAS
No. 145 were effective for financial statements issued on or after 15 May,
2002. The Group does not expect the adoption of SFAS No. 145 will have a
material impact on its consolidated financial statements.
SFAS No. 146
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" which applies to costs associated with an
exit activity (including restructuring) or with a disposal of long-lived
assets. SFAS No. 146 requires an entity to record a liability for cost
associated with an exit or disposal activity when that liability is
incurred and can be measured at fair value. Commitment to an exit plan or a
plan of disposal expresses only management's intended future actions and
does not meet the requirement for recognising a liability and the related
expense. An entity is required to disclose information about its exit and
disposal activities, the related costs, and changes in those costs in the
notes to the interim and annual financial statements that include the
period in which an exit or disposal activity is initiated and in any
subsequent period until the activity is completed. The Group is required to
adopt SFAS No. 146 on 1 January, 2003. The provisions of SFAS No. 146 are
required to be applied prospectively after the adoption date to newly exit
or disposal activities. Therefore, management cannot determine the
potential effect that adoption of SFAS No. 146 will have on the Group's
consolidated financial statements.
SFAS No. 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 establishes standards for the classification and measurement
of certain financial instruments with characteristics of both liabilities
and equity, and requires the classification of a financial instrument that
is within its scope as a liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments entered into or
modified after 31 May, 2003, and otherwise is effective at the beginning of
the first interim period beginning after 15 June, 2003. Management believes
the adoption of SFAS No. 150 will not have a material effect on the Group's
financial position or results of operations.
FIN No. 45
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34". This
Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognise, at inception of a guarantee, a liability for the
fair value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation are applicable to guarantees
issued or modified after 31 December, 2002. The disclosure requirements are
effective for financial statements of interim and annual periods ending
after 31 December, 2002. As of 31 December, 2002, the Group did not have
any significant guarantees which would be required to be disclosed pursuant
to this Interpretation. The Group does not expect the application of this
Interpretation will have a material effect on its consolidated financial
statements.
FIN No. 46
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51". This
Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The
Interpretation applies immediately to variable interests in variable
interest entities created after 31 January, 2003, and to variable interests
in variable interest entities obtained after 31 January, 2003. The
Interpretation requires certain disclosures in financial statements issued
after 31 January, 2003 if it is reasonably possible that the Group will
consolidate or disclose information about variable interest entities when
the Interpretation becomes effective. The Group does not expect the
application of the Interpretation will have a material impact on its
consolidated financial statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHINA SOUTHERN AIRLINES COMPANY LIMITED
By: /s/ Su Liang
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Name: Su Liang
Title: Company Secretary
Date: September 29, 2003