China Airlines, Ltd.
Financial Statements for theYears Ended December 31, 2012 and 2011 andIndependent Auditors’ ReportINDEPENDENT AUDITORS’ REPORTThe Board of Directors and the Stockholders
China Airlines, Ltd.
We have audited the accompanying balance sheets of China Airlines, Ltd. as of December 31, 2012 and2011 and the related statements of income, changes in stockholders’ equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by
Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those
rules and standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in allmaterial respects, the financial position of China Airlines, Ltd. as of December 31, 2012 and 2011 and theresults of its operations and its cash flows for the years then ended, in conformity with the Guidelines
Governing the Preparation of Financial Reports by Securities Issuers, requirements of the BusinessAccounting Law and Guidelines Governing Business Accounting relevant to financial accounting
standards, and accounting principles generally accepted in the Republic of China.
We have also audited the consolidated financial statements of China Airlines, Ltd. and its subsidiaries asof and for the years ended December 31, 2012 and 2011 on which we have issued an unqualified opinion
in our report dated March 29,2013.

March 29, 2013
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results ofoperations and cash flows in accordance with accounting principles and practices generally accepted in
the Republic of China and not those of any other jurisdictions. The standards, procedures and practices
to audit such financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors’ report and the accompanying financial statements havebeen translated into English from the original Chinese version prepared and used in the Republic ofChina. If there is any conflict between the English version and the original Chinese version or any
difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial
statements shall prevail.
-1-

CHINA AIRLINES, LTD.
BALANCE SHEETSDECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

2012
AmountASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)
Financial assets at fair value through profit or loss - current (Note2, 5 and 23)
Available-for-sale financial assets - current (Notes 2, 6 and 23)
Derivative financial assets for hedging - current (Notes 2, 23 and 24)
Receivables:
Notes and accounts, net (Notes 2, 3 and 7)
Notes and accounts - related parties (Note 25)
Other receivables (Note 8)Inventories, net (Notes 2 and 9)
Deferred income tax assets - current (Notes 2 and 20)
Other current assets$

2011
Amount%9,011,364
1,253,615
62,73852,7675
1-

7,058,818
385,058
391,992
8,521,792
212,169
1,366,991
28,317,304$

8,947,397
3,278,739
96,131
108,668

4
2
-

4
4
1

9,723,620
282,809510,901
8,587,292
152,994
1,233,952

5
4
1

15

32,922,503

16

CURRENT LIABILITIESShort-term loans (Notes 13 and 27)
Derivative financial liabilities for hedging - current (Notes 2, 23 and 24)
Accounts payable
Accounts payable to related parties (Note 25)
Accrued expenses (Notes 2 and 25)
Advance ticket sales (Note 2)
Bonds payable - current portion (Notes 2, 14, 23 and 25)
Loans and debts - current portion (Notes 15, 23 and 26)
Capital lease obligations - current portion (Notes 2 and 16)
Other current liabilities

LONG-TERM INVESTMENTS
Financial assets at fair value through profit or loss - noncurrent (Notes 2, 5
and 23)
Derivative financial assets for hedging - noncurrent (Notes 2, 23 and 24)
Financial assets carried at cost - noncurrent (Notes 2, 10 and 23)
Investments accounted for by the equity method (Notes 2 and 11)
Other financial assets - noncurrent

759
371,367
9,310,864
13,6595-374,085
371,367
9,255,182
12,9805-

2455,781,932

28

11,42916,205,000
63,749,392
248,664

933-

25,325
16,550,000
69,385,610
1,135,067

8
34
1

80,214,485

42

87,096,002

43

9,696,649

5

10,013,614

5

1,678,783
7,245,117
4,103,114
198,224,033
708,947
14,056,268
1,044,553
41,298227,102,113
102,287,521
124,814,592
8,740,858

1
4
2
104
7
1
119
54
65
5

1,688,283
7,260,091
4,159,896
198,271,143
693,434
14,291,735
996,380
41,298227,402,260
92,020,668
135,381,592
5,150,783

1
4
2
98
7
112
45
67
3

133,555,450

70

140,532,375

70

INTANGIBLE ASSETS
Computer software, net (Note 2)
Deferred pension cost (Note 2)

408,222
59,136-

385,726
118,271-

Net intangible assets

467,358-

503,997-

10,196,933
6,834,273
545,460
711,387

5
4
1

10,521,794
6,695,423
660,980
838,9105
3
1

18,288,053

10

18,717,107

9$ 190,324,814

100$ 202,689,596

100

Total long-term investments

6,900,732
4,735,675
749,0874
3-6,378,717
5,312,853
1,061,014

3
3-

PROPERTIES (Notes 2, 12 and 26)
Cost
Land
Buildings
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements
Revaluation increment
Total cost and revaluation increment
Accumulated depreciation

Total other liabilities

12,385,494

7

12,752,584

6

Total liabilities

138,183,583

73

155,630,518

77

52,000,000
1,405,394

27
1

46,316,224
422,101

23-

Construction in progress and prepayments for equipment (Note 27)

316,010
3,873,370
58,804
4,248,184

2
2799,630
5,162,071(1,772,321)
4,189,380

3(1)
2

Net properties(2,599,694)(2,917,215)(182)
41,298(36,554)(5,512,347)

(1)
(2)
(3)

(1,598,197)(2,325,184)
50,01041,298(36,554)(3,868,627)

(1)
(1)
(2)

OTHER ASSETS
Deposits (Note 27)
Deferred income tax assets - noncurrent (Notes 2 and 20)
Restricted assets - noncurrent (Notes 25 and 26)
Other assets (Note 2)

52,141,231

27

47,059,078

23

Net other assets
TOTAL$ 190,324,814

100$ 202,689,596

100

Total long-term liabilities, net of current portion
OTHER LIABILITIES
Accrued pension costs (Notes 2 and 17)
Deferred profits on sale-leaseback (Note 2)
OthersSTOCKHOLDERS' EQUITY
Capital stock, NT$10.00 par value; authorized - 5,200,000 thousand shares;
issued and outstanding - 5,200,000 thousand shares in 2012 and 4,631,622
thousand shares in 2011
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings (accumulated deficit)
Total retained earnings
Other equity
Cumulative translation adjustments
Net loss not recognized as pension cost
Unrealized valuation loss on financial instruments
Unrealized revaluation increment
Company shares held by subsidiaries reclassified to treasury stock
Total other equity
Total stockholders' equity

TOTAL

The accompanying notes are an integral part of the financial statements.

-2-

1,600,000
23,703
337,538
1,185,343
9,597,896
7,168,399
6,130,000
16,671,452
840,2082,029,065

1
1
5
4
3
9
1

45,583,604

$

%

1
6
4
6
9
1
1

LONG-TERM LIABILITIES, NET OF CURRENT PORTION
Derivative financial liabilities for hedging - noncurrent (Notes 2, 23 and 24)
Bonds payable - noncurrent (Notes 2, 14, 23 and 25)
Loans and debts - noncurrent (Notes 15, 23 and 26)
Capital lease obligations - noncurrent (Notes 2 and 16)$

2011
Amount%47,076536,479
965,595
12,253,634
8,771,281
12,200,000
18,047,762
1,185,639
1,774,466

Total current liabilities
Total current assets

2012
AmountLIABILITIES AND STOCKHOLDERS’ EQUITY%CHINA AIRLINES, LTD.
STATEMENTS OF INCOMEYEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Earnings [Loss] Per Share)

2012
Amount%2011
Amount%REVENUES (Notes 2 and 25)
Passenger
Cargo
Others$ 86,621,265
40,808,925
5,178,64165
31
4$ 80,825,429
46,388,470
5,026,570

61
35
4

Total revenues

132,608,831

100

132,240,469

100

COSTS (Notes 9, 21 and 25)
Flight operations
Terminal and landing fees
Passenger services
Aircraft maintenance
Others81,912,308
19,379,015
8,286,577
11,001,675
2,846,879

62
15
6
8
2

83,461,996
18,894,391
7,904,359
11,882,485
2,872,199

63
14
6
9
2

Total costs

123,426,454

93

125,015,430

94

GROSS PROFIT

9,182,377

7

7,225,039

6

OPERATING EXPENSES (Notes 21 and 25)
Marketing and selling
General and administrative

6,251,334
2,587,953

5
2

6,178,062
2,611,841

52

Total operating expenses

8,839,287

7

8,789,903

7

OPERATING INCOME (LOSS)

343,090-(1,564,864)(1)

180,921-

159,157-

652,849
186,901
7,388

1-

662,566
97,52941,5051-

472,1673,556
612,4801

6,057
189,217541,251-

2,116,262

2

1,697,282

1

NONOPERATING EXPENSES AND LOSSESInterest expense (Note 25)
Others2,163,563
160,4462-

2,244,708
235,9442-

Total nonoperating expenses and losses

2,324,009

2

2,480,652
2(Continued)

NONOPERATING INCOME AND GAINSInterest income
Investment income recognized under the equity
method (Notes 2 and 11)
Dividend income (Note 2)
Gain on disposal of properties, net (Notes 2 and 25)
Valuation gain on financial instruments, net (Notes 2
and 5)
Foreign exchange gain, net
OthersTotal nonoperating income and gains-3-

CHINA AIRLINES, LTD.
STATEMENTS OF INCOMEYEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Earnings [Loss] Per Share)

2012
AmountPRETAX INCOME (LOSS)$INCOME TAX EXPENSE (BENEFIT) (Notes 2 and20)
NET INCOME (LOSS)$%

135,343-

76,539-58,804

-

$

$

2011
Amount%(2,348,234)(2)(393,963)(1)(1,954,271)

(1)

2012
Before Tax After Tax

2011
Before Tax After Tax$$ (0.51)EARNINGS (LOSS) PER SHARE (NEW TAIWANDOLLARS; Note 22)
Basic and diluted

0.03

The accompanying notes are an integral part of the financial statements.

-4-

$

0.01

$ (0.42)(Concluded)

CHINA AIRLINES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYYEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

Capital Stock Issued and Outstanding
Shares(In Thousands)
Amount (Note 18)
BALANCE, JANUARY 1, 2011

Capital Surplus(Notes 2 and 18)

Retained Earnings (Accumulated Deficit) (Notes 2 and 18)
UnappropriatedEarnings(Accumulated
Legal Reserve
Special Reserve
Deficit)

$

$

$

-

-

799,630-

5,162,071-(799,630 )(5,162,071 )(1,852,649 )(1,852,649 )

-

-

-

-

(1,852,649 )Translation adjustments on investments in shares of stocks

-

-

-

-

-

-

-

78,226----78,226

Translation adjustments on a foreign operating entity

-

-

-

-

-

-

-

1,693,608

-

-

-

-

1,693,608

Cash dividends received by subsidiaries for holding the Company's
shares

-

-

1,156

-

-

-

-

-

-

-

-

-

1,156

Compensation recognized for employee stock options--

28,123

-

-

-

-

-

-

-

-

-

28,123Net loss in 2011

-

-

-

-

-

(1,954,271 )(1,954,271 )

-

-

-

-

-

(1,954,271 )Change in unrealized valuation loss on available-for-sale financial assets

-

-

-

-

-

-

-

-

-

(17,583 )--(17,583 )Change in unrealized gain on cash flow hedging financial instruments

-

-

-

-

-

-

-

-

-

124,072--

124,072

Revaluation increment transferred to other income on disposal ofrevalued assets

-

-

-

-

-

-

-

-

-

-

(9,037 )-(9,037 )Change in net loss not recognized as pension cost

-

-

-

-

-

-

-

-

348,467---

348,467

Unrealized gain on financial instruments of equity-method investees

-

-

-

-

-

-

-

-

-

7,943

-

-

7,943

Net loss not recognized as pension cost of equity-method investees

-

-

-

-

-

-

-

-

(51,677 )---(51,677 )BALANCE, DECEMBER 31, 2011

4,631,622

46,316,224

422,101

799,630

5,162,071(1,772,321 )

4,189,380(1,598,197 )(2,325,184 )

50,01041,298(36,554 )

47,059,078

Appropriation of the 2011 earnings
Legal reserve
Special reserve

-

-

-

(483,620 )-(1,288,701 )483,620
1,288,701

-

-

-

-

-

-

-

568,378

5,683,776

983,293

-

-

-

-

-

-

-

-

-

6,667,069

Translation adjustments on investments in shares of stocks

-

-

-

-

-

-

-

(62,809 )

-

-

-

-

(62,809 )Translation adjustments on aircraft required to be treated as foreign
operating entity

-

-

-

-

-

-

-

(938,688 )

-

-

-

-

(938,688 )Net income in 2012

-

-

-

-

-

58,80458,804

-

-

-

-

-

58,804

Change in unrealized valuation loss on available-for-sale financial assets

-

-

-

-

-

-

-

-

-

(27,716 )--(27,716 )Change in unrealized gain on cash flow hedging financial instruments

-

-

-

-

-

-

-

-

-

(18,371 )--(18,371 )Change in net loss not recognized as pension cost

-

-

-

-

-

-

-

-

(546,675 )

-

-

-

(546,675 )Unrealized loss on financial instruments of equity-method investees

-

-

-

-

-

-

-

-

-

(4,105 )--(4,105 )Net loss not recognized as pension cost of equity-method investees

-

-

-

-

-

-

-

-

(45,356 )---(45,356 )

5,200,000$ 52,000,000

4,248,184$ (2,599,694 )$ (2,917,215 )(36,554 )$ 52,141,231

3,873,370

The accompanying notes are an integral part of the financial statements.

-5-$58,804$$(64,422 )

$

-

$

$

$ (2,621,974 )-

316,010

7,996,300$ (3,370,031 )Appropriation of the 2010 earnings
Legal reserve
Special reserve
Cash dividends - NT$0.4 per share$$(182 )$

50,33541,298$

Total
Stockholders'Equity$ 48,662,700

1,405,394-

Unrealized
Revaluation
Increment(Notes 2 and 12)

Company Shares
Held by
Subsidiaries
Reclassified into
Treasury Stock(Notes 2, 18 and 19)(36,554 )$$7,996,300$ 46,316,224

BALANCE, DECEMBER 31, 2012-

Net Loss Not
Recognized as
Pension Cost
(Note 2)

4,631,622

Issuance of common stock for cash - February 10, 2012

392,822

Total

Cumulative
Translation
Adjustments(Note 2)

Unrealized
Valuation Gainor Loss on
Financial
Instruments(Note 2)$

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

2012
CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
Adjustments to reconcile net income (loss) to net cash provided by(used in) operating activities:
Deferred income taxes
Depreciation and amortization
Provision for doubtful accounts
Compensation cost of employee stock options
Valuation gain on financial instruments, net
Investment income recognized under the equity method
Cash dividends received from equity-method investees
Loss on inventories, properties and idle properties
Gain on disposal of properties
Gain on disposal of idle properties, net
Amortization of deferred profit on sale-leaseback
Amortization of deferred credits
Net changes in operating assets and liabilities:
Financial assets and liabilities held for trading
Notes and accounts receivable
Notes and accounts receivable - related parties
Other receivables
Inventories
Other current assets
Accounts payable
Accounts payable - related parties
Accrued expenses
Advance ticket sales
Other current liabilities
Accrued pension cost
Other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of investments accounted for by the equity method
Increase in other financial assets - noncurrent
Acquisition of properties
Proceeds of the disposal of properties
Increase in computer software
Proceeds of the disposal of idle properties
Decrease in refundable deposits
Increase in deferred charges
Decrease in restricted assets
Net cash used in investing activities

-6-

$

2011

58,804$ (1,954,271)

16,541
10,889,199(472,167)(652,849)
502,442
125,259(7,388)(22,929)(577,178)(66,414)(458,618)
10,403,689
72,01728,123(6,057)(662,566)
436,190
298,396(41,505)(75,159)(629,707)(66,414)2,871,376
2,664,802(102,249)
118,909(5,030)(32,798)(198,941)
219,748(2,500,579)(1,602,882)
254,599
34,474(231,853)(2,972,745)
1,640,821
215,403109,726(2,047,680)(874,121)
228,393(104,262)(7,949)121,461(16,565)
139,409(177,667)

11,282,896

3,598,342(30,409)(679)(6,437,786)
206,590(61,313)27,861
324,861(8,870)115,520(200,000)(5,762,965)
218,310(58,430)
93,165764,204(23,430)
344,964(5,864,225)(4,624,182)(Continued)

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

2012

2011

1,600,000
12,668,866(19,838,897)
5,785,000(12,200,000)(13,660)
6,667,069$ (1,100,000)(1,249,625)
17,476,748(16,518,938)
6,000,000(3,500,000)
26,070(186,997)(1,852,649)-(5,331,622)(905,391)

EFFECT OF EXCHANGE RATE CHANGES(23,082)

81,648INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

63,967(1,849,583)

8,947,397

10,796,980

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans
Decrease in short-term bills payable
Proceeds of long-term debts
Repayments of long-term debts and capital lease obligations
Issuance of bonds payable
Repayment of bonds payable
Increase (decrease) in guarantee deposits received
Decrease in deferred profits on sale-leaseback
Cash dividends
Issuance of common stock for cash$

Net cash used in financing activities

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
SUPPLEMENTAL CASH FLOW INFORMATIONInterest paid
Less: Capitalized interest
Interest paid (excluding capitalized interest)
Income tax paid$

9,011,364$

8,947,397$

2,157,303
90,3002,067,003
65,345$2,267,516
75,3092,192,207
67,179$$NONCASH FINANCING ACTIVITIESCurrent portion of long-term loans and debts
Current portion of capital lease obligations
Current portion of bonds payable$ 16,671,452$
840,208$ 6,130,000

The accompanying notes are an integral part of the financial statements.

-7-

$
$

$ 18,047,762$ 1,185,639$ 12,200,000(Concluded)

CHINA AIRLINES, LTD.
NOTES TO FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2012 AND 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS
China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks are listed on the Taiwan Stock
Exchange. The Company primarily provides air transport services for passengers and cargo. Its otheroperations include (a) mail services; (b) ground services and routine aircraft maintenance; (c) major
maintenance of flight equipment; (d) communications and data processing services to other airlines; (e) saleof aircraft parts, equipment and entire aircraft; and (f) lease of aircraft.
The major stockholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of December 31, 2012 and 2011, CADF held
35.91% and 39.10% of the Company’s shares, respectively, and NDF held 9.99% and 11.22% of theCompany’s shares, respectively. The Company had 10,866 and 10,578 employees as of December 31,
2012 and 2011, respectively.

2. SIGNIFICANT ACCOUNTING POLICIESThe accompanying financial statements have been prepared in conformity with the Guidelines Governing
the Preparation of Financial Reports by Securities Issuers, the Business Accounting Law, Guidelines
Governing Business Accounting and accounting principles generally accepted in the Republic of China.
Significant accounting policies are summarized as follows:
Foreign Currencies and Foreign Operations
The Company maintains its accounts and expresses its financial statements in New Taiwan dollars.
Nonderivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in
effect when the transactions occur. Exchange differences arising from the settlement of foreign-currency
monetary assets and liabilities are recognized in profit or loss in the settlement period.
At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailingexchange rates and the exchange differences are recognized in profit or loss.
At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities
which are measured at fair value, are revalued using prevailing exchange rate. For a nonmonetaryfinancial asset with the changes in fair value recognized as an adjustment to stockholders’ equity, exchange
differences are recognized as an adjustment to stockholders’ equity. For a nonmonetary financial asset atfair value through profit or loss, exchange differences are recognized in the income statement.
Foreign-currency nonmonetary assets and liabilities that are carried at cost are reported using the historicalexchange rate on the date of transaction.
Equity-method investments in foreign subsidiaries/affiliates are recorded in New Taiwan dollars using therates of exchange in effect on acquisition dates. On the balance sheet date, the investments and the related
equity in net income or net loss are restated at the prevailing exchange rates and weighted-average rates,
respectively, and resulting differences are recorded as translation adjustments under stockholders’ equity.

-8-

Under a regulation by the Securities and Futures Bureau, the carrying amount of an aircraft acquired andthe related U.S. dollar-denominated obligation incurred for the acquisition are accounted for as aninvestment in a foreign operating entity if the Company’s use of the aircraft results in generating revenues
and incurring expenses mainly in U.S. dollars. On the balance sheet date, the carrying amount of theaircraft and the related liability are restated at balance sheet date rates. The difference is recognized instockholders’ equity as translation adjustment.
Accounting Estimates
Under the above guidelines, law and principles, certain estimates and assumptions have been used for theallowance for doubtful accounts, allowance for loss on inventories, depreciation of properties, impairmentof assets, accrued expenses - frequent flyer program, pension cost, income tax, loss on pending litigations,bonuses of employees, etc. Actual results could differ from these estimates.
Current and Noncurrent Assets and Liabilities
Current assets include cash, cash equivalents and those assets held primarily for trading purposes or to berealized, sold or consumed within one year from the balance sheet date. All other assets such as properties
and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading
purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as
noncurrent.
Cash Equivalents
Cash equivalents, consisting of commercial paper, are highly liquid financial instruments with maturities ofthree months or less when acquired and with carrying amounts that approximate their fair values.
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss
(FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL
on initial recognition. Financial instruments at FVTPL are initially measured at fair value. Transaction
costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL arerecognized immediately in profit or loss. At each balance sheet date subsequent to initial recognition,
financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value
recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently(including those received in the year of investment) are recognized as income for the year. All regular
way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
Derivative instruments that do not meet the criteria for hedge accounting are classified as financial assets or
liabilities held for trading.
Fair values are determined as follows: (a) listed stocks - at closing prices as of the balance sheet date; (b)beneficial certificates (open-end funds) - at net asset value as of the balance sheet date; and (c) convertible
bonds - at values determined using valuation techniques.
Hybrid instruments are financial assets designated as at fair value through profit or loss, and these aremeasured at fair value on initial recognition.
Fair value of hybrid instruments is estimated using valuation techniques incorporating estimates andassumptions that are consistent with prevailing market conditions.

-9-Available-for-sale Financial Assets
Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are
directly attributable to the acquisition or issuance. When fair value is remeasured, the changes in fairvalue are excluded from earnings and reported as a separate component of stockholders’ equity. The
accumulated gains or losses are recognized as earnings when the financial asset is derecognized from thebalance sheet. A regular way purchase or sale of financial assets is recognized and derecognized usingtransaction date accounting.
Cash dividends are recognized as investment income on ex-dividend dates but are accounted for as
reductions of the original cost of investment if these dividends are declared on the investees’ earnings
attributable to periods before the purchase of the investments. Stock dividends are recorded as an increasein the number of shares held and do not affect investment income. The cost per share is recalculated on
the basis of the new number of shares.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rates, exchange rates,
fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging transactions
are defined as cash flow hedge. When entering into hedging transactions, the Company has prepared
official documents that describe the hedging relationship between hedging instruments and items been
hedged, objective of risk management, hedging strategy, and the way to evaluate the effectiveness of thehedging instrument.
Under cash flow hedge accounting, the profit or loss on the hedging instrument is recognized as profit orloss in the same period when the profit or loss on the hedged item is affected. The profit or loss on thehedging instrument is recognized as an adjustment to stockholders’ equity and reclassified to current profit
or loss when forecast transactions that are being hedged affect profit or loss. If a hedge of a forecast
transaction subsequently results in the recognition of a financial asset or a financial liabilities, theassociated gains or losses that were recognized directly in equity shall be reclassified to profit or loss in thesame period or periods during which the asset acquired or liability assumed affects profit or loss. If ahedge of a forecast transaction subsequently results in the recognition of a nonfinancial asset or anonfinancial liability, it removes the associated gains and losses that were recognized directly in equity andincludes them in the initial cost or changed carrying amount of the asset or liability. However, if an entity
expects that all or a portion of a loss recognized directly in equity will not be recovered in one or more
future periods, it shall reclassify the amount that is not expected to be recovered into profit or loss.
If the hedging instrument expires, is sold or terminated or no longer meets the hedge accounting criteria, thecumulative profit or loss on the hedging instrument that is effective and directly recognized as an
adjustment to stockholders’ equity is still recognized as an adjustment to stockholders’ equity before
forecast transactions occur and then reclassified to current profit or loss when forecast transactions occur.
Financial Assets Carried at Cost
Equity investments, such as non-publicly traded stocks, with fair value that cannot be reliably measured, arecarried at original cost. Cash dividends are recognized as investment income on ex-dividend dates but are
accounted for as reductions of the original investment costs if these dividends are declared on the investees’
earnings attributable to periods before the purchase of the investments. Stock dividends are recorded as anincrease in the number of shares held and do not affect investment income. The cost per share isrecalculated on the basis of the new number of shares. If there is objective evidence that a financial asset
is impaired, a loss is recognized. However, the recording of a subsequent recovery of fair value is notallowed.

- 10 -

Impairment of Accounts Receivable
On January 1, 2011, the Company adopted the third time revised of Statement of Financial AccountingStandards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” One of the main
revisions is that the impairment of receivables originated by the Company is subject to the provisions of
SFAS No. 34. The Company should evaluate accounts receivable for individual and collective
impairment at the end of each reporting period. When there is objective evidence of a decrease in theestimated future cash flow of accounts receivable as a result of one or more events that occurred after the
initial recognition of the accounts receivable, the accounts receivable are deemed to be impaired.
The Company has a short average collection period; thus, the impairment loss recognized is the difference
between the carrying amount of accounts receivable and estimated future cash flows, without considering
the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt loss, which is recorded in operating expenses - general and administrative. When accounts receivable
are considered uncollectable, the amount is written off against the allowance account.
Impairment of Assets
Statement of Financial Accounting Standards No. 35 - “Impairment of Assets” requires the Company todetermine on each balance sheet date if properties, intangible assets and other assets (including acash-generating unit) have been impaired. If there is impairment, then the Company must calculate therecoverable amount of the asset or the cash-generating unit. An impairment loss should be recognizedwhenever the recoverable amount of the asset or the cash-generating unit is below the carrying amount, andthis impairment loss is either charged to accumulated impairment or used to reduce the carrying amount of
the asset directly. If the Company revalues properties as required by law, an impairment loss on revalued
properties should be charged to unrealized revaluation increment on properties, and if the capital surplus revaluation increment on properties is not enough, the portion that exceeds the balance will be recognized
as loss in the statement of income. After the recognition of an impairment loss, the depreciation(amortization) charged to the asset should be adjusted in future periods for the revised asset carrying
amount (net of accumulated impairment), less its salvage value, and calculated on a systematic basis overits remaining service life. If asset impairment loss (excluding goodwill) is reversed, the increase in the
carrying amount resulting from reversal is credited to current income. However, loss reversal should not
be more than the carrying amount (net of depreciation) had the impairment not been recognized.
Inventories
Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sale. These parts, materials and supplies are valued at the weighted-average costless allowance for obsolescence. Items for in-flight sale are stated at the lower of cost or net realizablevalue. Inventory write-downs are made by item, except where it may be appropriate to group similar or
related items. The costs of inventories sold or consumed are determined using the weighted-averagemethod.
Investments Accounted for by the Equity Method
Investments in companies in which the Company exercises significant influence on the investees’ operating
and financial policy decisions are accounted for by the equity method. Under this method, investments arestated at cost on the acquisition date and subsequently adjusted for the Company’s proportionate share or
equity in the investees’ net income or net loss. Cash dividends received are accounted for as a reductionof the carrying values of the investments. On investment acquisition, the investment premiums for thecost of investment in excess of the Company’s share of the investee’s identified net assets, representing
goodwill, are no longer amortized but tested annually for impairment or if there is objective evidence thatthe goodwill is impaired.

- 11 -

When the Company subscribes for its investee’s newly issued shares at a percentage different from its
percentage of ownership in the investee, the Company records the change in its equity in the investee’s net
assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus.
When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term
investments is insufficient, the shortage is debited to retained earnings.
Gain or loss from transactions involving depreciable assets between the Company and its equity-method
investees is deferred and recognized over the estimated useful lives of the assets.
For equity-method investments, stock dividends received are recorded only as an increase in the number ofshares held and not as investment income. The cost per share is recalculated on the basis of the newnumber of shares.
Receipt of stock dividends from investee would not be recognized as investment income. The Company
only recomputes the book value per share based on the shares with the additional shares.
Under Statement of Financial Accounting Standards No. 30 - “Accounting for Treasury Stocks,” theCompany reclassified its shares held by its subsidiaries to treasury stock at the carrying value as shown inthe subsidiaries’ books on January 1, 2002. Furthermore, when the Company recognized its investment
income, the cash dividend income recognized by the subsidiaries from the Company’s earnings
appropriation was subtracted from investment income and credited to paid-in capital.
Properties
Properties are stated at cost plus revaluation increment (if any) less accumulated depreciation andaccumulated impairment. Major betterments or renewals are capitalized, while maintenance and repairs
are expensed when incurred. Interests on funds used to acquire flight equipment or to construct facilities
before the date the equipment is used in operations are capitalized and included in the cost of the related
assets.
The amounts capitalized on flight and other equipment leased under agreements qualifying as capital leases
are the lower of (a) the present value of all payments required under the lease agreements plus the bargain
purchase price or (b) the fair value of the leased assets on the starting dates of the agreements. Interests
implicit in lease payments are recorded as interest expense.
Amounts paid under operating lease agreements are charged to income over the term of the agreements.
The imputed interest on rental deposits, calculated at the interest rate for one-year time deposits, is recorded
both as rental expense and interest income.
Depreciation is calculated using the straight-line method over service lives estimated as follows (plus one
year to represent estimated salvage value): buildings, 45 to 55 years; machinery and equipment, 5 to 6
years; flight equipment, 5 to 25 years; furniture, 5 years; leased assets, 6 to 25 years; and leasehold
improvements, 5 years. Properties that have reached their residual value but are still in use are further
depreciated over their newly estimated service lives.
Upon property sale or other disposal, the cost, revaluation increment (if any) and the related accumulated
depreciation are removed from the accounts, and gain or loss is credited or charged to nonoperating gains orlosses in the year of disposal.
Intangible Assets
Intangible assets acquired are initially recorded at cost and are amortized on a straight-line basis over theirestimated useful lives. Computer software is amortized through its average economic useful life.

- 12 -

Deferred Charges
Deferred charges mainly consist of (a) expenses for training pilots in operating new types of aircraft, (b)issue costs of corporate bonds and (c) costs incurred for syndicated loans. They are all amortized using
the straight-line method. The amortization periods are 10 years for training expenses and the terms of thebonds or loans.
Accrued Expenses - Frequent-flyer Program
Passengers who are members of the Dynasty Club may accumulate mileage points to reach a certain award
level, which entitles them to choose from among various awards (including an upgrade to a higher class orfree tickets). A liability is accrued and charged to operating expense. The amount accrued is based on
the estimated incremental cost that will be incurred upon the provision of transport services.
Pension Costs
The Company has two types of pension plans:

Defined benefit and defined contribution.

Pension costs under the defined benefit pension plan are recognized on the basis of actuarial calculations.
Unrecognized net transition obligation is amortized over 15 years, while pension gain or loss is amortizedusing the straight-line method based on the average remaining service years of employees.
If additional accrued pension cost based on actuarial calculations is not in excess of the sum of theunamortized balance of prior service costs and unrecognized net transition obligation, “deferred pensioncost” will be debited. Otherwise, the excess amount should be debited to “net loss not recognized as
pension cost” in stockholders’ equity.
Based on the defined contribution pension plan, the Company’s required monthly contributions to theemployees’ individual pension accounts are recognized as expenses throughout the employees’ service
periods.
Deferred Profits on Sale-leaseback
A gain on the sale by the Company of assets that it leases back is deferred and amortized over the term of
the lease agreements.
Income Tax
The Company applies the intra-period allocation method to its income tax. Deferred tax assets arerecognized for the tax effects of deductible temporary differences, debit in equity, unused investment
credits, and loss carryforwards, and deferred tax liabilities are recognized for the tax effects of taxable
temporary differences and credit in equity. Deferred tax liabilities and assets are classified as current or
noncurrent on the basis of the classification of the related asset or liability for financial reporting. A
deferred tax asset or liability that cannot be related to an asset or liability for financial reporting is classified
in accordance with the expected reversal or realization date of the temporary difference. Valuation
allowance is recognized on deferred tax assets that are not expected to be realized.
Income tax credits for certain acquisitions of research and development expenses are recognized in the
period those acquisitions or expenses are incurred.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as
income tax in the year the stockholders approve the retention of earnings.

- 13 -

Revenue Recognition
Passenger fares and cargo revenues are recognized when transport service is provided. The value of
unused passenger tickets is recognized as “advance ticket sales.”3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES
Financial Instruments
On January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards(SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” Among the main revisions isthat loans and receivables originated by the Company are now covered by SFAS No. 34. This accountingchange did not have a significant effect on the Company’s financial statements as of and for the year ended
December 31, 2011.
Operating Segments
On January 1, 2011, the Company adopted the newly issued SFAS No. 41 - “Operating Segments.” The
statement requires that segment information disclosed should be based on the information on thecomponents of the Company that management uses to make operating decisions. SFAS No. 41 requires
the identification of operating segments based on internal reports that are regularly reviewed by theCompany's chief operating decision maker in order to allocate resources to the segments and assess theirperformance. This statement supersedes SFAS No. 20 - “Segment Reporting.” This accounting change
had no significant effect on the manner of the Company’s disclosure of segment information.

4. CASH AND CASH EQUIVALENTS
December 31
2012
Cash on hand
Revolving fund
Checking accounts and demand deposits
Time deposits
Cash equivalents

$

2011

874,093
111,735,746
4,713,159,193
3,985,688,251
199,906,451$ 9,011,363,734$

716,536
122,679,984
4,256,564,478
3,767,681,541
799,754,590$ 8,947,397,129

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
Financial instruments held for trading are summarized as follows:
December 31
2012

2011

Financial assets held for trading
Current
Beneficial certificates
Listed stocks$- 14 -

600,404,225
653,211,167$ 3,004,222,113
274,516,500$ 1,253,615,392$ 3,278,738,613

Net gains on beneficial certificates were $472,167,000 in 2012 and $5,962,000 in 2011.
Financial instruments designated as at FVTPL were as follows:
December 31,
2011
Financial assets designated as at FVTPL
Noncurrent
Convertible bonds
China Life Insurance Co., Ltd.

$ 374,085,000

Of the above convertible bonds, a portion with an aggregate face value of $250,000,000 was converted into
29,137,529 common shares of China Life Insurance Co., Ltd. on April 19, 2012 at the conversion price of
NT$8.58 per share and reclassified to financial assets at fair value through profit or loss - current.
The transactions on financial assets designated as at FVTPL resulted in gains of $95,000 in 2011.

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 31
2012

2011

% of
% of
Carrying Value Ownership Carrying Value Ownership
Current
Foreign marketable equity securities
France Telecom$ 62,738,292-$ 96,131,011-

7. NOTES AND ACCOUNTS RECEIVABLE, NET
December 31
2012
Notes receivable
Accounts receivable$

Less: Allowance for doubtful accounts

2011

258,579,958
6,852,271,772
7,110,851,730
52,033,720$ 7,058,818,010$

294,225,639
9,558,405,149
9,852,630,788
129,010,305$ 9,723,620,483

8. OTHER RECEIVABLES
December 31

Tax refunds
Accrued revenue
Others- 15 -

20122011$ 116,337,850
272,351,871
3,302,314$ 293,143,806
214,741,615
3,015,606$ 391,992,035$ 510,901,027

9. INVENTORIES, NET
December 31

Aircraft spare parts
Items for in-flight sale
Work in process - maintenance services

2012

2011

$ 8,010,553,545
357,010,106
154,228,363$ 7,955,786,647
349,466,926
282,038,792$ 8,521,792,014$ 8,587,292,365

As of December 31, 2012 and 2011, the allowances for inventory devaluation were $80,819,000 and$83,891,000, respectively. The costs of inventories recognized as operating costs due to the reversal ofwrite-downs of inventories was $3,072,000 in 2012 and write-downs of inventories was $17,810,000 in
2011.

10. FINANCIAL ASSETS CARRIED AT COST
December 31
2012

Carrying Value
Unlisted common stocks
Abacus International Holdings Ltd.
Jardine Air Terminal Services
Chung Hwa Express Co.
Regal International Advertising
Unlisted preferred stocks
Abacus International Holdings Ltd.

$ 297,946,451
56,022,929
11,000,000
5,925,000
370,894,380
472,5222011% ofOwnership

13.59
15.00
11.00
6.58

Carrying Value$ 297,946,451
56,022,929
11,000,000
5,925,000
370,894,380-$ 371,366,902

472,522% ofOwnership

13.59
15.00
11.00
6.58

-

$ 371,366,902

11. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31
2012

2011

Carrying Value% of
Ownership

Carrying Value% of
Ownership$ 1,513,701,724
1,469,920,155
1,226,818,604
1,016,755,000
688,008,930
652,809,376
430,945,000
421,450,514

54.00
100.0093.99
100.0051.00
49.00
100.0093.93$ 1,613,091,139
1,466,188,021
1,150,278,944
1,050,253,970
641,880,959
649,302,758
383,610,273
410,229,241

54.00
100.0093.99
100.0051.00
49.00
100.0093.93

Investees on which the Company
exercises significant influence
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)(Continued)- 16 -

December 31
2012
Carrying Value
China Aircraft Services
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.

$381,819,505
312,007,212
242,279,047
233,647,293
193,633,640
190,874,553
157,875,614
101,352,011
36,126,244
33,776,973
6,960,097
35,08834,60232,8952011% ofOwnership

Carrying Value

20.00
47.35
35.78
24.50
100.0028.48
55.00
100.0051.00
100.0025.00
100.00100.00100.00$$ 9,310,864,077

381,186,876
332,630,056
238,320,783
230,665,809
203,061,718
177,403,739
150,802,938
104,075,059
38,268,728
26,609,460
7,218,765
35,08834,60232,895% ofOwnership
20.00
47.35
35.78
24.50
100.0028.48
55.00
100.0051.00
100.0025.00
100.00100.00100.00$ 9,255,181,821(Concluded)
Investment income (loss) recognized under the equity method was as follows:Year Ended December 31
2012
2011
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
China Aircraft Services
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express$ (99,389,415)
3,732,134
77,867,389
9,408,018
141,259,349
44,908,586
27,986,923
143,645,270
21,069,126
40,054,214
55,844,046
99,849,392(9,428,078)
26,763,814
23,686,893
29,165,206
3,409,910
11,950,372
1,066,332$ (36,207,137)
8,774,261
145,592,245
1,079,501
113,194,240
22,637,711
29,585,706
132,381,857
15,926,399
44,584,201
57,913,301
107,631,009(45,243,343)
15,825,126
21,884,072
25,354,720(5,128,274)
5,314,288
1,466,255$ 652,849,481$ 662,566,138

The subsidiaries, Freighter Princess Ltd., Freighter Prince Ltd. and Freighter Queen Ltd., were establishedin March 2001, September 2001 and January 2002, respectively, for leasing of the Company’s aircraft. In
its balance sheets, the Company recognized the fixed assets and liabilities related to the leased aircraft as aleasing transaction.

- 17 -

Shown below are the movements in 2012 and 2011 of (a) the difference between the investment cost andthe investee’s net assets, or goodwill, and (b) a sale of depreciable assets to the Company by its subsidiary.

Goodwill

Transaction
betweenCompany andSubsidiary

Balance, beginning of year
Reduction$ 52,423,365-$ (117,777,801)
32,868,224

Balance, end of year

$ 52,423,365$ (84,909,577)

Balance, beginning of year
Reduction$ 52,423,365-$ (150,646,025)
32,868,224

Balance, end of year

$ 52,423,365$ (117,777,801)

December 31, 2012

December 31, 2011

To meet its investees’ operating needs, the Company invested $30,409,000 in Cal-Asia Investment in May
2012 and $200,000,000 in Cal Hotel in April 2011.

12. PROPERTIES
December 31
2012
Revaluation increase - cost
Buildings
Accumulated depreciation
Buildings
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements

2011

$

41,297,645$

41,297,645$

2,911,003,578
3,112,684,292
88,057,564,718
476,109,554
6,828,800,242
901,359,053$

2,735,167,939
3,050,569,033
78,780,714,029
413,077,707
6,208,371,294
832,767,516$ 102,287,521,437$ 92,020,667,518

Interests capitalized amounted to $90,300,000 in 2012 and $75,309,000 in 2011, with interests calculated at
rates ranging from 1.97% to 2.26% and from 1.91% to 2.06%, respectively.
In 1976 and 1982, the Company revalued its properties in accordance with government regulations.
Revaluation increments were recorded as increases in the carrying amounts of the assets and as credits tounrealized revaluation increments.

- 18 -

13. SHORT-TERM LOANS
December 31
2012Bank loans. Interest - 1.15% to 1.23% in 20122011

$ 1,600,000,000$-

14. BONDS PAYABLE
December 31
2012
Five-year secured domestic bonds - issued at par in
November 2007; repayable in November 2010, November
2011 and November 2012; indicator rate plus 0.4% interestp.a., payable quarterly.
January 2010; repayable in January 2013, January 2014 andJanuary 2015; indicator rate plus 1.5% interest p.a.,payable quarterly.
February 2010; repayable in February 2013, February 2014
and February 2015; indicator rate plus 1.5% interest p.a.,payable quarterly.
May 2011; repayable in May 2014, May 2015 and May 2016;
1.35% interest p.a., payable annually.
Three-year private unsecured bonds - issued at par in
April 2009; repayable in April 2012; 3.4% interest p.a.,payable semiannually.
June 2009; repayable in June 2012; 3.4% interest p.a.,payable semiannually.
May 2010; repayable in May 2013; 2.8% interest p.a.,payable semiannually.
January 2012; repayable in January 2015; 2% interest p.a.,payable semiannually.
Five-year private unsecured bonds - issued at par in
April 2009; repayable in April 2014; 3.6% interest p.a.,payable semiannually.
June 2009; repayable in June 2014; 3.6% interest p.a.,payable semiannually.
Less: Current portion

$

2011

-

$ 1,200,000,000

1,300,000,000

1,300,000,000

2,300,000,000

2,300,000,000

6,000,000,000

6,000,000,000-

8,800,000,000-

2,200,000,000

5,050,000,000

5,050,000,000

5,785,000,000-

1,100,000,000

1,100,000,000

800,000,000
22,335,000,000
6,130,000,000

800,000,000
28,750,000,000
12,200,000,000$ 16,205,000,000$ 16,550,000,000

The indicator rate mentioned above is the 90 days’ commercial paper rates in Taiwan’s secondary market.
In January 2012, the Company made a first issue of 2012 private unsecured bonds with aggregate facevalue of $5,785,000,000. The investors included these affiliates: Taoyuan International Airport Services,
Mandarin Airlines and Abacus Distribution Systems (Taiwan).
In May 2010, the Company made a first issue of 2010 private unsecured bonds with aggregate face value of$5,050,000,000. The investors were these affiliates: Taoyuan International Airport Services, Mandarin
Airlines, Abacus Distribution Systems (Taiwan), China Pacific Catering Services and Hwa Hsia.

- 19 -

15. LONG-TERM DEBTS
December 31

Bank loans
Commercial paper, net of unamortized discounts of$31,133,866 and $23,252,282 in the years ended
December 31, 2012 and 2011, respectively
Less: Current portion

2012

2011

$ 65,146,978,619$ 77,201,623,954

15,273,866,134
80,420,844,753
16,671,452,387

10,231,747,718
87,433,371,672
18,047,761,512$ 63,749,392,366$ 69,385,610,160

Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannually orin lump sum upon maturity in February 26, 2020. Related information is summarized as follows:
Currency
U.S. Dollars

New Taiwan Dollars

Japanese Yen

Amounts
Original currency
2012
2011
Translated in New Taiwan
dollars2012
2011$ 45,816,983,418
49,575,496,546$

664,951,834
895,741,879$

1,240,000,000

45,816,983,418
49,575,496,546

19,329,995,201
27,143,693,451

482,433,957

1.287%-2.638%
0.7%-2.6%

0.308%-4.39%
0.3911%-4.77%

0.6957%

2002/4/11-2020/2/26
2002/4/11-2020/2/26

2001/7/20-2017/9/21
2000/7/6-2017/9/21

2007/12/26-2012/12/26

Interest rates
2012
2011
Periods
2012
2011

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs,
with various maturities until March 2017, were used by the Company to guarantee commercial paper it
issued. The commercial paper was issued at discount rates of 1.375% to 2.125% in 2012 and 1.341% to2.102% in 2011.

16. LONG-TERM CAPITAL LEASE OBLIGATIONS
December 31

Capital lease obligations
Less: Current portion

2012

2011

$ 1,088,871,938
840,208,297$ 2,320,705,642
1,185,639,137$$ 1,135,066,505

248,663,641

As of December 31, 2012, the Company was in contract with certain foreign companies under capital leaseagreements of aircraft and related parts expiring on various dates until February 2014.
- 20 -

Future minimum rental payments on flight equipment are summarized as follows:
PeriodAmount2013
January to February 2014

$ 840,208,297
248,663,641

17. PENSION PLAN
Based on the defined contribution pension plan under the Labor Pension Act, the rate of the Company’s
required monthly contributions to the employees’ individual pension accounts under the custody of the
Bureau of Labor Insurance is at 6% of salaries and wages. The Company recognized defined contribution
pension costs of $121,249,000 in 2012 and $113,599,000 in 2011.
The pension plan under the Labor Standards Law is a defined benefit pension plan. Benefits are based on
the service years accumulated and the average basic salaries and wages of the six months before retirement.
The Company makes monthly contributions to a pension fund at 7% of salaries and wages. The fund isadministered by a pension fund committee and deposited in the committee’s name in the Bank of Taiwan.
The Company recognized pension cost of $630,585,000 in 2012 and $749,430,000 in 2011.
Other defined benefit pension plan is summarized as follows:a. Net pension costService cost
Interest cost
Projected return on plan assets
Loss on plan assets
Amortization of prior service cost
Amortization of pension gains or losses

2012

2011

$ 221,882,556
194,445,426(25,978,704)(20,905,498)
59,135,597
202,005,328$ 251,472,577
213,032,486(30,270,669)(12,740,573)
59,135,597
268,800,843$ 630,584,705$ 749,430,261

b. Reconciliation of the fund status of the plan and accrued pension cost:
December 31
2012

2011

Benefit obligation:
Vested benefit obligation
Non-vested benefit obligation
Accumulated benefit obligation
Additional benefits based on future salaries
Projected benefit obligation
Fair value of plan assets
Funded status
Unrecognized prior service cost
Unrecognized net actuarial loss
Additional liability$ (6,275,326,221)(3,325,203,393)(9,600,529,614)(1,237,895,932)(10,838,425,546)
2,699,797,555(8,138,627,991)
59,135,592
3,975,855,946(2,797,095,606)$ (5,641,281,091)(3,448,394,448)(9,089,675,539)(1,268,607,961)(10,358,283,500)
2,710,958,860(7,647,324,640)
118,271,189
3,459,892,285(2,309,555,513)

Accrued pension cost

$ (6,900,732,059)$ (6,378,716,679)

Vested benefits$ 10,450,897,047$ 9,170,131,479- 21 -

December 31
2012

2011

1.75%
1.50%
1.75%

2.00%
1.50%
2.00%

c. Actuarial assumptions
Discount rate used in determining present values
Future salary increase rate
Expected rate of return on plan assets

December 31
2012

2011

d. Contributions to the fund$ 520,714,735$ 553,644,102

e. Payments from the fund$ 557,854,744$ 309,753,726

18. STOCKHOLDERS’ EQUITY
Common Stock
To meet the Company’s financial demand for its operation as well as repay its debt, the board resolved inJune 2011 to publicly issue 568,378,000 common shares at NT$11.73 per share, with NT$10 par value andthe record date of February 10, 2012. The Company completed the registration of this capital increase on
February 20, 2012.
Employee Stock Option Plans
Under the Company Law, 10% of the publicly issued common shares should be reserved for subscription
by the Company’s employees. In December 2011, the board resolved the amount of shares and price forsubscription by the employees. Under Statement of Financial Accounting Standards No. 39 “Share-based Payment,” the compensation cost of employee stock options was recognized on the grantdate, using the fair value method.
Information on employee stock options is as follows:

Number of
Options(In Thousands)

Weighted-average
ExercisePrice

56,838(33,097)(23,741)$ 11.73
11.73
11.73

Employee stock options on a capital increase in 2012
Options granted
Options exercised
Options expired

Weighted-average fair value of options granted$ 0.4948- 22 -

Options granted were priced using the Black-Scholes pricing model, and the inputs to the model were as
follows:
Grant-date share price
Exercise price
Expected volatility
Expected life
Expected dividend yieldRisk-free interest rate

$12.15$11.7339.89%
5 days
0.7687%The compensation cost of employee stock options issued for a capital increase in December 2011 wasrecognized at $28,123,000, which was reclassified in February 2012 to capital surplus - issuance ofcommon shares at fair value of $16,376,000 and capital surplus - expired employee stock options of$11,747,000.
Capital Surplus
The capital surplus from shares issued in excess of par (additional paid-in capital from issuance of commonshares and treasury stock transactions) and donations may be used to offset a deficit; in addition, when the
Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital(limited to a certain percentage of the Company’s paid-in capital and once a year).
The capital surplus from long-term investments, employee stock options and conversion options may not be
used for any purpose.
Capital surplus is summarized as follows:
December 31
2012
Arising from the issuance of common shares
Expired employee stock options
Arising from treasury stock transactions
Arising from long-term investments

2011$ 1,391,536,015
11,747,160
1,155,512
955,395$

419,989,822
1,155,512
955,395$ 1,405,394,082$

422,100,729

Appropriation of Earnings and Dividend Policy
The Company's Articles of Incorporation provide that the following should be appropriated from annual net
income (less any deficit): (a) 10% as legal reserve, and (b) special reserve equivalent to a debit balance ofany stockholders’ equity account. From the remainder, the Company should also appropriate at least 3%
as bonus to employees. Of the final remainder, at least 50% should be distributed to stockholders as both
cash and stock dividends (cash dividend should not be less than 30% of the total dividends) or stock
dividends only. In determining the amount of cash dividends to be distributed, the board of directors
should take into account future cash requirements of the Company, primarily cash requirements for future
aircraft acquisitions. Distribution of earnings generated in prior years should also meet the foregoingguidelines.
All earnings appropriations should be made and approved by the stockholders in, and given effect to in thefinancial statements of, the year following the year of earnings generation.
There were no earnings to be appropriated in 2012 and 2011; thus; no bonus to employees was estimated.

- 23 -

The bonus to employees was estimated on the basis of past experiences. However, there were net losses in2012 and 2011; thus, no bonus to employees was estimated. Material differences between such estimatedamounts and the amounts proposed by the Board of Directors in the following year are retroactively
adjusted in the current year. If the actual amounts subsequently resolved by the stockholders differ fromthe proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change inaccounting estimate.
Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balanceof certain stockholders’ equity accounts (including unrealized valuation gain or loss on financial
instruments, cumulative translation adjustments against the unrealized gain of equity, and net loss notrecognized as pension cost) should be transferred from unappropriated earnings to a special reserve. Any
special reserve appropriated may be reversed to the extent of the decrease in the net debit balance.
Under the regulations of the Securities and Futures Bureau, a special reserve is appropriated from thebalance of the retained earnings at an amount equal to the carrying value of the treasury stock held bysubsidiaries in excess of the market value on the balance sheet date. The special reserve may be reversed
when the market value recovers.
Legal reserve should be appropriated until the legal reserve equals the Company’s paid-in capital. Legal
reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded
25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.
The appropriation of the 2010 earnings was approved in the stockholders’ meeting on June 24, 2011. The
appropriations, including dividends per share, were as follows:
Appropriation of
Earnings
Legal reserve
Special reserve
Cash dividends$

Dividends Per
Share (NT$)

799,629,908
5,162,070,526
1,852,648,941$0.4$ 7,814,349,375
The Company’s cash profit sharing in cash with its employees of $61,038,000 for 2010 was approved in thestockholders’ meeting held on June 24, 2011. The resolved amount of profit sharing to employees wasconsistent with that approved under a resolution passed at the Board of Directors’ meeting held on April 29,
2011, and the same amount was charged against the earnings of 2010.
The stockholders resolved to offset the accumulated deficit of 2011 in the stockholders’ meeting held on
June 15, 2012. The Company offset the accumulated deficit (a net loss of $1,954,271,000) against theunappropriated earnings of $181,950,000, a special reserve of $1,288,701,000, and the legal reserve of$483,620,000. No bonus to employees was appropriated for 2011 because of a net loss in that year.
The appropriation of earnings for 2012 had been proposed by the board of directors on March 29, 2013.
The appropriations were as follows:
Appreciation of
Earnings
Legal reserve
Special reserve$

5,880,445
52,924,004$ 58,804,449- 24 -

There was no earnings to be appropriated after recognized above legal reserve and special reserve. The
2012 appropriations of earnings will be resolved by the stockholders in their meeting scheduled for June
2013.
Information on bonus to employee is available on the Market Observation Post System website.
Except for non-ROC resident stockholders, all stockholders receiving the unappropriated earnings
generated on and after January 1, 1998 are allowed a tax credit equal to their proportionate share of theincome tax paid by the Company.

19. TREASURY STOCK(Shares in Thousands)
Number of
Shares,Beginningof Year

Purpose of Treasury Stock

Reduction
Duringthe Year(Note)

Number of
Shares,Endof YearYear ended December 31, 2012
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

2,889

-

2,889

2,889

-

2,889

Year ended December 31, 2011
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

The Company’s shares held by its subsidiaries as of December 31, 2012 and 2011 were as follows:

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 24,895,536
9,769,824$ 24,895,536
9,769,824$ 34,665,360$ 34,665,360$ 27,385,090
10,746,806$ 27,385,090
10,746,806$ 38,131,896$ 38,131,896

December 31, 2012
Mandarin Airlines
Hwa Hsia

2,075
814

December 31, 2011
Mandarin Airlines
Hwa Hsia

2,075
814

The shares of the Company held by its subsidiaries were treated as treasury stock. The subsidiaries can
exercise stockholders’ right on these treasury stocks, except the right to subscribe for the Company’s newshares and the right to vote.

- 25 -

20. INCOME TAX
a. The reconciliation of the income tax expense (benefit) based on income (loss) before income tax at thestatutory rate of 17% and income tax expense was as follows:
2012

2011

$ 23,008,317$ (399,199,776)(96,211,447)(28,536,938)
101,740,068
59,964,074(37,004,274)(58,417,941)
494,621,991
64,346,625$ 59,964,074$ 64,346,625

2012

2011

Income tax expense - current
Net changes in deferred income tax expense (benefit):
Allowance for doubtful accounts
Allowance for loss on inventories
Equity in net gain or loss of foreign equity-method investees
Loss on disposal of properties
Depreciation difference between accounting and tax onproperties
Allowance for loss on idle properties
Accrued expense for frequent-flyer program
Unrealized lawsuit loss
Provision for pension cost
Unrealized foreign exchange gain or loss
Difference between accounting and tax on interest
Loss carryforwards
Investment tax credits
Other valuation allowance
Adjustment of prior years’ tax$ 59,964,074$ 64,346,625(4,126,578)(93,197,949)
9,243,187
27,101,449(4,701,504)(3,027,711)
775,033(27,101,449)(1,479,662)(7,545,164)
5,572,417
37,539,432(5,860,799)
55,662,892
5,627,713(62,836,291)
111,417,863(60,577,673)
33,680(1,479,662)(13,164,385)
1,786,491
26,813,880(23,699,407)
96,588,942
5,627,713(548,773,588)
947,642,479(915,993,563)
396,689

Income tax expense (benefit)$ 76,538,591$ (393,963,417)

Income tax expense (benefit) on income (loss) before income tax
at statutory rate
Add (deduct) tax effects of:Permanent differences
Temporary differences
Loss carryforwards
Overseas income tax expense
Income tax expense - current
b. Income tax expense (benefit) consisted of the following:- 26 -

c. Deferred income tax assets (liabilities) as of December 31, 2012 and 2011 consisted of the following:
December 31
2012
Current
Allowance for loss on inventories
Loss on disposal of properties
Accrued expenses for frequent-flyer program
Unrealized lawsuit loss
Allowance for doubtful accounts
Investment income tax credits
Deferred tax assets
Less: Valuation allowance
Deferred income tax assets, net
Unrealized gain on financial instruments
Unrealized foreign exchange gain
Deferred income tax assets, net
Noncurrent
Equity in net loss of foreign equity-method investees
Allowance for loss on idle properties
Provision for pension cost
Difference between accounting and tax on interest
Unrealized lawsuit loss
Cumulative translation adjustments
Unrealized loss on financial instruments
Loss carryforwards
Investment income tax credits
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Depreciation difference between accounting and tax onproperties
Deferred income tax assets, net

2011

$

107,459,495
10,989,409
37,539,432
8,828,082
165,684,028
330,500,446(59,440,943)
271,059,503(1,118,201)(57,772,644)$

14,261,546
27,101,449
16,561,826
37,539,432
4,701,504
111,417,863
211,583,620(44,577,863)
167,005,757(11,902,268)(2,109,752)$

212,168,658$

152,993,737$

86,986,824
183,469,570
697,312,677
75,956,946
85,804,417
532,467,399
2,222,322
5,272,751,661
65,233,108
7,002,204,924(23,403,085)
6,978,801,839$

96,230,011
175,924,406
691,451,878
81,584,659
123,343,849
327,341,382
3,566,915
5,209,915,370
230,917,136
6,940,275,606(98,843,838)
6,841,431,768(144,529,091)(146,008,753)$ 6,834,272,748$ 6,695,423,015

d. Information on the imputation credit account (ICA) and creditable tax ratio is summarized as follows:
December 31

Balance of ICA

2012

2011

$ 111,570,165$ 24,942,084

The expected creditable tax ratio of 2012 was 20.48%. Since the Company had an accumulated deficit
as of December 31, 2011, there was no expected creditable tax ratio.

- 27 -

e. Unused investment tax credits as of December 31, 2012 were as follows:

Laws and Statutes

Tax Credit Source

Article 6 of the Statutefor Upgrading
Industries

R&D expenses, personnel
training expenses andpurchases of eligible
equipment

Total
Creditable
AmountRemaining
Creditable
AmountExpiryYear$ 165,684,028
40,542,154
24,690,954$ 165,684,028
40,542,154
24,690,954

2013
2014
2015

$ 230,917,136$ 230,917,136

f. Unused tax loss carryforwards as of December 31, 2012 were as follows:
Expiry Year

Unused Amount

2018
2019
2021
2012

$ 8,172,477,310
19,338,075,471
2,907,162,474
598,470,986$ 31,016,186,241

g. The income tax returns of the Company through 2010 have been examined by the tax authorities. On
the Company’s 2009 tax returns assessed by the tax authorities, investment tax credits were reduced to$162,397,000, which affected the usage of investment tax credits in the following years. The
Company disagreed with the tax authorities’ assessment of its 2009 tax return and had applied for areexamination.

21. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES

Personnel
Salaries
Labor and health insurance
Pension cost
OthersDepreciation
Amortization

Personnel
Salaries
Labor and health insurance
Pension cost
OthersDepreciation
Amortization

Classified as
Operating Costs

2012
Classified as
OperatingExpensesTotal$ 9,263,590,803
587,798,687
537,119,691
1,752,715,430
10,355,412,608
2,418,506$ 2,174,834,922
407,111,901
214,714,372
214,952,991
357,433,511
173,934,193$ 11,438,425,725
994,910,588
751,834,063
1,967,668,421
10,712,846,119
176,352,699

Classified as
Operating Costs

2011
Classified as
OperatingExpensesTotal$ 9,250,252,749
542,117,138
614,596,517
1,749,778,957
9,869,502,485
2,418,487$ 2,188,707,448
431,561,104
248,432,925
155,617,032
373,520,933
158,246,585$ 11,438,960,197
973,678,242
863,029,442
1,905,395,989
10,243,023,418
160,665,072- 28 -

22. EARNINGS (LOSS) PER SHARE
The numerators and denominators used in calculating earnings per share (EPS) were as follows:
Amounts (Thousands)(As Numerator)
PretaxAfter Tax

Shares(Thousands)(As Denominator)

Earnings (Loss)
Per Share (NT$)
PretaxAfter Tax

2012
Basic and diluted loss per share
Net income on common stock$

135,343$

58,804

5,134,993

$

0.03

$

$ (1,954,271)

4,628,733$ (0.51)

0.01

2011
Basic and diluted loss per share
Net loss on common stock$ (2,384,234)$ (0.42)The Accounting Research and Development Foundation issued Interpretation 2007-052, which requires
companies to recognize bonuses paid to employees, directors and supervisors as compensation expenses
beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If
the Company decides to settle the bonus to employees by cash or shares, the Company should presume thatthe entire amount of the bonus will be settled in shares, and the resulting potential shares should be includedin the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares
have a dilutive effect. The number of shares is estimated by dividing the entire amount of the bonus by
the closing price of the shares at the balance sheet date. This dilutive effect of the potential shares should
be included in the calculation of diluted EPS until the stockholders resolve the number of shares to be
distributed to employees at their meeting in the following year.

23. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
December 31
2012

2011

Carrying Amount

Estimated
Fair Value

Carrying Amount

27,486,946,128$

Estimated
Fair Value

Financial assets
Financial assets - with fair values
approximating carrying amounts
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Derivative financial assets for hedging
Financial assets carried at cost$

27,486,946,128$

30,367,338,125$

30,367,338,125

1,253,615,392
62,738,292
53,525,730
371,366,902

1,253,615,392
62,738,292
53,525,730-

3,652,823,613
96,131,011
108,667,850
371,366,902

3,652,823,613
96,131,011
108,667,850-

14,710,377,051
35,131,928
22,335,000,000
80,420,844,753
1,088,871,938

14,710,377,051
35,131,928
22,433,709,066
80,628,967,040
1,088,871,937

17,231,288,467
72,400,976
28,750,000,000
87,433,371,672
2,320,705,642

17,231,288,467
72,400,976
29,543,925,532
87,461,638,881
2,320,705,642

Financial liabilities
Financial liabilities - with fair values
approximating carrying amounts
Derivative financial liabilities for hedging
Bonds issued
Loans and debts
Capital lease obligations- 29 -

b. Methods and assumptions used in estimating the fair values of financial instruments are as follows:
1) The carrying amounts of the following short-term financial instruments approximate their fairvalues because of their short maturities: Cash and cash equivalents, receivables, receivables related parties, portion other receivables, other financial assets - noncurrent, deposit accounts,
restricted assets - noncurrent, short-term loans, commercial paper, accounts payable, accounts
payable to related parties, accrued expenses, portion of current other liabilities and portion of otherliabilities - others.
2) Fair values of financial instruments designated as at fair value through profit or loss,
available-for-sale financial assets, and derivative financial assets for hedging are based on theirquoted prices in an active market. If quoted market prices are not available, fair values are
estimated using valuation techniques. For those instruments which are acquired in private andcould not be traded in the open market, the Company calculates their fair values by theBlack-Scholes model. For those derivative financial assets for hedging and with no quoted prices,
the fair values are determined using valuation techniques incorporating estimates and assumptions
consistent with those generally used by other market participants to price financial instruments.
The valuation techniques are applied to the derivative financial assets by financial institutions,which calculate fair values at the expiry date of each contract.
3) Financial assets carried at cost are investments in unquoted shares, which have no quoted prices inan active market and entail an unreasonably high cost to obtain verifiable fair values. Thus, no fairvalue is presented.
4) Fair values of bonds payable are based on their quoted market prices.
5) Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying values are their fair values. The fair values of long-term debts and private bonds with
fixed interest rates are estimated at the present value of expected cash flows discounted at rates of
0.868% to 0.9051% in 2012 and 1.1281 % to 1.25% in 2011 prevailing in the market for long-term
debts.
The total amount of fair value listed above is not equal to the total value of the Company because it is
not necessary to disclose the fair value of semifinancial and nonfinancial instruments.
c. Fair values of financial assets and financial liabilities determined at quoted market prices or estimates
are summarized as follows:
Quoted Market Prices
December 31
2012
2011

Fair Value Based on Estimates
December 31
2012
2011

Financial assets
Financial assets at fair value through profit
or loss
Available-for-sale financial assets
Derivative financial assets for hedging$

1,253,615,392
62,738,292-$

3,278,738,613
96,131,011-$

53,525,730$

374,085,000
108,667,850

Financial liabilities
Derivative financial liabilities for hedging
Bonds issued
Loans and debts

9,599,586,000-

10,793,610,000-

35,131,928
12,834,123,066
80,628,967,040

72,400,976
18,750,315,532
87,461,638,881

d. As of December 31, 2012 and 2011, loans, short-term bills payable, bonds payable, and capital leaseobligations at fixed rate that were exposed to fair value interest rate risk, amounted to $20,737,308,000
and $24,596,691,000, respectively, and those at floating rate, which were exposed to cash flow interest
rate risk, amounted to $84,707,408,000 and $93,907,387,000, respectively.

- 30 -

e. The adjustments of stockholders’ equity credited directly from the available-for-sale financial assets
amounted to $27,716,000 for 2012 and $17,583,000 for 2011, respectively.

24. RISK MANAGEMENT AND HEDGING STRATEGIESa. Risk management strategy
The Company has risk management and hedging strategies to respond to changes in the economic andfinancial environment and in the fuel market. To reduce the financial risk from changes in interest andexchange rates and in fuel prices, the Company has its operating costs stay within a specified range byusing appropriate financial hedging instruments and hedging percentages in accordance with the“Processing Program of Derivative Financial Instrument Transactions” approved by Company
stockholders to reduce the impact of market price changes on earnings.
In addition, the Company has a financial risk committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging percentage. This
committee informs the Company of global economic and financial conditions, controls the entire
financial risk resulting from changes in the financial environment and fuel prices, and develops thestrategy and response to avoid financial risk with the assistance of financial risk experts to effect risk
management.
The Company enters into forward contracts, currency option contracts, and foreign exchange swap
contracts to hedge against the risks on changes in foreign-currency assets, liabilities and commitments
and in the related exchange rates; enters into interest swap contracts to hedge against adverse risks onchanges in net liability interest rates; enters into cross-currency swap contracts to hedge against adverse
risks on interest rate and exchange rate changes; and enters into fuel swap contracts to hedge against
adverse risks on fuel price changes. The Company uses derivative financial instruments with fairvalues that are highly negatively correlated to the fair values of hedged items and evaluates the hedging
effectiveness of these instruments periodically.
The Company uses derivative instruments to avoid major market risks.
The following table summarizes the aggregate contractual (notional) amounts, credit risk and fair valueof the derivative financial instruments of the Company as of December 31, 2012 and 2011.
December 31
2012

Hedge

Contractual(Notional)
Amount2011

Credit Risk

Fair ValueContractual(Notional)
AmountCredit Risk

Fair Value

The Company
Interest rate swaps
Currency options
Call
Put
Forward exchange
Fuel swaps (Note)
Call
Put

Note:

$ 6,080,000,000$

758,888$(14,408,011 )$ 3,335,000,000

$

-

$

(26,577,900 )

683,139,535
683,139,535
1,075,581,395

38,449,431
506,083
46,99738,449,431(223,528 )(15,723,915 )

696,969,697
696,969,697
1,090,909,091

4,602,140
794,188
9,674,025

4,515,794(2,659,461 )
8,908,414

13,764,331
3,464,506

13,764,331-

13,764,331(3,464,506 )

93,597,496
41,517,468

93,597,496-

93,597,496(41,517,468 )Based on the Taiwan Stock Exchange’s regulation for the public companies’ monthly
declaration on the trading of derivative financial instruments, the contractual amounts areshown at the absolute values of fair values because fuel swap contracts only have nominal
amounts.

The contract amount is used to calculate the amounts to be settled by the counter-parties; thus, it isneither the actual delivery amount nor the cash requirement of the Company. The derivative financial
instruments held or issued by the Company are likely to be sold at reasonable market prices. The
Company does not expect significant cash flow requirements upon contract maturity.
- 31 -

Credit risk refers to the loss the Company will incur on counter-parties’ default on contracts.
However, the Company’s counter-parties are all trustworthy international and domestic financial
institutions. In addition, the Company trades with several financial institutions to disperse risks.
Thus, the Company does not expect to incur significant credit risks.
The fair value of each derivative contract is determined using quotes from financial institutions.
The amount of the Company’s maximum exposure to the risks on all financial instruments (excluding
the fair value of collaterals) is equal to the book value of these instruments.
b. Cash flow hedge
Floating-interest long-term debts, foreign-currency firm commitments and transactions and expecteddemand for aviation fuel may result in future cash flow fluctuations and risks due to changes in market
interest and exchange rates. To hedge against these risks, the Company uses interest rate swaps,
forward exchange contracts and option contracts. The cash flow hedge information is summarized asfollows:
Hedged Items

Financial Instruments
Designated as Hedging
December 31, 2012
Instruments
Nominal Amount
Fair Value

Expected
Cash Flow
PeriodProfit or Loss
Recognition
PeriodInterest rate swaps(14,408,011)

2008 to 20172008 to 2017

261,627,907
261,627,907

16,930,988(104,016)

2012 to 20132012 to 20132012 to 20132012 to 2013

421,511,628
421,511,628
1,075,581,395

21,518,443(119,512)(15,723,915)

2012 to 20132012 to 20132012 to 20132012 to 20132012 to 20132012 to 2013

13,764,331
3,464,506

13,764,331(3,464,506)

2012 to 20132012 to 20132012 to 20132012 to 2013

Financial Instruments
Designated as Hedging
December 31, 2011
Instruments
Nominal Amount
Fair Value

Expected
Cash Flow
PeriodProfit or Loss
Recognition
PeriodInterest rate swaps(26,577,900)

2007 to 20162007 to 2016

242,424,243
242,424,243

1,335,266(223,816)2011 to 20122011 to 20122011 to 20122011 to 2012

454,545,454
454,545,454
1,090,909,091

3,180,528(2,435,645)
8,908,414

2011 to 20122011 to 20122011 to 20122011 to 20122011 to 20122011 to 2012

93,597,496
41,517,468

93,597,496(41,517,468)

2011 to 20122011 to 20122011 to 20122011 to 2012

The Company
Floating-interest long-term
debts
Fuel cost in U.S. dollars

Lease cost in U.S. dollars

Lease cost in U.S. dollars
Fuel cost in U.S. dollars

Currency options
Call
Put
Currency options
Call
Put
Forward exchange
Fuel swaps
Call
Put

$ 6,080,000,000$$

Hedged Items

18,393,802

The Company
Floating-interest long-term
debts
Fuel cost in U.S. dollars

Lease cost in U.S. dollars

Lease cost in U.S. dollars
Fuel cost in U.S. dollars

Currency options
Call
Put
Currency options
Call
Put
Forward exchange
Fuel swaps
Call
Put

$ 3,335,000,000$$- 32 -

36,266,875

The gain or loss on cash flow hedging instruments that was recognized as adjustments to stockholders’equity is summarized as follows:
December 31
Adjustment Items

2012

2011

Amount recognized in equity during the year
Amount removed from equity and included in profit or loss forthe year$ 47,941,472$ 118,908,800(66,312,356)

5,162,519

25. RELATED-PARTY TRANSACTIONS
a. The Company’s related parties
Related Party

Relationship with the Company

Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
China Aircraft Service
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Yangtze River Express Airlines
China Aviation Development Foundation

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Equity-method investee
Equity-method investee
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary’s equity-method investee
Major stockholder (35.91%)

b. Significant transactions with related parties:
2012
Amount1)

2011%

Amount%Revenues
Mandarin Airlines
Yangtze River Express Airlines
Global Sky Express
China Aviation Development Foundation
Taiwan Air Cargo Terminal
Others$ 1,976,879,342
242,126,617
137,128,997
38,485,679
18,374,554
64,184,072

1.49
0.18
0.10
0.03
0.02
0.05

$ 1,992,992,303
413,227,934
173,667,300
43,945,387
16,577,041
56,740,885

1.51
0.31
0.13
0.03
0.01
0.05

$ 2,477,179,261

1.87$ 2,697,150,850

2.04- 33 -

2012
Amount2)

2011%

Amount%Costs
China Pacific Catering Services
Taoyuan International Airport Services
Taiwan Airport Services
Mandarin Airlines
Hwa Hsia
Taiwan Air Cargo Terminal
Cal Park
China Aircraft Services
Kaohsiung Catering Services
Cal Hotel
China Pacific Laundry Services
Yangtze River Express Airlines Co., Ltd.
Dynasty Holidays
China Aviation Development Foundation
Asian Compressor Technology Services
Cal-Dynasty International
Science Park Logistics
Others$ 1,149,899,895
974,717,296
364,839,483
286,280,459
270,234,599
258,818,372
213,019,195
189,516,950
124,485,523
81,118,096
74,135,799
68,307,236
64,215,917
62,275,301
35,548,641
27,440,178
24,966,491
10,459,565

0.93
0.79
0.30
0.23
0.22
0.21
0.17
0.15
0.10
0.07
0.06
0.06
0.05
0.05
0.03
0.02
0.02
0.01

$ 1,022,825,052
963,217,353
357,520,529
253,102,909
250,323,655
273,858,674
213,019,195
204,948,299
116,392,074
79,955,286
78,817,192
47,023,485
56,842,650
68,044,125
48,243,448
37,352,941
27,310,453
10,525,919

0.82
0.77
0.29
0.21
0.20
0.22
0.17
0.16
0.09
0.06
0.06
0.04
0.05
0.05
0.04
0.03
0.02
0.01

$ 4,280,278,996

3.47$ 4,109,323,239

3.29

December 31
2012

3)

%

Amount%$338,512,733
18,056,192
16,250,325
4,363,693
3,339,547
1,910,073
2,625,004

87.91
4.69
4.22
1.13
0.87
0.50
0.68

$

224,039,272
14,972,813
29,123,374
7,121,113
3,697,160
1,014,467
2,840,858

79.22
5.29
10.30
2.52
1.31
0.36
1.00

$

385,057,567

100.00$282,809,057

100.00$290,415,552
261,255,031
230,578,097
159,764,400
62,406,266
48,928,624
33,683,711
28,928,367
19,885,340
18,248,433
12,363,578
18,885,455

24.50
22.04
19.45
13.48
5.26
4.13
2.84
2.44
1.68
1.54
1.04
1.60

$

261,782,338
259,901,080
174,655,487
72,934,113
39,299,101
38,785,230
35,726,255
23,009,686
16,079,730
13,943,715
29,477,968

27.11
26.92
18.09
7.55
4.07
4.02
3.70
2.38
1.67
1.44
3.05

$ 1,185,342,854

100.00$965,594,703

100.00Notes and accounts receivable - relatedparties
Mandarin Airlines
Yestrip
Yangtze River Express Airlines
Global Sky Express
China Aviation Development Foundation
Taiwan Air Cargo Terminal
Others4)

2011

AmountAccounts payable to related parties
China Pacific Catering Services
Taoyuan International Airport Services
Mandarin Airlines
Cal Park
Taiwan Airport Services
Hwa Hsia
Taiwan Air Cargo Terminal
China Aircraft Services
Kaohsiung Catering Services
Yangtze River Express Airlines
China Pacific Laundry Services
Others- 34 -

5) Lease of properties
In December 2008, the Company rented out planes to Mandarin Airlines under an operating leasing
contract. The monthly rent received is based on this contract. The rental rate was adjusted inAugust 2009. As of December 31, 2012 and 2011, the monthly rentals received amounted to$1,183,607,000 and $1,073,312,000, respectively.
The Company rented planes from Mandarin Airlines under an operating lease agreement. The
Company paid the rental by flight hours. The Company paid hourly flight rentals of about$237,688,000 in 2012 and $185,184,000 in 2011, respectively.
Under an operating lease agreement, the Company rented flight training machines and flight
simulators from China Aviation Development Foundation to train pilots. The Company paid therental based on usage hours. As of December 31, 2012 and 2011, the Company had paid usage
rentals of about $62,275,000 and $68,044,000, respectively.
In March 2010, the Company signed with CAL Park a one-year renewable operating leaseagreement to use the Operating and Aviation Headquarters building of the Taiwan Taoyuan
International Airport at a fixed rental of $17,752,000 monthly. In 2012 and 2011, the Company
paid rentals of $213,019,000 each.
6) Endorsements and guarantees
December 31
2012

2011

Authorized
AmountActual Amount
Used

Authorized
AmountActual AmountUsed$ 3,400,000,000
1,080,000,000
300,477,541
244,982,212
180,000,000$ 3,237,000,000
300,477,541
244,982,212
118,497,000$ 3,400,000,000
29,519,987
334,243,354
297,216,378
180,000,000$ 3,320,000,000
29,519,987
334,243,354
297,216,378
146,379,000

15,851,744

15,328,634

16,524,242

13,004,576

The Company
Cal Park
Taiwan Air Cargo Terminal
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Cal Hotel
Cal Asia
Taikoo Spirit Aerospace Systems(Jinjiang) Composite

As of December 31, 2012 and 2011, U.S. Treasury Bills amounting to $545,460,000 and$660,980,000, respectively, had been pledged as collaterals for financing lease transactions ofFreighter Princess Ltd., Freighter Prince Ltd. and Freighter Queen Ltd. and were included in
restricted assets - noncurrent.
The transactions between the Company and related parties refer to the air transportation industry.
The transaction price is negotiated under a regular transaction process, and the term of making
collections and payments for receivables and payables is from 30 days to 2 months, which isconsistent with the Company’s credit policy.

- 35 -

7) Bonds payable - related parties
Related parties that invested in the first issue of private unsecured bonds in 2012 and 2010
(Note 14) are summarized as follows:
December 31, 2012
Aggregate
Units
Par/Dollars

Related Parties
The first issue of private unsecured bonds in 2012
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)

100
280
60

$ 100,000,000
280,000,000
60,000,000

300
300
60
40
10

300,000,000
300,000,000
60,000,000
40,000,000
10,000,000

The first issue of private unsecured bonds in 2010
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)
China Pacific Catering Services
Hwa Hsia

December 31, 2011
Aggregate
Units
Par/Dollars

Related Parties
Taoyuan International Airport Services
Mandarin Airlines
Abacus Distribution Systems (Taiwan)
China Pacific Catering Services
Hwa Hsia

300
300
60
40
10

$ 300,000,000
300,000,000
60,000,000
40,000,000
10,000,000

As of December 31, 2012 and 2011, interest expenses were $28,463,000 and $19,826,000,
respectively. The interests payable were $6,649,000 in 2012 and $2,454,000 in 2011.
8) Property transactions
To enhance asset use and improve resource sharing within its network, the Company sold the landand building located in the Taichung Port road to Mandarin Airlines for $29,320,000 in December
2012. The gain on disposal of properties was $126,000, which had been collected in full.
c. Compensation of directors, supervisors and management personnel
December 31

Salaries
Incentive and special compensation- 36 -

20122011$ 34,161,116
12,382,557$ 38,127,633
12,111,219$ 46,543,673$ 50,238,852

26. PLEDGED ASSETS
The following assets had been pledged or mortgaged as collaterals for long-term and short-term bank loans
and business transactions:
December 31

Properties - flight equipment, net
Properties - buildings
Properties - machinery and equipment
Restricted assets - noncurrent (US treasury bill)

2012

2011

$ 94,975,848,646
2,245,118,771
657,623,789
545,459,753$ 104,105,500,044
2,298,687,338
707,627,408
660,979,718$ 98,424,050,959$ 107,772,794,508

27. COMMITMENTS AND CONTINGENT LIABILITIESAs of December 31, 2012, the Company had commitments and contingent liabilities, as follows:a. In 2009, the Securities and Futures Investors Protection Center (SFIPC) filed a civil lawsuit against Far
East Air Transport Ltd. (FEAT) and its executives, directors and supervisors (natural persons) becauseof allegedly false financial statements for a period starting from the second quarter of 2005 to the third
quarter of 2007; the filing was based on Article 20 and Article 20 - 1 of the Securities and ExchangeAct; Article 23 of the Company Act; and Articles 28, 184 and 185 of the Civil Code. In this lawsuit,the SFIPC imposed joint and several liabilities on FEAT’S executives, directors, and supervisors forthem to give a total compensation of $297,061,000 to the investors of FEAT. Later, in January 2010,
SFIPC included in its lawsuit the directors and supervisors who are legal persons of FEAT (including
the Company), as joint defendants. As of March 29, 2013, the date of the accompanying auditors’
report, there were 36 joint defendants in this lawsuit. Although the case is still under review by the
Taipei District Court, the Company believes this case will have no material impact on its financial andsales operations.
b. The Company leased certain flight equipment, hangar, and a headquarters building under various
operating lease agreements expiring on various dates until December 2024. Lease deposits aggregated$9,955,713,000.
Minimum rentals for future years are summarized as follows:Year

Amount

2013
2014
2015
2016
2017

$ 5,709,957,197
4,809,665,216
3,888,058,877
3,207,577,549
3,109,079,957

Rentals from 2018 and on will aggregate $10,358,235,000. The present value of these rentals,
discounted at the discount interest rate 1.37% for one-year time deposits of Chunghwa Post Co., Ltd., is$9,676,950,000.
c. In January 2008, the Company entered into a contract to buy from Airbus fourteen A350-900 aircraft,with the option to buy six more A350-900 aircraft, with aggregate purchase prices of US$3,933,235,000
and US$1,802,645,000, respectively. As of December 31, 2012, the Company had paid about
US$237,194,000, which was included in the “prepayments for equipment” in the properties section of
the balance sheets.
- 37 -

d. In December 2012, the Company entered into a contract to buy six 777-300ER aircraft from the Boeing
Company, with the option to buy six more 700-300ER aircraft, at aggregate purchase prices of
US$2,067,261,000 and US$2,213,015,000, respectively. As of December 31, 2012, the Company had
paid about US$20,673,000, which was included in the “prepayments for equipment” in the properties
section of the balance sheets.

28. FINANCIAL ASSETS AND LIABILITIES IN FOREIGN CURRENCY
The material financial assets and liabilities denominated in foreign currency were as follows:(Unit:

2012

Foreign Currencies/New Taiwan Dollars)

2011

Foreign
Currencies

Exchange Rate

New Taiwan
Dollars

Foreign
Currencies

Exchange Rate

New Taiwan
Dollars

59,054,021
14,949,828
289,354,718
2,202,309,200
1,024,262,032

29.0698
38.4615
3.74530.33614.6577$ 1,716,688,580
574,992,810
1,083,720,225
740,196,122
4,770,705,266

123,586,016
13,462,095
360,575,843
1,517,912,341
873,956,113

30.3030
40.4858
3.8926
0.38914.7596$ 3,745,027,050
545,023,672
1,403,577,527
590,619,692
4,159,681,517

1,424,477,867

29.0698

41,409,286,698

1,317,164,584

30.3030

39,914,038,382

49,800,880
101,945,808
107,479,189

29.0698
3.74530.3361

1,447,700,000
381,819,505
36,126,244

47,317,520
97,926,908
98,362,112

30.3030
3.8926
0.3891

1,433,864,243
381,186,876
38,268,728

883,538,220
7,015,864
63,060,777
3,423,949,732
308,515,409

29.0698
38.4615
3.74530.33614.6577

25,684,279,348
269,840,653
236,181,528
1,150,789,505
1,436,972,220

1,185,879,061
9,708,706
59,839,143
4,872,121,446
236,237,315

30.3030
40.4858
3.8926
0.38914.759635,935,693,185
393,064,717
232,929,849
1,895,742,455
1,124,395,124

Financial assets
Monetary items
USD
EUR
HKD
JPY
RMB
Foreign operating entity
USD
Investments accounted forusing the equity method
USD
HKD
JPY

$

$

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

29. ADDITIONAL DISCLOSURESa. Following are the additional disclosures required by the Securities and Futures Bureau for the Company
and its investees:
1) Financing provided:

None2) Endorsement/guarantee provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)4) Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20%of the paid-in capital: Table 3 (attached)5) Acquisition of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None
6) Disposal of individual real estates at cost or prices of at least NT$100 million or 20% of the paid-in
capital: None
7) Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 4 (attached)- 38 -

8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached).
9) Names, locations, and related information of investees on which the Company exercises significant
influence: Table 6 (attached).
10) Derivative financial transactions (Note 24)
b. Investment in Mainland China: Table 7 (attached)

30. SEGMENT INFORMATIONThe Company mainly engages in air transportation services for passengers, cargo and others. The major
revenue-generating asset is the aircraft fleet, which is jointly used for passenger and cargo services. Thus,
the Company’s sole reportable segment is the flight segment. For operating segment reporting in the
consolidated financial statements, the reportable segment of the Company and its consolidated subsidiaries
comprises the flight and the non-flight business departments.

- 39 -TABLE 1

CHINA AIRLINES, LTD. AND INVESTEESENDORSEMENT/GUARANTEE PROVIDEDYEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Counter-party

No.

0

1

Endorsement/
Guarantee Provider

China Airlines(the “Company”)

Cal Asia

Name

Nature of Relationship

Limits on EachCounter-party’s
Endorsement/
Guarantee Amounts(Note 1)

Maximum
Balance for the
PeriodEnding Balance

Ratio ofAccumulated
Maximum
Value of Collaterals
Amount ofCollateral/
Property, Plant, or Collateral to Net Guarantee Amounts
Equipment
Equity of the Latest
Allowable
Financial Statement(Note 2)(%)$

Cal Park

100% subsidiary$ 10,428,246,216$ 3,400,000,000$ 3,400,000,000

-

6.52

$ 26,070,615,540

Taiwan Air Cargo Terminal
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Cal Hotel

54% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary

10,428,246,216
10,428,246,216
10,428,246,216
10,428,246,216
10,428,246,216

1,080,000,000
28,821,289
331,214,608
253,074,717
180,000,000

1,080,000,000
300,477,541
244,982,212
180,000,000

300,477,541
244,982,212
-

2.07
0.58
0.47
0.35

26,070,615,540
26,070,615,540
26,070,615,540
26,070,615,540
26,070,615,540

Taikoo Spirit Aerospace Systems(Jinjiang) Composite

Investments accounted for by thecost method

86,189,000

16,375,375

15,851,744

-

3.68

2,154,716,686

Note 1: Based on the Company’s guidelines, the maximum amount of guarantee to an individual counter-party is up to 20% of the Company’s stockholders’ equity.
Note 2: Based on the Company’s guidelines, the allowable aggregate amount of collateral guarantee is up to 50% of the Company’s stockholders’ equity.

- 40 -TABLE 2

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES HELDDECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name
China Airlines (the “Company”)

Marketable Securities Type and Issuer/Name

Stock
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
China Aircraft Service
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel Co., Ltd.
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Hua Han Financial Holdings

Relationship with theHolding Company

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investees
Subsidiary
Equity-method investees
Equity-method investees
Subsidiary
Equity-method investees
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary-

Stock
China Airlines
France Telecom$ 1,513,701,724
1,469,920,155
1,335,204,762
1,016,755,000
688,008,930
652,809,376
430,945,000
421,450,514
335,062,342
312,007,212
243,699,384
233,647,293
193,633,640
183,788,014
157,875,614
111,121,837
36,126,244
33,776,973
6,960,097
35,08834,60232,895
222,899,040

Note 1
Note 2
Note 2
Note 2
Note 1-

Financial assets at cost - noncurrent

135,937

472,522--

Financial assets at cost - noncurrent
Financial assets at cost - noncurrent
Financial assets at cost - noncurrent

12,000,000
1,100,000
592,500

56,022,929
11,000,000
5,925,000

15.00
11.00
6.58

49,589,888
16,090,179
775,047

Note 6Note 5Note 5

12,332,965.40

200,171,428-

200,171,428-

15,603,545.13

200,166,958-

200,166,958-

16,459,686.12

200,065,839-

200,065,839-

2,074,628
8,274

24,895,536
2,654,045-

24,895,536
2,654,045-

Union Money Market Fund

Mandarin Airlines

Note

-

-

Parent company-

Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current

Available-for-sale financial asset - current
Available-for-sale financial asset - current

54.00
100.0093.99
100.0051.00
49.00
100.00
93.93
20.00
47.35
35.78
24.50
100.0028.48
55.00
100.0051.00
100.0025.00
100.00100.00100.00-Market Value or Net
Asset Value-

Beneficial certificates
UPAMC James Bond Money Market Fund

Mega Diamond Money Market Fund

Shares/Units

December 31, 2012
Percentage ofCarrying Value
Ownership

Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Available-for-sale - current
Financial assets at cost - noncurrent

China Life Insurance Co., Ltd.
France Telecom
Abacus International Holdings Ltd. - unlisted common
stockAbacus International Holdings Ltd. - unlisted preferredstockJardine Air Terminal Services
Chung Hua Express Co.
Regal International Advertising

Financial Statement Account

135,000,000
150,000,000
188,154,025
2,614,500
43,911,000
34,300,000
46,516,200
13,021,042
28,400,000
20,626,644
14,329,759
7,732,200
46,500,000
13,293,000
13,750,000
50,000408
1,600,000
250,000
1,000
1,000
1,000
13,267,800$ 1,513,701,724
1,469,920,155
1,226,818,604
1,016,755,000
688,008,930
652,809,376
430,945,000
421,450,514
381,819,505
312,007,212
242,279,047
233,647,293
193,633,640
190,874,553
157,875,614
101,352,011
36,126,244
33,776,973
6,960,097
35,08834,60232,895
222,899,040

16,424,127

430,312,127-

430,312,127-

195,587
1,359,368

62,738,292
297,946,451

13.59

62,738,292
229,591,988

Notes 3 and 5-

Notes 3 and 5(Continued)- 41 -

Holding Company Name

Marketable Securities Type and Issuer/Name

BondFirst Issue of Private Unsecured Bonds in 2010 - China
Airlines
First Issue of Private Unsecured Bonds in 2012, China
Airlines
China Pacific Catering Services

Stock
Taiwan Air Cargo Terminal
BondFirst Issue of Private Unsecured Bonds in 2010 - China
Airlines
First Issue of Private Unsecured Bonds in 2012 - China
Airlines

Cal-Asia Investment

Abacus Distribution Systems(Taiwan)

Stock
Xiamen International Airport Air Cargo Terminal
Xiamen International Airport Air Cargo Storage
Eastern United International Logistics
Yangtze River Express Airlines
Taikoo (Xiamen) Landing Gear Services
Taikoo Spirit Aerospace Systems (Jinjiang) Composite

Taiwan Airport Services

300

Parent company

Bond investments with no active market - noncurrent-

Parent company

Available-for-sale financial asset - current
Available-for-sale financial asset - current
Available-for-sale financial asset - current
Available-for-sale financial asset - current

Bond investments with no active market - current

Controlled by China Airlines Financial assets carried at cost - noncurrent

December 31, 2012
Percentage ofCarrying Value
Ownership$

300,000,000-

280

280,000,000

6,598,135.80
6,041,184.80
575,217.62
6,318,456.80

Market Value or Net
Asset Value

$

Note

300,000,000--

280,000,000-

97,111,363
96,658,353
99,677,736
100,023,699-

97,111,363
96,658,353
99,677,736
100,023,699-

40

40,000,000-

40,000,000-

6,250,000

62,500,000

2.5

70,078,783-

Parent company

Bond investments with no active market - current

300

300,000,000-

300,000,000-

Parent company

Bond investments with no active market - noncurrent

100

100,000,000-

100,000,000-

Equity-method investees
Equity-method investees
Equity-method investees
Equity-method investees-

Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Financial assets carried at cost - noncurrent
Financial assets carried at cost - noncurrent

1,050,000-

227,803,837
91,874,709
27,013,721
62,534,884
18,488,372

14.00
14.00
35.00
25.00
8.00
5.45

225,953,040
46,303,289
38,541,400(2,028,978,536)
24,838,070
8,900,551

Notes 2 and 4
Notes 2 and 4
Note 5-

Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current

265,726.48

3,256,052-

3,256,052-

2,428,448.80

32,067,268-

32,067,268-

2,292,766.13

30,101,676-

30,101,676-

2,751,466.00

40,486,748-

40,486,748-

1,898,491.78

23,075,978-23,075,978--

Eastspring Inv Well Pool Money Market Fund-

Taishin 1699 Money Market Fund-

Yuanta Wan Tai Money Market Fund-

Mega Diamond Money Market Fund

-

Stock
TransAsia Airways
Taiwan Airport Service (Samoa)
Titan V.C. Corp.
Taiwan Air Cargo Terminal

Shares/Units

Bond investments with no active market - current

Beneficial certificates
Mirae Asset Solomon Money Market Fund

BondFirst Issue of Private Unsecured Bonds in 2010 - China
Airlines
First Issue of Private Unsecured Bonds in 2012 - China
Airlines

Financial Statement AccountParent company

Beneficial certificates
HSBC NTD Money Market Fund II
JF (Taiwan) Taiwan Money Market FundFSITC Money Market Fund
Hua Nan Phoenix Money Market Fund
BondFirst Issue of Private Unsecured Bonds in 2010 - China
Airlines

Taoyuan International Airport
Services

Relationship with theHolding Company

Parent company

Bond investments with no active market - current

60

60,000,000-

60,000,000-

Parent company

Bond investments with no active market - noncurrent

60

60,000,000-

60,000,000-

2,265,182
1,448,171
6,250,000

34,770,544
318,803,124
2,065,210
62,500,000

0.40
100.005.30
2.50

34,770,544
318,803,124
7,805,642
70,078,783

Note 4Note 5--

Available-for-sale financial asset - noncurrent
Investments accounted for by the equity method
Financial assets carried at cost - noncurrent
Controlled by China Airlines Financial assets carried at cost - noncurrent
Subsidiary(Continued)- 42 -

Holding Company Name

Hwa Hsia

Marketable Securities Type and Issuer/Name

Beneficial certificates
Fuh-Hwa Money Market Fund-

Prudential Financial Global Small & Mid cap Fund-

Prudential Financial High-Tech Fund-

Prudential Financial Taiwan Enterprise Fund-

Taishin 1699 Money Market Fund-

Taishin Ta-Chong Money Market Fund-

Taiwan Money Market Fund-

Paradigm Pion Money Market Fund-

Union Money Market Fund-Jih Sun Money Market Fund-

Yuanta Wan Tai Money Market Fund-

Yuanta De-Bao Money Market Fund

-

Stock
Hwa Shin Building Safeguard
China Airlines

Shares/Units-

1,766,705-

1,766,705-

55,3001,217,706-

1,217,706-

720,6469,461,365-

9,461,365-

1,169,056

16,122,803-

16,122,803-

405,795

6,023,738-

6,023,738-

540,590

6,066,281-

6,066,281-

469,8816,027,770-

6,027,770-

840,827

12,077,470-

12,077,470-

689,230

10,143,071-

10,143,071-

516,9216,034,065-

6,034,065-

Investments accounted for by the equity method
Available-for-sale financial asset - current

1,000,000
814,152

18,630,712
9,769,824

100.00-18,630,712
9,769,824

Note 5-

Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current

665,783.90

9,182,026-

9,182,025-

349,522.71

4,588,884-

4,588,884-

200,000.00

1,792,000-

1,792,000-

Parent company

Bond investments with no active market - noncurrent

10

10,00,000-

10,00,000-

Equity-method investees
Equity-method investees

Investments accounted for by the equity method
Investments accounted for by the equity method-

227,282,093
91,520,698

14.00
14.00

225,953,040
46,303,289

Notes 2 and 4
Notes 2 and 4-

Yuanta Wan Tai Money Market Fund-$

6,742,501-

84,3202,303,622

118,970

Note 1:

Based on the ROC Statement of Financial Accounting Standards No. 30 - “Accounting for Treasury Stocks,” Company shares held by subsidiaries are reclassified from investment in shares of stocks to treasury stocks.
of Mandarin Airlines is due to the difference between the investment acquisition cost and the Company’s equity in the investee’s net assets.

Note 2:The difference between carrying value and net asset value was the difference between the investment acquisition cost and the Company’s equity in the investee’s net assets.

Note 3:The subsidiary’s net asset value was $229,591,988, which included common stock and preferred stock as of and for the year ended December 31, 2012.

Note 4:The Company does not issue stocks because it is a limited company.

Note 5:The net asset value was calculated using the investee's unaudited financial statements as of and for the year ended December 31, 2012 because the audited financial statements were not prepared on time.

Note 6:

The net asset value was calculated using the investee's audited financial statements as of and for the year ended December 31, 2011 because the audited financial statements were not prepared on time.

$

Note

2,303,622

Taishin 1699 Money Market Fund

479,808

Market Value or Net
Asset Value-

Subsidiary
Parent company

Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current
Financial assets at fair value through profit or loss current

December 31, 2012
Percentage ofCarrying Value
Ownership

-

-

Stock
Xiamen International Airport Air Cargo Terminal
Xiamen International Airport Air Cargo Storage

Financial Statement Account6,742,501

Beneficial certificates
Taishin Ta-Chong Money Market Fund

BondFirst Issue of Private Unsecured Bonds in 2010 - China
Airlines
Taiwan Airport Service (Samoa)

Relationship with theHolding Company

In addition, the difference between the carrying value and net asset value(Concluded)- 43 -TABLE 3

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALYEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Company Name

China Airlines

Marketable Securities Type and Issuer/Name

Beneficial certificates
UPAMC James Bond Money Market Fund
Union Money Market Fund
Mega Diamond Money Market Fund
Taishin 1699 Money Market Fund
Taishin Ta-Chong Money Market FundEastspring Inv Well Poll Money Market
Yuanta Wan Tai Money Market FundJih Sun Money Market Fund
Polaris De-Bao Money Market FundFSITC Money Market Fund
Taishin Lucky Money Market Fund

Stock
China Life Insurance Co., Ltd.

Mandarin Airlines

Taoyuan International Airport
Service

Note:

Beginning Balance

Financial Statement AccountCounter-party

Nature ofRelationship

Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current
Financial assets at fair value throughprofit or loss - current

-

-

-

-

-

-

Financial assets at fair value throughprofit or loss - current

Shares/Units

Acquisition (Note)

Amount$Shares/Units$

DisposalAmountShares/Units

950,171,428

46,289,442.77$

Ending Balance

AmountCarrying Value

Gain (Loss) on
Disposal

Shares/Units

750,217,565$$

217,565

12,332,965.40

750,000,000

Amount-58,622,408.17$

200,171,428--

31,223,907.83

400,166,958

15,620,362.70

200,089,036

200,000,000

89,036

15,603,545.13

200,166,958-

124,610,923.61

1,500,000,000

152,843,484.71

1,850,065,839

260,994,722.20

3,158,319,490

3,150,000,000

8,319,490

16,459,686.12

200,065,839--

69,097,779.07

900,000,000

206,551,821.71

2,700,000,000

275,649,600.78

3,604,967,834

3,600,000,000

4,967,834

-

-

-

-

29,236,561.70

400,000,000

167,264,588.30

2,300,000,000

196,501,150.00

2,702,655,825

2,700,000,000

2,655,825

-

-

-

-

-

-

151,930,278.70

2,000,000,000

151,930,278.70

2,001,873,326

2,000,000,000

1,873,326

-

-

-

-

-

-

13,687,754.90

200,000,000

13,687,754.90

200,580,360

200,000,000

580,360

-

-

-

-

14,032,232.04

200,000,000

14,012,372.93

200,000,000

28,044,604.97

400,479,763

400,000,000

479,763

-

-

-

-

-

-

34,467,786.30

400,000,000

34,467,786.30

400,477,529

400,000,000

477,529

-

-

-

-

-

-

20,307,534.50

300,000,000

20,307,534.50

300,289,881

300,000,000

289,881

-

-

-

-

-

-

18,549,778.30

200,000,000

18,549,778.30

200,113,153

200,000,000

113,153

-

-

-

-

-

-

29,755,127.00

544,566,122

13,331,000.00

378,780,468

114,253,995

264,526,473

16,424,127.00

430,312,127

BondFirst Issue of Private Unsecured Bonds in 2012 - China
Airlines

Bonds investments with no active
market - noncurrent

China Airlines

Parent company

-

-

280

280,000,000

-

-

-

-

280

280,000,000

BondFirst Issue of Private Unsecured Bonds in 2012 - China
AirlineBonds investments with no active
market - noncurrent

China Airlines

Parent company

-

-

100

100,000,000

-

-

-

-

100

100,000,000

Including valuation gain and loss on financial assets at the end of the period.

- 44 -TABLE 4

CHINA AIRLINES, LTD. AND INVESTEESTOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALYEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd. (“China Airlines”)

Related Party

Nature of RelationshipTaiwan Air Cargo Terminal
Cal Park
Mandarin Airlines

Subsidiary
Subsidiary
Subsidiary

China Pacific Catering Services
Taoyuan International Airport Service
China Aircraft Services
Taiwan Airport Services
Kaohsiung Catering Services
Hwa Hsia
Yangtze River Express Airlines
Global Sky Express

Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Equity-method investee
Subsidiary
Subsidiary’s equity-method
investee
Subsidiary

Taiwan Air Cargo Terminal

China Airlines

Cal Park

Purchase/
Sale
Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale$

Amount% to
Total

258,818,372
213,019,195(1,976,879,342)
286,280,459
1,149,899,895
974,717,296
189,516,950
364,839,483
124,485,523
270,234,599(242,126,617)

0.21
0.17
(1.49)
0.23
0.93
0.79
0.15
0.30
0.10
0.22
(0.18)

Abnormal Transaction
Payment Terms
30 days
2 months
2 months
2 months
60 days
40 days
30 days
40 days
40 days
2 months
2 months

Unit Price$

Payment Terms--

Note/Account Payable or
Receivable% toEnding Balance
Total
$

Note

(33,683,711)(159,764,400)
338,512,733(230,578,097)(290,415,552)(261,255,031)(28,928,367)(62,406,266)(19,885,340)(48,928,624)
16,250,325(2.21)(10.49)4.31(15.14)(19.07)(17.16)(1.90)(4.10)(1.31)(3.21)
0.21

-

Sale

(137,128,997)(0.10) 30 days--

4,363,693

0.06-

Parent company

Sale(258,818,372)(19.48) 2 months--

33,683,711

41.77

-

China Airlines

Parent company

Sale(213,019,195)(72.16) 2 months--

159,764,400

88.11

-

Mandarin Airlines

China Airlines

Parent company

Purchase
Sale

1,976,879,342(286,280,459)

29.85 2 months(3.90) 2 months--(338,512,733)
230,578,097(88.94)67.28-

China Pacific Catering Services

China Airlines

Parent company

Sale(1,149,899,895)(58.41) 60 days--

290,415,552

71.90

-

Taoyuan International Airport Service

China Airlines

Parent company

Sale(974,717,296)(40.65) 30 days--

261,255,031

63.99

-

China Aircraft Services

China Airlines

Investor using equity method

Sale(189,516,950)(13.74) 30 days--

28,928,367

12.43

-

Taiwan Airport Services

China Airlines

Parent company

Sale(364,839,483)(38.79) 45 days--

62,406,266

43.29

-

Kaohsiung Catering Services

China Airlines

Investor using equity method
sales

Sale

(124,485,523)(6.82) 40 days--

19,885,340

8.17

-

Hwa Hsia

China Airlines

Parent company

Sale(270,234,599)(84.95) 2 months--

48,928,624

88.25

-

Yangtze River Express Airlines

China Airlines

Parent company of stockholder Purchaseusing equity-method

242,126,617

2.18

2 months--(16,250,325)(0.33)-

Global Sky Express

China Airlines

Parent company

137,128,997

86.91

15 days--(4,363,693)(90.67)-Purchase- 45 -TABLE 5

CHINA AIRLINES, LTD. AND INVESTEESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALDECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Company Name

Related Party

Nature ofRelationship

OverdueEnding Balance

Turnover Rate

$ 338,512,733

7.16

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

230,578,097

Taoyuan International Airport Service

China Airlines

Parent company

China Pacific Catering Services

China Airlines

Cal Park

China Airlines

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts--$ 338,512,733

1.60

-

-

146,607,567-

261,255,031

3.74

-

-

143,235,303-

Parent company

290,415,552

4.16

-

-

196,718,628-

Parent company

159,764,400

1.33

-

-

106,509,600-- 46 -$-TABLE 6

CHINA AIRLINES, LTD. AND INVESTEESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEYEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Investment Amount
Investor Company

China Airlines, Ltd.

Investee Company

Location

Main Businesses and Products

Balance as of December 31, 2012
Percentage ofCarrying Value
Ownership

December 31, 2012

December 31, 2011

Shares$$1,350,000,000
1,500,000,000
2,042,368,252
US$ 26,145,000
439,110,000
147,000,000
US$ 45,476,200
52,200,000
HK$ 58,000,000
12,289,100
140,240,221
77,322,000
465,000,000
150,654,000
137,500,000

135,000,000
150,000,000
188,154,025
2,614,500
43,911,000
34,300,000
46,516,200
13,021,042
28,400,000
20,626,644
14,329,757
7,732,200
46,500,000
13,293,000
13,750,000

54.00
100.0093.99
100.0051.00
49.00
100.00
93.93
20.00
47.35
35.78
24.50
100.00
28.48
55.00

US$
US$
US$

50,000,000
20,400,000
26,264,643
2,500,000
1,000
1,000
1,000

US$
US$
US$

50,000,000
20,400,000
26,264,643
2,500,000
1,000
1,000
1,000

50,000408
1,600,000
250,000
1,000
1,000
1,000

100.0051.00
100.0025.00
100.00100.00100.00101,352,011
36,126,244
33,776,973
6,960,097
35,08834,60232,895

Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
China Pacific Catering Services
Taoyuan International Airport Services
Cal-Asia Investment
Abacus Distribution System (Taiwan)
China Aircraft Service
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Cal Hotel Co., Ltd.
Science Park Logistics
China Pacific Laundry Services

Taoyuan, Taiwan
Taoyuan, Taiwan
Taipei, Taiwan
Los Angeles, U.S.A.
Taoyuan, Taiwan
Taoyuan, Taiwan
Territory of the British Virgin Islands
Taipei, Taiwan
Hong Kong International Airport
Taipei, Taiwan
Kaohsiung, Taiwan
Taoyuan, Taiwan
Taoyuan, Taiwan
Tainan, Taiwan
Taoyuan, Taiwan

Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.

Taoyuan, Taiwan
Tokyo, Japan
Taipei, Taiwan
Taipei, Taiwan
Cayman Islands
Cayman Islands
Cayman Islands

Air cargo and storage
Real estate lease and international trade
Air transportation and maintenance of aircraft
A holding company, real estate and hotel services
In-flight catering
Airport services
General investment
Sale and maintenance of hardware and software
Airport services
Airport services
In-flight catering
Research, manufacture and maintenance of engines
Hotel business
Storage and customs of services
Cleaning and leasing of the towel of airlines, hotels, restaurants, andhealth clubs
Cleaning of aircraft and maintenance of machine and equipment
Travel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Aircraft lease

Xiamen International Airport Air Cargo
Terminal
Xiamen International Airport Air Cargo Storage
Eastern United International Logistics
Yangtze River Express Airlines

Xiamen International Airport

Forwarding and storage of air cargoUS$4,117,846

US$

4,117,846

-

14.00

Xiamen International Airport
Hong Kong
Shanghai, China

Forwarding and storage of air cargo
Forwarding and storage of air cargo
Forwarding and storage of air cargo

US$
HK$
US$

1,947,441
3,329,268
38,796,173

US$
HK$
US$

1,947,441
3,329,268
38,796,173

1,050,000-

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$5,876,976

US$

5,876,976

Hwa Hsia

Hwa Shin Building Safeguard

Taoyuan, Taiwan

Building security and maintenance services

Taiwan Airport Service (Samoa)

Xiamen International Airport Air Cargo
Xiamen International Airport
Terminal
Xiamen International Airport Air Cargo Storage Xiamen International Airport

Cal-Asia Investment

1,350,000,000
1,500,000,000
2,042,368,252
US$ 26,145,000
439,110,000
147,000,000
US$ 46,516,200
52,200,000
HK$ 58,000,000
12,289,100
140,240,221
77,322,000
465,000,000
150,654,000
137,500,000

JPY

JPY

10,000,000$

1,513,701,724
1,469,920,155
1,226,818,604
1,016,755,000
688,008,930
652,809,376
430,945,000
421,450,514
381,819,505
312,007,212
242,279,047
233,647,293
193,633,640
190,874,553
157,875,614

Net Income (Loss) of Investment Income
the Investee(Loss)$(184,054,471 )
3,732,134
47,875,909
9,408,018
276,979,115
91,650,176
27,986,923
152,920,052
105,345,626
84,587,758
156,077,577
407,548,538(9,428,078 )
93,957,662
43,067,077

$

Note

(99,389,415 )
3,732,134
77,867,389
9,408,018
141,259,349
44,908,586
27,986,923
143,645,270
21,069,126
40,054,214
55,844,046
99,849,392(9,428,078 )
26,763,814
23,686,893

Note 1
Note 2-

29,165,206
6,686,102
11,950,372
4,265,325-

29,165,206
3,409,910
11,950,372
1,066,332-

Note 1-

227,803,837

118,068,833

16,529,675

Note 4

14.00
35.00
25.00

91,874,709
27,013,721-

72,574,738
14,615,118(525,172,051 )

10,160,473
7,258,284-

Note 4
Notes 3 and 4-

100.00318,803,124

26,690,148

26,690,148

Note 410,000,000

1,000,000

100.0018,630,712

7,260,451

7,260,451-

Forwarding and storage of air cargoUS$

3,950,226

US$

3,950,226

-

14.00

227,282,093

118,068,833

16,529,675

Note 4

Forwarding and storage of air cargoUS$

1,926,750

US$

1,926,750

-

14.00

91,520,698

72,574,738

10,160,473

Note 4Note 1:Adopted the treasury stock method in recognizing investment income or loss.

Note 2:

Represents the consolidated financial information of the foreign holding company disclosed in accordance with local regulations.

Note 3:

The Company did not recognize an income on this investment. Based on Statement of Financial Accounting Standards No. 5 - “Long-term Investments under the Equity Method,” the recognized book value of the investment was zero; thus, the Company let go of this investment.

Note 4:The investee was established as a limited company.

- 47 -TABLE 7

CHINA AIRLINES, LTD. AND INVESTEESINVESTMENTS IN MAINLAND CHINAYEAR ENDED DECEMBER 31, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

InvesteeCompany Name

Xiamen International Air
Cargo Terminal

Main Businesses andProducts

Total Amount ofPaid-in Capital(Note 8)Investment
Type

Accumulated
Outflow ofInvestment from
Taiwan as ofJanuary 1, 2012
(Note 8)Investment Flows

Outflow

Inflow

Forwarding and storage $ 1,045,551,933
of air cargo(RMB 224,480,000)

Indirect(Note 1)$
119,704,826 $(US$4,117,846)

Xiamen International Airport Forwarding and storage
65,207,266
Air Cargo Storageof air cargo(RMB 14,000,000)

Indirect(Note 1)

(US$56,611,657
1,947,441)

Taikoo (Xiamen) Landing
Gear Services

Landing gear
403,779,070
maintenance services (US$ 13,890,000)

Indirect(Note 1)-(US$

32,302,326
30,232,558
1,111,200) (US$ 1,040,000)

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

385,102,562(RMB 82,681,520)

Indirect(Note 1)

18,488,372
636,000)

-

-

(US$

Yangtze River Express
Airlines

Forwarding and storage
2,328,830,927
of air cargo(RMB 500,000,000)

Indirect(Note 1)

1,127,795,727
38,796,173)

-

(US$

Shanghai Eastern Aircraft
MaintenanceAircraft line
maintenance

90,116,279
3,100,000)

Indirect(Note 2)

(US$

7,209,302
248,000)-(US$

Shanghai Eastern UnitedInternational

Forwarding of air cargo
and ocean freight(US$

29,069,767
1,000,000)

Indirect(Note 3)

4,985,465
171,500)-(US$

Accumulated Investment in
Mainland China as ofDecember 31, 2012
(Note 8)Investment Amounts Authorized
by Investment Commission,
MOEA

Limit on Investment$1,379,330,232 (US$48,068,160)$1,403,979,836 (Note 6)$33,167,723,241 (Note 7)

-

$

-

-

Accumulated%
Outflow of
Ownership
Investment fromof Direct or
Taiwan as ofIndirect
December 31, 2012
Investment(Note 8)Investment Gain
(Loss) (Note 4)(Notes 4 and 8)$
119,704,826(US$
4,117,846)

14.00%$(US$

56,611,657
1,947,441)

14.00%

(US$

8.00%

(US$

62,534,884
2,151,200)
18,488,372
636,000)

5.45%

(US$

1,127,795,727
38,796,173)

25.00%-(US$7,209,302
248,000)

8.00%

-

(US$

4,985,465
171,500)

17.15%

(US$

-

-

-

-

(US$

Carrying Value
as of
December 31, 2012

Accumulated
InwardRemittance ofEarnings as ofDecember 31,
2012

16,529,675 $
227,803,837 $ 54,878,372
558,703) (US$7,836,452) (US$ 1,887,816)(Note 5)
10,160,473
343,424) (US$91,874,709
3,160,489)

-

-

-

(US$

62,534,884
2,151,200)
18,488,372
636,000)

-

(US$

-

-

7,209,302
248,000)-(US$4,985,465
171,500)

-

(US$

-

-

Note 1: China Airlines, Ltd. the “Company” invested in Cal-Asia Investment, which, in turn, invested in a company located in Mainland China.
Note 2: The Company invested in China Aircraft Services, which in turn, invested in a company located in Mainland China.
Note 3: Cal-Asia Investment invested in Eastern United International Logistics (Holdings), which in turn, invested in a company located in Mainland China.
(Continued)- 48 -

Note 4: The investment gain (loss) was based on the financial statements audited by the Company’s CPAs in the ROC; accrual accounting was used in the preparation of these financial statements.
Note 5: The inward remittance of earnings in 2012 amounted to US$1,887,816.
Note 6: The amount comprised US$47,035,573 and NT$36,666,667.
Note 7: The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjudgment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
Note 8: The RMB and U.S. dollar amounts of assets are translated at year-end rates and those of gains (losses), at the average of the month-end rates of IATA (International Air Transport Association) for the reporting period.
(Concluded)- 49 -