China Airlines, Ltd.
Financial Statements for the
Six Months Ended June 30, 2011 and 2010 and
Independent Auditors’ Report1

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 June 30, 2011 and 2010 and therelated statements of income, changes in stockholders’ equity and cash flows for the six months then ended.
These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress 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 andstandards 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 a test 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 all material
respects, the financial position of China Airlines, Ltd. as of June 30, 2011 and 2010 and the results of its
operations and its cash flows for the six months then ended, in conformity with the Guidelines Governing the
Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting 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 as of andfor the six months ended June 30, 2011 and 2010 on which we have issued unqualified opinions in our reports
dated August 9, 2011.

August 9, 2011
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations
and cash flows in accordance with accounting principles and practices generally accepted in the Republic ofChina and not those of any other jurisdictions. The standards, procedures and practices to audit suchfinancial 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 have beentranslated into English from the original Chinese version prepared and used in the Republic of China. If there
is any conflict between the English version and the original Chinese version or any difference in theinterpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
2

5
4
1

10,123,716
430,307
832,1938,244,519
107,857
1,166,721

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

TOTAL

Net other assets

OTHER ASSETS
Refundable deposits (Note 28)
Deferred income tax assets - noncurrent (Notes 2 and 21)
Restricted assets - noncurrent (Notes 26 and 27)
Other assets (Note 2)$ 200,552,405

19,620,210

11,354,005
6,776,012
657,925
832,268

541,479

Total intangible assets

138,031,462

1,688,283
7,218,970
4,339,264
191,157,326
673,633
13,899,138
979,401
41,298219,997,313
87,172,218
132,825,095
5,206,367

9,637,947

373,970
371,367
8,879,579
13,031

100

10

6
3
1

-

-

69

1
4
2
95
7
1
110
44
66
3

5

5
-

16

2
-

2,901,938
119,017
93,11732,721,307

4%

8,701,922

364,072
177,407$2011
AmountINTANGIBLE ASSETS
Computer software, net (Note 2)
Deferred pension cost (Note 2)

Net properties

Construction in progress and prepayments for equipment (Note 28)

PROPERTIES (Notes 2, 12 and 27)
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 long-term investments

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

Total current assets

CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)
Financial assets at fair value through profit or loss - current (Notes 2, 5
and 24)
Available-for-sale financial assets - current (Notes 2, 6 and 24)
Derivative financial assets for hedging - current (Notes 2, 24 and 25)
Receivables:
Notes and accounts, net (Notes 2, 3 and 7)
Notes and accounts - related parties (Note 26)
Other receivables (Note 8)Inventories, net (Notes 2 and 9)
Deferred income tax assets - current (Notes 2 and 21)
Other current assets

ASSETSBALANCE SHEETSJUNE 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD.

21,104,791

12,695,893
6,289,445
1,128,319
991,134

874,415330,366
544,049

151,084,906

2,106,788
7,765,882
3,643,685
194,687,922
691,121
14,720,344
1,022,456
50,335
224,688,533
78,675,242
146,013,291
5,071,615

9,290,786

374,044371,367
8,532,507
12,86833,584,525

13,376,253
515,542970,6025,884,598
397,012
485,695

1,100,370
110,432
14,686

10,729,335$ 215,939,423$

2010
Amount

6
1
3
-

1
-

5

100

10

6
3
1
-

-

-

70

1
4
2
90
­
7
­
104
36
68
2

4

4
-

16

%

3

TOTAL

Total stockholders' equity

STOCKHOLDERS' EQUITY
Capital stock, NT$10.00 par value; authorized - 5,200,000 thousand shares;
issued and outstanding - 4,631,622 thousand shares in 2011 and 4,572,249
thousand shares in 2010
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated earnings (Deficit)
Total retained earnings
Other equity
Cumulative translation adjustments
Net loss not recognized as pension cost
Unrealized valuation gain or loss on financial instruments
Unrealized revaluation increment
Company shares held by subsidiaries reclassified into treasury stock
Total other equity

1
5
5
7
9
2

-

$ 200,552,405

100

23

(2)
(1)
(3)

(3,330,510)(2,621,974)
74,072
41,298(36,554)(5,873,668)
46,317,534

3
3

23
-

77

7

3
3
1

41

9
31
1

29

%

799,630
5,162,071(479,545)
5,482,156

46,316,224
392,822

154,234,871

Total liabilities

6,704,664
5,807,219
1,040,443

81,646,642

30,39317,750,000
62,203,115
1,663,134

59,035,903

9,700
462,200
1,359,249
10,623,552
9,160,400
14,500,000
17,788,544
1,093,342
3,738,937

299,979

13,552,326$

2011
AmountTotal other liabilities

OTHER LIABILITIES
Accrued pension costs (Notes 2 and 18)
Deferred profits on sale-leaseback (Note 2)
OthersTotal long-term liabilities

LONG-TERM LIABILITIES, NET OF CURRENT PORTION
Derivative financial liabilities for hedging - noncurrent (Notes 2, 24 and 25)
Bonds issued - noncurrent (Notes 2, 15, 24 and 26)
Loans and debts - noncurrent (Notes 16, 24 and 27)
Capital lease obligations - noncurrent (Notes 2 and 17)

Total current liabilities

CURRENT LIABILITIESShort-term loans (Notes 13 and 27)
Short-term bills payable (Note 14)
Financial liabilities at fair value through profit or loss - current (Notes
2, 5 and 24)
Derivative financial liabilities for hedging - current (Notes 2, 24 and 25)
Accounts payable
Accounts payable to related parties (Note 26)
Accrued expenses (Notes 2 and 26)
Advance ticket sales (Note 2)
Bonds issued - current portion (Notes 2, 15, 24 and 26)
Loans and debts - current portion (Notes 16, 24 and 27)
Capital lease obligations - current portion (Notes 2 and 17)
Other current liabilities

LIABILITIES AND STOCKHOLDERS’ EQUITY

47,514,266(157,251)(1,570,023)(143,279)
830,471(36,554)(1,076,636)

2,867,350
2,867,350

45,722,490
1,062

168,425,157

12,595,844

5,734,787
6,461,151
399,906

104,361,374

75,447
26,250,000
74,978,100
3,057,827

51,467,939

353,285
200,690289,858
1,164,777
13,134,788
9,320,551
3,865,600
17,717,132
1,127,291
1,544,911

200,000
2,549,056$ 215,939,423$

2010
Amount

­
­
­
1
6
4
2
8
1
1

­
1

100

22

­
(1)
­
1
­
­

­
­
1
1

21
­

78

6

3
3
­

48

­
12
35
1

24

%

CHINA AIRLINES, LTD.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share)

2011
Amount%2010
Amount%REVENUES (Notes 2 and 26)
Passenger
Cargo
Others$ 38,302,933
23,290,851
2,429,989

60
36
4$ 35,541,148
28,402,936
2,774,059

53
43
4

Total revenues

64,023,773

100

66,718,143

100

COSTS (Notes 22 and 26)
Flight operations
Terminal and landing fees
Passenger services
Aircraft maintenance
Others

39,870,509
9,111,298
3,851,702
6,123,326
1,167,620

62
14
6
10
2

35,075,752
9,236,466
3,978,210
4,702,203
1,783,792

52
14
6
7
3

Total costs

60,124,455

94

54,776,423

82

GROSS PROFIT

3,899,318

6

11,941,720

18

OPERATING EXPENSES (Note 22)
Marketing and selling
General and administrative

2,990,005
1,210,887

5
2

3,332,840
1,771,682

5
3

Total operating expenses

4,200,892

7

5,104,522

8

OPERATING PROFIT (LOSS)(301,574)(1)

6,837,198

10

77,882-

43,955-308,263
91,772
198,2071-

487,679
171,460
955

1
-

-

-

118,139-3,909
39,912
284,3131

289,714294,7791

1,004,258

2

1,406,681

2

1,118,449

2

1,415,290
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 (Note 2)
Gain on sale of available-for-sale financial assets(Notes 2, 6, and 24)
Valuation gain on financial instruments, net (Notes 2
and 5)
Foreign exchange gain, net
OthersTotal nonoperating income and gains
NONOPERATING EXPENSES AND LOSSESInterest expense (Note 26)

4CHINA AIRLINES, LTD.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars, Except Earnings (Loss) Per Share)

2011
AmountForeign exchange loss, net (Note 2)
OthersTotal nonoperating expenses and losses
PRETAX INCOME (LOSS)INCOME TAX EXPENSE (BENEFIT)
21)

2010
Amount%%358,628-

47,33092,639-1,477,077

2

1,555,259

2(774,393)(1)

6,688,620

10(112,898)-

415,3401(661,495)(1)

6,273,280

9(Notes 2 andNET INCOME (LOSS)$EARNINGS (LOSS) PER SHARE (New Taiwan
dollars; Note 23)
Basic
Diluted2011
Before Tax After Tax

2010
Before Tax After Tax$ (0.17)$ (0.17)$$

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

5$$ (0.14)$ (0.14)

1.46
1.44

$
$

1.37
1.35

(Concluded)

-

-

-

-

Unrealized valuation gain on available-for-sale financial assets

Unrealized gain on cash flow hedge

Revaluation increment reclassified as other revenue

Unrealized loss on financial instruments of equity-method
investees

-

-

-

-

-

-

Translation adjustments on a foreign operating entity

Net income in the six months ended June 30, 2010

Unrealized valuation loss on available-for-sale financial assets

Unrealized gain on cash flow hedge

Unrealized loss on financial instruments of equity-method
investees

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

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

4,572,249-

Translation adjustments on investments in shares of stocks

BALANCE, JUNE 30, 2010-

Deficit offset against capital surplus
Capital surplus

4,572,249-

Net loss in the six months ended June 30, 2011

BALANCE, JANUARY 1, 2010-

Translation adjustments on a foreign operating entity

4,631,622-

Translation adjustments on investments in shares of stocks

BALANCE, JUNE 30, 2011-

4,631,622

Appropriations of 2010 earnings
Legal reserve
Special reserve
Cash dividends - $0.4 per share

BALANCE, JANUARY 1, 2011

$ 45,722,490

-

-

-

-

-

-

-

-

$ 45,722,490$ 46,316,224

-

-

-

-

-

-

-

-

$ 46,316,224

Capital Stock Issued andOutstanding
Shares(In Thousands)
Amount

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYSIX MONTHS ENDED JUNE 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)

CHINA AIRLINES, LTD.

$

$

$

$

1,062

-

-

-

-

-

-

-

(628,088)

629,150

392,822

-

-

-

-

-

-

-

-

392,822

Capital Surplus(Notes 2 and 19)

$

$

$

$

-

-

-

-

-

-

-

-

-

-

799,630

-

-

-

-

-

-

-

799,630--

Legal Reserve

$

$

$

$

-

-

-

-

-

-

-

-

-

-

5,162,071

-

-

-

-

-

-

-

5,162,071--

6(479,545)

-

-

-

-

(661,495)--(799,630)(5,162,071)(1,852,649)

7,996,300$

2,867,350

-

-

-

-

6,273,280--

628,088$ (4,034,018)$$

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

5,482,156

-

-

-

-

(661,495)--(1,852,649)

7,996,300$

2,867,350

-

-

-

-

6,273,280--

628,088$ (4,034,018)

$

$

Total

$

$

(157,251)

-

-

-

-

-

83,482(110,527)-(130,206)$ (3,330,510)

-

-

-

-

-

40,297(776)-$ (3,370,031)

Cumulative
Translation
Adjustments(Note 2)

$ (1,570,023)(19,215)

-

-

-

-

-

-

-

$ (1,550,808)$ (2,621,974)

-

-

-

-

-

-

-

-

$ (2,621,974)

Net Loss Not
Recognized as
Pension Cost
(Note 2)

$

$

$

$

(143,279)-(1,804)

173,976(152,925)

-

-

-

-

(162,526)

74,072(160)-

137,242

1,412

-

-

-

-

(64,422)

Unrealized
Valuation Gainor Loss on
Financial
Instruments(Note 2)

$

$

$

$

830,471

-

-

-

-

-

-

-

-

830,471

41,298-(9,037)

-

-

-

-

-

-

50,335

Unrealized
Revaluation
Increment(Notes 2 and 12)

$

$

$

$

(36,554)

-

-

-

-

-

-

-

-

(36,554)(36,554)

-

-

-

-

-

-

-

-

(36,554)

Company Shares
Held by
Subsidiaries
Reclassified into
Treasury Stock(Notes 2, 19 and 20)$ 47,514,266(19,215)(1,804)

173,976(152,925)

6,273,280

83,482(110,527)­$ 41,267,999$ 46,317,534(160)(9,037)137,2421,412(661,495)

40,297(776)­­(1,852,649)$ 48,662,700

Total
Stockholders'EquityCHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)

2011
CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
Adjustments to reconcile net income to net cash provided by (used in)operating activities:
Deferred income taxes
Depreciation and amortization
Allowance for doubtful accounts
Gain on sale of available-for-sale financial assets
Valuation gain on financial instruments
Investment gain 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 to related parties
Accrued expenses
Advance ticket sales
Other current liabilities
Accrued pension cost$

(661,495)

2010$

6,273,280(145,848)
5,122,872(9,757)(3,909)(308,263)
267,118
217,418(198,207)(31,445)(322,338)(33,207)435,491
5,009,201
1,000(118,139)(289,714)(487,679)
147,920
190,449(955)(9,577)(327,587)(33,207)(2,597,977)
1,322,499
67,905(73,960)(1,583,416)(806,890)
154,113289,392(1,479,499)
510,581(112,713)
57,753(2,894,987)(1,378,248)(34,652)(179,899)(483,552)(253,800)(439,881)
76,404
1,821,665
1,010,661
160,425
218,139

Net cash provided by (used in) operating activities(359,273)

8,412,758

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of available-for-sale financial assets
Increase in investments accounted for by the equity method
Return of capital on equity - method investments
Additions to properties
Proceeds of disposal of properties
Increase in computer software
Proceeds of disposal of idle properties
Increase in refundable deposits
Increase in deferred charges
Decrease (increase) in restricted assets - noncurrent(200,000)(1,372,037)
214,306(17,084)
44,359(68,007)(23,791)
348,019

181,914
10,000(1,146,768)
1,093(1,892)
14,065(209,617)(34,776)(335,088)(1,074,235)(1,521,069)(Continued)

Net cash used in investing activities

7

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2011 AND 2010
(In Thousands of New Taiwan Dollars)

2011

2010

(1,100,000)(949,646)
3,584,948(8,230,996)
6,000,000
2,595(3,900,000)(99,704)
3,216,262(9,532,909)
8,650,000(16,011)

Net cash used in financing activities(693,099)(1,682,362)

EFFECTS OF EXCHANGE RATE CHANGES

31,549(7,345)NET INCREASE (DECREASE) IN CASH

(2,095,058)

5,201,982

CASH, BEGINNING OF PERIOD

10,796,980

5,527,353$

8,701,922$ 10,729,335$

1,162,570
36,649
1,125,921
33,969$CASH FLOWS FROM FINANCING ACTIVITIES
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
Increase (decrease) in deposits-in

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

NONCASH FINANCING ACTIVITIESCurrent portion of long-term loans and debts
Current portion of capital lease obligations
Current portion of bonds issued$ 17,788,544$ 1,093,342$ 14,500,000

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

8$$

1,365,556
38,665
1,326,891
36,865$ 17,717,132$ 1,127,291$ 3,865,600(Concluded)

CHINA AIRLINES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(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 China Aviation Development Foundation and National
Development Fund, Executive Yuan. As of June 30, 2011 and 2010, China Aviation Development
Foundation held 39.10% and 39.61% of the Company’s shares, respectively. As of June 30, 2011 and2010, National Development Fund, Executive Yuan held 11.22% and 11.37% of the Company’s shares.
The Company had 10,474 and 10,074 employees as of June 30, 2011 and 2010, 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.
For the convenience of readers, the accompanying financial statements have been translated into English
from the original Chinese version prepared and used in the Republic of China. If there is any conflict
between the English version and the original Chinese version or any difference in the interpretation of thetwo versions, the Chinese-language financial statements shall prevail.
Significant accounting policies are summarized as follows:
Foreign-currency Transactions and Transactions of Foreign Subsidiaries or Foreign Operating
EntityThe Company maintains its accounts and expresses its financial statements in New Taiwan dollars.
Foreign-currency transactions (except derivative transactions) are recorded in New Taiwan dollars at therates of exchange in effect when the transactions occur. Gains or losses resulting from the application ofdifferent foreign exchange rates when foreign-currency assets and liabilities are settled, are credited or
charged to income in the settlement period.
The year-end balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates,
and the resulting differences are recorded as credits or charges to income.
At the balance sheet date, nonmonetary assets and liabilities denominated in foreign currency (ex.,investments in equity instruments), which are measured at fair value, are reported using the closing
exchange rate. For a nonmonetary financial 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 at fair value through profit or loss, exchange differences arerecognized in the income statement. Nonmonetary financial assets and liabilities denominated in foreign
currency and measured at cost are reported using the historical exchange rate on the date of transaction.
9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.
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 is accounted for as an investment
in a foreign operating entity if the Company’s use of the aircraft results in generating revenues andincurring expenses mainly in U.S. dollars. On balance sheet date, the carrying amount of the aircraft andthe related liability are restated at balance sheet date rates. The difference is recognized in stockholders’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 property, impairment ofassets, accrued expenses - frequent flyer program, pension cost, income tax, loss on pending litigations andbonuses of employees, etc. Actual results could differ from these estimates.
Current or 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
Commercial paper acquired with maturities of less than three months from the date of purchase areclassified as cash equivalents. The carrying amount approximates fair value because of the short-term
nature of these intruments.
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 are recognized immediately in profit orloss. 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 theyear in which they arise. Cash dividends received subsequently (including those received in the year ofinvestment) 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 - closing prices as of the balance sheet date; (b)beneficial certificates (open-end funds) - 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.
10

Fair value of hybrid instruments is estimated using valuation techniques incorporating estimates andassumptions that are consistent with prevailing market conditions.
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.
An impairment loss is recognized when there is objective evidence that the financial asset is impaired.
Any subsequent decrease in impairment loss on an equity instrument classified as available-for-sale isrecognized directly in equity. If the fair value of a debt instrument classified as available-for-sale
subsequently increases as a result of an event which occurred after the impairment loss was recognized, thedecrease in impairment loss is reversed to profit.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rate, exchange rate, fuelprice, and other factors affecting gains or losses on assets and liabilities. The hedging transactions aredefined 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 the hedging
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 into 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 into profit or loss inthe same 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 other 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 adjustments
to stockholders’ equity is still recognized as adjustments to stockholders’ equity before forecast transactions
occur and then reclassified into current profit or loss when forecast transactions occur.

11

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.
Impairment of Accounts Receivable
An allowance for doubtful accounts is provided on the basis of a review of the collectibility of accounts
receivable before January 1, 2011. The Company assesses the probability of collections of accounts
receivable by an aging analysis of the outstanding receivables and by examining the economic environment
as well as the collaterals provided by customers.
As discussed in Note 3 to the financial statements, on January 1, 2011, the Company adopted the third timerevised of Statement of Financial Accounting Standards (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 the estimated future cash flow of accounts receivable decreases
as a result of one or more events that occurred after the initial recognition of the accounts receivable, theaccounts 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.

12

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 cost or net realizable value.
Inventory write-downs are made item 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 Using the Equity Method
Investments in companies in which the Company exercises significant influence on the investees’ operating
and financial policy decisions are accounted for using 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 is greater than the Company 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.
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.
Costs of investments sold are determined using the weighted-average method.
Under Statement of Financial Accounting Standards No. 30 - “Accounting for Treasury Stocks,” theCompany reclassified its shares held by its subsidiaries into 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.
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.

13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.
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 amortized using thestraight-line method over the estimated useful lives or the terms of the bonds 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.
Convertible Bonds
The net carrying amount of the bonds which was issued before June 30, 2005 (the face amount plus
redemption premium accrued to the date of conversion but will not be paid) is credited to the appropriate
capital accounts (capital stock equal to par value, with the balance credited to capital surplus) upon
conversion of the bonds. No gain or loss is recognized on such conversions.
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.

14

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 and unused investment
credits, 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, isclassified according to 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 eligible equipment or technology, research and development
expenses and personnel training expenses are recognized in the period those acquisitions or expenses are
incurred.
Adjustments to prior year’s tax liabilities are added to or deducted from the current year’s income tax
expense.
Income taxes (10%) on undistributed earnings are recorded as expense in the year when the stockholders
resolve to retain the earnings.
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 revision is thatloans 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 six monthes
ended June 30, 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.

15

4. CASH AND CASH EQUIVALENTS
June 30
2011$

Cash on hand
Revolving fundCash in banks
Certificates of deposit
Cash equivalents

2010$

768,661
196,840,252
3,285,359,236
3,716,898,252
1,502,055,856$ 8,701,922,257

1,835,833
120,021,753
5,412,604,117
4,505,580,518
689,292,931$ 10,729,335,152

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
Financial instruments classified as held for trading were as follows:
June 3020112010$ 2,901,938,167$ 1,100,370,035$$

Financial assets held for trading
Current
Beneficiary certificates
Financial liabilities held for trading
Current
Fuel option contracts-

353,284,687

The gains on beneficial certificates in the six months ended June 30, 2011 and 2010 were $3,929,000 and$2,454,000, respectively. There was no gain or loss on derivative instruments held for trading in the six
months ended June 30, 2011. The gain on derivative instruments held for trading in the six months ended
June 30, 2010 was $287,260,000.
Financial instruments designated as at FVTPL were as follows:
June 30
20112010$ 373,970,000$ 374,044,385

Financial assets designated as at FVTPL
Noncurrent
Convertible bonds
China Life Insurance Co., Ltd.

On financial assets designated as at FVTPL for the six months ended June 30, 2011 and 2010, there were
losses of $20,000 and $1,000, respectively.

16

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS
June 30
2011

2010

Carrying Value% of
Ownership

Carrying Value% of
Ownership$ 119,016,645-$ 110,432,332­

Current
Foreign marketable equity securities
France Telecom

In April 2010, the Company disposed of its entire holding in Trade-Van Information Service. The gain on
the disposal of available-for-sale financial assets was $118,139,000.
7. NOTES AND ACCOUNTS RECEIVABLE, NET
June 30
2011
Notes receivable
Accounts receivable$

Less: Allowance for doubtful accounts

2010

371,177,744
9,807,442,016
10,178,619,760
54,903,519$$ 10,123,716,241

384,215,387
13,039,323,894
13,423,539,281
47,286,103$ 13,376,253,178

8. OTHER RECEIVABLES
June 30

Accrued revenue
Tax refunds
Others20112010$ 606,222,695
223,005,789
2,964,348$ 597,598,578
369,595,003
3,408,425$ 832,192,832$ 970,602,006

9. INVENTORIES, NET
June 30

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

2011

2010

$ 7,266,783,364
347,429,587
630,306,470$ 5,368,330,249
319,914,832
196,353,217$ 8,244,519,421$ 5,884,598,298

As of June 30, 2011 and 2010, the allowances for inventory devaluation were $66,081,000 and $54,231,000,
respectively.

1710. FINANCIAL ASSETS CARRIED AT COST
June 30
2011
Carrying Value
Unlisted common stocks
Abacus International Holdings Ltd.
Jardine Air Terminal Services
Chung Hwa Express Co.
Regal International Advertising
Far Eastern Air Transport$ 297,946,451
56,022,929
11,000,000
5,925,000
370,894,380

Unlisted preferred stocks
Abacus International Holdings Ltd.

472,5222010% ofOwnership

13.59
15.00
11.00
6.58
5.73

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

472,522$ 371,366,902% ofOwnership

13.59
15.00
11.00
6.58
5.73

-

$ 371,366,902

11. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
June 30
2011

2010

Carrying Value% of
Ownership

Carrying Value% of
Ownership$ 1,641,333,336
1,460,643,347
1,054,383,268
1,004,888,696
677,627,027
585,343,892
369,693,014
364,675,642
344,250,807
305,706,575
223,946,791
206,856,674
172,070,950
170,262,230
135,775,401
94,696,499
36,615,340
24,219,121
6,488,012
35,08834,60232,89554.00
100.0093.99
100.0049.00
51.00
100.00
20.00
93.93
47.35
100.00
35.78
28.48
24.50
55.00
100.0051.00
100.0025.00
100.00100.00100.00$ 1,658,599,569
1,464,007,227
759,065,569
1,112,292,990
667,561,351
613,930,900
369,016,206
389,510,702
333,200,687
294,658,419
89,740,528
179,823,466
165,920,828
148,881,571
119,343,523
95,297,791
40,907,303
24,059,162
6,587,044
35,08834,60232,89554.00
100.0093.99
100.0049.00
51.03
100.00
20.00
93.93
47.35
100.00
31.76
28.48
24.50
55.00
100.0051.00
100.0025.00
100.00100.00100.00Investees on which the Company exercises
significant influence
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
Taoyuan International Airport Services
China Pacific Catering Services
Cal-Asia Investment
China Aircraft Services
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Cal Hotel
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.

$ 8,879,579,207

18$ 8,532,507,421

Investment income (loss) recognized under the equity method was as follows:
Six Months Ended June 30
2011
2010
Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines
Cal-Dynasty International
Taoyuan International Airport Services
China Pacific Catering Services
Cal-Asia Investment
China Aircraft Services
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Cal Hotel
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express$(7,964,940)
3,229,587
49,616,467
1,381,825
23,401,611
46,901,088
14,416,941
7,117,001
66,403,423
19,522,470(24,358,270)
26,503,191
10,492,242
47,227,430
9,316,278
15,276,392(3,878,981)
2,923,949
735,502$ 35,036,490(11,988,797)
262,372,453(11,181,917)
25,289,082
66,997,532
16,876,422
6,902,182
68,281,040
150,738(60,746,624)
23,263,791
6,559,888
32,633,160
5,208,312
16,369,774
1,221,039
3,434,900
999,160$ 308,263,206$ 487,678,625

The equity-method investees’ financial statements, which had been used to determine the carrying amountof the Company’s investments, had been audited, except those of China Aircraft Services Ltd. The
Company believes that had this investee’s financial statements been audited, any resulting adjustment
would have had no material effect on the Company’s financial statements. The subsidiaries, Freighter
Queen Ltd., Freighter Prince Ltd. and Freighter Princess Ltd., were established in March 2001, September
2001 and January 2002, respectively, for the Leasing of the Company’s aircraft. In its balance sheets, theCompany recognized the fixed assets and liabilities related to the leased aircraft as a leasing transaction.
The difference between the cost of the investment and the investee’s net assets is from goodwill andrelated-party transaction of depreciable assets between the Company and its subsidiary. The information
on goodwill for the six months ended June 30, 2011 and 2010 is as follows:

Goodwill

Transaction
BetweenCompany andSubsidiary

Beginning
Decrease$ 52,423,365-$ (150,646,025)
16,434,112

Ending$ 52,423,365$ (134,211,913)$ 53,843,702-$ (183,514,249)
16,434,112$ 53,843,702$ (167,080,137)

Six months ended June 30, 2011

Six months ended June 30, 2010
Beginning
Decrease
Ending
19

In April 2011, the Company invested $200,000,000 in Cal Hotel to meet this investee’s operating needs.
On December 28, 2010, the Company acquired 4.02% equity in Kaohsiung Catering Services for$24,597,000 for aviation business development.
12. PROPERTIES
June 30
2011

2010

Revaluation increment - cost
Building$

Accumulated depreciation
Building
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements$ 2,645,499,497
3,171,647,655
74,273,297,542
386,359,643
5,900,121,696
795,291,642$ 3,380,943,247
3,060,239,481
65,578,436,022
390,682,640
5,445,710,799
819,230,303$ 87,172,217,675$ 78,675,242,492

41,297,645$

50,335,009

Interests capitalized in the six months ended June 30, 2011 and 2010 amounted to $36,649,000 and$38,665,000, respectively. These interests were calculated at rates ranging from 1.91%-1.95% and from
1.60%-2.22% in the six months ended June 30, 2011 and 2010, 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.
The Company had planned to use the land in Nan Kan in Taoyuan as the site for a headquarters building.
However, after the headquarters finally moved to Cal Park in Nan Kan in March 2011, the Company
decided to change the purpose for the land, depending on future operations. Thus, the land was regarded
as an individual cash-generating unit and subjected to an impairment test. Using a land appraisal report,
the Company recognized the difference between the net fair value of $1,468,433,000 and the book value of$2,047,448,000 as an impairment loss of $579,015,000.
13. SHORT-TERM LOANS
June 30
2011
Bank loans, interest of 0.79% in the six months ended June 30, 2010

20

$

2010
-

$ 200,000,000

14. SHORT-TERM BILLS PAYABLE
June 30
2011
Aggregate face value - discounted interest of 0.858% and 0.638%
in the six months ended June 30, 2011 and 2010, respectively
Less: Unamortized discount

2010

$

300,000,000
20,690$ 2,550,000,000
943,720$299,979,310$ 2,549,056,280

Commercial paper in the six months ended June 30, 2011 had matured on various dates before July 2011.
15. BONDS ISSUED
June 30

Five-year secured domestic bonds - issued at par in
July 2006; repayable in July 2009, July 2010 and July 2011;
2.21% interest p.a., payable annually.
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 2010; 2.8% 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.
Unsecured domestic convertible bonds
Third issue
Less: Current portion

2011

2010

$ 2,600,000,000$ 4,550,000,000

2,100,000,000

3,000,000,000

1,300,000,000

1,300,000,000

2,300,000,000

2,300,000,000

6,000,000,000­

8,800,000,000

8,800,000,000

2,200,000,000

2,200,000,000

5,050,000,000

5,050,000,000

1,100,000,000

1,100,000,000

800,000,000

800,000,000

32,250,000,000
14,500,000,000

1,015,600,000
30,115,600,000
3,865,600,000$ 17,750,000,000$ 26,250,000,000

On May 5, 12 and 19 of 2010, the Company made a first issue of 2010 private unsecured bonds withaggregate face value of $5,050,000,000. The investors included these affiliates: Taoyuan International
Airport Services, Mandarin Airlines, Abacus Distribution Systems (Taiwan), China Pacific Catering
Services and Hwa Hsia.
21

The third issue of unsecured domestic convertible bonds with an aggregate face value of $10,000,000,000
was on August 8, 2005. These bonds matured on August 7, 2010 at an annual zero interest rate. The
bond repayment terms, conversion features and other conditions are summarized as follows:a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. Between September 8, 2005 and August 7, 2008, the holders can require the Company to redeem theirbonds at 99.7% of face value.
c. The Company may redeem the bonds piecemeal between September 8, 2005 and June 28, 2010 undercertain conditions.
d. Between September 8, 2005 and July 28, 2010 (except for the period between the ex-dividend date andthe date of dividend declaration on record), holders may convert the bonds to the Company’s commonshares. The initial conversion price was set at NT$18.25, subject to adjustment if there is capital
injection by cash, stock dividend distribution, or capital reduction to offset accumulated deficit.
e. As of August 7, 2010, bonds with aggregate face value of $7,203,000,000 had been converted into
502,778,000 common shares of the Company. The Company repurchased and wrote off bonds withaggregate face value of $2,767,000,000, and also redeemed in August 2010 the remaining bonds withan aggregate face value of $30,000,000.
16. LONG-TERM LOANS
June 30

Bank loans
Commercial paper, net of unamortized discounts of$15,052,012 and $9,544,744 in the six months ended
June 30, 2011 and 2010, respectively
Less: Current portion

2011

2010

$ 74,576,710,637$ 88,324,776,840

5,414,947,988
79,991,658,625
17,788,543,821

4,370,455,256
92,695,232,096
17,717,132,128$ 62,203,114,804$ 74,978,099,968

Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable quarterly, semiannually or
through a lump sum payment upon maturity in February 2020. The related information is summarized asfollows:
Currency
U.S. Dollars

New Taiwan Dollars

Japanese Yen

Amounts
Original currency
2011
2010
Translated in New Taiwan
dollars2011
2010$ 44,964,128,109
47,460,410,873
44,964,128,109
47,460,410,873

22$

998,459,665
1,236,534,280
28,940,859,884
39,759,944,719$ 1,860,000,000
3,100,000,000
671,722,644
1,104,421,248(Continued)

New Taiwan Dollars

Currency
U.S. Dollars

Japanese Yen

1.147%-2.525%
0.915%-2.895%

0.2408%-4.77%
0.2949%-4.77%

0.6953%0.745%

2002/4/11-2020/2/26
2001/2/27-2020/2/26

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

2007/12/26-2012/12/26
2007/12/26-2012/12/26(Concluded)Interest rates
2011
2010
Periods
2011
2010

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 1.313% to 2.09% and 0.5% to 1.648% in thesix months ended June 30, 2011 and 2010, respectively.
17. LONG-TERM CAPITAL LEASE OBLIGATIONS
June 30

Capital lease obligations
Less: Current portion

2011

2010

$ 2,756,476,121
1,093,341,738$ 4,185,118,402
1,127,291,193$ 1,663,134,383$ 3,057,827,209

As of June 30, 2011 the Company was leasing aircraft and related parts from certain foreign companies
under capital lease agreements expiring on various dates until February 2014.
Future lease payments on flight equipment are summarized as follows:
PeriodAmountJuly to December 2011
2012
2013
January to February 2014$

536,670,723
1,134,089,610
837,772,912
247,942,876

18. 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 $57,024,000 and $65,066,000 for the six months ended June 30, 2011 and 2010,
respectively.

23

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 costs of $373,141,000 and $493,835,000 for the six months ended June30, 2011 and 2010, respectively.
Other information on the defined benefit pension fund is as follows:a. Pension fund movements
Six Months Ended June 30
2011
2010
Balance, beginning of period
Contributions
Income from pension fund investments
Payment$ 2,436,797,815
278,138,540
7,341,556(121,079,997)$ 2,143,340,771
258,536,925
19,721,825(127,110,212)

Balance, end of period$ 2,601,197,914$ 2,294,489,309

b. Accrued pension cost movements
June 30
20112010

Balance, beginning of period
Pension cost recognizedContributions
Payment$ 6,646,911,151
373,140,861(278,138,540)(37,249,706)$ 5,516,648,371
493,835,020(258,536,925)(17,159,321)

Balance, end of period$ 6,704,663,766$ 5,734,787,145

19. STOCKHOLDERS’ EQUITY
The appropriations of earnings for 2010 had been approved in the stockholders’ meetings on June 24, 2011.
The appropriations and dividends per share were as follows:
Appropriation of
Earnings
Legal reserve
Special reserve
Cash dividends$

799,629,908
5,162,070,526
1,852,648,941

Dividends Per
Share (NT$)$0.4$ 7,814,349,375
On June 29, 2010, the Company’s stockholders resolved to offset the accumulated deficit in 2009. The
Company offset the accumulated deficit against the capital surplus of $628,088,000 in 2009.
The Company’s profit sharing in cash to employees of $61,038,000 for 2010 was approved in thestockholders’ meeting held on June 24, 2011. The resolved amount of profit sharing to employees wasconsistent with tha approved under a resolution passed at the Board of Directors’ meeting held on April 29,
2011, and the same amount was charged against the earnings of 2010. No bonus to employees wasestimated for 2009 because of a deficit that year.
24Under the Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus
from shares issued in excess of par (additional paid-in capital from issuance of common shares, conversionof bonds and treasury stock transactions) and donations may be capitalized once a year within a certain
percentage of the Company’s paid-in capital. Also, the capital surplus from long-term investments may
not be used for any purpose.
Capital surplus is summarized as follows:
June 30
2011
Issue of stock in excess of par value
Long-term investment2010$ 391,866,400
955,395$­
1,062,054$ 392,821,795$

1,062,054

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
dividend 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.
There was a net loss for the six months ended June 30, 2011; thus, no bonus to employees was estimated.
For the six months ended June 30, 2010, the bonus to employees was estimated at $49,352,000. The
bonus to employees represented 3% of net income (net of the bonus) net of the accumulated deficit, legal
reserve, and special reserve. Material differences between these estimates and the amounts proposed by
the Board of Directors in the following year are retroactively adjusted for in the year of the proposal. If
the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, thedifferences are recorded in the year of stockholders’ resolution as a change in accounting estimate.
All earnings appropriations should be made and approved by the stockholders in, and be recorded to in thefinancial statements of, the year following the year of earnings generation.
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.
Under the Company Law, legal reserve shall be appropriated until it has reached the Company’s paid-in
capital. This reserve may be used to offset a deficit. When the legal reserve has reached 50% of theCompany’s paid-in capital, up to 50% thereof may be transferred to paid-in capital.

25

20. TREASURY STOCK(Shares in Thousands)
Number of
Shares,Beginningof Period

Purpose of Treasury Stock

Addition(Reduction) Number ofDuring the Shares, End
Periodof Period

Six months ended June 30, 2011
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

2,889

-

2,889

2,889

-

2,889

Six months ended June 30, 2010
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 June 30, 2011 and 2010 were as follows:
Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 40,455,246
15,875,964$ 40,455,246
15,875,964$ 56,331,210$ 56,331,210$ 34,231,362
13,433,508$ 34,231,362
13,433,508$ 47,664,870$ 47,664,870

June 30, 2011
Mandarin Airlines
Hwa Hsia

2,075
814

June 30, 2010
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.

26

21. INCOME TAX
a. The reconciliation of the income tax benefit (expense) on loss (gain) before income tax expense atstatutory income tax rate and income tax expense - and income-tax expense was as follows:
Six Months Ended June 30
2011
2010
Income tax expense (benefit) on income (loss) before income
tax at statutory rate
Add (deduct) tax effects of:Permanent differences
Temporary differences
Loss carryforwards
Loss carryforwards used
Overseas income tax expense
Income tax expense - current$$(131,646,648)$ 1,137,065,483(45,937,867)(155,210,572)
332,795,087
32,609,405(96,665,255)(358,316,981)(635,687,566)-

32,609,405$

46,395,681

b. Income tax expense (benefit) consisted of the following:
Six Months Ended June 30
2011
2010
Income tax expense - current
Investment tax credits used
Net changes in deferred income tax expense (benefit)
Equity in net loss of foreign equity-method investees
Depreciation difference between accounting and tax onproperties
Allowance for loss on idle properties
Accrued expense for the frequent-flyer program
Unrealized litigation loss
Valuation loss on financial instruments
Provision for pension cost
Unrealized foreign exchange gain or loss
Difference between accounting and tax on interest
Carryforward of unused tax losses
Investment income tax credits
Effect of tax law changes on deferred income tax
Adjustment in valuation allowance due to changes in tax
laws
Other adjustment in valuation allowance
Adjustment of prior years’ tax$

32,609,405-

Income tax expense (benefit)$ (112,897,566)$

46,395,681(7,268,497)

2,311,749

2,349,013(733,750)(12,146,334)
2,698,592(9,730,196)
170,107,530
2,790,729(332,795,087)
110,381,208-(733,750)(26,737,496)
7,408,981(3,867,281)
404,240,150(37,083,591)
9,949,452
2,791,503
638,371,977(27,602,309)
1,336,738,578(78,732,095)
340,683(300,383,915)(1,569,949,504)(59,278,617)$

415,340,375

In May 2010, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which
reduced a profit-seeking enterprise’s income tax rate from 20% to 17%, effective January 1, 2010.
The Company recalculated its deferred tax assets and liabilities in accordance with the amended Article
and recorded the resulting difference as a deferred income tax benefit or expense.

27

c. Deferred income tax assets (liabilities) as of June 30, 2011 and 2010 consisted of the following:
June 30
2011
Current
Allowance for loss on inventories
Accrued expenses for frequent-flyer program
Unrealized litigation loss
Unrealized foreign exchange loss
Valuation gain or loss on financial instruments
Investment income tax credit
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Unrealized foreign exchange loss
Unrealized loss on financial instruments
Net deferred income tax assets
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 litigation loss
Cumulative translation adjustments
Valuation gain or loss on financial instruments
Carry forward of unused tax losses
Investment income tax credit
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Depreciation difference between accounting and tax onproperties
Net deferred income tax assets

2010

$

11,233,835
15,649,725
64,353,312
948,568,961
1,039,805,833(836,583,966)
203,221,867(75,628,340)(19,736,901)$

9,219,224
17,325,336
316,597,423
9,661,818
60,058,397
626,581,274
1,039,443,472(626,581,274)
412,862,198­(15,850,097)$

107,856,626$

397,012,101$

94,693,294
174,906,355
677,570,416
84,421,643
123,343,849
682,152,608
4,813,378
4,993,936,869
231,027,309
7,066,865,721(144,099,023)
6,922,766,698$

96,579,003
161,672,747
627,293,351
90,050,143­
32,208,141
35,034,153
5,561,624,318
1,284,237,478
7,888,699,334(1,451,020,228)
6,437,679,106(146,754,665)(148,234,327)$ 6,776,012,033$ 6,289,444,779

d. Information on the imputation credit account (ICA) and creditable tax ratio is summarized as follows:
June 30

Balance of ICA

2011

2010

$ 321,302,010$ 208,150,392

The actual creditable ratio for the distribution of the earnings of 2010 was 4.08%. As of June 30, 2009,
the Company had no unappropriated retained earnings generated since January 1, 1998; thus, had no
expected creditable tax ratios.

28

e. Unused investment income tax credits as of June 30, 2011 were as follows:
Regulatory
Basis of Tax Credits

Source of the Tax Credit

Article 6 of the Statutefor Upgrading
Industries

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

Article 50 of the Statutefor Development ofTourism

Expenses for sponsoring togovernment in attending
international tourism
organizations and travel
fairs

Total
Amount of the
Tax Credits

Remaining
Tax Credits

ExpiryYear$ 840,426,652
108,071,634
165,794,201
40,542,154
24,690,954
70,675$ 840,426,652
108,071,634
165,794,201
40,542,154
24,690,954
70,675

2011
2012
2013
2014
2015
2011

f. Unused tax loss carryforwards as of June 30, 2011 were as follows:
Expiry Year

Amount

2018
2019
2021

$

8,080,215,088
19,338,265,982
1,957,618,158

g. The income tax returns of the Company through 2008 had been examined by the tax authorities. The
Company disagreed with the tax authorities’ assessment of its 2007 tax return related to tax credits andhad applied for a reexamination. Nevertheless, the Company has provided for the income tax assessedby the tax authorities for conservatism.
22. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
Six Months Ended June 30, 2011
Included in
Included in
OperatingOperating Costs
Expenses
Total
Personnel
Salaries
Labor and health insurance
Pension cost
OthersDepreciation
Amortization$ 4,354,069,929
268,685,593
305,439,105
854,937,055
4,856,161,597
1,209,234$ 1,086,619,014
222,952,282
124,726,145
206,048,932
186,336,618
79,164,918$ 5,440,688,943
491,637,875
430,165,250
1,060,985,987
5,042,498,215
80,374,152

Six Months Ended June 30, 2010
Included in
Included in
OperatingOperating Costs
Expenses
Total
Personnel
Salaries
Labor and health insurance
Pension cost
OthersDepreciation
Amortization$ 4,881,442,060
244,520,182
364,682,681
1,047,305,620
4,701,160,781
1,960,715
29$ 1,798,444,222
195,554,416
194,218,431
159,831,954
189,835,020
116,244,135$ 6,679,886,282
440,074,598
558,901,112
1,207,137,574
4,890,995,801
118,204,850

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

Shares(Thousands)(As Denominator)

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

Six months ended June 30, 2011
Basic and Diluted loss per share
Net loss on common stock$ (774,393)$ (661,495)

4,628,733$ (0.17)$ (0.14)$ 6,688,620$ 6,273,280

4,569,360

$

1.46

$

1.37

-

-

61,181$ 6,688,620$ 6,273,280

4,630,541

$

1.44

$

1.35

Six months ended June 30, 2010
Basic earnings per share
Net income on common stock
Effect of dilutive potential common
stock
Third issue of unsecured domestic
convertible bonds
Diluted earnings per share

24. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments
June 30
2011

2010

Carrying Amount

Estimated
Fair Value

Carrying Amount

32,113,099,548$

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$

32,113,099,548$

39,428,811,480$

39,428,811,480

3,275,908,167
119,016,645
93,116,849
371,366,902

3,275,908,167
119,016,645
93,116,849-

1,474,414,420
110,432,332
14,686,499
371,366,902

1,474,414,420
110,432,332
14,686,499-

16,071,591,595

16,071,591,595

21,705,620,224

21,705,620,224

40,092,795
32,250,000,000
79,991,658,625

40,092,795
33,487,941,624
80,176,001,241

353,284,687
276,137,116
30,115,600,000
92,695,232,096

353,284,687
276,137,116
32,009,081,685
92,992,629,614

Financial liabilities
Financial liabilities - with fair values
approximating carrying amounts
Financial liabilities at fair value throughprofit or loss
Derivative financial liabilities for hedging
Bonds issued
Loans and debts

b. Methods and assumptions used in estimating the fair values of financial instruments are as follows:
1) The carrying amounts of cash and cash equivalents, receivables, receivables - related parties, otherreceivables, other financial assets - noncurrent, accounts deposit, restricted assets - noncurrent,
short-term loans, commercial paper, accounts payable, accounts payable to related parties, accrued
expenses, current other liabilities and other liabilities - others, approximate their fair values becauseof the short maturities of these instruments.

302) For financial assets at fair value through profit or loss, available-for-sale financial assets, andderivative financial assets for hedging, fair value is best determined at quoted market prices.
However, in many instances, there are no quoted market prices for the Company’s various financial
instruments. If quoted market prices are not available, fair values are based on estimates using
indirect data and appropriate valuation methodologies. Fair values of derivatives are determinedusing valuation techniques incorporating estimates and assumptions that are consistent withprevailing market conditions.
3) If the Company does not have significant influence over the investees and these investees’ shares do
not have quoted market prices in an active market, their fair value, which cannot be reliably
measured, are measured at cost.
4) The fair value of bonds issued is based on their quoted market price.
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 the present value of expected cash flows discounted at rates of
0.7335% to 2.049% and 0.99% to 2.094% as of June 30, 2011 and 2010, respectively, for long-termloans the Company can acquire in the market.
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 some financial and nonfinancial instruments.
c. The fair values of financial assets and financial liabilities determined at quoted market prices or
estimates are summarized as follows:
Quoted Market Prices
June 30
20112010

Fair Value Based on Estimates
June 30
20112010

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

2,901,938,167
119,016,645-$

1,100,370,035
110,432,332-$

373,970,000
93,116,849$

374,044,385­
14,686,499

Financial liabilities
Financial liabilities at fair value throughprofit or loss
Derivative financial liabilities for hedging
Bonds issued
Loans and debts

14,292,903,800-

12,192,855,500-

40,092,795
19,195,037,824
80,176,001,241

353,284,687
276,137,116
19,816,226,185
92,992,629,614

d. As of June 30, 2011 and 2010, loans, bonds issued and capital lease obligations at fixed rate that were
exposed to fair value interest rate risk amounted to $27,541,030,000 and $30,116,561,000, respectively,
and those at floating rate that were exposed to cash flow interest rate risks amounted to were$87,757,084,000 and $99,628,445,000, respectively.
e. For the six months ended June 30, 2011 and 2010, the adjustments of stockholders’ equity credited anddebited directly from the available-for-sale financial assets amounted to $1,412,000 and $271,064,000,
respectively. As of June 30, 2010, the gain recognized and deducted from the adjustments ofstockholders’ equity amounted to $118,139,000.

31

25. 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 management committee, which meets periodically toevaluate the performance 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 help of financial risk management experts to effectrisk 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 enters into derivative instruments just described above to avoid major market risks.
However, some derivative instruments are classified as financial assets or liabilities held for trading andmeasured at fair value for not meeting the criteria for hedge accounting even if they can meet thefinancial hedge strategy.
The following table summarizes the aggregate contractual (notional) amounts, credit risk and fair valueof the derivative financial instruments of the Company and its subsidiariy, Mandarin Airlines, as of June30, 2011 and 2010.
June 30
2011
Contractual(Notional)
Amount2010
Contractual(Notional)
AmountFair Value

Credit Risk

Fair Value

Credit Risk

Hedge
The Company
Forward exchangeInterest rate swaps
Currency options- Call- PutFuel swap$

724,637,681
2,068,000,000$

3,014,200-$

900,292(33,021,171 )$578,778,135
19,340,803,859$

13,480,669-$

13,480,669(272,302,412 )

405,797,101
405,797,101
88,247,314(Note)

1,855,335
88,247,314

1,855,335(4,957,716 )
88,247,314

257,234,727
257,234,727-

236,846
968,984-(1,090,317 )(1,538,557 )
-

-

-

-

353,284,687(Note)-(353,284,687 )

-

-

-

9,181,622(Note)-(9,181,622 )Trade
The Company
Fuel swap

Mandarin Airlines
Fuel swap

32

Note:

Based on the Taiwan Stock Exchange regulation for public Companies monthly declaration of
their trading of derivative financial instruments, the contractual amounts are shown at theabsolute values of fair values because fuel swap contracts only have nominal quantity.

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.
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 calculation of the fair value of each derivative contract is based on quotes from financial
institutions, except that for fuel swap contracts, which is based on amounts estimated by an external
appraisal institution, in accordance with the Statement of Financial Accounting Standards andStatements of Valuation Standards.
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 expected
aviation fuel purchases by the Company may result in future cash flow fluctuations and risks due tochanges in market interest and exchange rates. To hedge against these risks, the Company use interest
rate swaps, cross-currency swaps, forward exchange contracts and option contracts. The cash flow
hedge information is summarized as follows:

Hedged Items

Designated Hedging Instruments
Financial Instruments
Designated as Hedging
June 30, 2011
Instruments
Nominal Amount
Fair Value

Expected
Cash Flow
PeriodProfit or Loss
Recognition
PeriodInterest rate swaps(33,021,171)2007 to 20132007 to 2013

405,797,101
405,797,101
144,927,536

1,855,335(4,957,716)(749,310)

2011
2011
2011

2011
2011
2011

579,710,145

1,649,602

2011

2011

88,247,314

88,247,314

2011

2011

Designated Hedging Instruments
Financial Instruments
Designated as Hedging
June 30, 2010
Instruments
Nominal Amount
Fair Value

Expected
Cash Flow
PeriodProfit or Loss
Recognition
PeriodInterest rate swaps$ 19,340,803,859(272,302,412)

2006 to 20132006 to 2013

Currency options- Call- Put257,234,727
257,234,727(1,090,317)(1,538,557)

2010
2010

2010
2010

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

Currency options- Call- PutForward exchange
contracts
Forward exchange
contracts
Fuel swap$

2,068,000,000$$

Hedged Items

53,024,054

The Company
Floating-interest long-term
debts
Fuel cost in U.S. dollars$(Continued)
33

Hedged Items
Lease cost in U.S. dollars
Repayment and interest ofloans and debts in U.S.
dollars

Designated Hedging Instruments
Financial Instruments
Designated as Hedging
June 30, 2010
Instruments
Nominal Amount
Fair Value
Forward exchange
contracts
Forward exchange
contracts$

96,463,022$

482,315,113$

Expected
Cash Flow
PeriodProfit or Loss
Recognition
Period

1,980,483

2007 to 20102007 to 2010

11,500,186

2007 to 20102007 to 2010

(261,450,617)(Concluded)
The gain or loss on cash flow hedging instruments that was recognized as adjustments to stockholders’earning is summarized as follows:
Six Months Ended June 30
2011
2010

Adjustment Items
Amount recognized in equity during the period
Amount removed from equity and included in profit or loss forthe period$ 77,437,287$ (34,318,299)

59,804,731

208,295,272

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

Relationship with the Company

Taiwan Air Cargo Terminal
Cal Park
Cal-Dynasty International
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
Abacus Distribution Systems (Taiwan)
China Aircraft Services
Cal-Asia Investment
Taiwan Airport Services
Kaohsiung Catering Services
Asian Compressor Technology Services
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Cal Hotel
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
Equity-method investee
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary’s equity-method investee
Major stockholder (39.10%)34

b. Significant transactions with related parties, in addition to those mentioned in Note 15, are summarized
as follows:
Six Months Ended June 30
2011

1)

%

969,085,803
215,181,268
88,008,884
23,375,329
7,257,449
29,116,681

1.51
0.34
0.14
0.04
0.01
0.04

$

935,644,486
331,551,822
75,444,706
14,987,099
9,696,825
25,258,983

1.40
0.50
0.12
0.02
0.01
0.04

$ 1,332,025,414

2.08$ 1,392,583,921

2.09

$

488,520,569
473,908,745
174,583,970
138,619,510
126,200,374
124,947,290
106,509,598
93,103,965
56,627,083
41,339,497
37,239,140
36,845,190
24,551,309
23,223,654
23,720,261
17,777,778
15,876,750

0.81
0.79
0.29
0.23
0.21
0.21
0.18
0.15
0.09
0.07
0.06
0.06
0.04
0.04
0.04
0.03
0.03

$

484,119,160
509,498,751
111,714,520
183,690,969
123,460,709
121,308,311
59,171,998
100,552,503
45,832,872
23,901,845
20,771,743
33,559,769
41,100,309
5,122,015
24,027,312
19,233,227
20,974,978

0.88
0.93
0.20
0.34
0.23
0.22
0.11
0.18
0.08
0.04
0.04
0.06
0.08
0.04
0.04
0.05

$ 2,003,594,683

3.33$ 1,928,040,991

3.52

$

309,785,667
89,900,988
11,178,667
8,335,921
1,555,249
6,936,729
2,613,967

71.99
20.89
2.60
1.94
0.36
1.61
0.61

$

432,641,823
48,226,992
11,943,173
8,752,219
6,436,034
5,451,680
2,089,964

83.92
9.35
2.32
1.70
1.25
1.06
0.40

$

430,307,188

100.00$515,541,885

100.00$374,908,020
330,676,756
222,837,502
141,128,819
61,326,096
51,148,109
55,917,540
31,790,536
29,418,317
21,220,952
13,342,322

27.58
24.33
16.39
10.38
4.51
3.76
4.11
2.34
2.16
1.56
0.98

$

368,710,205
256,704,306
275,560,686
47,390,815
37,254,509
43,804,292
34,641,840
42,747,295
15,832,655
11,849,001

31.65
22.04
23.66
4.07
3.20
3.76
2.97
3.67
1.36
1.02

$

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

AmountCosts
China Pacific Catering Services
Taoyuan International Airport Services
Taiwan Airport Services
Taiwan Air Cargo Terminal
Mandarin Airlines
Hwa Hsia
Cal Park
China Aircraft Services
Kaohsiung Catering Services
Cal Hotel
China Aviation Development Foundation
China Pacific Laundry Services
Dynasty Holidays
Asia Compressor Technology Services
Yangtze River Express Airlines.
Cal-Dynasty International
Others3)%

Revenues
Mandarin Airlines
Yangtze River Express Airlines
Global Sky Express
China Aviation Development Foundation
Taiwan Air Cargo Terminal
Others2)

2010

AmountAccounts payable to related parties
Mandarin Airlines
China Pacific Catering Services
Taoyuan International Airport Services
Yangtze River Express Airlines
Taiwan Airport Services
Hwa Hsia
Cal Park
China Aircraft Services
Taiwan Air Cargo Terminal
Kaohsiung Catering Services
China Pacific Laundry Services(Continued)
35

Six Months Ended June 30
2011
AmountChina Aviation Development Foundation
Cal Hotel
Others$2010%

9,857,238
5,897,225
9,779,620

0.73
0.43
0.74

$ 1,359,249,052

100.00$

Amount%7,274,185
15,428,368
7,579,190

0.63
1.32
0.65

$ 1,164,777,347

100.00(Concluded)5) Lease of property and equipment
In December 2008, the Company rented out planes to Mandarin Airlines under an operating leasing
contract. The rent is received monthly based on this contract. As of June 30, 2011 and 2010, therentals received amounted to $508,914,000 and $267,993,000, respectively.
The Company rented planes from Mandarin Airlines under an operating lease agreement. The
Company paid the rental by flight hours. In the six months ended June 30, 2011 and 2010, theCompany paid hourly flight rentals of about $86,989,000 and $131,004,000, 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. For the six months ended June 30, 2011 and 2010, the Company had
paid usage rentals of about $37,239,000 and $20,772,000, respectively.
In March 2010, the Company signed the building leased agreement of Operation Centre of aviation
undertaking of Taoyuan International Airport of Taiwan with Cal Park at a fixed rental of$14,793,000 monthly. In the six months ended June 30, 2010, the Company paid rentals of$59,172,000. From January 2011, the fixed rental had been adjusted to $17,752,000 monthly. In
the six months ended June 30, 2011, the Company paid rentals of $106,510,000.
6) Endorsements and guarantees
June 30
2011

2010

Authorized
AmountOccupied
AmountAuthorized
AmountOccupied
Amount$ 3,400,000,000
28,236,509
338,144,512
284,293,927
180,000,000-$ 3,320,000,000
28,236,509
338,144,512
284,293,927
153,349,500-$ 3,400,000,000
126,029,872
393,981,341
351,072,903
180,000,000
300,000,000$ 2,780,000,000
126,029,872
393,981,341
351,072,903
167,000,000-

15,805,797

15,430,406

17,533,762-

The Company
Cal Park
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Cal Hotel
Mandarin Airlines
Cal Asia
Taikoo Spirit Aerospace Systems(Jinjiang) Composite

As of June 30, 2011, U.S. Treasury Bills amounting to US$650,675,000 had been pledged ascollateral for financing lease transaction of Freighter Princess Ltd., Freighter Queen Ltd. andFreighter Princess Ltd. and were included in restricted assets - noncurrent.

36

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 credit policy.
7) Bonds payable-related parties
Related parties invested the first issue of private unsecured bonds in the six months ended June 30,
2011 (Note 15) are summarized as follows:

Related Parties

Units

June 30
Par/Dollars

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 June 30, 2011 and 2010, interests payable were $2,454,000 and $2,627,000, respectively. In
the six months ended June 30, 2011 and 2010, interest expenses were $9,804,000 and $2,627,000,
respectively.
27. PLEDGED ASSETS
As of June 30, 2011, the following assets had been pledged or mortgaged as collateral for bank loans,business transactions and financing lease transaction of subsidiary:
June 30
2011
Restricted assets - noncurrent
Pledged certificates of deposit
U.S. Treasury Bills
Properties - land and flight equipment (net)$7,250,000
650,674,948
105,273,351,463$ 105,931,276,411

2010$

257,234,727
871,084,116
122,775,249,804$ 123,903,568,647

28. COMMITMENTS AND CONTINGENT LIABILITIESAs of June 30, 2011, the Company has 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 statement for 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 liability on FEAT’S executives, directors, and supervisors for them togive 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 theCompany) as joint defendants. There are 36 joint defendants in this lawsuit till now. Since the case isstill under review by the Taipei District Court, the outcome of the review will not material impact on
the financial and sales operations of the Company.
37

b. The Company leased certain flight equipment, hangar and headquarters building under various
operating lease agreements expiring on various dates until January 2024. Lease deposits aggregated$10,879,624,000.
Future lease payments are summarized as follows:
Period/Year

AmountJuly to December in 2011
2012
2013
2014
2015
2016

$ 2,885,276,421
5,806,591,046
5,041,640,070
4,387,221,880
3,346,176,160
1,390,811,712

Rentals from 2017 and on will aggregate $8,414,724,000. The present value of these rentals,
discounted using at the 1.26% interest rate for one-year time deposits, is $7,854,731,000.
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 June 30, 2011, the Company had paid about
US$119,197,000, which was included in “prepayments for equipment” in the properties section of thebalance sheets.
29. OTHERS
The material financial assets and liabilities denominated in foreign currency were as follows:(Unit:

Foreign Currencies/New Taiwan Dollars)

June 30
Foreign
Currencies

2011
Exchange
Rate

New Taiwan
Dollars

Foreign
Currencies

2010
Exchange
Rate

New Taiwan
Dollars

149,207,890
20,897,007
266,339,018
3,146,221,119
964,206,857

28.9855
41.4938
3.7216
0.36114.4823$ 4,324,865,296
867,096,229
991,207,289
1,136,100,446
4,321,864,395

143,261,829
30,765,328
488,432,407
1,856,879,562
1,205,145,426

32.1543
39.5257
4.13390.35634.7259$ 4,606,483,828
1,216,021,125
2,019,130,727
661,606,188
5,695,396,769

1,277,233,085

28.9855

37,021,239,585

909,473,584

32.1543

29,243,486,462

47,423,069
97,988,345
101,387,876

28.9855
3.7216
0.3611

1,374,581,710
364,675,642
36,615,340

46,068,716
94,222,639
114,822,709

32.1543
4.13390.3563

1,481,309,196
389,510,702
40,907,303

187,332,484
8,821,402
58,743,489
5,983,534,353
209,275,750

28.9855
41.4938
3.7216
0.36114.48235,429,925,715
366,033,285
218,619,769
2,160,654,255
938,036,694

187,464,207
9,901,365
55,483,334
7,682,936,488
208,174,446

32.1543
39.5257
4.13390.35634.72596,027,780,351
391,358,383
229,362,554
2,737,430,271
983,811,614

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

38

30. 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)
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 25)
b. Investment in Mainland China: Table 7 (attached)
31. OPERATING SEGMENTS
The 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 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

Cal Asia

1

Taikoo Spirit Aerospace Systems(Jinjiang) Composite

Cal Park
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Cal Hotel

Name

Nature of Relationship

Investments accounted for by thecost method

100% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary

Counter-party

16,277,612

40

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.

15,805,797$ 3,400,000,000
28,236,509
338,144,512
284,293,927
180,000,000$ 3,400,000,000
114,942,002
348,238,378
292,780,313
180,000,000$ 9,263,506,692
9,263,506,692
9,263,506,692
9,263,506,692
9,263,506,692
9,263,506,692

Ending Balance

Maximum
Balance for the
PeriodLimits on EachCounter-party’s
Endorsement/
Guarantee Amounts(Note 1)

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.

China Airlines

Endorsement/
Guarantee Provider

0

No.

ENDORSEMENT/GUARANTEE PROVIDED
SIX MONTHS ENDED JUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES$-

28,236,509
338,144,512
284,293,927
-

0.03

7.34
0.06
0.73
0.61
0.39

23,158,766,730$ 23,158,766,730
23,158,766,730
23,158,766,730
23,158,766,730
23,158,766,730

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

TABLE 1

China Airlines

Holding Company Name

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

-

-

-

Convertible bonds
China Life Insurance Co., Ltd.

Beneficial certificates
Mega Diamond Money Market Fund

TIIM Money Market Fund

Taishin Ta Chong Money Market Fund

Taishin 1699 Money Market Fund

Taishin Lucky Money Market Fund

41

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 ­noncurrent

Financial assets at cost - noncurrent

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
Available-for-sale - current
Financial assets at cost - noncurrent

Financial Statement Account-

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

Relationship with theHolding Company

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

Marketable Securities Type and Issuer/Name

MARKETABLE SECURITIES HELDJUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

37,402,752.80

30,821,152.56

29,354,997.40

41,332,950.98

91,596,865.18

2,500

12,000,000
1,100,000
592,500
34,753,954

135,937

135,000,000
150,000,000
188,154,025
2,614,500
34,300,000
43,911,000
45,476,200
28,400,000
13,021,042
20,626,644
46,500,000
14,329,759
13,293,000
7,732,200
13,750,000
50,000408
1,600,000
250,000
1,000
1,000
1,000
195,587
1,359,368

Shares/Units

400,089,766

400,095,546

400,408,036

600,332,180

1,101,012,639

373,970,000

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

472,522$ 1,641,333,336
1,460,643,347
1,054,383,268
1,004,888,696
667,627,027
585,343,892
369,693,014
364,675,642
344,250,807
305,706,575
223,946,791
206,856,674
172,070,950
170,262,230
135,775,401
94,696,499
36,615,340
24,219,121
6,488,012
35,08834,60232,895
119,016,645
297,946,451

-

-

-

-

-

-

15.00
11.00
6.58
5.73

-

54.00
100.0093.99
100.0049.00
51.00
100.00
20.00
93.93
47.35
100.00
35.78
28.48
24.50
55.00
100.0051.00
100.0025.00
100.00100.00100.0013.59

June 30, 2011
Percentage ofCarrying Value
Ownership

400,089,766

400,095,546

400,408,036

600,332,180

1,101,012,639

373,970,000

62,332,899
13,862,481
676,686--$ 1,641,333,336
1,460,643,347
1,226,696,530
1,004,888,696
667,627,027
585,343,892
369,693,014
317,918,479
344,250,807
305,706,575
223,946,791
208,277,010
164,984,411
170,262,230
135,775,401
110,572,465
36,615,340
24,219,121
6,488,012
35,08834,60232,895
119,016,645
230,179,148

Market Value or Net
Asset Value(Continued)

-

-

-

-

-

-

Note 8Note 5Note 5-

Notes 3 and 7

Note 1
Notes 2 and 5
Note 2
Note 1
Note 5Note 5Note 5
Notes 3 and 7

Note

TABLE 2

Mandarin Airlines

China Pacific Catering Services

Taoyuan International Airport
Services

Taiwan Air Cargo Terminal

Holding Company Name-

Mega Diamond Money Market FundFuh Hwa Global Short-Term Income FundFuh Hwa Strategic High Income Fund of Funds

Cathay Global Conservative Fund of Fund

Fuh-Hwa Global Bond FundFSITC Global High Yield Bond Fund

Manulife Asia Pacific Bond Fund

Cathay Global Money Bond Fund

Cathay High Income Fund of Funds

Capital Multi-Income Allocation Fund

ING EMD & High Yield Bond Portfolio - Accumulate

PCA Global High Yield Bond Fund

Captial Strategic Income FundFuh Hwa Emerging Market High Yield Bond Funds

Parent company-

Parent company

Bond
First issue of private unsecured bonds in 2010 - China
Airlines

Parent company

-

Stock
China Airlines
France Telecom

BondFirst issue of private unsecured bonds in 2010 - China
Airlines

Beneficial certificates
HSBC NTD Money Market Fund II

42

Bond investments with no active market - noncurrent

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

Bond investments with no active market - noncurrent

Available-for-sale financial asset - current

Bond investments with no active market - noncurrent

Parent company-

Cathay Taiwan Money Market Fund

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

Jih Sun Money Market Fund

Equity-method investee
Investments accounted for by the equity method
Subsidiary
Investments accounted for by the equity method
Controlled by China Airlines Financial assets carried at cost - noncurrent-

Union Money Market Fund

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
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 Statement Account

Stock
Taiwan Whi Lin Industry
Tao Yao
Taiwan Air Cargo Terminal-

Relationship with theHolding Company

Beneficial certificates
PCA Well Pool Money Market Fund

Marketable Securities Type and Issuer/Name

300

2,074,628
8,274

40

4,964,512.70

300

4,275,000
1,000,000
6,250,000

3,888,741.10

3,000,000.00

2,000,000.00

2,000,000.00

858,369.10

8,897,095.20

2,052,334.50

1,934,497.90

3,585,435.10

6,273,909.70

2,516,082.00

6,261,180.70

6,592,951.20

8,370,651.68

5,756,764.20

3,529,004.89

5,530,842.35

4,529,576.60

Shares/Units$

300,000,000

40,455,246
5,034,780

40,000,000

72,381,106

300,000,000

50,279,983
11,166,467
62,500,000

38,968,297

30,540,000

20,494,200

19,447,600

10,506,438

92,866,100

19,448,537

20,452,866

43,803,619

81,560,826

29,500,810

71,753,131

70,969,164

100,616,908

69,161,765

50,140,807

70,197,451

59,158,988

-

-

-

-

-

24.29
100.00
2.50

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

June 30, 2011
Percentage ofCarrying Value
Ownership$

300,000,000

40,455,246
5,034,780

40,000,000

72,381,106

300,000,000

50,279,983
11,166,467
75,987,650

38,968,297

30,540,000

20,494,200

19,447,600

10,506,438

92,866,100

19,448,537

20,452,866

43,803,619

81,560,826

29,500,810

71,753,131

70,969,164

100,616,908

69,161,765

50,140,807

70,197,451

59,158,988

Market Value or Net
Asset Value(Continued)

-

-

-

-

-

Note 5Note 5
-

-

-

-

-

-

-

-

-

-

-

Note

-

Mega Diamond Money Market fundHwa Hsia

Taiwan Airport Services-

Taishin Ta Chong 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

Capital Money Market Fund

Mega Diamond Money Market fundUnion Money Market Fund-

Beneficial certificates
Taishin 1699 Money Market Fund

Taishin Ta Chong Money Market Fund

JPM (Taiwan) Global Fund of Bond Funds

Huanta Taiwan Stock Index Fund

Subsidiary
Parent company

-

Stock
Hwa Shin Building Safeguard
China Airlines

Bond investments with no active market - noncurrent

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

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

Financial Statement Account43

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

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

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

Subsidiary

Beneficial certificates
Fuh-Hwa Money Market Fund

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

Parent company-

Taishin 1699 Money Market Fund

BondFirst issue of private unsecured bonds in 2010 - China
Airlines-

Beneficial certificates
TLG Solomon Money Market Fund

Abacus Distribution Systems(Taiwan)Equity-method investee
Equity-method investee
Equity-method investee
Equity-method investee-

Relationship with theHolding Company

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

Marketable Securities Type and Issuer/Name

Cal-Asia Investment

Holding Company Name

200,000.00

450,000.00

1,404,287.30

349,522.71

1,000,000
814,152

867,131.76

1,374,397.51

1,032,796.70

295,967.90

2,397,166.46

55,300.00

118,970.00

84,320.00

123,426.20

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

60

2,249,642.50

1,771,678.90

1,710,590.39

265,726.48

1,050,000-

Shares/Units$

1,917,600

4,538,745

19,154,760

4,537,224

17,543,237
15,875,964

11,005,636

16,520,533

16,011,122

4,037,048

31,118,097

1,357,062

2,173,582

2,694,024

1,715,982

289,216,162
2,065,210
62,500,000
22,487,967

60,000,000

27,081,104

24,228,130

22,259,071

3,224,935

194,967,536
75,672,348
18,881,101
32,208,697
18,434,783

-

-

-

-

100.00
-

-

-

-

-

-

-

-

-

-

100.00
5.30
2.50
0.50

-

-

-

-

-

14.00
14.00
35.00
25.00
8.00
5.45

June 30, 2011
Percentage ofCarrying Value
Ownership$

1,917,600

4,538,745

19,154,760

4,537,224

17,543,237
15,875,964

11,005,636

16,520,533

16,011,122

4,037,048

31,118,097

1,357,062

2,173,582

2,694,024

1,715,982

289,216,162
12,787,350
75,987,650
26,819,755

60,000,000

27,081,104

24,228,130

22,259,071

3,224,935

193,121,348
30,232,887
22,847,775(846,754,991)
8,521,474
14,278,710

Market Value or Net
Asset Value(Continued)

-

-

-

-

Note 5
-

-

-

-

-

-

-

-

-

-

Note 4Note 5Note 6

-

-

-

-

-

Notes 2 and 4
Notes 2 and 4
Note 5
Notes 4 and 5
Notes 4 and 6
Notes 4 and 6

Note

The Company has not issue stocks.

The net asset value was calculated using the investee's unaudited financial statements as of and for the six months ended June 30, 2011 because the investee’s audited financial statement as of and for the six months ended June 30, 2011 was not acquired.

The net asset value was calculated using the investee's audited financial statements as of and for the year ended December 31, 2010 because the investee’s audited financial statement as of and for the six months ended June 30, 2011 was not acquired.

The net asset value was calculated using the investee's unaudited financial statements as of and for the year ended December 31, 2010 because the investee’s audited financial statement as of and for the six months ended June 30, 2011 was not acquired.

The net asset value was calculated using the investee's unaudited financial statements as of and for the three months ended March 31, 2011 because the investee’s audited financial statement as of and for the six months ended June 30, 2011 was not acquired.

Note 5:Note 6:Note 7:Note 8:443,840,349

10,000,000

193,121,348
30,232,887

Note 4:$The subsidiary’s net asset value was $230,179,148 which included common stock and preferred stock as of June 30, 2011.

14.00
14.00

-

-

Notes 2 and 4
Notes 2 and 4

-

-

Note

(Concluded)

In addition, the difference between the carrying value and net asset value

192,865,826
75,041,188

3,840,349

10,000,000

Note 3:-$Market Value or Net
Asset Value

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.

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

19,391.73

10

Shares/Units

June 30, 2011
Percentage ofCarrying Value
Ownership

Note 2:Equity-method investee
Equity-method investee

Financial assets at fair value through profit or loss ­current

Bond investments with no active market - noncurrent

Financial Statement AccountBased 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.

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

Taiwan Airport Service (Samoa)-

Parent company

Relationship with theHolding Company

Note 1:

Beneficial certificatesFranklin Templeton First Taiwan First Fund

BondFirst issue of private unsecured bonds in 2010 - China
Airlines

Marketable Securities Type and Issuer/Name

Yestrip

Holding Company Name

China Airlines

Company Name

JF (Taiwan) Trist Money Market FundKGI Victory Money Market Fund

Prudential Financial Money Market Fund

Polaris De-Li Fund

Fuh-Hwa Money Market Fund

ING Taiwan Money Market FundJih Sun Money Market FundFSITC Taiwan Money Market Fund

Fubon Chi-Hsiang Money Market Fund

The RSIT Enhanced Money Market FundFSITC Money Market Fund

Union Money Market Fund

Taishin Lucky Money Market Fund

Taishin 1699 Money Market Fund

Taishin Ta Chong Money Market Fund

TIIM Money Market Fund

Beneficial certificates
Mega Diamond Money Market Fund

Marketable Securities Type and Issuer/Name

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
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 Statement Account--

58,792
114,497
93,032
48,57944,63024,30817,1238,992
7,546

350,000,000
300,000,000
400,000,000
200,000,000
200,000,000
200,000,000
200,000,000
100,000,000
100,000,000

350,058,792
300,114,497
400,093,032
200,048,579
200,044,630
200,024,308
200,017,123
100,008,992
100,007,546

23,249,569.10
20,445,856.00
28,201,902.21
12,784,045.51
14,396,775.10
17,362,467.60
13,172,106.70
8,992,401.42
6,860,357.40

200,000,000
300,000,000
400,000,000
200,000,000
200,000,000
200,000,000
200,000,000
100,000,000
100,000,000

13,283,652.50
20,445,856.00
28,201,902.21
12,784,045.51
14,396,775.10
17,362,467.60
13,172,106.70
8,992,401.42
6,860,357.40

150,000,000-

9,965,916.60
-

-

-

-

72,823350,000,000
350,072,823

30,497,445.58

350,000,000

30,497,445.58

-

-

-

-

105,243
400,000,000

400,105,243

2,338,702.74

400,000,000

2,338,702.74

-

-

-

-

150,062
650,000,000

650,150,062

51,338,981.55

500,000,000

39,485,865.37

150,000,000

11,853,116.18--

400,089,766
37,402,752.80
232,395
600,000,000

600,232,395

56,225,759.20

1,000,089,766

93,628,512.00

-

-

-

-

400,095,546
30,821,152.56
449,150

1,100,000,000

1,100,449,150

84,898,261.12

1,500,095,546

115,719,413.68

-

-

-

-

400,408,036
29,354,997.40$

259,968

55,074,683.40

1,150,408,036

84,429,680.80

-

-

-

45

-

800,222,696

55,172,008.68

1,400,332,180

96,504,959.66

-

-

-

-

58,347,646.19$ 1,801,012,639

149,944,511.37

-

-

-

-

750,000,000

700,000,000

AmountEnding Balance
Shares/Units

750,259,968$

Gain (Loss) on
Disposal

600,332,180

700,487,609

Carrying Value

Disposal

41,332,950.98$

Amount222,696

Shares/Units

800,000,000

AmountAcquisition
Shares/Units$ 1,101,012,639$

AmountBeginning Balance
Shares/Units

91,596,865.18

Nature of Relationship487,609

Counter-party

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALSIX MONTHS ENDED JUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEESTABLE 3

China Airlines

China Airlines

China Airlines

China Airlines

China Airlines

China Airlines

China Airlines

China Airlines

China Airlines

Cal Park

Mandarin Airlines

Taoyuan International Airport Services

China Pacific Catering Services

China Aircraft Services Limited

Taiwan Airport Services

Hwa Hsia

Yangtze River Express Airlines

Sale

Sale

Sale

Sale

Sale

Purchase
Sale

Sale

Sale

Purchase
Purchase
Sale
Purchase
Purchase
Purchase
Purchase
Purchase
Purchase
Sale

Purchase/
Sale

Parent company of stockholder Purchaseusing equity-method

Parent company

Parent company

Investor using equity method

Parent company

Parent company

Parent company

Parent company

Parent company

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

Taoyuan International Airport Services
China Pacific Catering Services
China Aircraft Services
Taiwan Airport Services
Hwa Hsia
Yangtze River Express Airlines

Nature of Relationship

Subsidiary
Subsidiary
Subsidiary

Related Party

Taiwan Air Cargo Terminal
Cal Park
Mandarin Airlines

Taiwan Air Cargo Terminal

China Airlines, Ltd. (“China Airlines”)

Company Name$

46

215,181,268(124,947,290)(174,583,970)(93,103,965)(488,520,569)(473,908,745)

969,085,803(126,200,374)(106,509,598)(138,619,510)

138,619,510
106,509,598(969,085,803)
126,200,374
473,908,745
488,520,569
93,103,965
174,583,970
124,947,290(215,181,268)

Amount30 days
2 months
2 months
2 months
40 days
60 days
30 days
40 days
2 months
2 months

Payment Terms

2 months

4.24

2 months(82.77) 2 months(40.74) 45 days

(17.44) 30 days

(59.35) 60 days

(42.67) 30 days

32.79 2 months(3.71) 2 months

72.16(19.66) 30 days

0.23
0.18
(1.51)
0.21
0.79
0.81
0.15
0.29
0.21
(0.34)% to
Total

Transaction Details

TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALSIX MONTHS ENDED JUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEES

$

-

-

-

-

-

-

-

-

-

-

Unit Price

-

-

-

-

-

-

-

-

-

-

Payment Terms

Abnormal Transaction$(89,900,988)

51,148,109

61,326,096

31,790,536

330,676,756

222,837,502(309,785,667)
374,908,020

55,917,540

29,418,317(29,418,317)(55,917,540)
309,785,667(374,908,020)(222,837,502)(356,276,756)(31,790,536)(61,326,096)(51,148,109)
89,900,988(6.06)

90.71

45.90

14.62

76.37

61.97

(75.37)
70.23

71.98

38.31

(1.59)(3.03)
2.94(20.30)(12.06)(19.29)(1.72)(3.32)(2.77)
0.85

Note/Account Payable or
Receivable% toEnding Balance
Total

-

-

-

-

-

-

-

-

-

-

Note

TABLE 4

5.41

$ 309,785,667-

357,327,196
95,964,693
70,550,322

-

-

4.22
3.41

222,837,502
330,676,756

Parent company

Parent company

China Airlines

China Airlines

Taoyuan International Airport Services

China Pacific Catering Services

-

0.73

$

374,908,020--

Parent company$ 152,506,759

Action Taken

Allowance for
Bad Debts

China Airlines$

AmountAmounts Received
in Subsequent
PeriodOverdue

Mandarin Airlines

47

Turnover Rate

Ending Balance

Subsidiary

Nature ofRelationship

Mandarin Airlines

Related Party

China Airlines, Ltd. (“China Airlines”)

Company Name

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL
JUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEESTABLE 5

342,882
40,0094,943,884
38,93750,279,983
11,166,467
24.29
100.004,275,000
1,000,000

Note 4
Notes 3 and 4
Note 4Note 4Note 4

4,951,696
1,772,485
13,220,059
2,466,521
8,224,543
4,995,516

35,682,101
5,076,427(858,581,474)
13,220,059
2,466,521
58,746,542
35,682,101

75,672,348
18,881,101
289,216,162
17,543,237
192,865,826
75,041,188

14.00
35.00
25.00
100.00100.0014.00
14.00

1,050,000
1,000,000-

US$ 1,947,441
HK$ 3,329,268
US$ 38,796,173
US$ 5,876,976
10,000,000$

US$ 3,950,226
US$ 1,926,750

US$ 1,947,441
HK$ 3,329,268
US$ 38,796,173
US$ 5,876,976$

US$ 3,950,226
US$ 1,926,750

Forwarding and storage of air cargo
Forwarding and storage of air cargo
Forwarding and storage of air cargo
Airport services and investment
Building security and maintenance services
Forwarding and storage of air cargo
Forwarding and storage of air cargo

Xiamen International Airport

Hong Kong
Shanghai, China

Samoa

Taoyuan, Taiwan

Xiamen International Airport

Xiamen International Airport

Taiwan Airport Service (Samoa)

Hwa Shin Building Safeguard

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

Taiwan Airport Services

Hwa Hsia

Taiwan Airport Service (Samoa)

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

According to SFAS No. 5, the book value of investment was zero and the Company has no intention to hold afterwards.

The investee was established as a limited company.

Note 2:

Note 3:Note 4:48

The Company has not recognized the investment income.

Adopted the treasury stock method in recognizing investment income or loss.

Note 1:

10,000,000

Note 4
8,152,427
58,746,542
194,967,536
14.00
US$ 4,117,846

US$ 4,117,846

Forwarding and storage of air cargo

Xiamen International Airport

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

Cal-Asia Investment

49,477,500
10,000,000

Other machine manufacturing
Manpower placement and machine installation

Taichung, Taiwan
Taoyuan, Taiwan

49,477,500
10,000,000(24,358,270)(3,878,981)
2,923,949
735,502(24,358,270)(7,605,844)
2,923,949
2,942,006
223,946,791
36,615,340
24,219,121
6,488,012
35,08834,60232,895100.0051.00
100.0025.00
100.00100.00100.0046,500,000
408
1,600,000
250,000
1,000
1,000
1,000

265,000,000
JPY 20,400,000
36,264,643
2,500,000
US$
1,000
US$
1,000
US$
1,000

Taiwan Whi Lin Industry
Tao Yao

Sale and maintenance of hardware and software
Airport services
In-flight catering
Storage and customs of services
Research, manufacture and maintenance of engines
Cleaning and leasing of the towel of airlines, hotels,
restaurants, and health clubs
Cleaning of aircraft and maintenance of machine andequipment
Hotel businessTravel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Aircraft lease

Taoyuan International Airport
Services

Taiwan Air Cargo Terminal
Cal Park
Cal-Dynasty International
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
China Aircraft Service
Cal-Asia Investment

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

China Airlines, Ltd.

Cal Hotel Co., Ltd.
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.

465,000,000
JPY 20,400,000
26,264,643
2,500,000
US$
1,000
US$
1,000
US$
1,000

Note 1
15,276,392
15,276,392
94,696,499
100.0050,00050,000,000

50,000,000

66,403,423
19,522,470
26,503,191
10,492,242
47,227,430
9,316,278
70,690,910
41,228,173
74,073,318
36,834,270
192,765,021
16,938,687
344,250,807
305,706,575
206,856,674
172,070,950
170,262,230
135,775,401
93.93
47.35
35.78
28.48
24.50
55.00

13,021,042
20,626,644
14,329,757
13,293,000
7,732,200
13,750,000

52,200,000
12,289,100
140,240,221
150,654,000
77,322,000
137,500,000

52,200,000
12,289,100
140,240,221
150,654,000
77,322,000
137,500,000

Note 2
Note 1(14,749,889)
3,229,587
1,381,825
35,303,666
47,758,390
91,962,919
35,585,000
14,416,941(7,964,940)
3,229,587
1,381,825
49,616,467
23,401,611
46,901,088
7,117,001
14,416,941$$$ 1,641,333,336
1,460,643,347
1,004,888,696
1,054,383,268
677,627,027
585,343,892
346,675,642
369,693,014

54.00
100.00100.00
93.99
49.00
51.00
20.00
100.00135,000,000
150,000,000
2,614,500
188,154,025
34,300,000
43,911,000
28,400,000
45,476,200$ 1,350,000,000
1,500,000,000
US$ 26,145,000
2,042,368,252
147,000,000
439,110,000
HK$ 58,000,000
US$ 45,476,200$ 1,350,000,000
1,500,000,000
US$ 26,145,000
2,042,368,252
147,000,000
439,110,000
HK$ 58,000,000
US$ 45,476,200

Note

Investment
Income (Loss)

Balance as of June 30, 2011
Net Income (Loss)
Percentage ofof the Investee
Carrying Value
Ownership

SharesJune 30, 2010

Investment AmountJune 30, 2011

Taoyuan, Taiwan

Air cargo and storage
Real estate lease and international trade
A holding company, real estate and hotel services
Air transportation and maintenance of aircraft
Airport services
In-flight catering
Airport services
General investment

Main Businesses and Products

Hwa Hsia

Location

Abacus Distribution System (Taiwan)
Taiwan Airport Services
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services

Investee Company

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

Investor Company

NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE
SIX MONTHS ENDED JUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEESTABLE 6

Total Amount ofPaid-in Capital

2,241,147,468 Indirect
Forwarding andstorage of air cargo (RMB 500,000,000)

Yangtze River Express
Airlines$1,357,712,261(Note 4)

$1,350,975,654(US$46,608,660)$27,790,520,075(Note 5)Upper Limit on Investment

Outflow

-

-

-

-

$

Inflow

Investment Flows

-

-

-

-

-

18,434,783
636,000)

32,208,697
1,111,200)

56,447,565
1,947,441)

1,124,526,754(RMB 38,796,173)

(RMB

(US$

(RMB

$
119,357,855(RMB 4,117,846)

Accumulated
Outflow ofInvestment from
Taiwan as ofJune 30, 2011

25.00%

5.45%

8.00%

14.00%

14.00%%
Ownershipof Direct orIndirect
Investment

(US$

$
(US$

Accumulated
InwardRemittance ofEarnings as ofJune 30, 2011

-

-

-

(US$

(US$

4,951,696
169,348) (US$-18,434,783
636,000)

32,208,697
1,111,200)

75,672,348
2,610,696)$ 32,231,884
8,152,427 $
194,967,536
278,812) (US$6,726,380) (US$ 1,112,000)(Note 3)

Investment Gain
(Loss) (Note 2)

Carrying Value asofJune 30, 201149

Note 6: The amounts of assets and gain or loss in RMB and U.S. dollars are translated at the year-end rates and the average rate of IATA, respectively.

Note 5: The limits based on the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjudgment Rule,” is larger amount of the Company’s net asset value or 60% of the consolidated net asset value.

Note 4: The amount is the US$45,576,073 added NT$36,666,667.

Note 3: Inward remittance of earnings of investees for the six months ended June 30, 2011 is US$1,112,000.

Note 2: The accrual basis is based on the financial statements audited by CPAs of China Airlines, Ltd. in ROC.

Note 1: The Company invested in Cal-Asia Investment, which, in turn, invested in Mainland China.

Investment Amounts Authorized
by Investment Commission,
MOEA

Accumulated Investment in
Mainland China as ofJune 30, 201118,434,783
636,000)

32,208,697
1,111,200)

1,124,526,754(RMB 38,796,173)(RMB

Composite material

Taikoo Spirit Aerospace
Systems (Jinjang)

370,602,958 Indirect(RMB 82,681,520)(US$

Maintenance services
402,608,696 Indirectof landing gear
(US$ 13,890,000)

Taikoo (Xiamen) Landing
Gear Services

56,447,565
1,947,441)$
119,357,855 $(RMB 4,117,846)

Accumulated
Outflow ofInvestment from
Taiwan as ofJanuary 1, 2011

(RMB

Forwarding and$ 1,007,619,901 Indirect
storage of air cargo (RMB224,800,000)

Main Businesses andProducts

Investment
Type(Note 1)62,752,129 Indirect
Xiamen International Airport Forwarding andstorage of air cargo (RMB 14,000,000)
Air Cargo Storage

Xiamen International Air
Cargo Terminal

InvesteeCompany NameINVESTMENT IN MAINLAND CHINA
SIX MONTHS ENDED JUNE 30, 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

CHINA AIRLINES, LTD. AND INVESTEESTABLE 7