China Airlines, Ltd.
Financial Statements for the
Six Months Ended June 30, 2012 and 2011 andIndependent Auditors’ ReportINDEPENDENT AUDITORS’ REPORTThe Board of Directors and the Stockholders
China Airlines, Ltd.
We have audited the accompanying balance sheets of China Airlines, Ltd. as of June 30, 2012 and 2011 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, 2012 and 2011 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, 2012 and 2011 on which we have issued an unqualified opinion in our report
dated August 24, 2012.

August 24, 2012
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.
-1­

CHINA AIRLINES, LTD.
BALANCE SHEETSJUNE 30, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

2012
AmountASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)
Financial assets at fair value through profit or loss - current (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$

2011
Amount

%9,728,282

5

2,819,97876,037
66,761$%8,701,922

42-

2,901,938
119,017140,0012-

7,525,963
348,871953,035
8,439,605
214,127
2,546,869

4
1
4
1

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

5
4
1

32,719,528

17

32,768,191

16

CURRENT LIABILITIESShort-term loans (Notes 13 and 27)
Short-term bills payable (Note 14)
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 payable - 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

LONG-TERM INVESTMENTS
Financial assets at fair value through profit or loss - noncurrent (Notes 2,
5 and 24)
Derivative financial assets for hedging - noncurrent (Notes 2, 24 and 25)
Financial assets carried at cost - noncurrent (Notes 2, 10 and 24)
Investments accounted for by the equity method (Notes 2 and 11)
Other financial assets - noncurrent

8371,367
9,039,275
13,1185-373,970
371,367
8,879,579
13,0315-

25

59,082,787

29

26,728
16,205,000
65,927,272
501,305834-

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

9
31
1

82,660,305

42

81,646,642

41

9,423,768

5

9,637,947

5

1,688,283
7,264,791
4,053,863
198,419,867
683,530
14,210,476
1,019,379
41,298227,381,487
96,972,739
130,408,748
4,934,796

1
4
2
101
7
1
116
50
66
3

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

1
4
2
95
7
1
110
44
66
3

135,343,544

69

138,031,462

69

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

405,110
118,271-364,072
177,407-

Total intangible assets

523,381-541,479-

10,248,537
6,925,283
580,801
732,2295
4-

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

6
3
1

18,486,850

9

19,620,210

10$ 196,497,071

100$ 200,599,289

100

Total long-term investments

6,398,553
5,024,425
1,034,609

3
3
1

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

3
3
1

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 other liabilities

12,457,587

713,552,326

7

Total liabilities

144,415,660

74

154,281,755

77

52,000,000
1,405,394

26
1

46,316,224
392,822

23-

Construction in progress and prepayments for equipment (Note 28)

316,010
3,873,370(1,040,233)
3,149,147

2(1)
1

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

3
3

Net properties(1,872,055)(2,325,184)(280,635)
41,298(36,554)(4,473,130)

(1)
(1)
(2)

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

(2)
(1)
(3)

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)

52,081,411

26

46,317,534

23

Net other assets
TOTAL$ 196,497,071

100$ 200,599,289

100

Total long-term liabilities
OTHER LIABILITIES
Accrued pension costs (Notes 2 and 18)
Deferred profits on sale-leaseback (Note 2)
OthersSTOCKHOLDERS' EQUITY
Capital stock, NT$10.00 par value; authorized - 6,000,000 thousand shares;
issued and outstanding - 5,200,000 thousand shares in 2012 and 4,631,622
thousand shares in 2011
Capital surplus
Retained earnings
Legal reserve
Special reserve
Accumulated 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
Total stockholders' equity

TOTAL

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

-2­

3,200,000
376,660
640,683
1,156,269
9,410,747
8,822,620
7,330,000
15,343,750
1,211,475
1,805,564

2
5
4
4
8
1
1

49,297,768

$

%
1
5
5
7
9
2

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

2011
Amount%299,979
56,584462,200
1,359,249
10,623,552
9,160,400
14,500,000
17,788,544
1,093,342
3,738,937

Total current liabilities
Total current assets

2012
AmountLIABILITIES AND STOCKHOLDERS’ EQUITYCHINA AIRLINES, LTD.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Loss Per Share)
2012
Amount%2011
Amount%REVENUES (Notes 2 and 26)
Passenger
Cargo
Others$ 41,907,117
20,917,213
2,556,053

64
32
4$ 38,302,933
23,290,851
2,429,989

60
36
4

Total revenues

65,380,383

100

64,023,773

100

COSTS (Notes 22 and 26)
Flight operations
Terminal and landing fees
Passenger services
Aircraft maintenance
Others41,454,531
9,663,632
4,077,677
5,751,365
1,232,247

63
15
6
9
2

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

62
14
6
10
2

Total costs

62,179,452

95

60,124,455

94

GROSS PROFIT

3,200,931

5

3,899,318

6

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

3,098,020
1,309,519

52

2,990,005
1,210,887

5
2

Total operating expenses

4,407,539

7

4,200,892

7(1,206,608)(2)(301,574)(1)

92,524-77,882-

277,444
170,059
1,490-

308,263
91,772
198,2071-

453,917364,089

1
1

3,909
39,912
284,3131

1,359,523

2

1,004,258

2

NONOPERATING EXPENSES AND LOSSESInterest expense (Note 26)
Foreign exchange loss, net (Note 2)
Others1,188,257
88,97657,281

2-

1,118,449
358,628

2-

Total nonoperating expenses and losses

1,334,514

2

1,477,077
2(Continued)

OPERATING LOSSNONOPERATING 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)
Valuation gain on financial instruments, net (Notes 2
and 5)
Foreign exchange gain, net
OthersTotal nonoperating income and gains-3­

CHINA AIRLINES, LTD.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Loss Per Share)

PRETAX LOSSINCOME TAX BENEFIT (Notes 2 and 21)
NET LOSS2012
Amount%$ (1,181,599)(2)(141,366)-$ (1,040,233)

(2)

$

$

2011
Amount%(774,393)(1)(112,898)-(661,495)

(1)

2012
Before Tax After Tax

2011
Before Tax After Tax$ (0.23)$ (0.17)

LOSS PER SHARE (NEW TAIWAN DOLLARS;
Note 23)Basic

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

-4­$ (0.21)$ (0.14)(Concluded)

CHINA AIRLINES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYSIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

Capital Stock Issued andOutstanding
Shares(In Thousands)
AmountBALANCE, JANUARY 1, 2012

Capital Surplus(Notes 2 and 19)

Legal Reserve

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

4,631,622$ 46,316,224

-

-

-

568,378

5,683,776

Translation adjustments on investments in shares of stocks-

Translation adjustments on a foreign operating entity

422,101

799,630

Total

Cumulative
Translation
Adjustments(Note 2)

Net Loss Not
Recognized as
Pension Cost
(Note 2)

Unrealized
Valuation Gainor Loss on
Financial
Instruments(Note 2)

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

5,162,071$ (1,772,321)(483,620)-(1,288,701)

483,620
1,288,701

-

-

-

-

983,293

-

-

-

-

-

-

-

-

-

-

-

-

(22,281)

-

-

-

-

-

-

-

Net loss in the six months ended June 30, 2012

-

-

-

-

-

(1,040,233)

Unrealized valuation loss on available-for-sale financial assets

-

-

-

-

-

Unrealized loss on cash flow hedge

-

-

-

-

Unrealized loss on financial instruments of equity-method
investees

-

-

-

-

BALANCE, JUNE 30, 2012

5,200,000$ 52,000,000$

1,405,394$

316,010BALANCE, JANUARY 1, 2011

4,631,622$ 46,316,224$

392,822$-

Appropriations from the 2010 earnings
Legal reserve
Special reserve
Cash dividends - NT$0.4 per share

-

-

-

799,630-

5,162,071-

Translation adjustments on investments in shares of stocks

-

-

-

-

Translation adjustments on a foreign operating entity

-

-

-

Net loss in the six months ended June 30, 2011--

Unrealized valuation gain on available-for-sale financial assets-

Unrealized gain on cash flow hedge$

50,010

Unrealized
Revaluation
Increment(Notes 2 and 12)$

41,298Company Shares
Held by
Subsidiaries
Reclassified into
Treasury Stock(Notes 2, 19
and 20)(36,554)$ 47,059,078

-

-

-

-

-

-

6,667,069

-

-

-

-

(22,281)(251,577)

-

-

-

-

(251,577)(1,040,233)

-

-

-

-

-

(1,040,233)

-

-

-

-

(16,679)--(16,679)

-

-

-

-

-

(311,989)--(311,989)

-

-

-

-

-

(1,977)--(1,977)$

3,873,370$ (1,040,233)$

3,149,147$ (1,872,055)$ (2,325,184)$(280,635)$

41,298$(36,554)$ 52,081,411

$

-

$

$

7,996,300$ (3,370,031)$ (2,621,974)$(64,422)$50,335$(36,554)$ 48,662,700(799,630)(5,162,071)(1,852,649)(1,852,649)

-

-

-

-

-

(1,852,649)

-

-

-

(776)

-

-

-

-

(776)

-

-

-

-

40,297----40,297---(661,495)(661,495)

-

-

-

-

-

(661,495)

-

-

-

-

-

-

-

-

1,412

-

-

1,412

-

-

-

-

-

-

-

-

-

137,242--

137,242

Revaluation increment reclassified to other revenue

-

-

-

-

-

-

-

-

-

-

(9,037)-(9,037)

Unrealized loss on financial instruments of equity-method
investees

-

-

-

-

-

-

-

-

-

(160)

-

-

(160)

4,631,622$ 46,316,224

5,482,156$ (3,330,510)$ (2,621,974)(36,554)$ 46,317,534

Accumulated deficit offset against reserve and capital surplus
Legal reserve
Special reserve
Issuance of common stock for cash - February 10, 2012

BALANCE, JUNE 30, 2011$

392,822$799,630$

5,162,071

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

-5­$7,996,300(479,545)$$

74,072$

41,298$

Total
Stockholders'Equity$CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

2012
CASH FLOWS FROM OPERATING ACTIVITIESNet loss
Adjustments to reconcile net loss to net cash provided by (used in)operating activities:
Deferred income taxes
Depreciation and amortization
Allowance for doubtful accounts
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

$ (1,040,233)

2011$(661,495)(167,584)
5,411,722(453,917)(277,444)
494,940
384,923(1,490)(17,465)(288,428)(33,207)(145,848)
5,122,872(9,757)(3,909)(308,263)
267,118
217,418(198,207)(31,445)(322,338)(33,207)

1,286,762
2,197,657(66,062)(442,134)(180,491)(1,214,021)
104,203
190,674(2,686,471)
51,34020,696
19,836(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

Net cash provided by (used in) operating activities

3,293,806(359,273)

CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of investments accounted for by the equity method
Acquisition of properties
Proceeds of the disposal of properties
Increase in computer software
Proceeds of the disposal of idle properties
Decrease (increase) in refundable deposits
Increase in deferred charges
Decrease in restricted assets - noncurrent(30,409)(1,356,785)
172,196(38,838)
22,275273,257(8,871)80,179(200,000)(1,372,037)
214,306(17,084)
44,359(68,007)(23,791)
348,019(886,996)(1,074,235)(Continued)

Net cash used in investing activities-6­

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Thousands of New Taiwan Dollars)

2012

2011

3,200,000
5,572,564(11,850,555)
5,785,000(11,000,000)
17,204
6,667,069$ (1,100,000)(949,646)
3,584,948(8,230,996)
6,000,000
2,595-

Net cash used in financing activities(1,608,718)(693,099)

EFFECTS OF EXCHANGE RATE CHANGES(17,207)

31,549NET INCREASE (DECREASE) IN CASH

780,885(2,095,058)

8,947,397

10,796,980

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans
Decrease in short-term bills payable
Proceeds of long-term debts
Repayments of long-term debts and capital lease obligations
Issuance of bonds payable
Repayment of bonds payable
Increase in deposits-in
Issuance of common stock for cash$

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

9,728,282$

8,701,922$

1,273,484
42,3471,231,137
26,407$

1,162,570
36,649
1,125,921
33,969$$NONCASH FINANCING ACTIVITIESCurrent portion of long-term loans and debts
Current portion of capital lease obligations
Current portion of bonds payable$ 15,343,750$ 1,211,475$ 7,330,000

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

-7­

$
$

$ 17,788,544$ 1,093,342$ 14,500,000(Concluded)

CHINA AIRLINES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS
China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks are listed on the Taiwan Stock
Exchange. The Company primarily provides air transport services for passengers and cargo. Its otheroperations include (a) mail services; (b) ground services and routine aircraft maintenance; (c) major
maintenance of flight equipment; (d) communications and data processing services to other airlines; (e) saleof aircraft parts, equipment and entire aircraft; and (f) lease of aircraft.
The major stockholders of the Company are the China Aviation Development Foundation (CADF) and the
National Development Fund (NDF), Executive Yuan. As of June 30, 2012 and 2011, CADF held 35.91%
and 39.10% of the Company’s shares, respectively, and NDF held 9.99% and 11.22% of the Company’s
shares, respectively. The Company had 10,669 and 10,474 employees as of June 30, 2012 and 2011,
respectively.
2. SIGNIFICANT ACCOUNTING POLICIESThe accompanying financial statements have been prepared in conformity with the Guidelines Governing
the Preparation of Financial Reports by Securities Issuers, the Business Accounting Law, Guidelines
Governing Business Accounting and accounting principles generally accepted in the Republic of China.
Significant accounting policies are summarized as follows:
Foreign Currencies and Foreign Operations
Nonderivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in
effect when the transactions occur. Exchange differences arising from the settlement of foreign-currency
monetary assets and liabilities are recognized in profit or loss in the settlement period.
At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailingexchange rates and the exchange differences are recognized in profit or loss.
At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities
which are measured at fair value, are revalued using prevailing exchange rate. For a nonmonetaryfinancial asset with the changes in fair value recognized as an adjustment to stockholders’ equity, exchange
differences are recognized as an adjustment to stockholders’ equity. For a nonmonetary financial asset atfair value through profit or loss, exchange differences are recognized in the income statement.
Foreign-currency nonmonetary assets and liabilities that are carried at cost are reported using the historicalexchange rate on the date of transaction.
Equity-method investments in foreign subsidiaries/affiliates are recorded in New Taiwan dollars using therates of exchange in effect on acquisition dates. On the balance sheet date, the investments and the related
equity in net income or net loss are restated at the prevailing exchange rates and weighted-average rates,
respectively, and resulting differences are recorded as translation adjustments under stockholders’ equity.

-8­

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

-9­Available-for-sale Financial Assets
Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly
attributable to the acquisition.
At each balance sheet date subsequent to initial recognition,
available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized inequity until the financial assets are disposed of, at which time, the cumulative gain or loss previously
recognized in equity is included in profit or loss for the year. All regular way purchases or sales offinancial assets are recognized and derecognized on a trade date basis.
Cash dividends are recognized on the ex-dividend date, except for dividends distributed from thepre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are notrecognized as investment income but are recorded as an increase in the number of shares. The total
number of shares subsequent to the increase is used for recalculation of cost per share.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rates, exchange rates,
fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging transactions
are defined as cash flow hedge. When entering into hedging transactions, the Company has prepared
official documents that describe the hedging relationship between hedging instruments and items been
hedged, objective of risk management, hedging strategy, and the way to evaluate the effectiveness of thehedging instrument.
Under cash flow hedge accounting, the profit or loss on the hedging instrument is recognized as profit orloss in the same period when the profit or loss on the hedged item is affected. The profit or loss on thehedging instrument is recognized as an adjustment to stockholders’ equity and reclassified to current profit
or loss when forecast transactions that are being hedged affect profit or loss. If a hedge of a forecast
transaction subsequently results in the recognition of a financial asset or a financial liabilities, theassociated gains or losses that were recognized directly in equity shall be reclassified to profit or loss in thesame period or periods during which the asset acquired or liability assumed affects profit or loss. If ahedge of a forecast transaction subsequently results in the recognition of a nonfinancial asset or anonfinancial liability, it removes the associated gains and losses that were recognized directly in equity andincludes them in the initial cost or changed carrying amount of the asset or liability. However, if an entity
expects that all or a portion of a loss recognized directly in equity will not be recovered in one or more
future periods, it shall reclassify the amount that is not expected to be recovered into profit or loss.
If the hedging instrument expires, is sold or terminated or no longer meets the hedge accounting criteria, thecumulative profit or loss on the hedging instrument that is effective and directly recognized as an
adjustment to stockholders’ equity is still recognized as an adjustment to stockholders’ equity before
forecast transactions occur and then reclassified to current profit or loss when forecast transactions occur.
Financial Assets Carried at Cost
Equity investments, such as non-publicly traded stocks, with fair value that cannot be reliably measured, arecarried at original cost. Cash dividends are recognized on the ex-dividend date, except for dividends
distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock
dividends are not recognized as investment income but are recorded as an increase in the number of shares.
The total number of shares subsequent to the increase is used for recalculation of cost per share. If there is
objective evidence that a financial asset is impaired, a loss is recognized. However, the recording of asubsequent recovery of fair value is not allowed.

- 10 ­

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

- 11 ­

When the Company subscribes for its investee’s newly issued shares at a percentage different from its
percentage of ownership in the investee, the Company records the change in its equity in the investee’s net
assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus.
When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term
investments is insufficient, the shortage is debited to retained earnings.
Gain or loss from transactions involving depreciable assets between the Company and its equity-method
investees is deferred and recognized over the estimated useful lives of the assets.
Receipt of stock dividends from investee would not be recognized as investment income. The Company
only recomputes the book value per share based on the shares with the additional shares.
Under Statement of Financial Accounting Standards No. 30 - “Accounting for Treasury Stocks,” theCompany reclassified its shares held by its subsidiaries to treasury stock at the carrying value as shown inthe subsidiaries’ books on January 1, 2002. Furthermore, when the Company recognized its investment
income, the cash dividend income recognized by the subsidiaries from the Company’s earnings
appropriation was subtracted from investment income and credited to paid-in capital.
Properties
Properties are stated at cost plus revaluation increment (if any) less accumulated depreciation andaccumulated impairment. Major betterments or renewals are capitalized, while maintenance and repairs
are expensed when incurred. Interests on funds used to acquire flight equipment or to construct facilities
before the date the equipment is used in operations are capitalized and included in the cost of the related
assets.
The amounts capitalized on flight and other equipment leased under agreements qualifying as capital leases
are the lower of (a) the present value of all payments required under the lease agreements plus the bargain
purchase price or (b) the fair value of the leased assets on the starting dates of the agreements. Interests
implicit in lease payments are recorded as interest expense.
Amounts paid under operating lease agreements are charged to income over the term of the agreements.
The imputed interest on rental deposits, calculated at the interest rate for one-year time deposits ofChunghwa Post Co., Ltd., is recorded both as rental expense and interest income.
Depreciation is calculated using the straight-line method over service lives estimated as follows (plus one
year to represent estimated salvage value): buildings, 45 to 55 years; machinery and equipment, 5 to 6
years; flight equipment, 5 to 25 years; furniture, 5 years; leased assets, 6 to 25 years; and leasehold
improvements, 5 years. Properties that have reached their residual value but are still in use are further
depreciated over their newly estimated service lives.
Upon property sale or other disposal, the cost, revaluation increment (if any) and the related accumulated
depreciation are removed from the accounts, and gain or loss is credited or charged to nonoperating gains orlosses in the year of disposal.
Intangible Assets
Intangible assets acquired are initially recorded at cost and are amortized on a straight-line basis over theirestimated useful lives. Computer software is amortized through its average economic useful life.
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, and they are all amortized using
the straight-line method over their estimated useful lives, the life of the bonds and loan periods,
respectively.
- 12 ­

Accrued Expenses - Frequent-flyer Program
Passengers who are members of the Dynasty Club may accumulate mileage points to reach a certain award
level, which entitles them to choose from among various awards (including an upgrade to a higher class orfree tickets). A liability is accrued and charged to operating expense. The amount accrued is based on
the estimated incremental cost that will be incurred upon the provision of transport services.
Pension Costs
The Company has two types of pension plans: defined benefit and defined contribution.
Pension costs under the defined benefit pension plan are recognized on the basis of actuarial calculations.
Unrecognized net transition obligation is amortized over 15 years, while pension gain or loss is amortizedusing the straight-line method based on the average remaining service years of employees.
If additional accrued pension cost based on actuarial calculations is not in excess of the sum of theunamortized balance of prior service costs and unrecognized net transition obligation, “deferred pensioncost” will be debited. Otherwise, the excess amount should be debited to “net loss not recognized as
pension cost” in stockholders’ equity.
Based on the defined contribution pension plan, the Company’s required monthly contributions to theemployees’ individual pension accounts are recognized as expenses throughout the employees’ service
periods.
Deferred Profits on Sale-leaseback
A gain on the sale by the Company of assets that it leases back is deferred and amortized over the term of
the lease agreements.
Income Tax
The Company applies the intra-period allocation method to its income tax. Deferred tax assets arerecognized for the tax effects of deductible temporary differences, debit in equity, unused investment
credits, and loss carryforwards, and deferred tax liabilities are recognized for the tax effects of taxable
temporary differences and credit in equity. Deferred tax liabilities and assets are classified as current or
noncurrent on the basis of the classification of the related asset or liability for financial reporting. A
deferred tax asset or liability that cannot be related to an asset or liability for financial reporting is classified
in accordance with the expected reversal or realization date of the temporary difference. Valuation
allowance is recognized on deferred tax assets that are not expected to be realized.
Income tax credits for certain acquisitions of research and development expenses are recognized in the
period those acquisitions or expenses are incurred.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as
income tax in the year the stockholders approve the retention of earnings.
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.”- 13 ­

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES
Financial Instruments
On January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards(SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” Among the main revisions isthat loans and receivables originated by the Company are now covered by SFAS No. 34. This accountingchange did not have a significant effect on the Company’s financial statements as of and for the six months
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.
4. CASH AND CASH EQUIVALENTS
June 30
2012$

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

2011

627,875
162,211,310
4,742,334,361
3,624,480,979
1,198,627,095$ 9,728,281,620$

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

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
Financial instruments classified as held for trading were as follows:
June 3020122011$ 1,802,092,713
1,017,885,506$ 2,901,938,167­$ 2,819,978,219$ 2,901,938,167

Financial assets held for trading
Current
Beneficial certificates
Listed stocks

The gains on beneficial certificates and listed stocks in the six months ended June 30, 2012 and 2011 were$453,917,000 and $3,929,000, respectively.

- 14 ­

Financial instruments designated as at FVTPL were as follows:
June 30, 2011
Financial assets designated as at FVTPL
Noncurrent
Convertible bonds
China Life Insurance Co., Ltd.

$ 373,970,000

On April 19, 2012, the above convertible bonds with an aggregate face value of $250,000,000 wereconverted into 29,137,529 common shares of China Life Insurance Co., Ltd. at the conversion price of
NT$8.58, and reclassified to financial assets at fair value through profit or loss - current.
On financial assets designated as at FVTPL, there were losses of $20,000 in the six months ended June 30,
2011.
6. AVAILABLE-FOR-SALE FINANCIAL ASSETS
June 30
2012

2011

Carrying Value% of
Ownership

Carrying Value% of
Ownership$ 76,037,193-$ 119,016,645-

Current
Foreign marketable equity securities
France Telecom

7. NOTES AND ACCOUNTS RECEIVABLE, NET
June 30
2012$

Notes receivable
Accounts receivable
Less: Allowance for doubtful accounts

2011$

423,946,073
7,155,344,352
7,579,290,425
53,327,366$ 7,525,963,059

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

8. OTHER RECEIVABLES
June 30

Accrued revenue
Tax refunds
Others- 15 ­

20122011$ 828,466,249
121,598,082
2,970,597$ 606,222,695
223,005,789
2,964,348$ 953,034,928$ 832,192,832

9. INVENTORIES, NET
June 30

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

2012

2011

$ 7,823,574,842
346,011,351
270,018,993$ 7,266,783,364
347,429,587
630,306,470$ 8,439,605,186$ 8,244,519,421

As of June 30, 2012 and 2011, the allowances for inventory devaluation were $85,319,000 and $66,081,000,
respectively.
10. FINANCIAL ASSETS CARRIED AT COST
June 30
2012
Carrying Value
Unlisted common stocks
Abacus International Holdings Ltd.
Jardine Air Terminal Services
Chung Hwa Express Co.
Regal International Advertising
Far Eastern Air Transport
Unlisted preferred stocks
Abacus International Holdings Ltd.

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

13.59
15.00
11.00
6.58
-

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

472,522$ 371,366,902% ofOwnership

13.59
15.00
11.00
6.58
-

-

$ 371,366,902

11. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
June 30
2012

2011

Carrying Value% of
Ownership

Carrying Value% of
Ownership$ 1,579,678,916
1,465,448,692
1,107,513,434
1,042,543,254
663,918,263
618,651,376
424,642,358
385,785,866
346,500,613
305,141,889
214,372,183
198,174,527
191,621,008

54.00
100.0093.99
100.0049.00
51.00
100.00
20.00
93.93
47.35
35.78
100.0024.50$ 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
206,856,674
223,946,791
170,262,230

54.00
100.0093.99
100.0049.00
51.00
100.00
20.00
93.93
47.35
35.78
100.0024.50

Investees 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
Kaohsiung Catering Services
Cal Hotel
Asian Compressor Technology Services(Continued)- 16 ­

June 30
2012
Carrying Value
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.

$

177,462,853
148,759,231
97,575,518
37,361,799
27,447,814
6,572,487
35,08834,60232,8952011% ofOwnership
28.48
55.00
100.0051.00
100.0025.00
100.00100.00100.00Carrying Value$$ 9,039,274,666

172,070,950
135,775,401
94,696,499
36,615,340
24,219,121
6,488,012
35,08834,60232,895% ofOwnership
28.48
55.00
100.0051.00
100.0025.00
100.00100.00100.00$ 8,879,579,207(Concluded)
Investment income (loss) recognized under the equity method was as follows:
Six Months Ended June 30
2012
2011
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
Kaohsiung Catering Services
Cal Hotel
Asian Compressor Technology Services
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express$ (33,412,223)(739,329)(41,966,566)
7,917,448
31,765,505
78,701,963
14,968,723
8,006,331
68,695,369
16,027,969
28,061,195(4,887,191)
57,823,107
13,352,114
9,928,418
16,612,802
288,653
5,621,213
678,722$(7,964,940)
3,229,587
49,616,467
1,381,825
23,401,611
46,901,088
14,416,941
7,117,001
66,403,423
19,522,470
26,503,191(24,358,270)
47,227,430
10,492,242
9,316,278
15,276,392(3,878,981)
2,923,949
735,502$ 277,444,223$ 308,263,206

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. and AsianCompressor Technology Services Co., Ltd. The Company believes that had these investees’ 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 establishedin March 2001, September 2001 and January 2002, respectively, for the leasing of the Company’s aircraft.
In its balance sheets, the Company recognized the fixed assets and liabilities related to the leased aircraft asa leasing transaction.

- 17 ­

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

Goodwill

Transaction
BetweenCompany andSubsidiary

Beginning
Decrease$ 52,423,365-$ (117,777,801)
16,434,111

Ending$ 52,423,365$ (101,343,690)

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

Ending$ 52,423,365$ (134,211,913)

Six months ended June 30, 2012

Six months ended June 30, 2011

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

2011

Revaluation increment - cost
Building$

Accumulated depreciation
Building
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements$ 2,828,402,969
3,020,788,124
83,294,247,902
441,051,847
6,518,585,768
869,662,480$ 2,645,499,497
3,171,647,655
74,273,297,542
386,359,643
5,900,121,696
795,291,642$ 96,972,739,090$ 87,172,217,675

41,297,645$

41,297,645

Interests capitalized in the six months ended June 30, 2012 and 2011 amounted to $42,347,000 and$36,649,000, with interests calculated at rates ranging from 2.07%-2.26% and from 1.91%-1.95%,
respectively.
In 1976 and 1982, the Company revalued its properties in accordance with government regulations.
Revaluation increments were recorded as increases in the carrying amounts of the assets and as credits tounrealized revaluation increments.

- 18 ­

13. SHORT-TERM LOANS
June 30
2012
Bank loans, interest of 1.10%-1.25% in the six months ended
June 30, 20122011

$ 3,200,000,000$­

14. SHORT-TERM BILLS PAYABLE
June 30, 2011
Commercial paper - discounted interest of 0.858% in the six months ended June 30,
2011
Less: Unamortized discount on bills payable$ 300,000,000
20,690$ 299,979,310

15. BONDS PAYABLE
June 30
2012
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 2013; 2.8% interest p.a.,payable semiannually.
January 2012; repayable in January 2015; 2% interest p.a.,payable semiannually.
Five-year private unsecured bonds-issued at par in
April 2009; repayable in April 2014; 3.6% interest p.a.,payable semiannually.
June 2009; repayable in June 2014; 3.6% interest p.a.,payable semiannually.
Less: Current portion- 19 ­$

2011-$ 2,600,000,000

1,200,000,000

2,100,000,000

1,300,000,000

1,300,000,000

2,300,000,000

2,300,000,000

6,000,000,000

6,000,000,000-

8,800,000,000-

2,200,000,000

5,050,000,000

5,050,000,000

5,785,000,000­

1,100,000,000

1,100,000,000

800,000,000
23,535,000,000
7,330,000,000

800,000,000
32,250,000,000
14,500,000,000$ 16,205,000,000$ 17,750,000,000

In January 2012, the Company made a first issue of 2012 private unsecured bonds with aggregate facevalue of $5,785,000,000. The investors were these affiliates: Taoyuan International Airport Services,
Mandarin Airlines and Abacus Distribution Systems (Taiwan).
In May 2010, the Company made a first issue of 2010 private unsecured bonds with aggregate face value of$5,050,000,000. The investors were these affiliates: Taoyuan International Airport Services, Mandarin
Airlines, Abacus Distribution Systems (Taiwan), China Pacific Catering Services and Hwa Hsia.
16. LONG-TERM LOANS
June 30

Bank loans
Commercial paper, net of unamortized discounts of$27,436,355 and $15,052,012 in the six months ended
June 30, 2012 and 2011, respectively
Less: Current portion

2012

2011

$ 69,018,458,217$ 74,576,710,637

12,252,563,645
81,271,021,862
15,343,750,307

5,414,947,988
79,991,658,625
17,788,543,821$ 65,927,271,555$ 62,203,114,804

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 26, 2020. The related information is summarized
as follows:
Currency
U.S. Dollars

New Taiwan Dollars

Japanese Yen

Amounts
Original currency
2012
2011
Translated in New Taiwan
dollars2012
2011$ 46,089,989,982
44,964,128,109$

760,275,693
998,459,665$

620,000,000
1,860,000,000

46,089,989,982
44,964,128,109

22,694,796,958
28,940,859,884

233,671,277
671,722,644

1.271%-2.614%
1.147%-2.525%

0.4657%-4.77%
0.2408%-4.77%

0.6957%0.6953%

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

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

2007/12/26-2012/12/26
2007/12/26-2012/12/26

Interest rates
2012
2011
Periods
2012
2011

The Company has note issuance facilities (NIFs) obtained from certain financial institutions. The NIFs,
with various maturities until March 2017, were used by the Company to guarantee commercial paper it
issued. The commercial paper was issued at discount rates of 1.358% to 2.109% and 1.313% to 2.09% in
the six months ended June 30, 2012 and 2011, respectively.

- 20 ­

17. LONG-TERM CAPITAL LEASE OBLIGATIONS
June 30

Capital lease obligations
Less: Current portion

2012

2011

$ 1,712,780,185
1,211,475,275$ 2,756,476,121
1,093,341,738$$ 1,663,134,383

501,304,910

As of June 30, 2012 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 20122013
January to February 2014

$ 594,654,971
862,781,059
255,344,155

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 $59,988,000 and $57,024,000 for the six months ended June 30, 2012 and 2011,
respectively.
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 $315,292,000 and $373,141,000 for the six months ended
June 30, 2012 and 2011, respectively.
Other information on the defined benefit pension fund is as follows:a. Pension fund movements
Six Months Ended June 30
2012
2011
Balance, beginning of period
Contributions
Income from pension fund investments
Payment$ 2,710,958,860
263,320,738(306,764,156)$ 2,436,797,815
278,138,540
7,341,556(121,079,997)

Balance, end of period$ 2,667,515,442$ 2,601,197,914- 21 ­

b. Accrued pension cost movements
June 3020122011

Balance, beginning of period
Pension cost recognizedContributions
Payment$ 6,378,716,679
315,292,353(263,320,738)(32,134,877)$ 6,646,911,151
373,140,861(278,138,540)(37,249,706)

Balance, end of period$ 6,398,553,417$ 6,704,663,766

19. STOCKHOLDERS’ EQUITY
Employee Stock Option Plans
Under the Company Law, of the publicly issued common shares, 10% should be reserved for subscription
by the Company’s employees. In December 2011, the board resolved the amount of shares and price forsubscription by the employees. Under Statement of Financial Accounting Standards No. 39 ­“Share-based Payment,” the compensation cost of employee stock options was recognized on the grant-dateusing the fair value method.
Information on employee stock options is as follows:
Number of
Options(In Thousands)

Weighted-average
ExercisePrice

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

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

Weighted-average fair value of options granted$ 0.4948

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

NT$12.15
NT$11.73
39.89%
5 days
­0.7687%The compensation cost of employee stock options issued for a capital increase in December 2011 wasrecognized at $28,123,000, which was reclassified in February 2012 to capital surplus - issuance ofcommon shares at fair value of $16,376,000 and capital surplus - expired employee stock options of$11,747,000.

- 22 ­

Capital Surplus
The capital surplus from shares issued in excess of par (additional paid-in capital from issuance of commonshares and treasury stock transactions) and donations may be used to offset a deficit; in addition, when the
Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital(limited to a certain percentage of the Company’s paid-in capital and once a year).
The capital surplus from long-term investments, employee stock options and conversion options may not be
used for any purpose.
Capital surplus is summarized as follows:
June 30
2012
Arising from the issuance of common shares
Expired employee stock options
Arising from treasury stock transactions
Arising from long-term investments

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

391,866,400­­
955,395$ 1,405,394,082$

392,821,795

Appropriation of Earnings and Dividend Policy
To meet the Company’s financial demand for its operation as well as repay its debt, the board resolved inJune 2011 to publicly issue 568,378,000 common shares at NT$11.73 per share, with NT$10 par value andthe record date of February 10, 2012. The Company completed the registration of this capital increase on
February 20, 2012.
The Company's Articles of Incorporation provide that the following should be appropriated from annual net
income (less any deficit): (a) 10% as legal reserve, and (b) special reserve equivalent to a debit balance ofany stockholders’ equity account. From the remainder, the Company should also appropriate at least 3%
as bonus to employees. Of the final remainder, at least 50% should be distributed to stockholders as both
cash and stock dividends (cash dividend should not be less than 30% of the total dividends) or stock
dividends only. In determining the amount of cash dividends to be distributed, the board of directors
should take into account future cash requirements of the Company, primarily cash requirements for future
aircraft acquisitions. Distribution of earnings generated in prior years should also meet the foregoingguidelines.
All earnings appropriations should be made and approved by the stockholders in, and given effect to in thefinancial statements of, the year following the year of earnings generation.
The bonus to employees was estimated on the basis of past experiences. However, there were net losses inthe six months ended June 30, 2012 and 2011; thus, no bonuses to employees were estimated. Material
differences between such estimated amounts and the amounts proposed by the Board of Directors in thefollowing year are retroactively adjusted for in the current year. If the actual amounts subsequently
resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year ofstockholders’ resolution as a change in accounting estimate.
Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balanceof certain stockholders’ equity accounts (including unrealized valuation gain or loss on financial
instruments, cumulative translation adjustments against the unrealized gain of equity, and net loss notrecognized as pension cost) should be transferred from unappropriated earnings to a special reserve. Any
special reserve appropriated may be reversed to the extent of the decrease in the net debit balance.

- 23 ­

Under the regulations of the Securities and Futures Bureau, a special reserve is appropriated from thebalance of the retained earnings at an amount equal to the carrying value of the treasury stock held bysubsidiaries in excess of the market value on the balance sheet date. The special reserve may be reversed
when the market value recovers.
Legal reserve should be appropriated until the legal reserve equals the Company’s paid-in capital. Legal
reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded
25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.
The appropriation of the 2010 earnings was approved in the stockholders’ meeting on June 24, 2011. The
appropriations, including dividends per share, were as follows:
Dividends Per
Share (NT$)

Appropriation of
Earnings

Legal reserve
Special reserve
Cash dividends$

799,629,908
5,162,070,526
1,852,648,941$0.4$ 7,814,349,375
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 that approved under a resolution passed at the Board of Directors’ meeting held on April 29,
2011, and the same amount was charged against the earnings of 2010.
The stockholders resolved to offset the accumulated deficit of 2011 in the stockholders’ meeting held on
June 15, 2012. The Company offset the accumulated deficit (a net loss of $1,954,271,000) against theunappropriated earnings of $181,950,000, a special reserve of $1,288,701,000, and the legal reserve of$483,620,000. No bonus to employees was appropriated for 2011 because of a net loss in that year.
Information on bonus to employee is available on the Market Observation Post System website.
Except for non-ROC resident stockholders, all stockholders receiving the unappropriated earnings
generated on and after January 1, 1998 are allowed a tax credit equal to their proportionate share of theincome tax paid by the Company.
20. TREASURY STOCK(Shares in Thousands)
Number of
Shares,Beginningof Period

Purpose of Treasury Stock

Addition(Reduction)
During the
PeriodNumber of
Shares,End ofPeriodSix months ended June 30, 2012
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

2,889

-

2,889

2,889

-

2,889

Six months ended June 30, 2011
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock- 24 ­

The Company’s shares held by its subsidiaries as of June 30, 2012 and 2011 were as follows:
Shares(In Thousands)

Subsidiary

Carrying
AmountMarket Value$ 27,800,015
10,909,637$ 27,800,015
10,909,637$ 38,709,652$ 38,709,652$ 40,455,246
15,875,964$ 40,455,246
15,875,964$ 56,331,210$ 56,331,210

June 30, 2012
Mandarin Airlines
Hwa Hsia

2,075
814

June 30, 2011
Mandarin Airlines
Hwa Hsia

2,075
814

The shares of the Company held by its subsidiaries were treated as treasury stock. The subsidiaries can
exercise stockholders’ right on these treasury stocks, except the right to subscribe for the Company’s newshares and the right to vote.
21. INCOME TAX
a. The reconciliation of the income tax expense based on loss before income tax at the statutory rate of
17% and income tax expense was as follows:
Six Months Ended June 30
2012
2011
Income tax benefit on loss before income tax at statutory rate
Add (deduct) tax effects of:Permanent differences
Temporary differences
Loss carryforwards
Overseas income tax expense$ (200,871,947)$ (131,646,648)(33,989,335)(25,678,569)
260,539,851
26,172,077(45,937,867)(155,210,572)
332,795,087
32,609,405

Income tax expense - current$ 26,172,077$ 32,609,405

b. Income tax benefit consisted of the following:
Six Months Ended June 30
2012
2011
Income tax expense - current
Net changes in deferred income tax expense (benefit)
Allowance for doubtful accounts
Allowance for loss on inventories
Equity in net loss of foreign equity-method investees
Loss on disposal of properties
Depreciation difference between accounting and tax onproperties
Allowance for loss on idle properties- 25 ­$ 26,172,077$ 32,609,405(3,484,141)(47,323,433)
5,300,796
27,101,449

2,311,749-(733,750)(11,862,658)(733,750)(12,146,334)(Continued)

Six Months Ended June 30
2012
2011
Accrued expense for the frequent-flyer program
Provision for pension cost
Unrealized foreign exchange gain
Difference between accounting and tax on interest
Loss carryforwards
Investment income tax credits
Other adjustment in valuation allowance
Adjustment of prior years’ tax$

4,474,728(3,372,246)
52,787,095
2,790,729(260,103,078)
111,417,863(44,577,673)
46,034$

2,698,592(9,730,196)
170,107,530
2,790,729(332,795,087)
110,381,208(78,732,095)
340,683

Income tax benefit$ (141,366,208)$ (112,897,566)(Concluded)c. Deferred income tax assets (liabilities) as of June 30, 2012 and 2011 consisted of the following:
June 30
2012
Current
Allowance for loss on inventories
Accrued expenses for frequent-flyer program
Unrealized litigation loss
Unrealized gain on financial instruments
Allowance for doubtful accounts
Investment income tax credits
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
Unrealized loss on financial instruments
Loss carryforwards
Investment income tax credits
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Depreciation difference between accounting and tax onproperties
Net deferred income tax assets- 26 ­

2011$

61,584,979
12,087,098
37,539,432
54,863,614
8,185,645
165,684,028
339,944,796(70,921,011)
269,023,785(54,896,847)-$

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)$

214,126,938$

107,856,626$

90,929,215
187,787,064
694,824,124
78,793,930
123,343,849
383,432,862
4,118,457
5,470,018,448
65,233,108
7,098,481,057(27,923,017)
7,070,558,040$

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(145,275,003)(146,754,665)$ 6,925,283,037$ 6,776,012,033

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

Balance of ICA

2012

2011

$ 78,688,617$ 321,302,010

Since the Company had an accumulated deficit as of June 30, 2012, there was no expected creditable
tax ratio. The Company had no unappropriated retained earnings generated since January 1, 1998.
e. Unused investment income tax credits as of June 30, 2012 were as follows:

Laws and Statutes

Tax Credit Source

Article 6 of the Statutefor Upgrading
Industries

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

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

2013
2014
2015

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

f. Unused tax loss carryforwards as of June 30, 2012 were as follows:
Expiry Year

Unused Amount

2018
2019
2021
2022

$ 8,398,753,893
19,338,075,471
2,907,162,383
1,532,587,361$ 32,176,579,108

g. The income tax returns of the Company through 2009 have been examined by the tax authorities, except
for the following:
On the Company’s 2008 and 2009 tax returns assessed by the tax authorities, investment tax credits
were reduced to $6,406,000 and $162,397,000, respectively, which affected the use of investment tax
credits in the following years. The Company disagreed with the tax authorities’ assessment of its 2008
and 2009 tax returns and had applied for a reexamination.
22. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
Six Months Ended June 30, 2012
Classified as
Classified as
OperatingOperating Costs
Expenses
Total
Personnel
Salaries
Labor and health insurance
Pension cost
OthersDepreciation
Amortization$ 4,383,434,733
293,055,200
267,858,021
865,048,774
5,137,982,496
1,209,253- 27 ­$ 1,102,517,229
214,547,192
107,421,697
118,647,449
181,050,662
91,479,557$ 5,485,951,962
507,602,392
375,279,718
983,696,223
5,319,033,158
92,688,810

Six Months Ended June 30, 2011
Classified as
Classified as
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

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

Shares(Thousands)(As Denominator)

Loss Per Share (NT$)
PretaxAfter Tax

Six months ended June 30, 2012
Basic loss per share
Net loss on common stock$ (1,181,599)$ (1,040,233)

5,072,193$ (0.23)$ (0.21)$ (774,393)$ (661,495)

4,628,733$ (0.17)$ (0.14)Six months ended June 30, 2011
Basic loss per share
Net loss on common stock

24. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
June 30
2012

2011

Carrying Amount

Estimated
Fair Value

Carrying Amount

29,398,607,409$

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$

29,398,607,409$

32,113,099,548$

32,113,099,548

2,819,978,219
76,037,193
66,768,883
371,366,902

2,819,978,219
76,037,193
66,768,883-

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

3,275,908,167
119,016,645
93,116,849­

17,278,988,116
403,387,292
23,535,000,000
81,271,021,861

17,278,988,116
403,387,292
23,791,016,272
81,507,654,409

16,071,591,595
40,092,795
32,250,000,000
79,991,658,625

16,071,591,595
40,092,795
33,487,941,624
80,176,001,241

Financial liabilities
Financial liabilities - with fair values
approximating carrying amounts
Derivative financial liabilities for hedging
Bonds payable
Loans and debts- 28 ­

b. Methods and assumptions used in estimating the fair values of financial instruments are as follows:
1) The carrying amounts of the following short-term financial instruments approximate their fairvalues because of their short maturities: Cash and cash equivalents, receivables, receivables ­related parties, other receivables, other financial assets - noncurrent, deposit accounts, restrictedassets - noncurrent, short-term loans, commercial paper, accounts payable, accounts payable torelated parties, accrued expenses, portion of current other liabilities and other liabilities - others.
2) Fair values of financial instruments designated as at fair value through profit or loss,
available-for-sale financial assets, and derivative financial assets for hedging are based on theirquoted prices in an active market. If quoted market prices are not available, fair values are
estimated using valuation techniques. For those instruments which are acquired in private andcould not be traded in the open market, the Company calculates their fair values by theBlack-Scholes model. For those derivative financial assets for hedging and with no quoted prices,
the fair values are determined using valuation techniques incorporating estimates and assumptions
consistent with those generally used by other market participants to price financial instruments.
The valuation techniques are applied to the derivative financial assets by financial institutions,which calculate fair values at the expiry date of each contract.
3) Financial assets carried at cost are investments in unquoted shares, which have no quoted prices inan active market and entail an unreasonably high cost to obtain verifiable fair values. Thus, no fairvalue is presented.
4) Fair values of bonds payable are based on their quoted market prices.
5) Some long-term debts and capital lease obligations are floating-rate financial liabilities, so theircarrying values are their fair values. The fair values of long-term debts and private bonds with
fixed interest rates are estimated at the present value of expected cash flows discounted at rates of
0.928% to 1.068% and 0.7335% to 2.049% of June 30, 2012 and 2011, respectively, prevailing in
the market for long-term debts.
The total amount of fair value listed above is not equal to the total value of the Company because it is
not necessary to disclose all the fair values of financial and nonfinancial instruments.
c. Fair values of financial assets and financial liabilities determined at quoted market prices or estimates
are summarized as follows:
Quoted Market Prices
June 3020122011

Fair Value Based on Estimates
June 30
20122011

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

2,819,978,219
76,037,193-$

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

66,768,883$

373,970,000­
93,116,849

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

10,799,604,000-

14,292,903,800-

403,387,292
12,991,412,272
81,507,654,409

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

d. As of June 30, 2012 and 2011, loans, short-term bills payable, bonds payable and capital leaseobligations at fixed rate that were exposed to fair value interest rate risk amounted to $22,422,758,000
and $27,541,030,000, respectively, and those at floating rate that were exposed to cash flow interest raterisks amounted to $87,296,044,000 and $87,757,084,000, respectively.

- 29 ­

e. For the six months ended June 30, 2012 and 2011, the adjustments of stockholders’ equity directly
credited and debited, respectively, to available-for-sale financial assets amounted to $16,679,000 and$1,412,000, respectively.
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 committee, which meets periodically to evaluate theperformance of derivative instruments and determine the appropriate hedging percentage. This
committee informs the Company of global economic and financial conditions, controls the entire
financial risk resulting from changes in the financial environment and fuel prices, and develops thestrategy and response to avoid financial risk with the assistance of financial risk experts to effect risk
management.
The Company enters into forward contracts, currency option contracts, and foreign exchange swap
contracts to hedge against the risks on changes in foreign-currency assets, liabilities and commitments
and in the related exchange rates; enters into interest swap contracts to hedge against adverse risks onchanges in net liability interest rates; enters into cross-currency swap contracts to hedge against adverse
risks on interest rate and exchange rate changes; and enters into fuel swap contracts to hedge against
adverse risks on fuel price changes. The Company uses derivative financial instruments with fairvalues that are highly negatively correlated to the fair values of hedged items and evaluates the hedging
effectiveness of these instruments periodically.
The Company uses derivative instruments to avoid major market risks.
The following table summarizes the aggregate contractual (notional) amounts, credit risk and fair valueof the derivative financial instruments of the Company as of June 30, 2012 and 2011.
June 30
2012

Hedge
Interest rate swaps
Forward exchange
Currency options
Call
Put
Fuel swap
Call
Put

Note:

Contractual(Notional)
Amount$ 6,645,000,000
1,477,611,940

2011

Credit Risk$

8,268
16,323,925

Fair Value$Contractual(Notional)
Amount(26,816,524 )
16,123,079$ 2,068,000,000
724,637,681

Credit Risk$

3,014,200

Fair Value$(33,021,171 )
900,292

611,940,299
611,940,299

3,292,202-

3,292,202(7,843,149 )405,797,101
405,797,101

1,855,335-

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

47,144,488
368,518,505

47,144,488-

47,144,488(368,518,505 )

135,131,629
46,884,315

135,131,629-

135,131,629(46,884,315 )Based on the Taiwan Stock Exchange’s regulation for the public companies’ monthly
declaration on the trading of derivative financial instruments, the contractual amounts areshown at the absolute values of fair values because fuel swap contracts only have nominal
amounts.

The contract amount is used to calculate the amounts to be settled by the counter-parties; thus, it isneither the actual delivery amount nor the cash requirement of the Company. The derivative financial
instruments held or issued by the Company are likely to be sold at reasonable market prices. The
Company does not expect significant cash flow requirements upon contract maturity.
- 30 ­

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

Hedged Items
Floating-interest long-term
debts
Lease cost in U.S. dollars
Fuel cost in U.S. dollars
Fuel cost in U.S. dollars
Lease cost in U.S. dollars
Fuel cost in U.S. dollars

Designated Hedging Instruments
Financial Instruments
Designated as Hedging
June 30, 2012
Instruments
Nominal Amount
Fair Value

Expected
Cash Flow
PeriodProfit or Loss
Recognition
PeriodInterest rate swaps$ 6,645,000,000(26,816,524)

2007 to 20162007 to 2016

Forward exchange
contracts
Forward exchange
contracts
Currency options
Call
Put
Currency options
Call
Put
Fuel swap
CallPut

1,059,701,492

12,667,536

2011 to 20122011 to 2012

417,910,448

3,455,543

2011 to 20122011 to 2012

268,656,717
268,656,717

1,691,804(3,862,794)

2011 to 20122011 to 20122011 to 20122011 to 2012

343,283,582
343,283,582

1,600,398(3,980,355)

2011 to 20122011 to 20122011 to 20122011 to 2012

47,144,488
368,518,505

47,144,488(368,518,505)

2011 to 20122011 to 20122011 to 20122011 to 2012

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)

2010 to 20112010 to 20112010 to 20112010 to 20112010 to 20112010 to 2011

579,710,145

1,649,602

2010 to 20112010 to 20112010 to 20112010 to 2011

135,131,629
46,884,315

135,131,629(46,884,315)$$ (336,618,409)

Hedged Items
Floating-interest long-term
debts
Fuel cost in U.S. dollars
Lease cost in U.S. dollars
Fuel cost in U.S. dollars
Fuel cost in U.S. dollars

Currency options
Call
Put
Forward exchange
contracts
Forward exchange
contracts
Fuel swap
Call
Put

$

2,068,000,000$$- 31 ­

53,024,054

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
2012
2011

Adjustment Items
Amount recognized in equity during the period
Amount removed from equity and included in profit or loss forthe period$ (205,072,507)$ 77,437,287(106,917,045)

59,804,731

26. RELATED-PARTY TRANSACTIONS
a. Related parties and their relationships with the Company
Related Party

Relationship with the Company

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
Kaohsiung Catering Services
Cal Hotel
Asian Compressor Technology Services
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Yangtze River Express Airlines
China Aviation Development Foundation

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

b. Significant transactions with related parties, in addition to those mentioned in Note 15, are summarized
as follows:
Six Months Ended June 30
2012
1)

2011

Amount%Amount%904,688,711
158,465,033
73,085,786
17,515,673
9,467,983
54,695,866

1.38
0.24
0.11
0.03
0.01
0.09

$

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

$ 1,217,919,052

1.86$ 1,332,025,414

2.08

Revenues
Mandarin Airlines
Yangtze River Express Airlines
Global Sky Express
China Aviation Development Foundation
Taiwan Air Cargo Terminal
Others$- 32 ­Six Months Ended June 30
2012
2)

Amount%561,649,519
486,363,572
183,285,208
150,259,312
132,626,656
132,163,845
106,509,598
98,432,921
67,374,306
46,169,896
35,122,613
32,602,180
28,735,515
16,218,993
15,511,039
13,158,348
4,382,983

0.90
0.78
0.29
0.24
0.21
0.21
0.17
0.16
0.11
0.07
0.06
0.05
0.05
0.03
0.02
0.02
0.02

$

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

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

$ 2,110,566,504

3.39$ 2,003,594,683

3.33

$

300,368,617
16,295,523
13,392,022
6,319,646
4,758,955
2,817,410
4,919,152

86.10
4.67
3.84
1.81
1.36
0.81
1.41

$

309,785,667
89,900,988
11,178,667
8,335,921
162,511
6,936,729
4,006,705

71.99
20.89
2.60
1.94
0.04
1.61
0.93

$

348,871,325

100.00$430,307,188

100.00$301,523,857
265,313,865
262,583,901
68,060,035
65,189,154
53,254,800
31,354,964
30,695,000
22,156,229
14,148,037
12,297,713
12,062,993
11,491,448
6,136,598

26.08
22.95
22.71
5.89
5.64
4.61
2.71
2.65
1.92
1.22
1.06
1.04
0.99
0.53

$

330,676,756
374,908,020
222,837,502
51,148,109
61,326,096
55,917,540
29,418,317
31,790,536
21,220,952
141,128,819
13,342,322
9,857,238
5,897,225
9,779,620

24.33
27.58
16.39
3.76
4.51
4.11
2.16
2.34
1.56
10.38
0.98
0.73
0.43
0.74

$ 1,156,268,594

100.00$ 1,359,249,052

100.00$Notes and accounts receivables - relatedparties
Mandarin Airlines
Yangtze River Express Airlines
Yestrip
Global Sky Express
Asian Compressor Technology Services
China Aviation Development Foundation
Others

4)

%

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

2011

AmountAccounts payable to related parties
China Pacific Catering Services
Mandarin Airlines
Taoyuan International Airport Services
Hwa Hsia
Taiwan Airport Services
Cal Park
Taiwan Air Cargo Terminal
China Aircraft Services
Kaohsiung Catering Services
Yangtze River Express Airlines
China Pacific Laundry Services
China Aviation Development Foundation
Cal Hotel
Others5) Lease of property and equipment
In December 2008, the Company rents out planes to Mandarin Airlines under an annual operating
leasing contract. The rent is received monthly based on this contract. The rental rate wasadjusted in August 2009. As of June 30, 2012 and 2011, the monthly rentals received amounted to$607,080,000 and $508,914,000, respectively.

- 33 ­

For expanded passenger service, the Company rents planes from Mandarin Airlines under anoperating lease agreement. The Company pays rental based on flight hours. In the six months
ended June 30, 2012 and 2011, the Company paid hourly flight rentals of about $113,360,000 and$86,989,000, respectively.
For airplane pilot training, the Company rents flight training machines and flight simulators from
China Aviation Development Foundation under an operating lease agreement. The Company pays
rental based on usage hours. For the six months ended June 30, 2012 and 2011, the Company paid
usage rentals of about $28,736,000 and $37,239,000, respectively.
In March 2010, the Company signed with CAL Park a one-year renewable operating leaseagreement to use the Operating and Aviation Headquarters building of the Taiwan Taoyuan
International Airport at a fixed rental of $17,752,000 monthly. In the six months ended June 30,
2012 and 2011, the Company paid rentals of $106,510,000.
6) Endorsements and guarantees
June 30
2012

2011

Authorized
AmountOccupied
AmountAuthorized
AmountOccupied
Amount$ 3,400,000,000
329,237,207
251,563,824
180,000,000
1,080,000,000$ 3,320,000,000
329,237,207
251,563,824
132,438,000-$ 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

16,277,612

12,810,478

15,805,797

15,430,406

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

As of June 30, 2012 and 2011, U.S. Treasury Bills amounting to US$580,801,000 and
US$650,750,000 had been pledged as collateral for financing lease transaction of Freighter Princess
Ltd., Freighter Queen Ltd. and Freighter Princess Ltd. and were included in restricted assets ­noncurrent.
The transactions between the Company and related parties refer to the air transportation industry.
The transaction price is negotiated under a regular transaction process, and the term of making
collections and payments for receivables and payables is from 30 days to 2 months, which isconsistent with credit policy.
7) Bonds payable to related parties
Related parties invested the private unsecured bonds (Note 15) are summarized as follows:
June 30, 2012
Units
Par/Dollars

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

100
280
60

- 34 ­$ 100,000,000
280,000,000
60,000,000(Continued)

June 30, 2012
Units
Par/Dollars

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

300
300
60
40
10

$ 300,000,000
300,000,000
60,000,000
40,000,000
10,000,000(Concluded)

June 30, 2011
Units
Par/Dollars

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

300
300
60
40
10

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

In the six months ended June 30, 2012 and 2011, interest expenses were $14,005,000 and$9,804,000, respectively. As of June 30, 2012 and 2011, interests payable were $6,601,000 and$2,454,000, respectively.
27. PLEDGED ASSETS
The following assets had been pledged or mortgaged as collateral for long-term and short-term bank loans,business transactions and financing lease transaction of subsidiary:
June 30
2012
Restricted assets - noncurrent
U.S. Treasury Bills
Pledged certificates of deposit
Properties - land and flight equipment (net)$580,801,031
101,450,783,426$ 102,031,584,457

2011$

650,674,948
7,250,000
105,273,351,463$ 105,931,276,411

28. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIESAs of June 30, 2012, significant commitments and contingent liabilities of the Company were 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 forthem to give a total compensation of $297,061,000 to the investors of FEAT. Later, in January 2010,- 35 ­

SFIPC included in its lawsuit the directors and supervisors who are legal persons of FEAT (including
the Company) as joint defendants. As of August 9, 2011, the date of the accompanying auditors’
report, there were 36 joint defendants in this lawsuit. Although the case is still under review by the
Taipei District Court, the Company believes this case will have no material impact on its financial andsales operations.
b. The Company leased certain flight equipment, hangar and headquarters building under various
operating lease agreements expiring on various dates until January 2024. Lease deposits aggregated$9,843,211,000.
Future lease payments are summarized as follows:
Period/Year

AmountJuly to December in 2012
2013
2014
2015
2016
2017

$ 2,863,895,666
4,967,721,753
4,298,644,280
3,380,969,307
2,688,322,978
2,586,244,696

Rentals from 2018 and on will aggregate $6,555,522,000. The present value of these rentals,
discounted using the discount interest rate 1.37% for one-year time deposits of Chunghwa Post Co.,
Ltd., is $6,062,168,000
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, 2012, the Company had paid about
US$119,197,000, which was included in the “prepayments for equipment” in the properties section of
the balance sheets.
29. EXCHANGE RATE INFORMATION OF FOREIGN CURRENCY FINANCIAL ASSETS AND
LIABILITIESThe significant foreign currency financial assets and liabilities were as follows:(Unit:

Foreign Currencies/New Taiwan Dollars)

June 30

Foreign Currencies

2012
Exchange
Rate

New Taiwan Dollars

Foreign Currencies

$

$

2011
Exchange
Rate

New Taiwan Dollars

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

$

84,042,944
14,976,288
269,200,760
1,791,588,889
962,695,239

29.850737.4532
3.85210.37694.6992

1,390,534,493

29.8507

49,150,718
100,150,011
99,132,061

180,906,988
6,845,289
61,881,310
4,001,965,902
303,293,039

2,508,740,708
560,909,910
1,036,988,248
675,249,852
4,523,897,467

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

41,508,427,990

1,277,233,085

28.9855

37,021,239,585

29.85073.85210.37691,467,185,612
385,785,866
37,361,799

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

29.850737.4532
3.85210.37694.69925,400,200,227
256,377,978238,372,994
1,508,340,948
1,425,234,649

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

Financial liabilities
Monetary items
USD
EUR
HKD
JPY
RMB

- 36 ­

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 or 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 other information of investees on which the Company exercises significant
influence: Table 6 (attached)10) Derivative financial transactions (Note 25)
b. Investments in Mainland China: Table 7 (attached)
31. OPERATING SEGMENT FINANCIAL INFORMATIONThe Company mainly engages in air transportation services for passengers, cargo and others. The major
revenue-generating asset is the aircraft fleet, which is jointly used for passenger and cargo services. Thus,
the Company’s sole reportable segment is 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.

- 37 ­TABLE 1

CHINA AIRLINES, LTD. AND INVESTEESENDORSEMENT/GUARANTEE PROVIDED
SIX MONTHS ENDED JUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Counter-party
No.

Endorsement/
Guarantee Provider

Name

Nature of Relationship0

China Airlines

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

100% subsidiary
54% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary1

Cal Asia

Taikoo Spirit Aerospace Systems(Jinjiang) Composite

Investments accounted for by thecost method

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

Maximum
Balance for the
PeriodEnding Balance$ 10,416,282,279
10,416,282,279
10,416,282,279
10,416,282,279
10,416,282,279
10,416,282,279$ 3,400,000,000
1,080,000,000
28,821,289
329,237,207
251,563,824
180,000,000$ 3,400,000,000
1,080,000,000
329,237,207
251,563,824
180,000,000

84,928,472

16,277,612

16,277,612

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

- 38 ­

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

329,237,207
251,563,824
-

6.53
2.07
0.63
0.48
0.35

$ 26,040,705,697
26,040,705,697
26,040,705,697
26,040,705,697
26,040,705,697
26,040,705,697

-

3.83

212,321,179

TABLE 2

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES HELDJUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

China Airlines

Taiwan Air Cargo Terminal

Marketable Securities Type and Issuer/Name

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
Kaohsiung Catering Services
Cal Hotel
Asian Compressor Technology Services
Science Park Logistics
China Pacific Laundry Services
Hwa Hsia
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Hua Nan Financial Holdings Co., Ltd.

Relationship with theHolding Company

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

Financial Statement AccountShares/Units

June 30, 2012
Percentage ofCarrying Value
Ownership

54.00
100.0093.99
100.0049.00
51.00
100.00
20.00
93.93
47.35
35.78
100.00
24.50
28.48
55.00
100.0051.00
100.0025.00
100.00100.00100.00-Market Value or Net
Asset ValueNote$ 1,579,678,916
1,465,448,692
1,235,063,661
1,042,543,254
663,918,263
618,651,376
424,642,358
339,028,703
346,500,613
305,141,889
215,792,520
198,174,527
191,621,008
170,376,314
148,759,231
108,485,155
37,361,799
27,447,814
6,572,487
35,08834,60232,895
207,862,200

Note 1
Notes 2 and 5
Note 2
Note 5Note 2
Note 1-China Life Insurance Co., Ltd.

-France Telecom
Abacus International Holdings Ltd. - unlisted common
stockAbacus International Holdings Ltd. - unlisted preferredstockChung Hua Express Co.
Jardine Air Terminal Services
Regal International Advertising
Far Eastern Air Transport-

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

135,000,000
150,000,000
188,154,025
2,614,500
34,300,000
43,911,000
46,516,200
28,400,000
13,021,042
20,626,644
14,329,759
46,500,000
7,732,200
13,293,000
13,750,000
50,000408
1,600,000
250,000
1,000
1,000
1,000
12,636,000$ 1,579,678,916
1,465,448,692
1,107,513,434
1,042,543,254
663,918,263
618,651,376
424,642,358
385,785,866
346,500,613
305,141,889
214,372,183
198,174,527
191,621,008
177,462,853
148,759,231
97,575,518
37,361,799
27,447,814
6,572,487
35,08834,60232,895
207,862,200

29,137,529

810,023,306-

810,023,306-

195,587
1,359,368

76,037,193
297,946,451

13.59

76,037,193
236,265,760

Notes 3 and 6-

Financial assets at cost - noncurrent

135,937

472,522--

Notes 3 and 6-

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

1,100,000
12,000,000
592,500
5,727

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

11.00
15.00
6.58
-

14,633,474
51,003,467
229,938-

Note 5Note 7Note 8-Beneficial certificates
Mega Diamond Money Market Fund-

41,366,839.91

501,006,208-

501,006,208-

Eastspring Investments Well Pool Money Market Fund-

41,840,634.40

550,509,779-

550,509,779-

Taishin Ta Chong Money Market Fund-

29,134,403.70

400,382,456-

400,382,456-

Taishin 1699 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

26,769,373.67

350,194,270-

350,194,270-

Beneficial certificates
Taishin 1699 Money Market Fund-

Financial assets at fair value through profit or loss ­current

6,152,710.27

80,489,140-

80,489,140-(Continued)- 39 ­

Holding Company Name

Mandarin Airlines

Marketable Securities Type and Issuer/Name

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

Taoyuan International Airport
Services

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

China Pacific Catering Services

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

Cal-Asia Investment

Abacus Distribution Systems(Taiwan)

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

Relationship with theHolding Company

Parent company-

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

Parent company

Bond investments with no active market - current

Parent company

Bond investments with no active market - noncurrent

Controlled by China Airlines Financial assets carried at cost - noncurrent

Shares/Units

2,074,628
8,274

June 30, 2012
Percentage ofCarrying Value
Ownership$

27,800,015
3,216,634-

300

300,000,000

280

Market Value or Net
Asset Value

$

Note

27,800,015
3,216,634--

300,000,000-

280,000,000-

280,000,000-

6,250,000

62,500,000

2.50

73,133,283-

Parent company

Bond investments with no active market - current

300

300,000,000-

300,000,000-

Parent company

Bond investments with no active market - noncurrent

100

100,000,000-

100,000,000-

6,398,578
6,043,301
164,475

93,875,453
96,403,938
28,403,747-

93,875,453
96,403,938
28,403,747--

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

Parent company

Bond investments with no active market - current

40

40,000,000-

40,000,000-

Equity-method investee
Equity-method investee
Equity-method investee
Equity-method investee-

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

1,050,000-

221,327,463
87,881,701
23,295,164
64,214,925
18,985,075

14.00
14.00
35.00
25.00
8.00
5.45

219,424,804
41,085,613
27,380,239(1,404,731,463)
35,800,000
10,542,472

Notes 2 and 4
Notes 2 and 4
Note 9Notes 4 and 5
Note 10Note 10

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

265,726.48

3,245,396-

3,245,396-

1,931,482.60

28,571,230-

28,571,230-

2,818,299.60

37,081,182-

37,081,182-

3,093,687.15

40,471,177-

40,471,177-

1,600,861.60

22,000,000-

22,000,000-

2,072,443.10

30,385,129-

30,385,129-

3,661,438.47

44,344,694-

44,344,694-

Beneficial certificates
Mirae Asset Solomon Money Market Fund-FSITC Taiwan Money Market Fund-Eastspring Investments Well Pool Money Market Fund-

Taishin 1699 Money Market Fund-

Taishin Ta Chong Money Market Fund-

Yuanta Wan Tai Money Market Fund-

Mega Diamond Money Market fund-

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

Financial Statement AccountParent company

Bond investments with no active market - current

60

60,000,000-

60,000,000-

Parent company

Bond investments with no active market - noncurrent

60

60,000,000-

60,000,000-(Continued)- 40 ­

Holding Company Name

Taiwan Airport Services

Hwa Hsia

Marketable Securities Type and Issuer/Name

StockTransAsia Airways
Taiwan Airport Service (Samoa)
Titan V.C. Corp.
Taiwan Air Cargo Terminal-

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

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-Jih Sun Money Market Fund-

Yuanta Wan Tai Money Market Fund-

Union Money Market Fund-

Polaris De-Bao Money Market Fund-FSITC Taiwan Money Market Fund-

Paradigm Pion Money Market Fund-

Subsidiary
Parent company

Beneficial certificates
Taishin Ta Chong Money Market Fund-

Taishin 1699 Money Market Fund-

Yuanta Taiwan Stock Index Fund-

BondFirst Issue of Private Unsecured Bonds in 2010 - China
Airlines
Stock
Xiamen International Airport Air Cargo Terminal
Xiamen International Airport Air Cargo Storage

Financial Statement AccountJune 30, 2012
Percentage ofCarrying Value
Ownership

Shares/Units$

38,734,612
306,693,447
2,065,210
62,500,000

0.40
100.005.30
2.50

123,426.00

1,728,386

84,320.00$

Note

Note 4Note 5--

1,728,386-

2,232,794-

2,232,794-

118,970.00

1,707,220-

1,707,220-

55,300.00

1,127,014-

1,127,014-

3,699,435.00

48,395,638-

48,395,638-

805,928.00

11,075,552-

11,075,552-

492,164.00

7,044,196-

7,044,196-

1,575,284.00

23,096,032-

23,096,032-

469,881.00

6,006,860-

6,006,860-

516,921.00

6,012,664-

6,012,664-

405,795.00

6,002,678-

6,002,678-

1,433,550.00

16,031,968-

16,031,968-

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

1,000,000
814,152

15,696,870
10,909,637

100.00-15,696,870
10,909,637

Note 5-

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

1,404,287.30

18,370,746-

18,370,746-

349,522.71

4,803,351-

4,803,351-

200,000.00

1,647,200-

1,647,200-

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

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

Market Value or Net
Asset Value

38,734,612
306,693,447
7,993,904
73,133,283

Subsidiary

Beneficial certificates
Fuh-Hwa Money Market FundStock
Hwa Shin Building Safeguard
China Airlines

Taiwan Airport Service (Samoa)

Relationship with theHolding Company

Parent company

Bond investments with no active market - current

10

10,000,000-

10,000,000-

Equity-method investee
Equity-method investee

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

219,419,672
87,249,821

14.00
14.00

219,424,804
41,085,613

Notes 2 and 4
Notes 2 and 4

Note 1:

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

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

Note 3:The subsidiary’s net asset value was $236,265,760, which included common stock and preferred stock as of June 30, 2012.

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

In addition, the difference between the carrying value and net asset value(Continued)- 41 ­

Note 5:The net asset value was calculated using the investee's unaudited financial statements as of and for the six months ended June 30, 2012 because these were the most recent financial statements available.

Note 6:

The net asset value was calculated using the investee's audited financial statements as of and for the year ended December 31, 2011 because these were the most recent financial statements available.

Note 7:

The net asset value was calculated using the investee's unaudited financial statements as of and for the year ended December 31, 2011 because these were the most recent financial statements available.

Note 8:The net asset value was calculated using the investee's unaudited financial statements as of and for the three months ended March 31, 2012 because these were the most recent financial statements available.

Note 9:The net asset value was calculated using the investee’s unaudited financial statements as of and for the four months ended April 30, 2012 because these were the most recent financial statements available.

Note 10: The net asset value was calculated using the investee’s unaudited financial statements as of and for the five months ended May 31, 2012 because these were the most recent financial statements available.
(Concluded)- 42 ­TABLE 3

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES ACQUIRED OR DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALSIX MONTHS ENDED JUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Beginning Balance
Company Name

China Airlines

Marketable Securities Type and Issuer/Name

Beneficial certificatesEastspring Investments Well Pool Money Market Fund
Mega Diamond Money Market Fund
Taishin Ta Chong Money Market Fund
Taishin 1699 Money Market Fund
Yuanta Wan Tai Money Market FundJih Sun Money Market Fund
PCA Well Pool Money Market FundFSITC Taiwan Money Market Fund
Polaris De-Bao Money Market Fund

Mandarin Airlines

Taoyuan International Airport
Services

Note:

Financial Statement AccountCounter-party

Nature of Relationship

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

-

-

-

-

-

-

-

Acquisition
Shares/Units

Amount (Note)-

41,840,634.40$

124,610,923.61

1,500,000,000-

29,236,561.70--

Shares/Units

Amount$Disposal
Shares/Units

Amount$-Ending Balance

Carrying Value

Gain (Loss) on
Disposal

Shares/Units

$

$

-

41,840,634.40-

Amount

550,509,779-$

550,509,779

91,058,068.20

1,101,006,208

174,302,151.90

2,106,618,721

2,100,000,000

6,618,721

41,366,839.91

501,006,208

400,000,000

51,025,662.50

700,382,456

51,127,820.50

701,374,253

700,000,000

1,374,253

29,134,403.70

400,382,456

69,097,779.07

900,000,000

126,389,635.14

1,650,194,270

168,718,040.54

2,204,110,972

2,200,000,000

4,110,972

26,769,373.67

350,194,270--

13,687,754.90

200,000,000

13,687,754.90

200,580,360

200,000,000

580,360--

14,032,232.04

200,000,000

14,012,372.93

200,000,000

28,044,604.97

400,479,763

400,000,000

479,763

-

-

-

-

15,252,272.60

200,000,000

15,252,272.60

200,356,903

200,000,000

356,903

-

-

-

-

-

-

13,557,299.90

200,000,000

13,557,299.90

200,231,829

200,000,000

231,829

-

-

-

-

-

-

34,467,786.30

400,000,000

34,467,786.30

400,477,529

400,000,000

477,529--

Bond
First Issue of Private Unsecured Bonds in 2012 - China
Airlines

Bond investments with no active
market - noncurrent

China Airlines

Parent company

-

-

280

280,000,000

-

-

-

-

280

280,000,000

BondFirst Issue of Private Unsecured Bonds in 2012 - China
Airlines

Bond investments with no active
market - noncurrent

China Airlines

Parent company

-

-

100

100,000,000

-

-

-

-

100

100,000,000

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

- 43 ­TABLE 4

CHINA AIRLINES, LTD. AND INVESTEESTOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALSIX MONTHS ENDED JUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

Related Party

Nature of RelationshipAmount% toTotal

Taiwan Airport Services
Hwa Hsia
Yangtze River Express Airlines
Cal Park

Purchase
Purchase
Purchase
Sale
Purchase
Subsidiary
Purchase
Subsidiary
Purchase
Subsidiary’s equity-method investee Sale
Subsidiary
Purchase$ 132,163,845
486,363,572
561,649,519(904,688,711)
150,259,312
183,285,208
132,626,656(158,465,033)
106,509,598

0.21
0.78
0.90
(1.38)
0.24
0.29
0.21
(0.24)
0.17

Taiwan Air Cargo Terminal

China Airlines

Parent company

Sale(132,163,845)

Taoyuan International Airport Services

China Airlines

Parent company

Sale

China Pacific Catering Services

China Airlines

Parent company

Mandarin Airlines

China Airlines

Taiwan Airport Services

China Airlines, Ltd. (“China Airlines”)

Purchase/
Sale

Taiwan Air Cargo Terminal
Subsidiary
Taoyuan International Airport Services Subsidiary
China Pacific Catering Services
Subsidiary
Mandarin Airlines
Subsidiary

Abnormal Transaction
Payment Terms

Note

-

$ (31,354,964)(262,583,901)(301,523,857)
300,368,617(265,313,865)(65,189,154)(68,060,035)
16,295,523(53,254,800)(1.74)(14.61)(16.78)3.79(14.76)(3.63)(3.79)
0.21(2.96)-(19.75) 30 days--

31,354,964

39.24

-

(486,363,572)(40.94) 30 days--

262,583,901

62.56

-

Sale

(561,649,519)(57.84) 60 days--

301,523,857

71.88

-

Parent company

Purchase
Sale

904,688,711(150,259,312)

27.42 2 months(4.23) 2 months--(300,368,617)
265,313,865(77.44)
67.51-

China Airlines

Parent company

Sale(183,285,208)(39.52) 45 days--

65,189,154

41.50

-

Hwa Hsia

China Airlines

Parent company

Sale(132,626,656)(85.59) 2 months--

68,060,035

91.16

-

Yangtze River Express Airlines

China Airlines

Parent company of stockholder using Purchaseequity-method

158,465,033

2 months--(16,295,523)(1.60)-Cal Park

China Airlines

Parent company(106,509,598)(72.16) 2 months--

53,254,800

71.17

-

Sale

- 44 ­$

Payment Terms

-

3.22

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

Unit Price

Note/Account Payable or
Receivable% toEnding Balance
Total

TABLE 5

CHINA AIRLINES, LTD. AND INVESTEESRECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL
JUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Nature ofRelationship

Company Name

Related Party

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Taoyuan International Airport Services
China Pacific Catering Services

OverdueEnding Balance

Turnover Rate

$ 300,368,617

6.90

Parent company

265,313,865

China Airlines

Parent company

China Airlines

Parent company

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for
Bad Debts$--$ 281,545,597

1.37

-

-

251,094,687-

262,583,901

3.72

-

-

117,136,208-

301,523,857

3.99

-

-

99,369,567-- 45 ­-TABLE 6

CHINA AIRLINES, LTD. AND INVESTEESNAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE
SIX MONTHS ENDED JUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Investment Amount
Investor Company

China Airlines, Ltd.
(the “Company”)

Investee Company

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

Location

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

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

Hwa Hsia

Taoyuan, Taiwan

Cal Hotel Co., Ltd.
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
Xiamen International Airport Air Cargo
Terminal
Xiamen International Airport Air Cargo
Storage
Eastern United International Logistics
Yangtze River Express Airlines

Taiwan Airport Services

Main Businesses and Products

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

Balance as of June 30, 2012
Net Income (Loss)
Percentage ofof the Investee
Carrying Value
Ownership

June 30, 2012

June 30, 2011

Shares$ 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$ 46,516,200$ 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

135,000,000
150,000,000
2,614,500
188,154,025
34,300,000
43,911,000
28,400,000
46,516,200

54.00
100.00100.00
93.99
49.00
51.00
20.00
100.00$ 1,579,678,916
1,465,448,692
1,042,543,254
1,107,513,434
663,918,263
618,651,376
385,785,866
424,642,358

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

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

93.93
47.35
35.78
28.48
24.50
55.00

346,500,613
305,141,889
214,372,183
177,462,853
191,621,008
148,759,231$(61,874,487)(739,329)
7,917,448(62,134,168)
64,827,560
152,539,027
40,031,653
14,968,723

Investment
Income (Loss)$

Note(33,412,223)(739,329)
7,917,448(41,966,566)
31,765,505
78,701,963
8,006,331
14,968,723

Note 2
Note 1-

73,130,841
33,896,291
78,427,758
46,874,284
236,012,684
18,051,669

68,695,369
16,027,969
28,061,195
13,352,114
57,823,107
9,928,418-

50,000,000

50,000,000

50,000100.0097,575,518

16,612,802

16,612,802

Note 1

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

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

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

465,000,000
JPY 20,400,000
36,264,643
2,500,000
US$
1,000
US$
1,000
US$
1,000

46,500,000
408
1,600,000
250,000
1,000
1,000
1,000

100.0051.00
100.0025.00
100.00100.00100.00

198,174,527
37,361,799
27,447,814
6,572,487
35,08834,60232,895(4,887,191)
565,987
5,621,213
2,714,886-(4,887,191)
288,653
5,621,213
678,722--

Xiamen International Airport

Forwarding and storage of air cargo

US$ 4,117,846

US$ 4,117,846

-

14.00

221,327,463

57,173,133

8,004,243

Note 4

Xiamen International Airport

Forwarding and storage of air cargo

US$ 1,947,441

US$ 1,947,441

-

14.00

87,881,701

32,619,110

4,566,677

Note 4

Hong Kong
Shanghai, China

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

HK$ 3,329,268
US$ 38,796,173

HK$ 3,329,268
US$ 38,796,173

1,050,000
-

35.00
25.00

23,295,164

2,271,265(895,789,826)

2,810,564-

Note 5
Notes 3 and 4

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$ 5,876,976

US$ 5,876,976-

100.00306,693,447

12,570,920

12,570,920

Note 4

Hwa Hsia

Hwa Shin Building Safeguard

Taoyuan, Taiwan

Building security and maintenance services

10,000,000

10,000,000

1,000,000

100.0015,696,870

3,123,209

4,326,609

Note 5

Taiwan Airport Service (Samoa)

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

Xiamen International Airport

Forwarding and storage of air cargo

US$ 3,950,226

US$ 3,950,226

-

14.00

219,419,672

57,173,133

8,004,243

Notes 4 and 5

Xiamen International Airport

Forwarding and storage of air cargo

US$ 1,926,750

US$ 1,926,750

-

14.00

87,249,821

32,619,110

4,566,677

Note 4

Cal-Asia Investment-

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

Note 2:

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

Note 3:

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

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

Note 5:The investee could not provide its financial statements in time; thus, the Company estimated its investment income.

- 46 ­TABLE 7

CHINA AIRLINES, LTD. AND INVESTEESINVESTMENTS IN MAINLAND CHINA
SIX MONTHS ENDED JUNE 30, 2012
(In New Taiwan Dollars, Unless Stated Otherwise)

Investment Flows

Investment
Type

Accumulated
Outflow ofInvestment from
Taiwan as ofJanuary 1, 2012

Forwarding and1,054,887,218$
storage of air cargo (RMB 224,480,000)

Indirect(Note 1)

122,920,776 $$(US$4,117,846)

Xiamen International Airport Forwarding and
65,789,474
Air Cargo Storage
storage of air cargo (RMB 14,000,000)

Indirect(Note 1)

(US$

58,132,567
1,947,441)

Taikoo (Xiamen) Landing
Gear Services

Maintenance services
802,686,567
of landing gear
(US$ 26,890,000)

Indirect(Note 1)33,170,149
30,409,357
1,111,200) (US$ 1,040,000)

-

(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

388,540,977(RMB 82,681,520)

Indirect(Note 1)

18,985,075
636,000)

-

-

(US$

Yangtze River Express
Airlines

Forwarding and
2,349,624,060
storage of air cargo (RMB 500,000,000)

Indirect(Note 1)

1,158,094,716
38,796,173)

-

(US$

Shanghai Eastern Aircraft
MaintenanceAircraft line
maintenance

Shanghai Eastern UnitedInternational

Forwarding of air
cargo and ocean
freight

InvesteeCompany Name

Xiamen International Air
Cargo Terminal

Main Businesses andProducts

Total Amount ofPaid-in Capital

Inflow--

92,537,313
3,100,000)

Indirect(Note 2)

(US$

7,402,985
248,000)-(US$29,850,746
1,000,000)

Indirect(Note 3)(US$

5,119,403
171,500)-(US$

Accumulated Investment in
Mainland China as ofJune 30, 2012

Investment Amounts
Authorized by Investment
Commission, MOEA

Upper Limit on Investment$1,434,235,028(US$48,068,160)$1,440,713,622(Note 6)$31,248,846,837(Note 7)Note 1:
Note 2:
Note 3:Note 4:Note 5:Note 6:Note 7:Note 8:Outflow$-

Accumulated
Outflow ofInvestment from
Taiwan as ofJune 30, 2012%
Ownershipof Direct orIndirect
Investment

122,920,776$(US$
4,117,846)

14.00%

58,132,567
1,947,441)

14.00%(US$

63,579,506
2,151,200)

8.00%

(US$

18,985,075
636,000)

5.45%

(US$

1,158,094,716
38,796,173)

25.00%-(US$

7,402,985
248,000)

8.00%

-

(US$

5,119,403
171,500)

17.15%(US$--

Investment Gain
(Loss) (Note 4)

$
(US$

(US$

Carrying Value asofJune 30, 2012

Accumulated
InwardRemittance ofEarnings as ofJune 30, 2012

8,004,243 $
221,327,463$ 56,018,279
269,743) (US$7,414,470) (US$1,887,816)(Note 5)4,566,677
153,897) (US$87,881,701
2,944,037)--

64,214,925
2,151,200)

-

(US$

18,985,075
636,000)

-

(US$

-

-

7,402,985
248,000)-(US$

5,119,403
171,500)

-

(US$

-

-

The Company invested in Cal-Asia Investment, which in turn, invested in a company located in Mainland China.
The Company invested in China Aircraft Services, which in turn, invested in a company located in Mainland China.
Cal-Asia Investment invested in Eastern United International Logistics (Holdings), which in turn, invested in a company located in Mainland China.
The investment gain (loss) was based on the financial statements audited by the CPAs of China Airlines, Ltd. in the ROC; accrual accounting was used in the preparation of these financial statements.
The inward remittance of earnings of investees for the six months ended June 30, 2012 amounted to US$1,887,816.
The amount comprised US$47,035,573 and NT$36,666,667.
The limit stated in the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjustment Rule,” is the larger of the Company’s net asset value or 60% of the consolidated net asset value.
The RMB and U.S. dollar amounts of assets are translated at period-end rates and those of gains (losses), at the average of the month-end rates of IATA (International Air Transport Association) for the reporting period.

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