China Airlines, Ltd.
Financial Statements for the
Six Months Ended June 30, 2010 and 2009 andIndependent Auditors’ ReportCHINA AIRLINES, LTD.
CONTENTS

Page
Independent Auditors’ Report

1

Balance Sheets

2

Statements of Income

3-4Statements of Changes in Stockholders’ Equity

5

Statements of Cash Flows

6-7

Notes to Financial Statements

8-50

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, 2010 and 2009 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, 2010 and 2009 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, 2010 and 2009 on which we have issued unqualified opinions in our reports
dated August 12, 2010.

August 12, 2010
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, 2010 AND 2009
(In Thousands of New Taiwan Dollars)

2010
AmountASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 3)
Financial assets at fair value through profit or loss - current (Notes 2, 4
and 23)Available-for-sale financial assets - current (Notes 2, 5 and 23)
Derivative financial assets for hedging - current (Notes 2, 23 and 24)
Receivables:
Notes and accounts, net (Notes 2 and 6)
Notes and accounts - related parties (Note 25)
Other receivables (Note 7)
Inventories, net (Notes 2 and 8)
Deferred income tax assets - current (Notes 2 and 20)
Other current assets
Total current assets$

2009
Amount%10,729,335

5

1,100,370
110,432
14,686$

3,166,465

2

1-

329,469
29,376-

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

6
1
3-

8,006,890
386,623
949,270
5,037,890
59,532
171,051

4
1
2-

33,584,525

16

18,136,566

9

CURRENT LIABILITIESShort-term loans (Notes 12 and 26)
Short-term bills payable (Note 13)
Financial liabilities at fair value through profit or loss - current (Notes 2, 4
and 23)
Derivative financial liabilities for hedging - current (Notes 2, 23 and 24)
Accounts payable
Accounts payable to related parties (Note 25)
Accrued expenses (Notes 2 and 27)
Advance ticket sales (Note 2)
Bonds issued - current portion (Notes 2, 14 and 23)
Loans and debts - current portion (Notes 15, 23 and 26)
Capital lease obligations - current portion (Notes 2 and 16)
Other current liabilities

Total long-term investments

374,044371,367
8,532,507
12,8684-

351,613
2,073
371,367
8,048,603
16,0294-

9,290,786

4

8,789,685

4

1
6
4
2
8
1
1

8,075,485
205,331
46,2281,027,951
7,991,287
7,080,863
1,950,000
16,838,088
1,576,696
980,511

4
4
3
1
8
1
-

51,467,939

24

52,521,235

25

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

1235
1424,712658,500
21,465,600
87,084,376
4,281,486

10
422

104,361,374

48

113,914,674

54

5,734,787
6,461,151
399,9063
3-

5,369,721
7,122,647
429,723

3
3-

Total other liabilities

12,595,844

6

12,922,091

6

Total liabilities

168,425,157

78

179,358,00085

45,722,490

21

33,693,384

16

CAPITAL SURPLUS, LONG-TERM INVESTMENTS

1,062

-

968

-

RETAINED EARNINGS (ACCUMULATED DEFICIT)
Unappropriated earnings (accumulated deficit)

2,867,350

1(2,365,538)(1)

OTHER EQUITY
Cumulative translation adjustments
Net loss not recognized as pension cost
Unrealized valuation loss on financial instruments
Unrealized revaluation increment
Company shares held by subsidiaries reclassified into treasury stock(157,251)(1,570,023)(143,279)
830,471(36,554)(1)
1-356,860(1,206,178)(465,734)
830,471(36,554)-

Total other equity(1,076,636)-(521,135)-

Total stockholders' equity

47,514,266

22

30,807,679

15$ 215,939,423

100$ 210,165,679

100

Total long-term liabilities
PROPERTIES (Notes 2, 11 and 26)
Cost
Land
Buildings
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements
Revaluation increment
Total cost and revaluation increment
Accumulated depreciation

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

1
4
2
90
7
104
36
68
2

2,106,788
7,844,669
3,541,675
187,344,810
520,097
23,098,581
964,545
50,335
225,471,500
69,277,173
156,194,327
4,457,206

1
4
2
89
11
107
33
74
2

151,084,906

70

160,651,533

76

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

330,366
544,049-

377,815910,6961

Total intangible assets

874,415-

1,288,511

1

239,515
12,695,893
751,619
6,289,445
1,128,319

6
3
1

380,089
12,926,917
848,975
6,737,569
405,834

6
1
3-

21,104,791

10

21,299,384

10$ 215,939,423

100$ 210,165,679

100

Construction in progress and prepayments for equipment (Note 27)
Net properties

OTHER ASSETS
Idle properties, net
Deposits (Note 27)
Deferred charges (Note 2)
Deferred income tax assets - noncurrent (Notes 2 and 20)
Restricted assets - noncurrent (Notes 25 and 26)
Net other assets
TOTAL

OTHER LIABILITIES
Accrued pension costs (Notes 2 and 17)
Deferred profits on sale-leaseback (Note 2)
OthersCAPITAL STOCK, NT$10.00 PAR VALUE
Authorized - 5,200,000 thousand shares
Issued and outstanding - 4,572,249 thousand shares in 2010 and 3,369,338
thousand shares in 2009TOTAL

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

-2-200,000
2,549,056

1

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

$

%

3
1

LONG-TERM LIABILITIES, NET OF CURRENT PORTION
Financial liabilities at fair value through profit or loss - noncurrent(Notes 2, 4 and 23)
Derivative financial liabilities for hedging - noncurrent (Notes 2, 23 and 24)
Bonds issued - noncurrent (Notes 2, 14 and 23)
Loans and debts - noncurrent (Notes 15, 23 and 26)
Capital lease obligations - noncurrent (Notes 2 and 16)$

2009
Amount%5,300,000
1,448,795

Total current liabilities
LONG-TERM INVESTMENTS
Financial assets at fair value through profit or loss - noncurrent (Notes 2,
4 and 23)
Derivative financial assets for hedging - noncurrent (Notes 2, 23 and 24)
Financial assets carried at cost - noncurrent (Notes 2, 9 and 23)
Investments accounted for using equity method (Notes 2 and 10)
Other financial assets - noncurrent

2010
AmountLIABILITIES AND STOCKHOLDERS’ EQUITY%CHINA AIRLINES, LTD.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(In Thousands of New Taiwan Dollars and Shares)

2010
Amount%2009
Amount%REVENUES (Notes 2 and 25)
Passenger
Cargo
Others$ 35,541,148
28,402,936
2,774,059

53
43
4$ 28,982,359
11,355,503
2,571,004

68
26
6

Total revenues

66,718,143

100

42,908,866

100

COSTS (Notes 21 and 25)
Flying operations
Terminal and landing fees
Passenger services
Aircraft maintenance
Others35,075,752
9,236,466
3,978,210
4,702,203
1,783,792

52
14
6
7
3

23,900,613
7,981,587
3,816,739
3,330,523
1,377,518

56
18
9
8
3

Total costs

54,776,423

82

40,406,980

94

GROSS PROFIT

11,941,720

18

2,501,886

6

OPERATING EXPENSES (Note 21)
Marketing and selling
General and administrative

3,332,840
1,771,682

5
3

3,047,627
1,171,938

7
3

Total operating expenses

5,104,522

8

4,219,565

10

OPERATING INCOME (LOSS)

6,837,198

10(1,717,679)(4)

NONOPERATING INCOME AND GAINSInterest income (Note 25)
Investment income recognized under the equity
method (Notes 2 and 10)
Dividend income (Note 2)
Gain on disposal of properties, net (Note 2)
Gain on sale of available-for-sale financial assets
Valuation gain on financial instruments, net (Notes 2
and 4)
Others43,955-

21,131-

487,679
171,460
955
118,1391-

96,206
3,355--

289,714294,7791

1,780,234
371,953

4
1

Total nonoperating income and gains

1,406,681

2

2,272,879
5(Continued)-3-

CHINA AIRLINES, LTD.
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(In Thousands of New Taiwan Dollars and Shares)

2009
Amount

%1,818,277

4-

24,00639,921
886,4282

1,555,259

2

2,768,632

6

PRETAX INCOME (LOSS)

6,688,620

10(2,213,432)(5)

INCOME TAX EXPENSE (Notes 2 and 20)(415,340)(1)(152,106)(1)

6,273,280

9$ (2,365,538)(6)

NONOPERATING EXPENSES AND LOSSESInterest expense
Investment loss recognized under the equity method(Notes 2 and 10)
Foreign exchange loss, net (Note 2)
Others (Note 14)$

Total nonoperating expenses and losses

NET INCOME (LOSS)$

2010
Amount%1,415,290

2

47,33092,639$2010
Before Tax After Tax

2009
Before Tax After Tax$$$ (0.67)$ (0.67)

EARNINGS (LOSS) PER SHARE (Note 22)
Basic
Diluted

1.46
1.44

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

-4-

$
$

1.37
1.35

$ (0.71)$ (0.71)(Concluded)

CHINA AIRLINES, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYSIX MONTHS ENDED JUNE 30, 2010 AND 2009
(In Thousands of New Taiwan Dollars)

Capital Stock Issued and Outstanding
Shares(In Thousands)
AmountBALANCE, JANUARY 1, 2010

Capital Surplus,
Long-term
Investment(Note 2)Retained Earnings (Accumulated Deficit) (Notes 2 and 18)
UnappropriatedEarnings(Accumulated
Legal Reserve
Special Reserve
Deficit)$$

4,572,249$ 45,722,490

629,150

Accumulated deficit offset by capital surplus
Capital surplus--(628,088 )Translation adjustments on investments in shares of stocks--

Translation adjustments on a foreign operating entity-

Net income in the six months ended June 30, 2010

-

$

Total

Cumulative
Translation
Adjustments(Note 2)

Net Loss Not
Recognized as
Pension Cost
(Note 2)

Unrealized
Valuation Gainor Loss on
Financial
Instruments(Note 2)$(130,206 )$ (1,550,808 )$-$ (4,034,018 )$ (4,034,018 )--

628,088

628,088

-

-

-

-

-

-

-

-

(110,527 )

-

-

-

-

-

-

-

83,482

-

-

-

-

-

6,273,280

6,273,280

Unrealized valuation loss on available-for-sale financial assets

-

-

-

-

-

-

Unrealized gain on cash flow hedge

-

-

-

-

-

Unrealized loss on financial instruments of equity-method investees

-

-

-

-

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

-

-

-

-

BALANCE, JUNE 30, 2010

4,572,249$ 45,722,490

$

1,062

$

-

$

-

BALANCE, JANUARY 1, 2009

4,625,170$ 46,251,703$ 10,804,107$

4,728,750$

949,183--(10,755,829 )(4,728,750 )-(1,490,176 )(14,901,757 )-Translation adjustments on investments in shares of stocks--

Translation adjustments on a foreign operating entity-$$ 41,267,999

-

-

-

-

-

-

(110,527 )

-

-

-

-

83,482

-

-

-

-

-

6,273,280---(152,925 )--(152,925 )

-

-

-

-

173,976--

173,976

-

-

-

-

-

(1,804 )--(1,804 )

-

-

-

-

(19,215 )---(19,215 )$(157,251 )$ (1,570,023 )$(143,279 )$

830,471$(36,554 )$ 47,514,266$ (31,335,519 )$ (25,657,586 )$

390,247$ (1,206,178 )$(690,297 )$

830,471$(36,554 )$ 30,685,913(949,183 )-4,728,750
949,183
10,755,829

10,755,829

-

-

-

-

-

-

-

-

14,901,757

14,901,757

-

-

-

-

-

-

-

-

-

-

-

(3,589 )

-

-

-

-

(3,589 )

-

-

-

-

-

-

(29,798 )

-

-

-

-

(29,798 )234,344

2,343,438(47,310 )

-

-

-

-

-

-

-

-

-

2,296,128

Net loss in the six months ended June 30, 2009

-

-

-

-

-

(2,365,538 )(2,365,538 )

-

-

-

-

-

(2,365,538 )Unrealized valuation gain on available-for-sale financial assets

-

-

-

-

-

-

-

-

-

18,476--

18,476

Unrealized gain on cash flow hedge

-

-

-

-

-

-

-

-

-

204,725--

204,725

Unrealized gain on financial instruments of equity-method investees

-

-

-

-

-

-

-

-

-

1,362

-

-

1,362

3,369,338$ 33,693,384-$ (2,365,538 )$ (2,365,538 )

356,860$ (1,206,178 )(36,554 )$ 30,807,679

Capital reduction to offset accumulated deficit

Conversion of bonds into capital stock

BALANCE, JUNE 30, 2009

$

968

$

-

$

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

-5-

$

$

2,867,350

Accumulated deficit offset by reserve and capital surplus
Legal reserve
Special reserve
Capital surplus

2,867,350

830,471

Total
Stockholders'Equity(36,554 )$(162,526 )Unrealized
Revaluation
Increment(Notes 2 and 11)

Company Shares
Held by
Subsidiaries
Reclassified into
Treasury Stock(Notes 2, 18 and 19)$$(465,734 )$

830,471$

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2010 AND 2009
(In Thousands of New Taiwan Dollars)

2010
CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
Adjustments to reconcile net income to net cash provided by (used in)operating activities:
Deferred income taxes
Depreciation and amortization
Provision for doubtful accounts
Gain on sale of available-for-sale financial assets
Valuation gain on financial instruments
Investment loss (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
Loss (gain) on disposal of idle properties, net
Loss on convertible bonds converted due to induced conversion
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
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to designated as at fair value financial assets
Proceeds from disposal of available-for-sale financial assets
Increase in investments accounted for by the equity method
Investees' return of capital - investments accounted for by the equity
methodIncrease in other financial assets - noncurrent
Additions to properties
Proceeds of disposal of properties
Increase in computer software
Proceeds of disposal of idle properties
Increase in deposits made

-6-

$

2009

6,273,280$ (2,365,538)

435,491
5,009,201
1,000(118,139)(289,714)(487,679)
147,920
190,449(955)(9,577)(327,587)(33,207)

119,070
4,987,617
11,000(1,780,234)
24,006
159,172
136,729(3,355)35,995
866,628(332,836)(33,207)(2,894,987)(1,378,248)(34,652)(179,899)(483,552)(253,800)(439,881)
76,404
1,821,665
1,010,661
160,425
218,139(10,622,593)
66,477(87,728)(201,319)
25,920138,908(540,572)
239(2,209,003)(1,322,773)(194,089)
197,516

8,412,758(12,923,970)

181,914-(250,000)(50,000)

10,000(1,146,768)
1,093(1,892)
14,065(209,617)(7,607)(474,030)
6,549(109,215)
8,897(813,091)(Continued)

CHINA AIRLINES, LTD.
STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2010 AND 2009
(In Thousands of New Taiwan Dollars)

2010
Increase in deferred charges
Increase in restricted assets - noncurrent$

Net cash used in investing activities(34,776)(335,088)

2009$(44,186)(141,808)(1,521,069)(1,874,491)

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans
Increase (decrease) in short-term bills payable
Proceeds of long-term debts
Repayments of long-term debts and capital lease obligations
Issuance of bonds
Redemption of bonds issued
Increase (decrease) in deposits-in(3,900,000)(99,704)
3,216,262(9,532,909)
8,650,000(16,011)(3,630,033)
52,145
12,325,753(10,840,876)
12,900,000(21,700)
5,894

Net cash provided by (used in) financing activities(1,682,362)

10,791,183(7,345)(107,933)

INCREASE (DECREASE) IN CASH

5,201,982(4,115,211)

CASH, BEGINNING OF PERIOD

5,527,353

7,281,676

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

$ 10,729,335$

3,166,465$$

1,822,879
56,872
1,766,007
33,829$$NONCASH FINANCING ACTIVITIESCurrent portion of long-term loans and debts
Current portion of capital lease obligations
Current portion of bonds issued
Convertible bonds converted into common stock

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

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

-7-

$
$

$ 16,838,088$ 1,576,696$ 1,950,000$ 1,429,500(Concluded)

CHINA AIRLINES, LTD.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(In New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS
China Airlines, Ltd. (“the Company”) was founded in 1959 and its stocks are listed on the Taiwan Stock
Exchange. The Company primarily provides air transport services for passengers and cargo. Its otheroperations include (a) mail services; (b) ground services and routine aircraft maintenance; (c) major
maintenance of flight equipment; (d) communications and data processing services to other airlines; (e) saleof aircraft parts, equipment and entire aircraft; and (f) lease of aircraft.
The major stockholders of the Company are China Aviation Development Foundation and National
Development Fund, Executive Yuan (which acquired the Company’s common shares through a private
placement in September 2009). As of June 30, 2010 and 2009, China Aviation Development Foundation
held 39.61% and 51.28% of the Company’s shares, respectively. As of June 30, 2010, National
Development Fund, Executive Yuan held 11.37% of the Company’s shares. The Company had 10,074
and 9,639 employees as of June 30, 2010 and 2009, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation
The 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.
Under these guidelines and principles, the Company has to make certain estimates and assumptions that
could affect the allowance for doubtful accounts, loss on market value decline of inventories, property
depreciation, asset impairment, accrued expenses - frequent flyer program, pension cost, income tax, loss
on pending lawsuits and bonuses of employees. Actual results could differ from these estimates.
For the convenience of readers, the accompanying financial statements have been translated into English
from the original Chinese version prepared and used in the Republic of China. If there is any conflict
between the English version and the original Chinese version or any difference in the interpretation of thetwo versions, the Chinese-language financial statements shall prevail.
The Company’s significant accounting policies are summarized as follows:
Current or Noncurrent Assets and Liabilities
Current assets include cash, cash equivalents and those assets held primarily for trading purposes or to berealized, sold or consumed within one year from the balance sheet date. All other assets such as property,
plant and equipment 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 otherliabilities are classified as noncurrent.
Cash Equivalents
Cash equivalents are commercial paper, which are highly liquid financial instruments with maturities ofthree months or less when acquired and with carrying amounts that approximate their fair values.

-8-Financial Instruments at Fair Value Through Profit or Loss
Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss(“FVTPL”) include financial assets or financial liabilities held for trading and those designated as at
FVTPL on initial recognition.
Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit
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 theyear in which they arise. Cash dividends received subsequently (including those received in the year ofinvestment) are recognized as income for the year. All regular way purchases or sales of financial assets
are recognized and derecognized on a trade date basis.
Derivative instruments that do not meet the criteria for hedge accounting are classified as financial assets or
liabilities held for trading.
Fair values are determined as follows: (a) listed stocks - closing prices as of the balance sheet date; (b)beneficiary certificates (open-end funds) - net assets value as of the balance sheet date; (c) convertible
bonds - at values determined using valuation techniques.
Financial assets designated as at fair value through profit or loss are hybrid instruments, and designated as
at fair value through profit or loss on initial recognition.
Fair value is estimated using valuation techniques incorporating estimates and assumptions that areconsistent with prevailing market conditions.
Available-for-sale Financial Assets
Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are
directly attributable to the acquisition or issuance. When fair value is remeasured, the changes in fairvalue are excluded from earnings and reported as a separate component of stockholders’ equity. The
accumulated gains or losses are recognized as earnings when the financial asset is derecognized from thebalance sheet. A regular way purchase or sale of financial assets is recognized and derecognized usingtransaction date accounting.
Cash dividends are recognized as investment income on ex-dividend dates but are accounted for as
reductions of the original cost of investment if these dividends are declared on the investees’ earnings
attributable to periods before the purchase of the investments. Stock dividends are recorded as an increasein the number of shares held and do not affect investment income. The cost per share is recalculated on
the basis of the new number of shares.
An impairment loss is recognized when there is objective evidence that the financial asset is impaired.
Any subsequent decrease in impairment loss for an equity instrument classified as available-for-sale isrecognized directly in equity. If the fair value of a debt instrument classified as available-for-sale
subsequently increases as a result of an event which occurred after the impairment loss was recognized, thedecrease in impairment loss is reversed to profit.
Allowances for Doubtful Accounts
Allowances for doubtful accounts are provided on the basis of a periodic evaluation of their collectibility.
The evaluation is based on aging analysis and the economic environment, etc.

-9-

Inventories
Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations
and items for in-flight sale. These parts, materials and supplies are valued at the weighted-average costless allowance for obsolescence. Items for in-flight sale are stated at the lower cost or net realizable value.
Inventory write-downs are made item by item, except where it may be appropriate to group similar or
related items. The costs of inventories sold or consumed are determined using the weighted-averagemethod.
Financial Assets Carried at Cost
Equity investments, such as non-publicly traded stocks, whose fair value cannot be reliably measured are
carried at original cost. Cash dividends are recognized as investment income on ex-dividend dates but are
accounted for as reductions of the original investment costs if these dividends are declared on the investees’
earnings attributable to periods before the purchase of the investments. Stock dividends are recorded as anincrease in the number of shares held and do not affect investment income. The cost per share isrecalculated on the basis of the new number of shares. If there is objective evidence that a financial asset
is impaired, a loss is recognized. However, the recording of a subsequent recovery of fair value is notallowed.
Investments Accounted for Using Equity Method
Investments in companies in which the Company exercises significant influence on the investees’ operating
and financial policy decisions are accounted for using equity method. Under this method, investments arestated at cost on the acquisition date and subsequently adjusted for the Company’s proportionate share or
equity in the investees’ net income or net loss. Cash dividends received are accounted for as a reductionof the carrying values of the investments. On investment acquisition, the difference, if any, between thecost of investment and the Company’s share in the investee’s net equity is amortized using the straight-line
method over five years. However, effective January 1, 2006, based on the revised Statement of Financial
Accounting Standards No. 5 - “Long-term Investments Accounted for by Equity Method,” investment
premiums for the cost of investment is greater than the Company share of the investee’s identified net assets,
representing goodwill, are no longer amortized but tested annually for impairment or if there is objective
evidence that the goodwill is impaired.
When the Company subscribes for its investee’s newly issued shares at a percentage different from its
percentage of ownership in the investee, the Company records the change in its equity in the investee’s net
assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus.
When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term
investments is insufficient, the shortage is debited to retained earnings.
Gain or loss from transactions involving depreciable assets between the Company and its equity-method
investees is deferred and recognized over the estimated useful lives of the assets.
For equity-method investments, stock dividends received are recorded only as an increase in the number ofshares held and not as investment income. The cost per share is recalculated on the basis of the newnumber of shares.
Costs of investments sold are determined using the weighted-average method.
Under Statement of Financial Accounting Standards No. 30 - “Accounting for Treasury Stock,” theCompany reclassified its shares held by its subsidiaries into treasury stock at the carrying value as shown inthe subsidiaries’ books on January 1, 2002. Furthermore, when the Company recognized its investment
income, the cash dividend income recognized by the subsidiaries from the Company’s earnings
appropriation was subtracted from investment income and credited to paid-in capital.

- 10 -

Properties
Properties are stated at cost plus revaluation increment (if any) less accumulated depreciation. 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 isused in operations are capitalized and included in the cost of the related assets.
Depreciation is calculated using the straight-line method over service lives estimated as follows (plus one
year to represent estimated salvage value): buildings, 45 to 55 years; machinery and equipment, 5 to 6
years; flight equipment, 5 to 25 years; furniture, 5 years; leased assets, 6 to 25 years; and leasehold
improvements, 5 years. Properties that have reached their residual value but are still in use are further
depreciated over their newly estimated service lives.
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.
Leased Flight and Other Equipment
The amounts capitalized on flight and other equipment leased under agreements qualifying as capital leases
are the lower of (a) the present value of all payments required under the lease agreements plus the bargain
purchase price or (b) the fair value of the leased assets on the starting dates of the agreements. Interests
implicit in lease payments are recorded as interest expense.
Amounts paid under operating lease agreements are charged to income over the term of the agreements.
The imputed interest on rental deposits, calculated at the interest rate for one-year time deposits, is recorded
both as rental expense and interest income.
Computer Software Costs
Computer software costs are amortized using the straight-line method over the estimated useful lives of thesoftware.
Deferred Charges
Deferred charges mainly consist of (a) expenses for training pilots in operating new types of aircraft, (b)issue costs of corporate bonds and (c) costs incurred for syndicated loans. They are amortized using thestraight-line method over the estimated useful lives or the terms of the bonds or loans.
Accrued Expenses - Frequent-flyer Program
Passengers who are members of the Dynasty Club may accumulate mileage points, which entitle them tochoose among various awards (including an upgrade to a higher class or free tickets). A liability is
accrued and charged to operating expense when a passenger reaches a certain award level. The amountaccrued is based on the estimated incremental cost that will be incurred upon the provision of transport
services.
Convertible Bonds
The net carrying amount of the bonds which was issued before December 31, 2005 (the face amount plus
redemption premium accrued to the date of conversion but will not be paid) is credited to the appropriate
capital accounts (capital stock equal to par value, with the balance credited to capital surplus) upon
conversion of the bonds. No gain or loss is recognized on such conversions.

- 11 -

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 intra-period allocations for its income tax. Deferred tax assets are recognized forthe tax effects of deductible temporary differences, debit in equity and unused investment credits, loss
carryforwards, and deferred tax liabilities are recognized for the tax effects of taxable temporary differences
and credit in equity. Deferred tax liabilities and assets are classified as current or noncurrent on the basisof 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 according to the expected
reversal or realization date of the temporary difference. Valuation allowance is recognized on deferred tax
assets that are not expected to be realized.
Income tax credits for certain acquisitions of eligible equipment or technology, research and development
expenses and personnel training expenses are recognized in the period those acquisitions or expenses are
incurred.
Adjustments to prior year’s tax liabilities are added to or deducted from the current year’s income tax
expense.
Income taxes (10%) on undistributed earnings are recorded as expense in the year when the stockholders
resolve to retain the earnings.
Asset Impairment
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- 12 -

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.
Revenues
Passenger fares and cargo revenues are recognized when transport service is provided. The value of
unused passenger tickets is recognized as “advance ticket sales.”Foreign-currency Transactions, Transactions of Foreign Subsidiaries or Foreign Operating Entity
The Company maintains its accounts and expresses its financial statements in New Taiwan dollars.
Foreign-currency transactions (except derivative transactions) are recorded in New Taiwan dollars at therates of exchange in effect when the transactions occur. Gains or losses resulting from the application ofdifferent foreign exchange rates when foreign-currency assets and liabilities are settled, are credited or
charged to income in the settlement period.
The year-end balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates,
and the resulting differences are recorded as credits or charges to income.
At the balance sheet date, non-monetary assets and liabilities denominated in foreign currency (ex.
investments in equity instruments), which are measured at fair value, are reported using the closing
exchange rate. For a non-monetary financial asset with the changes in fair value recognized as an
adjustment to stockholders’ equity, exchange differences are recognized as an adjustment to stockholders’equity. For a non-monetary financial asset at fair value through profit or loss, exchange differences arerecognized in the income statement. Non-monetary financial assets and liabilities denominated in foreign
currency, which are measured at cost, are reported using the historical exchange rate on the date oftransaction.
Equity-method investments in foreign subsidiaries/affiliates are recorded in New Taiwan dollars using therates of exchange in effect on acquisition dates. On the balance sheet date, the investments and the related
equity in net income or net loss are restated at the prevailing exchange rates and weighted-average rates,
respectively, and resulting differences are recorded as translation adjustments under stockholders’ equity.
Under a regulation by the Securities and Futures Bureau, the carrying amount of an aircraft acquired andthe related U.S. dollar-denominated obligation incurred for the acquisition is accounted for as an investment
in a foreign operating entity if the Company’s use of the aircraft results in generating revenues andincurring expenses mainly in U.S. dollars. On balance sheet date, the carrying amount of the aircraft andthe related liability are restated at balance sheet date rates. The difference is recognized in stockholders’equity as translation adjustment.
Hedge Accounting
The Company enters into some derivative transactions that aim to manage interest rate, exchange rate, fuelprice, and other factors affecting gains or losses on assets and liabilities. The hedging transactions aredefined as cash flow hedge. When entering into hedging transactions, the Company has prepared official
documents that describe the hedging relationship between hedging instruments and items been hedged,
objective of risk management, hedging strategy, and the way to evaluate the effectiveness of the hedging
instrument.

- 13 -

Under cash flow hedge accounting, the profit or loss on the hedging instrument is recognized as profit orloss in the same period when the profit or loss on the hedged item is affected. The profit or loss on thehedging instrument is recognized as an adjustment to stockholders’ equity and reclassified into current
profit or loss when forecast transactions that are being hedged affect profit or loss. If a hedge of a forecast
transaction subsequently results in the recognition of a financial asset or a financial liabilities, theassociated gains or losses that were recognized directly in equity shall be reclassified into profit or loss inthe same period or periods during which the asset acquired or liability assumed affects profit or loss. If ahedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a
non-financial liabilities, it removes the associated gains and losses that were recognized directly in equity
and includes them in the initial cost or other carrying amount of the asset or liability. However, if anentity expects that all or a portion of a loss recognized directly in equity will not be recovered in one ormore future periods, it shall reclassify the amount that is not expected to be recovered into profit or loss.
If the hedging instrument expires, is sold or terminated or no longer meets the hedge accounting criteria, thecumulative profit or loss on the hedging instrument that is effective and directly recognized as adjustments
to stockholders’ equity is still recognized as adjustments to stockholders’ equity before forecast transactions
occur and then reclassified into current profit or loss when forecast transactions occur.
Reclassifications
Certain accounts in the financial statements as of and for the six months ended June 30, 2009 have been
reclassified to conform to the presentation of the financial statements as of and for the six months ended
June 30, 2010.

3. CASH AND CASH EQUIVALENTS
June 30
2010
Cash on hand
Revolving fundCash in banks
Certificates of deposit
Cash equivalents

$

2009

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

2,211,390
127,785,893
3,036,467,987-$ 3,166,465,270

4. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (FVTPL)
Financial instruments classified as held for trading were as follows:
June 30
2010

2009

Financial assets held for trading
Current
Beneficiary certificates$ 1,100,370,035$-

Current
Fuel option contracts$

353,284,687$ 8,075,485,032

Non-current
Fuel option contracts$-

Financial liabilities held for trading- 14 -$

424,712,459

The gains on beneficiary certificates in the six months ended June 30, 2010 and 2009 were $2,455,000 and$745,000, respectively. The gains on derivative instruments held for trading in the six months ended June30, 2010 and 2009 were $287,260,000 and $1,677,876,000, respectively.
Financial instruments designated as at FVTPL were as follows:
June 30
2010

2009$ 374,044,385$ 351,612,500

Financial assets designated as at FVTPL
Non-current
Convertible bonds
China Life Insurance Co., Ltd.

The Company purchased the first subordinated unsecured mandatory convertible bonds issued privately by
China Life Insurance with the par value of $250,000,000 on March 31, 2009. The coupon interest is 4%
with maturity of five years. On the maturity date, the bonds under the mandatory term should be
converted in full into the common stock of China Life Insurance with the current conversion price.
The results of transactions on financial assets designated as at FVTPL for the six months ended June 30,2010 and 2009 were losses of $1,000 and gains of $101,613,000, respectively.

5. AVAILABLE-FOR-SALE FINANCIAL ASSETS
June 30
2010

2009
% of
Ownership

Carrying Value% of
Ownership--$ 184,484,430

5.98

110,432,332-

144,984,731-

Carrying Value
Current
Domestic marketable equity securities
Trade-Van Information Service
Foreign marketable equity securities
France Telecom$$ 110,432,332$ 329,469,161

In their meeting in June 2009, the stockholders of Trade-Van Information Service resolved to reduce thisinvestees capital. The Company thus received, on the date of the authorities, approval of the investee’s
capital reduction, capital return of $28,545,000 from Trade Van Information Service.

6. NOTES AND ACCOUNTS RECEIVABLE, NET
June 30
2010
Notes receivable
Accounts receivable$

Less: Allowance for doubtful accounts

384,215,387
13,039,323,894
13,423,539,281
47,286,103$ 13,376,253,178- 15 -

2009$

143,115,963
7,915,996,141
8,059,112,104
52,222,236$ 8,006,889,868

7. OTHER RECEIVABLES
June 30

Accrued revenue
Tax refunds
Others2010

2009$ 597,598,578
369,595,003
3,408,425$ 669,636,926
279,310,890
322,664$ 970,602,006$ 949,270,480

8. INVENTORIES, NET
June 30

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

2010

2009

$ 5,368,330,249
319,914,832
196,353,217$ 4,454,903,615
335,611,530
247,374,540$ 5,884,598,298$ 5,037,889,685

As of June 30, 2010 and 2009, the allowance for inventories devaluation were $54,231,000 and$48,838,000, respectively.

9. FINANCIAL ASSETS CARRIED AT COST
June 30
2010
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
472,522$ 371,366,902- 16 -

2009% ofOwnership

13.59
15.00
11.00
6.58
5.73

-

Carrying Value$ 297,946,451
56,022,929
11,000,000
5,925,000
370,894,380
472,522$ 371,366,902% ofOwnership

13.59
15.00
11.00
6.58
5.73

-

10. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
June 30
2010

2009

Carrying Value% of
Ownership

Carrying Value% of
Ownership$ 1,658,599,569
1,464,007,227
1,112,292,990
759,065,569
667,561,351
613,930,900
389,510,702
369,016,206
333,200,687
294,658,419
179,823,466
165,920,828
148,881,571
119,343,523
95,297,791
89,740,528
40,907,303
24,059,162
6,587,044
35,08834,60232,89554.00
100.00100.00
93.99
49.00
51.03
20.00
100.00
93.93
47.35
31.76
28.48
24.50
55.00
100.00100.0051.00
100.0025.00
100.00100.00100.00$ 1,623,364,678
1,493,492,246
1,139,291,809
304,388,636
719,976,000
585,220,896
388,595,167
372,425,000
301,468,992
292,556,874
194,170,502
163,655,662
145,633,367
111,896,201
88,817,388
49,958,101
35,947,166
31,710,818
5,930,474
35,08834,60232,89554.00
100.00100.00
93.99
49.00
51.00
20.00
100.00
93.93
47.35
31.76
28.48
24.50
55.00
100.00100.0051.00
100.0025.00
100.00100.00100.00Investees on which the Company exercises
significant influence
Taiwan Air Cargo Terminal
Cal Park
Cal-Dynasty International
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
China Aircraft Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services
Hwa Hsia
Cal Hotel
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.

$ 8,532,507,421$ 8,048,602,562

Investment income (loss) recognized under the equity method was as follows:
Six Months Ended June 30
2010
2009
Taiwan Air Cargo Terminal
Cal Park
Cal-Dynasty International
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
China Aircraft Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services$ 35,036,490(11,988,797)(11,181,917)
262,372,453
25,289,082
66,997,532
6,902,182
16,876,422
68,281,040
150,738
23,263,791
6,559,888
32,633,160
5,208,312- 17 -$ (33,106,037)(3,298,693)
13,863,355(149,307,715)(6,522,860)
36,973,707
9,697,934
10,092,852
46,920,923(21,416,451)
14,322,783
4,954,645
36,427,734
4,019,936(Continued)

Six Months Ended June 30
2010
2009
Hwa Hsia
Cal Hotel
Dynasty Holidays
Yestrip
Global Sky Express$ 16,369,774(60,746,624)
1,221,039
3,434,900
999,160$ 15,561,123(9,092,604)
3,847,966
1,680,382
374,631$ 487,678,625$ (24,006,389)(Concluded)

The equity-method investments investees’ financial statements, which had been used to determine thecarrying amount of the Company’s investments, had been audited, except those of China Aircraft Ltd.,
Freighter Princess Ltd., Freighter Prince Ltd. and Freighter Queen Ltd., which were minor subsidiaries.
The Company believes that, had these four investees’ financial statements been audited, any resulting
adjustment would have had no material effect on the Company’s financial statements.
The difference between the investment cost and the investee’s net assets derives from goodwill andrelated-party transaction of depreciable assets between the Company and its subsidiary. The information
on goodwill for the six months ended June 30, 2010 and 2009 was as follows:

Goodwill

Transaction
betweenCompany andSubsidiary

Beginning
Decrease$ 53,843,702-$ (183,514,249)
16,434,112

Ending$ 53,843,702$ (167,080,137)

Beginning
Decrease$ 53,843,702-$ (216,382,473)
16,434,112

Ending$ 53,843,702$ (199,948,361)

Six months ended June 30, 2010

Six months ended June 30, 2009

In their meeting in December 2009, the stockholders of Yestrip resolved to reduce this investees capital.
The Company thus received, on the date of the approval of the authorities, investee’s capital reduction,
capital returns of $10,000,000 from Yestrip in February 2010.
In May 2009 and July 2009, the Company invested $50,000,000 and $200,000,000, respectively, for Cal
Hotel to meet certain operating needs.

- 18 -

11. PROPERTIES
June 30
2010

2009

Revaluation increment - cost
Building$

Accumulated depreciation
Building
Machinery and equipment
Flight equipment
Furniture
Leased flight and other equipment
Leasehold improvements$ 3,380,943,247
3,060,239,481
65,578,436,022
390,682,640
5,445,710,799
819,230,303$ 3,285,981,849
2,952,149,807
52,418,759,502
416,725,208
9,477,155,375
726,401,071$ 78,675,242,492$ 69,277,172,812

50,335,009$

50,335,009

Interests capitalized in the six months ended June 30, 2010 and 2009 amounted to $38,665,000 and$56,872,000, respectively. These interests were calculated at rates ranging from 1.60% to 2.22% and from
2.18% to 3.27% in the six months ended June 30, 2010 and 2009, 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.

12. SHORT-TERM LOANS
June 30
2010
Bank loans. Interest - 0.79% and 1% to 2.55% in the six months
ended June 30, 2010 and 2009, respectively

$

2009

200,000,000$ 5,300,000,000

The short-term loans in the six months ended June 30, 2010 will mature on various dates before August
2010.

13. SHORT-TERM BILLS PAYABLE
June 30

Aggregate face value - discounted interest of 0.638% and 1% to
2.038% in the six months ended June 30, 2010 and 2009,
respectively
Less: Unamortized discount

2010

2009

$ 2,550,000,000
943,720$ 1,450,000,000
1,204,647$ 2,549,056,280$ 1,448,795,353

Commercial paper in the six months ended June 30, 2010 had matured on various dates before August2010.

- 19 -

14. BONDS ISSUED
June 30

Current
First issue of secured bonds in 2006
First issue of secured bonds in 2007
Third issue of unsecured domestic convertible bonds

Noncurrent
First issue of secured bonds in 2006
First issue of secured bonds in 2007
First issue of private unsecured bonds in 2009
Second issue of private unsecured bonds in 2009First issue of secured bonds in 2010
First issue of private unsecured bonds in 2010
Third issue of unsecured domestic convertible bonds

2010

2009

$ 1,950,000,000
900,000,000
1,015,600,000$ 1,950,000,000-$ 3,865,600,000$ 1,950,000,000$ 2,600,000,000
2,100,000,000
9,900,000,000
3,000,000,000
3,600,000,000
5,050,000,000-$ 4,550,000,000
3,000,000,000
9,900,000,000
3,000,000,000
1,015,600,000$ 26,250,000,000$ 21,465,600,000

On May 5, 12 and 19, 2010, the first issue of 2010 private unsecured bonds with aggregate face values of$1,500,000,000, $1,500,000,000 and $2,050,000,000 were issued as Types A, B and C bonds, respectively,
with maturities of three years. The interests at 2.8% are payable semiannually. The bonds are repayablein lump sum on maturity. The investors included affiliate: Taoyuan International Airport Services,
Mandarin Airlines, Abacus Distribution Systems (Taiwan), China Pacific Catering Services and Hwa Hsia.
On January 25, February 1 and 8, 2010, the first issue of 2010 secured bonds with an aggregate face valueof $3,600,000,000. These bonds will mature on February 8, 2015 at an annual interest rate which wasindicator rate plus 1.5%. The three consecutive annual repayments at 30%, 30% and 40% of the principal
will start on January 25, 2013. The guarantor institutions are Cathay United Bank, Bank of Kaohsiung,
Union Bank of Taiwan, E.Sun Bank, Yuanta Bank, JIH SUN International Bank, Hua Nan Bank andIndustrial Bank of Taiwan.
On June 15, 2009, the second issue of 2009 private unsecured bonds with aggregate face values of$2,200,000,000 and $800,000,000 were issued as Types A and B bonds, respectively, with maturities ofthree and five years, respectively. The bonds are repayable in lump sum payment on maturity. Theinterests, 3.4% for Type A bonds and 3.6% for Type B bonds, are payable semi-annually.
On April 15, 2009, the first issue of 2009 private unsecured bonds with aggregate face values of$8,800,000,000 and $1,100,000,000 were issued as Types A and B bonds, respectively, with maturities ofthree and five years, respectively. The bonds are repayable in lump sum payment on maturity. Theinterests, 3.4% for Type A bonds and 3.6% for Type B bonds, are payable semi-annually.
The first issue of 2007 secured bonds with an aggregate face value of $3,000,000,000 was on November 2,
2007. These bonds will mature on November 2, 2012 at an annual interest rate which was indicator rateplus 0.4%. The three consecutive annual repayments at 30%, 30% and 40% of the principal will start on
November 2, 2010. The interests are payable quarterly. The guarantor institutions are Shanghai
Commercial & Savings Bank, Land Bank and First Commercial Bank.

- 20 -

The first issue of 2006 secured bonds with an aggregate face value of $6,500,000,000 was on July 26 and27, 2006 (two business days). These bonds will mature on July 27, 2011 at an annual interest rate of
2.21%. The three consecutive annual repayments at 30%, 30% and 40% of the principal will start on July27, 2009. The guarantor institutions are the Bank of Taiwan, Cathay United Bank, and China
Development Industrial Bank.
The third issue of unsecured domestic convertible bonds with an aggregate face value of $10,000,000,000
was on August 8, 2005. These bonds will mature on August 7, 2010 at an annual zero interest rate. The
bond repayment terms, conversion features and other conditions are summarized as follows:a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. On August 7, 2008, the holders can require the Company to redeem their bonds at 99.7% of face value.
c. The Company may redeem the bonds piecemeal between September 8, 2005 and June 28, 2010 undercertain conditions.
d. Between September 8, 2005 and July 28, 2010 (except for the period between the ex-dividend date andthe date of dividend declaration on record), holders may convert the bonds to the Company’s commonshares. The initial conversion price was set at NT$18.25, subject to adjustment if there is capital
injection by cash, stock dividend distribution, or capital reduction to offset accumulated deficit. The
conversion price was NT$16.6 on June 30, 2010.
e. As of June 30, 2010, bonds with aggregate face value of $6,217,400,000 had been converted into
443,405,000 common shares of the Company. The Company repurchased and wrote off bonds withaggregate face value of $1,059,400,000. In August 2008, the Company redeemed its bonds at 99.7%of their face value, and these redeemed bonds had an aggregate face value of $1,707,600,000.
The second issue of unsecured domestic convertible bonds with an aggregate face value of $10,000,000,000
was on February 24, 2004. These bonds will mature on February 23, 2009 at an annual zero interest rate.
The bond repayment terms, conversion features and other conditions are summarized as follows:a. The holders may demand a lump-sum payment for the bonds upon maturity.
b. On February 23, 2007, the holders can require the Company to redeem their bonds at 99.7% of facevalue.
c. The Company may redeem the bonds piecemeal between August 24, 2004 and January 14, 2009 undercertain conditions.
d. Between August 24, 2004 and February 13, 2009 (except for the period between the ex-dividend date
and the date of dividend declaration on record), holders may convert the bonds to the Company’scommon shares. The initial conversion price was set at NT$17.5, subject to adjustment if there iscapital injection by cash, stock dividend distribution, or issuance of stock as employee stock bonus.
e. Between February 2, 2009 and February 10, 2009, the Company reset the conversion price from
NT$13.9 to NT$6.1 in accordance with conversion features for induced conversion. When bonds withaggregate face value of $1,429,500,000 were converted into 234,344,000 common shares of theCompany, the Company recognized a conversion loss of conversion price adjustment of $866,628,000
as nonoperating losses. As of February 24, 2009, bonds with aggregate face value of $9,545,900,000
had been converted into 779,353,000 common shares of the Company. The Company repurchased andwrote off bonds with aggregate face value of $432,400,000 and also redeemed the remaining bonds in
March 2009, with an aggregate face value of $21,700,000.

- 21 -

15. LONG-TERM LOANS
June 30

Bank loans
Commercial paper, net of unamortized discounts of$9,544,744 and $15,438,374 in the six months ended June30, 2010 and 2009, respectively
Less: Current portion

2010

2009

$ 88,324,776,840$ 96,962,902,248

4,370,455,256
92,695,232,096
17,717,132,128

6,959,561,626
103,922,463,874
16,838,087,906$ 74,978,099,968$ 87,084,375,968

Bank loans (New Taiwan dollars, U.S. dollars and Japanese yen) are repayable either quarterly orsemiannually or through a lump sum payment upon maturity in February 2020. The related information issummarized as follows:

New Taiwan Dollars

Currency
U.S. Dollars

Japanese Yen$ 47,460,410,873
51,993,743,526$ 1,236,534,280
1,321,883,504$ 3,100,000,000
4,340,000,000

47,460,410,873
51,993,743,526

39,759,944,719
43,483,010,039

1,104,421,248
1,486,148,683

0.915%-2.895%
0.914%-3.096%

0.2949%-4.77%
0.6244%-4.79%

0.745%
1.1144%

2001/7/20-2020/2/26
2001/2/27-2020/2/26

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

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

Amounts
Original currency
2010
2009
Translated in New Taiwan
dollars
2010
2009
Interest rates
2010
2009
Periods
2010
2009

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 0.5% to 1.648% and 0.177% to 1.636% in
the six months ended June 30, 2010 and 2009, respectively.

16. LONG-TERM CAPITAL LEASE OBLIGATIONS
June 30

Capital lease obligations
Less: Current portion- 22 -

2010

2009$ 4,185,118,402
1,127,291,193$ 5,858,182,562
1,576,696,303$ 3,057,827,209$ 4,281,486,259

As of June 30, 2010 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 2010
2011
2012
2013
2014

$

553,336,828
1,169,296,486
1,258,073,683
929,362,233
275,049,172

17. PENSION PLAN
Based on the defined contribution pension plan under the Labor Pension Act, the rate of the Company’s
required monthly contributions to the employees’ individual pension accounts under the custody of the
Bureau of Labor Insurance is at 6% of salaries and wages. The Company recognized a defined
contribution pension cost of $65,066,000 and $61,539,000 in the first half of 2010 and 2009.
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 $493,835,000 and $492,042,000 for the six months ended June30, 2010 and 2009, respectively.
Other information on the defined benefit pension fund is as follows:a. Pension fund movements
Six Months Ended June 30
2010
2009
Balance, beginning of period
Contributions
Income from pension fund investments
Payment$ 2,143,340,771
258,536,925
19,721,825(127,110,212)$ 2,214,785,881
271,573,240(589,440,173)

Balance, end of period$ 2,294,489,309$ 1,896,918,948

b. Accrued pension cost movements
June 30
20102009

Balance, beginning of period
Pension cost recognizedContributions
Payment$ 5,516,648,371
493,835,020(258,536,925)(17,159,321)$ 5,172,204,600
492,042,281(271,573,240)(22,952,231)

Balance, end of period$ 5,734,787,145$ 5,369,721,410- 23 -

18. STOCKHOLDERS’ EQUITY
On June 29, 2010 and May 18, 2009, the Company’s stockholders resolved to offset the accumulated deficit
in 2009 and 2008, respectively. The Company offset the accumulated deficit against the capital surplus of$628,088,000 in 2009; and against unappropriated earnings of beginning of 2008 $1,016,102,000, special
reserve of $5,677,933,000 capital surplus of $10,755,829,000, and capital reduction of $14,901,757,000 in2008.
No bonus to employees has been estimated for in 2009 because of accumulated deficit in 2009.
The above appropriations were the same as those proposed by the Board of Directors.
The second issue of unsecured domestic convertible bonds with the aggregate face value of 1,429,500,000
had been converted into the Company’s 234,344,000 common shares in the six months ended June 30, 2009.
Under the related regulations, the Company can issue the shares first and then apply to the authorities forapproval of the related capital increase.
To meet the Company’s financial demand for its operation as well as debt repayment, the board resolved inJune 2009 to have a privately placement of 602,911,000 common shares at NT$9.62 per share and in May
2009 to publicly issue 600,000,000 common shares at NT$10.80 per share, with both the privately placed
and publicly shares having a NT$10.00 par value and the record dates of September 28, 2009 and
September 29, 2009, respectively, for the common share issuances. The Company completed the related
registration of capital increase on October 19, 2009.
Under the Company Law, of the publicly issued common shares, 10% should be reserved for subscription
by the Company’s employees. In July 2009, 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.
Other information on employee stock options is as follows:

Number of
Options(In Thousands)

Weightedaverage
Exercise
Price

Employee stock options on a capital increase in 2009
Options granted
Options exercised
Options expired

60,000(18,064)(41,936)$ 10.810.8
10.8$ 2.46813

Weighted-average fair value of options granted

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$13.7 (Note)
NT$10.8
19.19%
52 days0.5%- 24 -

Note:

Adjusted for the effect of capital reduction on the grant-date share price.

The compensation cost of employee stock options issued for the capital increase in September 2009 wasrecognized at $148,088,000, consisting of the capital surplus - issue of stock in excess of par value of$44,585,000 and capital surplus - expired employee stock option of $103,503,000.
Under the Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus
from share issued in excess of par (additional paid-in capital from issuance of common shares, conversionof bonds and treasury stock transactions) and donations may be capitalized, which however is limited to acertain percentage of the Company’s paid-in capital. Also, the capital surplus from long-term investments
may not be used for any purpose.
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 less than 30% of the total dividends) or stock dividend
only. In determining the amount of cash dividends to be distributed, the board of directors should take
into account future cash requirements of the Company, primarily cash requirements for future aircraft
acquisitions. Distribution of earnings generated in prior years should also meet the foregoing guidelines.
Information about the resolution of the appropriation of earnings or the offset of loss by Board of Directors
and stockholders is available on the Market Observation Post System website of the Taiwan Stock
Exchange.
For the six months ended June 30, 2010, the bonus to employees was $49,352,000. The bonus toemployees represented 3% of net income (net of the bonus) deducted accumulated deficit, legal reserve,
cumulative translation adjustments, net loss not recognized as pension cost, unrealized valuation gain orloss on financial instruments and unrealized revaluation increment. However, there were net losses for thesix months ended June 30, 2009; thus, no bonus to employees were estimated. Material differences
between such estimated amounts and the amounts proposed by the Board of Directors in the following year
are retroactively adjusted for in the current year. If the actual amounts subsequently resolved by thestockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’
resolution as a change in accounting estimate.
All earnings appropriations should be made and approved by the stockholders in, and given effect to in thefinancial statements of, the year following the year of earnings generation.
Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balanceof certain shareholders’ equity accounts (excluding treasury stocks) shall be transferred fromunappropriated earnings to a special reserve. Any special reserve appropriated may be reversed to theextent of the decrease in the net debit balance.
Under the regulations of the Securities and Futures Bureau, a special reserve is appropriated from thebalance of the retained earnings at an amount equal to the carrying value of the treasury stock held bysubsidiaries in excess of the market value on the balance sheet date. The special reserve may be reversed
when the market value recovers.
Legal reserve shall be appropriated until it has reached the Company’s paid-in capital. This reserve may
be used to offset a deficit. When the legal reserve has reached 50% of the Company’s paid-in capital, up
to 50% thereof may be transferred to paid-in capital.

- 25 -

19. 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, 2010
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

2,889

-

2,889

4,166

-

4,166

Six months ended June 30, 2009
Company’s shares held by its subsidiaries reclassified frominvestment in shares of stock to treasury stock

The Company’s shares held by its subsidiaries as of June 30, 2010 and 2009 were as follows:

Subsidiary

Shares(In Thousands)

Carrying
AmountMarket Value$ 34,231,362
13,433,508$ 34,231,362
13,433,508$ 47,664,870$ 47,664,870$ 24,296,550
9,534,764$ 24,296,550
9,534,764$ 33,831,314$ 33,831,314

June 30, 2010
Mandarin Airlines
Hwa Hsia

2,075
814

June 30, 2009
Mandarin Airlines
Hwa Hsia

2,992
1,174

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 will no longer have voting rights.

- 26 -

20. INCOME TAX
a. The reconciliation of the income tax expense (benefit) on (gain) loss before income tax benefit (expense)at statutory income tax rate (tax rate of 17% and 25% of the year 2010 and 2009, respectively) andincome tax expense - current is as follows:
Six Months Ended June 30
2010
2009
Income tax expense (benefit) on income (loss) before income
tax at statutory rate
Add (deduct) tax effects of:Permanent differences
Temporary differences
Loss carryforwards
Loss carryforwards used
Overseas income tax expense$ 1,137,065,483$ (553,357,958)(96,665,255)(358,316,981)(635,687,566)-

349,173,182(2,504,963,076)
2,709,147,852
32,907,729$

Income tax expense - current

46,395,681$

32,907,729

b. Income tax expense consisted of the following:
Six Months Ended June 30
2010
2009
Income tax expense - current
Investment tax credits used
Net changes in deferred income tax expense (benefit)
Equity in net loss of foreign equity-method investees
Depreciation difference between accounting and tax onproperties
Allowance for loss on idle properties
Accrued expense for frequent-flyer program
Unrealized litigation loss
Valuation loss on financial instruments
Provision for pension cost
Unrealized foreign exchange gain or loss
Difference between accounting and tax on interest
Carryforward of unused tax losses
Investment income tax credits
Effect of tax law changes on deferred income tax
Adjustment in valuation allowance due to changes in tax
laws
Other adjustment in valuation allowance
Adjustment of prior years’ tax$

Income tax expense$

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

32,907,729-

2,349,013

7,500,421(733,750)(26,737,496)
7,408,981(3,867,281)
404,240,150(37,083,591)
9,949,452
2,791,503
638,371,977(27,602,309)
1,336,738,578(863,236)(27,078,629)
1,891,997
2,460,242,613(39,503,362)
99,460,299
3,312,973(2,707,526,689)
1,835,192,014
2,140,477,650(300,383,915)(1,569,949,504)(59,278,617)(807,301,332)(2,846,735,136)
128,805

415,340,375$

152,106,117

In January 2009, the Legislative Yuan passed the amendment of Article 39 of the Income Tax Law,
which extends the operating loss carryforward period from 5 years to 10 years.
In May 2009, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which
reduces a profit-seeking enterprise’s income tax rate from 25% to 20%, effective 2010. In May 2010,
the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces a
profit-seeking enterprise’s income tax rate from 20% to 17%, effective January 1, 2010. The
Company recalculated its deferred tax assets and liabilities in accordance with the amended Article andrecorded the resulting difference as a deferred income tax benefit or expense.
- 27 -

c. Deferred income tax assets (liabilities) as of June 30, 2010 and 2009 consisted of the following:
June 30
2010
Current
Allowance for loss on inventories
Accrued expenses for frequent-flyer program
Unrealized litigation loss
Unrealized foreign exchange loss
Valuation gain or loss on financial instruments
Unrealized gain or loss on financial instruments
Investment income tax credit
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Unrealized loss on financial instruments
Net deferred income tax assts
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
Valuation gain or loss on financial instruments
Cumulative translation adjustments
Unrealized gain or loss on financial instruments
Carry forward of unused tax losses
Investment income tax credit
Deferred income tax assets
Less: Valuation allowance
Deferred income tax assets, net
Depreciation difference between accounting and tax onproperties
Cumulative translation adjustments
Deferred income tax assets, net

2009

$

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

9,767,560
30,526,928
18,272,379
965,524
633,849,771
693,382,162(633,849,771)
59,532,391-$

397,012,101$

59,532,391$

96,579,003
161,672,747
627,293,351
90,050,143
32,208,141
35,034,153
5,561,624,318
1,284,237,478
7,888,699,334(1,451,020,228)
6,437,679,106$

123,682,536
161,398,675
651,877,583
112,593,350
1,700,039,498
139,069,244
6,132,449,813
1,098,871,303
10,119,982,002(3,117,063,506)
7,002,918,496(148,234,327)-(176,134,104)(89,214,952)$ 6,289,444,779$ 6,737,569,440

The above deferred income taxes were computed at a tax rate of 17% and 20% as of June 30, 2010 and2009, respectively.
d. Information on the imputation credit account (ICA) and creditable tax ratio is summarized as follows:
June 30

Balance of ICA

2010

2009

$ 208,150,392$ 193,444,596

The Company had no unappropriated retained earnings generated since January 1, 1998 as of December
31, 2009 and 2008, and therefore had no expected creditable tax ratios.

- 28 -

e. Unused investment income tax credits as of June 30, 2010 were as follows:

Regulatory
Basis of Tax Credits

Source of the Tax Credit

Article 6 of the Statutefor Upgrading
Industries

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

Article 50 of the Statutefor Development ofTourism

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

Total
Amount of the
Tax Credits

Remaining
Tax Credits

ExpiryYear$ 633,849,771
840,426,652
243,143,796
165,725,549
34,802,154
70,675$ 626,581,274
840,426,652
243,143,796
165,794,201
34,802,154
70,675

2010
2011
2012
2013
2014
2011

f. Unused tax loss carryforwards as of June 30, 2010 were as follows:
Expiry Year

Amount20182019$ 13,377,171,178
19,338,265,982

g. The income tax returns of the Company through 2007, except for 2006 had been examined by the tax
authorities.

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

Six Months Ended June 30, 2009
Included in
Included in
OperatingOperating Costs
Expenses
Total
Personnel
Salaries
Labor and health insurance
Pension cost
OthersDepreciation
Amortization$ 3,877,594,200
218,297,381
352,792,472
1,013,037,629
4,714,135,498
3,493,451- 29 -$ 1,116,492,460
190,209,612
200,788,561
168,575,401
185,901,558
84,086,958$ 4,994,086,660
408,506,993
553,581,033
1,181,613,030
4,900,037,056
87,580,409

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

Shares(Thousands)(As Denominator)

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

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

$

1.46

$

1.37

4,630,541

$

1.44

$

1.35

3,326,054$ (0.67)$ 6,688,620$ 6,273,280

4,569,360--

61,181$ 6,688,620$ 6,273,280$ (2,213,432)$ (2,365,538)

Six months ended June 30, 2009
Basic and diluted Earnings Per Share
Net loss on common stock$ (0.71)

23. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments
June 30
2010

2009

Carrying Amount

Estimated
Fair Value

Carrying Amount

39,428,811,480$

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$

39,428,811,480$

25,858,029,562$

25,858,029,562

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

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

351,612,500
329,469,161
31,448,912
371,366,902

351,612,500
329,469,161
31,448,912-

21,705,620,224

21,705,620,224

21,817,869,489

21,817,869,489

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

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

8,500,197,491
863,830,944
23,415,600,000
103,922,463,874

8,500,197,491
863,830,944
25,668,326,128
105,273,312,825

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

b. Methods and assumptions used in estimating the fair values of financial instruments are as follows:
1) The carrying amounts of cash and cash equivalents, receivables, other receivables, other financial
assets - noncurrent, accounts deposit, restricted asset - noncurrent, short-term loans, short-term bills
payable, accounts payable, accounts payable to related parties, accrued expenses, and deposits-in(included in “other liabilities - others”), approximate their fair values because of the short maturitiesof these instruments.

- 30 -

2) For financial assets at fair value through profit or loss, available-for-sale financial assets, andderivative financial assets for hedging, fair value is best determined at quoted market prices.
However, in many instances, there are no quoted market prices for the Company’s various financial
instruments. If quoted market prices are not available, fair values are based on estimates using
indirect data and appropriate valuation methodologies. Fair values of derivatives are determinedusing valuation techniques incorporating estimates and assumptions that are consistent withprevailing market conditions.
3) If the Company does not have significant influence over the investees and these investees’ shares do
not have a quoted market price in an active market, their fair value, which cannot be reliably
measured, are measured at cost.
4) Fair value of bonds issued is based on their quoted market price.
5) Some long-term debts and capital lease obligations are floating rate financial liabilities, so theircarrying value are their fair value. The fair values of long-term debts and private bonds with fixedinterest rates are estimated the present value of expected cash flows discounted at rates of
0.99%-2.094% and 1.38%-3.522% as of June 30, 2010 and 2009 for long-term debts the Company
can acquire in the market.
The total amount of fair value listed above is not equal to the total value of the Company because it is
not necessary to disclose their fair value for partial financial and non-financial 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 302010
2009

Fair Value Based on Estimates
June 30
2010
2009

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

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

329,469,161-$

374,044,385
14,686,499$

351,612,500
31,448,912

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

12,192,855,500-

10,514,908,700-

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

8,500,197,491
863,830,944
15,153,417,428
105,273,312,825

d. As of June 30, 2010 and 2009, loans, bonds issued and capital lease obligations at fixed rate exposed tofair value interest rate risk were $30,116,561,000 and $33,003,523,000, respectively, and those atfloating rate exposed to cash flow interest rate risk were $99,628,445,000 and $106,941,518,000,
respectively.
e. For the six months ended June 30, 2010 and 2009, the adjustments of stockholders’ equity credited anddebited directly from the available-for-sale financial assets amounted to $271,064,000 and $18,476,000,
respectively. As of June 30, 2010, the gain recognized and deducted from the adjustments ofstockholders’ equity amounted to $118,139,000.

- 31 -

24. RISK MANAGEMENT AND HEDGING STRATEGIESa. Risk management strategy
The Company’s risk management and hedging strategies to respond to changes in the economic andfinancial environment and in the fuel market. To reduce the financial risk from changes in interest andexchange rates and in fuel prices, the Company has its operating costs stay within a specified range byusing appropriate financial hedging instruments and hedging percentages in accordance with the“Processing Program of Derivative Financial Instrument Transactions” approved by Company
stockholders to reduce the impact of market price changes on earnings.
In addition, the Company has a financial risk management committee, which meets periodically toevaluate the performance of derivative instruments and determine the appropriate hedging percentage.
This committee informs the Company of global economic and financial conditions, controls the entire
financial risk resulting from changes in the financial environment and fuel prices, and develops thestrategy and response to avoid financial risk with the help of financial risk management experts to effectrisk management.
The Company enters into forward contracts, currency option contracts, and foreign exchange swap
contracts to hedge the risks on changes in foreign-currency assets, liabilities and commitments and in
the related exchange rates; enters into interest swap contracts to hedge the risks on changes in net
liability interest rates; enters into cross-currency swap contracts to hedge the risks on interest rate andexchange rate changes; and enters into fuel swap contracts to hedge the risks on fuel price changes.
The Company uses derivative financial instruments with fair values that are highly negative correlated
to the fair values of hedged items and evaluates the hedging effectiveness of these instruments
periodically.
The Company enters into derivative instruments just described above to evade major market risks.
Partial derivative instruments are classified as financial assets or liabilities held for trading andmeasured at fair value for not meeting the criteria for hedge accounting, even if they can meet thefinancial hedge strategy.
The following table summarizes the aggregate contractual (notional) amounts, credit risk and fair valueof the derivative financial instruments of the Company and its subsidiaries, Mandarin Airlines andDynasty Holidays, as of June 30, 2010 and 2009.
June 30
2010
Contractual(Notional)
Amount2009

Credit Risk

Contractual(Notional)
AmountFair Value

Credit Risk

Fair ValueHedge
The Company
Forward exchangeInterest rate swaps
Currency options- Call- PutCross-currency swaps- Currency swaps- Interest swaps$

578,778,135
19,340,803,859$

13,480,669-$

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

937,500,000
30,351,473,684$

30,856,310-$

30,856,310(771,516,116 )257,234,727
257,234,727

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

131,578,947
131,578,947

20,167-(374,010 )(1,265,888 )

-

-

-

694,661,875
1,177,039,005

572,435-(1,015,603 )(89,066,725 )

-

-

-

19,736,842-(3,412,984 )

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

8,500,197,491(Note)-(8,500,197,491 )

9,181,622(Note)(9,181,622 )

143,789,151(Note)-(143,789,151 )Dynasty Holidays
Forward exchange
Trade
The Company
Fuel swap

Mandarin Airlines
Fuel swap- 32 -

Note:

According to Taiwan Stock Exchange regulation for the public company of monthly
declaration about trading of derivatives financial instruments, the contractual amounts areshown by absolute values of fair values because fuel swap contracts only have nominal
quantity.

The contract amount is used to calculate the amounts to be settled by the counter-parties; thus, it isneither the actual delivery amount nor the cash requirement of the Company. The derivative financial
instruments held or issued by the Company are likely to be sold at reasonable market prices. The
Company does not expect significant cash flow requirements upon contract maturity.
Credit risk refers to the loss the Company will incur on counter-parties’ default on contracts. However,
the Company’s counter-parties are all trustworthy international and domestic financial institutions. In
addition, the Company trades with several financial institutions to disperse risks. Thus, the Company
does not expect to incur significant credit risks.
The calculation of the fair value of each derivative contract is based on quotes from financial
institutions, except that for fuel swap contracts, which is based on amounts estimated by an external
appraisal institution, in accordance with the Statement of Financial Accounting Standards andStatements of Valuation Standards.
The amount of the Company’s maximum exposure to the risks on all financial instruments (excluding
the fair value of collaterals) is equal to the book value of these instruments.
b. Cash flow hedge
Floating-interest long-term debts, foreign-currency firm commitments and transactions and expected
aviation fuel purchases by the Company may result in future cash flow fluctuations and risks due tochanges in market interest, exchange rates and fuel prices. To hedge these risks, the Company and its
subsidiaries, Dynasty Holidays, uses interest rate swaps, cross-currency swaps, forward exchange
contracts and option contracts. The cash flow hedge information is summarized as follows:

Hedged Items

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

Expected
Cash Flow
PeriodProfit or Loss
Recognition
PeriodInterest rate swaps(272,302,412)

2006 to 20132006 to 2013

257,234,727
257,234,727
96,463,022(1,090,317)(1,538,557)
1,980,483

2010
2010
2007 to 2010

2010
2010
2007 to 2010

482,315,113

11,500,186

2007 to 20102007 to 2010

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

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

Currency options- Call- PutForward exchange
contracts
Forward exchange
contracts$ 19,340,803,859$$- 33 -(261,450,617)

Hedged Items

Designated Hedging Instruments
Financial Instruments
Designated as Hedging
June 30, 2009
Instruments
Nominal Amount
Fair Value

Expected
Cash Flow
PeriodProfit or Loss
Recognition
Period(771,516,116)(89,066,725)

2006 to 20132007 to 20092006 to 20132007 to 2009

197,368,421

8,718,092

2007 to 20092007 to 2009

131,578,947
131,578,947
690,789,474(374,010)(1,265,888)
20,612,626

2009
2009
2007 to 2010

2009
2009
2007 to 2010

49,342,105

1,525,592

2007 to 20092007 to 2009

694,661,875(1,015,603)

2007 to 20092007 to 20092007 to 20092007 to 2009

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

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

Interest rate swaps
Cross-currency swaps interest swaps
Forward exchange
contracts
Currency options- Call- PutForward exchange
contracts
Forward exchange
contracts
Cross-currency swaps currency swaps$ 30,351,473,684
1,177,039,005$$(832,382,032)$(3,412,984)

Dynasty Holidays
Operation cost in U.S.
dollars

Forward exchange
contracts

19,736,842

The information of the profit or loss generated from cash flow hedging instruments was recognized as
adjustments to stockholders’ equity is summarized as follows:
Six Months Ended June 30
2010
2009

Adjustment Items
Amount recognized in equity during the period
Amount removed from equity and included in profit or loss forthe period$ (34,318,299)$ (57,820,679)

208,295,272

262,545,477

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

Relationship with the Company

Taiwan Air Cargo Terminal
Cal Park
Cal-Dynasty International
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
China Aircraft Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services
Hwa Hsia
Cal Hotel

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Subsidiary
Subsidiary
Subsidiary
Equity-method investee
Equity-method investee
Equity-method investee
Subsidiary
Subsidiary
Subsidiary(Continued)- 34 -

Related Party

Relationship with the Company

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’s equity-method investee
Major stockholder (39.61%)(Concluded)b. Significant transactions with related parties except for the Note 14 were summarized as follows:
Six Months Ended June 30
2010

1)

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

1.40
0.50
0.12
0.02
0.01
0.04

$

717,085,598
458,287,327
59,416,587
10,527,567
7,673,010
23,081,381

1.67
1.07
0.14
0.02
0.02
0.05

$ 1,392,583,921

2.09$ 1,276,071,470

2.97

$

509,498,751
484,119,160
183,690,969
123,460,709
121,308,311
111,714,520
100,552,503
59,171,998
45,832,872
41,100,309
33,559,769
24,027,312
23,901,845
20,771,743
19,233,227
26,096,993

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

$

402,205,395
422,492,423
90,252,992
300,158,041
119,241,634
121,770,860
107,255,976
31,310,471
40,654,395
30,365,424
89,6009,545,722
21,637,949
16,750,677

1.00
1.05
0.22
0.74
0.29
0.30
0.27
0.08
0.10
0.08
0.02
0.05
0.04

$ 1,928,040,991

3.52$ 1,713,731,559

4.24

$

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

83.92
9.35
2.32
1.70
1.25
1.06
0.40

$

277,904,205
76,388,504
9,770,260
5,437,451
8,054,934
5,548,738
3,519,184

71.88
19.76
2.53
1.41
2.08
1.43
0.91

$

515,541,885

100.00$386,623,276

100.00$

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

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

2009

AmountNotes and accounts receivables - relatedparties
Mandarin Airlines
Yangtze River Express Airlines
Yestrip
Global Sky Express
Taiwan Air Cargo Terminal
China Aviation Development Foundation
Others- 35 -Six Months Ended June 30
2010

4)

2009

Amount%Amount%368,710,205
275,560,686
256,704,306
47,390,815
43,804,292
42,747,295
37,254,509
34,641,840
15,832,655
15,428,368
11,849,001
7,274,185
7,579,190

31.65
23.66
22.04
4.07
3.76
3.67
3.20
2.97
1.36
1.32
1.02
0.63
0.65

$

343,987,420
220,575,067
216,658,341
41,846,850
63,477,615
30,698,319
42,134,473
35,604,503
11,035,442
11,251,346
4,290,722
6,390,662

33.46
21.46
21.08
4.07
6.18
2.99
4.10
3.46
1.07
1.09
0.42
0.62

$ 1,164,777,347

100.00$ 1,027,950,760

100.00Accounts payable to related parties
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
Yangtze River Express Airlines
Hwa Hsia
Taiwan Air Cargo Terminal
Taiwan Airport Services
China Aircraft Services
Kaohsiung Catering Services
Cal Hotel
China Pacific Laundry Services
China Aviation Development Foundation
Others$5) Lease of property and equipment
In September 2002, the Company rented out planes to Mandarin Airlines under a joint operation
service contract in which Mandarin Airlines, in cooperation with the Company, would ply
passenger and cargo routes between Kaohsiung and Hong Kong. In December 2008, the Company
replaced this contract with another cooperation agreement to develop the routes between Taiwan
and Mainland China. The rent received is based on this contract. As of June 30, 2010 and 2009,
the rentals received amounted to $267,993,000 and $620,506,000, respectively.
The Company rented planes from Mandarin Airlines under an operating lease agreement. The
Company paid the rental by flight hours, except for the rentals of the 737-800 aircraft, which wereat a fixed US$282,000 monthly. However, the 737-800 contract was terminated in February 2009.
In the six months ended June 30, 2010 and 2009, the Company paid hourly flight rentals of about$131,004,000 and $241,279,000, respectively.
Under an operating lease agreement, the Company rented flight training machines and flight
simulators from China Aviation Development Foundation to train pilots. The Company paid therental based on usage hours. As of June 30, 2010 and 2009, the Company had paid usage rentals
of about $20,772,000 and $9,546,000, respectively.
From August 2007 to October 2009, the Company rented out a plane to Yangtze River Express
Airlines Co., Ltd. (“Yangtze”) to develop further the Company’s international cargo services. The
rent received was a fixed US$970,000 monthly. As of June 30, 2009, the rentals received
amounted to $195,712,000. The Company entered into a joint operation cargo service contract
with Yangtze to ply the routes between Shanghai and Luxembourg and an airport service contract.
However, the joint operation cargo service contract was terminated in May 2008. The revenue
received from the airport service contract was $325,341,000 and $231,490,000 for the six months
ended June 30, 2010 and 2009, respectively.
From March 2010, the Company signed the building leased agreement of Operation Centre ofaviation undertaking of Taoyuan International Airport of Taiwan with Cal Park at a fixed rental of$14,793,000 monthly. For the six months ended June 30, 2010, the Company paid rentals of$59,172,000.

- 36 -

6) Endorsements and guarantees
June 30
2010

2009

Authorized
AmountOccupied
AmountAuthorized
AmountOccupied
Amount$ 3,400,000,000
393,981,341
351,072,903
126,029,872
180,000,000
300,000,000$ 2,780,000,000
393,981,341
351,072,903
126,029,872
167,000,000-$ 3,400,000,000
822,368,421
822,368,421
142,676,352-$ 1,240,000,000
418,190,859
291,268,228
142,676,352-

17,533,762

-

-

-

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

As of June 30, 2010, U.S. Treasury Bill US$871,084,116 had been pledged as collateral for
financing lease transaction of Freighter Prince Ltd., Freighter Queen Ltd. and Freighter Princess
Ltd. and was 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-related parties
Related parties invested the first issue of private unsecured bonds in 2010 (Note 14) are summarized
as follows:

Related Parties

Units

June 30
Par/Dollars

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

300
300
60
40
10

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

As of June 30, 2010, interest payable was $2,627,000. The interest expense was $2,627,000 for
the six months ended June 30, 2010.

- 37 -

26. PLEDGED ASSETS
As of June 30, 2010, the following assets had been pledged or mortgaged as collateral for bank loans andbusiness transactions:
June 30
2010
Pledged certificates of deposit (for bank loans)
U.S. Treasury Bill (for financing lease transaction ofsubsidiary)
Properties - land and flight equipment (net)$257,234,727

2009$

263,157,895

871,084,116
122,775,249,804

142,676,352
132,088,057,472$ 123,903,568,647$ 132,493,891,719

27. COMMITMENTS AND CONTINGENT LIABILITIESAs of June 30, 2010, the Company had commitments and contingent liabilities as follows:a. The Company leased certain flight equipment and hangar under various operating lease agreements
expiring on various dates until January 2024. Lease deposits aggregated $12,019,117,000.
Future lease payments are summarized as follows:
Period/Year

AmountJuly to December in 2010
2011
2012
2013
2014
2015

$ 2,706,929,162
4,395,786,248
4,318,910,135
4,117,931,883
3,506,373,023
4,415,836,202$ 2,278,705,315
4,361,744,946
5,162,121,964
5,085,213,712
4,478,104,463
3,480,104,463

Rentals from 2016 and on will aggregate $12,107,551,000. The present value of these rentals,
discounted using the 1% discount interest rate for one-year time deposits, is $11,460,780,000.
b. 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, 2010, the Company had paid about
US$119,197,000, which was included in “prepayments for equipment” in the properties section of thebalance sheets.
c. As of June 30, 2010, the Company had paid about US$12,396,000 for constructing engine test cell
equipment, which was included in “construction in progress” in the properties section of the balance
sheets, and the unpaid payment is about US$6,780,000.
d. To balance the trade deficit between Taiwan and United Sates, the Executive Yuan ordered the Civil
Aeronautics Operation Fund under the Ministry of Transportation and Communications to buy 10
long-haul aircraft from the United States, with 7 of these planes rented out to the Company through afinancing lease with the Civil Aeronautics Administration (CAA) and 3 planes originally leased, also
from the CAA, but were later acquired by the Company. But the CAA repudiated the terms of theoriginal contracts and claimed additional imputed interests on both the rentals and prepayment forplanes. The total amount claimed by CAA was about $1,100,000,000. After deliberation by the
Taipei District Court and then the Taiwan High Court (THC), the THC ruled on September 29, 2009that the Company should pay 99.96% of the legal fees incurred for this case and pay CAA- 38 -

$1,111,891,000 plus overdue payment (imputed on the additional rental of $897,773,000 from May 21,
1997 to the payment date, with an annual rate of 6.125%). The Company refused to accept the THC’s
sentence and filed an appeal with the supreme court in October 2009. On January 7, 2010, thesupreme court rejected the appeal; thus, the Company lost the lawsuit and can’t appeal. The supreme
court also ruled that the Company should pay 99.96% of the legal fees and also pay CAA plus overdue
payment, were totally amounted to $1,839,589,000 (included in nonoperating expenses and losses others for the year ended December 31, 2009). As of June 30, 2010, the payment to CAA plus
overdue payment was estimated to $1,861,362,000 (included in accrued expense) and paid in July 2010.
e. The Department of Justice (DOJ) of the United States (U.S.) is investigating whether airlines jointly
decided to raise fuel surcharges for air cargo services in the U.S. in violation of the Antitrust Law.
The Company has been cooperating with the DOJ in its investigation. As of August 12, 2010, the dateof the accompanying auditors’ report, there had been no charges, complaint or indictment of any kind
filed by the DOJ against the Company, and the Company was not in a position to assess any potential
liabilities and could not make any related provisions.

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

None (attached)2) Endorsement/guarantee provided: Table 1 (attached)
3) Marketable securities held: Table 2 (attached)4) Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20%of the paid-in capital: Table 3 (attached)5) Acquisition of individual real estates at costs or price of at least NT$100 million or 20% of thepaid-in capital: None
6) Disposal of individual real estates at cost or prices of at least NT$100 million or 20% of the paid-in
capital: None
7) Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 4 (attached)
8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached)9) Names, locations, and related information of investees on which the Company exercises significant
influence: Table 6 (attached)10) Derivative financial transactions (Note 24)
b. Investment in Mainland China: Table 7 (attached)- 39 -TABLE 1

CHINA AIRLINES, LTD. AND INVESTEESENDORSEMENT/GUARANTEE PROVIDED
SIX MONTHS ENDED JUNE 30, 2010
(In New Taiwan Dollars, Unless Stated Otherwise)

Counter-party

No.

Endorsement/
Guarantee Provider

Name

Nature of Relationship0

China Airlines

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

100% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary
100% subsidiary
93.99% 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$ 9,502,853,286
9,502,853,286
9,502,853,286
9,502,853,286
9,502,853,286
9,502,853,286$ 3,400,000,000
395,252,251
352,205,399
801,282,051
180,000,000
300,000,000$ 3,400,000,000
393,981,341
351,072,903
126,029,872
180,000,000
300,000,000

9,502,853,286

17,533,762

17,533,762

Note 1:

Based on the Company’s guidelines, the maximum 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 is up to 50% of the Company’s stockholders’ equity.

- 40 -

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

393,981,341
351,072,903
126,029,872
-

7.16
0.83
0.74
0.27
0.38
0.63

$ 23,757,133,215
23,757,133,215
23,757,133,215
23,757,133,215
23,757,133,215
23,757,133,215

-

0.04

23,757,133,215

TABLE 2

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES HELDJUNE 30, 2010
(In New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name

China Airlines, Ltd.

Tawain Air Cargo Terminal

Marketable Securities Type and Issuer/Name

Stock
Taiwan Air Cargo Terminal
Cal Park
Cal-Dynasty International
Mandarin Airlines
Taoyuan International Airport Services
China Pacific Catering Services
China Aircraft Services
Cal-Asia Investment
Abacus Distribution Systems (Taiwan)
Taiwan Airport Services
Kaohsiung Catering Services
Science Park Logistics
Asian Compressor Technology Services
China Pacific Laundry Services
Hwa Hsia
Cal Hotel
Dynasty Holidays
Yestrip
Global Sky Express
Freighter Princess Ltd.
Freighter Prince Ltd.
Freighter Queen Ltd.
France Telecom
Abacus International Holdings Ltd. - unlisted common
stockAbacus International Holdings Ltd.- unlisted preferredstockJardine Air Terminal Services
Chung Hua Express Co.
Regal International Advertising
Far Eastern Air Transport

Relationship with theHolding Company

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

Financial Statement AccountInvestments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Investments accounted for by the equity method
Available-for-sale financial assets - current
Financial assets carried at cost - noncurrent

Shares/Units

June 30, 2010
Percentage ofCarrying Value
Ownership

135,000,000
150,000,000
2,614,500
188,154,025
34,300,000
43,911,000
28,400,000
45,476,200
13,021,042
20,626,644
12,719,293
13,293,000
7,732,200
13,750,000
50,00026,500,000
408
1,600,000
250,000
1,000
1,000
1,000
195,587
1,359,368$ 1,658,599,569
1,464,007,227
1,112,292,990
759,065,569
667,561,351
613,930,900
389,510,702
369,016,206
333,200,687
294,658,419
179,823,466
165,920,828
148,881,571
119,343,523
95,297,791
89,740,528
40,907,303
24,059,162
6,587,044
35,08834,60232,895
110,432,332
297,946,451

54.00
100.00100.00
93.99
49.00
51.03
20.00
100.00
93.93
47.35
31.76
28.48
24.50
55.00
100.00100.0051.00
100.0025.00
100.00100.00100.0013.59

Market Value or Net
Asset Value

Note$ 1,658,599,569
1,464,007,227
1,112,292,990
1,019,666,397
667,561,351
613,930,900
342,753,539
369,016,206
333,200,687
294,658,419
179,823,466
158,834,290
148,881,571
119,343,523
108,731,301
89,740,528
40,907,303
24,059,162
6,587,044
35,08834,60232,895
110,432,332
255,426,995

Note 1
Notes 2 and 5
Note 2
Note 1
Note 5Note 5Note 5
Notes 3 and 6-

Financial assets carried at cost - noncurrent

135,937

472,522-

255,426,995

Notes 3 and 6-

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

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

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

15.00
11.00
6.58
5.73

72,171,145
13,360,951
1,473,741-

Note 5Note 5Note 5-

Convertible bonds
China Life Insurance Co., Ltd.

-

Financial assets at fair value through profit or loss noncurrent

2,500

374,044,385-

374,044,385-

Beneficiary certificates
Bond Fund-

31,694,465.37

400,193,336-

400,193,336-

TIIM Bond Fund-

20,759,809.01

300,035,292-

300,035,292-

Mega Diamond Bond Fund-

16,741,095.03

200,086,220-

200,086,220-

Jih Sun Bond 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

14,150,476.16

200,055,187-

200,055,187-

Beneficiary certificates
Fsitc Taiwan Bond Fund-

9,683,321.50

141,545,952-

141,545,952-

Fsitc Bond Fund-

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

334,296.26

57,043,311-

57,043,311(Continued)- 41 -

Holding Company Name

Taoyuan International Airport
Services

Marketable Securities Type and Issuer/Name

PCA Well Pool Fund-

Bond Fund-

Prudential Financial Bond Fund-Jih Sun Bond Fund-

Cathay Bond Fund-

Fuh-Hwa Yuli Bond Fund-

Mega Diamond Bond Fund-Fuh Hwa Global Short-term Income Fund-

Manulife Global Fund of Bond Funds-

Fuh Hwa Strategic High Income Fund of Funds-

Cathay Global Conservative Fund of Fund-Fuh Hwa Global Fixed Income Fund of funds-

Fsitc Global High Yield Bond Fund-

JF (Taiwan) Wealth Management Fund-

Manulife Asia Pacific Bond Fund-

Cathay Global Bond Fund-

Polaris Global Active Allocation Fund of Bond Fund-

Cathay High Income Fund of Funds-

Allianz Global Investors Global Bond Fund-

Capital Multi-Income Allocation Fund

-

Stock
Taiwan Whi Lin Industry
Tao Yao
Taiwan Air Cargo Terminal
BondFirst issue of private unsecured bonds in 2010 - China
Airlines

China Pacific Catering Services

Relationship with theHolding Company

Beneficiary certificates
HSBC NTD Money Management Fund 2
JF (Taiwan) Bond Fund
Fsitc Bond Fund
BondFirst issue of private unsecured bonds in 2010 - China
Airlines

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

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

Parent company-

Parent company

Bond investments with no active market - noncurrent

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

Bond investments with no active market - noncurrent

Shares/Units
6,127,921.00

June 30, 2010
Percentage ofCarrying Value
Ownership$

79,651,943-

7,997,528.72

100,981,596

3,315,803.80

Market Value or Net
Asset Value$

Note

79,651,943--

100,981,596-

50,242,385-

50,242,385-

3,550,178.22

50,191,355-

50,191,355-

10,865,737.30

130,028,105-

130,028,105-

9,507,551.90

122,716,824-

122,716,824-

8,399,938.00

100,394,379-

100,394,379-

5,830,659.20

61,125,133-

61,125,133-

2,097,078.36

23,210,883-

23,210,883-

6,893,976.50

72,110,994-

72,110,994-

4,186,074.70

49,461,822-

49,461,822-

5,113,285.40

63,864,935-

63,864,935-

3,585,435.10

40,563,461-

40,563,461-

1,832,643.00

20,003,848-

20,003,848-

2,000,000.00

20,380,000-

20,380,000-

2,052,334.50

19,660,749-

19,660,749-

1,251,029.50

12,685,439-

12,685,439-

6,000,000.00

60,208,800-

60,208,800-

1,830,362.00

20,001,830-

20,001,830-

858,369.10

10,103,004-

10,103,004-

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

48,366,839
11,258,550
62,500,000

24.29
100.002.50

48,366,839
11,258,550
76,787,017

Note 5Note 5-300

300,000,000-

300,000,000-

4,959,336.60
5,063,771.90
293,100.42

72,061,145
80,003,545
50,013,776-

72,061,145
80,003,545
50,013,776-

40

40,000,000-

40,000,000(Continued)- 42 -

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

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

Hwa Hsia

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

Parent company

Bond investments with no active market - noncurrent

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

IBT 1699 Bond Fund-IBT Ta Chong Bond Fund

-

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

Parent company-

Prudential Financial Small & Medium Capital Fund-

Prudential Financial High-Tech Fund-

Prudential Financial Taiwan Enterprise Fnud-

IBT 1699 Bond Fund-

The Rsit Enhanced Bond Fund-

Capital Income Fund-

Subsidiary
Parent company

Beneficiary certificates
IBT Ta Chong Bond Fund-

IBT 1699 Bond Fund-

Polaris Global Active Allocation Fund of Bond Fund

-

$

300

300,000,000

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

600,000-

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

$

Note

-

-

300,000,000-

204,987,331
79,011,125
16,266,463
35,729,904
20,450,161

14.00
14.00
20.00
25.00
8.00
5.45

202,940,540
28,604,214
16,266,463(570,897,788)
13,890,218
18,059,462

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

274,456.35

3,214,131-

3,214,131-

1,709,999.45

22,101,142-

22,101,142-

1,917,887.40

26,026,659-

26,026,659-

60

60,000,000-

60,000,000-

4,056,500
6,250,000
2,265,182

282,664,732
28,148,500
62,500,000
22,487,967

100.00
5.30
2.50
0.50

282,664,732
25,362,150
76,786,875
22,625,144

Note 4Note 5Note 6

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

1,164,761.70

16,115,759-

16,115,759-

84,320.00

2,570,917-

2,570,917-

118,970.00

1,836,897-

1,836,897-

55,300.00

1,168,489-

1,168,489-

930,113.15

12,012,411-

12,012,411-

1,048,827.91

12,010,128-

12,010,128-

65,091.20

1,004,611-

1,004,611-

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

1,000,000
814,152

17,634,677
13,433,508

100.00-17,634,677
13,433,508

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

19,056,881-

19,056,881-

1,125,378.09

14,534,258-

14,534,258-

900,000.00

9,135,000-

9,135,000-

Bond investments with no active market - noncurrent

2,074,628
8,274

Market Value or Net
Asset Value

34,231,362
4,671,703

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

Shares/Units

June 30, 2010
Percentage ofCarrying Value
Ownership

34,231,362
4,671,703

Subsidiary

Beneficiary certificates
Fuh-Hwa Bond FundStock
Hwa Shin Building Safeguard
China Airlines

Financial Statement AccountParent company-

Beneficiary certificates
Tlam B.B. Bond Fund

BondFirst issue of private unsecured bonds in 2010 - China
Airlines
Taiwan Airport Services

Relationship with theHolding Company(Continued)- 43 -

Holding Company Name

Marketable Securities Type and Issuer/Name

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

Beneficiary certificatesFranklin Templeton First Taiwan First Fund

Taiwan Airport Service (Samoa)

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

Relationship with theHolding Company

Financial Statement AccountJune 30, 2010
Percentage ofCarrying Value
Ownership

Shares/Units

Parent company

Bond investments with no active market - noncurrent

10-

Financial assets at fair value through profit or loss current

Equity-method investee
Equity-method investee

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

10,000,000-

19,391.73

4,049,216-

203,708,714
78,475,788

Market Value or Net
Asset Value

$

Note

10,000,000--

4,049,216

-

14.00
14.00

202,940,540
28,604,214

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 $255,426,995 which included common stock and preferred stock as of and for the six months ended June 30, 2010.

Note 4:The Company has not issue stocks.

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, 2010 because the investee’s audited financial statement as of and for the six months ended June 30, 2010 was not acquired.

Note 6:

The net asset value was calculated using the investee's audited financial statements as of and for the year ended December 31, 2009 because the investee’s audited financial statement as of and for the six months ended June 30, 2010 was not acquired.

In addition, the difference between the carrying value and net asset value(Concluded)- 44 -TABLE 3

CHINA AIRLINES, LTD. AND INVESTEESMARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALSIX MONTHS ENDED JUNE 30, 2010
(In New Taiwan Dollars, Unless Stated Otherwise)

Company Name

China Airlines

Beneficiary certificates
Bond Fund
TIIM Bond Fund
Mega Diamond Bond FundJih Sun Bond FundJih Sun Fund
ING Taiwan Bond Fund
Yuanta Wan Tai Bond Fund
Taishin Lucky FundTLG Solomon Bond Fund
IBT 1699 Bond FundIBT Ta Chong Bond Fund
SinoPac Bond Fund
Prudential Financial Bond Fund
Fuh-Hwa Bond Fund
Hua Nan Kirin Fund
Hua Nan Phoenix Bond Fund
Paradigm Pion Fund
Shin Kong Chi-Shin Fund
The Rsit Enhanced Bond Fund
Allianz Global Investors Taiwan Bond Fund
JF (Taiwan) Taiwan Fund
Polaris De-Li Fund
Polaris De-Bao Fund

Tawain Air Cargo Terminal

Note:

Beneficiary certificates
Upamc James Bond Fund

Beginning Balance

Counter-party

Nature ofRelationship

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

-

-

-

-

-

-

Financial assets at fair value throughprofit or loss - current

Marketable Securities Type and Issuer/Name

Financial Statement Account

Acquisition

DisposalEnding Balance

AmountCarrying Value

Gain (Loss) on
Disposal

Shares/Units

750,163,648$$

163,648

31,694,465.37

550,000,000

126,710

20,759,809.01

300,035,292

450,210,026

450,000,000

210,026

16,741,095.03

200,086,220

95,571,420.72

1,350,335,526

1,350,000,000

335,526

14,150,476.16

200,055,187

200,000,000

14,166,914.59

200,025,500

200,000,000

25,500--25,635,359.53

400,000,000

25,635,359.53

400,060,239

400,000,000

60,239--100,000,000--

6,911,041.10

100,014,513

100,000,000

14,513----

103,403,927.40

1,100,000,000

103,403,927.40

1,100,204,979

1,100,000,000

204,979

-

-

-

-

-

41,421,760.77

500,000,000

41,421,760.77

500,128,409

500,000,000

128,409

-

-

-

-

-

-

38,724,808.18

500,000,000

38,724,808.18

500,107,663

500,000,000

107,663

-

-

-

-

-

-

36,855,001.30

500,000,000

36,855,001.30

500,114,997

500,000,000

114,997

-

-

-

-

-

-

11,246,738.40

150,000,000

11,246,738.40

150,020,244

150,000,000

20,244

-

-

-

-

-

-

46,228,380.80

700,000,000

46,228,380.80

700,139,363

700,000,000

139,363

-

-

-

-

-

-

28,212,267.60

390,000,000

28,212,267.60

390,113,781

390,000,000

113,781

-

-

-

-

-

-

34,847,759.00

400,000,000

34,847,759.00

400,034,847

400,000,000

34,847

-

-

-

-

-

-

12,839,442.80

200,000,000

12,839,442.80

200,017,976

200,000,000

17,976

-

-

-

-

-

-

63,337,858.47

700,000,000

63,337,858.47

700,150,208

700,000,000

150,208

-

-

-

-

-

-

26,993,107.54

400,000,000

26,993,107.54

400,052,634

400,000,000

52,634

-

-

-

-

-

-

17,485,115.80

200,000,000

17,485,115.80

200,015,737

200,000,000

15,737

-

-

-

-

-

-

33,363,222.72

400,000,000

33,363,222.72

400,030,027

400,000,000

30,027

-

-

-

-

-

-

25,331,527.90

400,000,000

25,331,527.90

400,058,265

400,000,000

58,265

-

-

-

-

-

-

12,815,091.10

200,000,000

12,815,091.10

200,026,912

200,000,000

26,912

-

-

-

-

-

-

34,835,734.10

400,000,000

34,835,734.10

400,064,879

400,000,000

64,879----6,418,661.64

102,611,292--

6,418,661.64

102,675,848

102,407,821

64,556--

Shares/Units

AmountShares/Units

Amount (Note)

Shares/Units-

91,133,740.19$ 1,150,193,336

59,439,274.82--

58,847,425.14

850,035,292

38,087,616.13

550,126,710-

16,774,020.40

200,000,000

37,677,119.82

650,086,220

37,710,045.19

-

-

-

-

109,721,896.88

1,550,055,187

-

-

-

-

14,166,914.59

-

-

-

-

-

-

6,911,041.10

-

-

-

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

- 45 -$$

750,000,000

Amount$400,193,336

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, 2010
(In New Taiwan Dollars, Unless Stated Otherwise)Transaction Details
Company Name

China Airlines, Ltd. (“China Airlines”)

Related Party

Nature of Relationship

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

Amount% toTotal

183,690,969(935,644,486)
123,460,709
509,498,751
484,119,160
100,552,503
111,714,520
121,308,811(331,551,822)

0.34(1.40)
0.23
0.93
0.88
0.18
0.20
0.22
(0.50)

Taiwan Air Cargo Terminal
Mandarin Airlines

Subsidiary
Subsidiary

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

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

Taiwan Air Cargo Terminal

China Airlines

Parent company

Sale(183,690,969)

Mandarin Airlines

China Airlines

Parent company

Purchase
Sale

Taoyuan International Airport Services

China Airlines

Parent company

China Pacific Catering Services

China Airlines

China Aircraft Services Limited

Abnormal Transaction
Payment Terms-(23.91) 30 days-

935,644,486(123,460,709)

35.30 2 months(3.69) 2 months

Sale(509,498,751)

Parent company

Sale

China Airlines

Investor using equity method

Taiwan Airport Services

China Airlines

Hwa Hsia
Yangtze River Express Airlines(3.53)
2.91(30.49)(22.78)(21.22)(2.86)(3.08)(3.62)
0.32--

42,747,295

50.01

-

-

-

(432,641,823)
368,410,205(72.33)51.27-(45.47) 30 days--

275,560,686

68.76

-

(484,119,160)(61.19) 60 days--

256,704,306

72.10

-

Sale

(100,552,503)(18.87) 30 days--

34,641,840

15.84

-

Parent company

Sale(111,714,520)(33.64) 45 days--

37,254,509

35.07

-

China Airlines

Parent company

Sale(121,308,811)(82.84) 2 months--

43,804,292

88.98

-

China Airlines

Parent company of stockholder Purchaseusing equity-method--(48,226,992)(2.04)-- 46 -

2 months$

Note(42,747,295)
432,641,823(368,710,205)(275,560,686)(256,704,306)(34,641,840)(37,254,509)(43,804,292)
48,226,992

0.68

$

Payment Terms-

331,551,822

30 days
2 months
2 months
40 days
60 days
30 days
40 days
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, 2010
(In New Taiwan Dollars, Unless Stated Otherwise)

Company Name

Related Party

Nature ofRelationship

OverdueEnding Balance

Turnover Rate

$ 432,641,823

4.55

China Airlines, Ltd. (“China Airlines”)

Mandarin Airlines

Subsidiary

Mandarin Airlines

China Airlines

Parent company

368,710,205

Taoyuan International Airport Services

China Airlines

Parent company

China Pacific Catering Services

China Airlines

Parent company

Amount$Action Taken

Amounts Received
in Subsequent
PeriodAllowance for Bad
Debts

-

-

$ 171,710,539

0.65

-

-

64,469,113-

275,560,686

4.01

-

-

141,069,932-

256,704,306

3.99

-

-

86,512,272-- 47 -$-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, 2010
(In New Taiwan Dollars, Unless Stated Otherwise)

Investment Amount
Investor Company

China Airlines, Ltd.

Investee Company

Location

Main Businesses and Products

June 30, 2010

Balance as of June 30, 2010
Percentage ofCarrying Value
Ownership

December 31, 2009

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$ 45,476,200
52,200,000
12,289,100
115,642,930
150,654,000
77,322,000
137,500,000$

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
52,200,000
12,289,100
115,642,930
150,654,000
77,322,000
137,500,000

135,000,000
150,000,000
2,614,500
188,154,025
34,300,000
43,911,000
28,400,000
45,476,200
13,021,042
20,626,644
12,719,293
13,293,000
7,732,200
13,750,000

54.00
100.00100.00
93.99
49.00
51.03
20.00
100.00
93.93
47.35
31.76
28.48
24.50
55.00

50,000,000
265,000,000
JPY 20,400,000
26,264,643
2,500,000
US$
1,000
US$
1,000
US$
1,000

50,000,000
265,000,000
JPY 20,400,000
36,264,643
2,500,000
US$
1,000
US$
1,000
US$
1,000

50,00026,500,000
408
1,600,000
250,000
1,000
1,000
1,000

100.00100.0051.00
100.0025.00
100.00100.00100.0095,297,791
89,740,528
40,907,303
24,059,162
6,587,044
35,08834,60232,89549,477,500
10,000,000

49,477,500
10,000,000

4,275,000
1,000,000

24.29
100.004,117,846-

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

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

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
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 tower of airlines, hotels, restaurants, andhealth clubs
Cleaning of aircraft and maintenance of machine and equipment
Hotel businessTravel businessTravel business
Forwarding and storage of air cargo
Aircraft lease
Aircraft lease
Aircraft lease

Taoyuan International Airport Services

Taiwan Whi Lin Industry
Tao YaoTaichung, Taiwan
Taoyuan, Taiwan

Other machine manufacturing
Manpower placement and machine installation

Cal-Asia Investment

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

Xiamen International Airport

Forwarding and storage of air cargo

US$

Xiamen International Airport
Hong Kong
Shanghai, China

Airport cargo and storage of air cargo
Forwarding and storage of air cargo
Forwarding and storage of air cargoUS$
1,947,441
HK$ 1,500,000
US$ 38,796,173

US$
1,947,441
HK$ 1,500,000
US$ 38,796,173

Taiwan Airport Services

Taiwan Airport Service (Samoa)

Samoa

Airport services and investment

US$

US$

Hwa Hsia

Hwa Shin Building Safeguard

Taoyuan, Taiwan

Building security and maintenance services

Taiwan Airport Service (Samoa)

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

4,117,846

5,858,058

US$

10,000,000$

1,658,599,569
1,464,007,227
1,112,292,990
759,065,569
667,561,351
613,930,900
389,510,702
369,016,206
333,200,687
294,658,419
179,823,466
165,920,828
148,881,571
119,343,523

Net Income (Loss) Investment Incomeof the Investee(Loss)$

64,882,388(11,988,797 )(11,181,917 )
261,660,902
51,610,371
131,292,947
34,510,909
16,876,422
72,689,760
318,333
73,252,092
23,029,273
133,196,572
9,469,658$

Note

35,036,490(11,988,797 )(11,181,917 )
262,372,453
25,289,082
66,997,532
6,902,182
16,876,422
68,281,040
150,738
23,263,791
6,559,888
32,633,160
5,208,312

Note 2
Note 1-

16,369,774(60,746,624 )2,394,195
3,434,900
3,996,640-

16,369,774(60,746,624 )
1,221,039
3,434,900
999,160-

Note 1-

48,366,839
11,258,550

3,599,147
144,343986,641
146,491-14.00

204,987,331

65,764,019

9,206,933

Note 4600,000
-

14.00
20.00
25.00

79,011,125
16,266,463-

29,312,407(6,706,415 )(640,506 )

4,103,737
4,307,697-

Note 4
Notes 3 and 4

5,858,058-

100.00282,664,732

13,786,517

13,786,517

Note 410,000,000

1,000,000

100.0017,634,677

3,321,921

3,321,921-

Forwarding and storage of air cargoUS$

3,750,226

US$

3,950,226

-

14.00

203,708,714

65,763,886

9,206,933

Note 4

Forwarding and storage of air cargoUS$

1,926,750

US$

1,926,750

-

14.00

78,475,788

29,312,405

4,103,737

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

Note 2:

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

Note 3:

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

Note 4:The investee has not issue stocks

The Company has not recognize the investment income.

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CHINA AIRLINES, LTD. AND INVESTEESINVESTMENT IN MAINLAND CHINA
SIX MONTHS ENDED JUNE 30, 2010
(In New Taiwan Dollars, RMB, and U.S. Dollars, Unless Stated Otherwise)

InvesteeCompany Name

Xiamen International Air
Cargo Terminal

Main Businesses andProducts

Total Amount ofPaid-in Capital

Investment
Type(Note 1)

Forwarding and$ 1,060,869,565 Indirect
storage of air cargo (RMB 224,480,000)

Accumulated
Outflow ofInvestment from
Taiwan as ofJan. 1, 2010

Investment Flows
Outflow$
132,406,624 $(US$4,117,846)

Inflow-

Xiamen International Airport Forwarding and66,162,571 Indirect
Air Cargo Storage
storage of air cargo (RMB 14,000,000)

62,618,682
1,947,441)

-

(US$

Taikoo (Xiamen) Landing
Gear Services

Maintenance services
446,623,794 Indirectof landing gear
(US$ 13,890,000)

35,729,904
1,111,200)

-

(US$

Taikoo Spirit Aerospace
Systems (Jinjang)Composite material

390,744,423 Indirect(RMB 82,681,520)

20,450,161
636,000)-(US$

Yangtze River Express
Airlines

Forwarding and
2,362,948,960 Indirect
storage of air cargo (RMB 500,000,000)

1,247,465,370
38,796,173)

-

(US$

Accumulated Investment in
Mainland China as ofJune 30, 2010

Investment Amounts
Authorized by Investment
Commission, MOEA

Upper Limit on Investment$1,498,670,741(US$46,608,660)$1,502,135,252(Note 4)$32,222,364,105(Note 5)$-

Accumulated
Outflow ofInvestment from
Taiwan as ofJune 30, 2010%
Ownershipof Direct orIndirect
Investment$
132,406,624(US$
4,117,846)

14.00%

62,618,682
1,947,441)

14.00%(US$

35,729,904
1,111,200)

8.00%

(US$

20,450,161
636,000)

5.45%

(US$

1,247,465,370
38,796,173)

25.00%

(US$

-

-

-

-

Investment Gain
(Loss) (Note 2)

Carrying Value asofJune 30, 2010

Accumulated
InwardRemittance ofEarnings as ofJune 30, 2010$
(US$

9,206,933
288,177)$
204,987,331 $ 35,463,259(US$
6,375,106) (US$ 1,110,000)(Note 3)

4,103,737
128,447) (US$79,011,125
2,457,247)

-

(US$

-

35,729,904
1,111,200)

-

(US$

20,450,161
636,000)

-

(US$

-

-

-

-

Note 1: The Company invested in Cal-Asia Investment, which, in turn, invested in Mainland China.
Note 2: The accrual basis is based on the financial statements audited by CPAs of China Airlines, Ltd. in ROC.
Note 3: Inward remittance of earnings of investees for the six months ended June 30, 2010 is US$1,110,000.
Note 4: The amount is the US$45,576,073 added NT$36,666,667.
Note 5: The limits based on the Investment Commission’s regulation, “Investment or Technical Cooperation in Mainland China Adjudgment Rule,” is larger amount of the Company’s net asset value or 60% of the consolidated net asset value.
Note 6: The amounts of assets and gain or loss in RMB and U.S. dollars are translated at the year-end rates and the average rate of IATA, respectively.

- 49 -