chinese maritime transport ltd. financial statements ...cmt.tw/html/100fs4_e.pdf · chinese...

CHINESE MARITIME TRANSPORT LTD.

Financial Statements

December 31, 2011 and 2010

(With Independent Auditors’ Report Thereon)

The accompanying financial statements are not intended to present the financial position, results of operations, and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The auditors’ report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors’ report and financial statements, the Chinese version shall prevail.

Independent Auditors’ Report

The Board of Directors Chinese Maritime Transport Ltd.: We have audited the accompanying balance sheets of Chinese Maritime Transport Ltd. as of December 31, 2011 and 2010, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The long-term equity investments in the financial statements accounted for using the equity method amounting to NT$3,753,909,000 and NT$3,144,137,000, constituting 26.38% and 24.42% of the total assets, as of December 31, 2011 and 2010, respectively, and related investment income of NT$138,337,000 and NT$243,007,000, constituting 12.80% and 11.49% of the income before tax, respectively, for the years then ended were recognized based on the investees’ financial statements, which were audited by other auditors. We conducted our audits in accordance with Republic of China generally accepted auditing standards and the “Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants”. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on 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 and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the aforementioned reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Chinese Maritime Transport Ltd. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China. Taipei, Taiwan (Republic of China) March 21, 2012

See accompanying notes to financial statements.


Balance Sheets

December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)

2011 2010 Assets Amount % Amount %

Current assets:

Cash and cash equivalents (note 4) $ 756,497 5 733,396 6 Financial assets measured at fair value through profit or loss – current (note 5)

443

-

4,199

-

Notes and accounts receivable (note 6) 72,348 - 64,373 - Accounts receivable – related parties (note 17) 94,543 1 91,356 1 Other current financial assets (note 17) 255 - 5,008 - Non-current assets held for sale (note 8) 274,697 2 - - Other current assets (note 14) 13,828 - 16,692 -

1,212,611 8 915,024 7 Investments:

Long-term investments under equity method (note 7) 12,226,831 86 11,025,413 86 Other non-current financial assets (note 17) 100,000 1 - -

12,326,831 87 11,025,413 86 Property and equipment (notes 8, 17 and 18):

Land 227,324 2 186,549 1 Buildings 73,884 1 69,318 1 Transportation equipment 52,186 - 346,952 3 Furniture, fixtures and other equipment 32,613 - 39,542 - Land revaluation increment 337,251 2 211,473 2 723,258 5 853,834 7 Less: Accumulated depreciation (66,268) (97,057) (1)Payment for purchase of equipment - - 9,264 -

656,990 5 766,041 6 Intangible assets:

Computer software 1,656 - 3,566 - Other assets:

Rental assets (notes 8 and 18) 20,711 - 73,824 1 Refundable deposits (note 18) 8,930 - 8,930 - Deferred expenses - - 27,149 - Deferred income tax assets – non-current (note 14) - - 56,930 -

29,641 - 166,833 1 Total assets $ 14,227,729 100 12,876,877 100

2011 2010 Liabilities and Stockholders’ Equity Amount % Amount %

Current liabilities:

Short-term loans and commercial paper payable (note 9)

$ 629,856

4

-

-

Notes and accounts payable 2,899 - 7,102 - Accounts payable – related parties (note 17) 92,939 1 117,310 1 Accrued expenses and other current liabilities (notes 14 and 17)

126,772

1

210,122

2

Current portion of long-term loans (note 10) - - 267,500 2 852,466 6 602,034 5

Long-term liabilities: Bonds payable (note 11) 3,000,000 21 3,000,000 23 Provision for land value increment tax (note 8) 76,768 1 69,000 1

3,076,768 22 3,069,000 24 Other liabilities:

Accrued pension liabilities (note 12) 26,714 - 23,113 - Deferred income tax liabilities and others (note 14) 50,413 - 632 -

77,127 - 23,745 - Total liabilities 4,006,361 28 3,694,779 29

Common stock (note 13) 2,564,736 18 2,564,736 20 Capital surplus (note 13) 42,503 - 42,503 - Retained earnings (note 13):

Legal reserve 1,385,661 10 1,192,446 9 Special reserve 774,448 5 - - Unappropriated earnings 5,372,584 38 6,156,861 48 7,532,693 53 7,349,307 57

Equity adjustments: Cumulative translation adjustments (479,326) (3) (853,304) (7) Net loss not recognized as pension cost (27,158) - (28,129) - Unrealized gains on financial instruments (1,111) - 5,494 - Unrealized land revaluation increment (note 8) 589,031 4 101,491 1 81,436 1 (774,448) (6)

Total stockholders’ equity 10,221,368 72 9,182,098 71 Commitments and contingencies (note 19)

Total liabilities and stockholders’ equity $ 14,227,729 100 12,876,877 100



Statements of Income

For the years ended December 31, 2011 and 2010

(expressed in thousands of New Taiwan dollars, except earnings per share, which are expressed in New Taiwan dollars)

2011 2010 Amount % Amount %

Operating revenue (note 17):

Freight revenue – vessel chartering $ 217,103 13 78,228 5 Freight revenue – container hauling, net 1,441,287 87 1,482,325 94 Freight revenue – airline agent and others 6,094 - 8,959 1 1,664,484 100 1,569,512 100

Operating cost (notes 17 and 21) 1,540,813 93 1,381,429 88 Gross profit 123,671 7 188,083 12 Operating expenses (notes 13, 17 and 21) 162,732 9 192,289 12 Operating income (loss) (39,061) (2) (4,206) - Non-operating income and gains:

Interest income (note 17) 2,421 - 7,594 1 Investment income under equity method, net (note 7) 1,257,396 76 1,985,072 127 Foreign exchange gain, net - - 60,223 4 Gain on valuation of financial assets (notes 5 and 16) - - 155,767 10 Others 12,248 - 9,319 1

1,272,065 76 2,217,975 143 Non-operating expenses and losses:

Interest expense (note 11) 98,712 6 98,866 7 Foreign exchange loss, net (notes 5 and 16) 48,812 3 - - Others 4,957 - 489 -

152,481 9 99,355 7 Income before tax 1,080,523 65 2,114,414 136 Income tax expense (note 14) 76,422 5 182,265 11 Net income $ 1,004,101 60 1,932,149 125 Before

income taxAfter

income tax Before

income taxAfter

income taxBasic earnings per share (note 15) $ 4.21 3.92 8.24 7.53 Diluted earnings per share (note 15) $ 4.21 3.91 8.24 7.53



Statements of Changes in Stockholders' Equity

For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)

Net loss not Unrealized Unrealized Retained earnings Cumulative recognized gains (losses) land Common

stockCapital surplus

Legal reserve

Special reserve

Unappropriated earnings

translation adjustments

as pension cost

on financial instruments

revaluation increment Total

Balance as of December 31, 2009 $ 2,564,736 42,503 905,260 - 6,050,739 (31,874) - 16,295 101,491 9,649,150 Appropriations (note a): - -

Legal reserve - - 287,186 - (287,186) - - - - - Cash dividends - - - - (1,538,841) - - - - (1,538,841)

Net income for 2010 - - - - 1,932,149 - - - - 1,932,149 Net loss not recognized as pension cost - - - - - - (28,129) - - (28,129) Long-term investment under equity methods adjustments - - - - - (152,400) - (10,801) - (163,201) Foreign currency financial statement translation adjustments - - - - - (669,030) - - - (669,030) Balance as of December 31, 2010 2,564,736 42,503 1,192,446 - 6,156,861 (853,304) (28,129) 5,494 101,491 9,182,098 Appropriations (note b):

Legal reserve - - 193,215 - (193,215) - - - - - Special reserve - - - 774,448 (774,448) - - - - - Cash dividends - - - - (820,715) - - - - (820,715)

Long-term investment under equity methods adjustments - - - - - 57,948 - (6,605) 371,127 422,470 Net income for 2011 - - - - 1,004,101 - - - - 1,004,101 Net loss not recognized as pension cost - - - - - - 971 - - 971 Foreign currency financial statement translation adjustments - - - - - 316,030 - - - 316,030 Unrealized land revaluation increment - - - - - - - - 116,413 116,413 Balance as of December 31, 2011 $ 2,564,736 42,503 1,385,661 774,448 5,372,584 (479,326) (27,158) (1,111) 589,031 10,221,368

Note a: Directors’ and supervisors’ remuneration amounting to $25,847 and employees’ bonuses amounting to $12,923 were recognized in the 2009 statement of income. Note b: Directors’ and supervisors’ remuneration amounting to $9,645 and employees’ bonuses amounting to $9,645 were recognized in the 2010 statement of income.



Statements of Cash Flows

For the years ended December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars)

2011 2010 Cash flows from operating activities:

Net income $ 1,004,101 1,932,149Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 78,812 40,536Exchange losses of capital refund from investment companies 53,838 - Decrease (increase) in financial assets at fair value through profit or loss – current

3,756

2,858

Investment income under the equity method, net (1,257,396) (1,985,072)Cash dividends from investee companies accounted for under the equity method

432,217

1,738,384

Decrease (increase) in notes and accounts receivable (11,162) 38,722Decrease (increase) other current assets 2,750 (9,189)Decrease (increase) in other current financial assets 4,753 (2,530)Increase (decrease) in notes and accounts payable (28,574) (47,251)Increase (decrease) in accrued expenses and other current liabilities (83,353) (228,723)Change in deferred income tax liabilities 42,178 72,211Others 8,827 7,150

Net cash provided by (used in) operating activities 250,747 1,559,245Cash flows from investing activities:

Increase in long-term equity investments (243,245) (20,000)Capital refund from investee companies 616,397 572,961Additions to property and equipment (35,014) (399,654)Proceeds from sale of property and equipment 342 40,880Decrease in other receivables – related parties - 533,000Increase in long-term receivables-related parties (100,000) - Deferred expense and others (7,688) 931

Net cash provided by (used in) investing activities 230,792 728,118Cash flows from financing activities:

Repayment of long-term loans (267,500) (758,000)Increase in short-term loans and notes payable 629,856 - Cash dividends (820,715) (1,538,841)Others (79) 60

Net cash provided by (used in) financing activities (458,438) (2,296,781)Net increase in cash and cash equivalents 23,101 (9,418)Cash and cash equivalents at beginning of year 733,396 742,814Cash and cash equivalents at end of year $ 756,497 733,396Supplemental disclosures of cash flow information:

Cash paid during the year for: Interest $ 98,752 99,075Income tax $ 121,414 302,919

Investing and financing activities not affecting current cash flows: Current portion of long-term loans $ - 267,500Property, equipment and deferred expense reclassified as non-current assets held for sale

$ 274,697

-

(Continued)


Notes to Financial Statements

December 31, 2011 and 2010 (expressed in thousands of New Taiwan dollars unless otherwise specified)

(1) Organization Chinese Maritime Transport Ltd. (the Company), previously named Associated Transport Inc., was incorporated as a company limited by shares on January 31, 1978, in the Republic of China. The Company’s common shares were listed on the Taiwan Stock Exchange (TSE). The main activities of the Company are bulk-carrier transportation through its 100%-owned overseas subsidiaries and domestic container hauling, vessel transportation, warehousing, and related business, and acting as the general sales agent for Saudi Arabian Airlines. The Company also owns investment companies to engage in the business of investment. As of December 31, 2011 and 2010, the number of employees hired by the Company was approximately 79 and 67, respectively.

(2) Summary of Significant Accounting Policies The financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language financial statements, the Chinese version shall prevail. The financial statements are prepared in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the Business Entity Accounting Act, the Regulation on Business Entity Accounting Handling, and accounting principles and practices generally accepted in the Republic of China. The significant accounting policies and measurement bases adopted in preparing the accompanying financial statements are summarized as follows: (a) Foreign currency transactions and translation

The Company’s reporting currency is the New Taiwan dollar. Non-derivative foreign currency transactions are recorded at the exchange rates prevailing at the transaction date. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are translated using the exchange rates on that date. The resulting unrealized exchange gain (loss) from such translations is reflected in the accompanying consolidated statements of income. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined. If the non-monetary assets or liabilities are measured at fair value through profit or loss, the resulting unrealized exchange gain (loss) from such translations is reflected in the accompanying statements of income. If the non-monetary assets or liabilities are measured at fair value through stockholders’ equity, the resulting unrealized exchange gain (loss) from such translations is recorded as a separate component of stockholders’ equity.

2



(Continued)

For long-term equity investments in foreign subsidiaries and investees, which are accounted for by the equity method, their foreign currency financial statements have to be translated into the Company’s reporting currency. Translation adjustments resulting from the translation of foreign currency financial statements into the Company’s reporting currency are accounted for as translation adjustment, which is a separate component of stockholders’ equity. The assets and liabilities accounts of foreign subsidiaries reported in foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing on the balance sheet date. Shareholders’ equity is translated at historical rates, with the exception of the beginning balance of retained earnings which is carried over from the previous year. Dividends are translated at the rate prevailing on the date of declaration. Revenues, costs and expenses are translated at the weighted-average exchange rates during the reporting period.

(b) Accounting estimates The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

(c) Distinction between current and non-current assets and liabilities

Cash or cash equivalents, and assets that will be held primarily for the purpose of being traded or are expected to be realized within 12 months after the balance sheet date are classified as current assets; all other assets shall be classified as non-current. Liabilities that will be held primarily for the purpose of being traded or are expected to be settled within 12 months after the balance sheet date are classified as current liabilities; all other liabilities shall be classified as non-current.

(d) Impairment of assets

The Company assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) other than goodwill may have been impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. The Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount. The Company reverses an impairment loss recognized in prior periods for assets other than goodwill if there is any indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.

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(Continued)

(e) Cash equivalents Cash equivalents represent commercial paper with a maturity of three months or less from the date of investment.

(f) Financial assets measured at fair value through profit or loss The main purposes of the Company’s financial instruments are selling or repurchasing in the short term. The derivative instruments held by the Company are classified in this account except if they are designated and effective hedging instruments. At initial recognition, financial instruments are evaluated at fair value and include the cost of acquisition or issuance. They are measured at fair value, and realized gain and loss on financial instruments are charged to current operations. A regular way purchase or sale of financial assets is recognized using transaction-date accounting.

(g) Notes and accounts receivable, other receivables and refundable deposits Notes and accounts receivable are the creditors’ rights from selling goods or rendering services. Other receivables are the receivables provided from non-operating income. Notes and accounts receivable, and other receivables are measured at amortized cost. The Company considers evidence of impairment for notes and accounts receivable, and other receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Notes and accounts receivable, and other receivables that are not individually significant are collectively assessed for impairment by grouping together notes and accounts receivable, and other receivables with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against notes and accounts receivable, and other receivables. When determining the amount of impairment loss, the estimated future cash flow will include any collateral involved and related insurance recoverable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.

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(Continued)

Before December 31, 2010, the allowance for doubtful accounts was based on the likelihood of collection of the Company’s accounts receivable balances. The amount of the allowance for doubtful accounts was determined based on an aging analysis, the collection history, the credit rating of the Company’s clients, and the internal credit policy of the Company.

(h) Long-term investments under equity method

Long-term investments are accounted for under the equity method when the percentage of ownership held by the Company and its subsidiaries equals or exceeds 20% or if the Company owns less than 20% of the investee’s common stock but has significant influence on the investee’s operations. The difference between the cost of the investment and the amount of underlying equity in net assets of an investee attributed to depreciable or amortizable assets is amortized over the estimated remaining economic years. The difference attributed to the carrying amount in excess of or lower than the fair value of assets is written off entirely when the difference disappears. The cost of investment in excess of the fair value of identifiable net assets is recognized as goodwill and is not amortized. The difference attributed to the fair value of identifiable net assets in excess of the cost of investment causes a proportional decrease in the carrying amount of non-current assets. When the carrying amount of non-current assets is decreased to zero, the remaining difference is recognized as extraordinary gain or loss.

Unrealized inter-company profits or losses resulting from transactions between the Company and its subsidiaries and investees accounted for under the equity method are deferred until realized, or are amortized based on the useful lives of the assets that give rise to such unrealized profits or losses. When the equity adjustment accounts of investee companies accounted under the equity method, including revaluation increments, cumulative translation adjustments and unrealized gain or loss on financial instruments, are changed, the change is reflected in those accounts and long-term equity investment under the equity method based on the percentage of ownership. Investees which the Company has the power to control are included in the Company’s consolidated financial statements. The Company prepares consolidated financial statements by quarter.

(i) Property and equipment, rental assets and depreciation

Property and equipment are stated at cost and can be revalued at government-declared values or indexes. Repairs and maintenance are charged to expenses as incurred; major renewals and improvements are capitalized and depreciated accordingly.

5



(Continued)

Excluding land, depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the respective assets. When the property and equipment have reached the end of their estimated useful lives but are still in use, the remaining cost is depreciated using the same method over the estimated remaining useful lives of the assets. The useful lives of respective assets are summarized as follows: - Buildings: 24~55 years. - Building improvements: 3~15 years. - Transportation equipment: 2~20 years. - Furniture, fixtures and other equipment: 3~5 years.

Property and equipment leased to other parties under operating leases are classified as rental assets. The rental income is recorded as non-operating income after the related depreciation is accounted for as a deducted item.

(j) Non-current assets held for sale Non-current assets and groups of assets and liabilities which comprise disposal groups are classified as “held for sale” when all of the following criteria are met: a decision has been made to sell; the assets that are available for immediate sale in their present condition are subject only to terms that are usual and customary for sales of such assets or disposal groups; and their sale within one year must be highly probable. Non-current assets or disposal groups classified as held for sale are measured at the lower of their book value or fair value, less costs to sell. Non-current assets or disposal groups classified as held for sale are not depreciated, amortized or depleted. Non-current assets or disposal groups classified as held for sale and the related liabilities are shown as separate line items on the balance sheet. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be recognized.

An impairment loss is recognized for any initial or subsequent write-down of the assets or disposal group to fair value less costs to sell in the income statement. A gain from any subsequent increase in fair value less costs to sell of an asset or a disposal group shall be recognized, but not in excess of the cumulative impairment loss that has been recognized previously in accordance with the ROC Statement of Financial Accounting Standards (SFAS) No. 35 “Impairment of Assets”.

(k) Intangible assets

Other than an intangible asset acquired by way of a government grant, which should be measured at its fair value, an intangible asset shall be measured initially at cost. After initial recognition, an intangible asset shall be measured at its cost plus revaluation increment revalued in accordance with the regulations, less any accumulated amortization and any accumulated impairment losses.

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(Continued)

The amortizable amounts of intangible assets are determined after deducting residual values from their original costs. Amortization is made on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. An intangible asset with an indefinite useful life shall not be amortized. The estimated useful lives for the computer software are 3 years. The residual value, amortization period, and amortization method for an intangible asset with a definite useful life shall be reviewed at least at each fiscal year-end. The useful life of an intangible asset that is not being amortized shall be reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. Any changes shall be accounted for as changes in accounting estimates.

(l) Deferred expenses Dry-docking expenses incurred are capitalized and taken directly to deferred expenses and amortized over 30 to 36 months.

(m) Bonds payable

These are measured at amortized cost using the effective interest method. At initial recognition, the original cost of financial instruments should include the cost of acquisition or issuance. They are evaluated at fair value.

(n) Employee retirement plan

The Company has established an employee noncontributory defined benefit retirement plan covering all regular employees under the Labor Standards Law. According to this plan, employees are eligible for retirement or are required to retire after meeting certain age or service requirements. The retirement benefits are lump-sum payments and are based on the years of service and the average salary for the six months before the employee’s retirement. Each employee will earn two months of salary for each of the first 15 years of service and one month of salary for each service year from the sixteenth year on. The maximum amount is 45 months of salary. To meet the above obligation, the Company makes a monthly cash contribution of 9% of salaries and wages to a pension fund maintained with Bank of Taiwan (originally the “Central Trust of China”). Payment of employee retirement benefits will be paid by the pension fund first and then by the Company if the fund is insufficient. For the above defined benefit pension plan the Company has its pension plan actuarially valued on the balance sheet date and recognizes the net periodic pension costs. As a result, the excess of the accumulated benefit obligation over the fair value of plan assets is recognized as pension obligation, and the excess of plan assets over net periodic pension cost is recognized as prepaid pension on the balance sheet. The net periodic pension costs include the service costs and amortization of net unrecognized transition obligations over 15 years.

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(Continued)

Under the Labor Pension Act, a defined contribution pension plan should be implemented for all new employees and for any employees employed before the enforcement date (July 1, 2005) of that Act and who choose the new plan. For the employees who are covered under the defined contribution pension plan, the Company has made a monthly cash contribution of 6% of salaries and wages to employees’ individual pension fund accounts at the Bureau of Labor Insurance based on the Labor Pension Act, and the contribution was recorded as pension expenses in the accompanying statements of income.

(o) Revenue and cost recognition

Freight revenue is recognized after providing transportation service. The rental income of vessels is recognized in accordance with the rental contract. Operating cost is recognized as incurred.

(p) Employees’ bonuses and directors’ and supervisors’ remuneration Employees’ bonuses and directors’ and supervisors’ remuneration based on the ROC Company Act and the Company’s articles of incorporation and appropriated after January 1, 2008, are accounted for by Interpretation (96) 052 issued by the ARDF. The Company and its domestic subsidiaries estimate the amount of employees’ bonuses and directors’ and supervisors’ remuneration according to the Interpretation and recognize it as expenses. Differences between the amount approved in the shareholders’ meeting and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the year of earnings distribution.

(q) Income tax The Company’s income tax is calculated based on accounting income. The amount of deferred tax liabilities or assets is calculated by applying the provisions of enacted tax law to determine the amount of tax payable or refundable, currently or in future years. The tax effects of taxable temporary differences are recorded as deferred tax liabilities. The tax effects of deductible temporary differences are recognized as deferred tax assets. An allowance is provided for deferred tax assets that may not be realized in the future. Deferred tax assets or liabilities are classified as current or noncurrent based on the classification of the asset or liability that resulted in the deferred item or, on certain transactions not directly related to an asset or liability, on the timing of the expected reversal date. The 10% surtax on undistributed earnings is recorded as current income tax expense after the resolution to appropriate retained earnings is approved in a stockholders’ meeting.

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(Continued)

(r) Earnings per share Earnings per share of common stock are computed based on the weighted-average number of common shares outstanding during the period. Earnings per share for the prior period are retroactively adjusted to reflect the effects of new shares issued by transferring capital surplus and retained earnings. Employee stock bonuses which have not yet been approved by the stockholders’ meeting are potential common shares. Only basic earnings per share are disclosed if there is no dilution effect. Otherwise, both basic and diluted earnings per share are disclosed. For the purpose of calculating diluted net income per share, the potential common shares are deemed to have been converted into common stock at the beginning of the period, and the effect on net income of the additional common shares outstanding is considered accordingly.

(s) Operating segment information The operating segment information is disclosed in the consolidated financial statements but not disclosed in the separate financial statements.

(3) Changes in Accounting Policy and Their Influence (a) Effective from January 1, 2011, the Company adopted the amended SFAS No. 34 “Financial

Instruments: Recognition and Measurement”. The Company recognizes, measures, and assesses the impairment of receivables in accordance with SFAS No. 34. The accounting treatments by a debtor for modification of the terms of obligations when the debtor has financial difficulties are also in accordance with SFAS No. 34. The change had no significant effect on the Company’s financial statements for the year ended December 31, 2011.

(b) Effective from January 1, 2011, the Company adopted SFAS No. 41 “Operating Segments.” In

accordance with SFAS No. 41, an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. The Company determines and presents operating segments based on the information that is internally provided to the chief operating decision maker. The operating segment information is disclosed in the consolidated financial statements but not disclosed in the separate financial statements. This Standard supersedes SFAS No. 20 “Segment Reporting.” This change in accounting principle had no effect for the year ended December 31, 2011.

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(Continued)

(4) Cash and Cash Equivalents

December 31, 2011 December 31, 2010 Petty cash, checking accounts and demand deposits $ 554,455 573,319 Time deposits 202,042 130,100 Cash equivalent – commercial paper - 29,977 $ 756,497 733,396

(5) Financial Instruments

The Company did not invest in any derivative financial instruments during the years ended December 31, 2011 and 2010. The non-derivative financial instruments held by the Company as of December 31, 2011 and 2010, were as follows:

December 31, 2011 December 31, 2010 Financial assets measured at fair value through

profit or loss:

Financial assets held for trading: Listed stocks $ 443 4,199

As of December 31, 2011 and 2010, the unrealized gain on financial assets measured at fair value through profit or loss from changes in fair value amounted to $50 and $440, respectively.

(6) Notes and Accounts Receivable – Third Parties

December 31, 2011 December 31, 2010 Notes receivable $ 1,323 8,590 Accounts receivable 72,815 57,573 74,138 66,163 Less: allowance for doubtful accounts (1,790) (1,790) $ 72,348 64,373 As of December 31, 2011 and 2010, the Company’s notes and accounts receivable were not factored with a bank or pledged as collateral. The notes and accounts receivable which are realizable within 1 year are not discounted, and the book value is assumed to be the approximate fair value.

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(Continued)

(7) Long-term Equity Investments under Equity Method

December 31, 2011 December 31, 2010 % Amount % Amount Chinese Maritime Transport (Hong Kong) Limited

(CMT HK)

100.00 $ 8,454,753

100.00

7,355,741

Hope Investment Ltd. (HIL) 100.00 1,266,807 100.00 1,248,868 CMT Logistics Co., Ltd. (CMTL) 100.00 1,030,414 100.00 653,633 Taiwan Navigation Co., Ltd. (Taiwan Navigation) 7.083 917,621 5.45 741,192 Mo Hsin Investment Ltd. (MHI) 100.00 125,831 100.00 197,174 Associated Transport Inc. (ATI) 100.00 280,504 100.00 227,036 AGM Investment Ltd. (AGM) 100.00 67,812 100.00 208,226 Global Energy Maritime Co., Ltd. (GEM) 26.00 52,002 - - Chinese Maritime Transport (S) Pte. Ltd. (CMTS) 1.31 10,129 100.00 372,596 Others - 20,958 - 20,947 $ 12,226,831 11,025,413

(a) In order to engage in bulk-carrier transportation, the Company invested in CMTS in Singapore in

March 1994 (with current paid-in capital amounting to US$13,050,000) and CMT HK in Hong Kong in June 2004 (with current paid-in capital amounting to US$1,050,000). CMTS and CMT HK invested in their respective subsidiaries to engage in the business of bulk-carrier transportation. Those subsidiaries own and operate 5 cape-sized bulk carriers with 880 thousand DWT in total.

(b) In order to extend bulk-carrier transportation, the Company invested in Taiwan Navigation by itself and through its subsidiaries AGM and HIL. As of December 31, 2011 and 2010, the percentage of ownership held by the Company and its subsidiaries was 24.638% and 23.000%. Total market price of the shares based on the closing price of December 31, 2011 and 2010, amounted to $3,233,523 and $3,570,372, respectively. As of December 31, 2011 and 2010, the long-term equity investment in Taiwan Navigation was as follows: December 31, 2011 December 31, 2010 Company Carrying value % Carrying value % The Company $ 917,621 7.083 741,192 5.445 HIL 1,992,017 17.141 1,990,078 17.141 AGM 40,772 0.414 39,336 0.414 $ 2,950,410 24.638 2,770,606 23.000

(c) Due to the excess of working capital, CMTS decreased its capital and refunded $570,961 (US$20,000,000) to the shareholders in the four quarter of 2011. Associated Motor Co., Ltd. (AMC) liquidated in the second quarter of 2010. The Company received a refund of $3,402 in cash in accordance with the percentage of ownership. As of December 31, 2010 the above receivable was collected.

11



(Continued)

(d) Due to the excess of working capital, CMT HK decreased its capital and refunded $402,597 (US$13,950,000) to the shareholders in the year ended December 31, 2011. The refund also resulted in exchange losses amounting to $53,838. As of December 31, 2011, the above receivable had been collected.

(e) For group operation purposes, CMT HK had obtained 16,383,000 shares of CMTS for

US$12,900,000 as of April 1, 2011. The Company did not subscribe new issued shares in accordance with its original stockholding percentage.

(f) On December 31, 2011, CMTL adjusted its land revaluation increment according to the present

value of land as assessed and announced by municipal and county (city) government and the Company adjusted long-term investment amounting to $371,127 under the equity method.

(g) On June 14, 2010, the Company’s board of directors resolved to enter into an agreement with CPC

Corporation, Taiwan, and U-Ming Marine Transport Corp. to set up a joint venture company, Global Energy Maritime Co., Ltd. (GEM), to engage in the oil tanker business. GEM had been incorporated on March 24, 2011, and approved by the Ministry of Economic Affairs, R.O.C. According to the agreement, the Company owns 26% of the shares of GEM. As of December 31, 2011, the investment in GEM was $54,600.

(h) Net investment income on long-term equity investments accounted for under the equity method

for the years December 31, 2011 and 2010, amounted to $1,257,396 and $1,985,072, respectively.

(i) The Company received cash dividends for the years ended December 31, 2011 and 2010, amounting to $432,217 and $1,738,384, respectively, stated as deduction from long-term equity investments. As of December 31, 2011 and 2010, the above receivable was collected.

(j) Due to the excess of working capital, MHI and AGM decreased their capital and refunded $71,000

and $142,800, respectively, in the third quarter of 2011. As of December 31, 2011, the above receivable was collected

(8) Property and Equipment / Rental Assets (a) The Company’s land was revalued in 1993 and 2011 according to the present value of land as

assessed and announced by the municipal and county (city) government. The revaluation was as follows:

December 31, 2011 December 31, 2010 Revaluation:

Property and equipment $ 337,251 211,473 Rental assets 16,715 18,312

Revaluation increment, gross 353,966 229,785 Less: provision for land value increment tax (76,768) (69,000) Revaluation increment, net $ 277,198 160,785

12



(Continued)

(b) The rental assets are summarized as follows:

December 31, 2011 December 31, 2010 Land $ 2,379 46,479 Buildings and improvements 3,769 15,275 Revaluation increment – land 16,715 18,312 Cost and revaluation increment 22,863 80,066 Less: accumulated depreciation (2,152) (6,242) Rental assets, net $ 20,711 73,824 Rental income was received in accordance with the rental contracts, which were renewed periodically. The rental income (net of the depreciation expense which was recorded as others) for the years ended December 31, 2011 and 2010, amounted to $4,994 and $4,653, respectively. According to the existing rental contracts, the expected rental income to be received in future years is as follows:

Period Amount 2012.01.01~2012.12.31 $ 1,200

(c) The Company entered into an agreement to sell a bulk-carrier to a related party amounting to

US$13,500, and completed the ownership transference on January 13, 2012. The book value of these transportation equipment and its related deferred expense amounted to $248,899 and $22,288, respectively, and the sum of 271,187 (US$8,393) was reclassified as non-current assets held for sale. The transactions are summarized in notes 17 and 20.

(d) The Company entered into agreement to sell the land and building to a related party amounting to

$4,500, and completed the ownership transference on January, 2012. The book value of these land and building amounted to $3,325 and $185, respectively, and the sum of $3,510 was reclassified as non-current assets held for sale. The transactions are summarized in notes 17 and 20.

(e) The pledge information is summarized in note 18.

(9) Short-term Loans and Short-term Note Payable

December 31, 2011 December 31, 2010 Credit loans $ 280,000 - Commercial paper payable, net 349,856 - $ 629,856 - Unused credit lines $ 1,475,734 1,550,000 Range of interest rates 0.85%~1.46% 0.76%~0.90%

13



(Continued)

The assets pledged for commercial paper payable as of December 31, 2011 and 2010 are summarized in note 18.

(10) Long-term Loans

Bank Usage and redemption period December 31, 2011

December 31, 2010

Mega International Commercial Bank Working capital (five installments,

quarterly, 2010.08~2011.08) $ - 240,000

Industrial Bank of Taiwan Working capital (seven installments, semi-annually, 2008.11~2011.11)

-

27,500

- 267,500 Less: current portion - (267,500) $ - - Range of interest rates during the year 1.23%~1.80% 1.23%~1.58%

The assets pledged as of December 31, 2011 and 2010, to secure long-term loans are summarized in note 18.

(11) Bonds Payable The Company issued secured bonds at face value. The interest is calculated and paid annually from the date of issuance. The bonds payable on December 31, 2011 and 2010, were as follows: Guarantee

bank Interest rate

Issuance date

Duration

December 31, 2011

December 31, 2010

The first secured bonds payable

Shanghai Commercial Bank

2.90% September 2008

Redeemable five years after date of issuance

$ 1,000,000 1,000,000

The second secured bonds payable

Maga International Commercial Bank

2.21% May 2009 Redeemable five and a half years after date of issuance

1,000,000 1,000,000

〃 Cathay United Bank


500,000 500,000

〃 Shanghai Commercial Bank


500,000

500,000

$ 3,000,000 3,000,000

14



(Continued)

The interest expenses for the above bonds payable were $73,200 and $75,626 for the years ended December 31, 2011 and 2010, respectively.

(12) Pension (a) The Company made an actuarial valuation of its pension plan using December 31, 2011 and 2010,

as the measurement dates. According to the actuarial reports, the reconciliation of the funded status and prepaid pension was as follows:

December 31, 2011 December 31, 2010 Benefit obligations:

Vested benefit obligation $ (53,519) (45,844) Non-vested benefit obligation (9,604) (14,483) Accumulated benefit obligation (63,123) (60,327) Additional benefits based on future salary

increase

(6,730)

(4,297) Projected benefit obligation (69,853) (64,624)

Fair value of plan assets 36,409 37,214 Funded status (33,444) (27,410) Unrecognized pension loss 33,888 32,426 Additional accrued pension liabilities (27,158) (28,129) Prepaid pension cost/Accrued pension liabilities $ (26,714) (23,113)

(b) The net periodic pension costs were as follows:

2011 2010 Service cost $ 2,118 3,659 Interest cost 981 2,268 Actual return on plan assets (530) (1,431) Amortization and deferral 3,724 2,765 Additional manager pension - 1,977 Curtailment gain of pension plan - (3,173) Net pension costs of defined benefit pension plan $ 6,293 6,065 Pension costs of defined contribution pension plan $ 2,908 2,177

(c) Actuarial assumptions were as follows:

2011 2010 Discount rate 1.625% 1.75% Future salary increase rate 3.50% 3.50% Expected long-term rate of return on plan assets 1.625% 1.75%

15



(Continued)

(d) As of December 31, 2011 and 2010, the vested benefit amounted to $56,956 and $49,543, respectively.

For the year ended December 31, 2011 and 2010, the Company’s actual payment of employee pensions amounted to $3,056 and $70,940. Payment for the year ended December 31, 2010, amounting to $65,476 was paid from the pension fund maintained with Bank of Taiwan, and the remaining $5,464 was recorded as periodic expense.

(13) Stockholders’ Equity

(a) Common stock

As of December 31, 2011 and 2010, the authorized capital was $3,600,000, and the total issued common stock amounted to $2,564,736, at par value of $10 (New Taiwan dollars) per share.

(b) Capital surplus and appropriation of retained earnings

(i) Capital surplus

From the year 2011, in pursuant to the ROC Company Act, capital surplus should be used to offset a deficit first and then converted the realized capital surplus into capital or it should be distributed as cash dividends. The aforementioned realized capital surplus that was generated from the excess of the issuance is priced over the par value of capital stock and the donations acquired for the year 2011. According to the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, capital increases by transferring paid-in capital in excess of par value should not exceed 10% of total common stock outstanding. In addition, capital increases by transferring paid-in capital in excess of par value can only commence in the following year. As of December 31, 2011 and 2010, the Company had recognized an increase in its capital surplus to reflect the change in percentage of ownership of investees amounting to $42,503. The capital surplus mentioned above which is not mentioned in Article 241 of the ROC Company Act cannot be used to increase common stock.

(ii) Legal reserve

According to the amended Company Act which was announced in January 2012, the Company must retain 10% of its annual income as a legal reserve until such retention equals the amount of paid-in capital. If a company has no accumulated deficit, it may, in pursuant to a resolution approved by the stockholders meeting, distribute its legal reserve by issuing new shares or cash for the portion in excess of 25% of the paid-in capital.

16



(Continued)

(iii) Appropriation of retained earnings and dividend policy According to the Company’s articles, 10% of annual net income (less payment of corporate income tax and losses of prior years, if any) shall be appropriated as legal reserve. The remaining balance, if any, should be distributed as follows:

- 0.5% ~2% as employees’ bonuses. - Remuneration to directors and supervisors not exceeding 2%. - The remainder and the accumulated unappropriated earnings of prior years are

distributable as dividends to stockholders. The distribution rate is based on the proposal of the Company’s board of directors and approved in the stockholders’ meeting.

Dividends are paid in cash or stock from retained earnings, and the amount of cash dividends should not be less than 10% of total dividends. However, if the cash dividend per share is less than $0.1 (New Taiwan dollar), a stock dividend will be paid instead. According to SFB regulations, when the Company has a net debit balance of the stockholders’ equity account, there must be an equal special reserve set aside from current net income or unappropriated earnings of prior years. When the debit balance of the stockholders’ equity account is reversed, the reversal of the amount of special reserve for distribution is permitted in the following year. The Company estimates the amount of employees’ bonuses and directors’ and supervisors’ remuneration according to the ROC Company Act and the Company’s articles of incorporation in preparing the financial statements. The appropriated percentages of employees’ bonuses and directors’ and supervisors’ remuneration were 1% and 1%, respectively, of net income after deducting the legal reserve. The Company recognized employees’ bonuses and directors’ and supervisors’ remuneration in total amounting to $18,074 and $19,290 for the years ended December 31, 2011 and 2010, respectively. If shares of stock are to be distributed as employees’ bonuses, the number of shares will be based on the closing price of the day before the shareholders’ meeting and considering the ex-rights and ex-dividend effects. Differences between the amount approved in the shareholders’ meeting and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the following year.

(iv) Based on the resolutions approved by the stockholders during the annual stockholders’ meetings held on April 16, 2010, and June 9, 2011, appropriations of cash dividends were $6 (New Taiwan dollars) and $3.2 (New Taiwan dollars) per share, amounting to $1,538,841 and $820,715, respectively. Furthermore, the earnings distributions to employees, directors and supervisors for the fiscal years 2010 and 2009 were as follows:

17



(Continued)

2010 2009 Employees’ bonuses – cash $ 9,645 12,923 Directors’ and supervisors’ remuneration 9,645 25,847 $ 19,290 38,770 The above earnings distribution had no difference from the resolution by the meeting of the board of directors. The related information about earnings distribution can be queried in the Market Observation Post System after the stockholders’ meetings.

(14) Income Tax (a) The Company is subject to income tax at a statutory rate of 17% in 2011 and 2010, respectively.

The Company is also subject to the “Income Basic Tax Act” to calculate income tax. The Company’s income tax expense for the years ended December 31, 2011 and 2010, was as follows:

2011 2010 Current income tax expense $ 19,867 5,471 10% surtax on unappropriated earnings 14,377 104,583 Deferred tax expense (benefit):

Increase in overseas investment income under the equity method

42,816

74,061

Deferred tax effect resulting from change in income tax rate

-

(7,932)

Others (638) 6,082 Income tax expense $ 76,422 182,265

18



(Continued)

(b) The differences between “expected” income tax computed by applying the statutory income tax rates and income tax expense are summarized as follows:

2011 2010 “Expected” income tax $ 183,689 359,450 10% surtax on unappropriated earnings 14,377 104,583 Tax exemption for long-term investment income

under the equity method (170,942)

(263,401)

Dividend revenue-overseas 33,150 - Non-deductible (taxable) securities trading gain (9) (26,537) Amount of basic income tax in excess of regular

income tax -

6,394

Unrealized loss (gain) on financial instruments and other

16,157

1,776

Income tax expense $ 76,422 182,265

(c) As of December 31, 2011 and 2010, deferred income tax assets (liabilities) were as follows:

December 31, 2011 December 31, 2010 Deferred tax assets:

Foreign currency translation adjustments $ 67,659 132,388 Unrealized exchange loss – net - 114 67,659 132,502

Deferred tax liabilities: Investment income under equity method – overseas (116,877) (74,061) Accrued pension liabilities and other (645) (1,397) (117,522) (75,458)

Deferred income tax liabilities – net $ (49,863) 57,044

(d) As of December 31, 2011 and 2010, deferred tax assets (liabilities) stated above were classified as follows:

December 31, 2011 December 31, 2010 Deferred tax assets – current $ - 114 Deferred tax assets – non-current - 56,930 Deferred tax liabilities-current (3) - Deferred tax liabilities – non-current (49,860) - Deferred tax assets (liabilities) – net $ (49,863) 57,044

19



(Continued)

The subsidiaries of the Company, CMT HK and CMTS, did not appropriate their earnings before December 31, 2009, and appropriated 25% of periodic earnings after January 1, 2010 according to their dividend distribution policy. Besides, the Company does not expect to dispose the stock investments of CMT HK and CMTS in the foreseeable future, and can control the timing of the reversal of temporary difference arising from the difference between the book value and the tax basis of its long-term equity investment in its foreign subsidiaries (CMT HK and CMTS) and unappropriated earnings. Therefore, the temporary difference is not expected to reverse in the foreseeable future and a deferred tax liability should not be recognized.

(e) The Company’s income tax returns have been examined by the tax authorities through 2009. (f) Information on imputation credit account (ICA)

December 31, 2011 December 31, 2010Unappropriated earnings retained after

January 1, 1998 $ 5,372,584

6,156,861

ICA balance $ 477,391 488,380

2011 2010 Creditable ratio for earnings distribution to shareholders resident in the ROC

9.27% (estimated)

10.68% (actual)

(15) Earnings per Share

2011 2010 Before

income taxAfter

income taxBefore

income tax After

income tax Basic earnings per share: Net income $ 1,080,523 1,004,101 2,114,414 1,932,149Weighted-average number of shares

outstanding (thousands) 256,474

256,474

256,474

256,474

Basic earnings per share (dollars) $ 4.21 3.92 8.24 7.53Diluted earnings per share: Net income $ 1,080,523 1,004,101 2,114,414 1,932,149Weighted-average number of shares

outstanding (thousands) 256,474

256,474

256,474

256,474

Effect of dilutive potential common stock: Employees bonuses 294 294 192 192

256,768 256,748 256,666 256,666Diluted earnings per share (dollars) $ 4.21 3.91 8.24 7.53

20



(Continued)

(16) Information about Financial Instruments

(a) The Company did not invest in derivative financial instruments during the years ended December 31, 2011 and 2010. The book values of non-derivative financial instruments with a short maturity approximate their fair values. As of December 31, 2011 and 2010, the fair values of other non-derivative financial instruments were as follows:

December 31, 2011 December 31, 2010

Non-derivative financial instruments Carrying amount

Fair value

Carrying amount

Fair value

Financial assets:

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

$ 443

443

4,199

4,199

Other non-current financial assets 100,000 100,000 - - Financial liabilities:

Long-term loans - - 267,500 267,500Bonds payable 3,000,000 3,000,000 3,000,000 3,000,000

Off-balance-sheet financial instruments: Guarantee for bank loans - 4,694,309 - 2,524,284

(b) The following methods and assumptions were used in estimating fair values:

(i) The book value of short-term financial instruments is considered to be the fair value because

of the short-term nature of these instruments, and the book value method is considered to be a reasonable basis to assess the fair value. Such method is applicable to cash and cash equivalents, notes and accounts receivable or payable, other current financial assets, accrued expenses, and other payable.

(ii) If public quoting of financial assets and liabilities is available, then the quoted price will be

the fair value. If market value is not available, an assessment method will be used. The assumptions used by the financial market traders for similar financial instruments when quoting their prices are used as a reference. The terms of similarity include the credit rating of the debt, the method of computing interest expense for the remaining period of contracts, the remaining period for payment of principal, and the currency.

(iii) The fair values of other non-current financial assets was based on the present value of future

cash flow, and the discount rates were the interest rate of similar loan agreements which the Company could obtain. The fair values approximate their book values on the balance sheet date.

(iv) The fair values of the long-term loans were based on the present value of future cash flow,

and the discount rates were the interest rate of similar loan agreements which the Consolidated Company could obtain. The fair values approximate their book values on the balance sheet date.

21



(Continued)

(v) The fair values of bonds payable are based on quoted market prices or assessment method.

However, the fair values are not expected to equal future cash outflow.

(vi) The fair values of bank loan guarantees are based on the loan contracts.

(c) The fair value of the financial instruments evaluated by the Company under public quoting or an assessment method is summarized as follows: December 31, 2011 December 31, 2010 Public

quote valueAssessment value

Public quote value

Assessment value

Financial assets:

Cash and cash equivalents $ 756,497 - 733,396 - Financial assets measured at fair value through profit or loss – current

443

-

4,199

-

Notes and accounts receivable (including related parties)

-

166,891

-

155,729

Other current financial assets - 255 - 5,008Other financial assets – non-current - 100,000 - -

Financial liabilities: Short-term loans and note payable - 629,856 - - Notes and accounts payable (including related parties)

-

95,838

-

124,412

Accrued expenses and other payable - 126,772 - 210,122Long-term loans - - - 267,500Bonds payable - 3,000,000 - 3,000,000

For the years ended December 31, 2011 and 2010, the net amount resulting from change in fair values determined by public quoting or an assessment method amounted to a net loss of $347 and a net gain of $155,767, respectively.

(d) Information about significant financial risk (i) Market risk

The equity securities held by the Company, other than those accounted for under equity method, are classified as financial assets measured at fair value through gain or loss. As these assets are measured at fair value, the Company has risk exposure related to changes in fair value in an equity securities market.

22



(Continued)

(ii) Credit risk

The primary potential credit risk is from financial instruments like cash, cash equivalents, equity securities accounted for other than under the equity method, and accounts receivable. The Company’s cash deposits are maintained with different financial institutions. Cash equivalents represent investments in commercial paper with a maturity of three months or less from the date of investment. Equity securities accounted for other than under the equity method were funds and listed stock issued by companies with good credit ratings. The Company manages credit risk exposure related to each financial institution and believes that there is no significant concentration of credit risk of cash and cash equivalents. The aggregation of sales to the Company’s major customers exceeding 10% years the Company’s total sales accounted for 75% and 72% of the total net sales for the years ended December 31, 2011 and 2010, respectively. In order to reduce credit risk, the Company assesses the financial status of the customers and the possibility of collection of receivables in order to estimate an adequate allowance for doubtful accounts on a regular basis. The customers have had a good credit and profit record. The Company has never suffered a significant credit loss.

(iii) Liquidity risk

As the capital and working capital of the Company are sufficient to fulfill all contract obligations, there is no liquidity risk related to unfulfilled contract obligations. The securities investments by the Company have quoted prices and could be publicly sold at the approximate market price.

(iv) Cash flow risk from changes in interest rates

The bonds payable are fixed-rate debts. Changes in market interest rates have no effect on future cash flow. The Company’s short-term loans are based on floating interest rates. Changes in the prevailing market rate will affect the interest on short-term loans and cause future cash flows to fluctuate. The Company will increase its cash outflow by $1,575 in the following year for every 0.25% increase in the market rate.

23



(Continued)

(17) Related-party Transactions (a) Names of related parties and their relationship with the Company

Related Party Relationship CMTS Subsidiary company CMT HK " HIL " Associated Transport Inc. (ATI) " Chinese Maritime Transport Logistics, Ltd. (CMTL)

"

AG Prosperity Transport Ltd. (APT) Subsidiary company of ATI China Peace Shipping Ltd. (CPE) Subsidiary company of CMT HK China Pioneer Shipping Ltd. (CPN) " China Partners Shipping Ltd. (CPT) " China Triumph Shipping Ltd. (CTU) " China Trade Shipping Ltd. (CTD) " CMT Chartering Ltd. (CCL) " Orient Overseas Container Line (Taiwan) Limited (OTWL)

Related party in essence

Orient Overseas Container Line Logistics (Taiwan) Ltd. (OLTWL)

"

Associated International Inc. (AII) AII’s chairman of the board of directors is the same as the Company’s, and AII also is a director of the Company

CMT Land Development Inc. (CMD) Subsidiary company of AII Associated Development Inc. (ADI) " The directors, supervisors, chief executive officer,

and executive vice president The Company’s main management

(b) Summary of significant transactions with related parties

(i) Freight revenue

2011 2010

Amount % of freight

revenue

Amount % of freight

revenue OTWL $ 895,767 54 801,837 51 CCL 168,023 10 50,042 3 OLTWL 56,142 3 118,736 8 Other 107 - 353 - $ 1,120,039 67 970,968 62

24



(Continued)

The collection periods of inland trucking transactions within 30 to 45 days after consignment, and the shipping transaction are similar to those of the ordinary customers. There are different terms and conditions in the service contracts with CCL. The service fee were charges depending on the cash and operational fund demands of CCL. If the contracts have similar terms and conditions, the selling prices for related parties and ordinary customers are not significantly different. Accounts receivable resulting from the above transactions were as follows: December 31, 2011 December 31, 2010 Amount % Amount % OTWL $ 83,732 50 81,430 52 OLTWL 10,799 7 9,904 7 Other 12 - 22 - $ 94,543 57 91,356 59

(ii) Freight expense

2011 2010

Amount

% of freight expense

Amount

% of freight expense

ATI $ 1,337,248 100 1,196,543 100 The Company engaged related parties to handle container hauling transport. The prices were similar to market prices, and the service charges were paid depending on the cash and operational fund demands of the subsidiaries. Accounts payable resulting from the above transactions were as follows: December 31, 2011 December 31, 2010 Amount % Amount % ATI $ 92,939 97 117,310 94

(iii) Ship management, temporary debits, and temporary credits

The Company charged CMTS and its subsidiaries and CMT HK and its subsidiaries a ship management fee (US$10,000 per vessel per month) and recorded it as operating revenue. The Company charged a 1.25% commission on the rental revenue of the ships that CMTS and its subsidiaries and CMT HK and its subsidiaries chartered to their clients. The ship management fee and commission income earned in 2011 and 2010, were as follows:

25



(Continued)

2011 2010 Ship management fee:

CMTS and its subsidiaries $ - 4,717 CMT HK and its subsidiaries 19,989 15,176

$ 19,989 19,893 Commission income:

CMT HK and its subsidiaries $ 16,820 7,046 The Company received temporary credits to pay various expenses in the ROC on behalf of CMTS and CMT HK. The advance receipts recorded as other current liabilities are summarized as follows: December 31, 2011 December 31, 2010 CMTS and its subsidiaries (note) $ - 4,954 CMT HK and its subsidiaries 8,552 9,102 $ 8,552 14,056 Note: CMT HK owned 98.69% of the common shares of CMTS since April 1, 2011. Therefore, CMTS is included in CMT HK and its subsidiaries thereafter.

(iv) Operating expenses The Company’s rental payment to related parties is summarized below: 2011 2010

Amount

% of operatingexpenses

Amount

% of operating expenses

CMD $ 4,330 3 4,473 2 AII - - 1,862 1 $ 4,330 3 6,335 3 The Company entered into rental agreements with related parties from November 2008 to December 2014. The prices were similar to market prices and paid monthly.

26



(Continued)

(v) Purchase of property and equipment

i) The Company sold transportation equipment to ATI amounting to $78. The gain was $0. As of December 31, 2011, the above receivable had been collected.

ii) The Company sold transportation equipment and other equipment to ATI and CMD

amounting to $40,000 and $880, respectively. The gains were $0. As of December 31, 2010, the above receivable had been collected.

iii) The Company with the subsidiaries of CMTS, APT, to buy its bulk-carrier. The purchase

price was $349,290 (US$ 10,900). The ownership was transferred on September 2, 2010, and the total price has been paid.

iv) The Company entered into an agreement to sell a bulk-carrier to CPT amounting to

US$13,500. The transaction is summarized in notes 8 and 20.

v) The Company entered into an agreement to sell the land and building to ADI amounting to $4,500. The transaction is summarized in notes 8 and 20.

(vi) Financing

i) The Company’s loans to related parties were as follows:

2011 Maximum

balance Ending balance

Interest rate

Interest income

Interest receivable

ATI $ 100,000 100,000 1.16% 19 -

2010 Maximum

balance Ending balance

Interest rate

Interest income

Interest receivable

HIL $ 530,000 - 1.512%~2.313% 4,836 - APT 3,000 - 2.7% 20 - $ - 4,856 -

The interest income of above financing is according to the agreement rate between the company and related parties. ATI received financing from the company for year ended December 31, 2011, according to the contract period, the receivable was recorded as other non-current financial assets.

27



(Continued)

ii) For operating needs, the Company received interest-free financing from CMT HK for the years ended December 31, 2011 and 2010, amounting to $423,920 (US$14,000,000) and $609,800 (US$20,000,000), respectively. As of December 31, 2011 and 2010, the above payable had been paid.

(vii) Guarantees

The Company provided the following guarantees for related parties: Guarantee Subject December 31, 2011 December 31, 2010 CPE Bank loans $ 335,654 381,603 CPN Guarantee for payment of bulk-

carrier construction 462,981

445,398

CPT " 384,556 369,951 CTU " 1,948,518 563,666 CTD " 1,362,600 563,666 ATI Bank loans 200,000 200,000 $ 4,694,309 2,524,284

(viii) Salaries and remuneration of main management

The Company paid salaries and remuneration to the directors, supervisors, chief executive officer, and executive vice president in 2011 and 2010 as follows: 2011 2010 Salaries $ 20,595 20,485 Incentives 5,962 6,703 Transportation allowance 265 310 Employees’ bonus 2,880 2,095 Note: The employees’ bonus for 2011 was an estimate. Please see note 13.

(18) Pledged Assets

Assets Subject December 31, 2011 December 31, 2010

Refundable deposits Guarantee for letters of credit and others

$ 8,930 8,930

Property and equipment – land and buildings

Short-term and long-term loansand credit lines secured

254,997 253,944

Rental assets – land and buildings

Short-term and long-term loansand credit lines secured

-

2,862

$ 263,927 265,736

28



(Continued)

(19) Commitments and Contingent Liabilities (a) According to the existing lease contract for office space, the contract will expire in December 2014.

The future rental commitments were as follows:

Period Amount 2012.01.01~2012.12.31 $ 3,985 2013.01.01~2013.12.31 3,985 2014.01.01~2014.12.31 3,985 $ 11,955

(b) See note 17(b)(vii) for guarantees provided for related parties.

(c) In order to extend business scale, subsidiaries of CMT HK took over a bulk-carrier construction contract from third parties on September 28, 2007. Additionally, on April 9, 2010, the subsidiaries entered into a bulk-carrier construction contract with a shipbuilding company; also, on April 13, 2010, the subsidiaries entered into two bulk-carrier construction contracts. The related information was as follows: Purchaser Date of contract Total price Date of delivery Price paid CTD April 13, 2010 1,953,060

(US$64,500,000)January 2012

(note) 979,134 (US$32,336,000)

CPN and CPT September 28, 2007, and April 9, 2010

4,027,240 (US$133,000,000)

August 2012 and February 2013

(note)

1,503,069 (US$49,639,000)

Note: These are the estimated dates of delivery.

(d) The Company had issued guarantee promissory notes amounting to $3,102,100 as of December 31, 2011 and 2010, for bonds payable.

(e) As of December 31, 2011, the Company still had several long-term leases of its ships with customers in effect. The ending periods of the contracts are from March 2012 to February 2017.

(20) Subsequent Events

(a) The Company entered into an agreement to sell a bulk-carrier to a related party amounting to

US$13,500. The ownership and selling price had been transferred and collected in January 2012. The transaction is summarized in notes 8 and 17.

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(Continued)

(b) The Company entered into an agreement to sell the land and building to a related party amounting to US$4,500. Above receivable had been collected in January 2012. The transaction is summarized in notes 8 and 17.

(c) The bulk-carrier of the subsidiary Company of CMT HK and CTD had launched into business in

January 10, 2012. (d) The subsidiary company of the Company, Kimen Development Corp. (KDC), decided to dismiss

itself based on the board of directors’ revolution on December 20, 2011, and be settled on February 24, 2012.

(21) Others

(a) Employee expenses, depreciation expenses, and amortization expenses for the years ended

December 31, 2011 and 2010, were as follows:

2011

Operating costOperating expenses

Total

Employee expenses Salaries and wages $ 33,948 91,302 125,250 Labor and health insurance 1,946 3,992 5,938 Pension expense 1,394 7,807 9,201 Other 2,259 3,064 5,323

Depreciation expenses (note) 55,505 9,230 64,735 Amortization expenses 12,547 1,003 13,550 2010

Operating costOperating expenses

Total

Employee expenses Salaries and wages $ 10,411 102,519 112,930 Labor and health insurance 656 5,251 5,907 Pension expense 487 13,219 13,706 Other 714 3,309 4,023

Depreciation expenses (note) 25,633 8,881 34,514 Amortization expenses 4,022 1,459 5,481 Note: excluding the deduction of rental income of $527 and $541 for the years ended December 31, 2011 and 2010, respectively.

30



(c) Significant foreign currency financial assets and liabilities were as follows (in thousands):

December 31, 2011 December 31, 2010 Foreign

currency Exchange rate

NTD

Foreign currency

Exchange rate

NTD

Financial assets:

Long-term investments under equity method –

USD 279,554 30.28 8,464,882 265,305 29.13 7,728,337 (22) Segment Information

The Company has provided the operating segments disclosure in the consolidated financial statements.

chinese maritime transport ltd. financial statements ...cmt.tw/html/100fs4_e.pdf · chinese...

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